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

• Las Vegas Home Price Appreciation Slows, Turns Negative in Parts (KSBY, Mar. 6th): "Las Vegas: "Median existing home prices increased 3.6% to 285,000 last year. That's based on a survey of more than 90,000 existing home closings recorded by the Clark County assessor's office. There were nearly 18,000 homes for sale on the Multiple Listing Service last year and sales of existing homes fell 24% in 2006. The Greater Las Vegas Association of Realtors reported a 2.6% decline of median home prices in January to $302,000."

• Real Estate Market Remains Hot in Raleigh (WRAL, Mar. 5th) No. Carolina: "Across the country, the median home price averages $210,600. In Raleigh, [the] average price was $242,275… Nationwide… a slowing trend… with home sale prices down 3% from last year. In Las Vegas, the median home price went down more than $30,000 -- a drop of almost 10% from 2006. Figures are similar in Miami, Los Angeles, Washington D.C. and New York, but are higher in the southern United States. Dallas leads the country with a 6.5% increase in home prices. Raleigh has continued to see a 5-10% increase from 2006."

• Brooklyn Housing Market Surges in 2006 (Crain's New York Business, Mar. 5th): "Real Estate Board of New York: Residential housing is booming in Brooklyn, sale prices for apartments and family houses surged in 2006… Median process for one-two and three family homes rose 16% to $570,000 in 2006... The median price per square foot rose 14% to $320. Coop and condominium prices rose 6% to $343,000, while the median prices per square foot rose 4%. In addition, the report shows that buyers are still entering the market, an indication that they believe home values will continue to rise."

• Oahu Median Home Prices Rebound In February (KITV, Mar. 5th): "Honolulu Board of Realtors: The median price for a single-family home on Oahu climbed $14,500 in February. The 2.4% increase to $614,500… highest since October when prices were at $645,000. The median-sales price for condominiums on Oahu… held at $320,000. The volume of single-family homes was up over the same period last year. The HBR recorded 272 homes sold compared to 248 last year. That number is also up slightly over January's 263 homes. Condominium sales were down by 17.5% compared to February 2006."

• Home Prices Still Rising But Rate Of Appreciation Slows (Mortgage News Daily, Mar. 5th): "The Office of Federal Housing Enterprise Oversight quarterly House Price Index (HPI)Q4'06: Prices have stabilized and there is still modest appreciation. In fact, the appreciation, 1.1% over the three month period, was slightly better than the 1.0% growth in Q3. Prices for the entire year (since the end of Q4'05) were up 5.9%. In Q3 the y/o/y appreciation (since Q3'05) was 7.88%. Those two quarters followed eight straight quarters of double digit y/o/y increases. Even at 5.9%, housing prices still far outstripped the remainder of the CPI in 2006 where non-shelter prices rose 0.9%."

• The California Real Estate Bubble: All ARMs (Infectious Greed, Mar. 4th): "An interesting new paper tries to figure out causality and proportionality in looking at the various causes of wildly increasing prices in California real estate: "The median price of an existing, single family detached home in the state jumped from $241,350 in 2001 to $524,020 in 2005. Meanwhile, home purchases using adjustable-rate mortgages (ARMs) for financing nearly quadrupled (from approximately 20% to 80%)." The conclusion? Controlling for causality, size of effect, etc., and considering population growth, momentum, and the like, adjustable-rate mortgages usage were far and away the biggest factor"

• Home-Shopping? No Need to Rush; No Need to Stall (Orlando Sentinel, Mar. 4th): "Of the 20 metro markets tracked by the Florida Realtors Association, 14 showed a y/o/y decline in the median price of single-family homes. Sarasota got slammed with a 20% drop. Daytona and Brevard saw 8% drops. Prices are holding their own in the Orlando area. Sales are not. In January, home sales were down about 35% from the previous year and condo sales were down 44%. This is creating a glut of inventory on the market. It would take 16 months to sell all the listed homes at the current sales pace. That number is an off-the-charts record."

• Utah Prices are on Fire (Salt Lake Tribune, Mar. 2nd): "Utah's home price appreciation, the worst in the country just three years ago, is now the best nationwide. Home prices statewide rose 17.6% from Q4'05 to Q4'06, according to Tuesday's report by the Office of Federal Housing Enterprise Oversight, a government agency that tracks housing values. Nationally, home prices rose only 5.9% during that time period, reflecting the downturn seen in cities that have experienced a rapid run-up in prices in recent years. Meanwhile, housing prices in all of Utah's major metropolitan areas posted major gains in the past year."

