Judy Weil submits: 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"
"The key to developing secondary markets was securitization… Securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending. Asset-backed securities and the secondary markets in which they trade generally provide both households and businesses with excellent access to credit at an appropriate risk-adjusted interest rate." - Then-Federal Reserve chief Alan Greenspan, speaking before a Senate Committee on Banking, Housing, and Urban Affairs in 2004." (Seeking Alpha, Sept. 17th)
Real Estate Sales and House Prices
- Upland's Residential Revitalization (Daily Bulletin, Sept. 18th) California: "Foothill Walk, a new 72-unit town house complex, recently became the first new housing structure to be built on Upland's portion of Route 66 in 23 years… Jeff Bloom, Upland's community development director: "We're trying to implement housing for use in retail." The development will bring median improvements, soften the street and make the area more community friendly… There are two models in the new development. Prices range from $399,000 to $450,000. Each two-story unit is just under 1,500-sf."
- Area Home Sales Decline 9 Percent (Hartford Courant, Sept. 18th): "Greater Hartford Association of Realtors: Sales of single-family houses in the Hartford area… dropped more than 9% in August compared with August 2006. Closed sales dropped from 1,255 in August 2006 to 1,140 this past August… The median sales price of single-family houses increased from $267,500 to $270,000, or less than 1%. Year-to-date through August, single-family home sales are down 9.5%, from 8,165 in 2006 to 7,388 in 2007… The median sales price [YTD] increased 1.17%, from $257,000 to $260,000. And it [takes] 10% longer to sell those single-family homes, from an average 56 days in the first eight months of 2006 to 62 days through August 2007."
- Gloom With A View As Ritzy Apartments $Lump (NY Post, Sept. 17th): "Concerns over less-generous Wall Street bonuses, higher finance costs, and a softening national consumer market is keeping buyers of $7 million-plus properties at bay while mansion markdowns are already happening in the ritziest tristate suburbs and in the Hamptons… In Manhattan, two notable new construction condominium projects, 15 Central Park West and The Plaza Hotel Residences, are already posting closing costs for hyperexpensive units, including the purchase of a $42.4 million apartment in the name of Joan Weill, the wife of former Citigroup Chairman Sanford Weill, and $51 million worth of apartments slated to become most of one huge residence."
- Pop Goes the Real Estate Bubble in the Rest of the Country. But Not in New York. Not Yet. (NY Magazine, Sept. 17th): "After the 1987 stock-market crash, Manhattan median home prices plummeted by 26%… Harvard professor Edward Glaeser: [based on] housing data from every metropolitan area in the country between 1980-2004… he estimated that on average, for every dollar a city gains in prices over five years, it loses $0.32 over the next five years. It’s a simple and brutal equation. “New York City has had a great past five years. This bodes poorly for the future.” Worst Case Scenario: Wall Street gets hit on three sides: Banks and brokerages cope with large losses, stock prices reflect the recession, and everyone sheds excess personnel. Smaller Christmas bonuses guarantee that the demand for four-plus-bedroom apartments won’t pull up the rest of the market."
- Black & Decker Looks To Weather Storm In Nation’s Housing Market (Examiner.com, Sept. 17th): "The number of homes sold in the Baltimore region in August dropped 17% from the same month last year, and the average time on the market for a home increased from 58 days to 84 days, according to data released last week by Metropolitan Regional Information Systems.
Real Estate Investing and Sentiment
- Where Are All the Real Estate Deals? (BusinessWeek, Sept. 18th): "In the worst markets for bargain buying right now, affordability is low [and] home prices are expected to see double-digit declines in the next two years... Miami; Reno, Nev.; Los Angeles and… other California metros fall into this category. [Also] home prices in high speculation areas such as California and Florida [may never] rebound to boom levels… For undervalued, affordable housing with a good outlook for home price and job market growth… southern metro areas such as Austin, Tex.; Baton Rouge, La.; Durham, N.C.; and Houston are all expected to see home prices increase more than 5% over the next two years."
