Housing Bubble and Real Estate Market Tracker

by: Judy Weil

Here's our summary of articles and data points on the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can get this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Real Estate Sales and House Prices

  • N.C. Housing Market Still Wait-And-See (Charlotte Observer, Jan. 31st): "NC Realtor's Ass'n: Sales of existing homes in North Carolina defied national trends in 2006, increasing 3% overall compared with 2005… The average existing home price statewide also was up: 2% in 2006 to $214,952… The Charlotte region showed 13% sales increases, while MLS agencies in coastal N.C. areas reported drops, mostly due to declines in second-home sales…. A slowdown in North Carolina won't look like steep drops in some other states… The combination of affordability and job growth assures the real estate market remains strong in 2007."
  • Bears and Colts Team Members Are Also Savvy Real Estate Investors (Trans World News, Jan. 31st) Miami: "Century 21 broker Katerina Brosda is extremely busy this week showing condos and investment properties to some Bears and Colts team members [in town for the Superbowl]. Prices were up, both in Broward and Dade County for 2006; in Broward County even a whopping 10% despite all the media-generated angst of a potential housing bubble. Brosda: “Strip malls and rental apartment complexes are hot items for these football players and businessmen… Miami is… one of the fastest growing cities in the past and certainly of the future."

Housing Affordability Impact

  • First Spitzer Budget Includes Property Tax Cut (Auburnpub.com, Jan. 31st) New York: "Spitzer called for a $1.5 billion subsidy for property tax relief in the fiscal year beginning April 1, $2 billion in 2008-09 and $2.5 billion in 2009-10.“Soaring property taxes are devastating to our state's families and our economy as well,” Spitzer said of New Yorkers, who pay the highest combined taxes in the nation. “In the past five years, real property taxes have increased 32%- fully 3½ faster than wages have increased…” Spitzer would also relieve local governments and schools of state mandates that have driven up local costs of operation and construction, forcing higher local taxes."
  • Jurisdictions Aim To Increase Workforce Housing (HUD Newsletter, Jan. 31st): "The limited supply of affordable housing leaves essential employers struggling to attract and retain employees who are willing to work in Naples. Within the past year, more than two dozen people turned down employment opportunities at the local hospital because they could not afford to live in the area... The affordable housing shortage is beginning to have a diminishing effect on residents’ quality of life. Commuters are pushing roads past capacity, and restaurant and retail services are deteriorating because employers cannot find people who are willing to work in the area."
  • County's Economy Likely To Slacken (Sun News, Jan. 31st): "Sandifer said the total value of all property in the county, which stood at just over $14 billion last July, will probably hit $30 billion when tax bills go out soon, reflecting this year's revaluation... If there is a potential cloud on the county's horizon, it is that the Wilmington area housing market has been identified by the Federal Deposit Insurance Corp. as under a watch for a housing bubble."

Mortgates and Real Estate Lending

  • Bank of America CEO Quashes Buyout Rumors (Seeking Alpha, Feb. 1st): "Bank of America CEO Ken Lewis quashed rumors that BAC was in buyout/merger negotiations with Countrywide Financial, after rumors last week that BofA was in discussions with the mortgage lender for either a deal or a joint venture. Lewis called it "unlikely" that BofA would acquire any rivals this year… federal law precludes U.S. banks from owning more than 10% of the country's deposits, and BofA already has 9%. He also said that while BofA would gladly sell more mortgages, it doesn't like the industry's model… preferring organic growth to buyouts."
  • JP Morgan To Cut Back On Subprime Mortgages (Spokesman Review, Jan. 31st): "JPMorgan has sold off most of the subprime mortgage loans it made last year… CEO James Dimon: "Mortgages are the one area of subprime lending where we really see something taking place that looks like a recession." JPM still held $13.2 billion in subprime mortgages as of Q4, down from $16.3 billion in Q3… [And] classified $4.5 billion of its subprime mortgage loans as up for sale. In Q4, net charge-off rates on subprime mortgage loans leapt to 0.6% from 0.1% in 2005… Dimon: "Even if defaults spiked to recession-like levels, it would probably only boost JPMorgan's credit costs by about $100 million a year."
  • News And Views (Minyanville, Jan. 31st): "JP Morgan… the latest firm to cut its exposure to subprime mortgages... The cuts are not an abandonment of the subprime market, however, as the firm continues to hold $13.2 billion in subprime mortgages, the Associated Press reported. Dimon said that if mortgage loans become cheap enough, the firm would consider buying multibillion-dollar portfolios from other lenders."
  • A Buyers Market (Central Florida News, Jan. 30th): "FBC Mortgage: In addition to the prices going up, we've seen insurance rates almost double, and with the purchase prices going up, the properties are being assessed at a higher price and property taxes are going up…The cost of rising insurance rates and taxes have added up to an average 8% increase in the annual cost of owning a home… What can a homeowner do with an adjustable rate mortgage? Refinance. Refinancing can result in closing costs again but in the long run, with interest rates on the rise, you may save money in the long run."
  • Old National Earnings Down For Quarter, Up 1 Percent For Year (Courier Press, Jan. 30th) Indiana: "Quarterly profit at Old National Bancorp (NYSE:ONB) dropped slightly, but CEO Bob Jones said the company's tighter credit standards are beginning to show positive results. Loan chargeoffs in 2006 were at the lowest level in four years. "We've taken a bearish approach to some commercial loans… Weaknesses in the commercial real estate sector, partly due to evidence that the region is showing signs of overdevelopment, are leading the bank to be "cautious" in who it is loaning money to… Given the bank's "commitment to high credit standards, we may be challenged to grow the commercial real estate portfolio during 2007."

