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"
"If it weren't for a favorable economic backdrop, housing would probably have a hard landing."- Senior NAR Economist Lawrence Yun, citing low unemployment rates, GDP growth, lower inflation and higher income statistics. (National Association of Realtors Press Release, May 8th)
Real Estate Sales and House Prices
- Home Prices Fall in Rich New York Suburbs Once Immune to Slump (Bloomberg, May 9th): "MLS: The average price in Westport, Connecticut, fell 8.2% to $1.56 million in Jan.-April 2007, from Jan.-Apr. 2006.... In Chappaqua, New York… properties sit on the market an average of seven months before they sell, up from five months a year ago… The tightening of credit in response to rising subprime defaults has disrupted the real estate food chain… Prices fell as much as 18.8% this year in areas of… New Jersey, Connecticut and New York's Westchester County… Larchmont and Mamaroneck experienced a drop of 18.8% to $1.08m… In Bronxville, the slide was 12.4% to $1.34m. Home prices continue to climb in the wealthiest California suburbs, at a much slower pace."
- NAR Lowers Forecast, Some Cities Fare Better (Seeking Alpha, May 9th): "The National Association of Realtors [NAR] lowered its 2007 housing forecast Tuesday: Existing home sales should fall 2.9% to 6.29 million units -- lower than the previous 2.2% NAR forecast -- and then rise to 6.49 million in 2008. New homes sales will now decline 18%, not 14%, to 864,000 from 2006's 1.05 million, but rise to 936,000 in 2008. Housing starts will fall 20% from 1.80 million in 2006 to 1.46 million in 2007, then rise to 1.52 million in 2008. Blaming speculator shakeouts and tighter lending standards after the subprime mortgage crisis, NAR economist Lawrence Yun indicated national median home prices would decline for the first time in 29 years. Existing home prices will slide 1% to $219,800 with a 1.4% pickup in 2008. New home prices will stay flat at $246,400, rising 2.2% in 2008. Real estate broker ZipRealty: Homes-for-sale inventory rose 7% in 18 major cities, vs. the typical 4.5% rise for the strong spring market since 1985."
- Where Home Prices Are Hot Now (Wall St. Journal, May 9th): "Portland, Ore., Boise, Idaho, Seattle, Salt Lake City, Houston, Austin, and Charlotte and Raleigh, N.C., are among the cities [where] homes' appreciation there between Q4'05-Q4'06 far exceeded the national average of 5.9%... In Boise and Seattle, the appreciation jumped… double digits. [Most have] strong industries to drive their economies… Recently, both investors and long-term homeowners have been… settling in areas that avoided the boom, such as the Carolinas, parts of Georgia and Tennessee, areas of Texas, the Western mountain states and the Pacific Northwest."
- Condos Sustain Housing Market (The Olympian, May 8th) Olympia, Washington: "Northwest Multiple Listing Service: New and existing single-family home sales dropped more than 20% last month, but overall results were helped by a 400% increase in condo sales… The combined single-family home and condo sales data resulted in a 15% decline in home sales to 353 units, down from 417 units a year ago. Median prices rose 6.57% to $267,500 last month, up from $251,000 last year... Single-family home sales dropped 21.4% to 323 units, down from 411 last year. Total active listings were nearly 50% higher. The median price of a single-family home climbed 9.11% to $274,950, up from $252,000."
Real Estate Investing and Sentiment
- CRM Vendor Cegedim Buys Dendrite, Ascendix's Real Estate CRM, BPT Steppin' Out and salesforce.com, RightNow CRM, Sage Software (TMC Net, May 9th): "Ascendix Technologies has announced the availability of its Real Estate Advantage CRM offering in a hosted model. It's being pitched for situations where an on-premise installation of Real Estate Advantage is not possible or desirable, so hosting options have been made available and are packaged in two different offerings. Wes Snow, President of Ascendix Technologies: "Commercial real estate companies now have an industry-specific choice as opposed to salesforce.com to manage their business in a hosted environment."
- No Thanks, I'll Stick With the Appraiser (Realty Times, May 9th): "With home valuation sites, whenever a transaction is recorded, the data is automatically transferred to the home valuation system, where sellers and buyers can immediately access the information… It can intensify the negative effects of real estate and mortgage fraud. If, for example, a property's value is artificially inflated as a part of a flipping scam… People selling homes in the same area see the numbers and instantly jack up their asking prices. Buyers see property values rising and are willing to pay more… In some areas, [valuations] may be off by 10%. In other areas, the discrepancy can be as much as 50%!"
