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"
"It is frustrating to report these poor operating margins and a loss for the quarter. What is even more frustrating is reporting that the housing market continues to slip further in many locations in terms of both sales pace and sales price, but that is what has occurred in the latter part of the second quarter and the slower conditions have continued into May." – Ara K. Hovnanian CEO of homebuilder Hovnanian Enterprises. (Hovnanian Enterprises F2Q'07 Conference Call Transcript in Seeking Alpha, June 1st)
Real Estate Sales and House Prices
- A Look At U.S. Home Price Performance in 20 Markets (Hickey & Walters in Seeking Alpha, June 4th): "S&P/Case Shiller recently released the March figures for median home prices in the 20 cities they analyze. As many of you know, the Chicago Merc trades futures contracts based on these home-price indices. Below we highlight the difference between the actual March home price figures and the contract price of the home-price futures expiring in May 2008. As shown, all eleven contracts are indicating increased weakness in the housing market. Las Vegas is expected to decline the most, while San Francisco is expected to decline the least."
- Home Sales Reaching 1992 Recession Levels (North County Times, June 3rd): "Union- Tribune: Foreclosures in San Diego County are up 600% this year… 10% of the 700,000-750,000 mortgages in San Diego County are of the sub-prime variety. Nearly 13% of those sub-prime notes are [delinquent]… California Association of Realtors: [From] $604,250 in 2005, median San Diego County-wide housing prices declined to $601,760 in 2006… In April, San Diego County's supply of houses [was] ten months worth of sales… In March 2004 inventory was one months' supply… Last decade's recession was worse. The county's unsold inventory reached a whopping 23 months in February 1992."
- Housing Numbers are Down, But No Concern of Slump (WCF Courier, June 3rd): "The median sale value of homes in the Cedar Valley has historically risen at a fairly steady rate --- around 6% annually... The largest increase in sales price in the last 17 years was between 1996-1997, when home values rose by 9%. The lowest was a 1% gain between 2004-2005, a time when many other areas were experiencing the huge price gains due to subprime lending... Developers learned their lesson in the 1980s after massive layoffs at the John Deere Works ravaged the housing market in the Cedar Valley."
- Lower Home Prices Drive Cape Market (Cape Cod Times, June 2nd): "The Barnstable County Registry of Deeds tracks commercial, residential and other property sales valued at more than $50,000… The median sales price for individual commercial and residential properties last month was $325,000, down nearly 11% from May 2006. Total sales volume… was up 13.8%, from 617 recorded sales last May to 702 during May 2007. The sales growth marks the second consecutive month of increases, following more than a year of almost constant drops in volume. The total value of sales in Barnstable County this past month was $421,945,905, up nearly 23% from the May 2006 total of $343,792,871."
- Report: Area Housing Bubble Not Bursting (Orlando Business Journal, June 1st): "University of Central Florida finance professor Stanley Smith, single-family home prices in the Orlando-Kissimmee metropolitan statistical area appreciated at a 1.64% rate in Q1'07… vs. a 0.71% appreciation rate in Q4'06 and a 1.71% rate in Q3'06… Home prices in Orange, Seminole, Osceola and Lake counties also fared better in Q1'07 than the rest of the Sunshine State, where home prices depreciated at a rate of 0.34%. [Home prices appreciated] 8.76% in Q3'05… Q4'05 saw a 6.67% appreciation rate… 5.30% in Q1'06, and 3.67% in Q2'06… The analysis in the report is based on the OFHEO Housing Price Index."
Real Estate Investing and Sentiment
- Peekskill Revitalization Plan Creating Unprecedented Boom (Westchester.com, June 4th): "Peekskill, NY - In the last five years, Peekskill has seen an unprecedented boom in… real estate development, superlative public works projects, and general financial health… Major reconstruction of the play facilities of close to half a dozen Peekskill Parks… Completion or commencement of numerous public works projects... A boom in commercial development… through the Grow Peekskill Fund, or through city funding… Major growth in residential development, sparked initially by Ginsburg Development’s takeover of the Chapel Hill Development… Together these alone will bring more than $3.4 million in new revenues to the city, county and school district."
