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.

Quote of the Day- "People in Glass Houses..."

"People are walking into my office and saying: ‘Here are the keys. Do whatever you have to do. I just want to get out of this so I can sleep at night." -- In the first two months of this year, Connecticut lawyer David Volman took on some 50 bankruptcy cases… in all of 2006 he handled 19. Many of the cases involve working-class couples in the Lower Naugatuck Valley who can no longer afford their mortgages. (NY Times, Mar. 18th)

Real Estate Sales and House Prices

• Homes Overvalued by 31% in City, Report Finds (SeattlePI, Mar. 20th): "The typical house in the Seattle metropolitan area was 31.7% overvalued in Q4'06, up 6.4% from the prior quarter and 24.3% from the end of 2005, according to Monday's joint report from Global Insight, an international economic and financial information company, and National City Corp., a financial holding company... The analysis determines what prices should be by accounting for differences in population density, income, interest rates and market history. It does not mean local home prices should be expected to decrease by 31.7%."

• Average Manhattan Apartment Price Up 200 Percent; In '97, $225,000 Got You a One-Bedroom (New York Observer, Mar. 20th): "Miller Samuel and Prudential Douglas Elliman report: "The average sales price for a condo in 1997 was $430,927, and, in 2006, it was $1,295,445… The median sales price for a Manhattan co-op apparently jumped 244.4% from 1997 through 2006, from $196,000 to $675,000… An Upper East Side co-op sold for an average of $315/Sq.ft 10 years ago, and for $988/Sq.ft now. Along Central Park West a decade back, co-ops went for an average of $524/Sq.ft; now, $1,548. Chelsea condos in 1997 sold for an average of $319/Sq.ft--just about one-third of what condos there sell for now. In Harlem and East Harlem, the price per foot increased 340%, from $145 a foot to $639."

• Study Notes Decline in Overvalued Real Estate Markets (Inman News, Mar. 19th): "The "House Prices in America" study revealed Q4 price declines in 72 of 317 metro areas studied, up from 65 metro areas with price declines in Q3'06… The overall number of single-family housing units deemed to be overvalued declined from 17% of the total number of single-family housing units in Q3'06 to 16% in Q4… [The] Single-family asset value percent overvalued fell from 31% in Q3 to 28% in Q4… Single-family home prices increased 1.8% in Q4… the first quarterly growth since Q2'05…Prices rose 4.1% compared to Q4'05. The 72 metro market areas experiencing price declines account for 22% of all single-family real estate assets in the country."

• Luxury Condos Come to 2nd Ave. (The Real Deal, Mar. 19th) New York City: "Construction on Second Avenue on the Upper East Side won't be limited to the Second Avenue subway. The World-Wide Group is building a 30-story, 87-unit glass condo tower on the corner of Second Avenue and 74th Street. Prices will run from $2.5 to $7 million, and completion is slated for late 2008. On the corner of Second Ave and 79th Street, Meyer Chetrit is developing an 18-story, 40-unit condo where prices will run from $1.4 to $4.5 million."

Real Estate Investing and Sentiment

• Don't Expect Fed to Accomodate Market's Subprime Woes (J.D. Steinhilber in Seeking Alpha, Mar. 20th): "The markets have an abiding faith, nurtured in the era of the “Greenspan put” (a reference to the Greenspan Fed’s tendency to lower interest rates in response to financial market dislocations), in the readiness and ability of the Federal Reserve to rescue the investment community from any potential financial crisis… Indeed, markets are currently discounting multiple Fed cuts over the balance of 2007… Given that the Fed is caught between housing/mortgage market stress on the one hand and persistent inflation pressures on the other, we are not so sure it will be so accommodating to the financial markets, at least in the immediate future.

• U.S. Housing Market Conditions (HUD User, Mar. 19th): "Even with [the] decline, 2006 was still one of the better years in the history of the [housing market] data series, and many of the key indicators were among the best 10 values ever reported. This trend was especially true for single-family housing; building permits had their fifth best year, starts and new home sales had their fourth best year, existing home sales had their third best year, and completions set a new annual record. The mortgage interest rate was low—about 60 basis points higher than the all-time low set in 2003. Although the overall economy grew, for the first time in several years housing was not a contributor to that growth."

