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Quote of the Day- "From the House's Mouth"
"We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or the financial system."- Federal Reserve Chairman Ben Bernanke, in a speech to a banking conference in Chicago Thursday. (The Southern Illinois Homepage, May 20th)
Real Estate Sales and House Prices
- First-Time Buyers Find Ray of Hope in Condos (Seattle Times, May 21st): "In 2003, buyers earning the King County median household income, $58,135, could afford the median-priced detached house in 30 areas. By 2005… in just 15 areas. Last year that shrank to two areas — Auburn and Enumclaw — even though median incomes had risen to nearly $66,000… Thirty-one of 49 areas in King County and South Snohomish County were affordable to median-income households… Last year the median price of a detached house in Magnolia was $619,000, and the income needed to afford it was $148,836. To buy a median price [$246,995] condo in the same neighborhood required a salary of… $59,389."
- Condos Tighten the Rules (NY Times, May 20th): "Historically, condos have cost more, partly because they had looser rules, and partly because of their scarcity. Although both are changing, the price differential between condos and co-ops has remained roughly the same. Nor has the shift toward co-op-style behavior so far seemed to affect condo prices. The average sales price for Manhattan condos in the first quarter of this year was $1.45 million, 28% more than the average sales price for co-ops, which was $1.13m, according to sales data from Prudential Douglas Elliman."
- Phoenix Metro Median Home Prices Fall 2.2 Percent in Past Year (KVOA News, May 19th): "Home prices in the Phoenix metropolitan area have dropped 2.2% in the past year, compared to a dip of 1.8% nationally… The median home price fell to $262,500 during the past year in the Phoenix metro area, down from $268,300. Nationally over the same span, median home prices fell from $216,100 to $212,300.Two years ago, the Phoenix area led the nation with a 50% jump in home prices. The National Association of Realtors said new figures show 62 metro areas across the country saw home prices fall between Q1'06 and Q1'07."
- Mass. Castle for Sale for $15 Million (Yahoo! Finance, May 19th) Massachusetts: "The Searles Castle has towered over this Berkshire town for 120 years, its seven turrets and blue dolomite exterior creating a fortress at the end of Main Street. It has been walled off from the public as a home to the uber-rich and as a private school, and has opened its gates as a conference center and cultural attraction. Now, the French chateau-style castle is for sale -- a $15 million property joining a small niche of the world's luxury real estate market."
- Seeking Bargains on Top Dollar Properties at Auctions (Herald Tribune, May 19th) Florida: "The Sky Sotheby's/J.P. King real estate auction -- offering one of the largest luxury home portfolios ever presented in a single swoop -- drew an overflow crowd [to] the Ritz-Carlton Sarasota [showing] that people are willing to buy, but definitely not at top dollar. Some properties only generated half of their listed prices, while others commanded up to 80%... The auction crowd included Sarasota socialites, top Realtors from other firms, hard-eyed businessmen, condominium developers, car dealers and even foreign-glitterati-power-couple types, draped in Chanel and Saville Row suits."
- Best and Worst U.S. Housing Markets (Forbes, May 18th): "National Association of Realtors: Seattle's median home price in Q1'07 hit $380,200, an increase of 12.3% from Q1'06... Median home prices in the Pacific Northwest as a whole soared; in Portland, Ore., prices jumped 8.9%, and in Salem, Ore., they grew 15.6%. Southern metros also boasted gains. In San Antonio, prices went up 11.2%, and Austin, Tex., prices climbed 5.4%. Charlotte, N.C., and Raleigh, N.C., rose 6.4% and 6.3%, and Richmond, Va., and Norfolk, Va., improved 6.2% and 5.9%. Harvard University's Joint Center for Housing Studies: "The areas which still have a strong economy, but didn't have the overheated prices [during the housing boom], are the ones holding on strong now."
- Home Prices Slip, Supply Up (Oregon Live, May 18th): "Regional Multiple Listing Service: Portland-area median home price dropped to $285,000 in April, down from $286,200 in March…. That was the first March-April drop since 2001… The April median price was up 5.8% over April 2006… As of March, a household with the Portland-Vancouver median income of $63,800 could afford only 95% of the median home price, the lowest since…1994. Home prices have grown far faster than nearly everyone's incomes in recent years… The inventory of Portland-area homes on the market reached 4.4 months' supply in April, far greater than the 2.4 months' supply in April 2006."
