Quote of the Day- "From the House's Mouth"
"There is no great bubble of demand for office space here." - Richard Schuham, an executive VP with real estate brokerage Studley Inc. on the Chicago commercial real estate market. (Crain's NY Business, May 29th)
Real Estate Sales and House Prices
- House Prices, Sales Dip in R.I. (Providence Journal, May 30th): "Warren Group: April Single-family house sales fell 5.6%, from 747 in April, 2006 to 707. The median price of single-family house fell as well, by 3.1%, from $274,000 to $265,000. Year-to-date sales also declined for the first four months of the year, vs. the same period a year ago, dropping 3.6%... The median price also dropped during the four-month period, falling 1.9% from $265,000 to $260,000… Q1 building permits for single-family houses [are] down 17%. Rhode Island Builders Association: Twenty-five of Rhode Island’s 29 cities and towns showed a Q1 decline."
- Message to Fed: Housing is Falling Much Faster than Reported (John Burns Real Estate Consulting, May 30th): "We purchase and compile actual home closing data for approximately 181 counties across the country… where about 55% of the U.S. population lives and… where the large homebuilders are active… Sales have fallen 22% y/o/y… The Mortgage Bankers Ass'n Seasonally Adjusted Purchase Application Index, which measures the number of people filling out loan applications to buy a home, is down 18% from its peak in September 2005. With presumably more applications being filled out by borrowers who now have to shop around for a loan, how could sales have fallen by less than 18%? The Census Bureau calculation of new home data does not calculate sales net of cancellations, and cancellations are running much higher than normal right now."
- Housing's Foundation Crumbles (Forbes, May 29th): "According to the S&P’s home index, the housing crunch appears widespread, with most cities surveyed posting declines. Out of 20 metro areas, 13 reported cuts in existing home prices… Detroit, Michigan and San Diego, California were hardest hit, with year-over-year declines of 8.4% and 6.0% respectively. The few bright spots included: Seattle, Washington and Charlotte, North Carolina, which climbed 10.0% and 7.4% respectively."
- Existing Home Sales Fall 56% in Two Years (Tampa Bay Business Journal, May 29th) Florida: "Statewide, sales fell 26%, to 12,016 homes, while in Tampa Bay, existing home sales decreased by 35%, to 2,257 sales. [In] April 2006, 5,105 homes were sold. Median prices… for the state dropped 3% to $237,000, while in Tampa Bay, it fell 5% from April 2006 to $209,700, [but] is still up 14.5% from April 2005. In Sarasota, existing homes sales rose 16% to 796, but median prices declined 2% to $294,800… Florida Realtors Ass'n: Statewide condo sales declined 19% from April 2006... The statewide median sales price for condos last month was $215,500, up 3% from April 2006's condo median price of $210,000. "
- The Housing Challenge (Leesburg Today, May 29th) Virginia: "Loudon County housing prices are driving more workers to live farther from their job sites resulting in increased congestion and increased demands for billions of dollars worth of new lane miles and other road network upgrades. Businesses looking to locate in Loudoun are going to weigh their assessment of daily road conditions and employee housing options against the county's high quality of life, highly skilled workforce and other offerings not easily found in other markets."
- Want to Buy a Home? 18,571 Sellers Have a Deal For You (Columbus Dispatch, May 28th): "Columbus Board of Realtors: There are 18,571 homes listed for sale in central Ohio... and that doesn't include many new builds, homes for sale by owners, repossessions or homes that have fallen off the listings without selling… In April 2003, 10,722 homes were listed… While the number of homes for sale rose 73% during the past four years, the Franklin County population rose about 1%. Central Ohio has become so crowded with homes that one major builder, Centex Homes, (CTX) announced last week that it is pulling out of Columbus to focus on more-successful markets."
Real Estate Investing and Sentiment
- New Buildings Are Proposed Among Projects (NY Times, May 30th): "Facing a $225 million budget gap, the City Housing Authority is planning to sharply reduce its staff and… raise $50 million by selling parking lots and other open space at a number of housing complexes [three on the West Side of Manhattan and one in Brooklyn] much of it for middle-income residents... The authority, landlord for more than 400,000 low-income New Yorkers, said… some of that development might include market-rate units... Housing Authority officials say there is enough empty or underused space within its developments to support 25,000 new apartments and homes, but that they are selling only enough for roughly 5,000 or 6,000."