Subprime Fallout

• Top Five U.S. Subprime Lenders Asked to Testify-Dodd (Reuters.uk, Mar. 20th): "U.S. Senate Banking Committee Chairman Chris Dodd said on Monday he asked executives at five big subprime mortgage companies to testify at a Thursday hearing and explain their lending practices... Executives from HSBC Holdings Plc (HSB), New Century Mortgage Corp. (NEWC.PK), Countrywide Financial Corp. (CFC), General Electric Co.'s (GE) WMC Mortgage unit and First Franklin Mortgage were invited to testify… Officials with the Federal Deposit Insurance Corp., the Federal Reserve, the Office of the Comptroller, and the Conference of State Bank Supervisors also were asked to testify."

• Waiting for the Other Shoe to Drop in Housing (Realty Times, Mar. 20th): "The credit freeze could also hit those with better credit. Standard & Poor says that the Alt-A loans (no doc loans for those with better credit) have jumped from $20 billion in loans in Q4'03 to more than $386 billion in 2006, up 28% from 2005. These loans were popular with investors, as well as self-employed people, and those who wanted a loan without putting money down. Again, many of these loans depended upon an escalating housing market to make money for homeowners, many of whom were non-occupying owners, which are more inclined to default than occupants."

• SEC Going After High-Risk Home Lenders (Charleston Gazette, Mar. 20th): "The SEC is investigating a number of companies that operate in the troubled market for subprime mortgage loans… It has been known that the SEC was examining accounting practices at New Century Financial Corp., the nation’s second-largest maker of subprime mortgages — higher-priced home loans for people with tarnished credit or low incomes. But comments made Monday by SEC Enforcement Director Linda Thomsen were the first public acknowledgment that the agency was involved in a broad examination of the subprime sector within the mortgage industry."

• How the Sub-Prime Mortgage Crisis Could Spread (John Hussman in Seeking Alpha, Mar. 19th): "The latest FDIC quarterly banking report: On-current loans registered their largest quarterly increase in 6 years during Q4'06, while reserves for loan losses, as a ratio of loans outstanding, fell to the lowest level in more than 20 years. Non-current mortgage loans increased by 15.6% during the quarter, while construction and development loans that were non-current increased by 34.8%... Among all FDIC insured institutions, total assets represented $11.8 trillion at the end of 2006, of which about 40% were real-estate related loans. Though foreclosures currently represent just over 1% of total mortgage debt outstanding… the average return on assets (earnings as a percentage of assets) in the U.S. banking system is also only about 1%. So any continuation in defaults will quickly find its way into earnings figures, either by provisions for loan loss reserves or by actual charge-offs."

Mortgates, Real Estate Lending and Foreclosures

• Banks Pick Up Where Fed Left Off, Restricting Access to Credit (Bloomberg, Mar. 20th): "The Fed's quarterly survey of senior loan officers, released last month, found a net 16% of U.S. banks recently tightened mortgage standards, the most since 1991. The report was based on responses from companies accounting for almost two- thirds of the $8.4 trillion industry... The central bank's March Beige Book, a survey of regional economies compiled from businesses and Fed contacts around the country, found "some weakness'' in consumer lending in the Dallas and Cleveland districts. Credit standards tightened on all loans in New York."

• The Sun Will Come Out Tomorrow (Business New Haven/Conntact, Mar. 19th): "Robert Porter, assistant professor of finance at Quinnipiac University and expert on mortgage banking: I don't think [subprime loans are] a serious threat to the economy… While the numbers differ depending on who you're talking to, the highest number I've seen is that subprime mortgages make up about 13% of the overall mortgage market, so we don't have a huge issue. Then within the subprime mortgage market, again the highest number I've seen has been that the delinquencies are running about 14% of the subprime loans. So in absolute terms it's certainly a nontrivial amount of money."