Real Estate Investing and Sentiment

• The Bubble Guru's Take On Housing (Business Week, Mar. 6th): "Yale Professor Robert Shiller: "There hasn't yet been a big price decline, like 20%... The biggest major city drops are in Detroit and Boston, which are down 5.9% and 5.1%, respectively. I think there's a good chance home prices will be down 10% to 30% over the next five years… [But] one part of the National Association of Builders/Wells Fargo Housing Market Index measures the traffic of prospective buyers, and it has started to go up. It's possible that the boom could resume. [It's] human psychology. If people think home prices will go up for some time, it becomes a self-fulfilling prophesy."

• If It's Time to Move Out of Stocks, Is There Anything to Move Into? (Wall St. Journal, Mar. 6th): "Other assets are also vulnerable. Yield premiums for corporate bonds over government bonds have narrowed close to record lows, while corporate profitability is high. This isn't the time to buy loans. Commodities? Prices remain high enough to provide huge profits for producers. As for commercial and residential real estate, don't even think about them as safe. Prices are high and a return to higher interest rates could well cause a crash."

• Buffett's Letter: Tale Of Two Industries (Neal Shanske in Seeking Alpha, Mar. 2nd): "Buffett speaks about HomeServices of America, the second largest real estate broker in the U.S. With the weakening of the U.S. real estate market, HomeServices’ revenue and earnings dropped 9% and 50%, respectively, despite several acquisitions… He remains optimistic: "Nevertheless, we will be seeking to purchase additional brokerage operations. A decade from now, HomeServices will almost certainly be much larger…" The real estate brokerage industry… is a lesson at the core of value investing… Real estate brokers are cheap based on short term expectations, but will, he believes, recover and grow once again."

Mortgates and Real Estate Lending

• Editors Note: In Monday trading, New Century (NEW) shares fell 68.87%. Fremont General (FMT) fell 32.38%. NovaStar Financial (NFI) fell 40.88%. Countrywide Financial (CFC) fell 4.92%. Accredited Home Lenders Holding (LEND) fell 25.99%. Citigroup (C), the #4 subprime lender, fell 1.44%. HSBC, the #1 subprime lender, was down 0.42%. Wells Fargo & Co. (WFC) fell 1.19%. Washington Mutual (WM) fell 3.41%. H&R Block (HRB) fell 3.48%.

• New Federal Rules on Subprime Loans Issued (NPR, Mar. 6th): "Federal bank regulators have released a "guidance" telling issuers of subprime loans that they need to change the way they offer mortgages to borrowers with poor credit. From now on, lenders who offer adjustable rate mortgages will have to consider whether the borrower can afford the higher payment that results when interest rates go up. Currently, some lenders are basing lending decisions on the "teaser" rate, and not on where the rate might go."

• Stifel: Subprime Mortage Sector in 'Downward Spiral' (Notable Calls in Seeking Alpha, Mar. 5th): "Stifel: Recent developments have… put unbelievable pressure on secondary market demand with bids for loan pools and ABS bonds nearly evaporating. With the NEW and FMT news late Friday… this risk is only increasing further… profitability will be severely strained until conditions stabilize. They expect this to make it difficult for even higher quality players like LEND to remain solvent and all remaining subprime lenders will need to obtain significant covenant waivers to remain operational… For CFC, while they still believe the company will take advantage of the sector turmoil, their near-term bias is also negative as they expect the disconcerting trends in the subprime sector to increasingly spread into the Alt-A and, to a lesser extent, prime sectors."

• Prominent Mortgage Exec Sees Further Dip in Market (NC Times, Mar. 3rd): "Robert A. Camerota, Sr., senior vice president and manager of GMAC's Mortgage group in Coast Mesa, sketched a bleak forecast for the housing industry: falling home prices, increased foreclosures, more failed mortgage companies and increased revelations of mortgage fraud… Camerota's company, GMAC, is one of the nation's largest subprime mortgage lenders. The increasing failure of the company's borrowers to repay subprime mortgages has cost the company more than $1 billion already and could cause General Motors, part-owner of GMAC, to take a major financial hit."

• Problems Now In Mid-Prime Loan Market? (Herb Greenberg in Seeking Alpha, Mar. 2nd): "There's talk about rising defaults and tightening in the mid-prime loan market -- between prime and subprime, where a whole bunch of hard-working, good-credit-scoring, pay-their-bills on time Americans reside… People have been using their houses as ATMs. Even Bernanke said… that the equity people have in their homes is replacing savings. If the mid-prime market gets crunched, that crunch you hear could also rumble its way through the economy, as people suddenly find their savings -- via their home equity -- is dwindling, and… they can't get any more. It's hard to argue higher corporate profits on that outlook."

• Housing Sector May be Hit by "Piggyback" Loans (Reuters, Mar. 2nd): "As U.S. house prices continue to fall… even borrowers with good credit records may have problems as the value of their homes may now be less than the debt they owe… Many recent home buyers bought through 100% financing programs known as "piggyback" loans, which relied on one mortgage for 80% of purchase price and other financing for the remaining 20%… in today's market of flat or even falling home prices, lenders can get stuck with properties that have lost value if borrowers end up in foreclosure. "Piggyback loans could be the next skeleton to fall out of the mortgage industry closet," said Howard Glaser, an independent mortgage analyst in Washington, D.C."

