Housing Bubble and Real Estate Market Tracker

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"

"What does an F minus minus mean? You must have been a hell of a student. You never saw one of those? It means you flunked. What are we doing about it? We are out there with the rest of the builders in Vegas praying." – Robert I. Toll, CEO Toll Brothers, responding to an analysts' conference call question on the state of the Las Vegas housing market, which Toll characterized as an "F minus minus." (Seeking Alpha, Aug. 22nd)

Real Estate Sales and House Prices

  • Is the Normalization of Housing Prices a Realistic Expectation? (Markham Lee in Seeking Alpha, Aug. 23rd): "The idea that housing prices will normalize within a couple of quarters… [is] basically stating that the housing prices we saw over the last couple of years were normal, sustainable, and supported by sound fundamentals… Housing prices weren’t driven up by sound fundamentals, they were driven up by a combination of speculation, overheated expectations, overspending and bad lending practices… I think it’s a stretch to say that we’re going to see another [real estate bubble] anytime soon… People should expect appreciation rates at 1990s levels with pricing that's higher than the late 90s, but not at housing boom levels."
  • Best and Worst U.S. Housing Markets (Yahoo! Finance, Aug. 22nd): "National Association of Realtors: National housing prices continued to slide last quarter, dropping an average of 1.5% [y/y]… Things are looking up for two-thirds of the country's big cities where median home sale prices rose… Seattle prices increased 8.9%; in San Jose, Calif., they rose 8.8%; and in Raleigh and Charlotte, N.C., prices jumped 8.3% and 8.4% respectively. Compare that to Detroit and Cleveland. In these metros, prices fell 7.1%. Skies aren't much sunnier in the West. Median home sale numbers in Sacramento, Calif., Las Vegas and Phoenix dropped 6.3%, 3.6% and 2.7%, respectively."
  • Sales Down, Prices Up In July (Knox News, Aug. 22nd) Tennessee: "Knoxville Area Association of Realtors monthly report: A drop in residential sales compared to last year, but price appreciation continues to look solid… In a 32-county region that includes Knoxville, 1,547 residential units were sold in July, compared to 1,644 in July of 2006. The average market time was 88 days, compared to 79 days in 2006. The good news for local sellers is that the median price for a three-bedroom home was $159,000, compared to only $151,900 last year."
  • Buffalo Housing Prices In Range (Buffalo Business First, Aug. 21st): "The National Association of Home Builders/Wells Fargo Housing Opportunity Index… measures median-family incomes and median-home prices. Buffalo-Niagara Falls: Buffalo ranked fourth among major metropolitan areas and 13th overall. The data indicated that 85% of homes sold in the area were deemed affordable, based on median costs of $89,000 and median household incomes of $59,300. Across the nation affordability remains a concern, though prices have begun to decline since 2005."
  • A Mixed Picture: Home Prices Stable, But Sales Are Down – And Foreclosures Rising (The Day, Aug. 21st) Connecticut: "Q1'07 shows further weakening with total sales numbering 587, the lowest value since at least 2000. Q1'07 sales in Connecticut were at their lowest point in 10 years. Q1'07 median sales values ha[ve] risen steadily from $109,900 in 1998 to $249,900 in Q1'07, down slightly from the 2006 annual median of $250,000. As shown in the table, median values in 2006 ranged from a low of $204,900 in Norwich to a high of $550,000 in Lyme. In Q1'07, among towns for which data are available, Old Lyme had the highest median at $365,000 while Salem had the lowest at $208,900."
  • The Manhattan Rental Market Report (Tregny.com, August 2007): The Real Estate Group NY: "The Manhattan rental market slowed down dramatically since last month... August marks the end of steadily increasing average citywide rents. For the first time this year, mean prices decreased in almost all units… Citywide [1BRs] had the greatest decrease yet this year. Two BR rents in SoHo… are the lowest they have ever been all year… The number of vacant inventory this month is much greater than expected at this time of season, another sign of a cooling rental market… Our report is based on [the] TREGNY proprietary database… combined with information from the REBNY Real Estate Listings Source, On Line Residential and R.O.L.E.X. (Real Plus)."