Mortgates and Real Estate Lending
- GE's Moment- Part II (Barron's, June 4th): "For all the complaints on Wall Street that GE Money (NYSE:GE) and Commercial Finance drag down the company's valuation, both businesses continue to do well, showing earnings gains of 15% apiece last year. GE CEO Jeffrey Immelt: Longer term, the company's finance units could sustain annual profit growth of 10%. GE Money derives about 75% of its business from overseas, where its market share is low, leaving plenty of room for expansion... Subprime-lending problems in its WMC mortgage unit hurt consumer-oriented GE Money in Q1, but the company has ended its participation in this dicey corner of the mortgage market."
- Lenders Move to Stop Credit Repair Schemes (MSNBC, June 3rd): "Fair Isaac Corp. (FIC), the developer of the FICO score… will change its credit scoring system [to] end this little-known but potentially high-impact mortgage loan loophole: Instantcreditbuilders.com, helps [boost] credit scores by adding [customers] as an authorized user on several credit cards of people with stellar credit who were paid to allow this coattailing… Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards with strong payment histories."
- Reverse Mortgages are Rising in Stature (Herald Net, June 3rd): "While reverse mortgages for second homes have been available through a handful of small regional banks, they will soon be offered by at least two national lenders. Bank of America (NYSE:BAC), which recently announced an agreement to acquire the reverse mortgage business of Seattle Mortgage Company, is expected to roll out the second home wrinkle as soon the purchase is completed next month. BNY Mortgage, which last week introduced the industry's first jumbo fixed-rate product, also will allow reverse mortgages on second homes under certain guidelines."
Subprime Fallout and Foreclosure Impact
- Mortgages: Private Equity Firm Buying Subprime Lender (St. Louis Today, June 5th): "Accredited Home Lenders Holding Co., which makes mortgage loans to residential buyers with shaky repayment records, on Monday said it agreed to be acquired by a private-equity buyer for about $400 million in cash. Lone Star Fund V LP will pay $15.10/share for the company, a 10% premium over the stock's closing price of $13.76 on Friday."
- Eye on Corus Bankshares (Part I) (Colin Peterson in Seeking Alpha, June 4th): "Corus Bankshares Inc.'s (CORS)… lending focuses almost exclusively on condominium projects... As of March 31, 2007, their $3.85B loan portfolio was 64% condo construction ($2.46B) and 25% condo conversion ($0.98B) loans. As a percentage of funded balances of Corus' commercial real estate loans: Florida is 38% (Miami/SE FL is 22%), California is 16% and Las Vegas is 10%... Corus' lending is concentrated in the most overbuilt bubble markets. In Miami-Dade County alone, 8,000 new condo units will be completed this year and nearly 12,000 more in 2008. In Las Vegas, there are "4,214 existing [condo] units with another 13,409 under construction." Las Vegas also has a 16.5 month supply of residential inventory."
- Bracing For the Subprime Mortgage Fallout: Gauging the Damage Ahead in the Region is Anyone’s Guess (Business North, June 3rd): "RealtyTrac: Actual foreclosure rates during April in Minnesota and Wisconsin were in the lower half among the 50 states, Nos. 32 and 35, respectively. But in each state, the trend is worsening. In Wisconsin, Foreclosures.com reported foreclosures through the first four months statewide ran 23% ahead of the pace in the same period last year. And in Minnesota on May 25, there were 2,870 properties in foreclosure or pre-foreclosure, 56 of them in St. Louis County."
- County Foreclosure Boom (Lake County Sun, June 2nd): "RealtyTrac says there were 457 foreclosures in Lake County in April, 80 more than the previous month…[But] Record Information Services, a Chicagoland public record data company says Lake County had 198 foreclosures in April 2007 with Waukegan leading at 33 foreclosures and Round Lake Beach following with 18. The Illinois foreclosure rate has escalated 23% since last April… Preston Letts, a real estate investment coach and a consultant with Platinum Wealth Group: The biggest long-term trend may be that people are going to use different types of programs to buy homes including rent-a-home programs to build a stable credit history."
