Real Estate Sales and House Prices
- Farmland Prices Rise Faster than Some Manhattan and London Apartments (Int'l Herald Tribune, Feb. 20th): "Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years. Demand for corn used in ethanol increased the value of cropland 16% in Indiana and 35% in Idaho in 2006, government figures show. The price of a Manhattan loft rose 12%, while a London financial district pied-à-terre gained 11%, realtors said… The returns are attracting hedge funds and investment brokers. Hancock Agricultural Investment Group in Boston purchased $100 million of farmland in the past year, increasing its holdings by 13% to $865 million."
- Housing Bust Rebels (Business Week, Feb. 20th): "Affordable housing and booming job markets have helped some metros buck the national trend of stagnant home prices… The median home price in the Atlantic City (N.J.) area shot up almost 26%, to $339,800, marking the sharpest year-over-year increase of any U.S. metropolitan area. NAR: Atlantic City isn't the only place that appears immune to the U.S. housing "bust." Seventy-one other U.S. metro areas saw price gains in Q4'06 from a year earlier, including 14 metros with increases of 10% or more. Microsoft, Amazon and Boeing keep Seattle's real estate market chugging along."
- Home sales take a hit in New London County (Connecticut News, Feb. 20th): "Warren Group: Housing sales in New London County dropped nearly 20% in December… The median price for a single family home in New London County was $240,000, down from $245,900 the previous December. In 2006 overall prices rose an average 3.3% to $250,000… New Haven County lead the state with prices increasing by more than 9%. In Hartford County, prices crept up 2.5% while sales dropped more than 9%. Condo sales fell nearly 7%. Tolland County's sales also decreased by 8%. In Middlesex County sales fell by more than 11%."
- Home Sales Skid in January, Prices Still Climbing (Portland Business Journal, Feb. 20th) Oregon: "Compared with January 2006, Portland new listings were up nearly 20%, while closed sales fell more than 9% and pending sales by 2.2%... New construction was off... with 7% fewer properties listed as "proposed", "under construction" or "new construction"…The average sale price rose to $322,000, an increase of 8.4%, and the median sale price rose to $275,000, an increase of 12%. The average and median prices for new construction both increased 16%... Regional MLS: The inventory of 9,841 homes for sale would satisfy demand for approximately 6.2%, the highest level in recent years."
- There's Money to be Made by Investing in Online Real Estate (Chicago Sun Times, Feb. 19th): "Weblo makes money by selling virtual plots of land -- including municipalities, landmarks and ordinary addresses -- to willing buyers who purchase the intellectual property for reasons both speculative and nostalgic. Andy Jonson paid nearly $150 for Chicago, and collects taxes from the property owners who acquired virtual rights to the Sears Tower and Wrigley Field. Johnson: "I've managed to resell some properties, and so far this is doing better than my mutual funds…" California sold for $53,000 after it was initially purchased from Weblo for approximately $37,000… As of Jan. 31, more than 5,200 cities have been purchased worldwide."
Real Estate Investing and Sentiment
- Housing Starts Plunge Illustrates Challenge Of Calling A Bottom (Tim Iacono in Seeking Alpha, Feb. 20th) : "Home construction fell from a seasonally adjusted annualized rate of 1.643 million homes in December to a total of 1.408m January, far below expectations near 1.6m… and below August 1997 levels. In the West, housing starts fell by 28.5%. In the Northeast, gains of 8.9%, [contradicting] that this was a weather-induced slowdown. The two consecutive monthly increases (and declining inventory and historically low interest rates) during November and December led some to believe the housing slump was over. While one month does not make a trend, the most recent data roundly counters the notion of a new home construction bottom."
- NAR Hoping Semantic Games Will End Housing Slump (Tim Iacono in Seeking Alpha, Feb. 20th): "David Lereah, NAR’s chief economist, said it appears Q4 was the bottom for the current housing cycle. “This information confirms 2006 was the year of contraction, and hopefully Q4 was the bottom of this current business cycle"… NAR President Pat Vredevoogd Combs: "Since the typical owner stays in a home for six years, it’s more useful to look at the five-year comparison for metro area home prices – most of them are seeing strong gains. The median five-year price gain is 41.8%."
