Quotes of the Day- "From the House's Mouth"
"In my opinion, the turmoil in the subprime market is small potatoes." - Federal Reserve economist Richard Anderson told a luncheon of the Chartered Financial Analysts Society of Louisville. (Kentucky Courier Journal, June 15th)
Real Estate Sales and House Prices
- Housing Prices Drop (The Modesto Bee, June 15th): "DataQuick Information Systems: Home sales prices continued their downward slide in May throughout the Northern San Joaquin Valley: Stanislaus County — $338,250, which was 12% below May 2006 and $11,750 below April. Merced County — $297,500, which was 19% below May 2006 and $18,500 below April. San Joaquin County — $395,000, which was 11% below May 2006 and $4,000 below April. Tuolumne County — $310,000, which was 9% below May 2006 and $16,000 below April."
Real Estate Investing and Sentiment
- Housing Market Will Come Back (St. Petersburg Times, June 15th): "Lawrence Yun, chief NAR economist: Rising incomes and declining home prices ought to have stimulated sales this year were it not for housing bubble scares in the media… One economist suggested the gap between incomes and home prices would depress housing values 40%. Yun scoffed at the idea: The real measure of affordability… is mortgage obligation relative to income. He clicked a slide showing Tampa-St. Petersburg-Clearwater hovering at the national average. Much of California isn't so lucky, nor is high-priced Miami and Naples. "It's very, very manageable. Nothing alarming in this region."
- Markets May Have Hit Bottom (Realty Times, June 15th): "We may have it the bottom on the slumbering real estate market. Sales of new single-family homes jumped 16.2% in April -- the largest increase in 14 years (Commerce Department) We're in a buyers market… More than half of the nation's housing markets are appreciating or have at least stabilized (HousingPredictor.com)… The forward-looking index for the commercial real estate market rose in Q1 to the highest level on record. The index has risen for eight consecutive quarters (National Association of Realtors) Why is commercial real estate important to the residential buyer? Commercial development signals job growth."
Mortgates and Real Estate Lending
- Mortgage Rates Jump on Interest Rate Fears (Bend Weekly, June 15th): "Bankrate.com's weekly national survey of large lenders: Mortgage rates climbed to an 11-month high, with the average 30-year fixed mortgage rate hitting a 10-month high of 6.84%… The average 30-year fixed mortgage has an average of 0.27 discount and origination points. The average 15-year fixed rate mortgage popular for refinancing increased by a similar amount, to 6.53%. With larger loans, the average jumbo 30- year fixed rate soared to 7.12%... The average one-year Adjustable Rate Mortgage nosed higher to 6.19% and the 5/1 ARM bounding up to 6.67%... Fixed mortgage rates have increased more than one-half percentage point since mid-May."
Subprime Fallout and Foreclosure Impact
- Hitting Home: Subprime Mess Snags Goldman, Bear Stearns (NY Post, June 15th): "Goldman Sachs (GS) and Bear Stearns (BSC) - said yesterday they're taking unexpected losses from the widening defaults, foreclosures and panic over cash-poor homeowners who can't pay ballooning mortgages. Goldman is also saying that its employees will see a cut in pay in the coming year in a belt-tightening… BSC profits slid 10%, while Goldman mustered only a 1% increase, its slowest profit pace in three quarters… Goldman said revenue fell to $10.18 billion from $10.24b a year earlier. BSC, the second-biggest U.S. underwriter of mortgage bonds… revenue was flat at $2.51b… BSC is currently trying to sell about $3.86 billion in mortgage-backed bonds funded by top-rated mortgages with low risks."
- Sun Belt Housing 'Flips' Backfire (Washington Times, June 15th): "Mortgage Bankers Association: Foreclosures are on the rise in nearly every category, but they are particularly pronounced in Midwest states experiencing manufacturing recessions and Sun Belt states where housing investors flocked in hopes of making quick money by "flipping" house purchases. The trend in the Sun Belt emerged only this year and has quickly driven the foreclosure rate on prime loans to a record 0.25%. Many of the investors were well-off real estate professionals, riding the wave of the housing boom, as well as middle and upper-income families with good credit and cash to invest."
- Foreclosure Rates High in Kentucky, Indiana (Kentucky Courier Journal, June 15th): "Mortgage Bankers Association: The foreclosure rate for home loans in Kentucky was fifth-highest in the nation for the first three months of this year... With 1.85% of its residential mortgages in foreclosure, Kentucky trailed only Ohio, Indiana, Michigan and Mississippi in the percentage of its homes threatened by the auctioneer's gavel, 44% above the national average… Indiana, still struggling with the loss of good-paying manufacturing jobs, ended the quarter with 2.98% of its mortgages in foreclosure, more than twice the national rate and second only to Ohio… Kentucky's foreclosure rate fell slightly from Q4'06... The rate in Indiana rose slightly."