- $50 M. Plaza Condo Sale: City's Most Expensive (NY Observer, May 18th): "Sources say an apartment at the newly-refurbished Plaza Hotel has gone to contract for at least $50 million… the biggest apartment sale ever in New York City… In August 2004, New York developer El-Ad Properties, headed by the Israeli-born developer Miki Naftali, bought the Plaza for $675 million. El-Ad is spending $400m to refurbish the 805-room hotel: When it opens in October, the Central Park landmark will have 182 private condos and 130 hotel rooms--plus 152 units that owners will live in for about a quarter of the year before renting them out."
- Toll Brothers Targeting the Heights (Curbed, May 17th): "Toll Brothers (NYSE:TOL) VP David Von Spreckelsen: Toll will put in a bid for three buildings on Columbia Heights, including the 12-story building at #169... Their intention? Some hot luxury condo action, duh. The three buildings are expected to fetch around $45 million. Prep yourself, Brooklyn Heights, because the tinted glass might be coming before you know it."
Real Estate Investing and Sentiment
- Housing Predictor Reports U.S. Real Estate Turn Around (PR Web, May 21st): "More than half of the nation's housing markets are appreciating or have at least stabilized, according to a Special report by Housing Predictor, an information driven web site, which forecasts housing markets in all 50 U.S. states. Some 56% of the nation's markets are appreciating or have stabilized. Improving markets are scattered from the east coast to the south and include the Pacific north-west. Most are experiencing higher sales volume than in 2006 due to lower prices. At least 18 states have housing markets that are appreciating, which includes Washington and Oregon."
- Is Capital Source Inc. Money in the Bank? We Think So (StockMasters.com, May 19th): "Pretty soon we’re going to run out of land. According to the US Census, the Nation's population is projected to increase to 392 million by 2050 -- more than a 50% increase from the 1990 population size. 2050 is a long way off, but even 20 years from now, in 2027, there is going to be a huge increase in populace, and real estate will be even scarcer than it is today… Prime real estate markets will substantially increase in value over the next 20 years."
Mortgates and Real Estate Lending
- Two Deposit Rich Bankers You Can Bank On - Barron's (Seeking Alpha, May 20th): "Worries about subprime fallout have kept regional bank stocks flat this year, vs. a 3.8% gain in the Russell 2000 Index. An inverted yield curve is squeezing banks' margins, and sluggish loan demand driven by wary buyers and stricter guidelines has hurt revenues. Fund manager David Ellison… suggests buying banks with deep deposit bases: Cullen/Frost Bankers Inc. (NYSE:CFR) -- a strong deposit base reduces its [lending] costs... Its current $13.2 billion in assets includes $10.3bin deposits… Seacoast Banking Corp. of Florida (NASDAQ:SBCF) -- has kept its exposure to defaults down through prudent loan-portfolio management. $2b of its $2.5b in assets are from deposits, and about half of its loans are commercial."
- Homeowners Refinance in to Bigger Mortgages (The Street, May 18th): "Nearly three-quarters, or 73%, of borrowers with mortgages backed by Fannie Mae (FNM) who refinanced in Q1 took out bigger loans, cashing out some of the appreciation in the price of their homes… At Freddie Mac (FRE), 82% of borrowers who refinanced in Q1 increased the size of their mortgages by at least 5%... Freddie says it saw $70.5 billion cashed out in Q1, down from a revised $77.0b in Q4'06… Federal Reserve: Owners' equity in household real estate increased by almost two-thirds between the end of 2000 and the end of 2006 to nearly $11 trillion… The median age of Freddie Mac-owned loans that were refinanced last quarter was 3.3 years, so these homeowners had benefited from robust price gains in 2004 and 2005. The median appreciation on these refinanced properties was 24%. "
Subprime Fallout and Foreclosure Impact
- Securitized Loans, Moral Hazard and Eau de Liquidity (Michael Panzner in Seeking Alpha, May 21st): "Shoveling layers and layers of myriad risks into… the global financial system [like securitization] boosts the odds that… an unexpected economic or financial rupture… will be anything but contained… When the credit cycle turns negative and the economy rolls over into recession — if it hasn’t done so already — a far greater portion of outstanding loans will turn sour at a much faster pace than in the past… Believing that they will always have an “out,” money managers have become entranced by securitization alchemy, buying any sort of rubbish as long as it has been sprayed with “eau de liquidity.”
- Foreclosure Crisis Looms, Housing Analysts Say (South Florida Sun Sentinel, May 20th): "In April, the number of consumers behind on their mortgage payments in Broward County ballooned to 1,135, compared with 248 a year ago, according to Realestat.com, a Plantation research firm. The number of people with late payments also rose sharply in Palm Beach County, from 174 to 814. Actual foreclosures increased in both counties but at a much smaller clip."