- Safety First (MarketWatch, June 2nd): "ARMs made up a 41.9% share of all mortgage originations in January 2006 [are down] to an 18.4% share in March 2007. With a shrinking spread between ARM interest rates and fixed rates, borrowers don't have as much of an incentive to bypass a more stable fixed-rate loan. TransUnion TrueCredit.com survey: A y/y decrease in ARMs [borrowers]… 24% of American homeowners… were concerned about the monthly loan costs; 13% [worry] they'll end up owing more than what their home is currently worth… 11% are worried about payment increases when their ARMs adjust and 7% worry [about refinancing]."
- Subprime Loans Performing Better This Year, Washington Mutual says (Chron.com, June 2nd): "Washington Mutual (NYSE:WM), the biggest U.S. savings and loan: Subprime mortgages originated this year were performing better than those issued last year because of tighter lending restrictions… Sheila Bair, chairman of the Federal Deposit Insurance Corp.: "Investors in subprime mortgage bonds are limiting losses by allowing some homeowners to maintain for a longer period of time the low initial interest rates on their adjustable-rate loans and avoid default. Investors next year and in 2009 will face increasing pressure to sustain borrowers' "starter rates" because mortgages made in 2006 with lax underwriting standards are scheduled to reset to higher monthly payments."
- Hedge Funds Have a Rethink on US Subprime (FT Alphaville, June 1st): "A group of more than 25 funds has asked the International Swaps and Derivatives Association, the derivatives industry body, to act on their concerns that banks that both sell derivatives that pay out when loans hit problems, and handle mortgage payments could be making concessions to avoid making good on the contracts. The concerns centre on loan modifications that are used to help borrowers keep up with payments. Analysts say that in these cases 40% of the loans fall back into arrears within a year - but the changes do not trigger write-downs on the bonds, which would in turn lead to payment to purchases of credit-insurance derivatives."
- JPMorgan Quietly Climbs Subprime Ladder (Reuters, May 31st): "JPMorgan Chase & Co. (NYSE:JPM) is downplaying its role in subprime lending even as it [becomes] one of the biggest originators of risky mortgages… the No. 3 U.S. bank… has stepped into a void triggered by a meltdown in the market for lending money to homebuyers with weak credit. JPMorgan's Q1 subprime mortgage originations, through Chase Home Finance, jumped 11% to $3.02 billion, according to Inside Mortgage Finance. The bank was No. 11 in a ranking that included No. 7 New Century Financial Corp. (NEWCQ), which now is being liquidated in bankruptcy."
Global Impact and Alternatives To The Housing Slump
- In Real Estate, It's Time to Go Global (Barron's, June 4th): "Barron's looks at international real estate funds: The Northern Global Real Estate Index Fund (MUTF:NGREX), is pegged to the FTSE EPRA/Nareit Global Real Estate index... [It has] assets of $872 million, YTD returns of 5.8%... Newcomer Kensington International Real Estate Fund (MUTF:KIRAX)… buys… institutional-quality assets… in diverse markets like UK and Singapore… Alpine International Real Estate Fund (MUTF:EGLRX)… has average returns of [about] 28% over the past five years… Manager Sam Lieber… invests in a broad range of assets… Cohen & Steers International Realty Fund A (MUTF:IRFAX)… favors blue-chip realty stocks in Europe, Australia and Asia… ING Global Real Estate Fund A's (MUTF:IGLAX), three-year return is 29.8%. IGLAX… invests primarily in international blue-chips."
Homebuilders And Housing Stocks
- Homebuilders and Construction ETFs (Seeking Alpha, June 4th): "iShares Dow Jones U.S. Home Construction Index Fund ETF (NYSEARCA:ITB) SPDR S&P Homebuilders ETF (NYSEARCA:XHB). PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA:PKB): Homebuilders and Construction ETFs focus on homebuilder stocks or stocks broadly related to construction…Construction stocks, such as Caterpiller (NYSE:CAT), have exposure to international markets, whereas homebuilders tend to be entirely US-based. And construction stocks benefit from commercial and government building, not just the housing market. Most of these ETFs are market cap weighted index funds. However, PowerShares offers a "dynamic" ETF that selects stocks based on [undisclosed] rules... Use it instead of a regular index ETF if you believe that quantitative, rules-based stock selection will outperform a market cap weighted index. Narrower ETFs, such as these, tend to have higher expense ratios than the ETFs which track broad indexes such as the S&P 500."
