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"
"Its desperation time and some companies may not make it. At this point in the housing cycle, if you have too much debt, it's hard to get out from under it.''- Alex Barron, an industry analyst at Agency Trading Group Inc. in Wayzata, Minnesota about the homebuilders. (Bloomberg, Oct. 5th)
Real Estate Sales and House Prices
- Valley County Home Prices Fall; Frustrate Builders (Idaho Business Review, Oct. 8th): "Carol Amburgy, Idaho Mountain Properties: Home prices have dropped by about $20,000-$30,000 in recent months… [But] an average family making $50,000 can [only] afford roughly $174,000 for a home… Developer Karl Bonar [says] nobody wants the [requisite affordable housing being built.] Falling home prices have put some market-rate homes in the same price range as the affordable homes developers have to build to meet city code… Families who could qualify for the affordable homes would rather buy market rate housing if they can because they can sell it for more money."
- Forecast Dim For Vegas Real Estate (Las Vegas Sun, Oct. 7th): "Bespoke Investment Group: Housing futures contracts… that trade on the Chicago Mercantile Exchange indicate that Investors expect current Las Vegas prices to drop 5.6% by May... Other housing analysts [are] forecasting drops in Las Vegas home prices of much as 15%-20% by 2010… SalesTraq: The median price for new homes in the valley in August was $309,241, 13% below its peak in April 2006. The median existing-home price was $270,000 in August, down 6.8% from its June 2006 peak… At the end of August, there were 27,321 resale homes - a 16-month supply - on the Multiple Listing Service."
- Seattle Home Prices Slip From Last Year (MSNBC, Oct. 6th): "Northwest Multiple Listing Service: The median home price in Seattle dropped last month from a year earlier for the first time since at least 2002. It's just a $50 dip -- 0.01%-- to $399,950, but the numbers here finally follow the trend of the national real estate market… The numbers reveal declining appreciation, many more homes for sale and fewer buyers... September's median price was down 8.9% from August. There were 50% more homes on the market in September and 17% fewer sales than a year earlier. Pending sales, which can be a better indicator of recent activity, decreased 21%."
- Housing Bubble A Flashback To '80s Texas (Chron.com, Oct. 6th): "What happened to houses in Texas through the S&L debacle of the late '80s may be the template for what happens across the country… Houston, the first Texas city to fall in the oil bust, had its home price index peak at 108.5 in 1983. It also bottomed early, hitting 81.5 in 1987, [but] didn't recover to its 1983 level until 1997…14 years… Dallas also peaked in 1986 at 110.1, bottomed at 94.3 in 1989 and regained its old peak in 1997, 11 years [later]. The Texas template tells us we could be in for a 14%-25% decline and an 8-14 year wait for recovery."
- $6 Million For The Co-Op, Then Start To Renovate (NY Times, Oct. 6th): "Brokerage Brown Harris Stevens: Brokers in New York say that the demand at the high end still resembles a luxury- home arms race. Manhattan residents in Q3'07 paid 19% more than they did a year earlier for co-ops with 4BRs or more, compared with an 11% gain for the average 1BR apartment... Research firm PropertyShark.com: So far this year, 324 buyers purchased Manhattan apartments worth more than $5 million; of those 16 buyers closed on homes that cost more than $20M… Another 45 homes are on the market with asking prices of more than $20M."
Real Estate Investing and Sentiment
- South Bronx Sees Rejuvenation (The Real Deal, Oct. 5th): "Over the past 30 years, thousands of South Bronx homes have been built with the help of city-donated land, public subsidies and tax abatements. One strip of Charlotte Street that was completely barren in 1977 now holds ranch houses priced at $500,000."
Mortgates and Real Estate Lending
- Helpful Hand On Trading Options (Chicago Sun Times, Oct. 7th): "Cash-secured puts" involves writing puts on companies that in Morningstar's opinion would be good values even at the put's strike price. If the option is exercised, the option writer would have to buy the stock at an above-market price, but that might not be bad if it's a solid company anyway. If the put isn't exercised, the option writer pockets the premium. At Morningstar.com, analyst Michael Kon suggested a put strategy for CIT Group (NYSE:CIT), CapitalSource (NYSE:CSE), LandAmerica Financial Group (LFG) and MGIC Investment (NYSE:MTG)."
