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"

"Declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time." - Federal Reserve Chairman Benjamin Bernanke, delivering a midyear Fed economic report to Congress Wednesday. (Yahoo! Finance, July 18th)

Real Estate Sales and House Prices

• State House Prices Increased In May (Hartford Courant, July 17th): "The Warren Group: The median sale price of a single-family house in Connecticut rose by nearly 5% in May from May 2006… sales fell by 14%. Much of the increase in prices for single-family houses was driven by gains in Litchfield and Fairfield counties… Statewide, the median sale price rose to $288,000 in May, from $275,000 for May 2006… All counties showed declines in the number of sales of single-family houses. Windham County took the biggest hit, dropping 34% [from May 2006]. Sales in Hartford and Litchfield counties fell by nearly 20% in May."

• S.D. Housing Prices Steady, Sales Hit Bottom (KPBS TV, July 17th): "Analysts say housing prices in San Diego County held fairly steady last month, but home sales fell to the lowest level in ten years… From June of 2006 to last month, home prices in San Diego County were down nearly 2%, though the new numbers from DataQuick show an increase for May to June of about $3,500 to a new median price of $495,500… With sales down to just over 3,500 last month, it was the slowest homes sales month in San Diego County since 1997."

• June Home Sales Flat as Prices Dip (Buffalo News, July 17th): "Buffalo Niagara Association of Realtors: In June, 1,147 homes were sold, identical to June 2006, but prices were down slightly. Through the first six months… 5,028 homes were sold, up 2% from the same period in 2006. June… [is usually and had] the highest total [sales] so far this year… The region’s median sale price, $107,500, slipped about 1% from $109,000 in June 2006... The average sale price… rose less than 1% to $131,927… The region’s inventory has been rising nearly every month from the year before since May 2004, and it was at its highest level for June since 2001."

Real Estate Investing and Sentiment

• Redfin Raises $12 Million, Eyes D.C., Chicago And Sacramento (Seattle PI, July 17th): "Redfin has raised an additional $12 million in venture funding, money that the Seattle discount real estate broker will use to… expand into new markets. First: The Washington D.C and Baltimore areas, which are being unveiled today. Next… are Sacramento and Chicago... Redfin, which refunds two thirds of its commission to home buyers and offers a flat listing fee of $3,000 to sellers, already operates in Seattle, San Francisco, Boston, San Diego, Orange County and Los Angeles. Since its launch 17 months ago, [homes] valued at more than $350m-- have been bought and sold through Redfin.

Mortgates and Real Estate Lending

• HOLDEN LEWIS: New York Has Nation's Priciest Mortgage Fees (San Luis Obispo, July 17th): "Bankrate.com survey: For the third year in a row, New York has the most expensive mortgage origination and closing fees in the country… An NYC resident getting a $200,000 mortgage would pay an average $3,830 in origination, title and closing costs… An Indianapolis resident would pay $2,339 for the same loan... Texas has the second-highest origination and closing costs… The top five are rounded out by Florida, Pennsylvania and Ohio… California, was the 17th most expensive. For all states and the District of Columbia, total origination and closing costs averaged $2,736… Mortgage-related fees vary from place-to-place because of differing taxes, customs and regulations."

• New Loan Guidance Wrong For Housing (Upstatehouse.com, July 16th): "Fannie Mae (FNM) and Freddie Mac (FRE) announced [they] will enforce [a 2006 guidance] demanding any mortgage containing an interest-only feature will be underwritten at the highest possible interest rate or subsequent amortizing payment, and that any mortgage containing a negative-amortizing feature be underwritten at the highest possible balance and interest-rate adjustment… Troubled borrowers trying to refi off their subprimes or ARMs into interest-only loans to minimize payments will be out of luck… Lehman, the giant Wall Street broker-dealer, proprietor of Aurora Loan Services, the dominant Alt-A mortgage wholesaler/securitizer… is not regulated… A lot of the non-Fannie/Freddie world uses F&F software engines for loan approval; What's to stop the Lehman's from offering back-alley interest-only and neg-am loans?"

