Quote of the Day- "From the House's Mouth"
"There is just too much construction in the pipeline in some of these markets. It's affecting markets like Florida where there has been a lot of spec building. As we expect deliveries to slow, vacancy should catch up in these markets." - Bernard Haddigan, Managing Director of Marcus & Millichap's National Retail Group. M&M found Seattle, San Francisco and Las Vegas to be the most improved in terms of retail vacancy over last year; while Miami, Charlotte and Riverside/San Bernadino experienced the most significant increase in vacancy during the same time period. (CoStar Group, May 23rd)
Real Estate Sales and House Prices
- Grand Strand Home Sales Take a Dive (Charlotte Observer, May 23rd) North Carolina: "New real estate sales statistics for April show the Grand Strand still reporting the largest drop in sales in the state. Homes and condominium sales dropped 22% on the Strand in April compared with the same time period the previous year. Charleston was next in line with a 15% drop in sales, according to the S.C. Association of Realtors. Many inland areas are posting sales increases. Working through the coast's large inventory will take a while, analysts say."
- S.C. Home Sales Drop (The State, May 23rd) South Carolina: "Oceanfront condos — hard hit by skyrocketing insurance costs — are the driving force in falling home sales… S.C. Association of Realtors: The state showed a 3.4% decline to 5,532 home sales from 5,729 in April last year. In Columbia, sales were up more than 13%, and the rest of the state showed mostly increases. The Myrtle Beach area posted the biggest decline at 22%. That region also showed a 68% spike in the number of days homes are staying on the market — up to 251 days from 149 in April 2006."
- Condo Rises in New Jersey City Neighborhood (The Real Deal, May 22nd): "The first residential building in what will eventually be an entirely new Jersey City neighborhood is set to be completed later this year. Gull's Cove, a 431-unit luxury condominium developed by Metro Homes, is now rising in the Liberty Harbor North redevelopment district. The waterfront area rests on a long-undeveloped 80-acre site to the west of Paulus Hook, the epicenter of Jersey City's recent new construction boom."
Real Estate Investing and Sentiment
- Rents Would Go Up Under Lead Paint Bill (Nashua Telegraph, May 24th): "SB 176 would give New Hampshire one of the most stringent lead paint poisoning laws in the country for property owners, despite the fact that the U.S. Centers for Disease Control and Prevention shows a strong downward trend in lead poisoning cases in children in New Hampshire.Lead paint abatement costs $30,000-$40,000 per apartment. Insurance companies are raising rates to cover potential lawsuits. Who is going to pay for this? Ultimately, it is the tenant, as property owners will raise rents."
- Lucky Draw in Vegas: Local Retail Real Estate Broker Wins Porsche Cayman from CoStar Group (PR Newswire, May 23rd): "Brian A. Sorrentino of Las Vegas retail real estate brokerage firm ROI Commercial Real Estate, Inc. accepts the key to a new 2007 Porsche Cayman sportscar from Andrew C. Florance, CEO of CoStar Group. Sorrentino's business card was drawn from more than 5,000 entries… during the International Council of Shopping Centers Spring Convention, which was held [in Vegas] on May 20-23, 2007. CoStar Group (NASDAQ:CSGP), is the number one provider of information services to commercial real estate professionals in the United States as well as the United Kingdom."
- Professional Home Stager Beats the Odds in Cincinnati Real Estate Market (EMedia, May 23rd): "In business since 2004, Design To Market is an established home staging company. An important credential, given that property enhancement remains a new industry in Greater Cincinnati. With a fully developed website featuring before and after photos, customer testimonials and articles on preparing a home for sale, Design To Market offers a full range of home staging options designed to give sellers a competitive advantage. The focus in staging these homes is to minimize days on the market and provide the right environment for the best sales price."