- Many Minority Mortgages 'High Cost,' Study Says (Chron.com, Oct. 6th): "Mortgage insurer Genworth Financial study: A disproportionately large percentage of mortgages made to blacks and Hispanics last year met the government's definition of "high cost" loans. The report… analyzed nationwide mortgage data for 2006 and reached conclusions similar to [a] Federal Reserve study last month. Advocacy groups say mortgage discrimination has contributed to the current subprime lending crisis... The study concluded that 48% of home loans given to blacks and nearly 42% of loans given to Hispanics last year [were] "high-cost" loans… [vs.] 18% for whites and more than 24% for the overall population."
Global Subprime Fallout
- London Bonuses May Fall as Banks Cut Jobs, CEBR Says (Bloomberg, Oct. 8th): "Centre for Economic and Business Research: London finance companies may cut jobs and bonuses next year… as U.S. subprime-mortgage losses spill over into the U.K. economy. Next year's estimated losses of 6,500 banking and fund- management jobs could be the most severe since 2000 as companies brace for a slowdown in U.S. and Chinese economic growth… The pace of house price increases may fall to 1.6% from 16%... Bonuses may not surpass the £8.8 billion paid out at the start of this year until 2010."
- Citigroup To Lend Northern Rock Up To $20.4 Billion (Judith Levy in Seeking Alpha, Oct. 8th): "Citigroup will lend British bank Northern Rock plc up to £10 billion ($20.4B), Bloomberg reported. Northern Rock received a bailout from the Bank of England in September after depositors, alarmed that the bank had sought emergency funding, descended on it to withdraw their money in the first run on a British bank in over a century. Bloomberg: Northern Rock has to refinance approximately £14B in H2 and up to £30B over the next year… WSJ: Several private equity firms, including Blackstone, Cerberus, Apollo Management and J.C. Flowers & Co., have expressed interest in buying the bank."
- Taiwan's Export Growth Likely Slowed on U.S. Housing Recession (Bloomberg, Oct. 8th): "Taiwan's export growth probably slowed in September as a housing recession eroded demand from the U.S., the island's second-biggest market… The U.S. housing slump… is rippling through the U.S. economy as a decline in real estate prices [curtails] consumers spending. Growth in shipments to China, Taiwan's biggest market, may also have cooled as manufacturers slowed imports of key parts and components ahead of a week-long holiday this month… Exports to the U.S. fell 11.5% in August from August 2006, the biggest decline on record, after dropping 2% in July. Overseas sales account for about half of Taiwan's gross domestic product."
- Lone Star Reveals Offer Of 95% Of Outstanding Shares Of Accredited; Satisfaction Of Conditions To Acquire Company (RTT News, Oct. 8th): "LSF5 Accredited Investments, LLC, a subsidiary of [private equity] Lone Star Fund, said shareholders of Accredited Home Lenders Holding Co. (LEND) have offered about 23.97 million shares or 95% of the outstanding shares in response to the tender offer to acquire all of the outstanding company shares [which] closed on October 5… The all-cash tender offer is to be followed by the merger in which each remaining un-tendered shares of Accredited will be converted into the same $11.75/share offer price. The outstanding 9.75% Series A Perpetual Cumulative Preferred REIT Shares… will remain outstanding, at par value of $1.00/share."
- Are Mortgage Fears Behind Us? (Turley Muller in Seeking Alpha, Oct. 8th): "Purchase money mortgage originations [stats were,] in 2002, subprime 6% and Alt-A 5% compared to 2006, sub-prime 20% and Alt-A 20%... Many banks own these risky loans in their investment portfolios… With tightened credit standards and the elimination of these creative loan products, future mortgage originations should fall drastically. Housing market will experience increased weakness due to less qualified borrowers providing the demand needed to offset the enormous home supply. Builders, [lenders] and other related industries are feeling the pain. These woes could affect demand in other non-related industries… Yet, according to the stock market, it appears we have nothing to worry about."
- JPM And BAC To Write Down $3 Billion In Loans: Report (Conde Nast Portfolio, Oct. 8th): "Financial Times: JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) are expected to disclose losses of about $3 billion in mortgage securities and leveraged loans when they report earnings this month... JPMorgan is likely to report mark-to-market losses on leveraged loans of about $1.4B and an additional $700 million in write-downs of mortgages and mortgage-backed securities, according to Howard Mason, analyst with Sanford Bernstein... Mason estimated Bank of America will take write-downs of $700M for leveraged loans and mortgage write-downs of $300M."
