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.

Real Estate Sales and House Prices

• State Slumps, But Waterbury Steady In Housing Market (Republican American, Aug. 26th) Connecticut: " Waterbury Building Department annual report: As home sales slumped across the country in F2007, developers continued to add more housing stock to Waterbury than in any of the previous five fiscal years… Waterbury's low land costs have played a big part spurring development interest. Cheap land allow[s] developers to pass on savings to home-buyers… Local homebuilder Edmund Thomas: "Waterbury is still reasonable compared to pretty much everywhere else. If you go to Cheshire or Prospect, you will spend $200,000 to $300,000 more for the same house."

• Your Home As A Piggy Bank? Not Anymore (Columbus Dispatch, Aug. 26th): "The median price of American homes… is expected to fall this year for the first time since… 1950. Economists say the decline… probably 1%-2%... could continue in 2008-2009. [Aside from the] Northeast and California,price declines also are occurring in such cities as Chicago, Minneapolis and Houston, where [price] increases were modest [in] the last decade… Moody's Economy.com: On an inflation-adjusted basis, the national median price is not likely to return to its 2007 peak for [a decade]. Global Insight expects a decline of 4%, or roughly 10% in inflation-adjusted terms, [by] 2009. In California, prices are expected to decline about 20% after taking inflation into account."

Real Estate Investing and Sentiment

• Yes, Housing Will Get Worse. But How Bad? (US News & World Report, Aug. 26th): "With house prices still falling and mortgage rates likely to stabilize or even fall back a bit as the Federal Reserve finally begins to lower interest rates, [Chief NAR economist Lawrence] Yun expects affordability—the key to housing's long-term recovery—to keep improving: "The plain fact is that there's more financial wherewithal now. It's just that people don't have the confidence." S&P Chief economist David Wyss: "People [will soon] get tired of earning just 2.5% on treasury notes. They'll realize that these mortgage loans are still good, safe investments. And as they do, more money will become available and rates will come down."

• Housing Bust Recalls S&L Collapse (Arizona Republic, Aug. 25th): "The real-estate crash in the late 1980s and subsequent collapse of eight Arizona savings and loans and [several] banks… stalled downtown Phoenix redevelopment for a decade but ultimately led to new communities such as DC Ranch, Verrado and Terravita… [People] made fortunes when the market recovered… Mesa developer Conley Wolfswinkel: [In] the real-estate crash in the late 1980s… it was primarily commercial builders and buyers who were abusing credit back then… Now, it's those tied to the housing market… The real-estate market in Phoenix… "goes down, but it always comes back stronger than before."

Mortgates and Real Estate Lending

• Say Bye-Bye To Zero-Down Mortgages (News Tribune, Aug. 26th) Washington: "Lenders are [either] doing away with zero-down loans [or] tightening guidelines. At Community One Financial… senior loan officer Jayme Coffey said that [recently] she and her colleagues scrambled to find new funding sources for 25 loans that had been preapproved for no-money-down mortgages [or] 80-20 or piggyback loans – that some banks would no longer finance… Duff Dyer, who co-owns Oxbow Mortgage: Borrowers who continue to turn to fully financed mortgages will likely also have to turn to mortgage insurance. Mortgage insurance requires a monthly payment, usually less than 1% of the loan, until the home’s equity reaches at least 20% of the loan amount and the insurance has been paid for at least two years."

• Mortgage Lenders Sweeten Savings Rates (St. Louis Today, Aug. 26th): "On Aug. 17th, Countrywide Financial Corp.'s (CFC) Countrywide Bank unit raised the rates on its online savings account… to 5.5% for minimum deposits of $10,000 from a previous range of 5.25-5.4%. It also bumped up rates on many of its CDs to as high as 5.65% for its 12-month CD… Two weeks ago, Washington Mutual (WM) raised rates on online six-month CDs to 5.5% from 3.9%... Earlier this month, IndyMac Bank, owned by IndyMac Bancorp (IMB)… raised the annual yields on its promotional CDs and Internet First Rate Money Market account… IndyMac said Wednesday it was planning to offer jumbo loans again under tighter lending guidelines, expects to use the deposits to help fund those loans."

• Mortgage Loans Still Available (Richmond Register, Aug. 25th) Kentucky: "Bill Walters, president of Madison Bank: Mortgages are available at historically low rates for borrowers with good credit. That opinion was echoed by officers of two other Kentucky-based banks and two local mortgage brokers. A drop in loan applications coupled with action by the Federal Reserve to pump money into the mortgage market should keep interest rates low. Lenders who write loans for federal or state programs designed to assist first-time buyers can still finance 100% of a home purchase. In at least two cases, local lenders said home mortgages are still available for the “sub-prime” borrower."