Mortgates and Real Estate Lending
- Regional Bank Stocks Fall Flat (Ithaca Journal, May 23rd): "Mortgage rates haven't risen as much as deposit rates, so banks don't earn as much on the mortgages they hold. And as the housing market has slowed, banks haven't made as much money from originating home loans, collecting the origination fees and [securitization]... Commercial lending is robust, but… if the economy slows, so will loan growth, and loan losses will rise… Midwestern regional banks have fallen 3% in 2007... Banks are not bargains yet… [But] Andrew Pilara, RS Investors fund [likes] Ambac (ABK), which guarantees interest and principal payments on municipal bonds and other debt. Few municipal bonds default… The company's return on equity is 15%."
- Faith-Based Mortgages Court Muslims (Canada National Post, May 23rd): "At least one third of Muslims refuse conventional mortgages because they violate shariah law, Islam's guiding body of rules, by charging interest. But it's also believed that these potential home owners will pay more to make their mortgages religiously sound… Akram Sheikh, senior VP of Anchor Finance Group LLC: In addition to fat margins, there is huge potential for growth. About 40% of the 7.5 million Muslims in the U.S. do not own a house. The market could be immediately worth about $1.7-billion if financial institutions can convince only 1.25% of these potential home owners to take out a mortgage."
- AmEx Plans Mortgage Rewards (MarketWatch, May 23rd): "Mortgage bills, often the single largest payment people make every month, have been off limits to cardholders to collect points, largely because home lenders find it costly to pay card companies for processing the transactions. (AHM) American Home Mortgage Investment Corp. and (NDE) IndyMac Bancorp, the first two among the nation's top 10 residential-mortgage originators… to sign up for the program, [that's geared] to American Express's affluent clientele… The financial-services and travel company has teamed with various developers and property-management companies to enable customers to make down payments for luxury condominiums or pay rent on their AMEX cards."
Subprime Fallout and Foreclosure Impact
- Springfield Foreclosures 2nd Most in State (Mass.live, May 23rd): "Foreclosuresmass.com: Springfield, with 151,732 residents and 1,270 foreclosure filings, outranked Worcester, with a 2005 population of 175,898 and 1,027 foreclosure filings in the period from May 1, 2006, through April 30, 2007… Boston, whose population of 559,034 is nearly four times that of Springfield, saw just under twice as many foreclosure filings. Statewide, 23,116 foreclosures were filed in the 12 months ending April 30, up 81.3% over the previous 12-month period. In April alone, statewide foreclosures rose 63% to 2,002… The seventh straight month with over 2,000 foreclosures."
- More Foreclosures Bring New Rounds of Sheriff’s Sales (Perry County News, May 23rd) Indiana: “Years ago we might see no more than 10 sales for an entire year. Now we have dozens,” said Sheriff’s Deputy Richard Myers… The latest round of sales was conducted last Monday… nearly a dozen properties were sold. Records provided by the county clerk’s office show 93 foreclosures were filed in Perry Circuit Court in 2006, up from 75 the previous year… Thus far in 2007, 29 foreclosures have been filed, many of them by national lenders who issued large numbers of subprime loans over the past couple of years."
- Subprime Derivatives Say Bernanke Will Be Wrong (Paul J. Lamont in Seeking Alpha, May 23rd): "The credit derivative index, (NYSE:ABX), prices the cost of default insurance on U.S. mortgages. For instance, the ABX.HE falls in value if the risk increases that a pool of mortgages will default. During the February subprime panic, BBB and BBB- (or subprime credit) derivatives collapsed (chart)… Since derivatives are traded between parties, holders do not have to use mark-to-market accounting (assigning value based on current market price)… Warren Buffet: "Two parties to [a derivatives] contract might well use differing models allowing both to show substantial profits for many years"… Hedge fund manager: None of these guys mark to market even though there are no question big losses. The Collateralized debt obligations based on credit derivatives are held by hedge funds, insurance companies and foreign banks etc. Once these CDO's start getting downgraded or hedge funds that own this paper get redemptions and are forced to sell, then things will start to get ugly."
- Subprime Loans Spark Disagreement (Philly.com, May 23rd): "It's not just our reputations that have been damaged. People have been hurt . . . all because of a very few unethical actors," John Robbins, chairman of the Mortgage Bankers Association, said in a speech at the National Press Club. He did not mention any companies by name. In response, the president of the National Association of Mortgage Brokers said: "It is truly unfortunate [Robbins] has attempted to shift blame away from Wall Street, federally chartered banks, state-chartered lenders and underwriters for the subprime situation."