- Subprime Mortgage Slipping Into Default At Rapid Pace (Int'l Herald Tribune, Oct. 8th): "Moody's Investors Service: Subprime mortgage bonds created in H1'07 contain loans that are going delinquent at the fastest rate ever. The average rate of "serious loan delinquencies" in the securities has been higher than 2006 bonds." Kyle Bass of Hayman Advisors: "Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life." Fitch last week cut ratings on $18.4 billion worth of bonds backed by subprime loans… Moody's said 6.3% of the loans in bonds issued in H1 were seriously delinquent four months after their securitization. The rate was 4.2% after four months for bonds created last year, and 4.5% for 2007 bonds."
- Wamu Expects Net Income to Drop 75% (Roy Mehta in Seeking Alpha, Oct. 5th): "Washington Mutual (NYSE:WM): Q3'07 profits are expected to fall 75% compared to Q3'06. WaMu lost and wrote-down $410 million and set aside another $975M for future loan losses. The company is the US's largest savings and loan bank… WaMu said it still has the funds necessary to keep expanding business and paying dividends. Shares of the company were up… Friday. Investors have responded positively to banks giving warnings on quarterly results, instead of waiting till they announce earnings. Banks seem to be writing off as much as possible to clean up their books for future quarters."
- Merrill Takes $5.5 Billion Write-Down (Roy Mehta in Seeking Alpha, Oct. 5th): "Merrill Lynch (MER) announced it would be writing down about $5.5 billion when it posts Q3 results. About $4.5B of the write down is a result of the company marking to market the value of its collateralized debt and subprime mortgages. Much of the rest comes from losses on loans related to leveraged buyouts. "The impact of this difficult market was much more severe in certain of our FICC [fixed income, currencies and commodities] businesses than we expected," said CEO Stan O'Neal. Because of the large write-down, Merrill said that it would report a third-quarter net loss of $0.50/share."
- Credit Crisis Affects Whole Neighborhoods (Inside Bay Area, Oct. 7th): "Phoenix real estate research firm Information Market: In 2005… just five homes in the ZIP code containing the Villages were foreclosed [upon]… Last year, lenders claimed 15… So far this year, 75 homes have been claimed by banks. But with the market so soft and more adjustable rate mortgages about to reset, that could be just the beginning… Foreclosure chips away at neighbors' property values… Builders continue adding homes to the market at reduced prices. Investors are trying to sell. Lenders are seeking buyers for foreclosures. Homeowners whose financial troubles might be solved by selling can't compete, real estate agents say."
Global Alternatives To The Housing Slump
- Carlyle Eyes Larger Share Of Realty Business (India Economic Times, Oct. 8th): "[The] Global private equity major Carlyle fund… with more than $75.6 billion of assets under management, is looking to make entity-level investments in real estate companies in India. While most PE funds are looking to exposure only in specific projects floated by real estate companies, Carlyle is keen on buying [a] stake in the parent company. Since real estate… continues to be largely disorganized in India, funds shy away from taking stake in the parent company and prefer to buy stakes in specific FDI- compliant projects… Sources say Carlyle is… looking [to invest] about Rs 600-800 crore out of the existing Asia fund."
- China's Richest Person Is 26-Year Old Woman: Forbes (Forbes, Oct. 8th): "The 26 year-old Yang Huiyan... is China's wealthiest person, with a $16 billion fortune… [Her father] founded and floated real estate developer Country Garden on the Hong Kong stock exchange in April… Real estate [is] among the most lucrative sectors [in China]. Eight of the top ten [Chinese billionaires] have big property development interests. "Household incomes are rising rapidly, and a growing number of people are moving into cities from rural areas. Those trends are creating great business opportunities for property developers," said Russell Flannery, Forbes senior editor and compiler of the China Rich List."
- CBRE Sees Positives In Asia (Asia Property Report, Oct. 7th): "CB Richard Ellis: Strong buying interest was witnessed in Japan and Singapore in H1'07… In Singapore, investment transactions totalling S$24.63 billion were recorded in H1'07, a 70% y/y increase… Strong demand in Seoul´s office sector continued to drive positive investment momentum during H1'07… attracting both domestic and foreign investors… Both local and overseas developers continued to display a strong appetite for development projects in China. The review period saw Hopson Development´s acquisition stakes in a luxury residential development in Beijing for HK$6 billion… In Thailand, local and overseas investors focused on downtown Bangkok and major tourist destinations such as Phuket in Q2'07."