- A Flood of Foreclosures, but Should you Invest? (Market Watch, Feb. 18th): "Foreclosure investor Daryl White: The goal is to buy at 30% below the after-repaired market value -- half of the discount allows him to cover such expenses as holding costs and repairs while the other half earns him a profit… In the "changing market" near Los Angeles, houses are taking about three to five months to sell, which adds to holding costs. But even in a cooling market, a home that is priced right will sell… Pay careful attention to prices of comparable houses that are selling in a particular neighborhood. "
- Don't worry; Invest in Real Estate (Miami Herald, Feb. 18th): "Major tax savings from realty investment property. Although the high, runaway-market-value appreciation rates of the last few years for residential properties has shifted to a ''plateau'' in most cities, long-term realty investing still provides major tax benefits for owners who ''materially participate'' in operating their properties… An investor who owns less than 10% of a property partnership does not qualify, nor do owners of REIT's and owners of vacation homes who have their properties in ''rental pools'' managed by others."
Mortgates and Real Estate Lending
- Popular Still, Risky Loans Driving Lender Changes (Voice of San Diego, Feb. 21st): "Even as the [housing] market has slowed, the popularity of risky loans has spread. New data for San Diego County reveals that 67% of loans made in the first 11 months of 2006 were interest-only or negatively amortized. That means borrowers pay low introductory payments until a reset... significantly increases their monthly mortgage payment. Of that 67%, 30% were negative-amortization loans, a threefold increase since January 2004 and 30-fold jump since January 2003... Some [Lenders] are starting to tighten standards and more strictly enforce underwriting guidelines."
- Wells Fargo to Cut 250 Carolina Jobs (San Francisco Business Times, Feb. 20th): "Wells Fargo Home Mortgage, the mortgage unit of Wells Fargo & Co. (WFC), is eliminating 250 jobs in South Carolina because of a tightening of credit policy in its subprime lending business… On Feb. 16, the company decided to tighten its credit policy regarding subprime mortgage loans. That change will reduce the volume of subprime loans it originates and processes."
- The 'Mysterious Magic' of Subprime Lending Has Faded (Tim Iacono in Seeking Alpha, Feb. 20th): "Should loan losses climb, investors in mortgage-backed securities will also get burnt, especially those holding the riskier, higher-yielding bonds... Financial engineers turned the junkiest mortgages into high-grade, sometimes AAA-rated, securities… with the blessing of credit-ratings agencies, which made a profitable business out of rating these securities. But critics doubt the pooled loans were sufficiently diverse, or sliced up with sufficient art truly to have dispersed risk… The fear is that they all sit in the lap of a few big hedge funds. But the real casualties may be homeowners, who often took out risky loans they could barely afford."
- New Century, Other US Subprime Lenders Shares Drop (Reuters, Feb. 20th): "UK lender HSBC said customer defaults jumped at its U.S. operations … HSBC shares tumbled… California's New Century Financial Corp. (NEW) shares dropped 36%. The HSBC news also hit shares of H&R Block (HRB), which plans to sell its Option One subprime mortgage unit… [There's] concern that deterioration in the subprime sector will make it harder for H&R Block to shed its money-losing mortgage unit. A report on Friday said defaults on subprime loans that had been packaged into bonds were 10.09% in November, topping the 10.05% level reached in November 2001, at the end of the last U.S. economic recession."
Global Alternatives To The Housing Slump
- Bear Stearns acquires Crane Capital (Financial Times, Feb. 21st): "Bear Stearns continued its aggressive push into Europe on Tuesday, announcing that it had acquired Crane Capital Associates, a London-based group which raises money for private equity and real estate investment funds. Crane has offices across Europe, as well as in Tokyo and Melbourne. Bear Stearns executives said the acquisition was part of the bank’s efforts to build its advisory and fundraising business for financial sponsors outside the US."
- Citigroup Raises $1.29 Billion for First Asia Real Estate Fund (Bloomberg, Feb. 21st): "Citigroup Inc.'s property unit said it raised $1.29 billion for its first fund to invest in real estate and related assets in the Asia-Pacific region, with a focus on China and India. Citigroup, the largest U.S. bank, and its investment professionals committed $200 million to the fund, CPI Capital Partners Asia Pacific LP, according to a statement from the New York-based bank. Since the beginning of 2006, U.S. managers have raised more than $5 billion to invest in Asian real estate, according to Private Equity Intelligence."
