Housing Bubble and Real Estate Market Tracker

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"

"If they have terms that work on the market, we're willing to do them." – Lehman Brothers CFO Chris O'Meara on leveraged buyout debt. O'Meara told analysts that although Lehman would lose $1 billion on leveraged loans on their books, they would do continue to back LBOs— provided private equity firms give investors better terms. (Bloomberg, Sept. 18th)

Real Estate Sales and House Prices

• Don't Count On It (New Jersey Real Estate Report, Sept. 18th): "From the late 1960s until the year 2000, the price of the typical American house and the income of the typical family moved almost in lockstep… In 2000, the median home cost about $130,000, roughly three times the typical household income — almost precisely the ratio that had held since the ’60s. Then came an [unprecedented] real estate boom… By last year, this ratio of housing prices to incomes had suddenly shot up to 4.5. For it to return to its old level, home prices would have to fall by an almost unthinkable one-third, and probably more in California, Florida and the Northeast."

• La. To Buy 19,000 Ruined Homes (Builder Online, Sept. 18th): "USA Today: Areas of Louisiana devastated by Hurricane Katrina could remain deserted as the state acquires nearly 19,000 storm-damaged homes in the nation's biggest post-disaster buyout. The mass of deserted land… most[ly] in neighborhoods where Katrina's flooding was most severe -- poses a significant new obstacle for communities struggling to rebuild… Averaging about $75,000 apiece, the buyouts are part of the state's $11 billion Road Home rebuilding program that gives homeowners the option of rebuilding or turning their homes over to the state. Almost as many people have taken the buyouts as there are homeowners in a city the size of Providence."

• Housing Woes Deepen In Valley (Modesto Bee, Sept. 18th): "Northern San Joaquin Valley: RealtyTrac [says] Stanislaus, San Joaquin and Merced counties had the highest foreclosure rates in the country during August… DataQuick Information Systems: Home prices fell about 15% in Stanislaus and San Joaquin counties and nearly 20% in Merced County. Stanislaus County's median-priced home sold for $315,000 last month, [vs.] February 2006 when the county's midpriced home sold for $392,000… Only 450 homes sold in Stanislaus County during August. That's a 43% drop y/y [and] 407 Stanislaus County homes were repossessed in August. An additional 1,388 home- owners were served… default notices, and 329 [were] before public auction."

• New Limits For Hamptons House Sizes (The Real Deal, Sept. 18th): "After lawsuits failed to stop the development of a 65-acre mega-mansion in Sagaponack, East End residents have fought to limit the size of new homes. Billionaire industrialist Ira Rennert's main residence alone occupies 66,000 square feet, with 21 bedrooms and 18 bathrooms. It cost an estimated $100 million. Houses in East Hampton and Southampton will be limited to 20,000-sf, while houses in Sagaponack are capped at 12,000-sf."

• Area Home Sales Rose Slightly In August (Buffalo News, Sept. 18th): "Buffalo Niagara Association of Realtors: Buffalo Niagara’s home sales… rose about 1% to 1,188, the highest total for any month… The region’s number of homes sold from January through August was up 3% from the same eight-month period a year earlier. Buffalo Niagara’s median sale price… was $114,950, up 6.3% from the year before. The average sale price was $135,299, up about 4% from August 2006. BNAR has adjusted its data, starting with its January 2006 figures, to exclude pending sales. The number of homes on the market in Buffalo Niagara dropped by five in August to 5,869."

Affordability Impact

• A Housing Conundrum (Charleston Post and Courier, Sept. 19th): "Charleston Metro Chamber of Commerce's Developers Council: While thousands of homes are for sale in the Charleston region, fewer people can afford to buy them because their wages are not keeping pace with prices… Workers who earn a median income, many of whom work in retail, service and tourism sectors, would find it very difficult now to get a loan to buy in the neighborhoods where they live… Charleston Trident Association of Realtors: In 2000, about half of Charleston homes sold for less than $140,000. Last year, only 17% of homes changed hands in that price range."

