Housing Bubble and Real Estate Market Tracker

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 |  Includes: AMB, DHI, DHOM, FMCC, FNMA, HIH, HRB, IEP, KBH, LEN, MTH, WFC
by: Judy Weil

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"

"Buyers are worried that if they buy today, the market will decline tomorrow. No matter what we do, they say, 'Call me in November.'" – Delray Beach, Florida developer Bill Morris, despite offering several incentives, people are reluctant to buy Florida condos now. (Eye on Miami Blog, July 9th)

Real Estate Sales and House Prices

  • Home Sales Dip In June, But Average Prices Rise (Tennessean, July 9th): "Greater Nashville Association of Realtors: A total of 3,588 detached houses, condos, multi-family homes, farms and lots were sold last month, 11.6% less than last year’s record and the fewest monthly since June 2003. That helped push the number of properties on the market up to 21,236 listings, the highest since at least 2000… Homeowners who actually sold their properties saw the median price for a single-family home jump 8.3% to $196,000… A record for the Nashville area."
  • Triad Home Sales Down (Winston-Salem Journal, July 10th): "Triad MLS: Existing-home sales in Forsyth County decreased 5% to 938 in Q2'07 from Q2'06. The county’s existing-home sales, according to seasonally adjusted data, were down 2.2% from Q1'07. Triad MLS is a multiple listing service… that provides Web-based MLS services to Realtors in the Piedmont Triad. The average sales price rose 2.8% to $200,964 from Q2'06 and 0.6% from Q1'07… In Forsyth County, existing homes took an average 106.1 days to sell, up 14.1% from Q2'06 and up 0.3% from Q1'07."
  • Report: Housing Prices Must Drop To Be Affordable In Miami (South Florida Business Journal, July 9th): "John Burns Real Estate Consulting: Miami housing prices would have to drop 41.4% to return the city's income-to-housing cost to its historical ratio. Calculating average wages versus average costs of home ownership, including mortgage payments, property taxes and down payments, to tabulate affordability discrepancies… housing prices in Miami would have to fall $145,000 from their current $350,000 in order to return the city to historical affordability levels… Riverside and San Bernardino, California… require prices to drop 41%, or about $160,000, to return to a historic balance. Los Angles… requires a 39.5% fall in prices, followed by Baltimore, at 37.2%, and Orange County, Calif., at 34%."
  • LA's Most Expensive Property. Ever. (Curbed L.A., July 9th): "The former estate of William Randolph Hearst and Marion Davies… is on the market for $165 million, making it the most expensive property on the US market today: [With] 72,000 sf of living space in six residences on about 6 1/2 acres [and] includes 29 bedrooms in four separate houses, one apartment and one cottage. The main house has nine bedrooms including two master suites, a two-story library with hand-carved paneling, eight fireplaces, two movie-projection rooms and a living room with a 22-foot arched ceiling… One screening room… has a Dolby surround sound system."

Real Estate Investing and Sentiment

  • Building A Biz From Scraps (NY Daily News, July 9th): "Bart Bettencourt and Carlos Salgado's… sleek, striped [furniture], which have attracted the notice of ABC Carpet & Home, are made from wood scraps…Recycling wood… brings a green cachet to Scrapile, the Greenpoint business started by the pair… Retail prices range from $400 for a stool to $3,600 for a dining room table. Sales for the first half of this year have surpassed last year's $85,000 total, though Scrapile hasn't yet turned a profit… "With more space and machinery, we could quadruple our sales," said Bettencourt, who said they're talking to HSBC about a line of credit to expand."
  • Despite Cool Housing Market, Construction Booms (Daily Green, July 9th): "Continued Growth Shows Need For Green Building Guidelines… The construction market isn’t suffering much from a slowdown in the once red-hot housing market. Commercial and institutional construction, industrial projects and transportation infrastructure have not slowed down — and in some cases, are the logical follow-up to the suburban sprawl that dominated construction during the boom."
  • Deconstruction, Not Demolition (Builder Online, July 9th): "In fiscal year 2004, less than a quarter of the 406,000 tons of construction and demolition debris generated were recycled in Wake County, according to a 2004 study… The number of homes in Wake County and the Triangle that are torn down to make way for new ones is rising… Scott Mouw, North Carolina's recycling chief: Statewide, the wood, metal and other materials left over from building or demolition make up the largest amount of waste {1/3) [dumped in] landfill… State legislators are considering a bill that would require construction and demolition landfills to be subject to more stringent regulations."