Mortgates and Real Estate Lending
- Bank of America Offers Loan Refinancing (CNN Money, Sept. 17th): "Bank of America (NYSE:BAC) said Monday it will introduce special pricing for borrowers seeking to refinance their home loans with conforming 30-year and 15-year fixed rate loans and non-conforming 30-year fixed rate loans… Fannie Mae estimates that roughly $1.1 trillion in single-family first-lien mortgages face a payment reset in 2007. An estimated 2 million loans will reset over the next 18 months, raising fears about a wave of delinquencies as homeowners are unable to meet the new payments."
- Lending, Real Estate Still Strong In North Dakota (Bismarck Tribune, Sept. 17th): "Bismarck-Mandan Board of Realtors: Single-family home sales for H1'07 increased by 18%. Prices increased an average of 12% in the first seven months of 2007, too: The average sales price in 2007 is $165,627, compared to $146,344 in 2006… RealtyTrac: North Dakota had the second lowest foreclosure rate in the nation in July [and] the third lowest foreclosure rate in H1'07… The number of lenders in North Dakota continues to grow: Bob Entringer, assistant commissioner: As of Aug. 31, 404 lenders were licensed in North Dakota this year, compared to 394 last year [and] 381 as of Aug. 31 in 2005."
Global Subprime Fallout
- Here Comes a Whale (John Mauldin's Investors Insight, Sept. 17th): "The Northern Rock crisis could be the climactic event of the present liquidity contraction… Northern Rock's balance- sheet is £113 billion, or $230 billion, making it the eighth-biggest bank in Britain… It became the country's biggest net lender over the past six months… Its whale-like £113 billion balance sheet rests on a £3 billion equity base... Even worse, its liabilities include only £30 billion of stable (until last week) consumer deposits. Its remaining £80 billion of funding depends on securitisation or on capital markets… The Financial Service Authority's deposit guarantee scheme, guarantees 100% of deposits up to £2,000, 90% of the next £32,000 and nothing… beyond that."
- U.K. Housing Market Buckles Under Weight of Credit Crunch (Wall St. Journal, Sept. 18th): "The 3% August drop in the average house price, as reported by property Web site Rightmove, certifies the end of the U.K. housing boom... The average house price, adjusted for inflation, hit the peak level of 1989, using an index compiled by Halifax Bank, in mid-2002… The inflation-adjusted average house price has climbed almost 60% since then, including a 9% gain in the past year… Northern Rock, [now on] life support, wrote 10% of the country's mortgages in H1'07… Much of [its] buy-to-let and 100%-plus loan-to-value business will disappear… The last time the U.K. housing market collapsed, between 1989-1996, the average house price fell by 35%."
- Korean Overseas Real Estate Investment Drops (Chosun Biz/Tech, Sept. 17th): "Korean investors purchased land and buildings overseas worth a combined US$89 million in August. The Ministry of Finance and Economy says Koreans invested in a total of 195 overseas properties last month. Overseas investments had reached more than $100M during each of the previous four months. Analysts link the reduction to the recent U.S. subprime mortgage crisis as investors cut down their investments in North America. A drop in property investments in Southeast Asia also led to the decline."
- Hapoalim Sees Mortgage Crisis Weighing On Africa-Israel (Globes Online, Sept. 16th): "Bank Hapoalim… cut its Africa-Israel Investments' (OTC:AFIVY) target price by 28%, but retained its "Market Perform" rating for the stock: "We believe that Africa-Israel will continue… posting larger revenue and net profit. However, one cannot ignore the recent increase in the level of risk in the company's core business - the global real estate market. Likewise, we expect the stock to experience increasing volatility, commensurate with the trading in London of AFI Development [which manages the group's property in Russia] which accounts for 60% of the group's combined asset value."
- Thornburg Mortgage Debt Ratings Confirmed With Negative Outlook - Moody's (CNN Money, Sept. 18th): "Moody's Investors Service confirmed the 'B2' senior debt ratings of Thornburg Mortgage (TMA) with a negative outlook, citing Thornburg's progress in stabilizing liquidity through asset sales, capital issuance and the completion of a securitization transaction. The negative rating outlook reflects Thornburg's remaining funding constraints, now-unhedged balance sheet, limited ability to absorb continued losses or collateral calls, a more guarded outlook for ongoing business profitability and originations, and the risks associated with potentially [violating] REIT status. Brian Harris, Moody's analyst: 'Thornburg's liquidity position has become more stable with the completion of the $1.4 billion securitization and $575 million preferred capital infusion.'"
