Housing Bubble and Real Estate Market Tracker

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"

"I would say (the national averages) have nothing to do with what's going on in Middle Georgia. And as a matter of fact if you took those extremes out of the equation, the national average would look pretty good." - Billy Schwanebeck, vice president of Dixie Delta Corp. real estate in Houston County. (Macon.com, June 20th)

Real Estate Sales and House Prices

• Housing 'Hangover' Worsens in S.J. County (Recordnet, June 21st): "Coldwell Banker Grupe-TrendGraphix monthly sales report: Sales totaled 305 in the county last month, up from 282 in April... But the median sales price [fell] from $395,000 in February to $370,000 last month [vs.] a high of $425,000 last July. The number of listings… broke the 5,000 mark… a 17-month supply at the current sales pace… People are reducing the sales price of their home… by $10,000-$15,000 - or more," said Jerry Abbott, president of Coldwell Banker Grupe. "In the last 30 to 60 days, we've seen more of a willingness to do that. It's either that or… foreclosure for some people."

• Local Home Prices Likely To Keep Falling (TC Palm, June 21st): "PMI Mortgage Insurance Co. (PMI) quarterly economic and real estate trends report: The Port St. Lucie-Fort Pierce metropolitan area… has a 61.5% chance that home prices will fall in the next two years… Conversely, there is a 38.5% chance prices will rise or stay the same in the region. The rating was based on price volatility, affordability and unemployment rates… Palm Beach County has greater than a 60% chance of price declines. Broward County has a greater than 50% chance."

• Q1 Home Sales In Denver Area Slide 10.6% (Rocky Mountain News, June 21st): "DataQuick Information Systems: The number of new and previously owned homes sold in the six-county Denver area fell by 10.6% in Q1, compared with Q1'06. There were 13,318 home sales in Q1, compared with 14,889 in Q1'06… The report shows that the median, or middle, price of all homes dropped 1.3% to $235,000 from $238,000 in Q1'06 in Adams, Arapahoe, Boulder, Denver, Douglas and Jefferson counties. DataQuick includes Broomfield in its Boulder County statistics… On the other hand, Q1'05 sales were down 13.1% from Q1'04. "It does appear that the decline in sales is easing."

Real Estate Investing and Sentiment

• Colorado Real Estate's Digital Evolution (PR Web, June 21st): "Real-a-Save has announced that all of their contracts will be signed using digital signature software beginning immediately. Real-a-Save is Colorado's cutting-edge online real estate company offering home buyers a 75% rebate of the broker's commission as well as a full-service listing program to home sellers for only $2,500. CEO Bob Connors: Digital signatures, "offer our clients an easy, convenient way to sign real estate contracts from almost anywhere…" DocuSign electronic signature has, "visible elements, as well as invisible, encrypted elements that make it totally secure, legal and enforceable."

Mortgates and Real Estate Lending

• PHH Corporation: Pennant Capital Opposes Sale, Outlines Omissions from Preliminary Proxy (Lon Juricic in Seeking Alpha, June 21st): "In an amended 13D filing on PHH Corp (PHH), 7.8% holder Pennant Capital disclosed a letter to the board of directors reiterating its strong objections to a proposed sale… and outlined several material omissions from the preliminary [June] proxy statement. Pennant believes the company can maximize value for shareholders through continued public ownership and a business separation through a spin-off… [Projecting continued] public ownership [could reach] $51/share within 2 years… Shareholders could immediately see a value of at least $36 from the separation of the Fleet and Mortgage business: "A vastly superior outcome to the proposed sale at $31.50."

• A Safe Way to Dabble in Mortgages (Kiplinger, July 2007): "Thornburg Mortgage (TMA), a REIT that yields 10%... writes adjustable-rate mortgages exclusively for the wealthy and has no direct exposure to subprime woes… Its loan portfolio hasn't experienced a default in five years… The biggest risk is whether Thornburg can maintain its $2.72/share annual dividend. Analysts… expect 2007 profits of only $2.26/share… President Larry Goldstone [assured] this year's profits would exceed $2.40/share and that next year's would cover the dividend… Goldstone and CEO Garrett Thornburg each bought shares … Profits should get a nice boost over the next two years as $6.7 billion in ARMs reset to interest rates of more than 6%, from 4.6% currently."

• Mortgage Applications Fall (Chron.com, June 20th): "Mortgage Bankers Association's weekly mortgage index, which measures the volume of applications for loans to buy or refinance homes, fell to 643.7 for the week ending June 15, a seasonally adjusted 3.4% slip from the previous week. Applications were down for refinancing mortgages and for new home loans as interest rates rose… Mortgage giant Freddie Mac reported last week that the 30-year, fixed-rate mortgages averaged 6.74%, the highest in 11 months. B&C Lending: Citigroup (C) was the top subprime lender nationwide, followed by Countrywide Financial Corp. (CFC), HSBC Holdings (HBC), H&R Block (HRB) subsidiary Option One Mortgage and First Franklin Financial."

