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"
"If you're dumb enough to buy a home builder, you ought to buy us."- Ryland Chairman and CEO R. Chad Dreier told investors at a conference last week. (Smart Money.com, June 20th)
Real Estate Sales and House Prices
- Maui Home Prices Fall From 2006 (Pacific Business News, June 19th): "Realtors Association of Maui: The median price of a single-family home in Maui County in May was $650,150, down 11% from $729,000 in May 2006. The median price of a condo last month was $531,325, also down 11% from May 2006. The Realtors Association of Maui reclassified two projects in Wailea from single-family to condo, shifting some $111.6 million in sales from October to May… [So] the median single family home price for April was adjusted to $650,000, from... $690,000. The median condo price for April, however, rose to $493,500 from... $465,000."
- Fla., Calif. Face Home Price Drops (Forbes, June 19th): "The PMI U.S. Market Risk index, released Tuesday by PMI Mortgage Insurance Co. (PMI), predicts a less than one in 10 chance of home price depreciation in... Dallas, Houston and Indianapolis. Pittsburgh is the safest, with a 6.4% risk of falling prices… 15 of the nation's 50 largest metro areas have a greater than 50% chance of price drops… Eleven... are in California and Florida, including Los Angeles and Miami… The riskiest markets are Riverside, Calif., Phoenix, Las Vegas and West Palm Beach, Fla. - each with a greater-than-60% chance of depreciation."
- Most Over/UnderValued U.S. Housing Markets (Barry Ritholtz in Seeking Alpha, June 19th): "Global Insight and National City Corporation report: 157 of 317 metro areas suffered price declines during Q4'06. Cumulatively... 38% of all single-family units and half of all single-family real estate assets in the nation. Declines were most highly concentrated in California, Florida, New York, New England, and the industrial Midwest… Nationally, y/y house prices are up 3.0%, the weakest gain in a decade… Fifty-four metro areas were judged to be overvalued during Q4'06, [down] from 62 during Q3'06… we interpret [this] as... prices reverting to their historic norms, though further adjustment is likely."
Real Estate Investing and Sentiment
- Patron Saint Of Home Selling? (Inside Bay Area, June 19th): "Maurice, owner of the Glad Tidings religious gift shop: "You can see the trends by how many people buy one. You can tell if it's a buyer's market or seller's. You can tell when the market slows, like now." Nationally, tens of thousands of the statues are sold each year to hopeful home sellers… Phil Cates, owner of StJosephStatue.com… [once gave] 100 statues to real estate agent friends. "They took them from me like they were gold… I knew then there was a market for them." He now sells tens of thousands each year. California provides 20% of his business."
Mortgates and Real Estate Lending
- ISGN Keeps Spending, Buys Dynatek (IndUS Business Online, June 19th): "ISGN Technologies, technology-services provider to the U.S. mortgage industry announced it acquired Dynatek, a provider of mortgage automation software for retail and wholesale lenders… ISGN will now focus… on the industry's mid-market companies. Financial terms of the deal were not disclosed… ISGN hopes to offer a considerable drop in loan processing costs… ISGN's addition of Dynatek follows the company's late-March acquisition of the mortgage software division of Fair Isaac Corp (FIC)."
Subprime Fallout and Foreclosure Impact
- Two Bear Stearns Hedge Funds on Brink of Closure (Seeking Alpha, June 20th): "Merrill Lynch, a creditor of the Bear Stearns (NYSE:BSC) High-Grade Structure Credit Strategies Enhanced Leverage Fund, has seized $800 million of its mortgage-backed debt as collateral and will auction them Wednesday. Merrill had postponed the auction for two days while Bear tried to cobble together a rescue plan. Bear offered to put up $1.5 billion of its own money to help its two troubled funds, which managed $20 billion [that were] invested in complex debt securities – many… backed by subprime loans. Loan delinquencies and defaults shot up, diminishing the value of such securities. The larger fund lost 25% of its value between January-April. WSJ: The forced liquidation of the funds' assets could set off a wider-scale repricing of mortgage-backed bonds that could result in the implosion of other funds suddenly faced with heavy losses and margin calls."
