Housing Bubble and Real Estate Market Tracker- Part II

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 have 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 stress in that place was ungodly. It was like selling your soul. There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals."- Maggie Hardiman, a former appraiser at the now bankrupt mortgage lender New Century Financial. (Washington Post, May 7th)

Real Estate Sales and House Prices

  • Home Sales Fail to Spring Ahead (Dallas Morning News, May 8th): "North Texas pre-owned home purchases down 6% from April 2006… April's sales lagged March – at a time of year when home sales usually rise from month to month… Prices did pretty well in April, with the median price of North Texas homes rising 5% to $154,000. But the overall hike in the median sales price may result more from slower sales of low-priced homes than from an increase in home values… At the end of April, almost 49,000 single-family homes were listed for sale in North Texas – up 10% from a year ago—at current sales rates, about a 7.5-month supply.
  • A Greatly Inflated Perception Of Worth In Arizona (Housing Bubble Blog, May 7th): "Tucson, Arizona Association of Realtors: MLS Residential listings averaged 9,925 at the end of Q1'07… nearly triple the average for Q1'05, the peak year for sales. In March alone, the number hit a record of 10,185. Sales for Q1 were down about 18% from Q1'05... OnSite Realty owner Caroline Auza… can trace the oversupply in the market to March 16, 2005, [when] a 120-unit converted condominium project she was handling, Tierra Catalina near Skyline and Campbell, sold out in about three hours. "After that, the supply (of condos) just quadrupled" as investors poured money into Tucson condo conversion projects.”
  • Home Values Defy Listless Market (Denver Post, May 7th): "County assessments show home values rising on average from 3% in Adams County to about 11% in Boulder County over two years ending June 30, 2006. [But] realtor tallies and other counts show anemic… home prices, with the typical metro home now taking 119 days to sell and metro Denver foreclosures rising at a pace of 30% a year… Office of Federal Housing Enterprise: As of June 30, 2006, home values in the Denver-Aurora area were up about 3% y/o/y. Boulder values were up 3.37%, and Greeley values down 0.97%. Denver-Aurora home price appreciation rates dropped below a 2% pace in Q4."
  • Housing Cheers Turn Gloomy (Chicago Tribune, May 6th): "We're in a real estate recession," said David Lereah, chief economist, National Association of Realtors, who surprised many this week when he announced he would leave the Chicago-based trade group in May. "I'm projecting the first [nationwide] price drop since the Great Depression. We're going to have negative home prices in 2007." His comments seemed uncharacteristic for Lereah, whose mostly blue-sky forecasts have long been criticized for stoking the fire as home sales bubbled to stunning -- and unsustainable, even by his own account -- levels. He had been the public face for the Realtors since the housing boom began in 2001."
  • The $219,000 Question (Star News Online, May 6th) North Carolina: "Even as the Wilmington housing market has cooled, with sales the slowest since 2004, prices have largely continued to chug on in areas outside of the beaches. Wilmington's median price of $219,900 this March was $34,250 more than March 2006 and $60,000 more than in March 2004… February's average sales price in Wrightsville Beach was $1.5 million.... More conventional places near the beach are available at other island towns for near the median price. Intracoastal also has a listing for a 1BR… in Carolina Beach for $219,900... In Surf City, $219,888 is the asking price for a furnished second-story, 1BR condo."
  • Median Prices Drop for Houses, Condominiums (Orlando Sentinel, May 6th): "Florida Association of Realtors: the median sales price of an existing single-family home in Volusia County dipped 12% during the past year… from $225,700 in March 2006 to $199,600 in March 2007. During the same period, the median price of condominiums fell 20%, from $234,100 in March 2006 to $188,000 in March 2007. The median price for a single-family home in Florida was $236,900 in March, and the median condominium price was $208,800."