- Merrill Lynch's Subprime Unit Cutting Jobs (Reuters UK, Sept. 17th): "Merrill Lynch & Co Inc (MER) said on Monday that its subprime lender, First Franklin Financial, would cut an unspecified number of jobs… Merrill Lynch bought First Franklin in December amid a meltdown in the market for risky subprime mortgages… In a May SEC filing, First Franklin disclosed that it had terminated more than 60,000 independent brokers since 2000… Separately, First Franklin's former owner, National City Corp. (NCC), warned that risk remained "elevated" on the loans it kept from the subprime lender… Merrill declined to say how many jobs were being cut. First Franklin employed 2,100 workers and had 35 offices."
- National City Bank Affected by Ohio Foreclosures, Chiquita Fined for Bribing Columbian Terrorists (EPluribus Media, Sept. 17th): "Ohio business titan National City Bank (NYSEMKT:NCB) is reporting that the value of past-due real estate mortgage loans has been rising steadily and reached a one-year high in August. Quantifying this unwanted but currently unstoppable trending up of problematic subprime home loans, the lending giant said actual foreclosures stood at $280 million, a figure it said represented nearly 50% more than in August 2006."
- State Foreclosures For August Up 126% (Detroit News, Sept. 18th): "RealtyTrac: The number of Michigan homes taken by foreclosure was up 126.86% in August over August 2006. In total, 15,565 foreclosure filings were made in the state last month… [ranking] sixth in the nation… The bulk of the state's filings were in Metro Detroit counties. In Wayne County, there were 9,615 foreclosure filings in August… up from 8,683 such filings in July, a 10.7% increase, and 3,068 filings in August 2006, a 213% increase. In Oakland County, there were 864 filings last month… down from 1,105 in July, a 21.8% drop, but up from 726 in August of last year, a 19% increase."
- August Foreclosures Zoom (Yahoo! Finance, Sept. 18th): "RealtyTrac; The number of homes in some stage of default jumped 36% month-over-month in August. Delinquencies and defaults more than doubled year over year to 243,947… RealtyTrac's forecast is for total foreclosure filings to exceed 2 million this year. October is expected to be a peak month for hybrid adjustable rate mortgages (ARMs) to reset, with the interest rates on some $50 billion worth of loans poised to go up dramatically... Some of the hardest-hit states have traditionally been in the Midwest, where plant closings and job losses have hit the economy there hard. The other region is the [where] price increases… led to virtually unchecked real estate speculation.
Global Impact and Alternatives To The Housing Slump
- Foreign Buyers See Opportunity In U.S. Real Estate Market (Statesman.com, Sept. 16th): ""State of the Nation's Housing" 2007 report from Harvard University's Joint Center for Housing Studies: The percentage of foreign-born buyers that contributed to net household formations, previously 15% in the 1980s and nearly 30% in the 1990s, grew to 40% between 2000-2005… A rate of 1.2 million net immigrants [came to America] annually since 2000. [Some] 12 million additional immigrants are expected to arrive between 2005-2015… National Association of Realtors 2007 Profile of International Home Buying Activity: During the past 12 months, one in three Realtors worked with an international client or prospect and nearly one in five sold a home to a foreign buyer."
- China Boosts Canadian Lumber (London Free Press, Sept. 18th): "Record high oil prices, a relatively strong mining sector and continued Chinese demand should keep Canada's economy stable even as a housing slowdown in the U.S. drags down lumber producers and exporters of everything from cement and roofing supplies to copper pipe and plastic building products, economists say… A number of Canadian companies have reported feeling a pinch from the big drop in U.S. housing starts, with lumber producer Tembec Inc. temporarily pulling lumber from sale in North America last week because of falling prices and the surging Canadian dollar."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Predicting a Slowdown in Revenue, New York Officials Prepare for a Tighter Budget (NY Times, Sept. 18th): "Mark Page, the city’s budget director [says] continued fallout in the financial services industry from the national mortgage crisis and recent losses at hedge funds are likely to significantly cut into profits on Wall Street this year, [which] means less tax revenue for the city, and lower real estate transaction fees… as fewer fat bonuses fuel high-end apartment shopping sprees… City officials had already been projecting lower revenue from real estate transactions in the current fiscal year than in fiscal 2006 because they predicted fewer large deals like the $5.4 billion purchase of Stuyvesant Town and Peter Cooper Village."