- Genworth Financial: Subprime Woes May Even Help This Insurer - Barron's (Seeking Alpha, May 20th): "[Subprime fears made] Genworth Financial (NYSE:GNW) shares underperform other insurers. Q1 net income fell 3%, EPS of $0.70 missed expectations of $0.77, but its mortgage insurance has relatively light subprime exposure. Its 10x 2008e earnings multiple trails the industry by 13%, and its 1.2x book value multiple makes for a 28% discount. Genworth forecasts 15-20% 2007 growth in its mortgage business [and] 8-10% revenue growth and 12-15% earnings growth over the next three years on $200 million in cost savings and reallocation of capital to higher return areas. Olstein analyst Tim Kang sees shares up 24% in1.5-2 years."
- Subprime Crisis Brings More Foreclosures, Layoffs (Lower Hudson Online, May 19th): "County Clerk: In Westchester County, [foreclosures are] up 50.8% from April 2006. Through May 15, actions are up 38.6% from the comparable period a year earlier. Putnam County had 41 actions last month, up from 22 in April 2006. Year-to-date, those actions are up 66% from the comparable period a year earlier… In Rockland, courts approved 94 judgments against property owners through the end of April, up 91.8% from the comparable period a year earlier… GE Money owns WMC Mortgage Corp., which opened an office in Orangeburg in 2004… This spring, WMC's Rockland office eliminated 171 jobs, with 98 remaining… WMC cut about half its staff nationwide this year and closed offices in California and Texas… WMC obtained an $800,000 grant from Empire State Development Corp… and the Rockland Industrial Development Agency provided sales tax exemptions worth $3.5 million for equipment and furnishings. Empire State spokeswoman: The agency grant was contingent on WMC's meeting certain minimum employment levels through the year 2010. The recent layoffs mean the company falls below those levels."
- U.S. 'Subprime' Mortgage Crisis Hitting Blacks, Latinos Hardest (Brooks Bulletin, May 19th): "Jon Goldin-Dubois, executive VP of Common Cause, a non-profit advocacy group: "The fact is, the subprime mortgage lending industry was able to escape scrutiny for so long in part because of its generosity to federal policymakers and its lobbying clout." A study released by the group last week noted that since 1999, 10 of the country's largest subprime mortgage lenders, their trade groups and their corporate parents, have contributed more than $22m to federal candidates. Those special interests also spent more than $187m lobbying Washington over the same period."
- OceanFirst Financial Closes Subprime Lending Unit (DS News, May 18th): "Losses caused by an onslaught of defaulted subprime loans prompted New Jersey-based OceanFirst Financial Corp. to close its Columbia Home Loans, LLC lending platform this week. The company also parted ways with Columbia leaders who allegedly concealed a series of potential loan losses that appeared in 2006 until February of this year. OceanFirst made that statement in a 2007 Annual Meeting of Shareholders report… OceanFirst says despite Columbia's losses, the company remains on safe ground and the “overall financial impact of Columbia's loan losses is manageable.”
Global Impact and Alternatives To The Housing Slump
- U.K. House Prices Rise at Slowest Pace Since 2006 (Bloomberg, May 21st): "U.K. real estate website Rightmove: U.K. asking prices climbed 0.4% to an average £237,361 ($468,000), [vs.] a gain of 3.6% in April… On the year, the rate of price increases slowed to 13% from 15% the previous month. Today's report suggests that an increase in supply and higher interest rates are helping to curb a boom in house prices, which rose about 10% last year. Britons who put their homes on the market before June 1 can avoid rules requiring them to pay for home information packs, a set of legal documents the government says will speed up home purchases."
- Hilton and Morgan Stanley Real Estate (Homes Go Fast, May 21st): "Hilton Hotels and Morgan Stanley Real Estate and have recently signed an agreement to sell up to 10 Hilton Hotels. The sale goes to a fund managed by Morgan Stanley Real Estate for approximately €566 million (US$770m.)… Hilton and Morgan Stanley Real Estate agreed upon long-term management contracts on five of the 10 hotels, including the Hiltons in Düsseldorf, Dresden, Paris Charles de Gaulle, Strasbourg and Zurich… On completion of these transactions, Hilton will have sold over $3 billion of assets that it obtained in the acquisition of Hilton International in late February 2006, and over $4.5 billion of assets will have been sold since the company began its disposition program in 2005."
