Real Estate Sales and House Prices
- Reassessment Shocker (Baltimore Sun, Feb. 4th): "Baltimore City homeowners saw some of the region's steepest increases in the recent round of property reassessments… after years of lagging home values… In the city, which has the highest property tax rate in the state, nearly one in five reassessed homes saw values at least double since they were last evaluated three years ago… In the suburbs… [the] average assessments rose at least 40% in every reassessed ZIP code, even ones heavy with million-dollar homes. Across the region, the gain in assessed values outpaced the rise in sale prices over the same period."
- Economist: State's Outlook is Robust (Billings Gazette, Jan. 31st): "Montana's relatively strong construction and housing sectors…The average monthly rent for a 2BR apartment ranges from a low of $281 in Malta to a high of $1,107 at the Big Sky resort… The average conventional mortgage for a 3BR house, including property taxes, runs $553 a month in Plentywood and hits a high of $3,715 in Big Sky… Last year, existing homes on the city's South Side sold for $101,000 on average.... Heights homes sold for an average of $179,000, Northwest Billings homes averaged $237,000. New-home values in the West End rose 25% in 2006, while Heights homes were up 7%."
Real Estate Investing and Sentiment
- Prepare for a ‘Repricing’ of the U.S. Housing Market (The Daily Reckoning, Jan. 31st): "U.S. property prices… went down in WWI and kept going down for 70 years or more. Only in the last 10 years have they gone back up - returning to their 1914 high only in 2005. The idea of ever-rising house prices is so deeply rooted that people… they think that if they hold onto the position, the time will come when it will be a good investment again. Yet, if it is true that housing follows very long patterns with a cycle as long as 120 years - they might wait a long time."
- Billionaire Bullish on Investing in Realty (Sign On San Diego, Jan. 31st): "Billionaire real estate investor Sam Zell: “This… extraordinary wave of liquidity, not just in the domestic U.S., but on a worldwide basis… will exist for six to eight years, until growth catches up. There's so much money looking for brick-and-mortar assets that buyers are willing to take lower returns than they would have a couple of years ago. Real estate looks attractive to investors… because buildings still can be purchased for less than it would cost to build new… Analysts: Returns—or capitalization rates – [are] as low as they can get. But Zell believes they could sink even further. "
Mortgates and Real Estate Lending
- Young Buyers, Prepared and Fearless (NY Times, Feb. 4th): "National Association of Realtors: Nearly 65% of first-time home buyers finance more than 95% of the cost. A first-time buyer is also far more likely to have a mortgage that begins with an attractive interest rate and adjusts periodically… The mind-set of younger buyers may dominate the patterns of buying in New York City for years to come. Their liberated attitude toward borrowing is helping to keep prices stable… Younger buyers are exposing themselves to more risk because they are taking on so much debt that if prices fell, they could be caught with no equity in their homes."
- SVB Financial: Likely Takeover Target - Barron's (Seeking Alpha, Feb. 4th): "When Merrill Lynch announced last week its $1.8b acquisition of First Republic Bancorp, SVB Financial shares jumped: If MER was willing to pay a 44% premium for FRC's wealthy clients, then SVB… is an attractive target. Its client base of VCs, Silicon Valley companies, and wineries would be difficult for a larger bank to replicate, and its clientele would benefit from the wide-ranging services inherent in big operations... Like all banks, an inverted yield curve hurts SVB, but it is less tied to residential mortgages and exposure to a stagnant housing market than most. Lending revenues should continue to outpace peers."
- Sixty-Five Per Cent Rise In Repossessions (Find-a-Property.com, Jan. 31st): "Council of Mortgage Lenders: The number of repossessed homes soared by a whopping 65% in 2006...Mortgage repossessions rose from 8,140 in the first half of 2006 to 8,860 in the second half… The total for 2006: 17,000 – 65% higher than in 2005… roughly 1 in 690… A trend the CML expects to strengthen in the coming months… to 19,000 in 2007 and 20,000 in 2008 as higher interest rates hit home… The number of mortgages more than six months behind on payments fell by 8.5%, from 49,010 at the end of 2005 to 44,840 at the end of 2006."
- Bank Shares Fall After Earnings Report (Mlive.com, Jan. 31st): "Independent Bank Corp.'s ominous statement from its earnings report: "The growth in consumer and real estate mortgage nonperforming loans primarily reflects weak economic conditions in Michigan, which have resulted in increased delinquencies, bankruptcies and foreclosures." CFO: The state's dicey real estate market and the inability of developers to sell or lease properties as expected led to a big increase in the number of iffy [commercial] loans in the company's portfolio. The company's ratio of nonperforming loans to total loans more than doubled to 1.58%. Other West Michigan banks, including Macatawa and Mercantile, have seen similar, though not as dramatic, increases."