Real Estate Investing and Sentiment

  • Bonuses on Wall Street Threatened by Credit Crunch (Bloomberg, Aug. 22nd): "The credit-market freeze that's paralyzing leveraged buyouts, mergers and myriad computer-driven trading strategies may cut Wall Street bonuses for the first time in five years. Bonuses... probably will decline as much as 5% from 2006, according to Options Group, the New York-based firm that has tracked pay and hiring trends for more than a decade. Payouts often far exceeded the average of $220,650 at the biggest U.S. securities firms last year and increased as much as 20% from 2005… One out of every three people in [mortgage-related] roles may lose their jobs… Bonuses may fall as much as 40%."
  • Model Homes To Be Auctioned Aug. 30 (Jacksonville Business Journal, Aug. 22nd): "Fourteen upscale homes in Florida and Georgia will be… auctioned Aug. 30 in Jacksonville… Tranzon Driggers, a [Florida]real estate auction company, is offering properties in developments such as St. Johns Landing Estates in Arlington, Marina Cove in Jacksonville Beach and Osprey Cove in St. Marys, Ga. The auction will be held at 11 a.m. at the Crowne Plaza Jacksonville Riverfront Hotel and online at bidspotter.com. The homes, many of which are on the water or close to it, range from 2,100-3,500-sf… Driggers said most of the properties were last on the market at an asking price of around $600,000."
  • Wilbur Ross Plans Push Into Subprime (Financial Times, Aug. 21st): "Wilbur Ross, the US financier who specializes in distressed businesses, is planning a push into subprime mortgages in a sign the credit turmoil is opening up opportunities for bargain-hunting, risk-taking investors. In an interview with the Financial Times, Mr Ross said the subprime market, which has been ravaged by rising defaults and mounting problems at mortgage lenders, was a new focus for his private equity firm, WL Ross."

Mortgates and Real Estate Lending

  • U.S. States Take Action On Predatory Lending (Int'l Herald Tribune, Aug. 23rd): "The governor of North Carolina has signed into law legislation… limit[ing] the ability of mortgage brokers to charge customers above-market rates and prepayment penalties and to protect subprime borrowers from abusive adjustable rate mortgages… Legislatures in… Maine, Minnesota and Ohio have passed laws to tighten [subprime lending] restrictions… Officials in Illinois, New York and Massachusetts have formed task forces… to figure out ways to rework problem loans. Minnesota is acquiring some foreclosed properties to resell to low income people… Legislators in more than 30 states have introduced close to 100 bills intended to stem deceptive lending practices and foreclosure, some by stiffening criminal penalties for fraud."
  • How FHA Could Help Borrowers (Wall St. Journal, Aug. 22nd): "While FHA's refinancing business has picked up and [it] expects to refinance about 120,000 loans this year, FHA officials say they could easily double that amount if given greater flexibility. Among the options being discussed in Congress is eliminating or reducing the required 3% down payment, raising the size of the loans FHA can insure to as much as $417,000 from $362,790, and being able to charge insurance premiums based on a borrower's risk instead of a one-size-fits-all rate. Federal Housing Commissioner Brian Montgomery said the current rules effectively prevent FHA from helping borrowers in high-cost states, such as California and New York. Most of the loans it insures are in places such as Texas and the Midwest.
  • Mortgage Applications Shrank Last Week (Forbes, Aug. 22nd): "The Mortgage Bankers Association's Market Composite Index, which measures mortgage loan application volume, last week shrank a seasonally adjusted 5.5% to 641.1. Applications to refinance existing mortgages slipped 6.5% and applications to borrow money to buy homes decreased 5%.Applications for mortgage loans have fallen sharply this year as decaying credit quality and a newfound fear of risk on Wall Street force a shakeout in the home-lending industry. MBA: With so much volatility in the industry, weekly results should be regarded cautiously. The bumpy results the past few weeks were likely the result of the shutdown of "a major originator."
  • Banks' Troubled Real Estate Loans Up 36 Percent (Reuters UK, Aug. 22nd): "U.S. Federal Deposit Insurance Corporation: Banks' troubled real estate loans rose for the fifth consecutive quarter to a total $66.9 billion at the end of Q2. Noncurrent real estate loans -- those overdue by 90 days or more -- were up 36% from Q2'06 and up 10.6% from the end of Q1'07… Noncurrent home mortgage loans totaled $27.5b, up 47% from Q2'06 and up 12.6% from the end of Q1'07... FDIC Chairman Sheila Bair: "Banks continue to face two key challenges -- a difficult interest rate environment and ongoing weakness in residential mortgage lending. However, under the circumstances, the industry's Q2 earnings performance was very solid."

