Housing Bubble and Real Estate Market Tracker

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

• Homes Sales Pick up Early This Month (Idaho Statesman, Feb. 25th): "Sales of single-family homes in the Treasure Valley in January were off 27% from Jan. 2006, as potential homebuyers continued to wait for a sign that the market was finally turning around. Sales of single-family homes failed to equal those in the same months a year ago in each of the past seven months. But Don Hubble of Hubble Homes, said mid-February produced a near-record 47 home sales… "We're optimistic… February sales may have been driven by price reductions that range from $5,000 to $20,000."

• House Prices in Annual Parade March Even Higher (Orlando Sentinel, Feb. 24th): "Last year, three houses in the Parade of Homes Lake-Sumter cost more than $1 million, with the priciest hitting $2.1m… Today, residents can take a peek at this year's priciest house -- tagged at $3.6 million. Six more are priced from $1m to almost $1.88m.Two others come in just a hair's breadth under the million-dollar threshold. "It wasn't too long ago that $1 million was a breathtaking figure," said Jean Kaminski of the Lake County Homebuilders Association… "But then, I remember in 1989 when the top-priced house was $289,000, and I gasped."

• Luxury Home Prices Creep Higher (SF Chronicle, Feb. 22nd): "First Republic Bank survey: "The average price of a luxury home hovered at $2.92 million in Q4'06… The price represents a gain of 1.5% compared with Q4'05. The bank evaluates luxury home prices based on an index created in 1985 that included homes valued at about $1 million…. A relatively tight supply of high-end homes is helping to sustain prices… There's not a lot of new housing stock being created and not a lot of empty land in San Francisco to build homes on. That helps keep prices up."

Real Estate Investing and Sentiment

• Expert Says Housing Bubble Has Adjusted (Central Valley Business Times, Feb. 23rd): "Serdar Bankaci of Default Research: “I think the housing bubble has kind of adjusted itself. What we’re expecting for 2007 are increases but not as severe as 2006… Contributing to more stability is a leveling out of mortgage interest rates… Another reason is a slowdown in the escalation of home prices and even, in some areas, a lowering of prices. As the housing prices adjust, I think homeowners won’t need to use these 100% interest-only loans. I think people have kind of learned their lesson."

• Home Sales Likely Have Hit Bottom (Bend Weekly, Feb. 23rd): "Freddie Mac: The national average commitment rate on a 30-year conventional fixed-rate mortgage was 6.25% in Q4, down from 6.56% in Q3; the rate was 6.22% in Q4'05. The biggest total sales increase was in Indiana, where existing-home sales rose 13.7% from Q4'05. In Arkansas the Q4 resale pace rose 11.1% from a year earlier, while Texas experienced the third strongest gain, up 6.2%. Over the last five years, metro areas with the largest single-family price gains include California 's Riverside-San Bernardino-Ontario areas, up 155.3%, and Los Angeles-Long Beach-Santa Ana, up 142.3%, followed by the Miami-Fort Lauderdale-Miami Beach area of Florida, up 135.4%."

Mortgates and Real Estate Lending

• New Help for ‘Subprime’ Borrowers (NYTimes, Feb. 25th): "14 city banking study: Many people who live in low-income, minority areas have no credit history pay more interest on mortgages, if they can even qualify… In low-income neighborhoods, banks are less aggressive in offering credit cards… chiefly because it is less profitable to do so. Credit cards are a key component of a borrower’s FICO credit score, and banks, in turn, use that score to determine a mortgage applicant’s risk of foreclosure and the interest rate to charge. With less information to go on, and with little financial incentive to take the time to check the applicant’s financial references, lenders and brokers often assign a higher interest rate to those with thin credit files."

• Softer Housing Market Makes It Harder To Get Loan (CBS2, Feb. 24th): "The most immediate impact will be that both the lenders and investors will be more careful on who they make loans to," said Richard F. DeMong, a bank management professor at the University of Virginia. "In Finance 101, we try to teach that return should be enough to compensate for risk"… Although consumers with low credit scores will find it harder to get mortgages, they will still have some options, said Phil Cyr of Equity Lenders, a small Connecticut mortgage company. "There's still a saturation of lenders still out there lending in the subprime market."

