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"

“The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market.The 10-City and 20-city Composites are both showing negative annual returns, a striking difference from the 15.1% and 14.7% returns they reported this time last year. The dismal growth in the 10-City composite is now at rates not seen since January 1994.”- Robert J. Shiller, Chief Economist at MacroMarkets LLC. (Matt Hougan in Seeking Alpha, Mar. 29th)

Real Estate Sales and House Prices

• Homes Still Overvalued Even as Prices Slip (Seattle Times, Mar. 29th): Global Insight and National City study: Prices of homes in many red-hot regions — California, South Florida and the New York metropolitan area — cooled in Q4'06. But 16% of the nation's single-family homes remained overvalued. That's slightly down from 17% in Q3… The analysis used local household income, population density and historical prices to assign… the median home [price] in… nearly 90% of home values nationwide… Seattle [is] moderately overvalued by 31.7%, compared with 29.8% in Q3. The report… cautioned homebuyers in parts of California, the Northwest, Arizona and Florida… [but] found attractive values in parts of Texas, Mississippi and Oklahoma."

• U.S. Home Prices Have Taken a Cliff Dive Without Signs of Recovery (Matt Hougan in Seeking Alpha, Mar. 29th): "U.S. home prices fell 0.6% in January of 2007, after dropping 0.7% in December 2006, according to the [latest] S&P/Case-Shiller Home Price Indexes. Prices fell in 17 of 20 measured cities in January… Shiller thinks the real estate market is getting ugly. A look at the chart of annual price gains is shocking. Since early 2004, price gains have fallen off the cliff, and there is no sign that the trend is decelerating or changing directions."

• Index: Housing Prices Declined In January (Florida Ledger, Mar. 28th): "For the Lakeland-Winter Haven metropolitan statistical area, median home prices rose 10% from $163,300 in January 2006 to $179,300 two months ago. Last month, median home prices were relatively flat compared with year-ago totals. Median home prices last month only rose 0.1% to $174,300 from $174,100 a year ago.)"

Real Estate Investing and Sentiment

• Paulson: Housing Damage 'Contained' (CNN Money, Mar. 28th): "U.S. Treasury Secretary Henry Paulson: "Damage to the American economy from the housing market downturn and subprime mortgage foreclosures "appears to be contained… The Treasury had "grave concern" for the many Americans who will be adversely affected by the resetting of adjustable rate subprime mortgages… "You have to balance that against the fact that the subprime market has made credit available to many Americans who are able to own houses now that they otherwise would be unable to own… Rising consumer incomes and growing U.S. exports would help to limit systemic risks from subprime mortgages and the overall housing sector."

Mortgates, Real Estate Lending and the Subprime Fallout

• Rival Banks Keeping New Century Afloat (OC Register, Mar. 30th): "When Nunez's current employer, New Century Financial, an Irvine-based subprime wholesale lender, ran into trouble this month, Nunez volunteered to help those brokers fund loans – even though it meant going to New Century's competition. " Nunez said of her broker clients. "I know that once we overcome this current situation, they'll remember what I've done for them." What Nunez did is now company policy at New Century. Many state regulators say New Century did it in response to the threat of legal sanctions, without which thousands of consumers would lose funding to buy or refinance their homes."

• Demistyfying Indymac's Alt-A Lending Business (Robert Craig-Stephenson in Seeking Alpha, Mar. 30th): "Indymac PR stated that between 2002-2006 their mortgage performance in terms of default is much lower than the comparable Alt-A universe… [But] 2002-2006 were the best housing market in recorded US history… More meaningful statistics would be the delinquency rate… from 2005 onwards… Indymac loans… changing expected performance are immediately reflected in the price that the loan will trade at. Right now, for stated income loans with adjustable rates, in the Alt-A sector, the market implies 50-300 basis points of default cost, depending on several other variables such as credit score and other borrower attributes. This cost alone will eat up most, if not all, of Indymac's expected credit revenue. The good thing is that… the losses won't kill and Indymac does not depend on Wall Street financing. The bad news: Indymac will not make any money for several quarters as these costs adjust upwards and profit growth suffers."

• Mortgage Delinquency Rises in N.H. (New Hampshire Business Review, Mar. 30th): "National Delinquency Survey of the Mortgage Bankers Association of America: Total mortgage delinquencies in New Hampshire increased by 48 basis points to 4.37% in Q4'06, up from 3.89% in Q3'06. Some 188,313 loans were serviced in the Granite State during Q4'06, up 1.5% from Q3'06. Of those, 158,167, or 84%, were prime loans while 23,358, or 12%, were subprime. FHA and VA loans made up the remaining 4%. Despite the increase in mortgage delinquencies, New Hampshire remains below the national rate of 4.95% delinquency rate and behind the New England average of 4.46%."