Subprime Fallout

  • US Mortgage Firm Files For Bankruptcy (India Economic Times, Aug. 23rd): "First Magnus Financial, one of the largest independent US mortgage lenders, filed for bankruptcy protection Tuesday, the latest home loan provider to collapse as the housing market slumps and credit crisis widens. The privately-held company… filed less than a week after it stopped funding home loans and taking loan applications… First Magnus listed $942.1 million of assets and $812.5m of liabilities as of May 31. It also listed between 25,001-50,000 creditors… Inside Mortgage Finance newsletter: First Magnus was the 16th-largest US mortgage lender from January-June, originating $17.1b of home loans… The company operated in all 50 US states and ran more than 300 offices."
  • Scottish Re Outlook Cut To Stable On Subprime Exposure - Moody's (Forbes, Aug. 23rd): "Moody's Investors Service changed its outlook on Scottish Re Group Ltd (NYSE:SCT) to stable from positive, and affirmed the company's ratings. The company recently reported that as of June 30, it had about $3.1 billion of subprime ABS and Alt-A holdings out of a total investment portfolio of $13.6b. 'Most of the exposure is in higher rated securities, mitigating potential losses in a downside scenario in this sector of the market," [but] believes that the magnitude of the exposure and the potential for losses to emerge on the portfolio may make it more difficult for Scottish Re to… write meaningful amounts of new business."
  • Accredited Halts New Loans and Cuts 62% of Workforce (Roy Mehta in Seeking Alpha, Aug. 23rd): "On Tuesday, Accredited announced it would sell $1 billion worth of home loans to lower exposure to margin calls to an unnamed investor. Accredited also has plans to take Lone Star, a private equity firm, to court in order enforce a deal under which Lone Star agreed to acquire Accredited for $400 million. The deal had been agreed up on June 4th, but Lone Star has made claims that Accredited breached the merger agreement. Bose George, a Keefe, Bruyette & Woods Inc. analyst: "A lot of the value in the shares is based on whether the lawsuit succeeds, either through a merger or cash settlement."
  • Mortgage Crisis Widens at Accredited, HSBC, Lehman (MSNBC, Aug. 22nd): "Housing-related job losses since Thursday [equal] more than 12,300. Accredited Home Lenders (LEND) said it would cut 1,600 of its 2,600 jobs [62%] as it shuts most of its retail and wholesale operations by Sept. 5. It also stopped taking loan applications. Lehman (LEH), one of Wall Street's biggest mortgage bond underwriters, said it would close its subprime unit BNC Mortgage, resulting in 1,200 job losses and $52 million of charges. It plans to continue making mortgages through its Aurora Loan Services unit. HSBC, Europe's largest bank, cut 600 jobs in Carmel, Ind.]… Another lender, NY's Delta Financial fired 300 employees."
  • BoA's Injection Into Countrywide Is a Great Deal For It (Mike Edwards in Seeking Alpha, Aug. 23rd): "Bank of America (NYSE:BAC) announced that it's investing $2 billion in Countrywide Financial (CFC)… buying preferred stock in Countrywide that yields 7.25% and is convertible at $18/share… If BOA chooses to convert the full amount, the bank will own about 16% of Countrywide. BOA’s CEO Kenneth Lewis, got the company out of the subprime business in the early part of the decade [saying it was] too risky and too volatile. However, the company has wanted to get into the prime mortgage business... This investment helps BOA get a sizeable stake in the mortgage business [7% market share in H1'07]… Lewis believes that the market has overreacted, and is undervaluing the Countrywide’s assets. "
  • Mortgage Job Losses Surpass 40,000 (Prescott Herald, Aug. 22nd): "Since the start of the year, more than 40,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade."
  • Truth-in-Lending Disclosure Failure Leads to Mortgages becoming "UnSecured" (Ritholtz Research & Analytics , Aug. 22nd): "If a [lender] fails to comply with the Truth-in-Lending Act [TILA] rules, the borrowers are allowed to RESCIND THE LOANS AND VOID THE MORTGAGES ON THEIR HOMES. The mortgage lender is then just another unsecured creditor, who must get in line behind everyone else who may have filed a lien on the property… That makes the mortgage loan itself unsecuritized -- and worth a lot less -- due to the increased risk of loss of collateral: "Some consumers… are suing lenders over inaccurate disclosure papers, and if they win they get to rescind the loans. [That's] a potential problem for investors exposed to subprime mortgages… Subprime lender NovaStar Financial Inc. (NFI) settled a class action suit for $5.1 million. And consumers in Wisconsin recently won a class-action TILA suit (currently under appeal)." Courtesy of Barry Ritholtz, Chief Market Strategist, Ritholtz Research & Analytics
  • Amstar Becomes Subprime Casualty (Chron.com, Aug. 22nd): "Amstar Financial Holdings is closing its mortgage banking subsidiary and transferring the operations to The Money Store, the company said Wednesday… In May, Amstar's banking division stopped accepting new loans... The company originated nearly $1.5 billion of loans in its fiscal year that ended Sept. 30. Most of the loans were "Alt-A," those that require minimal or no documentation. Amstar Financial is now seeking financing for two other subsidiaries in development — insurance venture Amstar Guaranty Agency and Homes Opportunities, a company that buys foreclosed homes at a steep discount."
  • The Anti-Countrywide (CNN Money, Aug. 21st): "Hudson City Bancorp's (NASDAQ:HCBK) main line of business is making traditional mortgage loans, albeit big ones… Its stock has jumped 21% since the market peaked in July… Back when credit was easy, Countrywide (CFC) expanded its offerings [to] subprime borrowers… Hudson focus[es] exclusively on the prime mortgage market [and] has only written off $557,000 in loans over the last 10 years… [Their] only investments are mortgages [and] they hold onto all mortgages they originate rather than selling them on the secondary market… Hudson is about two-thirds the size of Countrywide, with a market cap of about $7.4 billion, compared to its rival's $12.5 billion."