Mortgates and Real Estate Lending

  • Out of the Gate: Bankrate (Forbes, May 7th): "Citigroup (NYSE:C) analyst Mark S. Mahaney cut his rating on Bankrate (NYSE:RATE) to "Hold" from "Buy." Mahaney still thinks the financial information publisher has an encouraging outlook as people research borrowing and conduct more of their banking online. Bankrate's $80 million in revenue last year came mostly from [advertising]. The site provides information on interest rates, fees and prices for financial products like mortgages, credit cards, car loans and bank accounts. However, Mahaney believes the stock is too expensive to warrant a "Buy" rating. The shares are up 30% since March 29 and are nearing his price target of $44."
  • FHA Single-Family Reform Headed for House Floor (Nation's Building News, May 7th): "By a 45 to 19 vote, the House Financial Services Committee on May 3 approved reform[s] to the Federal Housing Administration’s single-family mortgage insurance programs. H.R. 1852… would provide a viable alternative to the volatile subprime market [by]: Increasing the current limit for FHA-insured mortgages…Remove the existing $275,000 loan volume cap on FHA's Home Equity Conversion Mortgages, or "reverse mortgages," while increasing the maximum Fannie Mae/Freddie Mac conforming loan limit… Grant the FHA authority to establish greater flexibility in setting actuarily sound downpayment requirements... Permit the FHA to extend the maximum loan maturity to 40 years to enable borrowers to reduce their monthly mortgage payments."
  • U.S. Mortgage Bond Prepayments Unchanged in April (Reuters, May 7th): "Prepayment speeds were in line with Wall Street expectations… April figures reflected the first full month of activity since the… start of the subprime mortgage market [crisis]. JP Morgan: Overall fixed-rate agency prepayment speeds were unchanged in April, with the paydowns flat at $40 billion… Net fixed-rate, mortgage-backed securities issuance was about $23 billion… Prepayment speeds are key for investors to determine the value of mortgage bonds. If prepayments rise or fall too quickly, they hurt returns on mortgage securities… March's 15% increase was primarily due to a… higher volume of home loan refinancings, seasonal factors and three additional calendar days."
  • Today's Housing Bubble Post (Seeing the Forest, May 7th): "Check if you have funds in a "money market account" and whether it is government insured, because these "mortgage instruments" are all over the place now, and might not be worth the paper they are printed on."

Subprime Fallout and Foreclosure Impact

  • New Century Can Pay $3.2M in Bonuses to Executives, Managers (Press Enterprise, May 8th): "A U.S. Bankruptcy judge said New Century Financial Corp., the biggest subprime lender in bankruptcy, can pay about $3.2 million in bonuses to 116 executives and key managers [but not to two top execs and CEO Brad Morrice]… The company's initial proposal would have paid $6.3 million to employees, including Morrice… New Century [said] the bonus plan would help the company maximize the value of its assets for sale by "keeping critical employees in those business units incentivized and in place…" In a separate ruling, Carey gave New Century permission to borrow… $100 million while it auctions its remaining assets and winds down operations."
  • Foreclosures Hit County's Rich, Poor Communities (KDKA, May 7th) Pittsburgh: "Housing foreclosures are at a record high in Allegheny County and it’s not just happening in poor communities. At today’s monthly sheriff’s sale at the county courthouse, there was one house on the block worth more than $800,000… Some sheriff sales are due to a change of circumstances. In the irony of ironies, the house that belonged to former Chief Deputy Sheriff Dennis Skoznik went up for sheriff sale for $250,000.The banks foreclosed on his property after he stopped making payments about the time he was convicted of bribery and corruption and began taking up a new residence in prison."
  • In Mortgage Foreclosures, all of SE Wisconsin Now Having Problems (Journal Times, May 7th) Wisconsin: "ForeclosuresWI.com: Foreclosure filings in Racine County have been about the same as 2005, January-April. Filings declined by 5% here, from 243 last year to 230 this year. Both [numbers] far above the same period in 2005, which brought 178 foreclosure filings. However, this county’s year-to-date experience was stable, compared with surrounding counties and the rest of the state. Among all Wisconsin counties, 75% had more foreclosures filed so far this year than last. Compared with Southeastern Wisconsin, Racine County’s 5% reduction looked even better… Statewide, YTD filings rose by nearly 23% compared with the same 2006 period."
  • Pressure at Mortgage Firm Led To Mass Approval of Bad Loans (Washington Post, May 7th): "New Century, which filed for bankruptcy protection last month, has admitted that it underreported the number of bad loans it made in its financial reports for the first three quarters of 2006. Hardiman and other former employees of New Century interviewed said there was intense pressure from bosses to approve loans, even those with obviously inflated housing appraisals or exaggerated homeowner incomes."

Global Impact and Alternatives To The Housing Slump

  • WPC's Big DIY Deal (Slatin Report, May 8th): "In early May, W.P. Carey (NYSE:WPC)… acquired an interest in one of Germany's leading do-it-yourself (DIY) retailers, Hellweg Die Profi-Baumrkte GmbH & Co., through a partial buyout of Hellweg’s real estate subsidiary… Carey provided Hellweg with financing backed by 37 of the company's 72 stores... The deal is meaningful… in the framework of a growing awareness of triple-net leases as a means of leveraging cash and moving assets off-balance sheets overseas. The [European] market has a mindset that reflects centuries of in-place fee ownership, where land titles just don't trade. [Through] Hellweg… Carey is also staking a claim… in Germany's $40 billion DIY industry."