Subprime Fallout and Foreclosure Impact

• Bear Stearns Hedge Funds Nearly Worthless (Judith Levy in Seeking Alpha, July 18th): "Bear Stearns (BSC) told investors Tuesday that the more leveraged of its collapsing hedge funds has "effectively no value left" and the less leveraged "very little" --(WSJ estimates losses at more than 90%). The funds, which had over $20 billion in investments at their peak, were heavily invested in CDOs, pooled debt securities backed by subprime mortgages. CDOs are highly illiquid and difficult to value. As defaults on subprime loans surged, the funds' creditors called in their loans... The subsequent collapse of the funds brought about… across-the-board repricing of CDOs. The potential fallout at similarly exposed funds will be easier to evaluate now that the market [knows] how Bear priced its funds' assets."

• Fed to Foster Monitoring of Subprime Market (Washington Post, July 18th): "The Federal Reserve Board and other federal and state regulators announced [they will] review the practices of large lenders… in the troubled subprime home mortgage market... The regulators did not say how they would decide which lenders to target as they prepare to launch the pilot program in Q4. The goal is to stem a rise in delinquencies and foreclosures by determining whether the lenders and the mortgage brokers they work with are complying with consumer-protection laws. Legislators and consumer groups hailed the move because it brings some coordination to the fragmented regulation of the industry."

• Subprime Staple Is Phased Out (Wall St. Journal, July 18th): "Some lenders are eliminating what until recently was the most popular type of home-mortgage loan for subprime borrowers… Countrywide Financial Corp. (CFC), Option One Mortgage Corp. (HRB) and Merrill Lynch's (MER) First Franklin Financial unit told employees and mortgage brokers this week that they would no longer offer so-called 2/28 subprime loans, ones that carry a relatively low fixed rate for the first two years and then jump to a much higher, floating rate, often more than 10%. Countrywide… said investors' demand for such loans is "very, very limited." Wells Fargo (WFC), the No. 2 mortgage lender… expects an announcement on 2/28 loans soon."

• Three Banks Resilient to Loan Troubles (Caspar Star Tribune, July 18th): "Wells Fargo's (WFC) Q2 profit rose by 9%... Two smaller rivals, U.S. Bancorp (USB) and KeyCorp (KEY)… both steered clear of the losses [plaguing] other lenders in recent months… Wells, has been largely unscathed by the subprime implosion so far, even though it ranks among the sector's largest lenders… earning $2.28 billion, or $0,67/share, during Q2. That compared with net income of $2.09b, or $0.61/share, a year earlier. Revenue climbed 13% to $9.89b… U.S. Bancorp held $3.2b in subprime mortgages at the end of June, up from $3b at the end of March. Richard Davis, U.S. Bancorp's CEO, told analysts in a conference call that bank's subprime lending is "minimal and very manageable..." KeyCorp… earned $334 million, or $0.84/share, in the quarter, 8% more than… last year."

• Bear Stearns Tells Fund Investors `No Value Left' (Bloomberg, July 18th): "Bear's (BSC) [worthless] Enhanced fund, had $638 million of capital as of March 31, according to March [client] performance reports. It also borrowed about $11 billion to make bigger bets. The larger fund, which had $925m, is down about 91% this year, according to a person with direct knowledge… It borrowed almost $9 billion…Ralph Cioffi, the BSC… veteran who managed the two funds, sought to minimize risk by investing in the top- rated portions of CDOs, hence the "high-grade'' label. Under Cioffi, 51, the funds also borrowed money in an effort to boost returns… As defaults surged on subprime mortgages… AAA and AA securities value declined."

• Hedge Fund Gears Up To Buy Subprime Bonds, Cheaply (Reuters, July 17th): "Hedge fund firm Black Pearl Asset Management on Tuesday said it will launch portfolios to snatch up cheap subprime mortgage securities battered by the current crisis. Black Pearl, co-founded by Jim Midanek and John Pak in 2002, will invest up to $500 million in mortgage securities that have been tarnished amid increased risk-aversion in the sector, the managers said in a statement. Pak: The subprime market is approaching a point where "widespread price dislocation" is likely. Midanek: "Investors need to position capital now to participate in this tactical trade. The investment phase of this cycle is nearly upon us."