Homebuilders And Housing Stocks
- Hovnanian Sells 2,100 Homes In 3 Days (Roy Mehta in Seeking Alpha, Sept. 17th): "Hovnanian Enterprises announced Monday that its "Deal of the Century" three day sales promotion led to 2,100 home sales, beating their own expectations. The sales included about 1,700 contracts and about 400 sales deposits. CEO Ara Hovnanian, "The high level of traffic… convinces us that there are interested buyers in the market today." Vicki Bryan, senior analyst at Gimme Credit: "Even if one third of those sales cancel… Hovnanian may be on track in just one weekend to meet 39% of its FQ4 estimate of 3,600 homes sold, and there are six weeks left in the quarter."
- Hovnanian's Fire Sale Burns Other Builders (The Street, Sept. 17th): "Hovnanian Enterprises' (NYSE:HOV) three-day fire sale over the weekend… may just spark a pricing war among all homebuilders… The sales are a positive for Hovnanian in that it could increase immediate cash flow and allow the company to burn off inventories. [But did] Hovnanian's slashed prices actually get buyers off the sidelines and increase overall demand for homes in the U.S. [or did it] simply steal some short-term market share from the shallow demand pool… [A price war] would contribute to a downward spiral in prices and increase buyers' hesitancy as they wait for the next big sale… [Also,] a surge in gross orders means little if cancellations also jump."
- Hovnanian Hurts Homeowners (Entrepreneur.com, Sept. 15th): "The real estate market and the ability to get loans is all based on 'comps', or comparative analyses. This means that Joe’s home next door to one of these homes Hovnanian slashed prices on is now worth – well, whatever Hovnanian slashed prices to… This will deflate the price of the market and devalue existing homes even more… Those who are in the process of buying a home in one of these areas… are now, for all purposes, paying more for the house than it is worth... I wouldn’t be surprised to see class action lawsuits against these builders for individuals who bought the same house one month ago - for $150,000 more."
- Home Builders To Present At New York Conference (Inman News, Sept. 17th): "Several large home building companies, among them Beazer Homes USA (NYSE:BZH). and D.R. Horton Inc. (NYSE:DHI), are scheduled to deliver presentations this week at a Credit Suisse Homebuilder Conference in New York… Many of the presentations are scheduled Tuesday -- the same day as a much-anticipated Federal Reserve committee meeting… Several real estate industry trade groups have encouraged a reduction in this rate to jump-start a stumbling housing market… Other builders scheduled to present at the Credit Suisse event include Hovnanian Enterprises (HOV), MDC Holdings Inc. (NYSE:MDC), The Ryland Group Inc. (NYSE:RYL), Standard Pacific Corp. (NYSE:SPF), TOUSA Inc., and Toll Brothers Inc. (NYSE:TOL)."
- Standard Pacific New Home Orders Rise In July-August (KPLCTV, Sept. 17th): "Standard Pacific Corp (SPF)… said on Monday net new orders in July and August rose 20%, with those in California nearly doubling. Still, the company sees additional impairment charges in Q3... Analysts warned the rise may not indicate a rebound in homebuilding demand [as] higher sales may have been driven by increased incentives -- which would result in lower profit margins -- and were also a reflection of easier year-ago comparisons… Although orders were up in the first two months of the quarter versus a year earlier, orders in the same period of Q3'06 were 58% lower than in 2005… The cancellation rate for the two-month period in 2007 was 33% compared with 51% in the year-earlier period. But it was greater than 28% in Q2'07."