- Behind the Headlines: Lehman Brothers Holdings Challenges Resistance (Schaeffer Research, June 14th): "Lehman Brothers Holdings (LEH) is hoping to boost the efficiency of its mortgage businesses, combining its residential mortgage units and eliminating roughly 400 positions from its division that specializes in the subprime-mortgage business. The subprime lender BNC Mortgage will now be folded into Aurora Loan Services, which currently arranges "Alt-A" mortgages for borrowers with higher credit scores but lack the necessary documentation for prime-rate loans. The resulting layoffs will impact about 24% of BNC's workforce. In 2006, the division was the 14th biggest originator of subprime loans, down from ninth in 2005."
Global Impact and Alternatives To The Housing Slump
- More Rules for Foreign Investment in Real Estate Sector (China Knowledge, June 15th): "China's Ministry of Commerce is attempting to stop international speculative money from China's real estate sector by listing a number of measures to control direct investment of foreign funds in the real estate sector. The ministry requires local departments to restrict foreign investment in luxury property. Foreign investors must establish a real estate company before investing in any projects. Approvals from the relevant departments must be granted for expansion of business scope. In addition, foreign investors are not allowed to bypass the above regulations through acquisitions of local real estate companies."
- US Hedge Fund Invests $100m in Century Real Estate (Economic Times, June 15th): "A US-based hedge fund has picked up a minority stake in the Bangalore-based real estate firm Century Real Estate Holdings, a division of the Century Group, investing close to $100 million in the company. Century Real Estate Holdings is to receive $35m in the first tranche... Century Building director Ravindra Pai confirmed the that company has offloaded a part of its stake in the recently formed realty division, but refused to divulge details... The group has a sizable land bank of over 2,000 acres in and around Bangalore. It currently has over 5 million sq ft of land under development."
- HBOS Says U.K. Mortgage Share, Lending Margin Fell (Bloomberg, June 13th): "HBOS Plc, Britain's biggest mortgage bank, said U.K. profit margin and market share fell in the first half as a decision to cut rates for some customers backfired… Though U.K. house prices have more than tripled in the last decade and are still rising, a series of four interest-rate increases in Britain since August has started to choke off demand for mortgages. Barclays Plc, Alliance & Leicester Plc and Nationwide Building Society responded by cutting prices and increasing their shares of the market. HBOS decided last year to… cut prices for customers waiting to refinance and raised rates for new customers."
- New Focus Report on Investing in the German Real Estate Industry is the Ideal Guide to Have an Overview of the Real Estate Industry (Business Wire, June 12th): "Research and Markets has announced the “Investing in the German Real Estate Sector” [report]. The German real estate industry has been experiencing wonderful growth over the last years due to the relatively steady good economy. In 2006, some markets posted major gains in occupied space, others saw record sales transactions, and even where the market has begun to tighten, developers remained cautious possibly keeping an eye toward the future, particularly predictions of escalating rental rates."
Homebuilders And Housing Stocks
- Open House: Slow Rate Increase for Housing Market (Bend Weekly, June 15th): "A call for major reforms in Federal Housing Administration mortgages is coming from the National Association of Home Builders during this National Homeownership Month of June: "Comprehensive FHA reform would mean greater flexibility in responding to the needs of borrowers, enabling more working families to become homeowners and providing a viable alternative to the volatile subprime market," said Jerry Howard, National Association of Home Builders' executive vice president. "This month is the perfect time to highlight this area where change can result in thousands more Americans realizing their dream of homeownership."
- Jim Cramer's Mad Money In-Depth Stock Picks, 6/14/07 (Miriam Metzinger in Seeking Alpha, June 15th): "Cramer played the role of family therapist for a mother, father and daughter who couldn't agree about whether or not to invest in Masco (MAS). He said MAS has been a "tremendous share taker" even though housing in sluggish, and would own the stock for the short and the long term."
- D.R. Horton to Sue Coral Gables Developer (So. Florida Business Journal, June 14th): "D.R. Horton (DHI) has filed notice that it intends to sue SouthStar Development in connection with Aberdeen, a residential master-planned community that includes 1,623 single-family lots, 395 multifamily lots, a public school and a village center with 100,000 square feet of commercial and office space… D.R. Horton is building six different communities in Aberdeen from condominiums… to single-family homes… The homebuilder is seeking specific performance of a land sale contract, damages for breach of contract, damages for breach of an implied duty of good faith, fair dealing and commercial reasonableness, declaratory judgment and reformation of two land sale contracts."