Mortgates and Real Estate Lending
- Countrywide Shares Rise on Buyout Rumors (LA Times, May 9th): "Countrywide Financial Corp.'s share price jumped Tuesday on renewed speculation of a buyout of... the nation's largest mortgage lender… Renewed talk in Congress about government aid to homeowners facing foreclosure also contributed to the gain… Countrywide's Chairman, Angelo R. Mozilo, has warned that government action could further damage the mortgage market. Some legislators have suggested banning loans with rates that jump sharply after two or three years — a standard feature in sub-prime mortgages."
- HUD to Seek Ban on Mortgage 'Aid' (Baltimore Sun, May 9th): "The Department of Housing and Urban Development plans to seek a ban on a certain type of down payment assistance that has grown sevenfold this decade… Nonprofit groups, such as Nehemiah Corp. and AmeriDream Inc., provide the down payment help and are then reimbursed by the seller… More than 100,000 low- and moderate-income consumers bought homes using such programs last year. The percentage of foreclosures on these homes is more than double that on other loans sponsored by the Federal Housing Administration… The number of FHA-backed homes purchased with nonprofit assistance has risen to 102,921 in 2006 from 14,603 in 2000."
Subprime Fallout and Foreclosure Impact
- Subprime Mortgage Woes Trigger a Loss for Alesco (Philadelphia Inquirer, May 9th): "Subprime-mortgage turmoil has forced the specialty-finance company to record an unrealized loss of $65.6 million on its $3.6 billion portfolio of mortgage-backed securities… The Q1 loss… reflects a decline in the market value of the mortgage-backed securities, not defaults on specific mortgages. Alesco: $15.8m in bonds… likely to be downgraded by Moody's, but aren't expected to lose their investment grade… Alesco is considering… converting from a REIT to a publicly traded partnership. As a REIT, 75% of Alesco's income must come from real estate. Unlike many REITs, Alesco invests in real estate securities, such has home mortgages, rather than actual property."
- But Deutsche Bank Wins on Subprime Gamble (FT Alphaville, May 9th): "Deutsche Bank made a large profit from betting on the weakening of the US subprime mortgage market, the German bank said on Tuesday… reporting record Q1 earnings… Deutsche Bank benefited from the market correction in March, when the subprime mortgage market nearly collapsed, by placing bets on the US mortgage market weakening. Pre-tax Q1 profits rose 22% to a record €3.2bn. The investment banking business was again the main driver, accounting for 75% of pre-tax profits, while its asset and wealth management businesses — hit by a slowdown in the US property market — was disappointing."
- New Twist on MEWs Not a Sign of Housing Euphoria (Russell Wood in Seeking Alpha, May 9th): "WSJ: REX & Co., will pay cash to home owners in exchange for part of the proceeds when the home is eventually sold… This strategy attempts to take home financing from a debt model to a share of profits model, which better aligns the interests of the lenders and the borrowers… The current monetary inflation that is threatening traditional lenders… that began in 2004, is reducing the value of every dollar repaid by creditors to their lenders. Housing in general benefits from inflation, as real assets eventually rise in price as a result of the inflation (despite the current [cyclical] slowdown). Thus, home owners are sitting on appreciating assets and paying back debt with cheaper dollars. This new financing arrangement will protect lenders from the effects of inflation."
- Be Slow to Foreclose, Senators ask Banks (Rochester Democrat & Chronicle, May 8th): "About 50,000 owners could lose their homes in New York over the next two years... state Senate Democrats said Monday… Jeff Klein D-Bronx, 136,000 sub-prime loans totaling $28 billion were made in the state in 2005. The Center for Responsible Lending predicts a foreclosure rate of about 21% on these loans just for 2007… more than 28,000 homes are affected. Foreclosures could exceed 50,000 over the next two years... Westchester, Rockland and Putnam counties, New York City and Long Island have predicted foreclosure rates exceeding 20%. Last year New York had the fifth-highest sub-prime foreclosure rate in the country."
- Subprime Mortgage Lending: A Cross-Country Blame Game (Int'l Herald Tribune, May 8th): "William Dallas, founder and chief executive of Ownit, acknowledges loosening lending standards but says he did so reluctantly and under pressure from his investors, particularly Merrill Lynch, which wanted more loans to package into lucrative securities…. Tom Marano, who heads the mortgage business at Bear Stearns: "Investment banks do not directly make many loans… Wall Street's role is largely one where we assess risk, we purchase loans..." Wall Street is now wading more directly and deeply into the business. Big banks and hedge funds are buying up bankrupt or ailing mortgage companies [without] enough capital to weather the downturn."
