Quote of the Day- "From the House's Mouth"
"There are two different mortgage rules out there. For very strong qualified buyers, there are plenty of banks and plenty of great rates… For people applying for jumbo mortgages with some hair on their application, it's going to be more expensive."- Melissa Cohn, President of Manhattan Mortgage, on the problems facing high end homebuyers. (MSNBC, Aug. 29th)
Real Estate Sales and House Prices
Dallas Home Prices Rise Among Few U.S. Gains (Dallas News, Aug. 29th): "S&P's quarterly housing index: The Dallas metropolitan area was one of only five markets in the country with price gains. Of the 20 cities it surveys, only Dallas, Seattle, Portland, Ore., Atlanta and Charlotte, N.C., had annual gains in home prices in Q2… In June, [the median home price in] the Dallas-Fort Worth area was $150,000. Still, North Texas has one of the highest home foreclosure rates in the country and is vulnerable to the shakeout in home lending, analysts say… At the end of July, the Dallas-Fort Worth area had about a 6.6-month supply of pre-owned homes on the market."
'Dem Bums' No Longer: A Borough On the Rise (Wall St. Journal, Aug. 29th): "Downtown Brooklyn Partnership, which coordinates economic development in the area [says] about $9 billion in construction is under way or planned over the next five years in and near downtown Brooklyn… most with large residential components slated to add about 14,000 residential units to the area… Developers [are] racing to meet demand fueled by Manhattan's hot housing market, which has pushed many urbanites across the East River in search of more affordable alternatives. Real Estate Board of New York: Though rising, the average Q2 apartment sales price in Brooklyn was $484,000, well below the $1.2 million average in Manhattan."
Area Home Sales Decline In July By 20% Over Last Year (Chattanoogan.com, Aug. 27th): "Chattanooga Association of Realtors: The 661 sales posted in the month of July represented a 20% drop over July 2006, which was a record-setting real estate year for Southeast Tennessee and Northwest Georgia. It was also a 10% drop in sales from June. In its historical context, it is important to note that the dip in sales from June to July is a natural trend, averaging around 10% over the past several years… Locally, July’s median home price was $145,000, which is an increase over last month but slightly less than 2006’s $149,000 median value."
Home Sales In Inland Empire Down 40 Percent (Sign On San Diego, Aug. 27th): "California Association of Realtors: Home sales were down 40.3% in the Riverside/San Bernardino area in July, compared with July 2006, while the median home price dipped 3.9%... $393,070 last month, compared to $390,230 in June, and $409,090 in July 2006… In the Palm Springs/Lower Desert area, home sales dropped 23.8% from July 2006, while the median home price jumped 5.8%, from $357,720 in July 2006 to $378,310 last month. Statewide, home sales decreased 22.7% in July, compared with July 2006, while the median price of an existing home increased 3.2%... $586,030 [in July], compared to $594,280 in June, and $567,860 during July 2006."
FAR: Home, Condo Sales Down In July (South Florida Business Journal, Aug. 27th): "Florida Association of Realtors: In Fort Lauderdale, existing single-family home sales declined 22%. Median prices slipped 2%, to $373,700 from $380,400… July single-family home sales in Miami fell 25%... accompanied by a 1% median price decline, to $377,400 from $382,200. West Palm Beach-Boca Raton saw… single-family homes [sales] drop 15%... Prices fell to $372,200 from $390,100, a 5% drop… Existing condo units sold in Miami dropped 39%... while the median sales prices climbed 13%, to $285,800 from $252,000. Fort Lauderdale [condo sales] also declined [19%]. The median condo sales price fell 10%, to $187,200 from $209,100."
Local Housing Market: Sales Down, But Prices Up (Chicago Sun Times, Aug. 27th): "Chicago area home sales dropped 13% in July compared with July 2006, but the median sales price rose… It marked the 12th consecutive month that home prices have declined, a record stretch… Prices in the Chicago area grew, but sales stalled. The median home price for the Chicago metropolitan area was $262,500, up 2.6% from $255,900 in July 2006. The median is a typical market price where half the homes sold for more, half sold for less. Sales in July totaled 9,725, down 13%."
Real Estate Investing and Sentiment
Hunting for a Housing Bargain (Home News Tribune, Aug. 29th): "As the housing market slows and foreclosures spike, people who have to sell quickly or lenders that need to unload properties they took back at sheriff's auctions are turning to [auctions] for quick sales. Even some homebuilders and condo developers are using auctions to reduce excess inventory… National Auctioneers Association: Last year, revenue from housing auctions grew 12.5% to $16 billion from $14.22b in 2005. Auctions represent… less than 1% of the $1.74 trillion in existing-home sales last year… Auction firm Williams & Williams Marketing Services CEO: "Places where [auction] volume has been light has probably doubled since last year."