Real Estate Investing and Sentiment

• A Mortgage Meltdown Of Ill Repute? (CNN Money, Sept. 11th): "A New York couple was accused of turning their home into a brothel, according to a report published Tuesday, in what could be one of the strangest outcomes of the troubled housing market. Police charged Heather A. Mazzenga and her husband, Robert L. Werner of New Rochelle, N.Y. with promoting prostitution, a felony offense, at their home, saying it was possibly a result of the couple taking a hit in the real estate market, the Journal News reported."

Mortgates and Real Estate Lending

• Let the FHA Help the Housing Market (Washington Post, Sept. 19th): "John K. McIlwain, senior resident fellow at the Urban Land Institute and chairman of the Center for Housing Policy: A revitalized [and expanded] Federal Housing Administration [FHA] could help families refinance their homes and avoid foreclosure while once again giving the agency a leadership role in meeting housing needs that the private mortgage market is not filling… The National Housing Conference's Center for Housing Policy [suggests] "shared equity," through which the FHA would provide fixed-rate mortgages, at affordable amounts, to families facing foreclosure. The balance of such a loan would be converted into a mortgage that would be repaid when the home is sold, along with a share of any home price appreciation."

• Mozilo: Countrywide Wants To Double Its Branches (OC Register Mortgage Insider, Sept. 18th): "Countrywide’s CEO Angelo Mozilo would like to double the number of branches his company operates in the next four to six months, saying he is “bullish, very bullish, on our future” despite recent announcements he would lay off 12,000 employees. Reuters quotes Mozilo, who spoke at a conference in San Francisco after the Fed announced its rate cut, as saying that his company has “turned the corner” and begun to win back depositors after a short run on the bank last month. Mozilo [wants] the federal cap on “jumbo” mortgages raised to $850,000 nationwide or tied to local housing prices."

Subprime Fallout

• Accredited Accepts $295 Million Buyout (Roy Mehta in Seeking Alpha, Sept. 19th): "Accredited Home Lenders announced it had agreed to Lone Star's takeover bid of $295 million. The deal will replace Lone Star's original $400M purchase offer accepted in June, before the credit crisis put the deal in jeopardy. In the new transaction, Lone Star will pay $11.75/share, and Accredited will, as part of the agreement, drop all suits against Lone Star. The buyout price is a compromise between the original offer price of $15.10 and the $8.50 Lone Star offered in August… The company's shares were up 18.1% to $11.54 in midday trading Wednesday."

• Credit Crisis: Time To Revamp Rating System (Globe St., Sept. 18th): "Ethan Penner, principal of private equity firm Lubert-Adler Partners LP [blames] rating agencies [for the current crisis:] "They decide what is a good loan and what is a bad loan.The same standards should apply no matter where the markets are." He called for a solution to the dependency the market has on the rating agencies, which he said are "ripe for re-evaluation. Yesterday's AAAs might no longer be considered AAA. We are closer to a meltdown than we have been since the depression, and although I don't think we are going to have a depression-like situation, until the market has settled into more strict underwriting guidelines, it's difficult to see how liquidity will return."

• E*Trade Restructures, Lowers Outlook on Loan Losses (Susan Lerner in Seeking Alpha, Sept. 18th): "E*Trade Financial late Monday slashed its 2008 earnings forecast, citing bad loans related to the U.S. housing market crisis… The on-line brokerage [will] exit the wholesale mortgage business… The reorganization also will include a restructuring of its balance sheet so the company is more reliant on cash and assets. Charge-offs of $95M for loan losses and an increased provision expense of $245M are expected in H2'07, as well as an estimated $32M in restructuring-related charges… As of the end of August, E*Trade said 2% of its $17B mortgage portfolio was composed of delinquent loans, while 2.8% of its $12.6B home-equity portfolio was at increased risk."