Macro Impact, And Will The Housing Slump Cause A Recession?
- The Nebulous Nature of Real Estate Job Loss (Voice of San Diego, Oct. 8th): "Employment Development Department: Between August 2002-August 2006, industry employment in the financial services sector -- comprising many real estate and mortgage jobs -- grew by nearly 7,800 jobs to 83,500 in the county, a 10.3% increase [while] construction employment ballooned by 16,800 jobs -- a 21.4% increase… This August, financial activities logged a 1,900-job loss compared to August 2006. Construction lost 5,200 jobs y/y… From 2000-2007, membership in the San Diego Association of Realtors rose from about 4,200 to 11,424 members. But the number of homes selling in the county has declined from about 24,000 in the first two-thirds of 2000 to about 18,000 in the same period this year."
- Number Of Homeless Families Rises (Herald News Daily, Oct. 7th): "Massachusetts Coalition for the Homeless: There are more families in shelters now than at any time since the inception of Massachusetts' family shelter program in 1983. Julia Kehoe, commissioner of the state Department of Transitional Assistance: Nationally… the overall number of homeless people is up from a few years ago… Kehoe attributes the increase in Massachusetts to a convergence of low wages, high housing costs, an increase in housing foreclosures and cuts in federal and state housing assistance programs… [Also,] families are being squeezed by the recent national lending crisis, as high mortgages that have forced some landlords to sell or face foreclosure."
- HNI Corp To Close Virginia Plant; Hit 370 Jobs (Reuters, Oct. 5th): "HNI Corp (NYSE:HNI), a maker of office furniture and fireplaces, said it will close its Richmond, Virginia plant during H1'08, affecting 370 jobs, in a move to cut costs. Production at the Richmond plant will be moved to its Georgia and Iowa plants, and the realignment is expected to save more than $10 million annually once fully implemented in 2009, the company said in a statement. Related charges will impact pretax earnings by about $15 million to $17 million over 2007 to 2009."
Homebuilders And Housing Stocks
- Will One Of The Home Builders Go Bankrupt? (24/7 Wall St., Oct. 7th): "Bloomberg: Hovnanian (NYSE:HOV), Standard Pacific (SPF), WCI (WCI), Beazer Homes (NYSE:BZH), and TOUSA Inc (TOA). Some of these companies are [reportedly] in negotiations with their banks to improve debt payment terms. But huge write-offs at… big US financial companies have put pressure on managements… to be more prudent. If share price fall-off is any indication, Beazer and Standard Pacific are the most likely homebuilders to file for bankruptcy… If one [goes bankrupt], it [could] cause a huge shareholder stampede out of all of the other [homebuilders]... By early 2008 stocks in all of these companies could be down by 80% from their late 2006 peaks."
- It's A KB Home World, After All? (Chicago Tribune, Oct. 7th): "This [Disney/KB Homes partnership] wouldn't be the first foray into the world of animation for KB Homes (NYSE:KBH), which years ago built a replica of the Simpsons' home -- complete with turquoise ceilings, mouse holes and Homer's oil-stained driveway -- in one of its developments near Las Vegas. People lined up to visit. The company later gave away the home in a contest. The same company also has had a partnership with Martha Stewart, building "Martha-inspired" communities in several cities (though not here) based vaguely on the architectural styling of her homes and outfitted with amenities she has approved."
- Pulte Homes Pleases Customers (Trading Markets, Oct. 7th): "J.D. Power and Associates has found Pulte Homes (NYSE:PHM) ranks No. 1 in overall home builder customer satisfaction in the Albuquerque market for 2007… This is the second consecutive year Pulte has taken the top spot. Centex Homes (CTX) and KB Home (KBH) tied for No. 2. Of the three builders, only KB improved in its score over last year. The new-home builder customer satisfaction survey is based on the following nine factors, in order of importance: builder's warranty/customer service; construction manager; builder's sales staff; home readiness; price/value; workmanship materials; recreational facilities; builder's design center; and location."
- Housing Developer Asking For Special Tax (Sign on San Diego, Oct. 6th): "The Rattlesnake Mountain development Sky Ranch, is the biggest of any under construction in the city – and it's facing some early challenges… Lennar, the developer… has requested that the city approve a special tax to be paid by future home buyers… Lennar said it remains committed to finishing the… Rattlesnake Mountain neighborhood. Lennar: Of Sky Ranch's 371 planned homes, about 20 have been sold since May. The taxes Lennar requested would… pay for $15 million in public infrastructure… How the project fares could be a preview of the success of the larger Fanita Ranch project, slated for the other side of town."
