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"

"There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy," said James Chessen, the American Banker's Association association's chief economist, on the rise in delinquencies for home equity loans. (USA Today, July 3rd)

Real Estate Sales and House Prices

• Biz Buzz: County’s Median Home Price Up In May (San Luis Obispo.com, July 3rd): "California Association of Realtors: The median price of a single-family, detached home in San Luis Obispo County inched up 4.1% y/y in May to $579,540… But the uptick reflects more a change in the mix of the housing market than a strengthening in prices, according to the association’s chief economist. “The high end of the market is doing much better, so it’s not really that home prices are rising, but that the mix of what is selling is changing…We’re seeing less home-buying activity in the lower end of the market.” The number of home sales fell off significantly y/y, down 14.1% from May 2006. However, the activity was up 6.3% from April 2007. The median home price was down 4.5% from April, when it registered $607,140."

• New York Home Prices: No Place But Up (CNN Money, July 3rd): "A home in Manhattan is more expensive than ever, according to… several big New York real estate brokers. The median Manhattan condo or co-op apartment sold for between $840,000-$895,000 during [Q2]…The average (mean)… around $1.3 million... Broker Prudential Douglas Elliman: Four-bedroom apartments averaged nearly $10 million during Q2… Jonathan Miller of appraiser Miller-Samuel: Listing inventory fell 31.5% to 5,237 units compared with a year ago… and apartments are staying on the market… 117 days on average, 10.1% less than a year ago… Co-op apartment inventory dropped more than 40% and condo inventory 22%... More than 96% of new product is condo."

• A $135 Million Home, But if You Have to Ask ... (NY Times, July 2nd): "Hala Ranch, is a 95-acre estate built in 1991 for the family of Prince Bandar bin Sultan… At $135 million, Hala, just northwest of downtown Aspen, is the most expensive single-family residential property in the nation on the market... Selling it mostly consists of saying no. Mr. Saslove has received about 1,000 requests to tour the home since last October when it went on sale, and he [has] granted just 11 of them. This is what high-mountain hideaway money in Aspen has come down to: Even the ordinary rich can no longer press their noses to the glass."

• Home Sales, Prices Decline In May (Florida Sun-Sentinel, July 1st): "Florida Association of Realtors: There were 574 sales of existing homes in May vs. 862 a year ago, a 33% slide. The median price, up slightly in February, March and April, fell by $12,100, to $367,700 from $379,800 a year ago… The housing slump also deepened in Palm Beach County, statewide and across the nation. Sales of existing homes plunged 34% in Florida, and the median price fell $13,100, to $237,000."

• In Ice-Cold Housing Market, Assessment Disputes Heat Up (Star Tribune, July 1st): "Minnesota: "Overall, the March 2007 statements -- for taxes payable next year -- showed residential market values flat in the state's two most populous counties. Single-family homes in Ramsey County declined less than two-tenths of 1% when improvements were not included. Hennepin County saw total residential property values increase 4%. Unimproved single-family homes in Minneapolis increased 1% in value. Those figures contrast with the boom of the early part of this decade. Even tax statements that went out in Hennepin County last year showed an 8% increase in home values."

Mortgates and Real Estate Lending

• NYM Acquires GMAC-RFC Mortgage Assets (Mortgage Strategy UK, July 2nd): "North Yorkshire Mortgages has purchased a further £300m portfolio of mortgage assets from GMAC-RFC (GM)... The trade, consisting of a blended pool of prime, buy-to-let and self-certification assets, was completed on Friday June 29… Martin Frazer, NYM managing director and Scarborough Group commercial director: "GMAC-RFC’s high quality assets will further support NYM’s and SMS’s ongoing success in nurturing relationships with a growing list of major international clients and we believe this will be the first of several such transactions taking place in our financial year 2007/8."

• GMAC Closes Securitisation Deal (Mortgage Strategy UK, July 2nd): "GMAC-RFC has closed its first securitisation for 2007 on June 27 2007, valued at £525m through its RMAC Securities Plc No.1 shelf. This is GMAC-RFC’s 26th transaction in the UK RMBS market, and total issuance since 1998 exceeds £16bn. The transaction is backed by 100% first lien, sub-prime mortgages and has been divided into eleven tranches denominated in sterling, US dollars and euros using a senior/subordinated structure. Stephen Hynes, capital markets director at GMAC-RFC, says: "Total issuance to date for the RMAC programme [is] £16.5bn."