• More Problems In Mortgage Lending Reported As Fed Meets (Inman News, Sept. 18th): "Impac Mortgage Holdings (IMH) said it will stop funding Alt-A loans, the company's core business, citing market disruptions, illiquidity and lack of investor confidence... It will lay off 350 workers, will not pay dividends this year and expects Q3 losses… Accredited Home Lenders [is] closing its retail lending business and lay[ing] off more than 1,000 workers, [and has] filed a belated Q1 report… revealing it posted a $260.2 million loss. NovaStar Financial Inc. (NFI) said it will relinquish its REIT status… because it could not pay the required $157M dividend -- a move that will subject the company to a retroactive tax bill."

• Lehman Beats Estimates, Limits Losses on Mortgages (Bloomberg, Sept. 18th): "Lehman Brothers Holdings Inc. (LEH), the largest U.S. underwriter of mortgage-backed bonds, reported a smaller profit decline than analysts estimated after it limited losses on home loans and leveraged-buyout financing… Q3 Net income declined to $887 million, or $1.54/share, from $916M, or $1.57, a year earlier, [vs. analysts' average estimate of] $1.48/share…. Lehman ended Q3 with $27 billion in lending commitments for leveraged buyouts, down from $44B at the end of Q2. The current figure includes $10B of new commitments. The firm expects to lose more than $1B on the leveraged loans, even after scaling back in Q3."

• In Credit Crunch, Location Matters (USA Today, Sept. 18th): "Analysis firm First American LoanPerformance: Buyers with jumbo loans are getting slammed with higher rates. In costly areas [such as] New York, Los Angeles, San Francisco… Bankrate.com: In the six weeks that ended Sept. 5, the average jumbo rate rose to 7.38% from 7.03%, even as rates on loans below $417,000 fell to 6.5% from 6.75%... Jumbo rates fell to 7.2% last week. The credit crunch is likely to wreak the most havoc in California, Nevada, Florida, Hawaii, Arizona and New York, because relatively high home prices there have led many buyers to subprime, no-documentation or jumbo loans, says Thomas Lawler of Lawler Economic & Housing Consulting."

• Another California Crash May Hurt Jumbo Securities, Report Says (Bloomberg, Sept. 18th): "Barclays mortgage-bond analysts: Securities backed by prime U.S. jumbo mortgages may be riskier than investors think because almost half of the underlying loans are from California, where home prices may again collapse... California accounts for 45% of jumbo mortgages in securities sold last year, up from 35% in 1989... Following a housing boom, home prices in California declined by 12.5% between 1991-1995. Losses after foreclosures on jumbo loans securitized in 1989 rose to 3%, which would be enough to cause many current investment-grade bonds to default. As demand wanes for non-guaranteed mortgages bonds amid tightened bond-financing terms and the highest U.S. foreclosure rate on record, jumbos have fared better than their counterparts. Deutsche Bank AG: Earlier this month, investors offered to pay $0.75 per $100 more for fixed-rated prime jumbo securities than for similar non- jumbo Alt-A debt. Credit Suisse: About $500 billion in prime jumbo-loan bonds are outstanding."

Foreclosure Impact

• August Foreclosure Filings More Than Double From Last Year – RealtyTrac (Judith Levy in Seeking Alpha, Sept. 19th): "RealtyTrac's U.S. Foreclosure Market Report: Foreclosure filings were up 36% in August from July and 115% from last year. The filings, which include default notices, auction sale notices and bank repossessions, reached 243,947… "The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable rate loans are beginning to reset now," said RealtyTrac CEO James Saccacio. The states with the top three foreclosure figures were Nevada, California and Florida. Six Californian cities were among the ten metropolitan areas with the highest foreclosure rates, with Modesto leading the country with one foreclosure for every 79 households."

• Sunbelt States Push August Foreclosure Filings Up 36% (Inman News, Sept. 18th): "Foreclosure filings climbed in 45 states from July to August, with Arkansas, Kansas, Massachusetts, Mississippi and New Mexico the only exceptions… RealtyTrac's monthly reports track filings that are submitted as properties move through three phases of foreclosure. The filings may be generated as properties go into default, are put up for auction, or become "real estate-owned" properties for sale by lenders. "Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings," said MBA Chief Economist Doug Duncan."

