Quote of the Day- "From the House's Mouth"
“The court system has become a collection agency. It breaks your heart, but the law is the law.”- Lorain County, Ohio, Clerk of Courts Ron Nabakowski, whose staff is inundated processing foreclosures. (Chronicle Telegram, July 15th)
Real Estate Sales and House Prices
- Relax. Chicago Market Almost 'Normal' Now (Chicago Tribune, July 15th): "Housing-industry consultant John Burns [studied] mortgage and down payments, and property taxes in [50 cities] and concluded that Chicago home prices would need to drop 8%… for housing costs to return to each city's historical ratio of income-to-housing costs… Miami… prices would have to drop more than 41.4% to reach historic norms… Others in the top 10 included several California locales, Baltimore, Washington, Las Vegas, Seattle and Portland, Ore. Chicago landed in 29th place… Los Angeles.. would need a 39.5% price cut… [Burns]: Many of the markets deemed overpriced probably will stay that way because of their desirability and supply restraints."
- Home Sales, Prices Creep Down (El Paso Times, July 14th): "Greater El Paso Association of Realtors: Sales of existing homes were down 9.5% in the first six months of the year, compared with sales at the same time last year. First American CoreLogic: El Paso new home sales were up 5.2% in the first five months of the year… El Paso Association of Builders: The inventory of new, $200,000-plus homes has grown as those homes become tougher sales… Last week, just over 3,600 El Paso homes were listed for sale on the El Paso Multiple Listing Service -- about 1,500 more listings than in July 2006."
- Maui Home Prices Decline In June (Pacific Business News, July 13th): "Realtors Association of Maui: The median price of a single-family home on Maui County in June was $654,500… down nearly 10% from $725,000 in June 2006… The median price of a condominium in Maui County last month was $475,000, a nearly 27% drop from June 2006 [at] $649,000... The year-to-date median price for condos remained at $525,000, [as in] 2006… The median price for a single-family home during the first six months of this year was $637,837, a 10% drop from the first six months of 2006, when the median price was $710,000."
- New York's Priciest Apartment: A Plaza Spread Officially Goes for Record $51.5 M. (NY Observer, July 13th): "Public records [show] that six apartments on the seventh-floor of the [Plaza Hotel] were sold [for] $51,539,180. [Unconfirmed reports] have said Harry Macklowe will spend $60m on Plaza apartments, and that a London-based oilman will buy a $56m triplex... City records: The only Manhattan home sale to beat this $51.5m deal is last year’s Harkness Mansion deal: The billionaire J. Christopher Flowers paid $53m for that French Renaissance townhouse on East 75th. There have been reports of other mammoth sales, like this week's Observer item on Edgar Bronfman Jr.'s $50 M. townhouse on East 64th Street--but none of these have closed.
- Affordable Modular Homes Part Of Detroit Neighborhood Revitalization Initiative (Detroit Free Press, July 15th) Detroit: "[Part of a neighborhood revitalization program] the homes on Delmar Street are constructed by Champion Enterprises Inc. (CHB), and assembled on-site… Ranging in price from $170,000-$210,000 and measuring 1,700-sf- 2,000-sf. Local business and city leaders [chose] modular homes… because they want to complete the neighborhood revitalization in a timely manner... A modular home, of which 80% is constructed in a factory-controlled environment, is built with the same materials and to the same local building codes required of site-built homes… Champion President Bill Griffiths: "You don't have construction traffic… for a year... We're going to cause disruption here for one day and it's over."
- Tackling the West’s Affordable Housing Problem (New West, July 14th): "One of the inescapable symptoms of the rapid growth taking place in many Rocky Mountain communities is a loss of affordable housing. It can force everyday citizens out—and [affect] the character of a place too… As Missoulians know, there exists a widening gap between the median household income and the median home price. Missoula Organization of Realtors: The median home price in 2006 was $205,000, requiring an income of about $58,000. But the median income in Missoula, for two people, is about $43,000, enough to buy something in the $145,000 range."