Macro Impact, And Will The Housing Slump Cause A Recession?
- The Housing Bubble's Silver Lining (LA Times, May 20th): "Bubbles have silver linings because the infrastructure built during bubbles — the physical infrastructure and the cultural infrastructure — doesn't get torn down after they pop… All that new construction and renovation (fueled by home equity lines of credit) has upgraded the nation's housing supply… Towers of unsold condos in Miami won't be torn down. They'll be turned into hotels or office buildings… New services… like mortgage websites where lenders compete for the business of individuals, or Zillow.com, the wildly popular service that uses public data and sophisticated algorithms to appraise home values… empower consumers and contribute to greater transparency in the housing market."
- 12,000 Jobs Lost in South Florida (South Florida Sun Sentinel, May 19th): "Florida Agency for Workforce Innovation: In April, Broward and Palm Beach counties lost almost 12,000 jobs… Broward County lost 6,362 jobs out of a work force of 952,000 last month… Palm Beach lost 5,412 jobs from a work force of more than 621,000. [Both areas experienced rises in Feb.-Mar.]… The construction industry… cut 500 jobs between March and April; in the real estate sector 300 jobs were trimmed; and wholesale trade firms shed 400 jobs. Local and national builders GL Homes of Sunrise, Levitt Corp. of Fort Lauderdale and DiVosta Building Corp. of Palm Beach Gardens together have cut at least 350 jobs."
- Market Feels Fla.’s Housing Woes (Providence Journal, May 19th): "U.S. Commerce Department: The number of vacant homes for sale in Florida doubled last year to 4.3% of the state’s total housing stock… The highest vacancy rate in the country… Florida housing prices may have much farther to fall… Building permits for new-home construction… were 51% below their year-ago level in Q1. That was twice the nationwide rate of decline for permits. Banks with exposure to Florida real estate have been getting hurt… In April, earnings at Webster Financial, a Connecticut-based savings and loan, warned that credit quality on its Florida residential-construction loan portfolios had deteriorated."
- Will Employers Take the Hit on Falling Home Values (BusinessWeek, May 18th): "Some companies used to help out employees who had a low interest rate on their existing home, and were being asked to relocate… when rates were higher, by "subsidizing" the difference in rates between their old mortgage and their new mortgage… There [must be] some large companies who in the past absorbed either all or part of any losses an employee incurred when selling a house during a transfer. But… will they be willing to do it now when you could be -- or already are -- staring at $100,000 or $150,000 plunges in home values in overheated markets?"
- Federated Department Stores F1Q07 (Qtr End 5/5/07) Earnings Call Transcript (Seeking Alpha, May 16th): "This was a disappointing quarter, due to the weaker than expected sales. However, we were pleased that our EPS were within our guidance, in spite of the lower sales. In February and March, our comp-store sales were only slightly lower than what we had expected. However, in April, the gap to our expectations was wider. Also in February and March, the weakness was focused on the new Macy's or the former May doors and the home business, particularly furniture. However, in April, the weakness was more widespread."
Homebuilders And Housing Stocks
- USG: Poised to Jump on a Housing Recovery - Barron's (Seeking Alpha, May 20th): "Wallboard maker USG Corp. (NYSE:USG) emerged from asbestos litigation-induced bankruptcy last year just as the housing market peaked. From $11.05 in 2005, USG hopes to make $2/share in 2007-8… Gypsum demand and prices were down 10% and 9% respectively… USG controls 30% of the industry. Yet diversification efforts have made just 45% of USG's $5.8 billion revenues derive from new homes; the rest comes from sturdier residential remodeling (15%) and commercial construction (40%) markets. USG invested $900 million+ in faster production facilities, expanded product lines, and reduced wallboard output 20% to stem price declines -- but also used the drop in prices for acquisitions. Berkshire Hathaway owns 17% of USG and counting. Bulls say when the housing market turns, shares could rise from $48 to $90."
- Chitwood Harley Harnes LLP's Notice of Filing of Securities Class Action Against Beazer Homes (Yahoo! Finance, May 19th): "The law firm of Chitwood Harley Harnes LLP announced today that it has filed a lawsuit seeking class action status… on behalf of all persons or entities who… acquired the common stock of Beazer Homes (NYSE:BZH) from July 28, 2005- March 27, 2007… The Complaint alleges that during the Class Period, defendants issued false and misleading statements regarding the Company's growth, business, prospects and then-current financial condition and engaged in improper and possibly illegal mortgage lending activities for several years in order to misleadingly enhance the Company's business."
