Quote of the Day- "From the House's Mouth"
"It just takes a long time to change, to turn a battleship around. This is a huge battleship and it's headed in the wrong direction." - Countrywide Financial Chairman and CEO Angelo Mozilo on a conference call, saying he doesn't expect a turnaround for the mortgage-- and housing-- industry until 2009 due in part to escalating delinquencies and defaults on loans. (Wall St. Journal, July 24th)
Real Estate Sales and House Prices
- Metro Home Sales Dip 5.4% (Des Moines Register, July 24th): "Des Moines Area Association of Realtors: Home sales in the Des Moines metro fell 5.4% in June from a year ago… The average price of homes sold slid 1.1% to $179,951. A year ago, the average sales price was $181,890. Also, 6,637 homes were on the market, 160 more than a year ago… Still, home sales for the first six months of the year are off only 2.5% from last year's pace, the central Iowa real estate group reported. Also, Des Moines is outperforming the national market."
- Looking To Buy A Place In The City? Get Ready To Pay Up, Big Time (NY1, July 23rd): "The Real Estate Board of New York: The average and median price of apartments are up 8% and the price of one to three family homes are up 5% citywide in Q2. The board says sales in Manhattan are driving up the averages. The average apartment in Manhattan costs nearly $1.2 million, compared to $484,000 in Brooklyn, $275,000 on Staten Island, $267,000 in Queens and $253,000 in the Bronx. The citywide average for condos and co-ops is at $831,000. The average sale of one to three family homes in Manhattan was more than $5m. Similar dwellings in Brooklyn cost an average of $671,000, $588,000 in Queens, $506,000 in the Bronx and $483,000 on Staten Island. The citywide average is $622,000."
- Median Sales Statistics Mislead Potential Sellers (Contra Costa Times, July 22nd): "Median sales price means an equal number of homes sold above and below the median sales price in your area… Average sales price means the number of home sales divided into the total sales prices of all homes sold during a specific time period. [And] when you hear home sales are down: Are actual sales prices down? Is the volume of home sales down? Compared to sales volume last month or a year ago? It is very easy for the median and average sales prices for a city to be skewed by a few very expensive or very inexpensive home sales."
- Regrowth Spurt (The Columbian, July 22nd) Washington: "Portland economist Bill Conerly… doesn't see either Oregon or Washington as having the downturn in home building as much of the rest of the nation, thanks to a continuing influx of newcomers… [Clark County expects] more than 14,000 new residents. June was the first month this year that the median sale price of homes [declined from] the same month last year. But $259,900 is still substantially higher than the $230,310 of 2005 or the $184,316 mean price from 2004… In June inventory of houses for sale in the county has continued to decline from January's high."
Real Estate Investing and Sentiment
- Realty Store Partners With Housing Predictor (PR Leap, July 24th): "Realty Store, the online provider of foreclosure listings has partnered with Housing Predictor to provide real estate market forecasts for its growing platform of foreclosure news and information. Realty Store provides foreclosure listings in all 50 U.S. states and Washington D.C…. Realty Store… provides its subscribers with foreclosure information and listings, including addresses and additional details on homes, condos and other properties. Housing Predictor forecasts more than 250 local housing markets in all 50 U.S. states and real estate news, listings and through its new arrangement with Realty Store foreclosure listings."
- Vranos Hedge Fund Seeks $750 Mln For Subprime - NY Times (Reuters, July 22nd): "NY Times: Hedge fund manager Michael Vranos is trying to raise $750 million to fund a new company that specializes in the risky subprime mortgages… Citing an offering statement that's circulating on Wall Street, NYT said Vranos is offering shares in a new entity called Ellington Financial LLC. The private placement is aimed at institutional investors such as pension funds and insurance companies… A rising wave of defaults and foreclosures on subprime loans recently buckled two hedge funds run by Bear Stearns Cos. Inc. and has hurt the U.S. housing market as lenders stiffen requirements."
