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- "From the House's Mouth"

"I think that there maybe some slight bleed over, but we really haven't seen very much yet, as you know there has been some slight bleed into in the Alt-A space. But in the prime space I think things are pretty good. There maybe some slight affect, but I don't expect that there'll be a great deal of affect."- Richard F. Syron, CEO Freddie Mac on whether the subprime market is seen as spreading throughout the general mortgage market. (Seeking Alpha's Freddie Mac Q4'06 Conference Call Transcript, Mar. 23rd)

Real Estate Sales and House Prices

• New Home Sales Data: 7 Year Low (Barry Ritholtz in Seeking Alpha, Mar. 26th): "Commerce Department's New Home Sales Data: Sales of new-homes dropped nearly 4% in February… The lowest reading since June 2000… Y/o/y, sales were down 18.3%. Inventories of unsold homes rose 1.5% to 546,000… An 8.1-month supply. Marketwatch notes this is the largest inventory in relation to sales since January 1991. Y/o/y, inventory is up 26.6%. The median price rose 2.8% sequentially - down 0.3% on a y/o/y basis, to $250,000. This report is hard to reconcile with last week's Existing Home Sales; One of them is likely wrong. I suspect the NAR-prepared Existing Home Sales is the dud . . ."

• Home Sales Picking up Again in the Boro (Murfreesboro Post, Mar. 25th): "Middle Tennessee Association of Realtors: February sales in Rutherford County have returned to 400 closed sales. Average home prices are continuing to appreciate by $6,000 to $8,000 over previous years. Rutherford County home sales reached 435 in February down 2.7% from the same month last year. Industry experts are reluctant to say this season will be a buyers’ market, but admit there is an inventory of homes in the $250,000-$300,000 price range."

• How to Flip an Entire Neighborhood, Part Deux (Baltimore Housing Blog, Mar. 24th): "[In the] Gunpowder development on the Harford/Baltimore County line… houses were built from 2001-2003… We've got 17 homes within a mile whose asking prices have shown no adjustment for the glut of like properties in the area: Two are listed for under $400,000, and one has been on the market [since May 2006, another] for at least 8 months and likes to play the "I'm sticking by my price no matter what" game… In Harford County, there are 14.4 months of inventory from the $400-$449K range and 16.8 months of inventory from $450K-499K."

• Ladd Tower's Shift to Apartments Jibes with National Trends (The Oregonian, Mar. 23rd): "Large national investment funds are starting to shy away from financing condo projects, instead turning their focus to apartments… Economic fundamentals have returned to the apartment market in urban Portland: Supply is down, in part because of the conversion of so many apartments to condos. Condo dwellers and retail growth have added excitement to the city's core. And with the region's job growth still outpacing the rest of the nation, more people are willing to pay at least $1,000 to $3,000 in monthly rent. Some landlords are reporting 12% rent growth in the past 12 months."

• National Home Values Fall For 7th Straight Month (Originator Times, Mar. 23rd): "National Association of Realtors: Existing Single-family home sales rose 3.7% to 5.88 million from January's 5.67 million… but off 3.4% from 6.09 million units in February 2006. Home values fell 1.5% from February 2006… Freddie Mac [says], the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.16% in the last week, down from an average of 6.29% in February. The 30-year fixed was 6.22% in January, and 6.25% in February 2006. Total housing inventory levels rose 5.9% at the end of February to 3.75 million existing homes available for sale, which represents a 6.7-month supply at the current sales pace."

Real Estate Investing and Sentiment

• Southeast Area Rescue Launched (Memphis Commercial Appeal, Mar. 26th) Memphis: "What's happening in Hickory Hill and other low- to moderate-income neighborhoods is part of a nationwide pattern resulting from a flurry of subprime mortgage lending and foreclosures. Neighborhoods tend to decay and crime rates rise where high-risk and low-income borrowers, lured into adjustable rate mortgages or serial refinancing schemes, are no longer able to make their payments."

• Stunted Growth: Area's Golf Courses are Going Away (St. Louis Post Dispatch, Mar. 26th): "A decade ago… Golf was enjoying boom times… But by 2002… things had begun to change. Trying to make a living by operating a golf course became a challenging proposition. Economic factors such as 9/11 and a sharp rise in gas prices hurt… The St. Louis market [became] saturated. Nationally, the U.S. had a net loss of golf courses last year for the first time in six decades, according to the National Golf Foundation. Courses that closed did so primarily for redevelopment as residential or commercial real estate."