Foreclosure Impact

  • Homes Abandoned Due To Foreclosure (Hometown Life, Aug. 23rd) Michigan: "From Jan. 1 to July 20, 46 properties in the areas have foreclosed, according to the Oakland County equalization department. That's about 1.4% of Oakland County's total 3,389 foreclosures since January… In Lyon Township alone, 21 properties have foreclosed. Township clerk Pam Johnson said it's, "Becoming a major headache" to keep up with unmaintained lots."
  • Report Finds Home Foreclosures Increase in Md., Va. (Washington Post, Aug. 22nd): "A new report shows that the number of Virginia residents losing their homes to foreclosure increased more than 300 in July from the same month a year ago. Maryland increased by 22. RealtyTrac, an online marketplace for foreclosure properties nationwide, reported that Virginia recorded 1,959 foreclosure filings during July, one for every 1,621 households. Maryland recorded 2,214, one for every 1,027 households."
  • Foreclosure Woes Increase (Gainesville Times, Aug. 22nd): "Life these days in the housing market is anything but normal, as people in the [Gainesville, Florida] area are discovering. "People are closing loans, but then the mortgage company may not be able to sell it. They have three days to back out, and some of them are," according to Valerie Frank, president of Preservation Mortgage in Old Town Warrenton. "You could close today, and the money might not be there, even though the borrowers have the loan rate locked. That's the state of the market today."
  • Indiana Foreclosures Remain High (TribStar, Aug. 22nd): "Indiana continues to be among the worst states in the nation for home foreclosures, according to data released by RealtyTrac... The Hoosier state was in the top 10 in foreclosures in July. One house in 609 in Indiana was in foreclosure, compared with one in 693 for the nation as a whole, the firm reported."
  • Home Owners Struggle to Pay Mortgages (CBN News, Aug. 22nd): "Senator Charles Schumer asked Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to give $100 million to a variety of nonprofit housing groups to help troubled consumers refinance their homes… "I urge you to use your leverage over financial institutions - whether banks, lenders, servicers or brokerages - to encourage them to match the federal government's efforts to provide funding to nonprofit group working to prevent foreclosures, and to work with the nonprofits to help borrowers who need loan modifications," Schumer wrote."
  • Hawaii Foreclosure Rate Low In July (Pacific Business News, Aug. 21st): "RealtyTrac: Hawaii had one of the lowest home foreclosure rates in the nation in July, according to a new report. Hawaii reported 85 foreclosures last month, a rate of one for every 5,777 households… That placed Hawaii 45th among the 50 states and the District of Columbia. RealtyTrac said the number of Hawaii foreclosures was up 60% over July 2006, but cautioned that the number may be high only because the company recently expanded coverage of the state… Vermont had the lowest foreclosure rate with only nine foreclosures reported in July."