Obesity Rates Vary by ZIP Codes and Property Values (Environment News Service, Aug. 28th): "University of Washington study: Neighborhood property values predict local obesity rates better than education or incomes..." People who live in the most expensive homes are least likely to be obese. For each additional $100,000 in the median price of homes… obesity rates in a given ZIP code dropped by 2%... The study found six-fold disparities in obesity rates across the Seattle metropolitan area. Obesity rates reached 30% in the most deprived areas but were only around 5% in the most affluent ZIP codes… Area prosperity can also be a good predictor of access to healthy foods, or opportunities for exercise."
Mortgates and Real Estate Lending
The Washington Savings Bank, F.S.B. Reports Fourth Quarter and Twelve Month Results and Dividend (PR Newswire, Aug. 28th): "Washington Savings Bank FQ4 and 12-month period ending July 21, 2007... WSB also announced a $0.04/share cash dividend for FQ4… WSB reported… a 48% decrease in net earnings for FQ4'06. WSB reported… a 44% decrease in net earnings compared to… the comparable period of the prior year.The decrease in net income for the twelve month period reflects the general slowdown of the residential real estate market and the related decline in mortgage loan originations and the continuing reduction in the Bank's concentration in higher-yielding construction loans. WSB has reduced its construction loan portfolio by approximately 55% compared to July 31, 2006."
Mortgage Blow Hits 'Mcmansion' Clients (MSNBC, Aug. 29th): "Bankrate.com: Jumbo mortgage rates [more than $417,000] inched down to 7.4% last week but the week before they hit a five-year high of 7.43%… Guy Cecala, publisher of Inside Mortgage Finance: Some poor-credit buyers face rates as high as 12%... As large loans become a near impossibility for subprime or the next tier up of "Alt-A" borrowers, marginal buyers [particularly those straining to buy a first home] may be squeezed out of the jumbo market. Inside Mortgage: In H1'07, as much as 10% of jumbo mortgage loans were issued to subprime borrowers. Another 25% of the market was estimated to be "Alt-A" mortgages."
LandAmerica to Cut 1,100 Jobs as Mortgages Dwindle (Bloomberg, Aug. 28th): "LandAmerica Financial Group Inc. (LFG)), the third-largest U.S. title insurer, said it will cut 1,100 jobs, or about 8% of its workforce, by the end of the year to reduce costs as mortgage originations decline. LandAmerica will also buy back 1.5 million shares, or about 9% of outstanding common shares, by… March 2009… The stock has lost about half its value since June. LandAmerica is responding to a slowdown in the U.S. housing market that is reducing demand for title insurance. The coverage, which protects homebuyers from claims against their ownership of a property, is required by most banks before agreeing to issue a mortgage."
Impossible to Track Troubled Mortgages (Forbes, Aug. 28th): "The U.S. mortgage-lending business is a sprawling, varied enterprise that no one regulator oversees, making it impossible to know how many mortgages or lenders not insured by the government are in trouble. Even worse, no public records are available to show who holds the trillions of dollars worth of mortgages that investment banks pooled and sold as securities to investors around the globe… State regulators: About 90,000 nonbank mortgage lenders dotted the landscape last fall… Conference of State Bank Supervisors 2006 survey: In addition to the 90,000 licensed nonbank firms, there are some 63,000 branches scattered nationwide."
Ken Heebner Calls Fannie Mae & Freddie Mac Opportunities (24/7 Wall Street, Aug. 27th): "[Hedge fund manager] Ken Heebner of Capital Growth Management… said he sees value in Fannie Mae (FNM) and Freddie Mac (FRE)… Ken Heebner is one of the real estate and property investors that is one of the best to follow and investors have frequently been able to clean up riding his waves in recent years. He has been one of the leaders into and out of REIT's as a broad sector for many years and it is important to know what he is calling for if you invest in real estate or operations around it… [Unfortunately] the huge opportunity that existed here may have already passed after the last sharp recovery."
Subprime Mortgage Woes Spreading (WHEC News, Aug. 29th): "The subprime mortgage crisis is spreading to… homes costing more than $500,000. As lending has rapidly gotten more restrictive for borrowers taking out large loans, sales of expensive homes have fallen sharply around the country during what should be one of the busiest seasons for buyers and sellers, mortgage bankers and real estate agents say… But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don’t want to plunge into an uncertain future."