• Housing Balloons in N.D. (The Forum, Mar. 26th): "North Dakota: "The number of housing units – including homes and apartments – ballooned by almost 65% from 1950 to 2000, while North Dakota’s population crept up by 3.6%. Housing units totaled 175,769 in 1950, early in the post-World War II baby boom, and reached an estimated 304,458 by 2005, or a gain of 128,689 units. During the same period, North Dakota’s population grew by 22,564. In other words, the number of housing units grew at a rate almost six times faster than the population. "

• On Housing, ‘Worst Is Yet To Come' (NY Sun, Mar. 26th): "Steven Krystofiak, President, Mortgage Brokers Association for Responsible Lending: Housing prices — which were relatively flat in 2006 — will begin to undergo an extreme dive soon, spurred by more than $2 trillion worth of short term fixed mortgages resetting at higher interest rates in 2007 and 2008… Home prices nationally to fall between 5%and 10% from current levels by year's end and to… between 15% and 20% by the end of 2008… Double-digit declines will be especially conspicuous in the hottest real estate markets, among them San Diego, Phoenix, Boston, and Sacramento, and states Nevada, Florida, and New York."

• Coldwell Banker Opens Office in Second Life (Future of Real Estate Marketing, Mar. 24th): "Coldwell Banker (CB) announced today that it is the first national real estate company to sell homes to SL residents… It’s an interesting idea. Large companies like CB are making all kinds of creative plays in SL’s cyberspace - HSBC has a bank, Toyota has a dealership… SL can be a test bed for new ideas and it gets people interacting with their products and services; and it’s a relative cheap investment…an island costs $1,675 for about 16 virtual acres, plus $295 a month for maintenance fees."

• 90 Percent of Appraisers Feel Pressure to Inflate Home Values (EFinance Directory.com, Mar. 23rd): "October Research Group: Inflated home appraisals helped drive up home prices across the country to levels that couldn't be sustained. A new study finds that 90% of appraisers now feel pressure to inflate home values. Some are even being asked to turn in appraisals without looking for a home. Those who don't cooperate face negative ramifications from clients and employers alike. Appraisers say most of the pressure-71% -comes from mortgage brokers and real estate agents… One can only assume [the rest of the pressure comes from] the banks or the appraisal management companies themselves."

Mortgates and Real Estate Lending

• For Mortgages, Tradition Rules Again (Washington Post, Mar. 24th): "For decades, the basics [were]: Your mortgage payment, including taxes and insurance, should not exceed 28% of your gross pay, and all your loans, mortgage included, should not exceed 36%… Greg McBride, senior financial analyst at Bankrate.com: "Just because a lender lends you money… does not mean it's a wise decision to take it." CoreLogic's Christopher Cagan… expects 1.1 million reset-related foreclosures within the next seven years. Those would represent 13% of adjustable-rate mortgages for purchases or refinancing from 2004 to 2006 -- or $326 billion. About $112 billion will be lost when those homes are resold."

• Freddie Mac Reports Q4 Net Loss on Credit Guarantee Losses (Seeking Alpha, Mar. 23rd): "Freddie Mac, #2 mortgage company in the U.S., reported a $480 million Q4 2006 net loss Friday morning, narrower than the $500 million loss it reported in Q3, and compared with net income of $684 million in Q4 2005... Freddie Mac pinned the losses on low bond yields and poor investment returns, saying losses "on the company's credit guarantee portfolio, derivatives and administrative expenses more than offset net interest income and management and guarantee income… It said it would repurchase up to another $1 billion in its common stock, and issue up to $1 billion in preferred stock."

• HSBC Mortgage Services Weekly Communications Update (HSBC Mortgage Services Press Release, Mar. 22nd): "We are introducing a number of changes to our mortgage services business and wish to advise you that HSBC has made the decision to discontinue correspondent channel acquisitions through HSBC Mortgage Services. HSBC Mortgage Corporation, the prime mortgage business and Decision One, the wholesale sub-prime business owned by HSBC USA, N.A., are not impacted by this decision."

Subprime Fallout

• Sen. Schumer: 53,000 At Risk of Losing Homes (AM New York, Mar. 26th): "Sen. Charles Schumer has proposed federal oversight of the subprime lending market, warning that 53,000 families in the metropolitan area are at risk of losing their homes when their subprime mortgage rates jump… Schumer said an analysis by his office found that an estimated 1.8 million American families -- including 23,000 in New York City and 19,000 in Nassau and Suffolk counties -- could face foreclosure within the next two years when their subprime loan rates spike. Shumer's proposed bill would create a national regulatory system for mortgage brokers and loan officers, including those at non-bank companies."