• Lenders Scramble for Loan Buyers (OC Register, Mar. 30th): "Alan Pott heads American Home Equity Corp., a small lending business… in Santa Ana… Pott is one of several small lenders in Orange County who made loans to consumers and then re-sold some of them to big subprime lenders like New Century Financial of Irvine and Fremont Investment & Loan in Brea… When [investment banks] Morgan Stanley, Goldman Sachs, Credit Suisse and others… cut off funding to New Century, [they] in turn stopped buying loans from small lenders like Pott."

• Troubled New Century Cuts Ties With Freddie Mac (Seeking Alpha, Mar. 29th): "New Century Financial Corp. voluntarily ceded the right to sell or buy loans from Freddie Mac just one week after Fannie Mae cut NEWC off. NEWC's SEC filing says other lenders who have offered $17.4 billion of credit-- $8.2b of which was utilized-- will also auction off collateralized loans as Barclays and Morgan Stanley will of $900 million and $2.5b respectively. NEWC also owes $1.5b to UBS AG, and $900m each to Credit Suisse Group and Deutsche Bank AG… The NY Times says NEWC's most valuable asset is its mortgage loan software platform, but analysts agree that only the auction proceeds will clarify NEWC's asset values."

• HSBC to Scale Back U.S. Subprime Mortgage Division (Bloomberg, Mar. 29th): "HSBC Holdings Plc Chairman Stephen Green said the U.S. subprime mortgage services division will be "run down significantly…" trying to recover from loan losses. HSBC is curtailing the sale of so-called second-charge loans, which don't have first claim on assets when a loan isn't repaid, as it tightens credit controls after an increase in defaults at the unit caused U.S. earnings to plunge… HSBC had said it would stop buying second-charge loans from other lenders earlier this month, and… has continued selling its own after an 87% drop in second-half profit in North America."

• Why I'm Underweight the Financial Sector: Sometimes Bad Gets Worse (Markos Kaminis in Seeking Alpha, Mar. 29th): "GM (GM) sold off a big stake of GMAC at just the right time, and now Morgan Stanley (MS) wants to spin off its Discovery Card unit… The lending mess is spreading, and it's only a matter of time before traditional lenders like Wachovia (WB), Washington Mutual (WM) and Indymac (NDE) begin to report more significant deterioration. At that point, consumer confidence does not seem likely to hold up, and consumer spending should take a step back. At the same time, inflation staves off the Fed from acting swiftly to rescue the marketplace."

• Fed Eyes Rules for Mortgage Lenders (Washington Times, Mar. 29th): "Federal Reserve Chairman Ben S. Bernanke: The central bank is considering issuing nationwide regulations against abusive mortgage lending practices, but he cautioned that regulatory overkill could make it difficult for people to buy, sell and refinance homes… The Fed itself currently does not have authority to enforce nationwide rules... The law is enforceable only by private rights of action or citizen lawsuits… [Making] lenders subject to the widespread threat of civil lawsuits… "We would be setting up lenders for the uncertainties ... and would be probably killing the market because there would be so much legal uncertainty."

• Foreclosures at 8-Year High (Chicago Tribune, Mar. 29th): "Nearly 29,000 foreclosures were filed in the six-county Chicago region in 2006, a one-year jump of 36% and the highest level in at least eight years, amid a meltdown in the subprime lending market and the growing use of adjustable rate mortgages, according to a study released Wednesday by a Chicago-based housing policy group… The pain was widespread, as all counties in the region saw double-digit increases in foreclosures. DuPage and Lake Counties, generally considered to be affluent, saw the number of foreclosures climb by 46% and 36%, respectively, to 1,886 and 2,219."

• You Think You Have Problems (CNBC, Mar. 29th): "Sometimes it's good to stay at the safe and boring place. The Seattle Post-Intelligencer reports that two top executives at Washington Mutual jumped ship last year to another mortgage bank. Tony Meola, Executive VP of home lending at WaMu, left to become Executive VP of loan production at the new place. Taj Bindra, another WaMu EVP, later followed, becoming CFO. The new place: New Century Financial, quickly sinking into the subprime quicksand."

• Morgan Stanley Promotes Mortgages (BusinessWeek, Mar. 28th): "Morgan Stanley… has launched a campaign to push mortgages and home equity lines of up to $3 million… Morgan Stanley is offering $100 gift cards to The Home Depot, Pottery Barn, or Sharper Image to new borrowers… It also is promising loan decisions within 24 hours of receiving an application… Brokers are also being offered added bonuses for selling home loans… Morgan Stanley and Merrill Lynch have recently bought subprime mortgage companies in order to obtain a supply of home loans for its investment banks to package into mortgage-backed securities for sales to yield-hungry investors."