Real Estate Investing and Sentiment
- New York Buyers Seek Luxury (The Register Guard, July 15th): "It used to be that a full-service apartment building in New York meant a doorman, a roof garden, maybe a gym. These days, the can-you-top-this amenities include chic screening rooms; covered dog runs; golf simulators where you can practice your swing in front of a screen; wine cellars; bocce courts; rooftop beaches with sand and hammocks; and your own personal ''art concierge,'' to dispense expert advice on what to hang on your walls. With Manhattan's luxury real estate market awash in money from rich foreigners and Wall Street investment bankers with big bonuses to spend, developers are competing hard to attract tenants. "
- How to Break Into the Housing Market, Even Now (Hint: Use Other People's Money) (San Francisco Chronicle, July 15th): "What if a priced-out buyer in Oakland could log onto a site and find an investor from Palo Alto -- or Miami, for that matter -- who could supply [a house] down payment in exchange for a piece of the equity down the road [equity sharing]? Www.homequityshare.com... started in March with a matchmaking database for buyers and investors... Because lending practices have been so loose, equity sharing hasn't been that popular in the most recent boom cycle, [but] it is now with the zero-down hangover."
- Building Value In A Demanding Real Estate Market (Boston.com, July 15th): "Kevin McCall… founded real estate firm Paradigm Properties of Boston 10 years ago, which now owns or manages almost 4 million-sf: Paradigm is a medium-sized real estate investment and development company at a time when real estate is more competitive than ever. Q: How do you win over the bigger, better capitalized folks? A: We look for places where the capital pressure is not as intense. There's so much money in the market, so many bigger funds. The guys investing in $800 million or billion-dollar funds find it very inefficient to do $10m-$20m deals."
- Property Stays Hot Under the Tuscan Sun (Yahoo! Finance, July 13th): "Tthe 2007 Coldwell Banker Previews International Luxury Survey states that 31% of luxury homeowners in the U.S. have their retirement holdings in real-estate investments, and that luxury homeowners remain positive about the market regardless of the recent cooling of the U.S. real estate market."
Mortgates and Real Estate Lending
- 'Backward' Move Can Pay Off (Chicago Tribune, July 15th): "Reverse mortgages have been criticized for high upfront costs [and] loan amounts often are subject to strict limits… In recent months, Countrywide Financial Corp (CFC), Bank of America Corp. (BAC) and BNY Mortgage Co. have scaled up their efforts in the growing field… Wall Street has [also] entered the game, with investment banks for the first time purchasing such loans in a secondary market, which may further stir innovation and encourage more lenders to offer reverse mortgages. At the current rate, lenders could sell more than 100,000 reverse mortgages this year, more than double the number from 2005."
Subprime Fallout and Foreclosure Impact
- S&P, Moody's Downgrade Subprime Backed Bonds: Indymac's Response (Grove Nichols of IndyMac Bank in Seeking Alpha, July 16th): "Indymac (NDE) was the issuer of 20 (or approximately 2%) of the 1,011 bonds that were downgraded or placed on credit watch [last] Tuesday. Of those 20 bonds, Indymac owns one bond with a $3.8 million book value… Our subprime volume is…less than 4% of our total volume… [But] loan repurchase demands… are down significantly, as we have previously forecasted, from $527 million in Q1'07 to $221m in Q2'07, with May and June coming in at $44m and $43m respectively... Based on the current S&P model, our lifetime loss is down from 85 bps in Q107 to 63 bps in Q207…down further in June to 59 bps. Both are strong signs that our actions… have resulted in our credit quality improving."
- Oregon, Nationwide Foreclosures Rise (Salem News, July 15th): "RealtyTrac's June 2007 U.S. Foreclosure Market Report: A total of 164,644 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported in June, down 7% from May but still up 87% from June 2006. The report also shows a national foreclosure rate of one filing for every 704 households in June. Bargain Network: Oregon foreclosures are up 23% in Q2 [from] Q1. Nevada, California, Colorado post[ed] one foreclosure filing for every 175 households in June, Nevada's foreclosure rate [was] more than four times the national average and highest among the states for the sixth month in a row."
- Foreclosures On The Rise (Chronicle Telegram, July 15th): "Lorain County residents are losing their homes to foreclosure at an alarming rate. Civil court records show that 1,188 foreclosures were filed in the first half of this year, compared with 1,935 filed in all of 2006… Clerk of Courts Ron Nabakowski: “Home ownership is now going down, not up. People are losing their homes, and about 9% of all subprime loans are going to refinancing; people are taking subprime loans to get out of other debt and then end up losing their homes. So, we have more people losing homes than who are able to buy them.”