• NYC Foreclosures Up 30 Percent (The Real Deal, Sept. 18th): "New York City's foreclosures were up 30% last month, according to research firm RealtyTrac. Brooklyn took the biggest hit, with 1,032 foreclosures in August, up from 822 in August 2006. Manhattan had 79 foreclosures this August, compared to 62 a year ago."

• Rural Residents Fight Development (Arizona Republic, Sept. 18th): "More than a dozen ranchers and homeowners in the unincorporated northwest Valley are questioning why Surprise would allow developers to build thousands of homes amdist a housing [glut]… Right now, about 40,000 homes and a BNSF Railway industrial park are proposed for the area… "We have hundreds of homes in foreclosure. Why are we going to build 500 more?" Wittmann resident Elizabeth Oldham asked at a recent planning and zoning meeting… Community Development Director Scott Chesney explained that the construction of more homes is likely to be at least five years off."

Global Impact and Alternatives To The Housing Slump

U

• U.S. Real Estate Boom Modest Compared To Europe (Bespoke Investment Group in Seeking Alpha, Sept. 18th): "Former Fed Chairman Alan Greenspan noted that while the boom in real estate prices in the US was impressive, the gains looked modest in comparison to other countries. Since 2000, the average price of a new home in the US has risen by nearly 50%. Of the G-7 countries for which we have data, only Japan has seen lower returns. This begs the question -- if the reversion of prices to the mean for US real estate is negatively impacting our economy (and the profits of many foreign banks), what kind of impact would falling real estate prices in international markets have on the global economy?"

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

• Home Builders are Short on Confidence (Roy Mehta in Seeking Alpha, Sept. 18th): "The National Association of Homebuilder announced Tuesday that its home builder sentiment dropped for the seventh straight month to match the lowest levels ever for the indicator. The NAHB/Wells Fargo Housing Market index dropped 2 points to 20, hitting the record low previously recorded in January 1991. Economists estimated that the index, which began in 1985, would fall to 20. "Certainly, problems across the mortgage finance arena are taking their toll on buyer demand," said David Seiders, chief economist for the NAHB. Seiders sees a "gradual recovery starting in] Q3'08. The NAHB index that follows sales expectations for the next six months declined to 26, the lowest level in the 22 years of that index's existence."

• Gross, Rosenberg on the Fed and Rates (Calculated Risk, Sept. 18th): "David Rosenberg, chief economist at Merrill Lynch, said it was hard to combat a deflating credit and asset bubble. He said that while markets soared when the Fed cut rates by 50 basis points in January 2001, they soon fell back.The S&P 500 closed at 1,276.05 on January 2nd, 2001. The Fed cut rates 50bps on Jan 3rd. The S&P 500 closed at 1,347.56, up 5.6% for the day. Then the market started to sell off, falling almost 20% by March. Rosenberg is correct (doesn't mean history will repeat)."

• Housing Containment Theory Ignores Economic Ripple Effect (Michael Shedlock in Seeking Alpha, Sept. 17th): "Consider all the hundreds of thousands of people working in the mortgage industry [and homebuilding], who just recently lost jobs... Where are those housing trade people going to find jobs when they are laid off? And what about truckers hauling and shipping goods to build and furnish homes? [And] furniture makers? The answer should be obvious but few figure such metrics into their calculations when containment theories are presented. What about places like Home Depot, Lowes, etc, that service small subcontractors or the do-it-yourselfer? Won't there be a falloff in numbers of employees needed those stores? What about the reduced need for office space in commercial just on account of lost jobs and businesses in the mortgage related areas."

• Under Bloomberg, Budget and Revenues Swell (NY Times, Sept. 17th): "Since Mr. Bloomberg took office in 2002, the city budget, adjusted for inflation, has swelled… to $60 billion… Mr. Bloomberg generally receives high marks for his stewardship of the budget. [Is NY] ill-prepared to grapple with a downturn, having grown accustomed to booming revenues from flush times? Spending on parks… jumped 27% over his tenure, to $298 million... The budget at Information Technology has almost tripled to $157M, largely due to establishing the city’s popular 311 service hot line and to upgrading other technology systems. Spending on schools jumped 14%, to $16B, driven by a 40% increase in teacher salaries."