• Fremont General Announces Significant Developments (CNN Money, July 2nd): "Fremont General Corporation, [of] Fremont Investment & Loan (FMT), today announced the completion of the previously announced sale of the Company's commercial real estate lending business and outstanding commercial real estate loan portfolio to iStar Financial Inc. [Also,] Alan W. Faigin, the Company's… General Counsel, was appointed interim President and CEO of the Bank, replacing Kyle R. Walker… Mr. Faigin will [be] succeeded by Carl B. Webb [to become] CEO of Fremont upon the receipt of regulatory approval of the proposed minority investment in the Company by an investor group led by Gerald J. Ford."

• The $3.6 Million Mortgage (NY Times, July 1st): "High-end buyers… are flooding banks with requests for huge mortgages so that they can keep up with the escalating prices for multi-million-dollar apartments. Melissa Cohn, the president of Manhattan Mortgage: “I’ve seen more $10 million mortgages in the past 6 months than in the past 10 years. We have the new breed of buyers who are buying real estate for investments and consider leverage to be part of that ongoing investment.” Mortgages are now one of the cheapest forms of debt… Preferred Empire Mortgage Company… said lenders that are willing to write large mortgages include (UBS), Thornburg Mortgage, Countrywide Mortgage (CFC) and JPMorgan Chase (JPM)."

Subprime Fallout and Foreclosure Impact

• Late Payments Rise for Home Equity Loans (USA Today, July 3rd): " Late payments on home equity loans climbed to a 1 1/2-year high in Q1'07, while delinquencies on credit card bills fell, painting a mixed picture of how people are managing their debt. The American Bankers Association… reported Tuesday that late payments on home equity loans rose to 2.15% in the January-to-March quarter. That was up sharply from 1.92% in Q4'06 and was the highest since the late summer of 2005. Delinquencies rose to 2.94% from 2.82% on mobile home loans, and to 0.60% from 0.57% for home equity lines of credit."

• United Capital's Devaney Halts Hedge Fund Withdrawals (Bloomberg, July 3rd): "John Devaney, who invests in subprime mortgage bonds, restricted redemptions to protect some of his Horizon Strategy hedge funds from being forced to sell assets. Michael Gregory, a spokesman for Devaney's United Capital Markets Holdings: It's "a defensive move because we had an unusually high number of redemption requests and we didn't want to be a forced seller in this market." One of the investors who wanted to withdraw accounted for about 25% of the funds' money. United Capital… oversaw $619 million as of March, including in the money-losing Horizon ABS Fund LP."

• Bear Stearns Investors Learn Just How Volatile Illiquid Assets Can Be (Roger Ehrenberg in Seeking Alpha, July 3rd): "Liquidity, together with security selection, are the two most important variables impacting investment returns…" This is a key determinant of why subprime mortgage securities in general and Bear Stearns portfolio in particular are getting wrecked relative to other professional investors that had positions in similar securities. If the liquidity profile of your portfolio is poor, your margin for error is very, very small… A simple "there is a 1 point wide market today; these securities are pretty liquid" doesn't [accurately assess risk or] capture the dynamics of a market shock similar to what we've encountered at the lower-rated end of the subprime mortgage spectrum."

• Predators Bilk Struggling Homeowners (NY Times, July 3rd): "Financial predators are finding yet another way to take advantage of people who fall behind on their payments. The schemes take various forms and often involve promises to distressed homeowners of cash upfront, free monthly rent and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house and pockets the cash. And, almost always, the homeowners still end up losing their homes… "Equity stripping…" has turned up in almost every state. Seven states have passed laws to try to stop it."

• Fitch Downgrades AMCORE Financial's IDR to 'BBB-'; Outlook Stable (Insurance Newsnet, July 2nd): "Fitch Ratings has downgraded the ratings of AMCORE Financial, Inc. (AMFI) and its subsidiary AMCORE Bank, N.A., including the long-term Issuer Default Rating [IDR], which has been lowered to 'BBB-' from 'BBB.' The Support Rating Floor remains unchanged at 'NF' (no floor). The Rating Outlook is Stable. A complete list of ratings is included at the end of this release. The lowering of AMFI's ratings is driven by the lack of improvement in the company's core earnings performance through 2006 and Q1'07."

• Market Volatility Enhanced By Deteriorating Credit Markets (Jim Kingsland in Seeking Alpha, July 2nd): "The Markit.com ABX bbb- 07-1 (tied to 2H '06 subprime loans) shows that the real "meltdown" in the $1.8 trillion subprime mortgage market… is now underway. Earlier in the week, S&P noted that some of the most toxic chunks of 07-1 came from collateral related to deals from Fremont, and Washington Mutual's (WM) Long Beach Mortgage… On Friday, Markit.com's leveraged loan derivatives index, LCDX, fell to a low of 97.73, from a high of just above 100 when the index was launched at par in mid-May… The spread between the LCDX, and the high yield CDX narrowed ominous[ly] to only about 26 basis points… A great deal of hedging is going on against future loan issuance related to LBOs. The narrowing spreads… indicate concern about the value of such loans relative to cash loans. There are over $200 bln worth of loans on the forward loan insurance calendar, and they are all related to the flurry of springtime merger Monday announcements."