- Foreclosures Up Locally (Murfreesboro Post, July 15th): "RealtyTrac: In Jan-May of 2007, lenders foreclosed on 612 houses in Rutherford County, a 7% increase from Jan.-May 2006. Comparatively, Davidson County saw a 33% increase for Jan.-May, 2006… Rutherford County had 1,168 foreclosures in 2006 compared to 957 the previous year, a 22% increase. Tennessee had 36,796 foreclosures [a] 33% increase from 2005… Stan Vaught, chief manager of Bob Parks Auction Co.: Home foreclosures in Rutherford County accounted for only 1.36% of the total housing market in 2006."
- GE Profit Rises; Dumping Subprime Loans (Report On Business, July 14th): "Subprime mortgage companies, which finance high-interest loans to borrowers with poor credit, have suffered since the housing market began to crumble last year. Lehman Brothers Holdings Inc.(LEH) has trimmed its exposure, JPMorgan Chase & Co. (JPM) has increased reserves to offset subprime mortgage losses and home builder KB Home (KBH) has reduced its inventory and its exposure to subprime loans."
- Fitch May Downgrade Bonds Tied to Subprime Mortgages (NY Times, July 13th): "Credit ratings agency Fitch Ratings, a unit of Fimilac, said Thursday it might downgrade $7.1 billion in subprime mortgage bonds... The company put 170 subprime transactions “under analysis,” indicating that they may be cut. Ratings of 19 collateralized debt obligations were placed on review for a downgrade… Moody’s: Long Beach Mortgage, which is owned by Washington Mutual (WM), and WMC Mortgage, part of G.E., (GE) along with two other lenders, the New Century Financial Corporation (NEWC.PK) and the Fremont General Corporation (FMT), made loans that backed about 60% of the $5 billion in bonds that the rating agency downgraded… Their loans accounted for about 30% of the subprime-mortgage bonds issued last year…" S&P is reviewing… loans originated by New Century, which filed for bankruptcy in April, and Fremont… which federal regulators forced from the subprime-loan business in March. Moody's says loans by… Wells Fargo (WFC)… and Option One Mortgage of H&R Block (HRB)… are performing better than average."
- 14,000 Ameriquest Consumers Eligible For Payback (NJ.com, July 12th): "Attorney General Anne Milgram announced today that approximately 14,000 Ameriquest Mortgage Co. consumers in New Jersey are eligible to receive a total of $11.7 million in restitution from Ameriquest and its related companies as part of a national settlement that resolves allegations of predatory lending… The total $300m+ settlement payment by Ameriquest ranks as the second-largest state or federal consumer protection settlement in history, after the $484 million predatory lending agreement reached in 2002 between most states, including New Jersey, and the Household Finance Corporation."
Global Impact and Alternatives To The Housing Slump
- U.S. Real Estate Going Global (Inman News, July 16th): "University of California, Berkeley "Globalization and Real Estate: Issues, Implications, Opportunities" report: "Builders, brokerage firms, consulting and services firms, real estate finance firms and investors have extended their area of operations… worldwide… Some major U.S. residential real estate brokerage company brands -- including RE/MAX and Realogy's Century 21, Coldwell Banker and ERA franchise brands -- have worldwide operations… The future of the U.S. real estate market is increasingly tied to construction activity in Asia... "China has become both a leading producer and consumer of many building materials… The demand for residential real estate is surging in urban areas of India and China… as the majority of the population in those countries resides in rural areas -- a contrast to other major industrialized nations."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Buoyant Trade Thriving In N.C. (News & Observer, July 15th): "In the past three years, 28 boat manufacturers have started in the state or moved here to take advantage of [boat-making] artisans… [including] those who once made furniture… Earlier this month, Brunswick Corp., which makes Hatteras Yachts and Albemarle Boats in North Carolina, said that it will move three more models to a plant near Wilmington and create as many as 858 jobs while closing a factory in Maryland… The boat market is cyclical [though]. Currently, the industry is in one of its worst-ever slumps as consumers contend with higher fuel and food prices and other factors that have cut disposable income."
- U.S. Housing Chief Says China Should Buy More U.S. Mortgage-Backed Securities (MarketWatch, July 13th): "U.S. Department of Housing and Urban Development Secretary Alphonso Jackson Friday encouraged China to increase its investments in mortgage-backed securities in the U.S., especially Ginnie Mae securities, which are fully backed by the U.S. government. Jackson: "MBS' yield a higher rate of return than a traditional U.S. Treasury bond with (the) same credit risk…" [China] is creating an agency that will invest US$200 billion of its $1.33 trillion of foreign exchange reserves in higher-yielding assets overseas. So far, China's mainly U.S. Treasury bonds [investments]… has helped to keep down U.S. interest rates, making housing and other loans more affordable. U.S. housing department: Chinese investors held less than $3b in U.S. MBS' in June 2003… [and] $107b by June 2006."