Subprime Fallout

• Will the Housing Slump Raise Consumer Defaults? (Christopher Whalen in Seeking Alpha, Aug. 27th): "Countrywide (CFC) CEO Angelo Mozillo notes that most of CFC's business has been done "outside of the bank" over the past few years, but that [Countrywide is] restructuring the business so all of the loan originations occur "in the bank…" The reason for CFC's corporate makeover is very simple: counterparties want the federally-insured bank unit of CFC as the obligor in any transactions, not the publicly-listed parent holding company. As of Q2'07, Countrywide Bank FSB had $99 billion in assets while the parent's consolidated assets were 2x that amount, including the loan production and conduit operation."

• Crunch Makes Mortgages Tougher To Get (Boston Herald, Aug. 26th): "A traditional cut-off point between prime and subprime loans - 620 FICO scores - has migrated upward in recent weeks… The upward squeeze on FICOs is putting a new premium on raising homebuyers’ numbers and obtaining correct scores. A July 25th class action [suit] charged that American Express (AXP) and Citibank (C) are depressing large numbers of clients’ scores by withholding credit account limits from Equifax, Experian and Trans-Union, the three dominant credit bureaus. Without credit limits or account maximums, say the plaintiffs, FICO software often penalizes the borrower by reducing scores.

• Mortgage Crunch Could Help Banks In Del. (Delaware Online, Aug. 26th): "Banks in Delaware say they've weathered the liquidity storm well so far and could even come out ahead. Steven I. Butler, a banking consultant in Avondale, Pa.:"It affects different banks differently. There are a lot of banks that are not affected… at all. Banks that are heavy in deposits or are cash-rich will benefit." Some of Delaware's smaller banks have suddenly found themselves in demand with home buyers after years of being shunned for mortgage lenders that offered better rates."

• Inside the Countrywide Lending Spree (NY Times, Aug. 26th): "Potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s (CFC)… sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price... [Former employees and brokers say] Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers… Last year, Countrywide had revenue of $11.4 billion and pretax income of $4.3b [with] mortgage banking… generating $2.06b before taxes. In the last 12 months, Countrywide financed almost $500b in loans, or around $41b a month… One former employee provided documents indicating that… on [some] subprime loans, Countrywide’s margins could reach 15% of the loan."

• The End Of The Beginning (The Economist, Aug. 26th): "Investors seemingly admitting to losses only when these can no longer be concealed… This lack of transparency makes the crisis one of confidence (and pricing) rather than one of liquidity, reckons Josh Rosner, a structured-finance expert at Graham Fisher & Co, a research firm. More information about institutions' positions would at least give counterparties a clearer idea of whether they were dealing with a basket-case, and might encourage distressed-debt funds to swoop in and buy. “Without clearer disclosure of the size and nature of holdings, I can’t even dream about untangling the mess out there,” says one vulture."

• A Take On What's Ailing The Markets (Average Joe Investor, Aug. 24th): "Though the AAA levels [of securitized mortgages] haven't been touched yet, there's suddenly much more risk in holding that paper. Not only do market prices for the bonds fall, but bids for them in the open market nearly dry up completely. Financial institutions that have been using these supposedly safe securities as collateral are suddenly finding themselves in need of additional capital and liquidity. This need in many cases is forcing them to sell some stuff at whatever the market will give them -- thus spooking other investors and exacerbating the situation."

• Subprime May Be Hitting Credit Cards, Too (Yahoo! Finance, Aug. 23rd): "Fallout from the mortgage mess and lower home prices may have started to creep into the credit card arena, judging from July payments and some initial moves by issuers to tighten the screws on cardholders. CardWeb.com: After falling for three consecutive months, delinquent payments on credit cards -- defined as more than 30 days late - increased slightly in July, to 4.64% from 4.62% in June… A year ago, the delinquency rate was 4.18%. The amount of credit card debt consumers are paying off, meanwhile, has fallen. The portion of outstanding balances paid in July slipped to 18.3% from 18.4% a month earlier."