- Carlyle Group to Buy Office Building in Sweden (Washington Business Journal, Feb. 20th): "Private equity firm The Carlyle Group, which typically invests in companies around the world, is doing the same with real estate.The D.C.-based company said Tuesday that it has agreed to acquire an office building in Stockholm, Sweden, for approximately $37.65 million... Carlyle is investing in the office building through its second European real estate fund, Carlyle Europe Real Estate Partners II. The roughly $1 billion fund closed in September 2005 and is 85% invested."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Housing 'Hangover' Kills Jobs as Spending Wanes; More Cuts Loom (Bloomberg, Feb. 21st): "Whirlpool Corp., the world's largest appliance maker, cut production after a drop in home sales reduced demand for new refrigerators, washing machines and dishwashers. Whirlpool fired 500 workers at its Evansville plant… New and existing home sales declines [have] depressed demand for products from copper pipes to kitchen sinks and resulting in the loss of about 100,000 jobs in… housing-related industries… Harvard study: Housing and related industries account for about 23% of the economy… By the end of this year, job cuts at companies including Whirlpool, Masco Corp. and Emerson Electric Co. may exceed the fallout from the 1991 housing slump."
- Housing Starts and Recessions: Gloomy Statistics (Barry Ritholtz in Seeking Alpha, Feb. 20th) :"Take a three-month moving average of single-family starts, at a seasonally adjusted rate. By that measure, starts have now fallen for 11 consecutive months, off more than 30% over that period. The only four other times (since 1959) that the figure fell for 11 consecutive months: 1. November 1973 was the 11th month. A recession began that month. 2. April 1980 (11th month). A recession began in January 1980. 3. November 1981 (11th month). A recession began in July 1982. 4. February 1991 (11th month). A recession began July 1990. These days, almost no one thinks a recession is looming."
- Home Depot Profit Falls on Housing Slowdown (Seeing the Forest, Feb. 20th): "Home Depot CEO Blake cautioned, however, that the company does not expect a dramatic turnaround in the housing market this year and said the company would give its financial outlook at next week's analyst meeting."
- The Home Depot F4Q06 (Qtr End 1/28/07) Earnings Call Transcript (Seeking Alpha, Feb. 20th): " Craig Menear, SVP Merchandising: "Plumbing, Electrical, Garden, Kitchen and Bath -- were less negative than the company average... The decrease in lumber prices throughout the quarter resulted in a negative impact to the department sales... We continue to see softness in big-ticket items like special order kitchens, millwork, and flooring. The softness in these big-tickets, coupled with the drop in lumber prices, caused our average ticket to decline by 1.6% in the quarter. For the year however, average ticket of $58.90, up 1.6% driven primarily by gains in appliances."
- It's the Weather, Stupid (Market Watch, Feb. 19th): "January is a notoriously bad month on which to base conclusions regarding the state of the economy. This is because it tends to be a cold, snowy month in most parts of the country, thus curtailing a wide range of economic activity, from shopping to homebuilding… [In January] Heavy snow… kept people out of stores and prevented them from going to work... Residential construction was not as weak as the housing starts figures suggested, since building permits, which are not affected by the weather, were actually the same in January as the average of the previous three months."
Homebuilders And Housing Stocks
- Expecting Volatility, Takeovers in the Housing Sector (Jeff Miller in Seeking Alpha, Feb. 20th): "Scott Rothbort, founder of LakeView Asset Management: "My opinion is that the cyclical decline in housing is near or at an end. Furthermore, the big meaty short trades have already been booked. We will continue to have a high level of volatility in the sector and more trading opportunities will present themselves as the sub-prime, housing and interest rate dramas continue to unfold. The next step for this sector is going to be takeovers especially if the bears continue to push shares lower."
Commercial Real Estate and REITs
- Younan Closes on $106M Dallas Office Tower (Commercial Property News, Feb. 20th): "Younan Properties Inc. has completed the acquisition of downtown Dallas' Thanksgiving Tower, a 1.4 million-square-foot, 50-story office property. The purchase was funded with a $106 million floating rate loan from Countrywide Commercial Real Estate Finance. According to reports, the seller of the property was an affiliate of Morgan Stanley, which acquired a majority stake in the building in 2002… The acquisiton is Younan's largest ever. The Los Angeles-based firm owns approximately $1.5 billion in commercial holdings in Arizona, Florida, Illinois and Texas."
- Chaparral Steel Rides Wave Of Commercial Construction (Investors.com, Feb. 20th): "Chaparral Steel makes structural steel products, such as support beams used in commercial construction. Structural steel represents more than 70% of Chaparral's revenue… The steel maker's products are used in office and retail space, hotels and industrial plants. Commercial construction consists of two-thirds of the nonresidential sector, while institutional construction, such as government, religion and health care, account for the rest."
Shouted from the Rooftops- Quote of the Day
- Alan Greenspan on creative new financing mechanisms (April, 2005): "With advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately."
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