Global Alternatives To The Housing Slump

  • Foreigners Buy $450 Million In Turkish Real Estate Shares (Turkish Daily News, Jan. 30th): "In the last two years, some 600,000 people have become homeowners in Turkey, motivated to capitalize on [low] interest bank loans-- as low as 1%... Investors have also taken advantage of the growth in Turkey's real estate sector… Foreigner investors now own 29.5% of the public shares of 10 [real estate] firms. The total market value of these firms has reached $1.5 billion… İhlas GYO sold 30.69% of its shares to Yeşil İnşaat and the U.S. firm Rudolph Younes last August, making Rudolph Younes a 15.34% direct partner."

Macro Impact, And Will The Housing Slump Cause A Recession?

  • Rinker's Earnings Rise 13%, Pressuring Cemex To Lift Bid (Wall St. Journal, Jan. 31st): "Rinker Group's fiscal Q3 earnings jumped 13% despite the weak U.S. housing market, renewing pressure on Mexico's Cemex SA to increase its US$11.7 billion takeover offer. Australia's largest maker of building materials said its net profit for Q4 rose to US$181.6 million from US$160.7 million a year earlier. A slowdown in housing construction in the U.S., where Rinker generates 80% of its sales, has crimped earnings growth… Staring down a US$13 a share offer from Cemex… Rinker said fiscal Q3 sales rose 4% to US$1.29 billion, while operating income increased 8% to US$269 million."
  • Economy Sees Sudden Growth In Final Quarter Of 2006 (York Dispatch, Jan. 31st): "Spending on construction projects around the country dropped 0.4% in December, after edging up in November, mostly reflecting fallout from the housing slump. Investment in home building during Q4 plunged at a rate of 19.2%, even worse than the 18.7% drop in Q3. Both were the worst drops in 15 years. The drop in residential building in Q4 shaved 1.16 percentage points off GDP. In Q3, it sliced a bigger 1.20 percentage point off of overall economic growth. That led to hope that the damage to the economy from the housing slump might be easing a bit."
  • How The American West Is Being Won And Lost (New West, Jan. 30th): "Jonathan Schechter, opened New West’s Real Estate and Development Conference… with one of the more provocative analyses of why some communities are prospering—and likely to be buffered somewhat from a deflating real estate bubble nationally—and why others may not… "The new mobility of workers is driving any number of phenomena we’re seeing from growth to real estate price increases to changes in local economies and community character. The pace of this change is so rapid that most people don’t understand it.
  • The Lumbering Opportunity That Ripened In A Bubble (Elliot Wave Int'l, Jan. 29th): "Today's best housing-related opportunity in commodity futures [more] than debt or real estate markets… The trend in lumber prices is tomorrow's news. Lumber Prices InvestmentDuring the entire [housing] boom – from the end of the S&L crisis in the early 1990s onward – lumber moved sideways, bouncing back and forth within a well-defined and ever-tapering range…During that period lumber prices have traced out a "contracting triangle" corrective pattern. As with all corrections, this one should give way to an impulsive resolution… Evidence is mounting to suggest that 2007 will be a pivotal year for one side of the Lumber market."
  • Loggers Finally Able To Get Into The Woods (WCAX Vermont News, Jan. 29th): "Vermont loggers, unable to harvest, left a shortfall of about 100,000 cords-- a loss of 25%. The "primary forest products" industry has been hurt the worst. "That's from the stump to the sawmill--landowners, foresters, truckers and sawmill owners… Loggers aren't logging, which means truckers aren't trucking, which means sawmills don't have material." Losses to the $200 million-a-year industry were estimated at $35 million, including $5 million to landowners, $8.5 million to loggers, $375,000 to truckers and $20 million to sawmills. Forest products is the second-largest manufacturing industry in the state."
  • Bill Would Help Area Loggers Recoup In Crisis (Grand Rapids Herald Review, Jan. 29th): "St. Paul - A bill that would allow loggers to recoup down payments on land they can no longer afford… gives authority to the Executive Council to renegotiate logging contracts in the case of an industry emergency such as the current timber crisis… The bill [is] to encourage quicker transitions to more competitive priced logging contracts. The logging industry experienced big trouble after inflated costs, exacerbated by the housing bubble [burst] last year. Loggers find themselves with contracts they cannot fulfill at current prices. Almost $100 million in contracts are waiting to be cut, according to numbers provided to the committee."