Global Impact and Alternatives To The Housing Slump
- Is It Time for Japanese Real Estate? (Motley Fool, May 8th): "Changes in Japanese law allowing the establishment of REITs have opened the real estate market to new sources of financing... Japanese REITs have attracted… institutional investors, including Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS), which seek further diversification within the Japanese financial markets... It's tough for American investors to invest directly in Japanese REITs. Even closed-end funds that specialize in global REITs, such as ING Global Real Estate (NYSE:IGR) and Cohen & Steers Worldwide Realty (RWF), have little exposure to Japan… Everbank, a U.S. bank, is currently offering certificates of deposit whose returns are based on the performance of a Japanese REIT index."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Governor May Deepen Budget Cuts (Sacramento Bee, May 9th): "Gov. Arnold Schwarzenegger is likely to call for state spending cuts beyond those he proposed in January when he presents a revised budget to the Legislature next week, administration officials said Tuesday. Growing expenses and the housing market's drag on the economy are putting pressure on California's finances, said Department of Finance spokesman H.D. Palmer… The housing downturn could increase the amount the state must pay from general revenues to fund education, administration officials say."
- Another Take On the Housing Boom Aftermath (Tim Iacono in Seeking Alpha, May 9th): "Caroline Baum of Bloomberg's: Daniel Gross's "Pop! Why Bubbles are Great for the Economy" [is] based on a flawed premise. The author… believes investment bubbles that leave behind a usable commercial and consumer infrastructure are ultimately a net positive for the economy. The real estate bubble, currently deflating, [doesn't] comport well with this thesis… It's painful to watch Gross shoehorn those many-times-flipped condos into his usable- infrastructure framework. "The bubble achieved a goal that billions of federal dollars, and 30 years of good intentions, could not: gentrification and renewal in formerly some of the most wretched spots of cities,'' such as the South Bronx… What happens when those gentrified inner-city blocks are dotted with For Sale signs on unoccupied foreclosed homes? It's called urban blight."
- Consumer Slowdown? Retail Conference Calls Say Not Yet (William Trent in Seeking Alpha, May 8th): "AutoNation (NYSE:AN) says the housing market weakness is spilling over into auto sales. "We attribute our underperformance to the industry to the weighting of our business in California and Florida… Our business in these two states accounts for 50% of our unit sales as compared to 20% for the industry at large. CNW estimates that California and Florida combined were down approximately 13% for the industry… We anticipate the softness in California and Florida will continue as their housing markets struggle, with reduced volume having an impact on all segments of our business."
- 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."
- WNC Furniture Jobs Drop by 67% Since 2000 (Asheville Citizen Times, May 7th): "Furniture companies… have ramped up furniture imports so dramatically during this decade that the number of workers making furniture in North Carolina fell by nearly a third. Although Western North Carolina workers make up a relatively small part of the state industry, furniture workers in 18 WNC counties were hit even harder. The number of furniture manufacturing jobs in the region fell from an estimated 7,411 in 2000 to 2,463 in Q3'06... Experts say there will continue to be niches in the furniture industry for WNC workers… but that most of the jobs that were lost are never coming back."
Homebuilders And Housing Stocks
- Toll Brothers Warns of Q2 and Full-Year Shortfall (Seeking Alpha, May 9th): "Luxury homebuilder Toll Brothers (NYSE:TOL) warned Wednesday morning preliminary Q2 homebuilding contracts fell 25% to $1.17 billion… TOL will miss the quarterly and annual guidance it issued in February. For the last six months, revenues were about $2.26 billion and net signed contracts $1.92 billion, a decline of 19% and 29% respectively. Cancellations fell to 19% from 30% in FQ1 and 37% in FQ4 2006… The company estimated writedowns of $90-130 million. [While] less than 2% of its buyers use sub-prime financing… the impact of stricter lending standards arising from subprime problems is "negatively affecting affordability at lower price points… Shares are down 9.4% YTD."
- $16 Million Loss Reported by WCI (News Press, May 9th): "Florida's stagnant real estate market sunk WCI Communities Inc. to a Q1 loss of nearly $16 million… The luxury homebuilder reported a net loss of $15.8m, or $0.38/share, compared with net income of $40.2m, or $0.89/share, a year ago. CEO Jerry Starkey: "Q1 was a tough quarter with no broad signs of improvement, particularly in Florida…" Carl Icahn has launched a proxy fight with the company after it rejected his $22/share purchase offer last month… Revenues for Q1 were $340.6m, compared with $570.7m for Q1'06, a 40.3% decrease. Analysts had expected a loss of just $0.22/share on $330.3m in revenue."