• Asset Manager Sy Jacobs' Subprime Longs and Shorts (Seeking Alpha, Mar. 25th): "Barron's interviews Sy Jacobs of Jacobs Asset Management: Shorts: 1) Bankrate (RATE) Its client base of mortgage brokers and backers are rapidly disappearing. Credit-rating agencies like 2) Moody's (MCO) and 3) McGraw-Hill (MHP)... Congress could come down hard on agencies who should have been more vigilant. Longs: Financials that are sensitive to short-term interest rates but not to credit: The Fed will start cutting rates as the housing crisis deepens. One example: 4) Annaly Capital Management (NLY). 5) Residential mortgage REIT Anworth Mortgage (ANH) should rise from $9 to $16 as funding costs shrink while ARM assets rise. 6) Opteum (OPX) -- ALT-A fears have made this stock oversold. Book value is $7.85/share, while shares are at $4.50. Citibank (C) took a 7.5% stake for 150% of book at year-end 2006. 7) Origen Financial (ORGN) With a possible decline in home ownership, manufactured housing should benefit."

• If Merrill Lynch Bought New Century (OC Register, Mar. 25th): "Last spring, New Century's board spurned a [buyout] overture by Merrill Lynch… On Sept. 5, 2006 Merrill announced a $1.3 billion agreement with National City Corp. to buy three subsidiaries: First Franklin, a subprime lender, National Home Loan Services and NationPoint, an online mortgage lender…The three companies Merrill purchased originated $29b in loans in 2005 compared to $56.2b in loans by New Century that year. If valued at the same level, Merrill's proposal to buy New Century a year ago – around the time the stock peaked for the year at $51.97 a share – would be worth about $3b… [NEWC.PK is now at $1.56]."

• The Housing Bubble, and the Freedom to Fail (The Liberty Papers, Mar. 25th): "The most basic market principle of libertarianism is that rational actors, will act with informed self interest, to produce optimal results in a market. This isn’t anyone's FAULT, but the people who bought houses they couldn’t afford; and the people who lent them the money to do so. Noone was deceived by the fed, or the lenders. There’s no such thing as a predatory mortgage on a new house you can’t afford. Lenders aren’t trying to put people into loans they can't pay back, they LOSE money on foreclosures."

• Subprime Lending Does Have its Benefits (Belleville News Democrat, Mar. 25th): "In Q4'06, 13.3% of subprime borrowers were behind in their payments compared with 2.6% for prime loans, the Mortgage Bankers Association reported last week. About 4.5% of subprime loans were somewhere in the foreclosure process compared with 0.5% for prime loans… [But] subprime delinquencies rates were actually higher in 2001 and 2002 than today, and they have exceeded 10% every quarter for the past decade. What's changed is that more homeowners have subprime loans today, so the same failure rates affect more people… There were 1.2 million foreclosure filings in 2006, a 42% increase from the year before. But… more than 86% of subprime borrowers are not late in payments, and more than 95% are not in foreclosure."

• Will 'Lemming Loans' Drive U.S. Economy Off The Cliff? (Nasdaq.com, Mar. 23rd): "In dollar terms, the scale of the potential losses from resets of adjustable- rate mortgages is insignificant when compared with the size of the capital markets. CoreLogic estimates losses of just $112 billion out of a $9 trillion mortgage market, leading him to conclude that mortgage resets won't break the economy or the financial system. The deeper question is what will happen to investor sentiment. "This has the potential to undermine global investor confidence," said Mark Zandi of Economy.com. The result could be a general drying up of credit, even to the most qualified and untainted borrowers."

• Missouri, Illinois Won't Escape Subprime Mortgage Meltdown (St. Louis Today, Mar. 23rd): "Missouri and Illinois have both eclipsed the national foreclosure rate. In Illinois 6.2% of all subprime mortgages were in foreclosure at the end of 2006, compared to 4.5% nationally. In Missouri, the level was 4.7%. More than 15% of the 218,504 subprime loans in effect Illinois on Dec. 31 were… delinquent… nearly 10% were seriously delinquent- at least 90 days past due. In Missouri 18% of 106,718 subprime loans were delinquent and 9% seriously delinquent. In both states, the pace of foreclosures increased dramatically over the last 90 days of 2006."