- Real Estate Sector Leads Broad Rally (Nick Perry in Seeking Alpha, June 2nd): "Two weeks ago… iShares C&S Realty Majors (NYSEARCA:ICF), iShares DJ U.S. Real Estate (NYSEARCA:IYR), and Wilshire REIT Fund (NYSEARCA:RWR) all posted weekly losses near 6%. We now find a snapback bounce of roughly the same amount… The real estate group broke below a consolidation pattern that had been in place since March 1. I noted that a rally would have to face that congestion zone and the charts for the top- and bottom-performing ETFs show that is what we are seeing now. The ICF, IYR, and RWR are all pushing into that consolidation area and flirting with their 50-day moving averages. I think it is also worth pointing out that the bond ETFs are hitting oversold levels that have recently been associated with bounces so that is something to watch."
- Florida-Based Homebuilder Ready to Shine on Houston (Houston Business Journal, June 1st): "A Florida homebuilder is rolling into the Houston market with plans to nail down three communities by this summer. Melbourne, Fla.-based Mercedes Homes, which already has set up shop in Austin, Dallas and San Antonio, is planning to build homes in communities in north, northwest and west Houston."
Commercial Real Estate and REITs
- Are Commercial Property Prices a Barrier to More REIT Buyouts? (Trade Radar Operator in Seeking Alpha, June 5th): "Commercial property deals, the kind that REITs typically invest in… are [now] being structured that assume both rents and property prices will rise significantly… Prices/sf have become so rich, some investors are backing out of deals… The property market had been aided by the thriving commercial mortgage-backed securities [CMBS] market… [But] investors are demanding higher yields on these securities… Lenders are demanding higher rates for funding these deals in the first place and requiring more equity [down]… Nevertheless… bullishness in worldwide stock markets and private equity firms sloshing cash [around], we will surely see… more major REIT buyouts."
- American Campus Snags Edinboro University Project (Austin Business Journal, June 1st): "American Campus Communities Inc. has been tapped to develop a two-phase student housing project at Edinboro University of Pennsylvania. The 1,504-bed development will add to the on-campus housing at the Pennsylvania State System school with a total enrollment of about 7,000 students. The Edinboro University Foundation selected American Campus (NYSE:ACC) to head the yet-unnamed project. The new endeavor is the REIT's first with the Pennsylvania State System… American Campus is one of the largest developers, owners and managers of student housing properties in the nation."
- DiamondRock Down on Analyst Downgrade (Forbes, June 1st): "David Loeb at Robert W. Baird & Co. downgraded DiamondRock Hospitality Co. (NYSE:DRH) hotel REIT's stock rating to "Neutral" from "Outperform," saying the market fully values the company's properties and "historically high asset prices and slowing lodging fundamentals could present headwinds" to the REIT's shares. Loeb maintained his price target of $20. The analyst also dismissed a trade newsletter report on Thursday of an unsolicited buyout bid for DiamondRock at $22/share, which sent the REIT's stock to a 52-week high of $21.42. The stock rose 14% in May versus a 3.3% increase in the S&P 500 index."
- Fitch Ratings Affirms Guggenheim Structured Real Estate Funding 2005-2 (Business Wire, June 1st): "Guggenheim 2005-2 is a revolving commercial real estate cash flow collateralized debt obligation [CDO]. As of May 2007… the CDO was substantially invested as follows: commercial mortgage whole loans/A-notes (8.2%), B-notes (34.5%), commercial real estate mezzanine loans (25.4%), bank loans to real estate operating companies (REBLs; 20.1%), and commercial mortgage-backed securities (CMBS;11.8%)… The portfolio is selected and monitored by Guggenheim Structured Real Estate Advisors, LLC [GSREA]. Guggenheim Structured Real Estate [GSRE]… is a private investor in commercial real estate debt… Fitch rates GSREA as a 'CAM2' U.S. Commercial Real Estate CDO Asset Manager."
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