Mortgates and Real Estate Lending

  • Freddie Mac Scales Back Housing Forecast (Washington Business Journal, July 9th): "Citing higher mortgage rates, [government-backed mortgage giant] Freddie Mac (FRE) [says] housing starts will be down 19% from 2006 levels [and] that home sales will be down 6.7% from 2006 levels. Freddie lowered its estimate of national average home price appreciation this year to 1%. A month ago, it forecast price gains of 1.5%. The company has lowered its 2008 price growth forecast to 1.8%, down from the June forecast of 2.5% price growth next year. Freddie expects mortgage rates to remain near current levels for the rest of the year."
  • Reverse Mortgage Market Currently at $4.3 Trillion, Less than 1% of Potential (Senior Journal, July 9th): "National Reverse Mortgage Lenders Association/Hollister Reverse Mortgage Market Index, [a] market indicator to collect critical market, housing and demographic data, and to track and project the market for reverse mortgages: Americans age 62 or older hold an estimated $4.3 trillion of home equity… Only a little more than 300,000 reverse mortgages have been originated… representing less than 1% of market penetration… RMMI projects as much as $37t in home value by 2030… as boomers begin to turn 62; The average home equity in a senior-owned household is estimated to be about $230,000 according to the Hollister Group."

Subprime Fallout and Foreclosure Impact

  • Minority Families Face Wave of Foreclosures (RIS Media, July 10th): "More than 250,000 black and Hispanic families are expected to lose their homes in the next few years due to foreclosure. For many, the financial trouble [started with] a mortgage they should never have been given… Center for Responsible Lending: African American and Hispanic borrowers were more than 30% more likely than their white counterparts to receive a higher rate on… loans, even after accounting for differences in risk... In 2005 alone, black and Hispanic borrowers took on about 870,000 high-priced loans (conventional first mortgages for 1-4 family, owner-occupied dwellings)— with one out of five expected to go into foreclosure."
  • ForeclosureS.com: 3 Out of 1000 Owners Have Lost Their Homes This Year (Business Wire, July 9th): "ForeclosureS.com: 3 out of every 1,000 homeowners in the US lost their homes to foreclosure in the first half of the year. That’s up 41% compared to the same period last year… Per capita [that's] 247,907, that ended up in the hands of banks or lenders this year because homeowners couldn’t get their mortgage default problems solved… ForeclosureS.com tracks and analyzes foreclosure filing through its database of more than 3.2 million listings nationwide. Per capita reflects the number of filings as a percent of the number of households in an area."
  • Banks Losing Up To $52 Bln Over Subprime (Reuters, July 9th): "Credit Suisse: Banks could lose up to $52 billion over time due to their exposure to collateralized debt obligations that invested in U.S. subprime mortgages. Most of the losses would stem from loans to hedge funds, compared with an expected $5b-$10b from banks' direct investment in subprime CDOs… Troubles at several other hedge funds have came to light since Bear Stearns' fund [subprime] problems: Cheyne Capital's Queens' Walk, Cambridge Place Investment's Caliber Global Investment, and United Capital's Horizon Funds."
  • Hedge Fund Executive Wants Block To Return To Tax-Preparation Roots (Kansas City Star, July 9th): "In a preliminary prospectus filed with the SEC, the hedge fund executive Richard Breeden described H&RBlock’s (NYSE:HRB) late 1990s expansion into a variety of financial-service business as ill-conceived and ineffectively executed… Two weeks ago, the Breeden group announced plans to nominate three directors to Block’s board in an effort to improve returns to shareholders. Breeden Capital Management… owns a 1.86% stake in HRB: "We will urge the board to end further use of shareholder capital to pursue subprime mortgage lending, securities brokerage, banking and other noncore activities.”