• Regulators Might Release New Subprime Lending Guidelines Today (Seeking Alpha, Mar. 2nd): "Banking regulators are concerned that slack underwriting standards left many homeowners with mortgages they cannot pay off last year… Both the subprime lenders and the borrowers themselves have suffered as housing prices stagnated and interest rates moved up. Zack Gast, a financial-services analyst at the Center for Financial Research & Analysis, expects the new guidelines to "focus on underwriting based on the fully indexed rate on subprime loans," ultimately resulting in reduced demand in the secondary markets for subprime loans."

• New Century Says it Faces Criminal Probe (Market Watch, Mar. 2nd): "New Century said it won't report at least $1 of net income for the two quarters ended Dec. 31, as stipulated in covenants with its lenders. New Century did say that it has received waivers from six of 11 of these lenders, though not… from the remaining five…. Subprime lenders… like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets… New Century warned that if it can't get waivers or covenant amendments from enough of its financial backers, "substantial doubt exists as to the company's ability to continue as a going concern."

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

• Paulson Says House-Slump Credit Issues to Be Limited (Bloomberg, Mar. 6th): "U.S. Treasury Secretary Henry Paulson: "There has been an impact on certain mortgages'' from the decline in U.S. house prices…Credit issues are there, but they are contained… The U.S. financial sector is healthy… most financial institutions won't feel "a big impact'' from the housing slump." Fed policy makers this year have repeatedly said that mortgage losses were concentrated in subprime loans… designed for lower-income borrowers. Paulson, the former CEO of Goldman Sachs, played down the recent global stock-market slump, saying that the global economic fundamentals are "good'' and that "markets seldom move forever in a straight line.''

• Mortgage Crisis Spirals, and Casualties Mount (NYTimes, Mar. 5th): "An escalating crisis in the market… is threatening a wide band of people. Foremost are the poor and minority homeowners who used easy credit to buy houses that are turning out to be too expensive for them now that mortgage rates are going up… It may become more difficult to refinance if lending standards are tightened significantly. Many are already facing the prospect of payment shock when low, fixed-interest mortgage rates adjust to higher, variable rates. On Wall Street, big investment banks could lose a significant source of revenue if the appetite for bonds backed by mortgages dries up... Many of the problems that have surfaced thus far are not tied to the resetting of rates. Rather, they stem from a sharp and early spike in the default rates among loans issued last year."

• New York Closed Lower on Global Decline (123 Jump, Mar. 5th): "Home Solutions of America (HSOA), provider of recovery and rebuilding services, lowered its yearly guidance, weighed by a sagging home sector, and said its chief operating officer will resign. Shares of Home Solutions plummeted 19.8%. The company said it expects yearly earnings of between $0.43 and $0.46. Previously, the company said it expected earnings between $0.56 and $0.60. The company said it expects fourth-quarter earnings of $0.5 to $0.7/share."

• Exuberance Restrained (Michael Metz in the Bulletin, Mar. 5th): "Will the deterioration in the subprime mortgage market… also carry over into other areas of the credit market, creating a greater awareness of risk and a widening of credit spreads generally? [This] could prove the first step in piercing the credit bubble, with adverse implications for a variety of sectors, including private equity. The… market's vulnerability is not a function of economic prospects, or of Fed policy. Indeed, any move upward in rates is unlikely since the major casualty would be an already ailing housing sector. Concern over credit quality, extremely narrow spreads and record margin debt warrant caution at this juncture."

• March in Like a Lion (Insider Futures, Mar. 5th): "A careful review of last week's data shows only marginal changes in the direction of the economy… Inventory investment is down, leaving little overhang. Newer survey data show soft manufacturing, but not manufacturing in recession. Housing is mixed and data are not reliable during winter months. The consumer sector is robust and will provide support for manufacturing. Core inflation is still too high and the Fed will see inflation as a greater risk than too weak growth. I don't see recession anywhere on the horizon. We are likely to get a soft first quarter but then see better growth the rest of the year."

• Newspaper's Real-Estate Advertising Bubble to Burst (Chicago Business, Mar. 5th) :"For all publishers’ myriad problems, real-estate advertising has been a source of uninterrupted growth since the mid-1990s… The cooling of that [housing] boom since 2005… hasn’t slowed newspaper ad sales — houses stayed on the market longer, requiring more ads — real-estate ads grew to $4.6 billion, about 8% of newspaper revenue, from $2.6b a decade [ago]. But… in January, major publishers including Tribune Co., McClatchy Co. and Lee Enterprises posted real-estate-ad declines in the high single digits. Economic reports projecting steep falloff in new housing sales and starts make further ad declines all but inevitable."