• Bear Stearns Investors Await Tally on Losses (Wall St. Journal, July 2nd): "Investors in two Bear Stearns (BSC) hedge funds will have to wait until… July 16 to learn how much money they have lost. [Bear] has had difficulty calculating the funds' fair value, apparently because many of the mortgage-related securities they hold are thinly traded and the market for them has been volatile… [Bear] told investors that net asset values as of May 31 would be calculated "on or before July 16…" Investors are watching the process closely because they believe that other hedge funds also are holding thinly traded mortgage-related securities, and they want to see how far Bear thinks their value has fallen."

• American Home Mortgage Gets Expensive Financing (William Trent in Seeking Alpha, July 2nd): "American Home Mortage (AHM)... announc[ed] that they had arranged $125 million in debt financing. The good news is that there are still sophisticated investors out there willing to lend the company money. Given that… the mortgage environment right now dictates that historical asset values may not be all they are cracked up to be. The bad news is that the financing was expensive - 9.75%, convertible if the shares go above $25, fairly restrictive covenants, and required the company to set up a trust and provide 3% of the proceeds as equity. Which, of course, will all be worthwhile if the company is able to weather the housing/mortgage downturn."

• S&P, Moody's Mask $200 Billion of Subprime Bond Risk (Bloomberg, June 29th): "Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans. The highest default rates on home loans in a decade have reduced prices of some bonds backed by [subprime] mortgages… by more than $0.50 on the dollar… Bloomberg: Almost 65% of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold."

Global Impact and Alternatives To The Housing Slump

• FSA To Warn On UK Subprime Mortgages (Forbes, July 3rd): "Financial Times: The UK's financial regulator will this week sound a warning over the country's subprime mortgage market, which lends to people with poor credit records… The Financial Services Authority will criticise both lenders and brokers [and] is thought to have found poor record-keeping at some brokers, meaning they are unable to demonstrate that they sold customers mortgages that were suitable for them."

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

• Word Search: 'Subprime' and 'Recession' in the WSJ and the New York Times (Hickey and Walters in Seeking Alpha, July 2nd): "Some speculate that the [subprime mortgage] fallout could possibly lead to a recession… We did a word search for the terms "subprime" and "recession" in both the NY Times and the Wall Street Journal.
  [In] March we saw a large uptick in occurrences of the word "subprime" and to a lesser degree in "recession." Occurrences of the term "subprime" are high based on the past three years of data, occurrences of "recession" are at multi-year lows… Before and during the most recent recession in 2001 (highlighted in red) we search[ed] back to 1998 and found that occurrences of the term spiked two months before the actual official start of the recession."

• Vacant Pools Leave Neighbors Swimming In Mosquitoes (USA Today, July 2nd): "A glut of vacant, unsold homes with swimming pools is contributing to a glut of mosquitoes in the West. An untended pool means stagnant water, a breeding ground for mosquitoes to lay eggs that can produce thousands of mosquitoes in a couple of weeks… Luis Navarro, a mosquito-control officer in Maricopa County, says mortgage foreclosures have brought him more business this year… David Brown, manager of the Sacramento and Yolo County, Calif., mosquito-control office, says growing concern over the mosquito-borne West Nile virus is prompting expanded efforts to identify problem pools."

• Neglected Real Estate Listings Create Eyesores (Rutland Herald, July 1st): "With the glut of empty houses — both for sale and foreclosed — unkempt properties can be widely found… Ultimately, that mess decreases everyone's property value… National Association of Homebuilders: 1.4 million new housing units are sitting vacant, an all-time high. National Association of Realtors: Nationwide, 3.75 million existing homes were for sale at the end of March… In Sacramento, Calif., thousands of unsold and empty houses are becoming breeding grounds for mosquitoes because of uncared-for swimming pools, garden ponds and yards flooded by broken sprinklers."

Homebuilders And Housing Stocks

• Homebuilders Get Tough With Lawmakers (Palm Beach Post, July 3rd): "The Florida Home Builders Association threatened on its Web site today to withhold contributions to incumbent legislative candidates who do not sponsor legislation it wants [seeking caps] on “skyrocketing impact fees” by local governments… FHBA president John Wiseman: The homebuilder’s political action committee decided last week to make contributions to incumbent candidates “only after their name appears as a co-sponsor on impact fee legislation that will be filed for the 2008 session.” The group’s PAC also is withholding contributions to political parties, leadership funds and other political committees until a task force develops criteria for making such contributions."