  • Few Foreclosures for N.O. (New Orleans City Business, July 9th): "New Orleans spokesman Alfred King: Four is the total of properties in New Orleans Fannie Mae (FNM) foreclosed last year. There’s been no jump in FNM foreclosures in the city. The foreclosure picture in New Orleans is better than many feared and much better than the national outlook. RealtyTrac: Louisiana foreclosures jumped 454% from 341 in Q1'06 to 1,890 in Q1'07. That’s an increase of 1,549 foreclosures. Experts explain the hefty increase in Q1'07 by the lengthy 2006 moratorium instituted by the Department of Housing and Urban Development for hurricane victims eligible for grant funds."
  • More Missing Monthly Mortgage Repayments (Find-a-Property.com, July 9th): "The Council of Mortgage Lenders revealed that by the end of 2006 there were approximately 59,000 mortgages that were three to six months in arrears… MoneyExpert.com revealed that up to 77,000 mortgage repayments are now being missed each month, and with the prospect of further rate rises still on the cards, the situation could easily worsen. Variable-rate and tracker mortgages have inevitably risen as a result of the rate increases, pushing up monthly repayments."
  • Truly Al-ARM-ing (Barron's, July 9th): "MacroMavens report: An astounding percentage of adjustable-rate mortgages already are underwater… "Based on the share of ARMs in some state of negative equity at the end of last year and the decline in home prices so far in 2007, a stunning $693 billion in mortgage loans are already in the red. Assuming lenders are able to recover 70% of those assets -- which seems optimistic given the massive amount of housing inventory yet to be unwound -- that means mortgage lenders are already grappling with $210b in outright losses… [With] leverage, the total financial exposure to these claims is many multiples of that."
  • Terror in the Mortgage Pools (Eye on Miami Blog, July 9th): "FDIC: “The amount of foreclosed real estate owned by Florida-based banks and thrifts has nearly tripled since the fall of last year, when foreclosure rates began their upward trek -- to $94 million as of March 31, from $34 million Sept. 30… Miami banking analyst Ken Thomas: Total real estate owned by banks and thrifts rose 37% in Q1, compared to 12% nationally. At a Miami auction on Thursday, of roughly 70 properties offered for sale, investors bought only two. A handful were scratched. The rest were bought back by lawyers for various lenders.”
  • Speculation Swirls Over CIBC's Subprime Exposure (Financial Post, July 9th): "CIBC: Speculation [of] CIBC exposure to the subprime market of up to $2.6-billion was "simply not true… Our exposure to the subprime market is indirect through our participation in structured credit transactions. The majority of this exposure is rated triple-A. Our direct exposure is well below what the [Barron's] report suggests." BMO Capital Markets analyst Ian de Verteuil: CIBC's "most material" exposure was to a $330-million senior secured tranche of an underwriting that ran into problems in April with the decline in fixed income markets… [After taking charges in Q2]… We believe the impact of the meltdown in subprime in the U.S. is limited for CIBC."
  • Monroe Home Foreclosures Through The Roof (Pocono Record, July 8th): "Monroe County Prothonotary's Office: There have been 635 foreclosure cases in 2007, through Thursday — more than for all of 2005 or 2004. If the present pace continues, it will result in 1,246 filings for the year [vs.] the previous record high of 941 mortgage default filings during 2003 and 925 in 2002. There were 835 foreclosures filed with the Prothonotary's Office in 2006… [This] despite [previous] state Attorney General's Office civil suits and criminal investigations, probes by the Monroe County D.A… congressional and state House hearings… and a state foreclosure study that focused solely on Monroe County."
  • Bagholders in Tears (Mish's Global Economic Trend Analysis, July 6th): "Coral Springs law [office] Blum & Silver, is representing about 25 investors who had invested $20 million with Brookstreet Securities [and] are planning legal action to recover their losses, damages and attorney's fees. The SEC and brokerage regulator NASD are reviewing Brookstreet's financial records and the firm has started shutting down… The seniors invested in securities called collateralized mortgage obligations, [CMOs]… Brookstreet has said the money was lost in part because of too much securities trading on borrowed money… The margin losses mean that investors not only lost their funds, but could owe money that was borrowed to trade in their accounts."