- No Housing Slump in Reality TV Ratings: Real Estate-Obsessed Viewers Can Choose From at Least 24 Shows (Builder Online, May 29th): "Networks have crafted entertainment out of fluffing up homes for sale, chronicling the travails of amateurs trying to flip houses for profit or tagging along with realty agents as they angle for a listing… The real estate obsessed can choose from at least two dozen shows. From "Property Ladder" to "Flip This House" to "National Open House," the list is long and getting longer…" StarLink executive Miraj Parikh: "When housing was flying, viewers watched to snoop on how many multiple offers the other guy got… Now, [the viewer is] using these programs as a benchmark of whether the market is good again."
- Who's the King of Online Real Estate? (BusinessWeek, May 29th): "Realtor.com is #1... in April... The surprise number two [in online RE traffic]--with 3% of visitors was… RealtyTrac, which specializes in homes in foreclosure... Recently, an LA Times story noted that RealtyTrac's data overstates the number of people actually losing their homes, since the company tallies up homes in [all stages of] the foreclosure process... Yahoo, Zillow, Re/Max and Coldwell Banker--are battling it out with just 2% of the traffic each… The average online RE visitor… spends about ten minutes on the site… suggesting most are just checking out a particular property and not extensively researching homes for sale in a city."
- When New Condos Go Bad (Real Deal, May 29th) : "As condo construction has increased across NYC, so have the number of complaints from buyers about the quality of workmanship on the new units. Real estate lawyers say they are hearing more and more complaints about developers cutting corners when it comes to basic underpinnings like electrical wiring, fireproofing and ventilation. Experts say part of the problem stems from the Department of Buildings' self-certification system, whereby developers attest that their buildings are up to code without official oversight."
- Hawaii Real Estate — A Looong-Term Investment (MSNBC, May 29th): "Lo'ihi Development Co. will soon start offering oceanview lots speculators won't even be able to stand on for many millennia. That's because they're currently submerged more than 3,000 feet below sea level — on an underwater volcano called Lo'ihi, located about 20 miles southeast of the Big Island. A Web site will be renovated in the next couple of weeks to officially begin selling parcels for an introductory price of $39.95. Buyers will receive a brochure and a "deed," but much like Internet groups that claim to sell stars, they probably can't call themselves owners."
Mortgates and Real Estate Lending
- Mortgage Market Slow, Not Stagnant, Lenders Say (Maryland Gazette, May 30th): "While the residential mortgage market is ‘‘tightening up” across most of the nation, mortgage industry players in Maryland are more sanguine... Charles DiPino, president of the Maryland Association of Mortgage Brokers: "We’re seeing strong numbers for mortgage and refinancing applications in Maryland… Maryland’s unemployment rate, lower than the national average, is making a difference… RealtyTrac: Foreclosures in Q1'07 totaled 2,031 in Maryland, up 88% from Q1'06."
Subprime Fallout and Foreclosure Impact
- Credit Crunch May Follow Mortgage Crisis, Warns Study (Digital50, May 29th): "Center for Statistical Research [CSR] Study: Reducing available subprime credit by 10% would result in about 580,000 borrowers (1% of homeowners) and $94 billion rendered unavailable to borrowers. A 20% reduction would mean that 1.1 million borrowers (2.3% of homeowners) would be denied a loan and $188 billion would not be available to American consumers… Foreclosure trends in prime, FHA/VA and subprime loans using data on mortgage foreclosures through Q4'06: The current rates of foreclosures, including those for subprime loans, fall within the range of historical fluctuations recorded since 1998."
- Cracks in the Wall Street Ice - Bull Run Coming To an End? (Michael Panzner in Seeking Alpha, May 29th): "Bear Stearns (BSC)… is a major player in mortgage securitization… and the issuance of new mortgages… On May 16, Wachovia Corp. lowered its rating on Bear to the equivalent of a "neutral" from "buy," and the following day Merrill Lynch lowered [its] earnings estimates, causing Bear shares to dip below $148, their lowest level since mid-April. But yesterday's bearish note from Goldman, who lowered [their] original estimate by 22% to $3.20/share, sent the stock down even further... Lehman, which, like Bear, is big in the mortgage business, also experienced a drop in profit from mortgage-related business."