Mortgates and Real Estate Lending
- The Other Shoe Drops At Countrywide (MarketWatch, July 24th): "Delinquencies on subprime loans widened to nearly 24% in the latest quarter, Countrywide Financial Corp., the nation's largest mortgage lender, said Tuesday. But the shocker was that delinquencies on prime home equity loans more than doubled to 4.6% in the most recent quarter from 1.8% a year ago, giving the lie to the notion that the problems in the mortgage market could be confined just to the subprime sector, which caters to those with impaired credit. Apparently even well-qualified borrowers aren't making their payments on time."
Subprime Fallout and Foreclosure Impact
- Countrywide Profit Down 33 Pct (Yahoo! Finance, July 24th): "Countrywide Financial Corp (CFC), the largest U.S. mortgage lender, on Tuesday said… Q2 net income… fell to $485.1 million, or $0.81/share, from $722.2m, or $1.15, a year earlier (33% lower). Revenue fell 15% to $2.55 billion… Countrywide cut its full-year earnings forecast to a range of $2.70-$3.30/share from the $3.50-$4.30 it forecast in April, and the $3.80-$4.80 it forecast in January. Analysts on average expected $3.65. Profit was $4.30/share in 2006… Countrywide set aside $292.9m for credit losses, up nearly fivefold from $61.9m a year earlier. CEO Angelo Mozilo: "Delinquencies and defaults continued to rise across all mortgage product categories."
- Countrywide CEO Exercises Options (Yahoo! Finance, July 24th): "SEC filing: The Chairman and CEO of mortgage lender Countrywide Financial Corp. exercised options for 70,000 shares of common stock under a prearranged trading plan. In a Form 4 filed Monday with the SEC, Angelo Mozilo reported he exercised the options Monday for $9.94 apiece and then sold all 70,000 shares on the same day for $34.22 apiece. The stock sale was conducted under a prearranged 10b5-1 trading plan which allows company insiders to set up a program in advance for such transactions and proceed even if they come into possession of material nonpublic information."
- Enough Subprime, Let's Talk Housing Debacle (Reuters, July 24th): In the past week, both Moody's and S&P have announced downgrades and reviews for downgrades for securities backed by Alternative-A loans, [for] borrowers with less proof of their finances than prime borrowers or who have small credit problems in their past. Delinquencies on Alt-A have been rising faster than for subprime, though at much lower levels. First American LoanPerformance: Between January and March, delinquencies for Alt-A rose by 17%, to 3.05% of loans, while subprime delinquencies rose by about 3.5%, to 14.83%... If Alt-A follows the path of subprime, there will be more forced sellers of U.S. houses."
- Barclays Might Sue Bear Over Hedge Fund Losses – WSJ (Judith Levy in Seeking Alpha, July 23rd): "Barclays is considering several options, including arbitration, a negotiated settlement, or litigation to recover $400 million it invested in a now-worthless Bear Stearns hedge fund. Barclays had put the funds into the Bear Stearns Asset Management High-Grade Structured Credit Strategies Enhanced Leverage Fund, which bet heavily on the subprime mortgage market. Bear Stearns notified investors last week that that fund's value is now zero. The British bank had lent the fund $200 million and later offered another $250 million, an offer that was not extended. The $400 million it now wants to recover was a separate investment."
- US's Paulson Says Subprime Woes 'Containable' (Reuters, July 23rd): "U.S. Treasury Secretary Henry Paulson said on Monday that problems in the subprime mortgage loan sector could be contained and would not hurt the overall economy. "There has been a very significant housing correction. I think we're at or near a bottom there. I don't deny there's a problem with subprime mortgages but...it's quite containable." Paulson said the economy was "very, very healthy" despite the problems in the subprime mortgage lending sector."
- Housing: No Better Before 2008 (Crain's Detroit Business, July 23rd): "Mortgage Bankers Association: Michigan continues to rank behind only Ohio and Indiana in mortgage delinquency rates and foreclosures… “We haven’t hit bottom yet. Southeast Michigan lost population last year, it’s a good bet it lost population since then, and it’s hard to see Detroit and Southeast Michigan not losing population going forward. It’s hard to see a turnaround in housing when you’re losing population There’s going to continue to be a lot of homes for sale and a scarcity of buyers.”