• How Much Lower Can the ABX Go? (Jim Kingsland in Seeking Alpha, July 17th): "Going down, down, down, and it's not just BBB- junk, even the AAA's got slammed dunked on Monday, and the Triple A slid down to 95. The Triple B- slumped down to 45-cents on the dollar (really in the dead zone). When will the cracks in the RMBS arena matter to Wall Street, and not only matter, but cause trouble for the market as a whole? It has been suggested by some that Monday's decline in ABX may be a sign of someone having to liquidate, it will be interesting to see if that's true and who it is."

• Subprime Weakness Erodes Higher-Rated ABX Indexes (Reuters, July 17th): "Investor anxiety over the U.S. housing downturn is spreading to the highest-rated mortgage securities, upsetting the expectations of some that the crisis in the subprime bond market would be contained. Weakening credit quality in the $575 billion U.S. subprime mortgage market is eroding the value of "AAA" securities, heightening anxiety among investors and raising the cost of insuring that debt against default. While lower-rated "BBB" and "BBB-" securities are designed to take the first losses in a securitization structure, recent declines in "A" and higher that have a bigger cushion for losses suggest investors are bracing for a prolonged housing downturn."

• Foreclosure Protection Could Have Hidden Risk (Army Times, July 17th): "A House committee voted Tuesday to extend mortgage interest caps and foreclosure protection for activated service members… [HR 1315], the Veterans’ Benefits Improvement Act of 2007, includes a provision that would provide protection against foreclosure for 180 days after separation from the service and also would keep the 6% cap on mortgage interest promised under the Service-members Civil Relief Act for the same 180 days… However, mortgage lenders warned the committee that a six-month freeze on foreclosure could end up making things worse… because the longer a homeowner does not pay their mortgage, the harder it becomes to catch up."

• Tranche Warfare (In These Times, July 17th): "Many institutional investors, such as pension funds, mutual funds, insurance companies and so forth, are restricted from buying debt unless it’s investment-grade—that is, debt with a rating of BBB or better (the rating expresses default risk, not value)… The genius of structured-finance products like CDOs [is that] subprime mortgages, for example, can be [repackaged] to be suitable for the more choosy investors mentioned above. They do this by dividing the pool into segments, called tranches."

Global Impact and Alternatives To The Housing Slump

• Deutsche Bank's Unit, Pirelli Unit Agree To Buy German Real Estate Company (International Herald Tribune, July 17th): "Deutsche Bank Ag's unit RREEF and the real estate unit of Pirelli SpA have signed a binding agreement to purchase German real estate company BauBeCon for €350 million (US$482 million)… Under the agreement, RREEF would take 60% and Pirelli & C. Real Estate SpA the remaining 40%... BauBeCon is currently owned by U.S. private equity company Cerberus. The statement said BauBeCon has a real estate portfolio, primarily of residential houses, worth around €1.6 billion (US$2.2 billion)."

• Credit Agricole Buys Majority Stake In French Homebuilder Monne-Decroix (Forbes, July 17th): "Credit Agricole said it has bought an unspecified majority stake in French residential property builder Monne-Decroix for an undisclosed price. Prior to the acquisition, the head of the bank's property business was quoted in the daily La Tribune (TRB) as saying the stake would be 70%. The seller or sellers were unidentified. Credit Agricole said Monne-Decroix's sales last year were €235 million."

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

• Dollar Slumps to Record Low Versus Euro on Bear Stearns Losses (Bloomberg, July 18th): "The dollar fell to a record low against the euro and dropped versus the yen after Bear Stearns Cos. (BSC) reported hedge fund losses, fueling speculation investors will spurn U.S. assets as the economy slows... Financial industry losses caused by subprime mortgage defaults may be addressed by Federal Reserve Chairman Ben S. Bernanke when he testifies to Congress today... The dollar declined to an all-time low of $1.3833 against the euro from $1.3781 yesterday, and traded at $1.3826 at 2:17 p.m. in Tokyo. It dropped to 121.68 yen from 122.34."

• What Drives the Dow? (Twin Cities, July 18th): "The Dow's latest accomplishment does raise questions about whether investors are buying more on speculation than fundamentals - and whether these gains can hold. The market still faces issues including rising oil prices that could crimp consumer spending. And a drop in takeover deals could puncture investor sentiment, as could a further souring of subprime loans amid a cooling housing market."