- Applications On The Rise (Originator Times, Jan. 31st): "The four week moving average for the seasonally adjusted Market Index is up 2.2% to 645.2 from 631.3. The four week moving average is up 0.1% to 430.8 from 430.5 for the Purchase Index, while the average is up 4.0% to 1939.7 from 1864.7 for the Refinance Index. The refinance share of mortgage activity decreased slightly to 47.4% of total applications from 47.8% the previous week. The adjustable-rate mortgage share of activity increased to 21.4 from 20.3% of total applications from the previous week."
- Despite Upbeat Economy, Some Still Worry (Florida Today, Jan. 31st): "Money issues… may be getting worse because of housing costs and related expenses, such as insurance and property taxes… Seeing a need for further action… Florida Gov. Charlie Crist issued an emergency order this week for home insurance companies to temporarily freeze rates and halt policy cancellations. Roy Bush, director of the nonprofit Consumer Credit Counseling Service in Melbourne, said his office has seen a recent increase in the number people coming in for help with overwhelming debt, including some on the verge of defaulting on their home mortgages and filing for bankruptcy protection."
Global Alternatives To The Housing Slump
- Investing in Indian Real Estate (Amitabh Kumar in Seeking Alpha, Feb. 4th): "Non-Resident Indians (NRIs)… participate in real estate investments by way of huge investments in the construction of residential and commercial projects, development of townships at city and regional level, constructing infrastructure facilities like roads and bridges in urban areas and investment in participatory ventures… NRIs also get complete support from the financial institutions and banks for the finance required for the purpose of investment in properties in India. NRIs are eligible for availing a home loan facility to purchase a property in India."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Why There's No Such Thing As a Housing Bubble (Clay Kime in Seeking Alpha, Feb. 5th): "During Q3'05… Inventories of available homes had equalized with demand. But with home buyer’s affordability eroded by the Fed’s rate hikes, nearly half of the potential buyers necessarily headed for the side-lines… Inventories quickly grew… It was not until the current quarter (Q4'06) that average list prices began to decline to meet buyer’s affordability. From Q3'05 through Q3-06 we witnessed nearly half of the available properties were either withdrawn from the market, or converted into rental properties. This pattern has begun to ease the large inventories of competing homes and re-direct the trend toward balance of supply and demand."
- The Fed: It's a Goldilocks Economy (Business Week, Feb. 3rd): "The Fed said recent indicators have suggested "somewhat firmer economic growth" amid "some tentative signs of stabilization" in the housing market. The view in December had been gloomier—economic growth had "slowed" and this reflected a "substantial cooling" of the housing market, with "mixed" economic indicators, though the economy was still expected to expand at a "moderate pace over coming quarters". This last view carried over to the January statement. But at the same time, the Fed said "readings on core inflation have improved modestly," which eclipsed the previously held opinion that core inflation remained elevated."
- Considering Housing Vacancy Rates In Terms of Supply and Demand (David Andrew Taylor in Seeking Alpha, Jan. 31st): "The latest quarterly data on housing vacancy rates from the Census Bureau shows the vacancy rate for owner occupied housing hitting 2.7%. [Double] the 1.8% rate of two years ago. The vacancy rate for ownership units has never previously crossed 2%. More than 2 million ownership units are now sitting vacant… This is supply and demand at its simplest form…I still don't see a collapse in the United States' economy just because there's too much inventory on hand for homes in certain areas. I see a transition as we work through this inventory surplus. Nothing more."
- International Forecaster MidWeek Reading - Gold, Silver, Economy + More (Goldseek, Jan. 31st): "Many of Orange County’s boldest lenders are struggling… as their customers miss mortgage payments in record numbers. Subprime mortgages made in 2006 show borrowers missing payments already at the highest rate since 2000…The wealth effect and the psychology are gone. The business has slowed considerably and figures show lending support positions, including mortgage brokers, dropped 13% for the 12 months ended December, or a total loss of 1,800 jobs in Orange County, Ca. alone."