IndyMac Hires 600 Mortgage Pros (Roy Mehta in Seeking Alpha, Aug. 29th): "After laying off 400 workers last month due to a 57% decline in second-quarter profit, IndyMac Bank (IMB) announced yesterday that it is hiring 600 recently terminated American Home Mortgage retail lending professionals and 250 former AHM employees. Approximately 75% of the new hires are loan officers focusing on single-family mortgage products eligible to be sold to Fannie Mae and Freddie Mac. The balance will specialize in marketing, operations and recruiting. The new hires... are expected to generate quarterly production of roughly $1 billion for the company… IndyMac's total Retail Lending Group workforce will increase to 1,500 employees, up from 13 one year ago, as it is also closing on the purchase of certain assets of Barrington Capital."
Barclays Fights To Limit Damage To Shares (Thisismoney.co.uk, Aug. 29th): "Last night Barclays announced job cuts at its recently-acquired US subprime business EquiFirst. It blamed the collapse in the American housing market, saying that the cuts "will help to ensure that EquiFirst has a viable future in the mortgage lending business. More than 430 people out of a staff of 1400 were told to pack their bags. Last week a total of 3400 jobs in the subprime industry were cut by HSBC, Lehman and Accredited Housing."
Countrywide Not on Easy Street Yet – Analysts (Susan Lerner in Seeking Alpha, Aug. 28th): "Countrywide Financial's (CFC)… shares dropped as much as 7% after [analyst downgrades.] Expecting continued mortgage market declines, Lehman analyst Bruce Harting dropped his 12-month price target to $28 from $30 and sliced his 2007 and 2008 EPS estimates to $1 from $2.80 and to $1.55 from $3, respectively… Piper Jaffray cut its… price target to $23 from $29. Piper expects earnings of $0.84 for 2007 and $2.60 for 2008… Lehman: Among items cutting into future profits… is the fact that an increasing percentage of loans that Countrywide makes will have to be eligible for purchase by Fannie Mae or Freddie Mac."
Court OKs Sale of HomeBanc Mortgages (Forbes, Aug. 28th): "Countrywide Financial Corp. is set to buy $128 million of mortgages from failed lender HomeBanc Corp. and take over leases at five of its offices in the South. [A federal] Delaware Bankruptcy Court… approved the agreement Monday... The decision allows HomeBanc (HMB) to complete a deal that was already under way before the company filed for bankruptcy on Aug. 9. Like other mortgage companies that have recently gone under, HomeBanc is swiftly selling assets, including mortgage loans it agreed to fund before seeking bankruptcy protection. [Court papers say] as of June 30, HomeBanc's assets totaled $5.1 billion with total liabilities of about $4.9b."
Foreclosures Up, But Only Slightly (EDH Telegraph, Aug. 28th): "Folsom and El Dorado Hills are located in the ninth worst market - the Sacramento metropolitan area - for home foreclosures nationwide, but they've been spared the carnage somewhat. California boasts the highest foreclosure rate in the nation, according to foreclosure Web site RealtyTrac. Sacramento County saw 3,840 notices of default filed between April and June 2007, a 184% jump compared with Q2'06, reported DataQuick. El Dorado County, with 222 notices filed, saw a slightly smaller increase of 158%."
Survey: Foreclosures Not Concentrated by Region (Jacksonville Business Journal, Aug. 28th): "Florida homeowners survey by Florida Attorneys' Title Insurance Fund: Florida foreclosures [are] not limited to certain regions or income brackets... More than 1,400 homeowners [surveyed] in mid-June, found that 16% have been or know somebody who has been in the foreclosure process… More than 10% of homeowners in nearly every market surveyed, and more than 15% in each of the three income brackets surveyed, have been involved in a foreclosure or know someone who has… Most Florida homeowners are willing to buy foreclosed properties. Fifty-six percent said they would make such a purchase, while only 17% said they wouldn't and 27% were unsure."
Global Impact and Alternatives to the Housing Slump
Bulls And Bears On China's Property Market (Asia Times, Aug. 29th): "Continuous housing-price hikes in major cities in China over the past couple of years have split the urban citizenry into two major groups: those who own housing and those who don't. The two groups have utterly different expectations of future market movement. Property owners, who have benefited from the asset inflation, are generally bullish about the market, saying there is still much room for housing prices to expand… But those who have yet to own property curse the price hikes, saying housing, a necessity for everyone, has become unaffordable for many. They hope [for] government… measures to bring down housing prices."
Macro Impact, And Will The Housing Slump Cause A Recession?