- Beazer Homes Reduces Credit Facility (CNN Money, Sept. 17th): "SEC filing: The mortgage subsidiary of homebuilder Beazer Homes USA (BZH), Beazer Mortgage Corp. cut the borrowing capacity of its 364-day warehouse line of credit to $17.5 million from $100M to comply with the loan requirements… Warehouse lines of credit are used for short-term financing of mortgages. A mortgage company will borrow money against the line of credit to fund or purchase a loan. When the loan is then sold to an investor, the warehouse funding is paid back. The Monday filing also said that the number of participating banks under the facility has been reduced to one (Guaranty Bank) from eight."
- Fund Sues Homebuilder (Global Pensions, Sept. 17th): "The Sheet Metal Workers’ National Pension Fund has filed a law suit against Beazer Homes, claiming the company breached its fiduciary duties by wasting assets and damaging its reputation. The US$3.1 billion fund, which continues as a shareholder in the home builder and mortgage provider… claimed former and current board members artificially inflated company stock prices and were then able to award themselves “excessive and undeserved bonus compensation”. It is also claimed the firm engaged in improper lending of mortgages to borrowers unable to meet repayment deadlines [and] that due to [these actions,] by 22 August 2007, the company’s share price had dropped 66%, contributing to a loss of $831m in market capitalisation."
- Pulte, Lennar Top J.D. Power Homebuilder Rankings (AZ StarNet, Sept. 17th) Tucson: "The Del Webb brand of Pulte Homes (NYSE:PHM) has received the highest ranking for customer satisfaction in the Tucson market, according to the 2007 J.D. Power and Associates New-Home Builder Customer Satisfaction Study. Del Webb was followed in customer satisfaction by Pulte itself and Lennar Homes, which also won the top ranking for new home quality. In addition, Pulte Homes' Tucson operation ranked highest among local homebuilders for new-home design and builder mortgage originator satisfaction — new studies added to the J.D. Power and Associates New-Home Builder rankings for 2007."
- Dominion Homes Says Amended Credit Agreement (Reuters, Sept. 17th): "Dominion Homes Inc. (DHOM) said on Monday its lenders had agreed to amend terms of its credit agreement to allow the company to borrow up to $2 million in excess of the borrowing base limitation. The amendment was effective September 11 and any such borrowings must be paid in full as of September 28, Dominion said in a filing with the SEC."
- Centex No. 2 in J.D. Powers Study (Orlando Business Journal, Sept. 17th): "J.D. Power and Associates report: Centex Homes (CTX) ranked No. 2 among the Orlando market's top home builders in customer service satisfaction. In this year's new home builder satisfaction study, Centex notched the second highest overall ranking in Central Florida, where it has 26 communities. Pulte Homes (PHM) notched the top Orlando market ranking… Beazer Homes (BZH) was fourth and KB Home (NYSE:KBH) fifth… Nationwide, Centex placed the highest in 14 of 30 markets stud[ied]…Centex received a platinum award for customer-service excellence among the nation's largest home builders, while also earning special honors for mortgage-lending operation CTX Mortgage, where it posted highest in 12 of 17 markets."
- Modular Homes Slated For Overbuilt North Port (Florida Herald Tribune, Sept. 17th): "Through a new partnership with modular home builder Palm Harbor Homes (PHHM), Sarasota's Compass Communities has found a way to build homes that exceed hurricane codes, feature high-end appointments and are affordable." [But] why is a small builder launching Largo Preserve, a 35-acre development with 483 Key West-style town houses in a community awash with unsold homes in similar price and size ranges (1,382 to 1,885 square feet, priced from $160,000s to $190,000s)… Owner W. Todd Menke, president of FMO Companies Inc.: With Palm Harbor as primary supplier of the homes… [we can] offer warranties -- for timing of delivery, end price and quality -- that competitive small builders in North Port cannot match."
- Implications of Hovnanian's Move (David Levin's Real Estate Focus, Sept. 16th): "Hovnanian is doing what they must in this business environment, namely eliminate costly inventory and re-align the company to operate in the current real estate climate. The carrying cost of inventory is extraordinary… Other builders will follow Hovnanian’s lead… Now, there will be real pressure on the builders and the banks to “mark to market” their inventory and loans respectively. The new wave of hits to balance sheets and income statements will be pronounced… Although some might attempt to call this a “quick sale” and therefore a discounted price, there is a threshold that once crossed, establishes value. A single unit might be sold at a discount, several units sold constitutes the market. Lastly, to sell an existing home in this environment will require competing with this aggressive price cutting from the builders."