• Shearson Financial Network, Inc. Doubles Mortgage Banking Capacity (Marketwire, June 19th): "Shearson Financial Network (SFNN), a consolidator in the mortgage brokerage marketplace… agreed to acquire Dollar Mortgage Corporation… Shearson Financial Network will issue to Dollar's shareholders a combination of cash and stock valued in excess of $1 million… Dollar is a fast-growing provider of residential mortgages and is a licensed mortgage banker in over 40 states. It employs 55 people and is funded through its mortgage bank business, which registered in excess of $300m during 2006. Dollar is primarily a wholesale lender nationwide."

• Subprime Mortgages Show A Climbing Delinquency Rate (Best Syndication, June 19th): "UBS, the eighth-largest underwriter of mortgage-backed securities, residential mortgage loans to subprime borrowers are “going bad” 50% faster this year than for the same period in 2005… meaning loans that are at least six months old and are delinquent more than sixty days.. UBS report: "Subprime performance continues to deteriorate for newer originations." The change was from 1.6% of loans in 2005 to 2.4% of loans in 2006. That is a miniscule portion of all mortgages, but it is the degree of acceleration that concerns analysts."

Subprime Fallout and Foreclosure Impact

• J.P. Morgan Holds Off on Bear Fund Asset Auction (Seeking Alpha, June 21st): "J.P. Morgan (JPM), a creditor of two collapsing Bear Stearns hedge funds, will unwind its positions in the funds by selling $400 million of assets (mortgage-backed securities, or complex collateralized debt obligations, many of which are backed by subprime loans) back to Bear for an undisclosed amount of cash. The 'fire sale' atmosphere sent prices downward for similar securities and took the LCDX, a month-old derivatives index tied to junk-rated corporate loans, to its eighth-straight decline and a new low of 99.05. The ABX derivatives index fell to a record low of 59.25."

• Foreclosure `Epidemic' (Akron Beacon Journal, June 21st): "Home Insecurity report: The Akron area in 2006 tied with Austin, Texas, for the 16th-highest home-foreclosure rate in the country, with one filing for every 343 households. "There is an epidemic of foreclosures throughout the country, including in Akron and Ohio." [The study] covered the 100 largest metropolitan areas nationwide. It was issued by a group called ACORN, or the Association of Community Organizations for Reform Now. The Akron metropolitan area had 6,754 foreclosure filings in 2006."

• Bear Stearns Staves Off Collapse of 2 Hedge Funds (NY Times, June 21st): "One worry about the possible unwinding of the Bear funds is that it will cascade into larger liquidations by other investors who hold similar securities at far higher prices. Accounting rules require investment banks to mark the value of the investments to the price of similar assets trading in the market. Many mortgage-related securities… do not trade frequently, making them hard to value… Merrill is... keeping the pricing of the securities under wraps. [By doing so,] Wall Street firms avoid marking down their own stakes… [and firms] may not have to add collateral immediately to shore up their portfolios."

• CNBC: Barclays Has About $300 Million Exposure to Bear Stearns Funds (CNBC June, 20th): "CNBC's Charlie Gasparino: Barclays Bank has about $300 million of the riskiest assets within two troubled hedge funds at Bear Stearns that have other banks either freezing assets in the funds or unwinding their positions… to cut potential losses… Gasparino [said traders] described the Barclays (BCS) assets as "next to impossible to auction… If Barclays Bank does hold [what] it can't sell, Barclay's will take one of the biggest hits on its balance sheet."

• Morgan Stanley F2Q07 (Qtr End 5/31/07) Earnings Call Transcript (Seeking Alpha, June 20th): "David Sidwell, CFO, EVP at Morgan Stanley (MS): There were significant [declines] from structured transactions. Credit products declined 24% from a record in Q1, which included record securitized product revenues driven by favorable positioning in the Subprime Mortgage Markets. The decline this quarter was driven by lower volumes and volatility in the mortgage markets. This decrease was partially offset by record corporate credit results, driven by large structured transactions and trading activity."

• Merrill Lynches Bear? (Greg Newton in Seeking Alpha, June 20th): "Now the fun really starts. This could get very ugly, very quickly; forget Bear Stearns (BSC), which has very little (about $40 million of friends' and family money) of its own skin in this game. The big issue is what happens when the whole world reprices its CDO and RMBS (residential mortgage-backed securities) basis forced liquidation."