Global Impact of The Housing Slump

• Japan's Bonds Decline for 2nd Day on U.S. House Market Rebound (Bloomberg, Mar. 26th): "Japanese bonds fell, pushing 10-year yields to the highest in more than three weeks, as signs of a rebound in the U.S. housing market improved the outlook for global economic growth… Concerns are receding about the bad impact of the U.S. housing market on the rest of the economy,'' said Satoshi Kon, a fund manager who helps oversee the equivalent of $19.6 billion in Japanese bonds at Pension Fund Association."

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

• AGC Economist Says Construction Materials Costs in Lull (BostonSF, Mar. 26th): "Kenneth Simonson, chief economist for the Associated General Contractors of America [AGC]: "Construction cost increases slowed markedly in the last half of 2006. But the relief is likely to be short-lived and may have ended already. By the end of 2007, materials costs could be rising again at a 6-to-8% rate, with wages rising at a 5% pace…" In AGC's fourth Construction Inflation Alert (CIA) released today, Simonson explained that construction is vulnerable to high price increases because the industry has little ability to avoid using materials that are in strong demand and for which supplies increase irregularly."

• Soft Pedaling the Housing Market Blues (Washington Post, Mar. 26th): "Desmond Lachman of think tank American Enterprise Institute: Yale's Robert Shiller [notes] between 2000 and 2006, home prices, adjusted for inflation, increased by 80%... increasing household wealth by around 50% of GDP... [Though] optimists say… residential construction only accounts for 6% of GDP… Housing starts declined 30%+ over the past year… [And there's a] likely spillover effect of a housing market recession on… industries that provide furnishing or appliances to newly constructed homes… [Also] declining home values will almost certainly impact household spending decisions as [a] main source of wealth declines with falling home prices."

• Yale's Shiller Calls for Further 20-30% Housing Price Declines (Paul Kedrosky in Seeking Alpha, Mar. 25th): "Yale economist Bob Shiller: 20-30% housing price declines over the next 5-10 years -- including in untouchable cities like San Francisco and New York… The fundamental factor triggering the price slump ahead is the fact that home prices have risen to levels far above construction costs… Such an anomaly can't persist for long, even in… NY and SF [with] a paucity of available land and severe zoning restrictions. … Throughout U.S. history, populations generally have moved to areas with lower housing costs when prices become elevated in hot areas. Then home prices reverted to construction-cost levels."

• Property Tax Money Fuels Big Spending (Bradenton Herald, Mar. 25th): "Miami Herald review of 14 local-government budgets for the past seven years: The property-tax revenue increases since 2000 have been immense: 178% for Miami-Dade County, 123% for Fort Lauderdale, 82% for Broward County and 108% for Miami. Government income from other sources [such as] building permits… grew with far more moderation. The loads of property-tax money allowed governments to buy nearly everything: more emergency and parks workers everywhere… Bigger salaries in Miami-Dade, where the county's 30,000 employees received an average salary increase of 29% between 2000 and last year -- while the inflation rate rose about 18%."

• Steel Demand Down, Prices Up (NWI.com, Mar. 25th): "Steel analyst Charles Bradford: Service center inventory levels were at a 3.7-month level in February, up slightly from January's 3.5 month supply. The consensus 2007 U.S. economic forecast is for 2.7% growth, and [lower]… U.S. economic growth is being tempered by the current lag in consumer demand due to higher energy costs, a dip in new housing starts and lower auto sales. "Steel mills need 3% economic growth for there to be steel growth. Even the non-construction side is weakening. Bradford predicts steel company earnings to bottom in Q1 and to improve significantly in Q2, but Q3 is "very cloudy."

• Is Subprime Today's Dot-Com? (Money Week, Mar. 23rd): "Seven years ago, optimists argued that equities as a broad asset class were in reasonably good shape – that any excesses were concentrated in about 350 of the so-called Internet pure-plays that collectively accounted for only about 6% of the total capitalization of the US equity market at year-end 1999… The dot-com bubble burst, and over the next 2 ½ years, the much broader S&P 500 index fell by 49% while the asset-dependent US economy slipped into a mild recession… This time, it’s the US housing bubble that has burst, and the immediate repercussions have been concentrated in a relatively small segment of that market – sub-prime mortgage debt, which makes up around 10% of total securitized home debt outstanding… I suspect that a powerful dynamic has now been set in motion by a small mispriced portion of a major asset class that will have surprisingly broad macro consequences for the US economy."