- Granite Construction: Loeb's Third Point Accumulates 7.7% Stake (Lon Juricic in Seeking Alpha, May 9th): "In a 13D filing after the close on Granite Construction Inc. (NYSE:GVA), Daniel Loeb's Third Point LLC disclosed a 7.7% stake (3.25 million shares) in the company. The firm did not show a stake in GVA in Q4'06. In a pretty standard disclosure the firm said: The Reporting Persons may from time to time, among other things, hold discussions with third parties or with management of such companies… in which the Reporting Persons may suggest or take a position with respect to potential changes in the operations, strategy, management or capital structure of such companies as a means of enhancing shareholder value."
- HNI Corporation Announces 209th Consecutive Quarterly Dividend (Business Wire, May 8th): "HNI Corporation (NYSE:HNI) announced today that its Board of Directors declared a quarterly dividend of $0.19/share on its common stock. This is the 209th consecutive dividend the Corporation has paid since its first dividend in 1955. The dividend will be payable on June 1, 2007, to shareholders of record at the close of business May 18, 2007. HNI Corporation is a NYSE traded company providing products and solutions for the home and workplace environments. HNI is the second largest office furniture manufacturer in the world and is also the nation’s leading manufacturer and marketer of gas- and wood-burning fireplaces."
Commercial Real Estate and REITs
- After Years in Wait, a Lab Is Born (NY Times, May 9th): "Ground has finally been broken on a $145 million biomedical laboratory… at Landmark at Eastview, an office park straddling the towns of Greenburgh and Mount Pleasant in Westchester County, N.Y. Redevelopment of the site as a biotechnology center was originally proposed by real estate firm LCOR. LCOR sold 117 acres of its holdings to BioMed Realty Trust, a publicly held REIT that specializes in such construction. LCOR is planning to build houses on some of the land it kept… More than half of the 360,000-sf space under construction has already been leased by Regeneron, a biopharmaceutical company."
- Commercial Real Estate News Digest (May 8th): "Record price for lower Manhattan office building. Deutsche Bank agreed to sell its North American headquarters at 60 Wall St. in New York to German billionaire mail-order retailer Michael Otto, for $1.18 billion. The 1.6 million-sf tower sold for $732/foot, a record for lower Manhattan, according to Real Capital Analytics. The bank will remain in the building for the next 15 years under a lease agreement reached with the owners. Lower Manhattan office rents are surging as the area recovers from the Sept. 11 terrorist attacks. Rents averaged a record $52.86/sf in Q1, up 43% in a year, while the vacancy rate fell 36% to 7.6%, according to Grubb & Ellis."
- CEO: Deal Close on Crescent's Austin Office Holdings (Austin Business Journal, May 7th): "CEO: Deal Close on Crescent's Austin Office Holdings Crescent Real Estate Equities (CEI) is already under contract to sell the Austin Centre office building and Omni Hotel at 701 Brazos St. to Walton TCC Hotel Investors V LLC as part of a larger disposition of lodging assets valued at $620 million. The REIT [says it] is marketing its remaining office holdings in Austin... The company posted a loss of $15m, or $0.15/share, compared with a loss of $11.8m, or $0.12/share, in Q1'06. Crescent says its funds from operations, a key measure of real estate performance, fell to $14.9m, or $0.12/share and equivalent unit, from $24.8m, or $0.20.share and equivalent unit."
Web Site of the Day
One creative response to the industry-wide shakeout of predatory lenders and unscrupulous brokers is the creation of the Virginia Realtor's Association's Ted Truitt character. "The Ted" is the iconic sleazy real estate broker, who poses questions about the ethical conduct a broker should exhibit. "You've just convinced your client to sell her house to your son, wa-a-a-y below listing price. Do you: a) Hit your son up for a selling bonus?" b) Not try to fleece your client in the first place," etc.
It may seem obvious, but many of the questions "The Ted" poses, and the situations the site describes and advises in how to proceed seem to be situations the association has actually encountered.
This is probably a good way to avoid lawsuits and it also happens to be entertaining. It might be obvious, but in the Age of Subprime, brokers should remember: They're paid to serve their clients, not themselves.
Tracking the Housing Market and Homebuilder Stocks |
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