• Is Subprime Toxic Waste Leaking into Investment Grade Mortgages? (E. Jardine, June 20th): "When Bear Stearns (BSC) auctioned $5bln in securities last week they sold the mortgages that they could sell, not the ones that they wanted to sell. The most illiquid CDO's are probably still being held in the hope surviving the current liquidity event… This liquidity crisis probably originated with losses on illiquid CDO tranches but has percolated to leave a small imprint on the investment grade mortgage market… For homeowners, the same types of problems are matriculating from the first time buyer neighborhoods with high rates of delinquency and high LTV's to the investment grade locations that are historically immune to price declines."

• Merrill Lynch Liquidating Assets of Bear Stearns Hedge Fund (Jim Kingsland in Seeking Alpha, June 20th): "The chart… shows a few key problems for a short play versus ABX… The late February swoon that corresponded with the tumble in the stock market led to a full opening of the liquidity spigot whether by way of the Fed's Discount Window, or even via Term Investment Options from the Treasury. The mid-April coordinated bailout effort was announced to pump billions more into the system by way of entities like Freddie to shore up subprime areas of damage. That's what really… damned the Bear fund to crippled status, as the ABX surged above 75. Sudden liquidity can ruin your fund."

Global Impact and Alternatives To The Housing Slump

• Morgan Stanley Raises $8 Billion Global Real Estate Fund (CNBC, June 21st): "Morgan Stanley (MS) has raised an $8 billion real estate fund… to focus on North America, Europe, the Middle East and Asia [with] buying power of more than $30b. It invested about 20% of the total equity and said the fund's portfolio would include real estate assets and companies from developed and emerging markets including China, India, Russia and Latin America. Target developed markets include Japan, Western Europe and Australia… MS called it the largest ever real estate fund… MS Real Estate, which focuses on investing, banking and lending in the property sector, has bought $83.5b of real estate assets globally through its funds."

• Pirelli RE Venture Ups Bid For Real Estate Funds (Reuters, June 20th): "Gamma RE, a joint venture of Pirelli & C Real Estate and Morgan Stanley (MS) Real Estate Special Situations Fund, has raised its offer price for two [Milan exchange] real estate funds. Gamma RE said Wednesday it was offering €685/unit for the Berenice fund and €678/unit for the Tecla fund… Goldman Sachs (GS) is offering €650 for both Tecla and Berenica units through Zwinger Opco… run by its real estate fund Whitehall. Goldman made its bid after Pirelli RE said Friday it would offer €590 for each unit in the Tecla fund and €540 for each one in Berenice."

• Australia's Macquarie Sees Global Growth Underpinning Real Estate Markets (Forbes, June 19th): "Macquarie Bank 2007 Real Estate report: The strength of the global economy is continuing to drive stronger real estate fundamentals, partly due to high levels of liquidity as the Japanese and European economies strengthen… A slowdown in the US is having a limited effect due to the sheer power of the world economy… Real estate investment opportunities will largely be confined to markets where there is a positive gap between property yield and long-term bond yields, including residential and office markets in Japan, the office sector in Europe and Asia, European logistics real estate and the Sydney and Melbourne office sector."

Macro Impact, And Will The Housing Slump Cause A Recession?

• U.S. Official Says Housing Market Slump Near End (The Star, June 20th): "U.S. Treasury Secretary Henry Paulson: "We have had a major housing correction in this country. I do believe we are at or near the bottom." Paulson… said he believed losses have been "largely contained… It doesn't pose a risk to the economy overall… Paulson refused to comment specifically on the market impact of troubles confronting two large Bear Stearns hedge funds that invested heavily in subprime mortgages – loans made to borrowers with spotty credit histories."

• May Housing Starts: An Indicator of What's To Come? (James Picerno in Seeking Alpha, June 20th): "How much will the [housing] drag press on economic growth... The answer is forthcoming but presently unknown. Economic growth continues until it stops… No one knows which variable might turn the trend… Permits are considered a superior measure of what's coming for housing, vs. the rear-view-mirror status that starts are said to suffer. As such, last month's 3% rise in single-family housing permits (at a seasonally adjusted annual pace) is encouraging. Alas, we'll need many more upticks to resolve the fact that permits in May 2007 are still 22% below the tally of May 2006."

Homebuilders And Housing Stocks

• Why I'm Skeptical About Home Depot's Announced Buyback (David Neubert in Seeking Alpha, June 21st): "I own Home Depot (HD) ($40.29) and will continue to hold onto it. I [didn't] buy more during HD's recent fall to $37… The stock is good value here and at 37, but since their strategy's still clear I'm happy to wait out the uncertainty… This retailer still has a great brand even after years of neglecting their stores and staff. [It needs] an upgrade and a good advertising push. Besides, if everything were perfect at Home Depot it would have a P/E of 20 instead of 15… The 2.4% dividend is [good]. The company might just… get that 20 P/E."