- Fitch Warns on Risk of Second-Line Subprime Exposures (Credit Flux, May 22nd): "Fitch Ratings: Subprime closed-end second lien [CES] RMBS on CDOs rated by Fitch… are proving to be some of the worst performers through the first four months of 2007, though they represent only a small sub-sector of the overall subprime RMBS universe… The cumulative exposure to subprime CES RMBS transactions in these CDOs is not sufficient to cause it to place any tranche on negative watch. But… the potential for negative actions on both high-grade and mezzanine structured finance CDOs increases dramatically where there are significant exposures to 2006 subprime CES RMBS and limited asset manager flexibility to sell assets… [While] defaulted first liens go through a [long] foreclosure and liquidation process… defaulted CES are typically charged off 100% 180 days after default."
- “We’re Not Going to be Able to Help Everybody” (New Jersey Real Estate Report, May 22nd): "Phyllis Salowe-Kaye, executive director for New Jersey Citizen Action said a $30 million “rescue” loan program already begun by the state Housing and Mortgage Finance Agency may assist mostly those who have a good chance of refinancing into a new loan anyway… "If the state officials consider credit scores before awarding loans, the neediest won’t be helped… Many borrowers with weak credit have already missed mortgage payments and their credit ratings are already too low to refinance with banks or mortgage companies. Without a new home loan, they will face foreclosure and be out in the street."
Global Impact and Alternatives To The Housing Slump
- The Bank of Spain Warns of Rise in Arrears in Spain (Euroresidentes, May 24th): "Bank of Spain: The number of people or entities getting into arrears in 2006… rose by 10% with respect to 2005… Credit granted to the private sector amounted to almost €2 billion in December, 2006, a growth of 24.8% compared to 2005… Credit granted to families for the purpose of buying a house or flat grew at a slightly lower rate at 22% while credit granted to companies grew significantly by 30.3%... Credit to building firms rose by 33% and credit to property developers rose by 50%. The BOS highlighted that this was the most notable growth for ten years."
- US Giant Targets Local Mortgage Insurance Market (Austrailian Financial Standard, May 24th): "NYSE-listed Mortgage Guaranty Insurance Corporation (NYSE:MTG) … this month received an operating licence from the Australian Prudential Regulation Authority [APRA]…Ratings firms have rated the new company favourably with an AA from both Standard and Poors and Fitch and Aa2 from Moodys. MGIC is the leading provider of lenders mortgage insurance in the US, with US$176.5 billion primary insurance book covering 1.3 million mortgages as at December last year. In February, the group acquired its rival Radian Group for US$4.9b in shares."
- Japan April Trade Data Starting to Show Impact of US Slowdown (ForexTV, May 24th): "Norio Miyagawa, an economist at Shinko Research Institute: "Exports to the US are beginning to show the impact of a slowing economy, affected by inventory adjustment of cars and a weak housing market. But Japan's exports to other areas, such as to the EU and Asia as well as to Middle Eastern nations, supported overall export growth." Exports to the US, Japan's key trading partner, fell 4.8% last month, with car shipments down 7.5% y/o/y, the first fall in 25 months, and exports of construction equipment down 31.2%."
- Qatar Real Estate Sector Set to Get ‘Further Fillip' (Gulf Times, May 24th): "Pierce Moerland, VP, 1st Qatar Real Estate Development: A number of banks and other financial institutions in Qatar willing to finance up to 100% on high-end properties in Qatar… A lot of affluent nationals and expatriates were evincing interest in new property, especially on locations such as Pearl Qatar… The government has relaxed rules and regulations on expatriates and even affluent non-residents property purchases. Moerland: More than 50% of his company's 200 odd residential properties being developed… such as Porto Arabia and Viva Bahariya, had already sold. "More than two-thirds of buyers are either resident expatriates or buyers from abroad."
