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"

“We are not halfway through with this crisis yet.” – David Wyss, Standard & Poor's chief economist, on the subprime crisis. S&P says it underestimated the amount of fraud committed in the mortgage market. Wyss pushed a possible market recovery back to 2009. (Sign on San Diego, Oct. 9th)

Real Estate Sales and House Prices

• REO Auction in San Diego (Calculated Risk, Oct. 9th): "Unlisted REOs [lender-owned property] are one of the reasons the reported inventory level is [underestimated]… Appraisals have come down and REO brokers are selling properties in record volume, though not matching the pace of acquisitions… The last average list price of [auctioned San Diego] properties is 81.4% of the last sold price… The average list price [of area REOs] is almost 20% off the previous selling price! If someone is thinking the lenders are working down the REO inventory in San Diego… The graph of NODs [default notices] shows where NOTs [trustee sales notices] and REOs will go over the next 3 months."

• Nearly 100 Homes Given Red Tag Sale Price (Bradenton Herald, Oct. 9th) Florida: "Almost 100 homes for sale in Manatee County will be offered at 10% below their asking price this weekend. Wagner Realty hopes its sale will bring out buyers at a time when… more than 5,000 homes [are] listed for sale in Manatee County… "That's a really good thought on their part, we might do something similar," said Lakewood Ranch Realty broker Milt Flinn… A local rental community, The Yacht Club at Heritage Harbour is offering agents a $1,500 cash referral fee if clients they bring to the community sign a lease."

• 87 Units On Market for More Than $11M (Globe St., Oct. 9th): "Marcus & Millichap Real Estate Investment Services has retained the exclusive listing for four five-story apartment buildings, totaling 87 units, in Manhattan. The listing price of $11.3 million represents $129,310/unit. Marcus & Millichap: "The seller is a private individual who has owned the property for almost 30 years… Average rents are just over $700, leaving ample upside for a new owner to increase the NOI…" The property features a strong mix of 46 one-bedroom, 20 two-bedroom and 21 three-bedroom units… Washington Heights is experiencing a rebirth."

• Price Cuts at Das Haus (Brownstoner, Oct. 9th) New York: "Sales haven't been going as well as hoped at the colorful six-story 'Das Haus' development… in Fort Greene... Eight months after coming on the market, only one of the seven units is in contract… The developer [has] reduced prices for a second time. The cuts aren't big—between $5,000-$25,000—but at least they restart the clock when it comes time to calculate the official time on market, right? We would have thought these places would have had an easier time finding buyers… Maybe $600/sf north of Myrtle is just a non-starter in this market."

Real Estate Investing and Sentiment

• Risk Of House-Price Declines Falling In Many Areas (Inman News, Oct. 9th): "PMI Mortgage Insurance Co. (PMI) analysis: Declining home prices boosted affordability during Q2, reducing the risk of price declines in 28 of the 50 largest metropolitan areas. PMI said its U.S. Market Risk Index -- which takes into account economic factors like home-price appreciation and volatility, affordability and employment -- fell for the first time in 2 1/2 years during Q2. Mark Milner, PMI's chief risk officer: "While that's an encouraging sign that housing markets are beginning to correct, it's not evidence that they've hit bottom. Scores in many areas remain elevated, and risk remains high nationwide."

• What We Should Have Learned From Hovnanian (David Levin's Real Estate Focus, Oct. 7th): "Hovnanian’s (HOV) Sale of the Century should have taught us… there are buyers out there. [Hovnanian sold] the equivalent of a quarter’s worth of selling at the previous sales pace… The highly touted 30% discount gave people a reason to buy… In most markets a 30% discount to current price levels appears to more than take into account any projected price erosion over the next couple of years… These tactics will not eliminate the entire inventory [but] will go a long way in helping to re-align balance sheets and getting the companies back in line with the industry’s current operating environment."

Mortgates and Real Estate Lending

• The Easing Credit Crunch II (Greg Newton in Seeking Alpha, Oct. 8th): "The vast majority of the [Archstone/Tishman buyout] coverage either relegated… GSEs Fannie Mae and Freddie Mac's involvement well down the story… or left it out entirely. So congratulations to the The Wall Street Journal for getting the GSEs into the lead, even if it did manage to knock about a third off the consensus value of the transaction. And couldn’t resist bulling the impact of what is essentially subsidized property speculation by one company—FNM— that aspires to become current in its financial reporting obligations by Feb. 2008, and another—FRE— that only recently buried the remnants of its own fraud."

