Real Estate Sales and House Prices
- US Housing Slump Continues - Boom Bust Cycle - Silicon Valley Housing Market Report / Housing-Market (Market Oracle, Jan. 29th): "Some time in 2007 the prices should be down more than 10%, YoY, and down 15-20% from the peak in June-July 2006… Thus far, listings are up 25% and the listing price is down 10%, YoY. Things could get [a] lot worse in another two months when the supply-in-the-waiting comes to the market and all those new homes that got started in the second half of 2006 get completed for the spring selling season. The slowdown in permits and starts wouldn't have any material effect until later in 2007."
- The Housing Paradox Could Mean Further Price Erosion (Caleb Sevian in Seeking Alpha, Jan. 29th): "Towards the end of the year housing appeared to have settled, and may even have appeared to bottom…We are now set up for an interesting paradox: for housing to stabilize we need interest rates to fall, but the only way that interest rates will fall is if the economy deteriorates -- perhaps crimping the consumers’ ability to afford a new home. This paradox sets the stage for further home price deterioration. As anecdotal evidence, the Case-Shiller Housing Index, which projects future home prices, is anticipating a 4% decline in housing prices by the end of the summer."
- Housing Slump Short-Lived? (Daytona Beach News, Jan. 27th): "Federal Home Loan bank economist: Median housing prices in the Daytona Beach area soared 128% between 2005 and 2006… Daytona is one of 90-plus metro areas considered significantly overpriced… [He cites] the law of supply and demand: The nation's household growth and aging of its housing stock require about 2 million new homes each year, but for the past two years, builders have turned out 2.2 million homes annually. Not surprisingly, sales of new homes last summer ran 21% below the boom period of the summer of 2005."
- Private Properties: Real Estate Briefs Of The Rich And Famous (Post Gazette.com, Jan. 26th): "Unable to sell his Beverly Hills, Calif., estate for almost a year, billionaire investor Kirk Kerkorian has cut $7 million, or 28%, off the price. He's now asking just under $18 million for the 30-acre property… The Los Angeles County home market has had mixed results in recent months. Sales volume there fell 12.9 percent in December compared to a year earlier, according to the real-estate research firm DataQuick. But the median selling price of a home rose 6.5 percent to $522,000."
- Houston December Sales Broke Real Estate Records (San Antonio Express, Jan. 26th): "Houston Association of Realtors: Houston real estate sales rose for the 15th straight month in December… 7,136 total property sales recorded last month in the metro area, a 1.1% increase over December 2005. Sales of both new and existing single-family homes, which now have posted growth from their year-earlier levels for the 35th straight month, came in at a record 5,884 in December, up 2.3% from last year's 5,752. The overall median price of a single-family home also hit a new high in December at $150,000, up 1.4% from a year ago."
- Garfield County Real Estate Sales Hit $1B In '06 (CBS4Denver, Jan. 26th) Glenwood Springs, CO: "Real estate sales in Garfield County surpassed the $1 billion mark last year… Land Title Guarantee Company reported $1.04 billion in real estate transactions in 2006 in the county. That's a 21% increase from 2005, when there were $855 million worth of transactions. The number of units sold in Garfield County also increased in 2006 to 2,852, from 1,873 in 2003. Sotheby's: Much of Rifle was a hotbed for real estate activity, where the oil and gas boom has led to a huge influx of residents to the area."
- State's Unsold Home Inventory Index Eases In December (East Bay Business Times, Jan. 25th): "Home sales decreased 15.3 % in December in California compared with the same period a year ago, while the median price of an existing home increased 3.7 %. Statewide, the 10 cities and communities with the highest median home prices in California during December 2006 were Los Altos, $1.46 million; Burlingame, $1.33 million; Manhattan Beach, $1.28 million; San Juan Capistrano, $1.17 million; Santa Barbara, $1.01 million; Danville, $995,000; Los Gatos, $970,000; Rancho Palos Verdes, $947,500; San Clemente, $916,000; and Santa Monica, $833,000."
- After Years Of Sputtering, Silicon Valley Economy Revs Up (San Luis Obispo.com, Jan. 29th): "Silicon Valley's economy has revved up thanks to plucky Internet and alternative energy startups, according to a new report. Local technology companies created 33,000 new jobs last year - the first increase since 2001, a year after the dot-com downturn. The region's median household income jumped 6.5 % from 2005 to 2006, to $76,300 - the first uptick since 2001. It decreased 13 % from 2001 to 2004… [But] housing costs force many families out of state."