Global Impact of The Housing Slump

• French Housing Bubble Set to Burst (Telegraph.co.uk, Mar. 28th): "French property construction plummeted 15.1pc in February and home prices have begun to slip in the first sign that America's housing woes are spreading to Europe. The surprise data came as the US Conference Board's confidence index fell sharply from 111.2 to 107.2, suggesting that housing troubles are starting to unnerve American consumers. French house prices have shot up by 210pc since 1995, compared with 190pc in the US… 180,000 Britons own second homes across La Manche. But after years of double-digit gains the pace slowed to 7.2pc last year and turned negative in January with a fall of 0.6pc."

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

• Copper Higher as China Offsets Sluggish U.S. Economy (Reuters, Mar. 30th): "Copper traded higher on the last trading day of the month supported by strong Chinese demand but prices were capped by global growth worries… "The U.S. housing market would see fewer homes built in 2007 than in 2006, analyst Andrew Keen at investment manager Sanford C. Bernstein said in a report. "We believe that a 20% downturn in residential building activity would result in a loss in demand of 0.56% of copper demand, 0.24% of aluminium demand and 0.12% of steel demand."

• Bernanke Testimony Highlights (Barry Ritholtz in Seeking Alpha, Mar. 29th): "From Fed Chief Bernanke's congressional testimony: The correction in the housing market could turn out to be more severe than we currently expect, perhaps exacerbated by problems in the subprime sector. Moreover, we could yet see greater spillover from the weakness in housing to employment and consumer spending than has occurred thus far. The possibility that the recent weakness in business investment will persist is an additional downside risk. To the upside, consumer spending - which has proved quite resilient despite the housing downturn and increases in energy prices - might continue to grow at a brisk pace, stimulating a more-rapid economic expansion than we currently anticipate."

• Late Payments Rise on Some US Consumer Loans but not on Credit Card Bills (International Herald Tribune, Mar. 29th): "Late payments on certain auto and home equity loans climbed in the final quarter of last year, while delinquencies on credit card bills largely held steady, suggesting some U.S. consumers are feeling more squeezed than others. The American Bankers Association, in its quarterly survey of consumer loans, reported Thursday that late payments on home equity loans rose to 1.92% in the October-December period. That was up sharply from 1.79% in the prior quarter and the highest since Q1'06."

• Hard Line on Inflation Adds to Fears (LA Times, Mar. 29th): "Analyst Michael Englund, principal director of Action Economics: Expansions were "stretching and becoming less dramatic… Bernanke might be taking the best approach to fighting inflation, given his limited powers to counteract contractions in mortgage lending resulting from the sub-prime collapse." Although housing downturns correlated with recessions in the past… they didn't cause the recessions on their own. A host of other economic indicators took a nose dive, and those indicators are looking pretty good now, including low unemployment and high consumer confidence."

• Homeownership Crisis (Chron.com, Mar. 28th): "By year's end an estimated 3 million of them will lose their homes. Disproportionately, they will be black and Latino, an unfortunate effect of the marketing practices of subprime brokers and lenders…. Home Mortgage Disclosure Act data from 2005 reveal that more than 50% of black and 46% of Latino home buyers received subprime loans, compared to 17% of white borrowers. Many of the minority borrowers could have qualified for more favorable terms…These high-risk loans go to borrowers with marginal credit, many of whom have already refinanced to the point they have no equity."

Homebuilders And Housing Stocks

• Beazer Homes Receives Federal Subpoena (Seeking Alpha, Mar. 30th): "Beazer Homes said it received a federal grand jury subpoena (requested by the U.S. Dept. of Housing and Urban Dev.) for documents related to its mortgage origination services… BoA Securities analyst: "Many buyers entered into aggressive mortgages due to the stretched affordability in many markets, but we think it may be difficult to prove fraud." A JP Morgan analyst noted the difficulty of predicting legal outcomes, but says it could be a focused case and any fines would be immaterial to the company. Beazer's shares gained 1.8% to $29.28 in normal trading yesterday, but lost .6% to $29.11 in after-hours activity."

• Beazer Hit With Suit Seeking Class Action (Atlanta Business Chronicle, Mar. 30th): "A suit seeking class action against Beazer Homes USA Inc. was filed Thursday in federal court in Atlanta, alleging the homebuilder issued false and misleading statements and did not disclose certain information. The suit names as defendants certain company officers and directors, alleging that between July 27, 2006 and March 27, 2007, the defendants "issued false and misleading statements" about the company's business and prospects and failed to disclose to the investing public several "adverse facts."