Global Impact and Alternatives To The Housing Slump

  • In Britain and U.S., Urgent Steps to Change Mortgage Systems (NY Times, Aug. 24th): "Council of Mortgage Lenders: Foreclosures [in Britain] are at an eight-year high; lenders have repossessed a record 14,000 properties in 2007, 30% more than at the same time last year. An additional 125,100 households are behind in their mortgage payments. And personal bankruptcies are at an all-time record, caused largely by a crushing increase in mortgage debt. The situation has grown so dire — as has the threat of desperate homeowners being exploited — that the newly installed government of Prime Minister Gordon Brown is trying to change the fundamentals of the mortgage system… British consumers are the most indebted citizens of any Group of 7 nation."
  • Larger Australian Banks Seen Materially Unaffected By US Subprime Issues – Fitch (Forbes, Aug. 23rd): "Fitch Ratings said it does not expect the US subprime issues to cause material problems to the larger Australian banks. In its semi-annual review on these banks, the agency noted there is limited exposure to the US subprime market, either directly or through structured credit products, with any losses likely to be an earnings event. 'Australian banks in general have come to rely more heavily on wholesale funding in the last decade as loans have consistently outgrown retail deposits. With a global repricing of risk under way, wholesale funding will become more expensive. Where this is most likely to impact the Australian banks is in their cost of funding.'"
  • Latin America Has Minimal Exposure To US Subprime-Backed Securities – Fitch (Forbes, Aug. 23rd): "Fitch Ratings said a poll on the banks and insurance companies it rates in the Latin America region reveals that their exposure to US subprime-backed securities is minimal or non-existent. 'In the isolated cases where exposures to subprime paper exist, the exposure is minimal and will not by itself lead to negative rating actions', the agency said."
  • S. Korea Sees Limited Impact On Economy From US Subprime Troubles (Forbes, Aug. 23rd): "For now… the souring US subprime loan market's impact on the domestic economy seems limited,' Vice Finance Minister Lim Young-Rok said. Despite the instability in external markets, including the US mortgage market, Lim said growth forecasts for the South Korean economy are largely intact… He said the South Korean government has put in place enough measures to deal with any turbulence in markets. The government has said that local banks and insurers have a total estimated investment of $850 million in US subprime-related financial assets, with about 10% of that amount presumed to be lost."
  • Fitch Ratings: Subprime Exposure Low Among AP Banks (Malaysia Star, Aug. 23rd): "Japan['s] larger banks have disclosed the following: * Sumitomo Mitsui Financial Group sold the bulk of its holdings exposed to US subprime mortgages earlier this year, realising a loss of several billion yen. It currently has about 100 billion yen (2% of equity) remaining, mostly in 'AAA' rated securities, but also including some junior tranches. * Mitsubishi UFJ Financial Group has 280 billion yen in investments with US subprime exposure (3% of equity). * Mizuho Financial Group has stated that it sold almost all of its US RMBS-related securities in recent months. *Aozora has disclosed that its CDO holdings of around 50 billion yen include 21 billion yen of subprime related CDOs (3% of equity) and that it has booked losses of around 5 billion yen to date mainly reflecting market value declines. * Shinsei has disclosed its total exposure to the US residential mortgage market of under $500m (6% of equity; about half is in RMBS, of which the subprime component is "negligible" and half are rated 'AAA'.) * Sumitomo Trust has disclosed 26 billion yen (2% of equity) of investments that may have a US subprime element and ChuoMitsui 35 billion yen (4% of equity). Fitch: None should see its solvency threatened from [subprime]… exposures are only a small fraction of the banks' equity."
  • Builder In Spain Crashes, Founder Keeps New York Pad (Bloomberg, Aug. 22nd): "Real estate accounted for almost 18% of Spain's gross domestic product last year, contributing to 3.6% annual growth… Spain's building boom came tumbling down once interest rates rose. Spanish mortgage broker: ING Direct Bank's rate on a 25-year mortgage for €200,000 jumped to 4.88% in August from 3.11% in December 2005… Most Spaniards have variable-rate home loans, and the increase boosted defaults. S&Ps Spanish mortgage delinquency index increased to 1.75% in Q1 from 0.7% three years earlier. R. R. de Acuna & Asociados real estate research firm: About 700,000 new housing units will go on sale across Spain this year, 300,000 more than projected demand."