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

  • Abitibi-Consolidated Reports Q1 Results (Earthtimes.org, May 8th): "Abitibi-Consolidated (NASDAQ:ABY) today reported a Q1 loss of $70 million, or $0.16/share. This compares to a loss of $33m, or $0.8/share, recorded in Q1'06… In the U.S., housing starts decreased by 23% from an annual rate of 1.972 million units during March 2006 to 1.518 million units in March 2007. During Q1'07, average U.S. dollar lumber prices (f.o.b. Great Lakes) decreased by 19%... compared to Q1'06… Sales of $1.07 billion ($1.24b in Q1 2006) - EBITDA of $70 million ($162m in Q1 2006)… Decrease in wood products sales volume driven by a reduction in U.S. housing."
  • Consumers Boost Borrowing Despite Prices (Kiplinger.com, May 7th): "Consumers boosted their borrowing in March… showing resilience in the face of rising energy prices and a painful housing slump. The Federal Reserve's report, released Monday, showed consumer credit increased at a brisk annual rate of 6.7% in March… Up from February's 2.8% growth rate and the biggest increase since November… The Fed's measure of consumer borrowing does not include mortgages or other loans secured by real estate. The March increase pushed total consumer debt up by… $13.46 billion to a record $2.43 trillion… Economists were expecting consumer borrowing to rise by $4.5b in March."
  • Slowdown in Housing Socks LV Valley's Economic Index (Builder Online, May 5th) Las Vegas: "Residential and commercial permit activity fell by 34.8% and 35.6%, respectively, in March. Home sales, both new and existing, are in a similar spiraling slump… After seven straight months of decline, the Clark County Construction Index went up 0.49% in February, based on a five- month moving average… Largely a reflection of rebalancing in the residential construction market… University of Nevada: The 12-month rolling total for commercial permit valuation reached $1.64 billion at the end of last year… It was less than $500 million from 1981 through 1995 and climbed to about $1b from 1997 to 2005."

Homebuilders And Housing Stocks

  • Growth Fund Not Afraid to Take Contrarian Stance (Investment News, May 7th): "Robert Markman, of Markman Core Growth Fund (MTRPX)… is bullish on real estate and homebuilder stocks… "Full media coverage [of a trend] is a signal of the last 10% to 30% of the move...” Markman… has already built up a 2.3% position in Toll Brothers (NYSE:TOL)… “The affluent end of the homebuilding market is always the… quickest to rebound. [Buyers] are going to be less sensitive to economic cycles and rising interest rates.” Shares are attractively valued [at $30] on historical terms… Markman also studies homebuilder conference calls and annual reports from 2005 that indicate a “positive spin” for the industry… “At extreme conditions, most top executives are remarkable contrarian indicators of their company and sector’s prospects."
  • Be it Ever So Humble (Courier Journal, May 6th) Kentucky: “Homes going up in metro Louisville this spring are expected to cost, on average, about 5% less to build than last year, according to estimates included with their building permits. The lower builders’ cost suggests buyers may have become more price-sensitive as 30-year mortgage rates have risen back above 6% and foreclosure rates have spiked. As builders hammer their way out of the current housing slump, less-elaborate homes are leading the way. At the same time, builders who put up more expensive, showplace homes last year, even as the Louisville market softened, are sitting on unsold houses.”