Homebuilders And Housing Stocks
- Despite Impediments, Lowe's Takeover Of RONA Quite Possible (Seeking Alpha, July 15th): "Will Home Depot Inc. (HD) rival Lowe’s Cos. (LOW) takeover homegrown Canadian chain Rona Inc. (RONAF.PK)? Analysts have been skeptical about a Rona takeover by Lowe’s because of [different store formats], corporate structure (Lowe’s stores are corporate-owned and many of Rona’s are owned by store dealers), and… Rona's [Quebec] location, a market which some U.S. retailers have been wary to enter due to language and culture barriers. But analyst Keith Howlett of Desjardins Securities [says]: “We have increased the probability [of a takeover] to 40%,” from a prior probability of “less than 15%. If a deal is to occur, it would most likely be within the next six months.”
- M/I To Take Another Hit As Value Of Its Land Declines (Columbus Dispatch, July 14th): "M/I Schottenstein Homes Inc. (MHO) will take a pre-tax charge of between $60m-$70 million in Q2, in part to offset the declining value of its land…[This follows] a $75m impairment charge in Q4. The homebuilder also is taking a $5m charge related to an acquisition in 2005. M/I… delivered 755 houses in Q2, down 24% from Q2'06. M/I reported 688 new home contracts in Q2, down 10% from the year-ago period… M/I's backlog of 1,694 homes sold but not delivered, [was] valued at $554m, as of June 30. A year ago, the backlog was 2,889 houses valued at more than $1 billion."
- These Homebuilder Stocks Could Soar (The Street, July 13th): "The second most shorted homebuilder is Brookfield Homes (BHS), with a short ratio of 26 and more than 21% of the float sold short. The company specializes in luxury single-family and multifamily construction. The stock has a trailing P/E ratio of 5, but the company's revenue has dropped by more than 24% year over year. The stock appears on Barron's Insider Purchases 6-25-07, making this list after CEO Ian Cockwell last month purchased 133,800 shares, or about $4 million worth of stock."
- New St. Martinville 'Green' Homebuilder Looking To Hire (Lafayette Daily Advertiser, July 13th): "Louisiana System Built Homes, which took over the old Martin Mills plant in St. Martinville, will expand its workforce… The company began building homes in March with an initial staff of 60 workers. The systems built homes utilize many environmentally-friendly, cost-reducing materials like spray-foam insulation and compact electric-powered water heaters. Sales Representative Katrina Collette: The company is trying to set up another shift of workers to build homes, with the eventual goal of manufacturing them all day and night."
- Cramer Talks Buffett & Homebuilder Rumors (Blogging Stocks, July 13th): "Jim Cramer addressed the homebuilders all being up based on very unconfirmed rumors that Warren Buffett's Berkshire Hathaway (BRK.A) was taking a stake in homebuilder Hovnanian Enterprises (HOV). Cramer said it would more likely be Pulte Homes (PHM). Hovnanian is more regional and [Buffett] can go in bigger with Pulte. This shows that it's too hard to short in this market. Cramer said Buffett has always liked this group… USG Corp. (USG) is one of the core housing-related plays that Buffett owns… [Also] Hovnanian has too much exposure to Southern California and… Florida… [and] a mere $1.15 billion market cap."
- Lifetime Brands Leases Large California Warehouse (Newsday, July 13th): "Lifetime Brands Inc. (LCUT), the Garden City-based seller of housewares for brands like Farberware and Cuisinart, last month signed a lease agreement for a massive building into which it will consolidate all of its West Coast distribution centers (SEC filing). The lease, with Granite Sierra Park Lp, is for a 753,170-sf warehouse in Calif … Over the course of the ten-year lease, the annual rent for the building will rise from $3.3 to $4.5 million. The company will also have the option to renew the lease for two five-year periods."
- Nobody's Home at Fleetwood Enterprises (Motley Fool, July 12th): "Fleetwood Enterprises (FLE) Fiscal 2007: Fleetwood had to "reduce manufacturing capacity by closing five smaller or underperforming travel trailer plants." Fleetwood reported a total sales decrease of 17%... Losses nearly tripled to $1.41/share… The manufactured-home industry decade-long quagmire… has also afflicted peers such as Champion Enterprises (CHB), Skyline (SKY), and Palm Harbor Homes (PHHM). I still think the RV segment will be the one to pull the company through to profitability as retiring baby boomers increasingly hit the open road, but high fuel costs and rising interest rates continue to postpone any improvements at Fleetwood, Winnebago Industries (WGO), Thor Industries (THO), or Monaco Coach (MNC)."