CPI Fraud Directly Linked To Subprime Credit Crisis (Home News Tribune, Aug. 29th): "The present subprime credit crisis can be directly traced back to the Bureau of Labor Statistics' decision to exclude the price of housing from the CPI… The "benign" inflation figures reported over the last 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home-price increases of as much as 30%. With the illusion of low inflation inducing lenders to offer 5-6% loans, not only has speculation run rampant on the expectation of ever-rising home prices, but homebuyers by the millions have been tricked into buying homes even though they only qualified for the "teaser" rates."
Mortgage Meltdown Leads to New York Job Cuts (The Real Deal, Aug. 29th): "Just over 14,000 jobs have been cut in the housing-related financial field in New York and New Jersey, according to outplacement firm Challenger Gray & Christmas. The total number of cuts in the mortgage lending area year this is already more than triple the 2006 total."
Construction Industry Not Feeling Crimped, As Yet (USA Today, Aug. 28th): "So far, [residential housing] troubles haven't filtered out in a major way into the construction industry. Spending on private, non-residential real estate projects jumped 17% in the past year alone. Architects and contractors, however, are [watching] for signs the credit crunch is spreading through the real estate sector… FDIC: U.S. banks and thrifts reported a 40% rise in past-due construction and development loans in Q2'07... About a quarter of the 52 domestic banks that participated in a separate Fed survey said they had recently set tougher standards for making commercial real estate loans… Federal regulators said last year… many banks were becoming overconcentrated in the sector."
Subprime Meltdown Could Pinch Online Ad Revenues – FT (Judith Levy in Seeking Alpha, Aug. 28th): "Financial Times: Search engines and web portals might begin to feel the effects of the subprime meltdown in their advertising revenues... Financial services companies -- particularly mortgage lenders and credit scoring agencies -- are major online advertisers. The sector represents 16% of online ad revenues, making it second only to retail. Lenders Countrywide and Low Rate Source were two of the 10 biggest online advertisers in the country last month, as were credit score companies Experian and Privacy Matters. A good deal of the mortgage advertising oriented toward less creditworthy borrowers has quickly dried up… Because fewer companies are competing for online advertising in certain classes, ad pricing in those classes may go down."
Home Prices: Steepest Drop in 20 Years (Yahoo! Finance, Aug. 28th): "Home prices fell 3.2% in Q2, the steepest rate of decline since The S&P/Case-Schiller quarterly index began its nationwide housing index in 1987… MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down." A separate index that covers 20 U.S. cities fell 3.5% in June from a year earlier. A 10-city index fell 4.1% from a year earlier… Fifteen of the cities surveyed for S&P's 20-city index showed a y/y decline in prices in June. Prices in Boston dropped in June at a slower rate than they did in May, continuing a trend… Any turnaround there could be an early sign of recovery."
Fed Minutes: Response Needed If Conditions Worsen (Yahoo! Finance, Aug. 28th): " Federal Open Market Committee: [Federal Reserve Board] members expected a return to more normal market conditions, but recognized that the process likely would take some time, particularly in markets related to subprime mortgages… However, a further deterioration in financial conditions could not be ruled out and, to the extent such a development could have an adverse effect on growth prospects, might require a policy response."
Fed Put Inflation Skepticism Above Credit Concern (Bloomberg, Aug. 28th): "Scott Minerd, Guggenheim Partners LLC: The mistake the Fed made is that the market was clearly coming unglued prior to the meeting." By maintaining the inflation bias, "it telegraphed to the market that this Fed was really out of touch with how severe the credit dislocation was.'' As of three weeks ago, policy makers "expected a return to more normal market conditions, but recognized that the process likely would take some time,'' [FOMC] minutes showed… "mortgage loans remained readily available to most potential borrowers,'' and the "supply of credit to finance real investment did not appear significantly diminished.''
Homebuilders And Housing Stocks
Ryland Outlook Cut To Negative On Housing Market Woes – Fitch (CNN Money, Aug. 29th): "Fitch Ratings has revised US homebuilder Ryland Group Inc's (RYL) rating outlook to negative from stable and affirmed its issuer default rating, senior unsecured debt and unsecured bank credit facility at 'BBB-'. Fitch said the negative outlook reflects a more challenging outlook for homebuilders during the balance of calendar 2007 and probable future weakening in the housing market in 2008. The move also takes into account the current and expected near-term deterioration in credit metrics and persistent high cancellation rates which add to speculative inventory totals… The ratings reflect Ryland's successful execution of its business model, moderate financial policies and geographic and product line diversity, Fitch added."