  • European Banks Still Wary on Lending (NY Times, Aug. 22nd): "Barclays, the British bank, was forced to turn to the Bank of England for a £314 million, or $625m, loan after missing a deadline to get a loan from HSBC Holdings (HBC)… Keefe, Bruyette & Woods: Deutsche Bank (NYSE:DB) is the one most at risk among European investment banks because of its large trading business that must now contend with volatile markets. Banks with a low exposure to capital markets, generally those in Greece and the Nordic regions, may be more resilient to the credit crunch…Banks in Greece and Spain… profited from strong growth at home and had less of an incentive to invest in riskier assets abroad."
  • Japan Real Estate Firms Look At Buying Smaller Rivals (Int'l Herald Tribune, Aug. 21st): "Kenedix and Pacific Management, the second- and third-largest real estate asset managers in Japan, may buy smaller rivals as they find it harder to find bargains in Tokyo's resurgent property market… The first increase in average Japanese land prices in 16 years and the entry of overseas investors, including the London-based Morley Fund Management, have made it difficult for asset managers to buy properties… Jones Lang Lasalle: Monthly rents for top office buildings in Tokyo reached… the highest level in 13 years [on June 30th]… Property transaction volumes in Japan surged 128% to $52 billion last year, accounting for 55% of all land investment in Asia."

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

  • Action: Housing Slowdown Has Ripple Effect On Economy; Survey Sees Stability For Future (FDL Reporter, Aug. 23rd): "National Association of Realtors survey: "Mortgage disruptions will hold back sales over the short term, but long-term fundamentals are favorable. A modest upturn is projected for existing home sales toward the end of the year, with broader improvement to include the new home market by the middle of 2008." Existing home sales by the group are forecast to be around six million for this year and about 6.38 million for next year. Both numbers are below the record of 6.48 million in 2006. New home sales are expected to total 852,000 this year and 848,000 next years. Again both numbers down about a million from 2006."
  • There's Just No Need For A Fed Cut (Todd Sullivan in Seeking Alpha, Aug. 22nd): "Banks like Wells Fargo (NYSE:WFC) and M&T Bank (NYSE:MTB), both of whom have conservative lending practices, are not feeling the effects of "sub-prime defaults." They have no need for a fed bailout; it is only those lenders who thought lending $500,000 to a person without any verifiable income or any money to put down was a neat little idea... Even if the Fed did lower the rate, 1/2%, this would have ZERO effect on those people with adjustable rate mortgages who are getting ready for a reset and will not be able to afford the new payment. ZERO."
  • Dhawan: Housing Market Slowdown Impacting Georgia Economy (Atlanta Business Journal, Aug. 22nd): "Dr. Rajeev Dhawan, director of the Economic Forecasting Center at… Georgia State University: "The spillover from the slowdown in the housing market will negatively impact consumer spending and… job creation. In 2005, Georgia's economy added 103,000 jobs. About 40% of those jobs came from retail trade, education and health, and leisure and hospitality, which make up about one-third of the state's economy. In the last six months, the percentage of jobs created in those sectors was 65%. Atlanta's total housing permits dropped by 5.2% in 2006. Permits will drop sharply by 21.9% in 2007, but increase by 2.7% in 2008 and increase 6.7% in 2009."
  • Subprime Mortgage Crisis Threatens Construction (Building Team Forecast, Reed Construction Data, Aug. 21st): "Problems in Financial Markets Cause RCD to Lower Construction Forecast. The risks to construction from the subprime mortgage market collapse are growing, but still appear to be containable. However, it is not yet certain that it will be contained with minimal damage to contractors and their suppliers. Reed Construction Data[(RCD] is slightly marking down the construction spending forecast for the rest of this year, primarily in housing."