- Homebuilders in a Hole? (BusinessWeek, May 18th): "A number of small and mid-sized builders have filed bankruptcy across the country, and Moody's, the big credit-rating agency issued a report in April predicting that a number of large homebuilders could fall out of technical compliance with their debt agreements, leaving them at the mercy of their lenders to grant waivers... An Arizona attorney who represents several small [local] builders [said] some of the bigger builders were actually selling new homes below the construction and land costs… They're anxious for the cash flow to stay in compliance with their debt covenants."
- St. Joe Suspending Sales at a Florida Development (Reuters, May 18th): "Florida real estate developer The St. Joe Co. (NYSE:JOE) on Friday said it was temporarily suspending sales at its SevenShores luxury condominium development in Bradenton, Fla., while it updates its market research… The company began selling units at SevenShores, a planned gated-condo community on a lake, about a year ago… Luxury condo and single-family home builders in Florida, such as WCI Communities Inc.(WCI) also have suffered as those who planned to buy have canceled their orders and others have stayed away unwilling to risk falling home values."
- Ahead of the Bell: Furniture Brands (International Business Times, May 18th): "A Stifel, Nicolaus & Co. analyst on Friday cut his rating on Furniture Brands International Inc. (FBN), saying the retailer of Lane, Thomasville and other furniture brands has few options in light of a difficult industry environment: "'Our downgrade reflects our growing concerns that the weakness in housing will continue to dampen furniture sales and that a strategic restructuring will be difficult given the current environment." The analyst also noted weak near-term demand for furniture, which is tied to a lagging home building industry."
Commercial Real Estate and REITs
- Office, Condo Construction Mark Third Ward, Walker's Point Resurgence, Building Boom (Milwaukee Journal Sentinel, May 19th): "The Third Ward, bordered by the Milwaukee River, I-794 and Lake Michigan, along with portions of neighboring Walker's Point, are hosting several new projects - outpacing development activity throughout the rest of the downtown area… Demand for commercial space in the area is not as strong as Walker's Point developer Kendall Breunig would like to see. "But it's definitely improving," Breunig said."
- Hudson Yards Planning Discussed (The Real Deal, May 18th): "The MTA-owned Hudson Yards will go on auction next month, and some of the city's biggest private developers will vie for a chance to develop the 26-acre site, which the Bloomberg administration foresees transforming into part of Manhattan's third business district. "The city hasn't done anything like this before, certainly not in Midtown," said Daniel L. Doctoroff, deputy mayor for economic development and rebuilding. "We want to create a 21st century Rockefeller Center." Developers say it will cost $1 billion just to build platforms over the long-unused rail yards in order to then construct towers on the site."
- Rudin Family To Develop St. Vincent’s Hospital (Globe St., May 18th): "St. Vincent Catholic Medical Centers has named the Rudin family as its development partner on the creation of the new green St. Vincent’s Hospital Manhattan. The… hospital will serve the Westside and Downtown areas of the city at the site of the O’Toole Building… The Rudin family will build the new 600,000-sf hospital on the West side of 7th Avenue between 12th and 13th streets, at the site of the O’Toole Building. Once vacant the old hospital, which sits on the East side of the avenue, will be developed into a residential project by the Rudin family."
- NAR: CRE Investment Rose 11% in 2006 (Globe St., May 18th): "National Association of Realtors: Investment in commercial real estate rose 11% to a record $306.8 billion in investment-grade transactions in 2006, with office the top investment category. A record $71b worth of office properties traded hands in Q1, with strong activity in New York, Boston, Los Angeles and Chicago. Annual office rent growth… forecast [is] 3-3.5% in 2007. Furthermore, decent employment growth, improving fundamentals, a favorable interest rate environment and limited speculative construction point to continued investment flows in this year as well… [But] this year… decelerating retail sales are lessening the demand for space."
- New Inland Retail Company Targets SE (Globe St., May 18th): "Inland Real Estate Group… has formed Inland Atlantic Development Corp. which will focus on developing retail centers in Southeast. The new company will specialize in new construction and redevelopment projects with a focus on neighborhood retail centers and mixed-use centers. The company will develop projects on its own or as part of joint ventures. The new company will be led by executives that oversaw the development division of the former Inland Retail Real Estate Trust Inc., a REIT that was sold in February in a $6.2-billion merger with Developers Diversified Realty."
Tracking the Housing Market and Homebuilder Stocks |
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