• High-risk Customers Breaking Mortgage Lenders (Ozark News Leader, Feb. 25th): "As more and more [bad credit] customers have fallen behind on their payments, "subprime" lenders are having to set aside millions of dollars to cover bad loans and lowering their future profit projections. Industry observers say the decline was almost guaranteed by the combination of customers with shaky finances, exotic mortgage terms, rising interest rates and stagnant housing prices, but they say a continued decline could endanger the financing that gives the industry its lifeblood. Merrill Lynch analyst: "This business is losing money at the industry level today, and that will lead to capital being pulled away from this business."

• Subprime Lenders Sector Wrap (Forbes, Feb. 23rd): "Moody's also said it may downgrade two privately owned mortgage lenders, Ameriquest and Terwin Holdings. Elsewhere in the mortgage industry, Delta Financial Corp. (DFC) ended down $0.45, or 4.2%, to $10.32 on the American Stock Exchange. Shares of Impac Mortgage Holdings Inc. (IMH) declined $0.28, or 3.6%, to $7.58. Shares of Fremont General Corp. (FMT) tumbled $0.45, or 3.4%, to $12.86. American Home Mortgage Investment Corp. (AHMPRA) fell $0.79, or 2.6%, to $30.01. Shares of Resource Capital Corp. (RSO) retreated $0.53, or 2.9%, to $17.73."

• Treasuries Rise as Investors Seek Haven From Subprime Mortgages (Bloomberg, Feb. 23rd): "U.S. Treasuries rose, pushing the benchmark 10-year note's yield to a six-week low, as losses in subprime mortgage bonds fueled demand for the highest-quality debt securities. The rising cost of insurance against default in bonds backed by [subprime] loans renewed speculation a slowdown in residential real estate will hurt the economy. Yields on interest-rate futures declined as traders increased bets the Federal Reserve will lower rates this year. Dominic Konstam at Credit Suisse: "There has been some significant buying… People are worried about contagion effects of credit products in general.''

• A Painful Hiss From the Subprime Balloon (Forbes, Feb. 22nd): "Chief Executive Scott Hartman says that there will be "little or no taxable income from 2007 through 2011." Moreover, the company acknowledges that it has limited access to new funding, if it's needed… On a pool of mortgages NovaStar securitized in September, 2006, more than 3% are more than 30 days past due, Morningstar (MORN) reported Feb. 9. "If delinquencies in NovaStar's mortgages continue to rise, pullback from investors in its securities could create a liquidity crunch, limiting NovaStar's ability to originate new loans in the future," analyst Ryan Lentell wrote."

• UBS Upgrades New Century To 'Hold' (Ticker Sense in Seeking Alpha, Feb. 23rd): "UBS upgraded New Century (NEW) this morning. Although they didn't have a buy recommendation on the stock as it went from $40 to $50, they did make a good sell call in August of last year. They currently have the second best record on the stock."

Foreclosure Trends

• Short Selling Can Help Out Some Homeowners (Tucson Citizen, Feb. 26th): "Many… face foreclosure… and are turning to… short selling: The lender allows the property to be sold for less than the total amount due on the loan. In some cases, the lender forgives the remaining debt… The benefits of short selling over foreclosure are obvious. A foreclosure puts a long-lasting black mark on your credit history and the process can be long and costly. Short selling can be much faster and less expensive, and it doesn't look as bad on your credit report as a foreclosure... Convincing a lender to short sell a property, however, can be very difficult. [And] the amount of the loan that the lender forgives in a short sell could be taxable to the borrower."

• More Homes Lost (Gilroy Dispatch, Feb. 24th): "In the past year, the number of area homeowners going into foreclosure proceedings has risen sharply, thanks in part to irresponsible lending and irresponsible borrowing. While 1,865 houses in Santa Clara County fell into foreclosure in 2005, 3,642 houses - or one in 159 houses countywide - were foreclosed in 2006, according to data from RealtyTrac, which tracks realty trends nationwide. This represents a 95% increase from 2005, when one in 311 houses were repossessed."