Homebuilders And Housing Stocks

  • Toll Brothers Earnings Drop: High-End Customers Are Not Immune From Housing Bust (Herb Greenberg in Seeking Alpha, Aug. 23rd): "Here's the dead giveaway on how bad it really is: Even though Toll's customers tend to have lower loan-to-value ratios "and attractive credit profiles," Toll said [on its recent FQ3 conference call] that "mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes." And this is a report for a period ended July 31, which is before the really bad news hit. Toll also discussed its concerns about the "secondary" mortgage market. I'll assume that's the market for securitizations, not second mortgages. If Toll's lower loan-to-value ratios were in some part the result of second mortgages filling the gap, thus making them artificially low, then all bets are off."
  • Toll Brothers Can Take a Punch (Business Week, Aug. 23rd): "So far, Toll Brothers has remained profitable and increased stockholders' equity since the housing slowdown began two years ago… [How?] For one: CEO Robert Toll: "We believe that reducing new-home production until the current oversupply is absorbed is a key step in bringing housing markets back into equilibrium." The company also believes its build-to-order model has helped some. In single-family home communities, the builder says it does not typically start a home until a contract is in place and, in multifamily communities, a "significant" nonrefundable down payment, leading to fewer cancellations and freeing borrowers from tighter loan requirements from banks."
  • Homebuilder Tries To Block Action On $1.3 Billion In Debt (Journal Now, Aug. 23rd): "Beazer Homes USA (NYSE:BZH), a builder that specializes in homes for first-time buyers, has asked a federal court to block its bondholders from declaring the company in default on $1.3 billion in debt. Beazer sued U.S. Bank N.A., the bondholders’ trustee, asking an Atlanta judge to prevent it from trying to accelerate debt repayment after the homebuilder announced this month that it had delayed filing a quarterly SEC report."
  • Failed Homebuilder Files Suit Against Coast Bank (Bradenton Herald, Aug. 22nd): "Bankrupted home-builder Construction Compliance Inc. has filed suit in federal court against Bradenton-based Coast Bank and other entities that were part of a loan packaging scheme that left 482 borrowers with mortgages on unfinished homes. The suit… alleges that former Coast Bank executive Phil Coon, Coast Bank, American Mortgage Link and its president John Miller all approached CCI with a business plan to build homes in the Manatee, Charlotte and Sarasota counties… CCI maintains the entities often falsely represented income of borrowers to be higher than it actually was or said down payments had been received when they weren't."
  • Tupperware Brands Corporation Declares Quarterly Dividend (CNN Money, Aug. 22nd): "Tupperware Brands Corporation (NYSE:TUP) announced today that its board of directors declared the Company's regular quarterly dividend of $0.22/share, payable on October 1, 2007, to shareholders of record as of September 12, 2007. Tupperware brands… and categories include design-centric preparation, storage and serving solutions for the kitchen and home through the Tupperware brand and beauty and personal care products through its Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, Nuvo and Swissgarde brands."