- Mortgages Give Wall St. New Worries (NY Times, June 19th): "So far, [subprime-backed securities] distress has been muted... Industry specialists [say] the housing market moves slowly, much more so than, say, the stock market. Also, subprime mortgages... are structured to withstand relatively high rates of default before most investors lose any money… Jeffrey Gundlach, CIO at the TCW Group: “This isn’t an Enron corporate bond that goes into default overnight. This is a process that takes 30, 60, and 90 days of delinquencies before it goes into foreclosure… Moody’s: Most investors in bonds backed by mortgages will be protected if losses do not exceed about 10%... C.D.O.’s, [however,] have strategically invested in the riskiest portion of the mortgage bonds [and] with a lot of borrowed money."
- Subprime Storm Winds Will Keep Blowing (USA Today, June 18th): "Mortgage Bankers Association: Adjustable-rate subprime foreclosures, already at a record, will rise into 2008, affecting borrowers, lenders and such Wall Street firms as Goldman Sachs (NYSE:GS) and Bear Stearns (BSC), which packaged subprime loans into bonds… About 70% of subprime loans made in 2006 impose financial penalties on borrowers who repay or refinance early; 50% were made on stated, not documented income; many included piggyback loans; and few required borrowers to put money in escrow for taxes or insurance, leaving many unprepared for thousands of dollars in bills."
- El Paso Co. Foreclosures Rising, May Hit Record (CBS4, June 17th) Colorado: "Foreclosures are rising rapidly in El Paso County as in the rest of the state… At the current rate, it could match a 20 year record... El Paso has had twice as many foreclosures in the past five years as in the previous five-year period. A Gazette [newspaper] analysis found the heaviest concentrations of foreclosures in lower- and middle-income neighborhoods. In parts of the city, one in five homes is in foreclosure... Industry Research group: Mortgage lenders foreclosed on 62% more U.S. homes in April than a year ago."
Global Impact and Alternatives To The Housing Slump
- American RE/MAX to Swallow Up the Danish Real Estate Chain Livingstones (Copenhagen Capacity, June 20th): "RE/MAX U.S. [will acquire] the Danish real estate company Livingstones, which operates five agencies and three showrooms in Greater Copenhagen… General Manager Konrad Konradsen, RE/MAX Denmark: Within the next five years RE/MAX expects to open 100 real estate businesses in Denmark. RE/MAX is a franchise business where the US company places marketing at the disposal of each agent who in return pays a fee for being part of the collaboration. Globally RE/MAX employs 120,000 staff in 65 countries... 1,800 offices in 35 European countries alone."
- GIC Buys Merrill Lynch Office in London for US$954m (Channel News Asia, June 20th): "US investment bank Merrill Lynch (MER) said Wednesday it has sold the company's flagship office building in London to the Government of Singapore Investment Corporation's [GIC] for $954.05 million. The Merrill Lynch Financial Center is located in the City of London and features two of the largest trading floors in Europe… GIC's property arm, GIC Real Estate, said… Merrill Lynch will lease the office building for 15 years with the right to renew… GIC is an investment vehicle of the Singapore government and it manages the country's foreign exchange reserves."
- Europe Stocks Pique The Interest Of International Managers (CNN Money, June 20th): "Kate Shapiro, portfolio manager of Sentinal International Equity likes German banking giant Commerzbank AG: "It sold off a lot of its noncore businesses and is highly focused on the mortgage market within Germany and Europe, and one of the areas that could add another leg to this boom would be improving real estate within Germany. It's just another example of a company that has restructured, [now] different from 10 years ago when it was trying to buy everything."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Home Construction Down 2.1% In May (LA Times, June 20th): "Commerce Department: Construction of new homes and apartments dropped 2.1% last month from April to a seasonally adjusted annual rate of 1.47 million units — down 24.2% from the year-earlier period. The May decline was in line with expectations... Weakness in the South and West offset construction gains in the Northeast and Midwest. Permits, considered a good barometer of future activity, rose 3% in May... following a 7.1% plunge in April. May's strength came from a rebound in permits for apartment construction, which can be volatile. Applications for single-family homes fell 1.8% and have been down four of the last five months."