Mortgates and Real Estate Lending
- Comparing Mortgage Markets (Paul Kedrosky in Seeking Alpha, Jan. 28th): "L.A. Times: A comparison of cross-national differences in mortgage markets… Great Britain: Variable-rate mortgages dominate… the English version of our adjustable-rate mortgages. But unlike our ARMs, which usually come with annual and life-of-the-loan caps that protect borrowers against uncontrolled spikes in their monthly payments, those in Britain are held in check solely by the competition. When market rates change, lenders in the United Kingdom review what their borrowers are currently paying and decide at their own discretion whether to raise or lower the rate. But if lenders adjust too much (or more than their competitors), borrowers take their business elsewhere."
Global Alternatives To The U.S. Housing Slump
- Warburg Pincus to buy into Shanghai ZK Real Estate (Reuters.com, Jan. 30th): "U.S. private equity firm Warburg Pincus has agreed to buy a 25% stake in Shanghai ZK Real Estate Development Co. Ltd. for an undisclosed amount… Under the deal, ZK Real Estate would issue new shares to Warburg Pincus… [And] Warburg would provide at least $30 million for housing projects invested and managed by ZK Real Estate…WP: "More overseas investors are investing into China's real estate sector despite Beijing's measures to cool the sector... Tokyo-based property banking and investment firm New City Corp. is close to acquiring a major logistics facility in Shanghai, its first foray into China's real estate sector."
- China 2007 Zinc Consumption Seen At 30% Of World Total, Up 6.9% - Numis (Forex TV, Jan. 30th): "Zinc, hovering around $3,700/ton recently on the London Metals Exchange, sees 47% of its stocks in China go to the production of rust-proof galvanized steel used in industrial, commercial and residential construction. "Demand is highly dependent on the automotive and construction industries, and has been benefiting from the Chinese growth story… Prices may go even higher this year thanks to strong demand and the potential for more market speculation… Zinc prices are currently well below the $4,600/ton high of December, having fallen in response to US manufacturing data, which triggered a correction in other metals including copper."
- Real Estate Is Going Global (Black Enterprise, Jan. 29th): "Mutual funds [that] focus on foreign property stocks: Alpine International Real Estate (EGLRX)… Over the past four years, it returned a torrid 35% annualized… Fidelity International Real Estate (FIREX) gained 15% in 2005 and 33% in the first 11 months of '06… Northern Global Real Estate Index (NGREX} tracks the FTSE EPRA/ NAREIT global index of more than 300 stocks, weighted 50% U.S. and Canadian, 30% Asian and 20% European… Cohen & Steers Asia Pacific Realty is currently focusing on companies in Hong Kong, Japan and Australia. It's the only fund dedicated to Asian real estate."
- Merrill Lynch, Deutsche Bank, Temasek Invest In Hengda Real Estate (MarketWatch, Jan. 28th): "Merrill Lynch & Co. (MER), Deutsche Bank AG (DB) and Singapore's Temasek Holdings (TEMAH.YY) invested US$400 million for an 8% stake in Chinese property developer Hengda Real Estate Group, the state-run Shanghai Securities News reported Monday. Hengda Real Estate may attract another US$500 million in a Hong Kong IPO from overseas investors before its planned overseas initial public offering… HSBC Holdings PLC, Citigroup and UBS AG are also in talks with Hengda Real Estate over a possible strategic investment."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Vacant Homes on the Market Hit Record 2.1 Million (Seeking Alpha, Jan. 30th): "Census Bureau: The number of vacant homes on the market swelled 34% to 2.1 million at the end of 2006 versus the end of 2005, the fastest increase ever. The vacancy rate for owned units set a record at 2.7%, up from 2.0% a year earlier. That rate has not been above 2% for forty years. The report implies significant excess supply in the housing market… In 2006…the percentage of homes occupied by their owners was flat at 68.9%. Excess supply is likely to lead to an increase in homes available for rent, which should drive rental prices down and reduce core inflation."