Global Impact and Alternatives To The Housing Slump

  • Despite Crises Lebanon Sees Increased Demand In Real Estate (Beirut Daily Star, July 10th) Lebanon: "Demand for small-and medium-sized apartments picked up in the past few months in some of Beirut's suburbs and regions outside the capital. Saad Andary, the adviser to the chairman of Bank of Beirut: "There is keen interest in apartments with a price ranging from $70,000-$150,000. This category is specially tailored for newly wed couples or Lebanese expatriates in the Arab Gulf." The state-sponsored Housing Bank is receiving dozens of applications each month. The Housing Bank provides low interest apartment loans to people with [low] incomes. Most of these loans are subsidized by commercial banks and in coordination with Banque du Liban."
  • AMB Property Buys 8 Japanese Facilities (Forbes, July 9th): "Global development and real estate company AMB Property Corp. (NYSE:AMB) said Monday it bought eight facilities in Japan. Financial terms weren't disclosed. The purchase of these facilities, totaling 926,000-sf, expands the company's portfolio in Japan by 20%. The portfolio is fully leased to distribution and logistics companies. Shares of AMB fell $0.23 to $56.18 in after-hours trading [Monday] after rising $0.29 to close at $56.41."
  • Bovis Homes Warns It May Miss Annual Targets (Newratings.com, July 9th): "UK's Bovis Homes Group Monday announced it may have to cut annual sales targets after the hike in interests rates. The UK homebuilder said there had been a downturn in the number of people visiting its sites, after the latest interest rate hike. The company said it booked 2,282 new reservations in the first half of this year, only nine more than in the year-ago period. Bovis Homes added that the average price of the homes sold was steady at around £189,000 per unit."
  • Looking In On: Gaming (Las Vegas Sun, July, 6th): "Two Israeli conglomerates are stepping up their profile in Las Vegas... Metroflag recently bought out [former partner] Africa-Israel [for] land under the Harley-Davidson Café… IDB Development Corp., Israel's largest investment company, recently signed a deal to join Elad Group, an Israeli real estate giant, in a 50-50 partnership to build a $6b-$8 billion resort, including a version of Elad's Plaza Hotel in New York, at the site of the New Frontier. Elad previously agreed to pay $1.2b for the land and, before the arrival of IDB, was projecting a $5b project. IDB is an investment partner in… a high-rise condominium complex in the northwest valley."

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

  • Still Afloat Despite Worst Housing Recession In 15 Years (Inman News, July 9th): "[Macro differences for US economy?] The FICO bar has gone from the 500s to 620-ish... The off-the-shelf piggybacks are as they were, except the 1st-to-2nd rate spread is about 1% wider (2% for sub-680 FICOs), causing little damage because the 2nds are so much smaller than the 1sts. "No-Docs" are still out there, spreads to "A" paper about 0.5% wider. Stated-income, interest-only, "option" ARMs with negative amortization feature -- all unchanged except for FICO-rate relationship at the outer edge of applicant/deal strength. 100% financing in general is harder to find, and pricey, but it should be."