Commercial Real Estate and REITs

  • Advance Realty Portfolio May Bring $700M (Globe St., Aug. 23rd): "Advance Realty Group been rumored widely that the company has been talking to officials of Normandy Real Estate Partners about a sale that would involve most of those existing holdings, which amount to 5.5 million sf of office, flex, industrial, retail and multifamily properties… [A source says] “Advance was looking for a number north of $700 million. The general feeling is that the final number will be in the $675m-$700m range."
  • Commercial Paper Has Biggest Weekly Drop Since 2000 (Bloomberg, Aug. 23rd): "Outstanding U.S. commercial paper fell 4.2%, the biggest weekly drop in at least seven years, as investors fled asset-backed debt and opted for the safety of Treasuries. Fed: Short-term debt maturing in 270 days or less fell $90.2 billion to a seasonally adjusted $2.04 trillion in the week ended yesterday... Commercial paper outstanding has fallen by $181.3b in two weeks. The retreat may indicate that the Fed's decision discount rate [cut] last week failed to instill enough calm to draw back investors… The decline in outstanding commercial paper was driven by a 6.8% fall in asset-backed commercial paper, which represents about half the commercial paper market and has been used to finance purchases of subprime mortgages.
  • Wells REIT II Pays $320M for Midtown Manhattan Tower (Co Star, Aug. 22nd): "Wells REIT II, the nontraded office REIT of Wells Real Estate Funds, has picked up the 25-story office building at 222 E. 41st St. in Midtown Manhattan for $319.8 million, or more than $850/sf, according to a SEC filing… The acquisition is the first in New York for the fund, which owns 63 buildings covering 16 million-sf in 20 states, including Washington, D.C. Anglo Irish Bank provided limited financing on the deal… The 372,960-sf tower… sits a few blocks from Grand Central Terminal and is 97% leased."
  • Simon Property Group Announces Completion of Retail Syndication of Senior Loan Facility for The Mills Limited Partnership (CNN Money, Aug. 22nd): "Simon Property Group, Inc. (NYSE:SPG) today announced the syndication of a senior loan facility for The Mills Limited Partnership [TMLP], an entity owned by SPG- FCM Ventures, LLC (a joint venture between a Simon subsidiary and funds managed by Farallon Capital Management, L.L.C.). The facility was initially closed for $925 million in June of 2007 by JPMorgan Chase (NYSE:JPM) and Bank of America (BAC), Joint Arrangers and Joint Book Managers, and included a $50m revolving credit facility. As part of the syndication, the senior loan facility was increased to $1.025b, consisting of a $975m senior term loan and a $50m revolving credit facility."
  • AMB Property Corporation(NYSE:R) Entitles its Value-Added Conversion Property at Platinum Triangle in Anaheim, California (PR Newswire, Aug. 22nd): "AMB Property Corporation (NYSE:AMB) today announced that the Anaheim City Council approved the entitlements for AMB's value-added conversion property located in the city's master planned redevelopment district of "Platinum Triangle." AMB's 17.5-acre industrial property is now entitled for 1,208 residential units and 150,000-sf of office and retail space… Platinum Triangle, the city's 820-acre redevelopment district, surrounds two major sports venues, Angel Stadium and the Honda Center. The area has been rezoned to create a high-density, mixed-use, urban environment that could include up to 9,500 residential units, 5 million-sf of office space and more than 2 million-sf of commercial space."
  • Firms With Cash On Hand On Prowl For Deals (Chicago Tribune, Aug. 22nd): "Peter Palandjian, CEO Intercontinental Real Estate Corp.: Like other property buyers using institutional capital, including resources from pension funds and insurance companies, Intercontinental has cash on hand. Routinely, the entities whose money Intercontinental invests have rules that limit the amount of debt they can assume to buy real estate. That's in contrast with others that in recent years have used 95% debt or more to acquire property… Even in the best office markets, building prices are coming down as turmoil overtakes capital markets. Fund manager David Congdon: "Prices are discounted from ordinary levels…There will be less competition from buyers who use a lot of leverage."
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