• Kaufman et Broad Keeps Full Year Target As H1 Net Profit Jumps 16.9 Pct (ABC Money, June 21st): "French homebuilder [and former KB Home (KBH) subsidiary] Kaufman et Broad SA announced a 16.9% surge in net profit to €40.7 million in its first half to May from €34.9m a year earlier, [from] a sharp rise in revenues. It reiterated guidance of full year 10%+ sales growth and expects gross margins to remain high. First half sales rose 10.4% to €631.0m from €571.7m/year ago, while housing orders stood at €1.231 billion at the end of May, up 3.4% y/y. Thomson Financial: Analysts had expected Kaufman et Broad to announce net profit of €38.9-42.2m on sales of €634.0-693.8m from €571.7m."

• Sales Of New Homes Strong In Midstate, While National Housing Construction Drops (Macon.com, June 20th): "While builders nationwide may be hurt by the crisis in subprime lending and an uptick in mortgage rates, some builders in Middle Georgia say sales here are strong. "We had a lull from the end of last year through February and then (March through June) it just started picking back up," said Mike Appling, a broker with New Home Resource. "Nationally things are off, but our last three months have been excellent."

• Home Depot Selling Supply Business, Issuing $22.5B Buyback (Echo To All in Seeking Alpha, June 20th): "The quickest way… to boost (HD) stock from its already cheap valuation is to issue a huge buyback. The only way they can do this is to sell off the Supply biz, which is a shame for the real long-term investors… The Supply biz is arguable a very good long-term business… But the stock will now be looking to the upside because supply of the stock will be reduced by some 30%… i.e financial engineering, irrespective of the condition of the retail side of HD’s business. Technically the stock looks good… A short-term negative trend will be broken."

• Home Depot Supply Unit To Be Sold For $10b To Private Equity (Todd Sullivan in Seeking Alpha, June 19th): "This move is all about Blake trying to appease Relational Investors and jump the stock price today at the expense of long term gains… Getting rid of the Supply unit will not fix the problems at Home Depot. The problems there are systemic, not financial. The thought that they cannot execute both a retail and a Supply unit only means they have incompetent management there, not that it cannot be done. Is it really that far of a stretch to picture them selling pvc piping to a homeowner vs. a business owner? This is a value destroyer, long term."

Commercial Real Estate and REITs

• Lender Wariness Signals Peak For REIT Buyouts (MSN Money, June 20th): "Commercial mortgage backed securities U.S. issuances grew over 20% to $200 billion last year, giving real estate investors unprecedented… cheap debt [and] pushing up both levels of leverage and prices. But [rating agency downgrades] of CMBS' [may mean] real estate investors [must] access more expensive mezzanine and equity-linked financing… Publication Real Estate Alert: RFR Holdings [bought] EOP's Stamford, Connecticut office portfolio for $850 million… is struggling to raise the debt… Facing a $40m penalty for backing out, it may have to put more equity into the deal… worsening economics for a deal that, at over $500/sf, is the most ever paid for Stamford office property."

• Kimco Realty, Developers Diversified Realty: Shopping Center REITs Bargains (George Spritzer in Seeking Alpha, June 19th): "Kimco's (KIM) trailing 12 month FFO multiple is 19 times, while its forward 12 month FFO is around 16.5. Developers Diversified Realty's (DDR) trailing FFO is 18.5 times and the forward 12 month FFO is around 14.5. So DDR is cheaper. Both are high quality stocks… KIM yields 3.4%, DDR yields 4.70%... Hedge fund manager Jon Fosheim of Oak Hill REIT, recommends… the following pair trade: go long DDR and sell short KIM, [saying] KIM was over-priced by around 3% and DDR was underpriced by about the same amount... Mr. Fosheim's article has provided a good buying opportunity for Kimco."

Web Site of the Day

Judson and Lynn Voss say they are two people living near Charlotte, North Carolina who just "want to facilitate voices for other investors to hear all about Charlotte" and the opportunities there. So they started the Get Real Real Estate Investing. Get Real offers information on rehabs, foreclosures, multi-family properties, education in particular areas—the list goes on. With podcasts, news articles on all facets of real estate, this site is the go-to for Charlotte investors, and those who want to know what's going on in the area.

One original idea: They arrange bus tours of homes in certain stages of rehabilitation to give investors a sense of what it costs to renovate, how long, and what sort of problems to look out for. Innovative and informative.

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