• Builders Have Further to Fall (The Street, July 2nd): "Most [homebuilder analysts] do not expect any builder to face bankruptcy, with the exception of possible liquidity crises at two small-cap firms: Tarragon Corp (TARR) and Comstock Homebuilding (CHCI). Tarragon is facing questions as it prepares to split into two companies, and Comstock has had delayed closing on a major condo conversion project that has raised concerns about problems with lenders… Alex Barron, senior housing analyst with Agency Trading Group: Two stocks with the balance sheets best positioned to ride out the downturn in housing are NVR (NVR) and MDC Holdings (MDC)… NVR already has more cash than debt on its balance sheet. MDC should be in that position by the end of the year."

• Homebuilders Slide After Citgroup Downgrade (Yahoo! Finance, July 2nd): "Citigroup analyst Stephen Kim: Homebuilders will recover and the stocks will rise -- just over a longer time period than previously thought. "While we are adjusting our target prices and ratings to reflect a considerably less optimistic near-term forecast, we stress the primary change in our stance is with respect to timing. We continue to believe the homebuilding stocks are undervalued relative to their longer-term fundamentals."Kim kept "Buy" ratings on Centex Corp. (CTX), MDC Holdings Inc. (MDC), Meritage Homes Corp. (MTG) and Standard Pacific Corp. (SPF), saying those stocks are "mispriced relative to the group."

• Tops and Bottoms: Reflections and Predictions (Todd Sullivan in Seeking Alpha, June 28th): "Housing… has to be near a bottom. I cannot pick up a newspaper, watch TV or go anywhere with hearing about the "awful" real estate market. On Wednesday, I [over]heard a checkout line conversation… about housing [between a customer and the checkout boy] as he rang up her groceries... throwing around terms like "subprime mortgage meltdown" and "foreclosure rate…" If investing here, I would look at the iShares Dow Jones U.S. Home Construction ETF (ITB) that began trading in May 2006 (another sign of the top), and is currently down 35% since it started. The index is a free-float adjusted market capitalization-weighted index."

Commercial Real Estate and REITs

• JV Sells Chelsea Loft Building for $48M (Globe St., July 3rd): "AEW Capital Management LP and Colliers ABR Inc. sell the Chelsea/Penn Plaza commercial office building located at 229-239 West 28th St., with features including high ceilings, large floor plates and abundant light and air, for $48.4 million to Joss Realty Partners LLC, owner and operator of commercial properties… Just completing its transition from accommodating companies in the printing industry, 229-239 W. 28th St. now caters primarily to office-oriented users paying annual rents averaging $17.64/sf for the upper floors, approximately half the market rate for the area, according to Eastern Consolidated. It is 85% occupied."

• 7,000-Unit MD Multifamily Portfolio Hits Market (Globe St., July 3rd): "Sawyer Realty Holdings has flooded the Washington, DC-Baltimore Corridor multifamily market with some 7,000 units for sale. The portfolio consists of 20 properties throughout the region. Nine of the properties are in suburban Washington’s Prince Georges County, MD; 10 are in Baltimore County and one in Baltimore city… Industry sources size the portfolio--theoretically that is--at $85,000 to $100,000 per unit… CBRE helped Sawyer dispose of another similar sized portfolio in the DC area last year."

• Refashioned: Financial District Is Booming With Business (NY Sun, June 28th): "Few individuals expected Lower Manhattan to rebound from the terrorist attacks of September 11, 2001... Today, residential, commercial, retail, and hotels are booming in the third largest business district in the country… The former financial district, especially on Wall and Broad streets… once considered to be the heart of the financial district, is now home to luxury residential apartments, high-end retailers, hotels, and restaurants. Today, the building at 23 Wall St., known in the past as the "House of Morgan," is part of developer Leviev Boymelgreen's successful mixed-use retail, office, and condominium tower, known as 15 Broad St."

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Comments

[Greg Pinelli:]

Judy..Interesting compilation...I think, sometimes, that these kinds of reliable bits and pieces of anecdotal evidence are very useful in understanding a market..there's no doubt they are investing gold mines in the natural resource area....

2007 Jul 04 12:21 PM

[Judy Weil_:]

Thanks Greg,

I'm glad you find our Housing roundup useful!

All the best,

J

2007 Jul 05 03:06 AM