Foreclosure Trends

• Is the Worst Over? Foreclosure Activity Drops Nationwide (News 10, Mar. 5th): "Foreclosures.com: Foreclosure filings in February were down 3.4% from January, and down 6.5% from December. Total filings include preforeclosures (notices of default), auctions, and property repossessed by the lender. "The foreclosure numbers finally are beginning to reflect the stabilization in housing markets that we've been talking about for the last few months." California is still the number one state in foreclosure activity with more than 50,000 filings so far this year. But statistics from February offer signs of encouragement. Foreclosure activity last month totalled 25,090, down slightly from 25,288 in January."

• Owners Struggle to Keep Homes (Orlando Sentinel, Mar. 4th): "In January, lenders filed 1,787 foreclosure suits in Central Florida, more than twice the number compared with a year earlier, according to research by the Orlando Sentinel. And early results for February are even worse: In the first two weeks of the month, the number of suits climbed 63% compared with all of February 2006."

Homebuilders And Housing Stocks

• A Contrarian Bet On Housing: Long Case for First American Corp (Value Investor Insight in Seeking Alpha, Mar. 1st): "We don’t at all mind buying businesses in the down part of a cycle if, at the same time, clear steps are being taken to improve operations, which we see here. At some point there will be another up cycle in housing and, coupled with the efforts they’re making today to improve margins, we expect the next peak in earnings to be significantly higher than the last one… At a more favorable point in the housing cycle, with the EPS leverage we expect from operating improvements and share repurchases, we expect… at least $60 per share."

Commercial Real Estate and REITs

• Wells REIT II Declares Q2'07 Distribution (Atlanta Business News, Mar. 6th): "Wells Real Estate Investment Trust II Inc. (Wells REIT II) announced today a quarterly distribution that totals $0.15 per share for Q2'07… The distribution is unchanged from the previous quarter. Wells REIT II is the largest nontraded REIT currently open to new investors… The Wells REIT II portfolio includes more than 14 million Sq.ft. in 56 Class-A office and industrial buildings in 24 real estate markets in 17 states and Washington, D.C. The weighted-average credit rating of those tenants rated by Standard & Poor’s is BBB+, and the portfolio is 98% leased."

• Private Equity Real Estate Funds Raise $60 Billion in 2006 (PR Newswire, Mar. 5th): "Private Equity Real Estate, the leading magazine covering the global real estate investment industry, private equity real estate funds have raised a total of $59.5 billion in 2006, far surpassing the $37 billion raised in 2005. "Given the amount of leverage typically employed by private equity real estate firms, the funds raised in 2006 have buying power of approximately $180b… A significant amount of this money will be spent in international markets as firms spend more and more resources building up their capabilities in the emerging markets of Eastern Europe and Asia."

• REIT Industry Darling AvalonBay: Choppy Waters Ahead (Seeking Alpha, Mar. 4th): "If housing/subprime problems hit REIT stocks, then AVB's 340% ride in 4 years to its current $131 may end. AVB's stock is expensive at 27/FFO, or $4.83/share-- almost double actual FFO growth. If FFO ratios simply return to industry average, shares will lose 50%. AVB's yield (2.6%), is below the industry's average (3.3%) and below T-bills (4.5%)… Cap rates have nearly halved to 4%, and rental rate growth should slow because the housing slump is forcing owners to convert condos back in to rentals. A market correction could knock AVB down to $110."

• Real Estate Fund's Manager Fleeing REITs Tied to Apartments (Philadelphia Enquirer, Mar. 4th): "Capital Growth Management has been selling shares of real estate investment trusts that buy apartments because they are no longer cheap. At year-end, CGM Realty Fund had 35% of its assets in REITs… a "significant reduction". Morningstar: The $1.5 billion CGM fund returned an average of 20% over the last 10 years, the most of any real estate fund... CGM fund manager Kenneth Heebner is known for making concentrated investments in a few industries. He owned home builders in 2001 to 2005, record years for home sales. He bet against technology and telephone stocks in 2000, correctly timing their collapse."

Quote of the Day- People in Glass Houses:

“You just lost touch with reality after a while because that’s just how people were living. We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.” -- Kal Elsayed, 42, a former executive at New Century Financial, a company that provided home loans to people with low incomes and weak credit. (NY Times, Mar. 5th)

Tracking the Housing Market and Homebuilder Stocks You can track developments in the housing market and homebuilder stocks by bookmarking our Housing coverage or subscribing to our free email service. If you have a blog or website of your own, you can track developments in the sector and provide great content for your readers with our Housing Market widget (left). It's simple to add -- just select "Housing Market" from the drop-down menu here.