Global Alternatives To The Housing Slump

• $4 Billion Investment for Real Estate (Sabah, Feb. 24th): "The Wall Street Journal wrote that the growing economy of Turkey will lead more investment on [sic] real estate sector; especially to giant shopping malls. Friday's WSJ emphasized that Turkey's healing economy, political stability, potential EU membership, young population and increasing number of consumers are the important factors for investing in the real estate sector… Turkey's real estate investments were $1.1 billion in 2006. According to the WSJ, the market will grow up to $4b in 2007."

• Wimpey Profits Hit by Slump in American Housing Market (Feb. 22nd): "UK Homebuilder George Wimpey has been forced to take a £61m write-down in the value of its US land holdings… Profits in its American housing business plummeted by almost a third… Sales dropped 12%... Operating profit fell 31% to £116.9m, while the order book at the end of December was 67% below that of the end of December 2005. Wimpey warned that the US performance in 2007 would be even worse… [But] cancellations have come down to 20% from 52% at the end of last year. "Forward sales are up from 750 homes at the end of December to 1,000 properties now… Pricing is still tough but we no longer need to add new incentives."

Affordability Impact

• Real Estate Agents Hoping Fla. Insurance Rate Measures Revive Sales (Insurance Journal, Feb. 26th): "Real estate agent John Pinzino still cannot find buyers for the homes and condos he has listed along this refurbished stretch of white sands and turquoise waters. Despite a hurricane-free 2006 and what he calls "a strict buyers' market,'' would-be beach dwellers are staying away, primarily because of soaring insurance rates in coastal areas statewide. Only five of 354 residential properties on the market in Pensacola Beach sold in January. Pinzino lost one deal after the prospective buyers paid a deposit, but later discovered the $3,500 they had estimated for insurance would actually be $8,500."

• When Renters Reach the Breaking Point (NYTimes, Feb. 25th): "Halstead Property: In 2006, rents… in Manhattan have jumped as much as 20%… Citi Habitats: In October 2002, so many people abandoned the rental market to buy homes that Manhattan’s apartment vacancy rate hit a high of 3.8% that month... [versus] an average rate of 2.25% over the last five years. Some landlord's filled empty apartments by… selling off more than 8,000 apartments to condominium developers. By early 2006, New Yorkers… flooded back into the rental market and found that there were fewer units to choose from. [In] May 2006, the vacancy rate in Manhattan had shrunk to a record low of 0.43%... By late last year, landlords had tried to raise their prices so much that some renters started to balk. By January, Manhattan’s vacancy rate had inched up to 0.97%, but rents show no sign of dropping."

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

• Housing Slump May Force Fed to Pare Annual U.S. Growth Estimate (Bloomberg, Feb. 26th) : "ISI, UBS AG and Deutsche Bank AG analysts forecast an economy stuck at about a 2% growth rate in coming quarters, down from 3.4% in 2006, as housing demand remains in the doldrums. This… might prompt [the Fed] to dial back their concern about inflation and focus more on growth. Their Jan. 31 meeting minutes show Fed policy makers discussed dropping their anti-inflation bias in favor of a more even-handed approach. [But] they decided against a change "at this time." Bernanke [has] identified the depressed housing market as the biggest risk to the Fed's forecast for modest growth of 2 1/2 to 3% this year. "

• The Fed Soft Landing: Painful but Profitable! (BloggingStocks, Feb. 24th): "The economy is in good condition and seems to be going along at a moderate pace. There is plenty of liquidity for growth. Most importantly, the Fed does not see any reason to change its current path… I have always said that it is more important to watch what the Fed does rather than what it says. Right now the Fed isn't doing anything and is trying to avoid doing anything if it can help it. There are many "what ifs" in Chairman Bernanke's public statements but no concrete decisions to take action. Until that happens, enjoy the soft landing."