- Foreclosures Still Raging in Chicago Area (Crain's Chicago Business, May 29th): "Cook County Circuit Court: 30,000 - 36,000 Cook County foreclosure filings this year… A 35%-62% increase from 2006's 22,248 filings… after having risen 36% from the previous year… National Training and Information Center: Slightly more than half of the mortgages that went bad in Chicago last year had been made in the past two years… 97% — were adjustable-rate mortgages… Foreclosures [were] up in nearly every part of the city and suburbs, from the middle-class South Shore neighborhood (up 55%, to 331 foreclosures, last year) to the well-heeled suburb of Wilmette (up 192%, to 38)."
- South Carolina Foreclosures Among the Lowest in U.S. (South Carolina Independent Mail, May 29th): "RealtyTrac: More than 437,000 foreclosures were filed nationwide in Q1, up 27% from Q4'06 and 35% from Q1'06… South Carolina saw 1,091 foreclosure cases, one for every 1,606 households. But the number of foreclosures was down 57.25% from this time last year and gave South Carolina one of the lowest foreclosure rates in the country. RealtyTrac ranked the state No. 41 of 50… Anderson County has seen a slight increase in the number of foreclosures — the Master in Equity Office reported 765 foreclosures in 2005, 864 in 2006 and 277 so far this year."
- Fighting Foreclosure in Charlottesville (NBC29, May 29th): "Virginia is 35% higher than the national average for foreclosures. In fact, foreclosures are up 138% in Virginia over last year… Piedmont Housing Alliance: A factor that could be affecting Virginia's high foreclosure rate are high interest pay day and car title loans that charge interest as high as 780%. The loans are easy to get--with no credit check usually--causing people to get into a vicious cycle of debt that can cost them their home."
Global Impact and Alternatives To The Housing Slump
- Housing Slump, Crackdown Cut Flows, Hurt Mexican Peso (Bloomberg, May 29th): "Census Bureau: The U.S. housing slump is squeezing Mexican migrant workers from LA to NY, where permits for new home construction are down 20% this year. That's reducing the pace of money transfers, the second-biggest source of dollars in Mexico after oil exports, and turning the peso into a laggard among Latin American currencies. Remittances rose 3.4% in Q1, the slowest growth in eight years… Cross-border transfers, which totaled $23 billion last year, also have been hurt by [the US's] crackdown on illegal immigrants… Mexico's central bank: The construction industry is the biggest source of work for Mexicans in the U.S., accounting for about 20% of jobs."
- Europe: Commercial Real Estate Sizzles (BusinessWeek, May 29th): "The London Gherkin building was sold in February by insurer Swiss Re for $1.2 billion… [then there's the] $2.8b sale of the Coeur Défense office complex near Paris, and the $3.7b sale of bank HSBC's (HBC) London headquarters… IPD research group: The value of investment property in Western Europe—retail and office space, as well as big residential developments—rose 7.8% in 2006. Growth last year topped 20% in Ireland, and was over 10% in Britain, France, Spain, and Scandinavia… Growth in the euro zone was 2.8% in 2006 and is expected to hit 2.7% this year… Money is pouring into Europe from big institutional investors and private-equity funds."
- Apartment Towers Planned for Asian Gambling Center (San Jose Mercury News, May 29th): "Oaktree Capital Management, a Los Angeles investment firm with $40 billion in assets, will join a Hong Kong developer to build apartment towers in Macau, the world's biggest gaming hub. The project will cost from $320 million to $384 million, Patrick Wong, chief executive of Tenacity Real Estate Group, said last week. Macau's property prices are climbing as soaring gaming revenue and rising tourism boost the economy."