- Brokerage Unveils Real Estate Fund (KYIV Post, May 23rd): "On May 18, Dragon Capital announced that 100% of the shares in the Dragon-Ukrainian Properties and Development [DUPD] fund will be offered on the AIM on June 1. The fund’s target is to raise a portfolio of $208 million. If successful, it will be the first Ukrainian real estate fund to float on a major Western exchange. The bank’s private equity division, Dragon Capital Partners Ltd, will act as investment manager for the fund… The new fund will initially focus on investment and development activities in Kyiv and Kyiv Region."
- Trump at Cap Cana Sells $350 Million of Residential Real Estate in One Day Event (PR Newswire, May 23rd): "Cap Cana [sold] US $350 million gross and more than 95% of inventory in the first four hours of the Trump Farallon Estates at Cap Cana sales launch. Trump Farallon Estates constitutes the first product launched by the joint venture… between Donald J. Trump and Cap Cana, S.A. The sales launch is the highest figure reached in the shortest amount of time by any tourism real estate project in the Dominican Republic or the Caribbean. Trump Farallon Estates consists of 68 lots of land, ranging in size from 1.6-12 acres, and priced from US $3m-$12 million... with sea views."
- Better Times Predicted for Battered Forestry Sector (Globe and Mail, May 23rd): " Conference Board of Canada: The worst may be almost over for Canada's struggling wood products industry. Still, the ripple effects of an ailing U.S. housing market are still working their way through the lumber business and further production cuts are expected this year before things change for the better in Q3-4'07… according to report author Michael Burt.. Dozens of Canadian mills have closed or reduced operations and thousands of workers have lost their jobs over the past two years as the industry has struggled with a stronger Canadian dollar, low prices and a dramatic tumble in U.S. housing starts."
- Investors Seek Real Estate Opportunities Outside the United States (Int'l Herald Tribune, May 21st): "UBS: Japanese land prices are rising for the first time in 16 years, yet developers' shares trade at less than a third the global average. New REITs in Germany… spurring demand for housing stocks valued at about half the worldwide mean. And new Chinese laws protecting homeowners and record-low mortgage rates in Brazil are attracting money managers... Third Avenue Management, ABN AMRO and Alpine Mutual Funds, which together oversee $20 billion in real-estate stocks, bought shares of Mitsubishi Estate in Japan, IVG Immobilien in Germany and Cyrela Brazil Realty SA Empreendimentos e Participaoções of Brazil for returns of as much as 22% this year."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Study Says California is Suffering 'Brain Drain' (Los Angeles Business, May 23rd): "California is in danger of losing economic ground unless it starts producing more educated workers, according to a study released on Wednesday. The state is suffering a "brain drain" to other states, researchers from the Public Policy Institute of California say, with college graduates going to work elsewhere. Expensive housing prices and a high cost of living makes it too difficult to rely on bringing in educated workers from other states, the report concludes."
- OER, CPI, New York Rentals And The Fed: A Strange Love Story (Barry Ritholtz in Seeking Alpha, May 23rd): "The BLS measure of home price inflation is the Owner's Equivalent Rent [OER]; it's what a homeowner could theoretically rent its house out for. That is the key to the housing portion of the BLS CPI calculation -- OER is about 43% of the core CPI measure… Barclays Capital… found that the bulk of the OER surprise came from the New York City metropolitan area... NY accounts for roughly 75% of the total national deceleration in OER… [likely] tied to the rise in existing home sales in NY… Rising home sales suggest a substitution of ownership for renting. That may be more important than vacancy rates in determining OER."
- Dhawan: Georgia Economy Facing Risks from Housing Market (Atlanta Business Chronicle, May 23rd): "Dr. Rajeev Dhawan, director of the Economic Forecasting Center at… Georgia State University: "The state's default rate on home loans, especially in the subprime market, is below the national average, [but] we've seen a steady rise in foreclosures… The damage has begun and only time will tell… how much of an impact it will be on the region. This is undoubtedly the biggest risk factor for the local and state forecast…" Atlanta's total housing permits fell 5.2% in 2006. Permits will drop 21.3% in 2007, but will rise 3.1% in 2008 and increase 6.1% in 2009."