• Study Predicts 1.1 Million Foreclosures Among ARM loans (Inman News, Mar. 19th): "First American CoreLogic study, "Mortgage Payment Reset: The Issue and the Impact": In the next six years, 13% of the 8.37 million adjustable-rate mortgages originated between 2004 and 2006 will default. That's 1.1m foreclosures in a 6-7 year period, and $112 billion in equity wiped out after homes securing $326b in debt are repossessed and sold… Using December 2006 home prices as the starting point… from here on out, each 1% increase in home prices could save 70,000 homes from foreclosure. But … each 1% fall in home prices will put another 70,000 homes into foreclosure."

• A Surge in Foreclosure Filings (NY Times, Mar. 18th): "Realty Trac's preliminary February figures: 1,451 foreclosure filings in Connecticut, a 61% increase over the corresponding period last year, [and] following a steep rise in January as well. The 1,287 foreclosure filings in Connecticut that month represented a 67% increase over January 2006… Connecticut ranked 17th in the nation for foreclosure rates in 2006 as a whole, with one foreclosure filing for every 118 households. Rates were higher in [northeast] Windham County, (one for every 97 households), and New Haven County (one for every 105 households). The lowest rate was in affluent Fairfield County, with one for 124 households."

• Foreclosures Skyrocket (Foster's Online, Mar. 18th): "ForeclosureNH.com: Foreclosures nearly doubled last year in New Hampshire and are on track to double again this year, at least in part because of defaults on subprime loans… There's been a 95% change from Q1'06 to Q1'07… Records show 1,247 houses entered into foreclosures so far this year, compared to 639 in Q1'06… The projected foreclosure rate for subprime loans originated in 2006 is 15% for New Hampshire, 15.6% for Rockingham and Strafford counties. It's more than 16% for Maine."

Global Alternatives To The Housing Slump

• First Ever Development Pipeline and Three Year Forecast for Hotel Openings in Europe Reveals Robust Development Activity Through Decade End (Yacht Charter, Mar. 19th): "Patrick Ford, President of Lodging Econometrics: "There are 513 construction projects being actively pursued by developers having 93,669 rooms in the 40 countries throughout Europe. 59% of the total, or 302 projects having 52,580 rooms, are already under construction. Another 74 projects / 13,830 rooms are scheduled to start construction in the next 12 months while 137 projects / 26,989 rooms are in various stages of early planning… The region is benefiting from an expanding global economy, unprecedented availability of investment capital, a flourishing tourism industry, coupled with rising occupancies, accelerating room rates and a shortage of guestrooms in many key markets."

• SPDR SM DJ Wilshire International Real Estate ETF Assets Reach $500 Million in Three Months (State St., Mar. 19th): "State Street Global Advisors [SSgA]… announced that assets in the SPDR DJ Wilshire International Real Estate ETF (RWX) have reached $500 million… It is the first ETF to provide investors with access to global real estate securities publicly-traded outside the US… James Ross of SSgA: “The significant inflows into the SPDR DJ Wilshire International Real Estate RWX ETF indicate that investors [see RWX] as… having a very low correlation to the broader US and international equity markets… [and as] a vehicle to gain more precise exposure to the global markets."

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

• Subprime Chaos Claims Tampa Jobs (TampaBay.com, Mar. 20th): "Citing growing woes of its subprime mortgage unit, Fremont Investment & Loan told several hundred Tampa employees Monday it will lay them off May 18. The troubled California lender had put its Tampa staff and hundreds of others nationwide on indefinite paid leave two weeks ago after disclosing regulator concerns over its allegedly risky lending practices. A subsequent plan to sell the unit has not yet proved successful… NY Times: California regulators in 2000 took control of Fremont's workers compensation insurance unit, which had used questionable methods to generate huge revenue growth."

• The Mess Beyond Subprime: It's the 'E' in P/E That Worries Me (Average Joe in Seeking Alpha, Mar. 19th): "What worries me about what’s currently going on [in Real Estate] is the potential deterioration of sentiment in the economy… It’s positive sentiment that has people driving to the malls and businesses upgrading their IT systems… When you pull the “E” rug out from under the P/E we’re suddenly not sitting so pretty any more. Prices will adjust downward and the lowered sentiment will likely mean that they will adjust down to a lower average P/E than we’re currently at… For long term investors, I’d say that now is a good time to think about the ownership interest you have in the underlying business."