- Several States Helping Subprime Borrowers – WSJ (Judith Levy in Seeking Alpha, July 23rd): "Wall St. Journal: Several states, including Maryland, Massachusetts, New Jersey, New York, Ohio and Pennsylvania are expected to invest a collective $500 million in to help homeowners struggling with subprime mortgage loan repayments refinance to more affordable loans. The Massachusetts Housing Finance Agency will sell bonds to finance $60m [and] Fannie Mae will provide $190m to prevent 1,000 foreclosures. The New York Mortgage Agency is planning to initiate a $100m program designed to assist 500 families. WSJ: Over a million American homeowners are forecast to enter foreclosure this year, representing approximately 2.3% of the country's 44 million home loans."
- Wells Fargo Curtails Subprime Exposure (Forbes, July 23rd): "Wells Fargo & Co. (WFC) has stopped offering a popular adjustable-rate mortgage designed for home buyers with troubled borrowing histories, becoming the latest lender to curtail its exposure to the subprime market in response to regulatory and market pressures. Wells discontinued an adjustable-rate mortgage, or ARM, known as the "2/28" at the end of last week… The loan started with a low fixed rate for the first two years and then adjusts twice annually during the final 28 years of the debt. Wells, the fifth-largest U.S. bank, also dropped three other types of subprime mortgage products."
- The American Dream Is Overbought and Overbuilt (Michael (Mish) Shedlock in Seeking Alpha, July 23rd): "Corus Bankshares Inc. Corus has lent a total of $1.07 billion to eight condo developments in downtown Miami, according to the company's Web site. Corus SEC filing: Corus's net income in Q1'07 was $26.4 million, a 39% drop from a year earlier. [Mish comment: Corus Bank is frequently near the top of the list in CD rates guaranteed by the US government. Corus bank is willing to roll the dice on insane condo action in Florida and the average Joe can participate basically risk free up to the FDIC limit at the expense of everyone else if and when a government bailout occurs… Miami Realtors Association: Miami condo sales fell to 599 in May, a drop of 46% from a year earlier."
- Foreclosures Hit Hard In The Nevada Desert (Scripps News, July 23rd): "Of the 300 homes in the San Niccolo neighborhood, one of the Las Vegas Valley's newest master-planned communities… 60 are for sale and a third of those are in some state of foreclosure, according to the Multiple Listing Service. An additional 30 properties were sold in the past year, and many other homes are vacant."
- Harris County Foreclosures Level Off (Chron.com, July 22nd): "Though foreclosures in Harris County sold at auction in July totaled 885, down 6% from 938 during July 2006, the numbers don't necessarily signal the start of a downward trend. Barton Smith, University of Houston professor of economics: "We probably have seen the worst of it, but to say when it's going to significantly come down, you basically want to see foreclosures running at 300-350 a month before we're out of the woods, and we're nowhere near that yet." Foreclosures in Harris County began to take off in June 2006 and have totaled about 1,000 a month since then."
Global Impact and Alternatives To The Housing Slump
- Fund Manager Appoints Adviser To Limit US Subprime Damage (ABC News, July 24th) Australia: "One of Australia's biggest hedge fund managers, Basis Capital, has hired a financial adviser to limit losses from its exposure to the subprime mortgage crisis in the U.S. The Blackstone Group has been appointed to act as financial adviser to two Basis Capital funds. The company says Blackstone's role will include negotiating with investment banks to stop the adverse pricing and selling of assets."
- Dollar Hits 2-Month Low Against Yen On Worries Over U.S. Subprime Mortgage Losses (International Herald Tribune, July 24th): "The dollar hit a two-month low against the yen in Asia Tuesday amid worries over U.S. subprime mortgage losses.The U.S. dollar was trading at 120.62 yen mid-afternoon, down from 121.33 yen late Monday in New York. The dollar last traded in 120-yen level in mid-May. The euro rose to US$1.3828 from US$1.3802. Currency traders appeared to be concerned that a souring of U.S. subprime loans, those made to borrowers with poor credit, could undermine the U.S. economy."