Homebuilders And Housing Stocks

• Homebuilders Soar on Rate Cut: Have Investors Gotten Ahead of Themselves (Trade Radar Operator in Seeking Alpha, Sept. 19th): "The Fed's rate cut will only have a marginal effect on those borrowers who are in way over their heads. Thus, the Fed cut is a neutral factor at best. Separately, Congress passed legislation yesterday that would allow the FHA to back refinanced loans for borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels. [This] will only help those borrowers with good enough credit to refinance. And FHA backing only protects the lenders. With a limited budget, the bill will not come close to bailing out all of the estimated 2-2.5 million borrowers with adjustable-rate mortgages who are in danger of default."

• Best Buy Crushes Estimates, Silences Consumer Worries (Chad Brand in Seeking Alpha, Sept. 19th): "Best Buy (BBY) results seem to support the claim that the consumer is not in as bad shape as many [think]. Best Buy reported earnings (for the quarter ending September 1st) of $0.55/share, an impressive $0.11 above estimates of $0.44. Sales grew 15% with comps rising 3.6%. The company now expects full year earnings to be in the upper half of guidance ($3.00-$3.15) so we're likely looking at 2007 profits of around $3.10/share. Best Buy stock has been hit hard, closing yesterday at $44+/share. I think the stock is attractive in the mid forties… Should a leading retailer growing its business 15% really trade at 12 times forward earnings? Maybe if the consumer was really, really hurting… Best Buy's [results] do little to support that argument."

• Beazer Ready to Downsize Further (Yahoo! Finance, Sept. 18th): "CEO Ian McCarthy: Beazer has been "rightsizing" its business by cutting costs and centralizing functions. "If we have to rightsize that further, if we have to shrink that further ... we will be prepared to do that." McCarthy said Beazer is looking at demographics and making projections of where the business is going. He said the company may pull back from some positions and potentially some markets in the short-term, with hope for growth in the long-term. Promotions the company has been running periodically since June 2006 have helped Beazer attract new buyers… McCarthy said the discounts [and] promotions will continue."

• Beazer's House of Cards (Motley Fool, Sept. 18th): "Beazer (BZH) delayed filing its Q3 financial statements… technically put[ting] it in default to its bondholders. It seems likely that Beazer will have to pay [its] bondholders to get them off its back... KB Home (KBH) resorted to such payola last year when it missed a filing deadline and ended up paying its bondholders a $12 million "consent fee…" If hedge funds have shorted the stock, they could end up winning that way, too… Beazer [says] "Noteholders, including various hedge funds and other opportunistic investors, have purchased Beazer's bonds at depressed prices in the market and are now improperly seeking to secure a windfall by demanding repayment in full."

• Toll Bros. CEO: Housing Plunge Not Over (CNN Money, Sept. 18th): "Luxury homebuilder Toll Brothers CEO Robert. I. Toll said Tuesday that the housing market hasn't yet bottomed out and the subprime mortgage crisis will [only] be resolved by a return to conventional underwriting standards… Toll said homebuilders closely watch the sales and traffic at their housing developments and would be the first to spot an upturn. Toll said until Toll's internal reports show a definite uptick on business, he can't say housing has seen its worst…. He said it would take a return to more conservative underwriting standards to right the ship _ and it would take time… In spite of the housing downturn, Toll said buyers aren't downsizing."

• Hovnanian Enterprises Comments on Form 4 Filing (CNN Money, Sept. 18th): "Hovnanian Enterprises (HOV): Form 4 SEC filing [on] an exchange of HOV Class A and Class B common HOV shares… between the Company's Chairman and founder, Kevork S. Hovnanian, and Ara K. Hovnanian, President and CEO… On September 13, 2007, the Company exchanged 395,873 shares of Class B Common Stock held by Ara K. Hovnanian for an equal number of shares of Class A Common Stock and immediately thereafter exchanged the 395,873 shares of Class B Common Stock received from Ara K. Hovnanian for an equal number of shares of Class A Common Stock held by Kevork S. Hovnanian... Ara K. Hovnanian is the son of Kevork S. Hovnanian."