Homebuilders And Housing Stocks
- Jim Cramer's Mad Money In-Depth Stock Picks (Miriam Metzinger in Seeking Alpha, May 24th): "Cramer says there is not a strong incentive to own HD, and would buy Sears instead."
- Jim Cramer's Mad Money Lightning Round Picks (Miriam Metzinger in Seeking Alpha, May 23rd): "Cramer's bullish calls: Lowe's (NYSE:LOW): ' I think Bob Niblock is best in show ... I think the stock ran up a dollar because people thought it'd be a great quarter. It gave up the dollar. Now it's at $32. It's going to come back.' Home Depot (NYSE:HD), Sears (NASDAQ:SHLD). Cramer's bearish calls: Hovnanian Enterprises (NYSE:HOV): 'We're not buying that. It's actually the worst of the homebuilders, and that's really saying something.'"
- Myrtle Beach Area's Largest Homebuilder Teams Up With U.S. Fish and Wildlife to Protect Forest and Wetlands in Horry County (EMedia Wire, May 23rd): "Centex Homes (CTX), Bass Pro Shops, The City of Conway, Anheuser Busch, The Conservation Fund, and the U.S. Fish and Wildlife Service… [introduced] the new Cox Ferry Lake Recreation Area… on the northernmost end of the Waccamaw National Wildlife Refuge… CTX has been a national supporter of the National Wildlife Refuge System for many years... In 2006, CTX "adopted" the refuge, providing volunteers, organizing its trade partners to assist, and overseeing construction of the first two structures in the Cox Ferry Lake Recreation Area."
- SPDR Homebuilders ETF Rallying: How Could This Be? (Michael K. Dawson in Seeking Alpha, May 23rd): "Since bottoming on April 12th, the SPDR Homebuilders ETF (NYSEARCA:XHB) is up 12.5%; twice as much as the S&P 500’s gain of 6%. On Monday, XHB… looked like a technical buy [despite] news from the last few weeks. [I passed, but checking further]… Champion Enterprises (CHB), Centex Corp (CTX), Mohawk Industries (NYSE:MHK), Beazer Homes (NYSE:BZH) and WCI Communities (WCI) led the XHB during the week of April 13th… The news surrounding these stocks was mixed at best… I had no regrets as I watched XHB climb 3% on Tuesday…The market could care less about my [macro] thinking or [housing] views –homebuilders are in rally mode."
- Home Depot Facing Difficulties Selling Supply Unit – Report (Seeking Alpha, May 22nd): "New York Post: The softening housing market, as well as other complications such as acquisition-led growth, are slowing Home Depot's (HD) efforts to sell its Supply unit… Interested parties are said to be conducting more due diligence than usual, given the number of acquisitions by HD Supply, including 12 last year costing around $4.4 billion… Three teams of the biggest names in private equity… are considering making a bid. The unit is believed to be worth $10b - $11b, however, the NY Post says funds intended for facilities upgrades have been reallocated to make its financials look more attractive."
Commercial Real Estate and REITs
- Wells Real Estate Files for IPO (Chron.com, May 23rd): "Wells REIT Inc. on Wednesday filed for an initial public offering on the NYSE… to sell up to $345 million in stock. Wells mainly invests in office buildings, and previously completed four public offerings of stock, but its stock currently is not traded on a national securities exchange, so this will be its first listed IPO. Morgan Stanley and JPMorgan are the underwriters… The REIT said it intends to use the net proceeds for general corporate and working capital purposes, including acquisition and development of office properties, and repayment of debt or repurchase of outstanding shares."
- ICSC REPORT: Marcus & Millichap Weighs In On National Retail Trends (CoStar Group, May 23rd): "Marcus & Millichap National Retail Group: "There is a lot of aging retail out there, some is lower density or it may not be the optimal use of the property… We're seeing a lot of capital going into tear-downs and redevelopments… 2007's construction pipeline is comprised of 43% big box retail, and mixed-use development has surpassed the construction of regional and super-regional centers … Retail rental rates have been on the rise for the past decade… The average effective rent/sf is expected to hit $18 this year, followed by moderation in 2008… Total U.S. retail vacancy rate has increased slightly over 2006, nearing 10%."