• International Buying of U.S. Assets Jumped in May (Bloomberg, July 18th): "U.S. Treasury: International buying of U.S. financial assets unexpectedly climbed to a record in May as investors snapped up American stocks and corporate bonds. Total holdings of equities, notes and bonds climbed a net $126.1 billion, from $80.3b in April. [Bloomberg] economists had predicted foreign investment would slow to $73b. The appetite for U.S. assets rose in Q2 from Q1, when the economy expanded at the slowest pace in four years. Private and government reports showed manufacturing and export gains are propelling growth as housing slumps. The purchases offset diversification by China of its foreign- exchange reserves, as they sold Treasuries for a second month."

Homebuilders And Housing Stocks

• Pulte Homes Warns of Worse Than Expected Q2 Loss (Susan Lerner in Seeking Alpha, July 18th): "Pulte Homes (PHM) said Tuesday it expects to report a Q2 loss of $2.00-$2.10/share amid worsening conditions in the U.S. homebuilding market. Net new orders during the period fell 20% from 2006 to 7,532, while the average home sales prices decreased 4% to approximately $320,000. Pulte said it closed 5,938 homes during Q2, 40% fewer than Q2'06… and expects Q2 impairments and land-related charges in the range of $740-770 million on a pre-tax basis. The results also reflect a $40m ($0.10/share) charge for a restructuring plan to reduce costs and improve operating efficiencies... Analysts had been expecting an $0.18/share loss."

• Jim Cramer's Mad Money Lightning Round Picks, 7/17/07 (Miriam Metzinger in Seeking Alpha, July 18th): "Centex (CTX): 'The only one that seemed to have stopped building homes before it got really crucial and horrible was Centex. If you insist on bottom-fishing in the group, I want you in CTX."

• Are Homebuilding Investors Getting a Second Chance? (Todd Chalem in Seeking Alpha, July 18th): "Homebuilder sentiment is the lowest its been since 1991. I vividly recall the economy of 1990-1991, particularly the brutal job market for recent grads… and fears of $5/gallon gas... Needless to say, investing in real estate, or even home builder stocks in 1991 would have been a huge win… Four public homebuilders that were publicly traded on July 17, 1991: Toll Brothers (TOL), Centex Corporation (CTX), Meritage Homes (MTH) and NVR (NVR), are up 1400%, 1021%, 530%, 79,000% respectively, since that date… What's the saying about the best time to buy? Something like "when there's blood in the street, particularly when the blood is your own."

• Buffett the Homebuilder? (Motley Fool, July 17th): "Before last week's surge, Hovnanian's (HOV) shares were trading at nearly the same price [as] before the housing boom. [In four years] shareholder equity has nearly tripled, and book value and revenue have more than doubled. Yet [Hovnanian is selling] at 60% of book value and 20% of annual sales, in spite of the company's achievements over the past four years… Insiders own more than 27% of the stock… The homebuilding industry as a whole has a lot of characteristics that deep value investors look for: low price-to-book ratios, healthy balance sheets, and historically low prices. And since humans will always need homes to live in, homebuilders will again have their inevitable day in the sun."

• Time to Cut the Cord on Black & Decker? (Barron's, July 17th): "Black & Decker (BDK) is up 28% since Barron's recommended the power-tool behemoth last September… The stock has bucked worries about housing sales and consumers amid strong overseas sales, share repurchases and recent takeout speculation pairing BDK and General Electric. Investors may now want to lock in some profits... The U.S. housing market will take much longer to recover... Cash-strapped homeowners are postponing renovation projects… Last week, Home Depot, Black & Decker's largest customer, cut estimates for 2007, partly because the U.S. housing slump has deepened… Merrill Lynch downgraded BDK to Neutral from Buy… Banc of America Securities initiated a Sell rating."

• Home Builders' Confidence Plunges Again In July (MarketWatch, July 17th): "The NAHB/Wells Fargo housing market index dropped four points to 24 in July, the lowest since the 20 recorded in January 1991 and the third lowest reading in the 22-year history of the survey. The index was at 39 a year ago and peaked at 72 in June 2005, when nearly three-fourths of builders were upbeat about the market. The decline in the home builders' index mirrors the massive slump in home building and home sales seen in the past two years. Starts of single-family homes are down 36% from the peak, while sales are down 20%."