Furnishings Sales Worsen Amid Housing Woes, Inventory Glut (CNN Money, Aug. 28th): "Signs that sales of furniture and accessories are succumbing to the housing slowdown… Earnings reports this week from retailers Williams-Sonoma Inc. (WSM) and Restoration Hardware Inc. (RSTO), which cater to higher income shoppers, are expected to provide a glimpse into how recent increases in rates for mortgages covering the most expensive homes are affecting sales to those clients... Citigroup analyst Bill Sims: Several U.S. furniture manufacturers, including La-Z-Boy Inc. (LZB) and Furniture Brands International Inc. (FBN), reported gloomy wholesale sales trends in recent weeks as retailers battle poor demand and too much inventory… Monthly home furnishings sales historically have a 98% correlation with the existing-home sales posted nine months earlier and a 96% correlation with new- home sales from 15 months earlier."
Investor Urges Fleetwood Sale To Rival Champion (LA Times, Aug. 28th): "Fleetwood Enterprises (FLE) third-largest shareholder, SLS Management [said] Fleetwood should consider a sale to manufactured-housing competitor Champion Enterprises Inc. (CHB) to reduce manufacturing capacity and cut costs... Fleetwood, whose largest business is motor homes and travel trailers, posted a $90-million net loss for its fiscal year that ended April 29 and hasn't had an annual profit since 2000. The company got $518.3m, or 26%, of its revenue from manufactured housing for the year... Champion spokeswoman Laurie Van Raemdonck: "The manufactured-housing industry is rife with overcapacity and is ripe for consolidation. It would certainly need to make business sense and economic sense for our shareholders."
Fitch Downgrades M/I Homes' IDR & Senior Unsecured to 'BB-'; Outlook Negative (Business Wire, Aug. 28th): "Fitch Ratings has downgraded M/I Homes, Inc.'s (MHO) ratings as follows: Issuer Default Rating [IDR] to 'BB-' from 'BB'; Senior unsecured to 'BB-' from 'BB'; Unsecured bank credit facility to 'BB-' from 'BB'; Series A non-cumulative perpetual preferred stock to 'B' from 'B+'. The Rating Outlook remains Negative. The downgrade reflects the current difficult U.S. housing environment, negative trends in M/I Homes' operating margins and meaningful deterioration in credit metrics, especially interest coverage and debt/EBITDA ratios."
Commercial Real Estate and REITs
Westfield Profit Rises as Global Mall Rents Increase (Bloomberg, Aug. 29th): "Westfield Group, the world's biggest shopping center owner by market value, said H1'07 profits rose 7.4% as rents increased at malls across Australia, the U.S. and New Zealand. Net operating income rose to A$844 million ($687 million) in H1 from A$804.3 million in H1'06… The figure excludes property revaluations and currency adjustments. Westfield, with malls in 13 states including California, Florida and Nebraska, joined rivals Simon Property Group Inc. (SPG) and General Growth Properties Inc. in lifting U.S. rents during the past year, as retail sales gained in the world's largest economy. Managing Director Peter Lowy may sell more stakes in some of Westfield's 119 malls worldwide after using six such deals this year to reduce debt costs."
Dune Capital Management Adds Buckley as Partner (Globe St., Aug. 29th): "New York City-based investment management firm Dune Capital Management LP has added Cia Buckley as a partner in Dune Real Estate Partners' Fifth Avenue office. Buckley will also be a managing director and principal of DCM and a member of the Dune Real Estate Investment Committee. A spokesperson for the company tells GlobeSt.com that Buckley will be focusing on the firm's real estate investment activities in the US and Europe.
Reits Take A Hit In Housing Slide (Baltimore Sun, Aug. 28th): "REITs, most of which have little or nothing to do with the housing market and home mortgages, have taken a stock-price pummeling this summer as investors fled anything remotely connected to those out-of-favor industries. Corporate Office Properties Trust, for instance, builds high-security offices for government agencies and contractors and says business is steady. But its stock is down 27% since its peak of $56-a-share in February… [Maryland] REITs include [retail REIT] Federal Realty Investment; Washington REIT…which owns offices, retail, industrial buildings and apartment complexes; and Omega Healthcare Investors Inc. in Timonium, which owns and provides financing for about 230 nursing homes and assisted-living facilities."
GE Real Estate Completes Equity Investment In Dundee Real Estate Investment Trust (CNW Group, Aug. 27th): "GE Real Estate announced that it acquired today 3,473,687 trust units of Dundee REIT representing approximately 16% of the REIT's outstanding voting securities on a fully diluted basis and being GE Real Estate's entire equity investment in the REIT. The Units were purchased at a cash price of $47.50/Unit from unitholders of the REIT who elected to have their Units redeemed and transferred in connection with the Transaction."
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