Homebuilders And Housing Stocks

  • Pulte Homes Falls to #4 Homebuilder on Weak Earnings (Seeking Alpha, Feb. 1st): "Pulte Homes posted weak Q4 results all around... Full year earnings fell to $14.3b ($2.67/share), compared with $5.47 in 2005. Some silver linings -- a 7% average selling price increase to $337,000; a slight decline in cancellations from Q3 (35.8%) to Q4 (34.7%); and PHM's improved financial services revenues -- $59.7 million in Q4'06, up from $52.5 million in Q4'05. Which prompted CEO Richard Dugas to note, "promising signs of stabilization… although it's too early to tell how strong and sustainable this may be."
  • One Not-So-Rosy View Of Seattle-Area Home Prices (Seattle PI, Jan. 31st): "Peter Orser, president of Quadrant Homes, Washington's largest house builder, said Tuesday that his company has not canceled any contracts or options for developable land, as has happened with billions of dollars in contracts nationwide… Quadrant aims to start and sell six homes every day… While sales fell off in December because of poor weather, the company already has exceeded its goal for January. The Northwest is "demonstrating a resistance to what's happening in the national market" largely because the region's price increases in recent years paled in comparison with those in other parts of the country."

Commercial Real Estate and REITs

  • Gale International And Vornado Realty Trust Joint Venture Complete $100 Million Acquisition Of Boston Filene's Property (PR Newswire, Jan. 30th): "Gale International and Vornado Realty Trust (NYSE:VNO) today announced that their 50/50 joint venture has completed the acquisition of Boston's historic Filene's property for approximately $100 million. The planned $600 million, 1.2 million square feet redevelopment of the Filene's complex is key to the revitalization of the Downtown Crossing area, which sits between the financial district and Boston Common. The developers envision a 38-story tower at the four-building site that would include retail, luxury condominiums, a 250-room 4-star hotel and 600,000 square feet of offices."
  • CoStar Lead Street (Jan. 28-Feb. 3): Hotels To Go (CoStar Group, Jan. 30th): "Extreme Networks has cancelled plans to sell its headquarters campus in Santa Clara and relocate. CEO Mark Canepa: "Following a review of the current residential and commercial real estate market in the Santa Clara area… Market conditions are such that the sale of the campus and the relocation of the organization is not the right thing to do at the present time. The residential market is weak, and leases for commercial real estate are continuing to strengthen. We would foresee a substantial negative P&L impact of executing this transaction at the present time."
  • Jones Lang LaSalle Reports Record Earnings; 2006 Net Income of $176 Million, $5.24 Per Share (PR Newswire, Jan. 31st): "Jones Lang LaSalle Incorporated (NYSE:JLL) , the leading integrated global real estate services and money management firm, today reported record net income of $176 million, or $5.24 per diluted share of common stock for 2006… An increase of 70% over the prior year's net income of $104 million, or $3.12 per diluted share. Full revenue for 2006 reached $2.0 billion, an increase of 45% and the product of strong growth in all operating segments. Operating income for 2006 was $244 million compared with $132 million for the prior year, an increase of 85%."

Web Site of the Day

HUD InvestmentFinancial markets are strongly tied to the state of the housing market, as an indicator of how the general economy is doing. The effect on financial markets is seen in the way the market reacts to government data that is regularly publicized.

It would be nice to get that information beforehand... But since that's not going to happen, the closest thing would be to have access to the data the U.S. government uses to number crunch and base important market decisions upon. The HUD is one such source of information, and they have it down to a fairly simple system.

The HUD's Comprehensive Housing Market Analysis is a useful tool in researching the state of the housing market in cities around the U.S.-- anywhere from Pueblo, Colorado to Kalamazoo, Michigan. The analyses [in their words] "should prove useful to builders, mortgagees, and others concerned with local housing conditions and trends. For each analysis, HUD economists develop a factual framework that takes into account changes in the economic, demographic, and housing inventory characteristics of a specific housing market area during three periods: from 1990 to 2000, from 2000 to the as-of date of the analysis, and from the as-of date to a forecast date. The reports present counts and estimates of employment, population, households, and housing inventory."

An excellent source of historical and current investor information, and new cities are added regularly.

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