• World: China accelerates (FX Street, Feb. 23rd): "There were more than 2 million vacant housing units on the market at year end. Under current conditions, we think starts will need to drop below demographic requirements to bring the market into balance. Household formation has averaged 1.3m annually over the past five years, according to the Census Bureau… Housing weakness notwithstanding, the U.S. economy remains well-supported by the labor market – the key to a soft landing. Payroll employment rose 110,000 in January, a somewhat disappointing figure since it included the return of 12,700 striking workers."

• Housing Slump May Soon Affect Jobs, Study Says (The Reporter.com, Feb. 24th): "During 2006, the number of residential construction permits in Alameda County rose 31% in 2006, bolstered by healthy gains in multifamily residential construction. But Contra Costa County, where single-family subdivisions have sprouted, suffered a 28% decline in residential building activity compared with 2005. Economist Ryan Ratcliff: "Since Contra Costa County has been the center of gravity for the building boom, this suggests that we've only seen the beginning of the East Bay real estate slowdown"… Sean Snaith of the Business Forecasting Center at U of Pacific, differs: "The East Bay and California… both have very diversified economies."

• Lowe's Shares Gain on Upbeat Outlook (Market Watch, Feb. 23rd): "The slowdown in the nation's housing industry… [was among] key factors behind an 11.5% drop in Lowe's Cos. Q4 income… However, the results for the period… outpaced expectations… The nation's No. 2 home-improvement retailer said the slowdown in sales appears to be ending and offered an upbeat forecast. "Our sales trends have bottomed," said CEO Robert Niblock… the retailer pegged growth at a rate of 5% to 6% for sales… Lowe's full-year forecast of EPS -- in a range of $2.02 and $2.09 -- is notably above Wall Street's consensus of $2.02."

Homebuilders And Housing Stocks

• Short Plays for More Housing Market Weakness (Seeking Alpha, Feb. 25th): "Off Wall Street Consulting's Mark Roberts: "The weakness in the housing market, with all kinds of ramifications for consumers and sales of consumer goods, and extraordinarily high corporate profit margins don't seem like a recipe for a strong market". OWFC closed out profitable short positions in mortgage lender InyMac Bancorp (NDE) and Williams Scotsman (WLSC), which rents trailers to construction sites. His top pick for a housing sector related short: carpet manufacturer Mohawk Industries (MHK)…. A recent Bloomberg article said January's weak housing starts will hit the wider economy at the end of 2007…. Barron's Tom Sullivan disagreed."

• KB Home in Back-Dating Probe (Newsday, Feb. 24th): "KB Home, the fifth-largest U.S. homebuilder, is under federal criminal investigation in a case of stock-options back-dating that led to the resignation of the company's chief executive… The investigation is being conducted by the U.S. attorney's office in Los Angeles. Los Angeles-based KB Home has said former chief executive Bruce Karatz and ex-human resources chief Gary Ray used "hindsight" to ensure favorable exercise prices. Karatz resigned in November and Ray was fired."

• Lowe's Reports 4th-Quarter Profit Fell 11.5%, Cites Housing (Arizona Central, Feb. 24th): "Lowe's (LOW) one of the nation's biggest home-improvement store chains, said Friday that Q4 profit fell 11.5% as the market slowed amid a continued slump in the housing sector. The retailer said it earned $613 million, or $0.40/share, for the three months that ended Feb. 2, down from $693m a year earlier. Revenue fell 3.7% to $10.4 billion from $10.8b a year earlier. Analysts surveyed by Thomson Financial were expecting net income of $0.37/share on revenue of $10.36b."

• Shifting Housing Market Snubs Bad Credit (My Fox Twin Cities, Feb. 24th): "Connecticut Mortgage Lenders: Loans for 100% of a property's value required a minimum credit score of 580 last year, but now require at least a 600 score… A high-value loan with no income verification could be had last year with a credit score of 620 a year ago but now needs a minimum score of 640… Some consumers are being squeezed out of the market"... Scores drop when customers fail to pay installment loans on time or have a high income/debt ratio… Scores above 700 is a sign of good financial health… below 600 [is] risky."

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