- LifeCare Announces Expansion of Relationship with Health Care REIT (Inside Collin County, May 23rd): "Health Care REIT (NYSE:HCN) has purchased from a LifeCare Holdings subsidiary the long-term acute care hospital currently being constructed by the company in San Antonio and has leased the facility back to LifeCare. The total purchase price for the hospital, following the completion of construction, is expected to be approximately $15.6 million. The initial lease term is 15 years and LifeCare has one 15-year renewal option. Previously, LifeCare announced the development of a long term acute care hospital in Boise, Idaho, which a subsidiary of LifeCare leases from HCN."
- S.J. to Pay $96M for Headquarters (RecordNet, May 23rd): "The county Board of Supervisors narrowly agreed to give Hensel Phelps Construction Co. and Fentress Bradburn Architects the joint contract to plan and build the $108 million eight-story San Joaquin County building, planned to open in 2009 [downtown]. The firms will be paid more than $96m, including contingencies, mostly from bonds to be reimbursed during the next 30 years… County departments are currently scattered among a half-dozen buildings across downtown, costing more than $800,000/year in rent… The new building will allow residents to register to vote, apply for a marriage license and visit elected representatives in one stop."
- US Islamic Commercial Real Estate Fund Launched (Mortgage Solutions, May 22nd): "The Arab Banking Corporation’s UK subsidiary, ABCIB Islamic Asset Management Limited [IAM], Kuwait-based Global Securities House, and the Broe Companies of the USA have announced the launch of The Bronco Fund, a value add Shariah-compliant real estate fund. The fund’s target is to acquire a diversified portfolio of offices and industrial assets located in major US cities using the value add investment strategy. The firms claim that the fund has already made its first acquisition - an office building in San Francisco’s South Financial District."
- SCI Makes Purchase in Texas (Los Angeles Business Journal, May 22nd): "SCI Real Estate Investments purchased the 51,052-sf Parmer McNeil Plaza. The center is 90% leased to 21 tenants including Cold Stone Creamery, Washington Mutual and Chipotle Mexican Grill. A purchase price on the two-year-old center was not disclosed; the property is valued at $1.3 million according to Travis County tax rolls… Scott Derrick, chief acquisitions officer for SCI: "The Austin market is growing rapidly and the center benefits from its close proximity to several Class A apartment communities as well as traffic generated by large employers headquartered in the in the area...[such as] Motorola and Sun Microsystems."
- Longview Enjoys Building Boom (Washington Daily News, May 22nd): "About a dozen large construction projects are under way in Longview, which will further strengthen Cowlitz County's economy, city and business leaders say… Through the end of April, city sales tax revenue is up 6.2% over last year to $2.3 million. Construction sales tax represents between 7-10% of the total… In January, Weyerhaeuser Co. started construction of a new 125,000-140,000 sf sawmill on its Longview mill site... The sawmill is capable of producing 450 million board feet per year… Western Wood Products Association: The new sawmill should come online about the time when lumber prices begin to rebound."
Web Site of the Day
OSG Boomerang Technology- Hardtack is not just another market tracker site. Started by Robert Wade and his co-workers at the OSG Corp., (an IT outfit), the site tracks cities around the country according to census data, median house prices; as of one hour ago or one month ago (with the price change); or national market leaders by region and state—and lots more.
OSG Boomerang also offers charts on national inventory rates by range of price and by category (single family homes, condos, etc.), and tables on price range change, properties sold—even which region people were most interested in on the site.
Which is all well and good, but the BEST part of this site is the 'Google Earth' type maps which let you zoom in on a specific area and get all the info you need about that particular area. If you type in say, Black Eagle, Montana, you'll get a satellite photo view of the area as well as an icon indicating when the info for that area was updated last. (May 22nd, for those of you interested in Black Eagle, Montana…)
Informative, and very cool.
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