- Mortgage Rate Rise Pushes U.S. Housing, Economy to `Blood Bath' (Bloomberg, June 20th): "The 30-year mortgage rate rise by more than a half a percentage point to 6.74% in the past five weeks is putting a crimp on [prime] borrowers... just as a crackdown in subprime lending standards limits the pool of qualified buyers. National Association of Realtors: The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million… Mark Kiesel, Pacific Investment Management: "We're talking about a 2-3 year downturn that will take down… job creation, consumer confidence [and] eventually… the stock market and corporate profit.''
- UCLA Forecasts Housing Slowdown Will Take Toll In Second Half (San Jose Business Journal, June 19th): "UCLA Anderson Forecast: Economists are puzzled by the relatively weak impact a slowing housing market is having on the California economy. Economist Ryan Ratcliff: Job growth has only slowed slightly and there has been only a slight uptick in unemployment… In Q3,4'07 and the beginning of 2008, job losses will manifest… Mid-2008 will look better than the intervening period and that job growth will return to normal levels next year… Construction payrolls are expected to drop by 1.9% this year and 5% next year (46,000 jobs), before returning to 1% growth in 2009."
- Best Buy F1Q08 (Qtr End 6/2/07) Earnings Call Transcript (Seeking Alpha, June 19th) " Brian J. Dunn, CEO, Best Buy (NYSE:BBY): We believe that what we are seeing also has a lot to do with macro economic factors like housing, interest rates, no relief at the price of gas, and in many other factors that give our customers cause for real concern right now. It’s a humbling reminder that no matter how tight a ship you run and no matter how confident you are of the course you are sailing, external conditions completely outside your control can still rock your boat."
Homebuilders And Housing Stocks
- Ex-Workers To Sue Local Homebuilder For Overtime (Florida Today, June 20th): "Two former employees of Mercedes Homes Inc. have filed federal lawsuits against the homebuilder, alleging they were not paid overtime... The former employees' lawyer… said he believes other Mercedes employees will join the two former workers in a collective legal action against the homebuilder… Mercedes Homes, an employee-owned company, builds homes in Florida, North Carolina, South Carolina and Texas… In May, Builder magazine ranked Mercedes Homes as the 20th-largest homebuilder in the United States, down from No. 16 a year earlier."
- Home Depot Sells HD Supply for $10.3B, Boosts Buyback, Shares Up 5% (Seeking Alpha, June 19th): "Home Depot's (NYSE:HD) supply unit was sold for $10.3b to the private equity group of Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice. HD's board of directors also authorized a $22.5 billion increase in its share repurchase program. … The share repurchase is part of HD's planned recapitalization and an effort to boost its lagging stock price. It will… be financed with proceeds from the sale, cash on hand and proceeds from an anticipated $12b issuance of senior unsecured notes. The buyback represents over 25% of its market cap. Moody's and S&P said HD's credit rating could be hurt by the debt financing."
- Ryland, MDC Stand Out as Worthy Fixer-Uppers (Smart Money, June 19th): "Citigroup analyst Stephen Kim: "Unnaturally high demand did provide a boost to the builders' 2004 and 2005 results, [but] the effect was minor compared to supply constraints. Consequently… home builders' stocks will appreciate aggressively late in Q3 and stage a strong rally in Q4…" Homebuilder Ryland (NYSE:RYL) shares are off 25% YTD… A price/book ratio at 1.2... In the last 52 weeks the stock has dropped 7% vs. a 23% gain for the broader market… MDC Holdings (NYSE:MDC) shares are down 9% YTD… at a price/book at 1.1… MDC is less leveraged that many of its peers, has no joint-venture exposure and just enough land to build on for two years."
- Eye on Corus Bankshares (Part III) (Colin Peterson in Seeking Alpha, June 20th): "Corus is the lender on 85 loans in the Southeastern U.S. for a total of 25,601 units. Of those deals, 68 are in Florida totaling 21,451 units. [See] graph regarding CORS deals in the SE region… This is computed by calculating the average loan amount per unit for every CORS deal in the southwestern U.S. It would seem that the CORS loan size skews toward small amounts per unit. The next graph illustrates that much of the skew comes from condo conversion loans. Excluding conversions, the average loan per unit is higher. [This follows much] bad news about the Miami condo glut."