Commercial Real Estate and REITs

  • Commercial Real Estate News Digest (May 8th): "FTSE Group said ETFs based on commercial real estate indexes that were created with the National Association of REITs began trading Friday. FTSE licensed Barclays Global Investors to create five funds targeting apartment, industrial and office, mortgage and retail REITs. Shares of REITs have surged in the past year as interest in real estate investment has soared."
  • Results up at Health Care REIT (Toledo Blade, May 8th): "Health Care REIT Inc., a Toledo REIT, yesterday reported bigger profit and higher revenues for Q1 than in Q1'06. The firm said it had a profit of $29.7 million, or $0.32/share, on revenues of $112.6m, compared with a profit of $25m, or $0.34/share, on revenues of $76m a year ago. Its funds from operations, a common financial measure in the industry, increased to $0.76/share from $0.71/share a year earlier."
  • Commercial Investors Continue Spending Megabucks In Memphis (Memphis Daily News, May 8th): "There were 104 commercial real estate sales in March totaling $215.6 million. That's up from the 73 sales for $141.8 million in March 2006… Year to date through the end of March, 319 sales went through for $893.2 million, versus just 234 sales for $352.8 million in 2006.
  • Innkeepers USA Trust Announces First-Quarter 2007 Earnings (PR Newswire, May 8th): "Jeffrey H. Fisher, CEO: "Funds From Operations was a penny over our FFO guidance and consensus analyst expectations, and EBITDA exceeded the top end of our range by a few hundred thousand dollars. We continued to see healthy margin growth despite high utility and insurance costs, as our operator continued to push rate in the quarter and did a good job of driving those increases through to FFO and EBITDA. At 71%, our GOP flowthrough was approximately 15 percentage points above what we projected for Q1… Our Silicon Valley properties experienced positive RevPAR increases for the thirteenth consecutive quarter."
  • Five New iShares Real Estate ETFs Track FTSE NAREIT Indexes (Carl T. Delfeld in Seeking Alpha, May 7th): "The iShares family of ETFs… have introduced five iShares Funds designed to track the FTSE NAREIT Indexes. With an annual expense ratio of 0.48%, the new iShares Funds trade on the NYSE and provide targeted exposure to the U.S. REIT market. The new funds are: iShares FTSE NAREIT Residential Index Fund (NYSEARCA:REZ) iShares FTSE NAREIT Industrial/Office Index Fund (NYSE:FIO) iShares FTSE NAREIT Retail Index Fund (NYSEARCA:RTL) iShares FTSE NAREIT Mortgage REITs Index Fund (NYSEARCA:REM) iShares FTSE NAREIT Real Estate 50 Index Fund (NYSEARCA:FTY). Noel Archard, Head of iShares Product Development: "The iShares FTSE NAREIT Funds should provide investors with income and portfolio diversification benefits."
  • Equastone Exceeds Capital Raising Goal of $150 Million and Closes Second Real Estate Investment Fund (Sys.com, May 7th): "Equastone has… closed its second real estate investment fund, Equastone Value Fund II, LLC ("EVF II"). Equastone raised over $150 million of equity commitments from a mix of high-net-worth and institutional investors. Similar to Equastone's first fund, EVF II was oversubscribed… Equastone Real Estate Funds are private, closed-end offerings of investments in diversified commercial real estate portfolios… At the time of its final closing, EVF II had… acquired over $325 million of underperforming office and flex properties located in Colorado, Louisiana, Oregon and Texas… Equastone intends to acquire $1 billion of office and flex properties throughout the U.S."
  • 250-Unit Complex Goes to Essex Property Trust (Globe St.,May 7th): "Essex Property Trust, an apartment REIT from Palo Alto, has acquired the 250-unit Canyon Oaks Apartments here for $64.3 million. The seller was United Dominion Realty Trust… [The complex has] 13 three-story buildings and 158 garages… a pool, fitness center and media room… Essex has not yet disclosed the current occupancy or rental rate… Essex president Keith Geuricke: “The property is in proximity to several large job parks as well as major freeways and local shopping. We expect… rising rents in the area as a direct result of an increase in jobs and population combined with relatively low single-family affordability."
  • Commercial Real Estate Update (Portland Business Journal, May 7th) Oregon: "Avenue A Razorfish Inc. signed a seven-year lease that will keep the Web design firm in downtown Portland… Floor Solutions LLC, a carpentry and floor contractor, leased 19,576-sf of warehouse distribution space at 2121 N.W. Front Ave. in Portland... AT&T Mobility LLC leased a 40,967-sf office space at the Cingular Wireless Center, 1600 S.W. Fourth Ave."
  • Midtown Garage Sells for $30M (Globe St., May 7th) NYC: "A parking structure owned by ICON Parking at 38-46 W. 33rd St. has sold for $30 million. Hersel Torkian has purchased the site, which is zoned for both residential and commercial development... The buyer… has leased the site back to ICON for a 25-year period.... The site would allow for a 100,000-sf structure…CB Richard Ellis: The area has been profiting from the tight Midtown market, which has an office vacancy rate of 4%... The vacancy rate in Midtown South has dropped from 5.7% a year ago to 4.3% now. The average asking rent in the area is up almost $10-$43.04/sf."
  • Sundance Square Considers Selling Two of its Towers (The Eagle, May 6th) Texas: "Sundance Square, one of the country's premier mixed-used developments, has retained Holliday Fenoglio Fowler (HFF) to explore the possible sale of the 33-story Wells Fargo Tower located at 201 Main St. and the 38-story D.R. Horton Tower located at 301 Commerce St. in downtown Fort Worth's Sundance Square… Johnny Campbell, CEO of Sundance Square: "The business climate in Sundance Square and downtown Fort Worth has been very strong, and we believe this is an appropriate time to sound the market." Occupancy in the Wells Fargo Tower, and D.R. Horton Tower… has exceeded 96% for the last two years."
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