- Morgan Stanley Real Estate Completes Acquisition of Eight European Hilton Hotels (Business Wire, July 23rd): "Morgan Stanley Real Estate (MS) announced Monday that it has completed the acquisition of eight European Hilton hotels. The [acquisition] of two further hotels -- Hilton Brussels and Hilton Zurich -- is expected by the end of Q3'07. The acquisition price for all 10 hotels is €566 million… The eight hotels are Hilton Dresden, Hilton Dusseldorf, Hilton Weimar, Hilton Charles de Gaulle, Hilton Strasbourg, Hilton Luxembourg, Hilton Barcelona and Los Zocos Club Resort in the Canary Islands… Since 1991, Morgan Stanley Real Estate has acquired $121.5 billion of real estate assets worldwide and currently manages $55.6b in real estate assets."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Debt Shield President Points to 1 Million Foreclosures, Predicts More Debt (PR Urgent, July 23rd): "Debt Shield President John Gourdin is warning consumers and legislators that the record level of foreclosures reported by Realty Trac Filings for the first half of 2007 is a clear sign that personal debt is crippling American consumers. Nearly 1 million foreclosure notices were filed between January and June of this year. Filings in June were up 87% compared to June 2006. Risky, subprime mortgages are to blame for the majority of foreclosures. Gourdin: "These results prove the personal financial situations of millions of Americans will continue to deteriorate without consumer awareness and increased mortgage industry regulation."
Homebuilders And Housing Stocks
- Centex First Quarter Revenues Are Down 32 Percent (Builder Online, July 24th): "Centex Corp. is reporting a $172 million operating loss for its FQ2'07… Rrevenue for the quarter is $1.94 billion, 31% lower than this time last year… Tim Eller, Centex Chairman and CEO: "In FQ2, we reduced overhead expenses and unsold inventory, and we saw an improving cancellation rate in a difficult market. Other highlights of the report: Loss from continuing operations was $1.08/share. Sales (orders) decreased 22% to 6,474. Reduced homebuilding SG&A expenses by 20%, or $80m. Reduced inventory of unsold homes by 17% to 4,815. Homebuilding cancellation rate improved 150 bps [1.5%] to 31.2%."
- Homebuilding Outlook: Sector Picks and Pans (Wall St. Transcript in Seeking Alpha, July 24th): "Eric Landry, Senior Analyst and Associate Director at Morningstar, covering homebuilders: Bullish: At the top… is M.D.C. Holdings (MDC). The company owns about 17,500 lots as of March, which is enough to satisfy only about two years worth of production, one of the lowest levels in the business. It also has very few options. KB Home (KBH) just sold the company's best performing division, its French homebuilder, for $800 million. The transaction probably means management sees ample investment opportunity here in the States going forward. KB's balance sheet is also pretty strong, with about 4 1/2 years worth of land and pro-forma net debt totaling a bit more than 20% of trailing sales. Lennar (LEN) is doing as much and probably more than any other builder to innovate its model… Bearish: TOUSA (TOA) entered into a JV in Florida at the peak of the market in August 2005. The thing was highly levered… WCI Communities (WCI) has a lot of debt... but there is some acquisition interest there. Orleans Homebuilders (OHB) has... debt to trailing sales of 68%, on top of almost five years of owned land."
- Earnings And Subprime Mortgages/CDO's Is Still Driving The Stock Market (FX Street, July 24th): "Lennar Corp. (LEN): The largest U.S. homebuilder's shareholder, Eminence Capital LLC, boosted its stake to 5.3% from 1.9%, according to a U.S. SEC filing. The stock fell $0.95 to $33.21 in regular trading."
- Deutsche Bank Report Hits Homebuilders, SEC Formalizes Beazer Probe (Seeking Alpha, July 24th): "A Deutsche Bank report issued Monday said the housing slump intensified in June as tighter loan standards and rising interest rates forced higher cancellations for homebuilders. Several homebuilder shares and ETFs fell to multi-year lows following the report. Although builders say the entry level and high ends of the housing market are faring well, 'move-up' homes are suffering from an existing homes sales glut. Deutsche says the homebuilders it covers lost $5.4 billion in Q1 from land writedowns and impairments and more of the same is expected when several homebuilders report earnings this week... Centex, reporting Tuesday, carries a 13.75% short interest… The SEC has formalized its investigation of Beazer Homes for alleged securities law infringements. The FBI is also investigating Beazer for mortgage fraud at its lending arm. In June, Beazer fired CFO Michael Rand for trying to destroy evidence in the SEC probe, and the company is facing class action suits."