- Homebuilders Liquidate Assets in Desperation Sales (Bloomberg, Oct. 5th): "The 15 largest homebuilders are saddled with $7.75 billion in debt due to be repaid through 2009 and the companies' bonds trade as if they were junk, according to credit-default swap data… National Association of Home Builders: About 57% of builders offered incentives to buyers in August, up from 37% in September 2005... 52% of builders cut prices in August, [vs.] 19% in September 2005… Research firm CreditSights Inc.: At least seven publicly traded homebuilders have [renegotiated] lending terms in the past four months: Pulte (PHM), on June 29; D.R. Horton (NYSE:DHI), on July 6; Beazer (BZH), on July 25; Centex Corp. (CTX), on July 18; KB Home (KBH) on Aug. 17; Lennar (NYSE:LEN), on Aug. 21; and Standard Pacific (SPF) on Sept. 14."
- Homebuilders' Positive Cash Flow at Risk (Chron.com, Oct. 5th): "Moody's Investors Service: U.S. homebuilders may have difficulties maintaining positive cash flow in the coming quarters as housing inventory remains high. Only a meaningful reduction in inventory will produce positive cash flow, but just one homebuilder, KB Home (KBH), has significantly pared down its inventory so far… "Homebuilders currently generating positive cash flow from operations, Toll Brothers (NYSE:TOL). and Ryland Group (NYSE:RYL) could possibly end up F2007 in negative cash flow territory." Since July, Moody's has cut the credit ratings on four homebuilders, lowered its outlook on three builders and put the ratings of four companies under review for possible downgrade."
Commercial Real Estate and Real Estate Investment Trusts (REITs)
- Investors Buy U.S. Apartment Real Estate Trust For $13.6 Billion (International Herald Tribune, Oct. 8th): "Tishman Speyer Properties and Lehman Brothers Holdings completed the purchase of Archstone-Smith Trust, the biggest U.S. apartment REIT, for $13.6 billion.The Tishman partnership, which includes Barclays Capital and Banc of America Strategic Ventures, will pay shareholders $60.75/share, Archstone said Friday. Tishman and Lehman said Fannie Mae (FNM) bought a $7.1 billion credit facility secured by 105 Archstone multifamily properties. Freddie Mac (FRE) also supplied $1.8B of financing, secured by at least 32 multifamily properties. The total price of the acquisition was about $22.2B, including Archstone debt, the companies said.
- CNA Financial's IDR Upgraded to 'BBB+', IFS to 'A' - Fitch (Forbes, Oct. 8th): "Fitch Ratings said it upgraded CNA Financial Corp's issuer default rating to 'BBB+' from 'BBB' and senior debt rating to 'BBB' from 'BBB-'. Fitch also upgraded the insurer financial strength ratings of CNA's property/casualty insurance units to 'A' from 'A-' with stable outlook… The rating action reflects CNA's improved operating risk profile and Fitch's heightened confidence in its ability to sustain favourable operating performance and maintain its discipline throughout the underwriting cycle... Fitch also said the upgrade reflects CNA's established and sustainable position in the commercial lines property/casualty market, conservative investment portfolio and strong capitalization for its rating."
- 660 Madison Ave. Sells for $375M (The Real Deal, Oct. 5th): "Scott Lawlor's Broadway Partners has sold 660 Madison Avenue, the first Manhattan building it ever owned, for $375 million, after buying it for $216 million in May 2006. The 13-story building is 254,474 square feet, making the sale price over $1,470/sf. The Corcoran Group, the giant residential brokerage, and the flagship of Barneys New York are tenants."
- Mack-Cali 'Picking its Spots' (Globe St., Oct. 5th): "Mitchell E. Hersh, president and CEO of Mack-Cali Realty Corp.: Mack-Cali… pulled out of markets outside of the Northeast several years ago. The company’s vision [now] is, “to expand our presence from Washington, DC to Boston…" focusing on urban areas… “The macro-economic environment that affords diversity of opportunities in the Northeast is unparalleled. I prefer not to invest in markets with low barriers to entry.” Hersh is bullish on New Jersey, asserting that while there are “structural” problems, “the state has a lot of potential."
Tracking the Housing Market and Homebuilder Stocks
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