• Merrill Net Rises 31% on Trading Gains, Banking Fees (Bloomberg, July 17th): "Merrill Lynch & Co. (MER) said profits rose 31% as stock- market gains and historically low financing costs spurred more trading, share sales and takeovers. Q2 net income jumped to $2.14 billion, or $2.24/share, from $1.63b, or $1.63, a year earlier, exceeding the average Bloomberg survey estimate of $2.02/share. Trading revenue rose… 34%, helping Merrill weather the deepening crisis in mortgage-backed securities and the near-collapse of two Bear Stearns Cos. hedge funds… CFO Jeff Edwards [told] analysts Monday that the collateral is "appropriately marked'' to market and Merrill's ``exposure'' to the Bear Stearns funds is "limited'' and "contained.''

• Champion Enterprises Reports Net Income of $0.10 per Diluted Share for the Second Quarter of 2007 (CNN Money, July 17th): "Champion Enterprises, Inc. (CHB), a leader in factory-built construction, today announced Q2 results: Revenues… decreased 11% to $330.4 million compared to $370.7m for Q2'06. Income from pre-tax continuing operations totaled $10.0m compared to $11.5m for Q2'06. Net income for Q2 totaled $7.5m, or $0.10/share, compared to net income of $112.1m, or $1.44/share, for Q2'06. Net income for Q2'06 included $101.9m of income from the reversal of the previously recorded deferred tax asset valuation allowance. International segment order backlogs remained strong… The retail segment reported Q2'07 revenues of $21.4m vs. $35m for Q2'06, a reflection of the significant ongoing challenges in the California housing markets."

Commercial Real Estate and REITs

• Commercial Investment Reaches Record (Wall St. Journal, July 18th): "Jones Lang LaSalle report: Investment activity in commercial real estate surged to $382b in the first half, up 16% from $328b a year ago. The study tracks investment in existing commercial real-estate assets (excluding multifamily properties) that sell for more than $5 million but doesn't include company buyouts or new development… Blackstone Group's $23b acquisition of Equity Office Properties… isn't included. However, the subsequent sales of former EOP buildings are included. JLL projects a slowdown in sales activity in the second half of the year to about $318b… reflecting the rising cost of borrowing money to finance highly leveraged acquisitions and the expectation that "flipping," a practice in which investors buy buildings expecting to resell them quickly at a huge profit, is unlikely to continue."

• Insiders at REITs Like What They See (Wall St. Journal, July 18th): "Some investors have abandoned REITs… Thomson Financial: REIT executives and directors spent close to $60 million on their companies' stocks in Q2, the largest amount in the past 26 quarters… REIT stocks are [now] trading at a significant discount to the value of their underlying real-estate assets… During Q2, REIT insiders spent $59.8m to buy shares, more than twice as much as any other quarter since 2002… The bulk of last quarter's purchases were made at five companies, with General Growth Properties Inc. leading the pack with $38.4m of stock purchases. The other four are Colonial Properties Trust, Alesco Financial Inc., Ashford Hospitality Trust and Capital Trust Inc."

• AMB Property Corporation(R) Announces Second Quarter Results (PR Newswire, July 17th): "AMB Property Corporation (AMB), a global developer and owner of industrial real estate Q2 and year-to-date results: Funds from operations- FFO/share and unit- FFOPS was $0.74 for Q2'07, vs. $0.87 for Q2'06. FFOPS for the six months ended June 30, 2007 was $1.32, vs. $1.39 for Jan-June 2006. Net EPS for Q2'07 was $1.10, vs. $0.80 for Q2'06. EPS for Jan.-June 2007 was $1.35 vs. $1.06 for Jan-June 2006. The increases for Q2 and year-to-date were due primarily to…the contribution of operating properties to the company's Europe Fund I, which was formed in Q2'07. AMB's operating portfolio occupancy at June 30, 2007 was 96.1%, up 80 basis points from March 31, 2007 and 90 basis points from June 30, 2006."

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