- 7 Options You Need to Know for Tuesday (Yahoo! Finance, June 19th): "Stocks with Abnormal Call Volume: These are stocks which showed unusual call option volume not easily explained by arbitrage operations. The appearance of a stock on the Call Volume Alerts list suggests a possible takeover, extraordinarily good earnings report, or other news which may favorably affect the stock. Washington Mutual (NYSE:WM). WM's PowerRating is 5. Abnormal Put/Call $ Volume: These stocks have the highest dollar put volume in relation to their call volume. These high ratios are indicative of extreme bearish sentiment in the underlying stock. Pulte Homes (NYSE:PHM). PHM's PowerRating is 5."
- It's Not Time For Real Estate, Just Yet (Daily Wealth, June 18th): "Contrary to what most people believe, homebuilder stocks tend to soar when builder sentiment is terrible. [chart] Homebuilder sentiment looked as if it had bottomed late last year... and homebuilding stocks had just started rising. Then, the subprime mess hit, and the downturn returned. Shares of homebuilders can rise hundreds of percent after homebuilder sentiment bottoms. It happened in 1991, and again in 1995... When [housing turns], the place to be will be in homebuilder shares. They rose by many hundreds of percent in less than three years the last two times around, as things went from "bad" to "less bad" in real estate."
- Black & Decker Takes Flight (In-Store Marketing Institute, June 19th): "Black & Decker (BDK) is offering a summer getaway to shoppers who purchase one of more than 50 products this spring. The "Getaway" incentive provides a free companion airline ticket to one of more than 100 U.S. cities (in the form of a voucher from Lifestyle Vacation Incentives Inc.) with purchase of a full-fare ticket. Shoppers must submit UPCs, store receipts and redemption forms... to claim the reward. Purchases must be made between April 15-June 30."
Commercial Real Estate and REITs
- Mount Vernon Commercial Real Estate Strong, Pros Say (Lo Hud, June 20th): "Business Professionals: The local commercial real estate sector is stronger than the residential… Goad Real Estate in Mount Vernon: Commercial property is selling for $100-$110/sf in the city, and properties with premium locations can fetch $150/sf or more. Higher interest rates this year are posing more of an obstacle than a year ago, but finding good commercial property for sale in a city that's 96% developed is also an issue. A host of residential apartment buildings are on the boards or under construction in the city. But homebuyers are still resisting price demands of sellers."
- Washington REIT Extends Consent Solicitation To Amend Terms Of Unsecured Notes (Trading Markets, June 19th): "Washington REIT (NYSE:WRE) said that it has extended its previously announced consent solicitation to June 28, 2007, to amend the terms of its outstanding unsecured notes. The consents are being solicited from holders of record of the Notes on June 11, 2007... The Trust noted that it will... pay consent fees [if] certain conditions have been satisfied, including the receipt by the Trust of the consent of holders of at least a majority of the principal amount of the outstanding Notes and the execution and delivery of a supplemental indenture."
- Banc Of America Securities Cuts REIT Target Prices (MarketWatch, June 19th): "Analysts at Banc of America Securities on Tuesday reduced their target prices on shares of REITs they cover by 5%, citing higher interest rates and capital costs. The analysts maintained their market-weight rating on the overall REIT group, but cut their target prices on the multifamily sector by 4%, healthcare by 5%, net lease by 6%, office and industrial by 3%, malls by 9%, strips by 10% and self-storage by 5%. "We are now assuming a 0.25% or higher increase in cap rates over the next year for most of the REITs in our coverage universe."
- Are REITs Cracking? (Toro in Seeking Alpha, June 18th): "Fox Street Journal: The falling Archstone-Smith price underscores growing concern in the commercial real-estate world that higher interest rates are killing deals or causing prices to be renegotiated lower. Banks are renegotiating terms of tentative deals that haven't closed, and buyers and sellers are haggling over already agreed-upon prices… The change in borrowing costs was triggered April 11, when Moody's Investors Service [warned] about Commercial Mortgage Backed Securities, or pools of real-estate loans that are sold to investors as bonds. Gary Mozer, principal with George Smith Partners: Borrowers can get 20%-30% less than they could have eight weeks ago."
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