• The Plague of Housing: Why we Will Feel and Be Poorer Because of the Housing Bust (Dr. Housing Bubble, Mar. 23rd): "Many folks will try to pony up and make the new higher payments [when their adjustable mortgages reset]. So if John and Mary Debthead currently have a payment of $1,500 and there payment goes up to $2,000, where does that $500 go in the economy? Instead of John and Mary buying another disposable DVD player, they are now facing a squeeze on their discretionary income. This is known as the reverse wealth effect. If you have a fixed payment such as housing eating up a larger portion of your monthly bill you must forgo something."

Homebuilders And Housing Stocks

• General Electric: A Winner in the Mid-Cycle Slowdown (Saul Sterman in Seeking Alpha, Mar. 23rd): "When profit growth is no longer the driving engine behind the market, quality takes over. Like other mega caps, GE is obtaining extra growth via acquisitions during the slowdown. Once the pattern becomes apparent, higher multiples are awarded to mega caps that are able to sustain current or higher earnings growth. Smaller companies tend to show below par earnings growth and try to compensate with top line growth. More often than not, emphasizing revenue over profit leads to margin reduction. In turn this leads to even lower earnings growth, at times lower y/o/y earnings, resulting in a multiple reduction."

• Icahn Files for Large Stake of Homebuilder WCI (CNN Money, Mar. 23rd): "Billionaire investor Carl Icahn launched a tender offer for shares of WCI Communities Inc., according to a filing Friday with the U.S. Securities and Exchange Commission. Icahn, who owns a 14.5% stake in the luxury homebuilder, said in the regulatory filing that the tender offer will expire at midnight, May 18, unless extended. On March 13, Icahn said he would launch a bid for a large chuck of WCI and made good of his plan on Friday."

Commercial Real Estate and REITs

• Commercial Real Estate Still Sizzles (Palm Beach Post, Mar. 26th): "A Houston-based pension fund adviser just paid $18.82 million for a mostly empty shopping center. The 100,000 Sq.ft North Palm Marketplace in North Palm Beach sold March 9 to Lionstone Group of Houston. The seller was Fairway Centre SPE of Alabama… RJS Realty Group: "The 50,000 Sq.ft Winn-Dixie that once anchored the shopping center closed in 2005, but the buyer sees a redevelopment opportunity." The same seller and buyer hooked up last year on the $36.8 million sale of the Fairway Centre offices just north of North Palm Marketplace… Fairway Centre bought North Palm Marketplace for $13.9 million in 2003."

• Mission West Properties CEO Speaks About His Company (Wall St. Transcript in Seeking Alpha, Mar. 26th): "Carl E. Berg CEO Mission West Properties (MSW) [REIT]: We... projected… what would happen three years ago… Though the results weren't great, they were exactly what we said would happen. Fundamentally, we reached the bottom in Q1'07. We will be on the upside from here forward. We've just increased our earnings projection for 2007, and we may increase that again. Our vacancy has reached its low point, and now we are on the upside of the vacancy… We hope [to] see an increase in rents and a decrease in vacancy and start increasing our dividend in the near future."

• Property Funds Feel Subprime Sting (Wall St. Journal, Mar. 23rd): "Some apartment REITs -- basically landlords of apartment buildings -- also have been hurt because of fears that growth in rentals has peaked. That might not be the case, some say. Joe Rodriguez, manager of the $2 billion AIM Real Estate Fund, says low-credit borrowers who default, and may end up losing their homes, may actually be renting apartments, which will be good for apartment REITs such as Equity Residential and Archstone-Smith Trust. His fund owns both of those REITs."

• PACB Approval Propels Moynihan Station Project (Globe St., Mar. 23rd): "The Public Authorities Control Board approved Friday funding the sale of the Farley Post Office, located on Eighth Avenue between 34th and 33rd streets. The U.S. Postal Service will sell the 1.4-million Sq.ft building to the Empire State Development Corp. for $230 million. The approval allows the USPS to sell the building while maintaining a 250,000-Sq.ft. presence in the new development. The PACB also granted permission for the acquisition funding to be provided by private developer loans. The Port Authority of New York and New Jersey will put forth $140 million for the acquisition, with the remaining $90 million needed coming from private developers."

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Comments

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- Elijah
golfrentalandsales.com

2007 Dec 17 05:13 PM