• Ken Lewis' Savvy Countrywide Investment (Felix Salmon in Seeking Alpha, Aug. 24th): "The Bank of America deal is a coup for BofA CEO Ken Lewis… Yes, mortgages [rely on] credit… But Americans will always need mortgages. So it makes perfect sense for the largest bank in America to get itself a cheap stake in a first-rate mortgage company. BofA alone has access to more than enough liquidity to tide Countrywide over if the present crunch continues… [Ken Lewis] bought Countrywide bonds [not stock], which can be converted into stock should he so wish in the future. And the coupon on those bonds is a very healthy 7.5% – higher, indeed, than the rate at which Countrywide itself is still willing to lend to homeowners… If Countrywide can't navigate through the ARM resets which are coming up next year, Bof A will simply clip its 7.5% coupons and go home."

• Subprime Fallout Could Help Venture Capitalists (NY Times, Aug. 24th): "Technology investments, because they are far removed from credit-centric securities, could look relatively enticing… Venture capitalists now hope that the disfavor technology companies engendered during the dot-com collapse is being more quickly erased — or put into perspective — by the risks evident in the struggling hedge-fund investment strategy. But, that said, venture capitalists said the subprime-spawned troubles could be a mixed blessing — given that those troubles could take a negative toll, though an indirect one, on the seeding and growing of high-tech companies."

Foreclosure Impact

• Foreclosures Skyrocketing In Blair County (Altoona Mirror, Aug. 27th) Pennsylvania: "The number of [foreclosure] cases in Blair County is about on par with last year’s average… RealtyTrac reported 2,990 foreclosure filings in Pennsylvania in July. The filings include default notices, auction sale notices and bank repossessions. Multiple mortgages could result in more than one filing for the same property. [Nationally,] Pennsylvania ranked 23rd [in foreclosure rates], with a total of 883 foreclosures listed, one foreclosure for every 5,948 households, according to Bargain Network’s listings. Locally, the number of complaints filed in Blair County has increased from 180 in 2000 to 369 in 2006. In 2007, 215 complaints had been filed as of Aug. 13."

• As U.S. Housing Market Melts Down, W.Va. Bucks Trend (Charleston Daily Mail, Aug. 27th) W. Virginia: "RealtyTrac: Between July 2006-July 2007… West Virginia, ranked 47th nationally in foreclosures, actually saw a decrease of nearly 10%… It's not just foreclosures: on average, West Virginians pay a lower mortgage rate than Americans elsewhere, according to… Freddie Mac's Primary Mortgage Market Survey. Mortgages in West Virginia average a 6.25% interest rate, while nationally the average is 6.62%."

• Home Prices Decline Nationally, Ohio Foreclosures, Hardtimes Rising (E Pluribus Media, Aug. 26th): "In its report on the saga of a rising tide of home foreclosures in Cuyahoga County, the state's most populous county, and the rest of Ohio, Policy Matters Ohio, an economic research firm, documented the number of foreclosure filings are growing in most Cuyahoga County municipalities. In fact, the number of filings increased in 38 out of 59 communities in H1'07 compared to H1'06… Mortgage Bankers Association: Ohio is ranked the state No. 1 in foreclosures… RealtyTrac identified five states -- California, Florida, Michigan, Ohio and Georgia - that accounted for more than half of the nation's total foreclosure filings."

• Mortgage Foreclosures Up 68 Percent In Bristol County (South Coast Today, Aug. 26th) Massachusetts: "Foreclosuresmass.com: Mortgage foreclosures are up 68% in Bristol County this year, led by New Bedford where 208 homes have faced the prospect of the auctioneer's gavel… The city had more foreclosed properties in the last 60 days — 44 — than almost any other community in Massachusetts. Only seven other towns and cities topped New Bedford… Despite that dire news, over the past 12 months Bristol County with a 68.13% increase in foreclosures, and Plymouth County with 68.71%, still trailed the statewide increase of 74.22%."

• Schumer, Klein Call For Crackdown On `Unethical' Lenders (NY Newsday, Aug. 26th): "Sen. Charles Schumer, D-N.Y: Study [shows] foreclosures in New York City's five boroughs are up by 80% since February: "The city is now in the full throes of the subprime foreclosure meltdown." State Sen. Jeff Klein, a Democrat whose district includes parts of the Bronx and Westchester, issued a detailed survey that showed foreclosures "rising at an alarming rate" indicating that statewide foreclosures in 2007 will be 60% higher than a year ago… Klein's survey showed 14,559 foreclosures in NYC and 5,168 in Westchester and Nassau counties since July 2006. Some 55% of the city's foreclosures were handled by 10 lending institutions."