- Just 1 Minute (IndyStar, Sept. 15th): "Centex and Ryland are reducing home prices this weekend. Two new-home sellers are advertising weekend discounts, their method to combat a housing slump in the Indianapolis metropolitan area and the rest of the nation.The deals are part of a marketing trend that's growing as levels of new and existing home sales in Indianapolis fall below recent years' rates and price tags drop below where they were in early 2007. Centex Homes said it is selling homes at "drastically reduced prices" on Saturday and Sunday. Ryland Homes reported it is reducing prices 16% during 16 hours this weekend."
- Martha Stewart Living Omnimedia and KB Home Celebrate Opening of First Florida Community (Yahoo! Finance, Sept. 14th): "Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) and KB Home (KBH) today celebrated the opening of their first co-branded community in Florida. KB Home Deer Creek: Homes Created with Martha Stewart is located in Ormond Beach in the Daytona Beach area… Deer Creek offers 1-and 2-story floor plans that offer 3-6 bedrooms and 2.5-3 bathrooms. The six floor plans range from 2,500-3,800-sf, with pricing starting in the low $300s… KB Home and Martha Stewart Living Omnimedia have collaborated on nine exclusive communities nationwide. These include Cary, North Carolina (Twin Lakes); Fairburn, Georgia (Hampton Oaks); Perris, California (Olive Grove); Woodstock, GA (Wynchase); Denver, Colorado (Stapleton); Raleigh, North Carolina (Wynbrooke) and Ormond Beach, Florida (Deer Creek)."
Commercial Real Estate and Real Estate Investment Trusts (REITs)
- UDR Sells Eight Assets to Westdale for $181M (Globe St., Sept. 17th): "The apartment REIT United Dominion Realty Trust has sold an eight-property, 2,310-unit portfolio to Westdale Asset Management of Dallas for $181 million. The sale completes UDRT’s exit from both markets... The in-place cap rate on the investment is in the 5% range, according to industry sources… UDRT says the Atlanta sale demonstrates the value creation of the company’s kitchen and bath renovation program. Thirty-five percent of the Atlanta homes were upgraded over the past two years at a cost of $4.4 million, or an average of $8,765/unit. The renovated units realized an average incremental monthly rent 13.7% higher than non-renovated homes. UDRT estimates that the kitchen and bath program produced $10.8 million of additional sales proceeds, or $6.4 million of value creation."
- American Real Estate Partners, L.P. Officially Changes Name to Icahn Enterprises L.P. (CNN Money, Sept. 17th): "On August 9, 2007, American Real Estate Partners, L.P. announced that it would be changing its name to Icahn Enterprises L.P. That change becomes effective today pursuant to a Certificate of Amendment to the Certificate of Limited Partnership filed with the Delaware Secretary of State… Effective Tuesday, September 18, 2007, the Company's depositary units representing limited partnership interests will trade on the New York Stock Exchange under the symbol "IEP" and the Company's preferred depositary units will trade under the ticker symbol "IEPPR"."
- REITs, Down Sharply, May Be a Good Buy (NY Times, Sept. 16th): "How do investors decide which REITs are worth acquiring now? Ralph L. Block, the author of “Investing in REITs”: Strong management is paramount… Asset quality, because real estate markets fluctuate by location and property type, diversification can be a crucial ingredient to a REIT’s overall success… The best-run REITs are continually expanding — acquiring new properties as they shed some of their existing ones, or planning future developments… The funds from operations, or F.F.O., is a good way to measure cash flow and profitability… What’s reasonable [leverage]? Block: “Between 45-55% total leverage, though there are some property sectors like malls where leverage can get up to 62%.” Looking at the net asset value, or N.A.V. — the value of a REIT’s properties minus its debt, or the equity it owns in its properties — can help... and yield dividends."
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