- Owens Corning: Think Pink to Stuff Your Wallet With Green (Todd Sullivan in Seeking Alpha, Jan. 29th): "Owens Corning is the world leader in both commercial and residential construction, BUT only 60% of this segments earnings come from new construction. The rest is from repair and international sales. Insulation is 30% of total revenue... Only 21% of Asphalt roofing sales (28% of total revenue) are from new residential construction. The rest is commercial as residential repair. The repair business should see no slowdown, if you need a new roof… there is no putting it off… Building Materials: (19% of total revenue) OC is N. America's leading supplier of exterior siding and exterior/ interior stone for both residential and commercial construction. Only 55% of this segments business is from new residential building."
- Bring On The Housing Slump (Los Angeles Times, Jan. 28th): "Working and middle-class families are moving out — and failing to move in — because they cannot afford a house here… As perverse as it sounds, what L.A. needs now is a real estate bust. By last year, less than 15% of L.A. families could afford to buy a median-priced home of about $500,000… The big, rapid declines in property values in the early 1990s… [enabled] homeownership for a new generation, many of them immigrants. New owners of delinquent or moribund commercial properties, especially downtown, fueled a spike in business activity, much of it stemming from immigrant and minority entrepreneurship."
- Interest Rates: Is It Time For A Hike? (CBS News, Jan. 28th): "The Federal Reserve is meeting again this week… some say a rate hike would not be a surprise.. The Federal Reserve is currently faced with an economy that hasn't slowed down, which may force them to raise interest rates... Ray Hennessey, editor of SmartMoney.com: The Federal Reserve has misread the housing market. They've overestimated the impact of the housing slow-down. It wasn't this bubble bursting... And it hasn't been catastrophic." Because the change wasn't as dramatic as the Federal Reserve assumed it would be, the economy is still doing well."
- Home-Related Goods Sector Feels Housing Market's Pain (Chron.com, Jan. 27th): "Retailers still will feel the [housing slump] impact this year… Shrinking sales growth at U.S. stores that offer home-related goods pulled down the nationwide holiday gain to a smaller-than-expected 4.4%, from 6.1% a year earlier... Building materials, furniture and appliance stores posted sales of $583 billion in 2006, representing a quarter of all U.S. retail sales. Y/o/y sales growth slid to 2.7% in December from a jump of 16% last January… Williams-Sonoma shares dropping 27% in 2006… Sears suffered from a weaker housing market… Retail Forward: 32% of U.S. consumers spent more on home furnishings in 2006, less than the 38% in 2005… America's Research Group: A record 19% of consumers reported putting on hold purchases of $500 or more in December."
- Sherwin-Williams Paints 31 % Profit In 4Q (Boston.com, Jan. 26th): "Sherwin-Williams reported earnings increased 31 % in Q4 even though the maker and retailer of paint and wall coverings is seeing slowing demand in its new-home market and do-it-yourself businesses… Sherwin-Williams CEO: Paint stores increased profitability by more than 20% while absorbing costs associated with opening 48 stores during Q4 and 117 during the year… Improvements came in spite of slowing in the new-home market and softness in the do-it-yourself business… Sales over the first half of 2006 grew by more than 11 % and then slowed to about half that rate over the last half of the year."
Homebuilders And Housing Stocks
- Eagle Materials: Take Advantage of the Housing Weakness (Stephen A. Farrington in Seeking Alpha, Jan. 29th): "While we have not yet hit a bottom in the housing market, we may be starting to see the bottom taking shape on the horizon. Eagle Materials (EXP) could be a play off the weakness. I see limited downside with Eagle for a few reasons: [Insider buying]; Dividend protection ($0.70 yielding 1.464% as of the close on 1/25/07);11.82 P/E, and the 0.41 PEG, fall below industry average, suggesting undervaluation; While tied to the homebuilding sector with its wallboard production used for new homes, office construction and remodeling, Eagle also produces cement et al. for the construction sector."
Commercial Real Estate and REITs
- HEI Plans As Much As $1B in Buys, Builds (Globe St., Jan. 29th): "HEI Hospitality, LLC reports it plans to spend between $500 million and $1 billion to expand its hotel portfolio this year via acquisitions and new development projects… [and] also combining its hotel ownership division with its… subsidiary Merritt Hospitality under a new name: HEI Hotels and Resorts. Ted Darnall, the former president of Starwood Real Estate Group will head HEI’s management operations… Gary Mendell, HEI CEO: “We have acquired more than $2 billion in hotel-related real estate in the past four years…We remain committed to investing approximately $500 million to $1 billion a year for the foreseeable future."
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