Global Impact and Alternatives to the Housing Slump

• LBBW to Buy SachsenLB to Help Rescue State-Owned Bank (Bloomberg, Aug. 27th): "Landesbank Baden-Wuerttemberg, the largest German state-owned bank, agreed to buy Landesbank Sachsen Girozentrale following a €17.3 billion ($23.7b) credit bailout because of investments in U.S. subprime debt. LBBW will pay at least €300 million for the bank and immediately provide €250 million in cash for SachsenLB, whose finance affiliates have struggled to sell commercial paper amid a global credit crunch… SachsenLB got emergency funding from fellow state-owned banks on Aug. 17 to pay debt owed by a unit that invested in asset- backed securities, including subprime loans… [Sources say] SachsenLB… has about €3 billion in investments linked to subprime."

• BNP Paribas Clients to Get Rich Off Crisis (Kommrsant, Aug. 27th): "BNP Paribas Investment Partners… will unfreeze three of its funds that were [shut down] because of the mortgage crisis. Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia will begin activity again next week... BNP Paribas Investment Partners said that fluctuations on the market, and not defaults by individual companies, led to [a] reduction in the funds' value. All three funds held [AAA or AA rated] securities of American companies that provided low-quality mortgage loans… BNP Paribas cited the…"sudden evaporation from 6 August of any trading activity on certain sectors of the U.S. market" as [a] reason for freezing the funds."

• Overheating Sees House Price Downturn In Europe (UK Telegraph, Aug. 27th): "House prices in the greater Riga region of Latvia fell 3.5% in June, following a 1% fall in May [following] a speculative frenzy… Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank: Much of Eastern Europe has been inflated by a "monster bubble" that recalls conditions in east Asia shortly before the crisis broke in 1997… In Ireland, house prices dropped 2.6% in H1'07, with falls of 3.3% in Dublin… Irish census: Roughly 15% of housing stock lies empty… French property prices fell 1.5% in July - though they were still up 5% y/y."

• Chinese Banks Disclose Subprime Loan Exposure (The Star, Aug. 25th): "China suffered its first serious setback yesterday from exposure to subprime loans. Investors punished… Bank of China, after it disclosed the biggest exposure so far of any bank in Asia. Shares in the bank fell 5.4% in Hong Kong a day after it reported holding almost $9.7 billion (U.S.) in securities backed by subprime mortgages, about 3.5% of its portfolio. Industrial and Commercial Bank of China, the biggest Chinese lender, also suffered at the hands of investors after it disclosed that it was holding $1.23b in securities backed by these mortgages. Its shares fell 2.4% before ending up 0.2%."

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

• Home Sales Hit Slowest Pace in 5 Years (Yahoo! Finance, Aug. 27th): "National Association of Realtors: Sales of existing homes dipped by 0.2% last month to a seasonally adjusted annual rate of 5.75 million units… The median price of a home sold last month slid to $230,200, down by 0.6% from [July 2006]. It marked the 12th consecutive month that home prices have declined… The 0.2% drop in July sales, compared with June activity, marked the fifth straight monthly decline and left sales 9% below the level of a year ago… The slowest [pace] since November 2002… The inventory of unsold homes rose by 5.1% at the end of July to a [16-year high] of 4.59 million units."

• How Owner's Equivalent Rent Duped the Fed (Tim Iacono in Seeking Alpha, Aug. 27th): "The use of OER (owners' equivalent rent) to represent home prices in the CPI (Consumer Price Index) and the distortions that arise as a result: OER is one of the poorest proxies the world has ever seen as demonstrated by the comparison below with the Case Shiller Home Price Index… As you can see, the year-over-year change in home prices has gone from almost 20% a few years ago to low single-digit negative numbers just a couple months ago. During this time OER has remained flat by comparison, effectively taking home prices out of the consumer price statistics… The overall consumer price index with the Case-Shiller Home Price Index substituted for owners' equivalent rent."

• Debt Rattle (Barron's, Aug. 27th): "The climate for borrowers has turned inhospitably chilly and downright frigid for wannabe homeowners. No mystery why. As the trusty data collectors at Federal Deposit Insurance Corp. observe in their latest communiqué, delinquent loans grew a monster $6.4 billion in Q2'07, paced by -- what else? -- overdue mortgage payments, a leap of 10%, the greatest quarterly increase since Q4'90, when, as you graybeards may remember, the listing economy was mired in recession. Actual foreclosures, by RealtyTrac's count, are a startling 93% higher than a year ago."

• Consumer Spending Gains, Home Sales Fall: U.S. Economy Preview (Bloomberg, Aug. 26th): "Consumer spending in the U.S. picked up in July while home sales fell, a sign income gains are sustaining demand even as the housing recession deepens, economists said before reports this week. Personal spending increased 0.3% last month, three times the gain in June, according to a Bloomberg economist survey… before a Commerce Department report… The labor market has so far been strong enough to prevent a collapse in spending, softening the blow to the economy from a drop in home values and a widening credit crunch."