• More Stresses for US Housing (ACN Newswire, Mar. 19th): "US analysts say that housing and related industries account for about 23% of the US economy, including everything from hardware shops, to timber, to concrete, bricks, some parts of retailing (Wal-Mart), steel, oil and plastics. You name it, you need it when building, renovating or moving. That's roughly $US2.5 trillion dollars a year in an economy with a GDP of over $US 11 trillion."

• Centex Cuts Workforce Again (Tulare Advance Register, Mar. 18th): "Acknowledging that production continues to “fall off,” a spokesman for Centex, one of the county’s largest homebuilders, confirmed today that the company laid off 18 more employees late last week. In late 2006, the Dallas-based homebuilder cut its Central Valley workforce by more than 10%, blaming lagging sales and bloated new-home inventories. Company officials say Centex has been affected by the recent collapse of the subprime lending industry but that they’re guardedly optimistic that the housing market will turn around in 2008."

• When Mortgage Workers are Axed; Watch Your Back (Journal News, Mar. 18th): "The economy in the Lower Hudson Valley has been so robust for so long, the temptation is to pretend we are an economic island far removed from ailments afflicting other parts of the country, other parts of the state… [But] last week, hundreds of employees of Argent Mortgage Co. in White Plains learned via e-mail that their California-based parent company was closing the local shop and consolidating operations, a move necessitated by the upheaval in the subprime mortgage industry."

Homebuilders And Housing Stocks

• Housing and Misuse of the Stock Market (Barry Ritholtz in Seeking Alpha, Mar. 19th): "Justin Lahart's WSJ column: "How did investors come to believe housing was getting better in the first place? One possibility is that the rebound in home-builder stocks tempted them into seeing signs of improvement that weren't really there. While there is a certain allure to the idea that stocks, which move on the real-money decisions of thousands of investors, are better at predicting the future than any forecaster, this sort of thinking can be dangerously circular: Home-builder stocks are going up, therefore housing is getting better and therefore it is time to buy home-builder stocks." In other words, you should not believe that sector momentum is necessarily telling you anything other than the fact that there is momentum in that sector."

• With Sales Slump, Builders Offering Incentives on New Homes (Sun Sentinel, Mar. 19th) Florida: "Last week, Bradenton-based Taylor Woodrow Inc., which has three developments in South Florida -- and one… in Pompano Beach -- announced a new program to attract home buyers. Under its "Forfeited Deposit Transfer Program," qualified buyers can use contract deposits forfeited by other buyers and apply those funds toward the purchase of a new Taylor Woodrow home… Sunrise-based G.L. Homes is also applying forfeited deposits to the purchase of other homes."

• Apple, Meritage or Central Garden & Pet: What Stock To Buy? (Aaron Krawitz in Seeking Alpha, Mar. 19th): "The next stock that I threw all my cash at is Meritage Homes (MTH), a top 10 builder nationwide. There is blood in the streets in housing. Many stocks such as this one dropped more than 50%. Homes are a necessity and will be bought. The drop was mostly caused by a sub-prime mortgage market crisis. Subprime customers are those who do not qualify for prime market rates because of limited credit. MTH: Approximately 6%-7% was subprime. I think the drop is irrational exuberance, but it may take the market a while to realize. Fundamentals: a. Debt/Equity 73. b. Forward P/E 18.62 c. Price/Book .86."

• Subprimal Fears Signal a Time to Buy (The Street, Mar. 19th): "[Subprime] panic's knocked American Home (AHM) a third in a month to just $25.10… on Friday. At these levels, the shares have a forecast dividend yield of 18.5%. That's right: 18.5%. The company is a REIT… It pays out all its earnings as dividends… Subprime mortgages made up less than 2% of AHM's business last year… AHM increased its latest dividend a week ago, even as the subprime panic was taking hold of the market… Interactive Data's regulatory data: Insiders haven't been selling the shares… CEO Michael Strauss holds 9% of the stock and hasn't sold any since 2002."