- Patrick Industries Acquires Supplier of Industrial Hardwoods Products (Yahoo Finance, Jan. 31st): "Patrick Industries, Inc. (PATK) announced it has acquired American Hardwoods, a supplier of hardwood products to the industrial markets… American Hardwoods supplies industrial wood products, including hardwood plywood, hardwood lumber, thermofused melamine and particleboard, to the kitchen cabinet, office furniture, commercial fixture, home furniture and garage cabinet industries. Patrick Industries CEO: "We expect the acquisition of American Hardwoods to be immediately accretive to our earnings... American Hardwoods reported approximately $18 million in revenue last year with positive earnings trends."
Homebuilders And Housing Stocks
- T-Bills Fall on Revived Housing Market (Builder Online, Feb. 1st): "Prices for U.S. Treasury bonds were dragged down Thursday by a report that… U.S. home sales rose 4.9% in December, suggested the housing market was stabilizing. The 10-year Treasury note was down $2.50 per $1,000 in face value, or 8/32 point, from Wednesday. Its yield, which moves in the opposite direction, rose to 4.84% from 4.81%.The 30-year bond fell 12/32. Its yield rose to 4.93% from 4.91%. The 2-year note fell 2/32. Its yield rose to 4.96% from 4.92%...The data back up suspicions among investors that the housing market may already have troughed and is starting to improve."
- Options Prices on Home-Builder Stocks Are Attractively Low (Smart Money.com, Jan. 31st): "To the derivatives strategists at Citigroup, the prices of options on home-builder stocks suggest that now is a good time to buy options on home-builder stocks. In a recent note to clients, the strategists said home-builder stocks have rebounded from last July's lows and yet still have implied volatilities that are at or near multiyear lows. This means prices are cheap for anyone who wants to bet on a snap-back rally or a further decline."
Commercial Real Estate and REITs
- Equity Office Weighs New Vornado Terms Before Vote (Bloomberg, Feb. 5th): "Vornado yesterday offered to accelerate its payment to Equity Office's shareholders, giving $56 a share in cash in about two months for as much as 55% of the outstanding shares, and the rest in stock when the merger closes. The total value of its bid for Chairman Sam Zell's Equity Office, the largest U.S. office landlord, remains $41 billion including assumed debt... Vornado said that because the cash tender wouldn't require approval from Vornado shareholders or from the U.S. Securities and Exchange Commission, the ``timing would be short and certain'' for its revised offer."
- Simon JV Tops Brookfield in Mills Bid (Globe St., Feb. 5th): "Simon Property Group and investment firm Farallon Capital Management are offering $24 per share to acquire shopping-center owner the Mills Corp. The deal tops the $21 per share, or $7.5 billion that Brookfield Asset Management had offered last month… Farallon already owns about 10.9% of Mills’ outstanding shares, making it the largest single reported shareholder of the company… As part of their proposal Simon and Farallon are offering $650 million in equity and plan to replace a $1.55-billion loan with financing that will include a working capital facility."
- Developer Behind The Crescent Stays Ahead Of The Curve (Jewish Light Online, Feb. 2nd): "Real Estate developer Mark Mehlman's latest project, [is] the mixed-use condominium complex The Crescent… a $73 million, mid-rise complex with 72 luxury condominiums and 26,000 square feet of retail space." The Crescent is still under construction… Mehlman hopes to build a $100 million retail, hotel and office complex adjacent to The Crescent… He asked the Clayton City Council to consider approving $20 million in public subsidies, including $15 million in tax increment financing for the development… People that live in Clayton will patronize the restaurants and retail businesses in the Central Business District."
- Starwood Hotels & Resorts Q4 2006 Earnings Call Transcript (Conference Call Transcripts, Seeking Alpha, Feb. 1st): "We're in discussion with a few world-class developers about partnering with us on [Sheraton Manhattan], and we expect that in the next six months, we'll be announcing a dramatic operation to that hotel… We know that the real estate is very, very valuable and we're really excited about the interest level... We're pursuing this in a thoughtful way… to make sure that we maximize the value associated with the property that we think is truly unique not just for hotel use, but for retail use and for office base and a variety of other mixed use opportunities."
- BFC Financial to Acquire Levitt Corp. (Memphis Business Journal, Jan. 31st): "Levitt Corp, parent company of Levitt and Sons and Core Communities, announced Wednesday that BFC Financial Corp.(BFC) is acquiring Levitt as a wholly-owned subsidiary [for] $286 million… Levitt (LEV) is the parent of Levitt and Sons of Tennessee, the largest homebuilder in Shelby County. Levitt CEO: "This tax-free transaction is intended to provide Levitt shareholders a significant market premium, while preserving their opportunity to participate in any future home building recovery. This transaction also provides Levitt additional strength and resources during a very challenging time."
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