• Ryland Stock Bucks Trend (Los Angeles Business Journal, Sept. 18th): "Shares in Ryland Group Inc. gained more than 8.5% Tuesday after the company’s CFO said that limited exposure to volatile housing markets has helped it fare better than its competitors. CFO Gordon Milne: "Due to Ryland's limited exposure to “hot markets” like Phoenix and Fort Myers, Fla., Ryland has been better suited to ride out the national downturn in housing sales." Milne also said that Ryland only has 12% of its assets in its home state of California, another market hit hard by the credit crunch and home sales slow down. Ryland builds luxury homes in 28 markets across the country."

• Spaces And Places: HP Puts Cupertino Land Back On Market (San Jose Mercury News, Sept. 18th): "Almost a year after Cupertino voters defeated Hewlett-Packard's plan to sell its industrial-zoned property to a home builder, HP has put the land back on the market "as is." HP has owned the property since it bought Compaq Computer in 2002. After its proposal to sell it to Toll Brothers to build 380 condos and 113,000-sf of retail went down in flames, Ingwers said the tech company reconsidered its options… Market conditions convinced HP officials that the property's current zoning, which could allow office and retail development, is likely to strike a chord among developers - especially given the [residential] housing downturn."

• Housing: What Goes Up Comes Down (Conntact.com, Sept. 17th): "Connecticut appears to be a bright spot for Toll Brothers (TOL… Connecticut division president Gregory Kamedulski. "All our jobs are selling fairly well. And we're into the 11th month of our fiscal year, which ends October 31, with sales ahead of projections by about 10%." Toll Brothers currently has eight projects in Connecticut… Despite the good news, Kamedulski says his division is "being more conservative about the numbers we apply in our financial projections. So the result is land that we might have bought two years ago we might be passing on now."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

• Bargains in Real Estate Stocks (Kiplinger.com, October, 2007): "An excellent commercial real estate play: Jones Lang LaSalle (JLL), which provides management services for building owners rather than putting capital at risk as a developer. Business is booming, [and] the stock has risen from about $13 in early 2003 to $110 in August. The stock is [currently] down about 15% from its high, and [its] price-earnings ratio divided by the projected annual growth rate -- is just 0.84. Anything less than 1.0 is considered a bargain… Commercial real estate stock Corrections Corporation of America (CXW) owns and manages jails and prisons under contracts with federal, state and local governments. Revenues jumped from $310 million in 2000 to a projected $1.5 billion this year."

• Is It Time to Hedge Your House? (Mebane Faber in Seeking Alpha, Sept. 18th): The correlation table below which basically shows that housing is negatively correlated to the major asset classes, and has zero correlation with REITs. Instead of hedging, I would think someone running a big enough beta allocation program would want exposure to housing as an asset class - possibly by dividing the real estate exposure into housing and REITs. I see no reason why the timing model would not work for the housing futures as well."

• Harry's Drake Headache (Slatin Report, Sept. 18th): "Sources: Developer Harry Macklowe is about to run up against a September 30 deadline on his $343 million short-term loan from Deutsche Bank on the Drake hotel site, which he bought in early 2006 for $418M… Deutsche, like most lenders these days, is not likely to be in much of a forgiving (or extending) mood… Those who provide equity financing, are basically playing a waiting game as deals they may or may not have intended as loan-to-own turn in that direction. Multiple market sources have suggested that the bank has not exactly had an easy time selling off its roughly $2.5 billion bridge loan on the developer’s $7B portfolio of ex-EOP assets. Another $900M of that debt is held by Fortress Investment, with some $500M of that also on a short leash."

Tracking the Housing Market and Homebuilder Stocks You can track developments in the housing market and homebuilder stocks by bookmarking our Housing coverage or subscribing to our free email service. If you have a blog or website of your own, you can track developments in the sector and provide great content for your readers with our Housing Market widget (left). It's simple to add -- just select "Housing Market" from the drop-down menu here.