- Small Builders Have Found Their Home In A Niche Market (Ocala.com, June 22nd) Ocala, Florida: "North Carolina-based Beckwith Homes is developing Silver Run Forest, a gated subdivision… It is buying 20 acres with plans to build on 55 lots [from] Silver Run Forest LLC, paying $3.6 million for the land. Although the housing market is tough right now for builders, it hasn't dried up altogether… [Unlike large builders] Beckwith isn't saddled with a backlog of housing inventory and, as a result, can build homes to suit the tastes of individual customers... Beckwith is building five "spec" homes… and one model at Silver Run Forest... Construction on homes will start when customers order them."
- DuPont Reports Flat 2nd Quarter Earnings (Chron.com, July 24th): "Chemical giant DuPont Co. (DD) on Tuesday reported flat Q2 earnings… International sales growth and higher domestic prices helped offset the impact of continuing weakness in the U.S. housing and automotive markets, and DuPont reaffirmed its outlook for the full year. Net income slipped to $972 million from $975m in Q2'06… EPS were flat at $1.04 [vs.] $1.01/share for Q2'06 [minus one-time charges]. Analysts surveyed by Thomson Financial were looking for profits of $1.06/share. Revenue topped Wall Street's $7.86 billion consensus estimate… DuPont chairman and CEO Charles Holliday Jr.: "I'm not assuming anything improving in North American housing until well into 2008."
- Lifetime Acquires Gorham (Gifts and Decorative Accessories, July 23rd): "Lifetime Brands (LCUT) completed its acquisition of the Gorham, Kirk Stieff, Whiting and Durgin sterling silver businesses from Lenox Group. Terms of the deal were not disclosed. Under the agreement, Lifetime gained the exclusive license to manufacture and distribute products under each of the acquired brands... This is the latest in a string of silver and tabletop brands acquisitions that Lifetime recently made. Since 2004, Lifetime completed the acquisition of Syratech, Pfaltzgraff, Salton and Excel Importing Corp."
- Whirlpool Continues to Rinse Maytag (Motley Fool, July 20th): "As with most companies with unfortunate exposure to residential housing, appliance manufacturer Whirlpool (WHR) is experiencing a down cycle in its domestic business. On Friday, Whirlpool reported anemic overall Q2 sales growth of 3%; North American sales, which accounted for just more than 60% of total sales, fell 6%... Almost enough to offset double-digit top-line growth in Europe, Latin America, and Asia, as the company benefits from a weak dollar and an array of new products…Whirlpool is busy cutting hundreds of millions of dollars' worth of costs from last March's acquisition of archrival Maytag. $101 million in stock buybacks also helped quarterly diluted earnings grow 60%."
Commercial Real Estate and REITs
- S&P Release On U.S. Reits And Homebuilders (Reuters, July 23rd): "Standard & Poor's Ratings Services report: The disparity in credit behavior between U.S. REITs and homebuilders continued unabated during Q2, and will likely persist into the foreseeable future. REIT equities experienced a dip in the recent quarter, but the sector maintains a relatively solid footing in terms of fundamentals given the ongoing state of equilibrium within the commercial property markets. U.S. homebuilder prospects darkened, however, as the sector strives to find a trough in the market's current downturn."
- Bronx Sees $1B in '07 Investments (The Real Deal, July 24th): "Money for new development continues to pour into [New York] city's northernmost borough, with a recently released report indicating a flow of almost $1 billion in new investments to the Bronx this year alone. The report, issued by the office of Bronx Borough President Adolfo Carrion Jr., states that the Bronx has seen roughly $965 million in new development since the start of 2007, including a tremendous $453 million just last month. The funding represents 118 new addresses issued by Carrion's office during June, with a total of 506 new addresses issued so far in 2007.
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