• How Low Will Housing Go? (Barry Ritholtz in Seeking Alpha, Aug. 24th): "Goldman Sachs chief economist Jan Hatzius: Even if we assume that the long-term [house price valuation] trend for price/income and price/rent is higher now than the average of the 1975-2000 period (because interest rates are likely to stay lower), cumulative nominal price declines of 15%-30% are possible. HSBC HomePulse wrote [in] January 2006: About half of the U.S. housing market… may be overvalued by as much as 35-40%, after taking into account low interest rates and tax advantages. Current valuations imply a large permanent reduction in the risk premium and/or a sizable step up in future capital gains, not all of which, we think, is justified. The ‘bubble zone’ accounts for 50% of US GDP, or… nearly the size of the German, French, and UK economies put together… When these housing bubbles begin to deflate, it is likely to have substantial macroeconomic consequences."

• 3 Reasons Why This Credit Bubble Is Worse Than 1929 (Dr. Housing Bubble, Aug. 24th): "Even those in the public sector will be hurt since local governments and municipalities depend largely on sales and property tax receipts. The State Controller of California in August reported a projected short-fall of $787 million in total tax receipts; a big adjustment considering the projections were only issued in May of this year. These are things that haven’t hit the mainstream media but will in the near future."

Homebuilders And Housing Stocks

• Home Depot Slashes Construction-Supply Unit Sale Price By 18% (Roy Mehta in Seeking Alpha, Aug. 27th): "Home Depot's (HD) [will] sell its construction-supply unit for $8.5 billion to private equity firms Bain Capital, Carlyle Group and Clayton, Dubilier & Rice -- 18% less the $10.3b they agreed upon in June... HD will hold on to 12.5% of the unit's equity, and was forced to guarantee $1b of the debt for the leveraged buyout. The deal's lenders, including Merrill Lynch, Lehman Brothers and JPMorgan, demanded better terms so they would be left with less money in loans in case they could not repackage and sell those loans in the presently spooked debt markets... Banks are still hesitating on terms. HD was planning to use the all-cash deal to finance a $22.5b stock repurchase… now likely to be postponed."

• Bubble Comparison: Homebuilders Versus the Nasdaq (Bespoke Investment Group, Aug. 27th): "The returns between the Homebuilder index and the Nasdaq since…1995 shows how the two indices began diverging right as the '98 crisis was unfolding. The tech heavy Nasdaq exploded while the Homebuilders and most other sectors continued to struggle. This backs the bullish case for those that are currently looking for large cap tech to outperform. The Homebuilders bottomed just four days after the Internet Bubble popped (3/14/00 vs 3/10/00). Surprisingly, the Homebuilders went up more during their bubble than the Nasdaq did during its bubble. When the Homebuilders peaked on July 20th, 2005, they were up 964% since March of 2000. [Yet] a long-term investment in either of the two indices at the start of 1995 would still have produced gains of at least 230% today."

Commercial Real Estate and REITs

• Cracks Are Starting To Appear In Office Rents (Crain's NY Business, Aug. 27th): "The credit crunch that is roiling the stock market, paralyzing merger and acquisition deals, and stalling building sales is also slowly chilling Manhattan's hot commercial rental market. The financial services sector--the key driver of lower vacancy rates and higher rents in recent years--accounts for about one third of the space leased in Manhattan. There's now concern that firms will slash staff and relinquish space… Last week, Lehman Brothers (LEH) chose not to take an additional 70,000-80,000-sf at 399 Park Ave… CB Richard Ellis Group: Rents from H2'06-H1'07 rose 34%, to $63.56/sf--the sharpest annual increase in at least two decades."

• Commercial Real Estate Right On The Money (Forbes, Aug. 24th): "BB&T bank (BBT) announced Friday [it will] acquire Collateral Real Estate Capital, a… commercial mortgage lender... [Unlike residential MBS'] Most of the commercial-backed mortgage securities can be sold to Fannie Mae (FNM) and Freddie Mac (FRE)… But FNM, the largest U.S. buyer and guarantor of home mortgages, announced [last week] it will not issue benchmark notes in August… it may be close to reaching the federal limit on its mortgage holdings… At the end of June, Fannie estimated its mortgage portfolio reached $715b, just $13b under the federal limit… Fannie may have difficulty continuing to buy up securities of any kind, whether commercial or residential."

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