- ING Global Real Estate Fund Receives Morningstar's Highest Rating (Earthtimes.org, May 29th): "ING Funds today announced that its Global Real Estate (IGLAX) received five stars from Morningstar in the Specialty - Real Estate category as of 3/31/07. The ING Global Real Estate Fund received five stars for Overall (25 out of 297 funds), 3 Years (13 out of 239 funds) and 5 Years (9 out of 158 funds)... The Fund - part of a suite of real estate products designed for mutual fund investors - is managed by ING Clarion Real Estate Securities, one of the leading managers of global real estate securities portfolios in the world with $22 billion under management."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Home Price Decline Speeds Up -- Survey (Seeking Alpha, May 30th): "Falling house prices coupled with soaring gasoline prices are raising concerns that consumer spending will slow, but the Conference Board's index of consumer confidence, released Tuesday, showed a rise to 108 from April's revised 106.3. Though house prices have fallen over the past year, they are still up 157% from where they were 15 years ago… David Seiders, chief economist for the National Association of Home Builders: "New home construction might take until 2011 to reach last year's level. We've fallen way below trend because we soared way above trend during boom times. The upswing will be relatively slow, unlike earlier cycles."
- S&P Housing Index Shows Decline (Yahoo! Finance, May 29th): "Today's S&P/Case-Shiller U.S. National Home Price Index: For the first time since 1991, prices have shown a quarterly decline… a 1.4% y/o/y drop in the price for sales of existing single-family homes in metropolitan markets in nine U.S. census divisions. For March, S&P's 10-city and 20-city composite indices, which measure a smaller number of cities than the national index, also fell, by 1.9% and 1.4% respectively over the last year. The March sales figures show that 13 of 20 cities reported prices had dropped or remained flat."
Homebuilders And Housing Stocks
- Pulte Homes Cuts Another 16% of Its Workforce (Seeking Alpha, May 30th): "Pulte Homes says it will cut 16% of its workforce… taking a $40-50 million charge as part of the move, most of it in Q2. It said the changes will save $200 million annually, with $90-100 million in savings in 2007. Pulte had 12,400 employees in 2006 and 13,400 in 2005; post reorganization, the company said it will employ just over 10,000 people. CEO Richard J. Dugas: "The homebuilding environment remains difficult… our current overhead levels are structured for a business that is larger than the market presently allows." The company has already reduced its workforce by 25% since 2006.
- Five Ways to Take Advantage of a Market Correction (Morgan Martindell in Seeking Alpha, May 29th): "While expectations of a correction are justified, timing the top is difficult, so it is best to take an investment approach that can be successful whether the market experiences a correction or not… I have devised an investment strategy that accounts for the high likelihood of a correction while at the same time capitalizing on further upside opportunities in the markets… Invest primarily in stocks that are not dependent on the American market. Two of this sort in which I am currently considering investing are a Mexican homebuilder, Homex Development Corp. (HXM), and a copper miner, Taseko Mines (TGB)."
- U.S. Stocks Rise, Led by Real-Estate Trusts, on Takeovers (Bloomberg, May 29th): "Real-estate shares surged on the $13.5 billion takeover of Archstone-Smith Trust, propelling U.S. stocks to their second straight advance and the Standard & Poor's 500 Index to within 10 points of a record. Property companies accounted for seven of the 10 top gains in the S&P 500, led by Archstone-Smith Trust, the second-largest U.S. apartment REIT… A gauge of real-estate companies in the S&P 500 rose 4.1 percent. Simon Property Group Inc. gained $3.52 to $105.40. Equity Residential jumped $3.20 to $50.75."
- Owens Corning: My Enthusiasm Is Shared by Insiders and Officers (Todd Sullivan in Seeking Alpha, May 29th): "Since Owens Corning (OC) emerged from bankruptcy last October, there have been 19 transactions from corporate officers of shares… all buys… Corporate officers spent $1.9 million of their own funds to pick up over 68,000 shares. The big fish was 10% owner Harbigner Capital Partners, who bought $35m worth for 1.04 million shares… I have been recommending Owens since January and am up over 20% so far. It would seem like my enthusiasm is shared by those with the most intimate knowledge of its operations and prospects, management."