Homebuilders And Housing Stocks

  • Home Depot Lowers 2007 Earnings Guidance (Seeking Alpha, July 10th): "Home Depot (NYSE:HD) has reduced its 2007 earnings forecast due to continued housing weakness. It also announced a tender offer for 250 million shares at a price range of $39-44/share (up to $11 billion). HD is now forecasting 2007 EPS at $2.30-2.36, a drop of 15-18% from last year's $2.79, versus a prior forecast of a 15% decline. Total retail sales for 2007 are now projected to slip 1-2% against a previous forecast of flat to 2% growth. Same-store sales are projected to drop in the mid-single digits. The new guidance reflects the sale of HD Supply, the company's contractor-supplies business, which… reduced earnings by $0.18."
  • Horton Stokes Housing Fears (The Street, July 10th): "The nation's largest homebuilder by volume, D.R. Horton (NYSE:DHI) said Tuesday new-home orders dropped a worse-than-expected 40% in Q2… fall[ing] to $2 billion from $3.8b a year earlier, [or] 8,559 homes from 14,316 a year earlier. The Q3 cancellation rate remained high at 38%... Horton's ugly numbers also provide fresh evidence that many sell-side analysts continue to have inflated profit expectations for homebuilders. Horton now says it will record a loss in Q3. Thomson Financial: Prior to Tuesday's news, analysts' average estimate called for Horton to report a profit of $0.7/share for Q2."
  • Rule of Thumb Hammered (Wall St. Journal, July 9th): "Book value is a company's assets minus its liabilities… Builders largest asset is land, which in some cases… is no longer worth what they paid for it… forc[ing] builders [into] write-downs on their books. Meantime, the builders are still paying down the debt that they used to buy much of the land… Two weeks ago, KB Home (NYSE:KBH) took a [housing development and land] charge of $308.2 million, while Lennar (NYSE:LEN) took a charge of about $329m... Daniel Oppenheim, housing analyst at Banc of America: Those charges reduced KB's book value by about 7% after taxes and reduced Lennar's by 4%. Additional book-value erosion for builders appears likely."
  • Should Meritage Be Written Off? (Motley Fool, July 9th): "Meritage Homes (NYSE:MTH) reported… it back[ed] out of all of its lot option contracts in southwest Florida… While that will cause the company to write off its losses on these contracts this quarter… Meritage will no longer be on the hook for overpriced property… At the end of 2006, Meritage had approximately 40,200 housing lots under option or contract worth $2.1 billion, representing a 4-5 year supply of housing. At the end of Q1, the number of lots had declined to 37,500 lots under option or contract… The company sits about 50% below its 52-week highs and trades at a discount to its book value. Throwing out the garbage when everyone expects a homebuilder to report poor numbers seems like a smart strategy."
  • Dominion Homes Reports Second Quarter 2007 Sales and Deliveries (Builder Online, July 6th): "Dominion Homes (DHOM)… sold 206 homes, with a sales value of $40.1 million in Q2'07 [vs.] sales of 356 homes, with a sales value of $66.2m, during Q2'06… The backlog at June 30, 2007 was 319 sales contracts, with a sales value of $66.4m, compared to 548 sales contracts, with a sales value of $109.5m, at June 30, 2006. The average sales price of homes in backlog at June 30, 2007 was approximately $208,300 compared to $199,800, reflecting a sales mix more weighted to larger homes."