• Beazer Homes Down 17%: Taking Advantage of the Panic (Notable Calls, Mar. 28th): "BZH [got] a 17% haircut on some pretty vague investigation news. Given the almost 20% short interest, I'm inclined to believe the stock was pushed down… Let's say you're an institutional trader with a 300K short position in the name. 20 minutes after the close the CNBC reports the potential FBI investigation at BZH. You [then] use another 30-50K stock to push BZH down in after hours, hoping some of it will stick on open. As you hit the bids, the stock goes down as no one is willing to set up in front of a potential investigation. If you're lucky, the analyst community will reiterate their cautious stance in the morning and you can easily cover your 300K shares for an extra 5 pt profit. Heck, why not go long 50K after you're done covering! BZH's valuation is way below that of peers and once the panic sellers are done the stock will probably squeeze higher."

• Homebuilders Sinking in to the Subprime Mess (Herb Greenberg in Seeking Alpha, Mar. 28th): "[Like] Beazer's…captive mortgage company… KB Homes (KBI) teamed with Countrywide (CFC) in a joint venture that was created in 2005… D.R. Horton (DHI) runs DHI Mortgage, its own mortgage operation. Ditto for Lennar (LEN), Pulte (PHM) and others, including Centex (CTX), whose own mortgage company, according to its 10-K, provided 75% financing last year for all non-cash sales. That doesn't necessarily mean there will be Beazer-like problem with any others, but a scan of the housing supplements in the Sunday newspapers over the past year showed that as sales fell, builders started offering more than a few incentives. "

• Subprime Mess Hits Homebuilder, Financial ETFs (Tom Lydon in Seeking Alpha, Mar. 28th): "SPDR S&P Homebuilders (XHB) and iShares Dow Jones U.S. Home Construction (ITB) are down this year 8.6% and 14.7% respectively. The key concern for ETF investors might be… subprime deterioration… spreading to… conventional mortgage companies… MarketWatch: Funds focusing on financial companies, bonds and real estate do have limited exposure to the mortgage market, but the effect will not be immediate. Financial ETFs such as the Financial Select Sector SPDR (XLF) are seen at more risk from tighter mortgage lending standards because they own banks with large mortgage units. Overall, ETFs don't have a lot of exposure to subprime."

• Chairman of Homebuilder Lennar Paid More than $5.7 Million in '06 (Sun Sentinel, Mar. 28th): "Lennar CEO Stuart Miller received compensation the company valued at $5.7 million in 2006, but his bonus dropped almost $16.8m from the year before as the homebuilder's earnings dropped significantly amid a sluggish housing market. Miller's pay was outlined… at a Wednesday meeting of shareholders, who also voted overwhelmingly against a proposal to adopt a different standard for how Lennar executives get compensated… The 2006 bonus is about $16.8m less than the $21.5m bonus given to Miller in 2005. He received about $15.2m in bonuses in 2004."

• Housevalues Inc.: Get In On the Bottom Floor (Brian Harper in Seeking Alpha, Mar. 28th): "Housevalues Inc. (SOLD) provides web services to realtors and operates a number of real-estate related web sites. Their results have dipped along with the real estate market… Overall, the company posted a small loss on the year due primarily to an asset writedown, versus $0.52 in EPS in 2005. Free cash flow remained positive in 2006, at about $0.14/share versus $0.65/share in 2005. Longer term, the company remains well positioned for growth as the real estate industry migrates to the internet. SOLD has been aggressively repurchasing shares, buying $11 million worth in 2006. At 12/31/06, the company had $3.12/share in cash net of debt (the stock closed at $5 today), which represents more than 60% of their current market value."

Commercial Real Estate and REITs

• Sunrise REIT, HCP Court of Appeal Decision Reached (Commercial Property News, Mar. 29th): "The Ontario Court of Appeal has dismissed the appeals of Sunrise Senior Living Real Estate Investment Trust and Health Care Property Investors Inc. This lets stand the decision of the Ontario Superior Court of Justice supporting the Ventas Inc. merger with Sunrise, despite a higher bid from Health Care Property Investors… Sunrise REIT owns 74 senior living communities, 11 in Canada and 63 in the United States. All of Sunrise REIT's senior living communities are managed by Sunrise Senior Living."

• CIT Reveals Healthcare REIT IPO (Trading Markets, Mar. 29th): "CIT Group Inc. (CIT) announced today that a registration statement on Form S-11 has been filed with the Securities and Exchange Commission regarding the initial public offering of Care Investment Trust Inc. Care Investment is a newly-organized, real estate investment and finance company that will principally invest in healthcare-related commercial mortgage debt and real estate."

Web Site of the Day

Globe St. is one of the most important websites we consult for our housing roundup. A foremost real estate business magazine, it gives you the news straight. We've notice a slight emphasis on the Boston area (it's Boston-based) but has all the national commercial real estate news you need to know. It's divided by regions and even cities, with research resources as well.

Globe St. doesn't discuss whether the housing market is tanking or not. Rather, read the articles and you'll know what deals are going down, where and for how much. An excellent source.

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