- How to Catch a Falling Knife (Motley Fool, May 29th): "Buying when a stock is plummeting takes guts, but it can be exceptionally profitable when it works out… Champion Enterprises (CHB) hit multiyear lows last summer… With Champion, investors panicked over the state of the manufactured housing market. Since then, these stocks are up an average of 90%... in March, when Accredited Home Lenders (LEND) was at $6, our high-risk, high-reward "Jokers Wild" section identified it as a stock to watch because it was a company that emphasized profitability and conservative underwriting practices in the battered subprime lending industry. Since then, it's more than doubled."
- Housing Is Booming ... Somewhere (Motley Fool, May 29th): "National readings of home prices are as relevant to individual homeowners as stock indexes are to investors in individual stocks… While investors can buy index funds to diversify their holdings, homeowners have to commit to a given area when they buy. Until someone decides to come out with an ETF that tracks the home price index… investors may do well looking beyond national homebuilders like Toll Brothers (TOL) and Pulte (PHM) to focus in on builders in strong regions. For example, Weyerhaeuser (WY) bought out Northwest-based homebuilder Quadrant Homes as a long-term investment, despite the national downturn."
Commercial Real Estate and REITs
- Lex-Win To Take 25M Shares of Wells REIT (Globe St., May 29th): "Lexington Realty Trust and Winthrop Realty Trust have entered into a joint venture to acquire stock in Wells REIT. Lex-Win Acquisition LLC, as the JV has been named, will acquire 25 million shares of common stock. Last week, Wells REIT made public its plans to offer $345 million in common stock… This is not the first time Wells REIT shares will be listed on the stock exchange, although shares are not currently being traded. The 25 million shares account for 5.2% of Wells’ common stock, and will be acquired for $9/share. The purchase price: $225 million."
- SEC Investigating Business Partner of Ventas (Louisville Business First, May 29th): "Sunrise Senior Living: The SEC has begun a formal investigation concerning insider stock trading and the company's accounting practices. Sunrise is a business partner of Ventas Inc. (VTR), a health care REIT… Earlier this year, Ventas bought an associated company, Sunrise Senior Living REIT, which owns 74 senior-living communities in Canada and the US. All of Sunrise REIT's properties are developed and managed by Sunrise Senior Living Inc. (SRZ), one of the largest providers of senior-living services in North America… Sunrise is also restating three years worth of financial results and has delayed reporting the recent full year results."
- Blackstone Readies to Flip EOP Assets (Crain's NY Business, May 29th): "Blackstone Group this week is expected to put on the market the 10.4-million-sf Chicago portfolio of Equity Office Properties Trust… for between $2.3b- $2.6 billion… The winning bidder would probably do a "mini-Blackstone," flipping some of the properties… Blackstone… profitably flipped former Equity assets in such high-priced markets as New York and Washington, D.C., and in California... [But] the booming market for large commercial real estate mortgages, which has helped buyers stretch to surprisingly high prices, is becoming more restrictive amid concerns by banking regulators and credit rating agencies about an overheated market."
- Tishman, Lehman to Buy Archstone-Smith (Yahoo! Finance, May 29th): "Tishman Speyer Properties -- owner of New York's Rockefeller Center and the Chrysler building -- and Lehman Brothers Holdings Inc. will buy Archstone-Smith Trust for at least $13.5 billion, turning one of the largest publicly traded REITs over to private investors. The buyout announced Tuesday provides further evidence of a booming market for commercial real estate and intense investor interest in owning REITs… At $60.75/share, the price represents a 22.7% premium over Archstone's Thursday closing price, before news reports of a possible takeover… Archstone-Smith said the deal was worth $22.2 billion, including $6.3b in debt."
- WSJ Reports 2007 Decline in Self-Storage REIT Performance (Inside Self-Storage, May 29th): "WSJ: Last year, the self-storage REITS outperformed the REIT industry as a whole. But during Q1'07, same-store growth in net operating income for the four publicly traded companies—Extra Space Storage Inc., Public Storage Inc., Sovran Self Storage and U-Store-It Trust—declined to 3.7 percent from 6.6% the previous year, according to BMO Capital Markets… Public Storage said its Q1 income fell 48% as a result of charges related to last year’s deal with Shurgard. U-Store-It is in the middle of a major management restructuring. Sovran attributes some of its lack of performance to slowness in the housing market."
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