Commercial Real Estate and REITs

  • Investors Look Elsewhere: A Measure of Commercial Property Owners' Earnings Falls, Increasing Concern (Builder Online, July 9th): "For the first time since 1999, the Morgan Stanley REIT index didn't outperform the S&P 500 Index… Credit Suisse: Last year, pension funds [allocated] $59 billion to real estate… double 2002 [figures]… UBS: In Jan.-Nov. 2006, deals to take public REITs private reached $77.6b, twice the total in the previous two years… Real Capital Analytics: Nationally, [commercial property] cap rates… dropped to 6.4% from 9% in 2002.... Borrowing costs have climbed above 7% this year, limiting the number of bidders on commercial properties… Credit Suisse: Pension funds allocated $46b for real estate this year, down 22% from 2006. About $2.7b has flowed out of real estate mutual funds since May 1 -- one of the strongest two-month retreats in the sector's history."
  • Standard & Poor's Announces Changes to U.S. Indices (PR Newswire, July 9th): "Standard & Poor's will make the following changes to the… S&P REIT Composite index: Winthrop Realty Trust Inc. (NYSE:FUR) will replace Highland Hospitality Corp. (NYSE:HIH) in the S&P REIT Composite… on a date to be announced. Highland Hospitality is being acquired by affiliates of JER Partners Acquisitions IV LLC in a deal still pending final approvals… Winthrop is a REIT that engages in the ownership and management of real property and real estate-related assets. The company will be added to the S&P REIT Composite Diversified REITs sub-industry."
  • Shoppes of Lakeland Sold (Tampa Bay Business Journal, July 9th): "REIT Ramco-Gershenson Properties Trust (NYSE:RPT) has sold two Florida shopping centers, including Shoppes of Lakeland, to a newly formed joint venture between itself and Heitman LLC. No financial details were disclosed, but Ramco said in a release that the two properties carried a net value of $52.9 million. Both of the core shopping centers are near Target stores and are presently 100% leased. Ramco-Gershenson will hold a 7% interest in the joint venture and will continue to manage the properties."
  • NorthStar Realty Finance Announces First Closing of NorthStar Real Estate Securities Opportunity Fund (CNN Money, July 9th): "NorthStar Realty Finance Corp.: On July 5, 2007 NorthStar closed on $109.0 million of commitments for NorthStar Real Estate Securities Opportunity Fund… As part of the initial closing, NorthStar sold to the fund its interests in two synthetic commercial real estate CDOs, its equity interest in its most recent real estate securities CDO - CDO 9, the deposits relating to its off- balance sheet warehouse facility and an equity interest in a third-party securitization. NorthStar received approximately $35.6m of cash proceeds from the initial closing and retained a 25.7% interest in the fund."
  • Wells Fargo Provides Construction Financing for NASCAR Corporate Plaza (PR Newswire, July 9th): "Wells Fargo & Co. (NYSE:WFC) said it has worked with Regions Bank to provide a $95 million loan to Corporate Plaza Partners, LLC for construction of the NASCAR Corporate Plaza adjacent to the future NASCAR Hall of Fame here… Upon completion in 2009, the NASCAR plaza will be a 19-story, 376,40-sf office building anchored by the auto racing organization. The building will be integrated with the NASCAR Hall of Fame… WFC has a historical relationship with the sport of NASCAR, including providing commercial banking services to the auto racing organization."
  • Fulton County Economic Development Group Makes $31.3M Real Estate Sale (Albany Business Review, July 9th): "Boston real estate firm paid $31.29 million for eight industrial warehouses, three manufacturing buildings and one flex building of fully leased space in Johnstown and Gloversville. STAG Capital Partners said Monday it had purchased nearly 900,000-sf in the Johnstown Industrial Park, Crossroads Industrial Park and Crossroads Business Park. Tenants include Wal-mart, Sysco, Trans World Entertainment, Univar USA and NYK Logistics. The buildings were owned by Crossroads Incubator Corp., an affiliate of the Fulton County Economic Development Corp. that was created in 1986 to encourage economic growth and replace manufacturing jobs that were lost in Fulton County."
  • CKX's Affiliate, FX Luxury Realty, Acquires Remaining 50% of Park Central Property in Las Vegas, Now Has Complete Ownership (CNN Money, July 9th): "CKX, Inc. announced today that FX Luxury Realty LLC has acquired the 50% it did not own of the Park Central property, a 17.7-acre lot located on Las Vegas Boulevard in Las Vegas, Nevada… FX Luxury now owns 100% of the Park Central property. The purchase was completed [with] the $180 million total consideration paid in cash from borrowings and cash on hand. FX Luxury Realty has previously announced its plans to pursue a retail, hotel, casino, commercial and residential development project on the Las Vegas property."
  • Amer Real Estate Partners Boosts Lear Bid To $37.25/Share (CNN Money, July 9th): "Lear Corp. (NYSE:LEA) Monday said its board has approved an amendment to a merger agreement with American Real Estate Partners LP (NYSE:ACP) under which AREP would increase its offer price for Lear shares to $37.25 from $36… If Lear shareholders don't approve the merger proposal by July 16, AREP would be entitled to a $12.5 million cash payment as well as 335,570 shares of Lear common stock."
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