- Homebuilder Bull Slaughter (Forbes, June 13th): "Homebuilder NVR (NVR): Bears have sent the stock price below the support of an ascending trendline. In the past year, shares of NVR are up 38%, but they more than doubled from their $386.55 low last July to their high of $851.96 on April 26 of this year. Shares closed Tuesday at $690.55. As you can see from the chart, Tuesday's close below the support (shown by the yellow circle) suggests that NVR's uptrend is reversing. Generally, technical traders like to see a break below a trend line occur with higher than average volume, which didn't happen in this case. As a result, many traders will probably choose to wait a couple of days before betting on the reversal."
- Mixing Realty Business, Pleasure (Dallas News, June 14th): "Homebuilder Centex Corp. (CTX) last week picked up the tab for about 200 real estate agents to get the VIP treatment in the lounge on top of the W Hotel… 40% of [Centex] buyer traffic is now generated by real estate agents... [There are more] than 10,000 vacant new houses on the market... Traditionally, homebuilders in the Dallas-Fort Worth area have preferred to use their own sales staffs… Homebuilders were already giving incentives to buyers. Now they are plying real estate agents with freebies and cash bonuses to close sales…. Centex recently [also] held Realtor parties in Plano and Grapevine where they touted sales commission plans and giveaways like Starbucks coffee cards."
Commercial Real Estate and REITs
- The Cost of Inflation? Growth, It Seems (Wall St. Journal, June 15th): "One victim of the recent surge in Treasury bond yields has been REITs… The Dow Jones Wilshire REIT Index (IYR), up 31% in 2006, has dropped nearly 6% in June. It's down 15% since hitting an all-time high in early February, amid rising interest rates and a real-estate downturn… Higher interest rates also hurt the value of real estate in REIT portfolios… At the end of 2006, institutional investors such as pensions tracked by Pension & Investments magazine had $72 billion invested in REIT equities… The dividends on the average U.S. equity REIT yields just 4%. That's 1.2 percentage points below the yield on 10-year Treasury notes."
- REIT Buys Land Near its Greenbelt Office Park (Baltimore Business Journal, June 14th): "Mack-Cali Realty Corp. (CLI) has acquired 43 acres of land for $13 million that is adjacent to an office park in Prince George's County owned by the REIT. Mack-Cali bought the land, which can accommodate the development of up to 602,000 sf of office space… "This transaction provides us with the ability to develop the land when the time is right at a location where we already have an operating platform up and running," said Mack-Cali President and CEO Mitchell Hersh… The office park is only a few miles from Montgomery County and about dozen miles from the center of D.C."
- Shareholder Millennium Partners to Sunrise Senior Living: Sell, Restructure or Change Leadership (Commercial Property News, June 14th): "Hedge fund Millenium Partners, minority shareholder in Sunrise Senior Living, Thursday called for the company to be sold, restructured or for changes in management. Millennium [went] public because the board had not responded to the letter. Millennium owns 1.3 million, or 2.5%, of Sunrise’s shares of common stock… CFO Bradley Rush… was fired in May after review of the REIT's accounting practices. Sunrise is in the process of restating its financial statements for 2003, 2004, and 2005, and had delayed complete results for 2006 and Q1'07. [In May] Sunrise issued preliminary Q1'07 data: Same-community revenues… increased 5.1% to $248 million vs. Q1'06."
- Fed Beige Book's Benign Economic Picture Contradicts Real Estate Reality (Trade Radar Operator in Seeking Alpha, June 14th): "It is my view that we are at a risky stage in the REIT cycle with multiple cross-currents at work. We have yesterday's report of positive activity in the commercial real estate market and yet we have interest rates rising. Property prices and rents are relatively high and may not have much room to rise higher. REIT dividend yields are at multi-year lows. If you believe the stock market is a leading indicator, the charts of ETFs like IYR show trouble is brewing."
- MERGER MANIA II: Archstone Buyout Fuels Renewed Take-Private Rumors (Co Star Group, June 13th): "Rumors about new takedowns have driven up shares of almost all multifamily REITs after [downtrending since] Blackstone’s $39 billion Equity Office buyout. More deals seem likely… As a group they are trading at an average 6% discount to net asset value in a strong apartment market… Alexander Goldfarb, REIT analyst, USB Securities: "The private money is still there. We estimate there’s $1.5 trillion in capital that still wants to go in real estate… Sam Zell sold EOP outright and walked away, while Archstone management plans to stay on board after the deal closes. In fact, CEO R. Scot Sellers is personally investing $8 million in the transaction."
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