• U.S. Home Builder Sentiment Erodes in March (Reuters, Mar. 19th): "The NAHB/Wells Fargo Housing Market index fell in March to 36 from a downwardly revised 39 a month earlier… While the March reading was up from a 15-year low of 30 in September 2006… it came in well below a reading of 54 in March 2006. Readings below 50 mean fewer builders view market conditions as favorable rather than poor. "Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity," said NAHB Chief Economist David Seiders."

• Bullish Home-Builder Analyst Sticking to Guns (MarketWatch, Mar. 19th): "Citigroup analyst Stephen Kim estimated that home builders' direct exposure to subprime buyers is likely between 10% and 15%, while "cancellations from backlog should be limited." Most builders sign contracts with buyers before they actually construct the home… Kim: "Homebuilders lost about 23% the past several weeks… due to the subprime woes and is once again trading at about price-to-book value -- a rough estimate of a company's tangible assets if it were liquidated… A price-to-book valuation of 1 is a traditional "buy signal" and that the "recent pullback represents an attractive entry point."

Commercial Real Estate and REITs

• Cogdell Spencer Announces Commencement of Common Stock Offering (PR Newswire, Mar. 19th): "REIT Cogdell Spencer Inc. (CSA) announced today that it commenced an underwritten public offering of 3,250,000 shares of common stock plus an option to purchase up to an additional 487,500 shares within a 30-day period to cover overallotments, if any. Banc of America Securities LLC is acting as the sole book-running manager for the offering… The Company intends to use the net proceeds from the offering to reduce borrowings under its unsecured revolving credit facility and any net proceeds remaining will be used for working capital purposes, including potential future development and acquisition activities."

• What Business Leaders Need to Know About: West Coast Logistics (World Trade Magazine, Mar. 19th): "To accommodate expanding freight volumes, Southern California’s [Allen Group] Inland Empire, located east of Los Angeles in the counties of Riverside and San Bernardino, has been on a building binge in recent years. With 20 million Sq.ft of total industrial space under development in Q3'06… The Allen Group’s second California facility is the International Trade and Transportation Center (ITTC) [near Bakersfield], home to a 1.7 million Sq.ft regional distribution center for Target Corporation. Facilities of this size are becoming more prevalent… The average size of warehouses built in 2002 was 120,000 Sq.ft. In the first half of 2006, it jumped to 216,000 Sq.ft."

• Finally, the Frontier (Slatin Report, Mar. 19th): "Elad Properties, the Israeli-owned real estate investment group that is deep into an extensive renovation of the landmark Plaza hotel in… New York [City], is about to announce… it is purchasing the New Frontier Hotel & Casino in Las Vegas. Sources say the purchase price could be as sky-high as $40 million per acre – or $1.5 billion for the 38.5-acre site… The site will become one of several new megadevelopments… Frontier owner Phil Ruffin… turned down an offer of about $20 million an acre in the past, is ready to part with the property. Ruffin bought the hotel in 1998."

• Final Bids In for CalWest Industrial Portfolio (Globe St., Mar. 19th): "The California Public Employees Retirement System recently received final bids for its CalWest industrial portfolio and is expected to select a buyer any day now… Finalists for the estimated $2.5-billion portfolio are reportedly GE Real Estate, AMB Property Corp., First Industrial Realty Trust and Muruelo Maddux Properties… The portfolio consists mostly of warehouse and distribution product in the Western US. Given a $2.5b purchase price and the portfolio’s current net operating income, the capitalization rate on the acquisition would be in the 5.5% to 6% range."

Web Site of the Day

Carnival of Real Estate is a real estate blogger's party, brought to you by Zillow.com. Every week a summary of the best blogging posts—for our purposes—on real estate matters are posted in aggregate form, on Carnival. While it is somewhat limited in that only one person's subjective tastes select the week's best, the upside is that a different blog hosts the Carnival each week, and so the topics and areas covered are really wide-ranging and informative.

What's so great about it? In Carnival's own words: "To stay up-to-date with the real estate industry; to see what’s being blogged about and discussed in the real estate community; to learn about new real estate trends geographically; to discover new bloggers; to energize yourself/your company; to network; to learn new tricks; to get the creative juices going; to help innovate; to stay current in the business…"

Sounds like a party.

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