Commercial Real Estate and REITs
- Federal Realty Up on Analyst Upgrade (Forbes, July 13th): "Cantor Fitzgerald upgraded Federal Realty (FRT) to "Buy" from "Hold" with a 12-month target of $92 from $88: "Our rating is based on a 'best in class' business model and shopping center portfolio that we believe will continue to provide consistent and above average cash flow growth and operating performance through economic and real estate cycles." The REITs prime property locations - in the greater Washington, D.C, area, California, Philadelphia/New Jersey and Boston - have helped to drive above average rental and same-store net operating income growth… Strict zoning and high development costs in these areas have kept a lid on new retail projects… Private equity firms could be sniffing around Federal, which "could provide a $95 share price catalyst."
- Wells REIT Buys IndyMac Site for $116M (Globe St., July 13th): "Wells Real Estate Investment Trust II Inc. of Norcross, GA has acquired a 265,000-sf three-building office and retail project called Pasadena Corporate Park for $116 million in a sale-leaseback with IndyMac Bank. IndyMac has signed a 10-year lease to remain in the property… IndyMac occupyies 71% of the building… The buyer did not disclose terms of the deal, but a public filing by IndyMac listed the sales price as approximately $116m. Real Capital Analytics: The property sold for $56 million when IndyMac bought it from Kearny Real Estate in late 2003. The property serves as IndyMac's mortgage banking headquarters."
- Baltimore Boom Attracts Another Top-Dollar, $61M Wells REIT Deal (Commercial Property News, July 13th): "Wells REIT II has purchased a nearly 248,000-sf office building in the Baltimore submarket of Columbia. The fully occupied Class A property at 7301 Columbia Gateway Dr. is the world headquarters of MICROS Systems… Wells'… paid a record $207 million--or $316/sf for 100 E. Pratt St. in 2005. With the MICROS deal, Wells has again paid top-dollar… with reports estimating the REIT paid $256/sf, or $61.2 million, for the property. The growth of the Baltimore-Washington corridor has boosted the Columbia office market's expansion, including [the] Columbia Gateway Park… and National Business Park, [being] developed by Trammell Crow Co."
- Mission West Properties, Inc. Commences Acquisition Negotiations for an All Cash Transaction (finanznachrichten, July 14th): "Mission West Properties, Inc. announced Saturday it has begun negotiations with a leading real estate private equity fund [to acquire] all of Mission West's outstanding common stock at $13.55/share in cash, with the holders of limited partnership units in Mission West's operating partnership to receive the equivalent of $13.55/unit in cash or remain in… partnership as part of the overall deal… valued at approximately $1.8 billion… Pending the acquisition, Mission West expects to continue to pay regular quarterly distributions of $.16/share and per unit… in addition to the merger consideration paid per outstanding share of common stock."
- Hudson Yards Opened Up For Bidding (Real Deal, July 13th): "Governor Eliot Spitzer Friday officially released the request for proposals for the development of the 26-acre Hudson Yards site on Manhattan's far West Side… opening up the bidding process for the site, which expected to bring in more than $1 billion for the Yards' owner, the MTA. The RFP allows a developer to either purchase or obtain a long-term lease for both the eastern and western sections of the Yards, which are handled by separate requests. The request covers both real property and air rights on the Yards, which run on the east and west sides of 11th Avenue from 30th to 33rd streets."
- Fitch Affirms Plum Creek Timber Ratings (Forbes, July 12th): "Fitch Ratings affirmed Thursday the investment-grade credit ratings for Plum Creek Timber Co., saying the timber REIT should weather the housing downturn better than its competitors. The agency affirmed the REIT's "BBB-" issuer default rating, its "BBB-" senior secured bond and its "BBB-" bank revolver. Additionally, Fitch gave a "BBB-" rating to the REIT's new $350 million bank term loan. The rating outlook is stable. Fitch said Plum Creek (PCL) "has not been immune to the chaos afflicting lumber and building materials caused by the retreat in homebuilding. However, earnings have been resilient and PCL should weather current misfortunes better than its downstream lumber and panel manufacturing customers."
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