• Non-Residential ABS: No Problem... Why? (Accrued Interest in Seeking Alpha, Oct. 8th): "While my broad view is that most ABS has plenty of subordination to withstand a modestly higher default rate, there is a non-zero probability that we've all underestimated how much consumers were using their homes to bail themselves out. I'm personally involved in enough other sectors which have widened similarly which don't suffer from the possibility, however likely, that consumers will be even weaker than I currently think."

Global Subprime Fallout

• Experian Shares Have Record Decline on Slowing Revenue Growth (Bloomberg, Oct. 10th): "Experian Group Ltd., the Dublin-based provider of credit information on more than 300 million people worldwide, posted a record decline in London trading after saying revenue growth slowed in Q2… CFO Paul Brooks: The company had a "slight slowdown" in Q2 because of the subprime mortgage crisis in the U.S... Total sales rose 17% in H1'07, following an acquisition in Brazil. It didn't provide comparable data or growth figures for Q2. "If you've got fewer people borrowing money then you've got less reason for credit checks,'' Seymore Pierce analyst Kevin Lapwood, who has a "hold'' rating on the stock.''

• Foxtons Owes $40.9 Million, Has $488,000 In Assets (Inman News, Oct. 9th): "Discount real estate brokerage company Foxtons North America Inc. listed $40.9 million in total liabilities and $488,000 in assets in a bankruptcy court filing. About $35.4M worth of liabilities is attributed to a loan by Heven Holdings Ltd., the parent company of London-based Foxtons. Heven Holdings is owned by Jon Hunt, 51, the founder of London-based Foxtons and CEO for Foxtons North America. Officials at the U.S.-based Foxtons company, which has operated in Connecticut, New Jersey and New York… announced that the company would file for bankruptcy and planned to sell its active property listings to another brokerage company."

Subprime Fallout

• Downey Announces Housing Environment Impacts Third Quarter (Earthtimes.org, Oct. 10th): "Downey Financial Corp. (DSL) announced today that it… expects to incur an operating loss for the quarter of approximately $23 million or $0.84/share on a fully diluted basis. This will reduce net income for Q1-3'07 to approximately $52Mor $1.87/share on a fully diluted basis. Q3 results are adversely affected by the continued weakening in the housing market. Including… an approximate $82M provision for credit losses, which will increase the allowance for loan losses to approximately $144M or 1.22% of loans held for investment. An approximate $9M valuation reduction to real estate held for development to reflect declines in the value of single family home lots in which the company is a joint venture partner."

• Fed Adds $12.5 Billion to Banking System With Overnight Repos (Bloomberg, Oct. 9th): "The Federal Reserve added $12.5 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos. When the Fed added the reserves, Federal funds, the overnight lending rate between U.S. banks, traded at 4 13/16%, above the central bank's target rate of 4 3/4%, according to ICAP Plc, the world's largest interdealer broker. Dealers submitted $46.25B bids to Fed. In repos, the Fed buys U.S. Treasury, mortgage-backed and so-called agency debt from its 21 primary dealers for a set period, temporarily raising the amount of money available in the banking system. At maturity, the securities are returned to the dealers and the cash to the Fed."

• S&P Says Subprime Far From Over; Understated Fraud (Sign on San Diego, Oct. 9th): "Rating agency Standard & Poor's chief economist David Wyss: The U.S. subprime housing crisis will not peak until 2009, adding it had underestimated the extent of fraud in the industry. S&P expected the world economy to grow 3.6% in 2007 and 3.5% in 2008, with emerging market economies driving growth. The U.S. economy would lag at 2% in both years, down from 2.9% in 2006… “We think in the U.S. housing market is not going to bottom until winter. We think the losses in these sectors won't really hit their peak until 2009."

• Ground Shifts for Borrowers (The Real Deal, Oct. 9th): "Homebuyers and real estate brokers throughout the city have watched with increasing disbelief as mortgage lenders and bankers tightened borrowing restrictions, suddenly eliminated mortgage programs or walked away from previous rate commitments. Barbara Ladesou, a mortgage broker for Manhattan Mortgage Company: "Every day we get a message from the banks… 'We are not doing this anymore.'" New York buyers increasingly find themselves searching for a new banker or broker at the eleventh hour, and sometimes must pay higher net prices for property. Or they simply walk away from transactions, leaving their deposits on the table."

• Thornburg Mortgage Warns of Higher Q3 Losses (Eli Hoffmann in Seeking Alpha, Oct. 9th): "Jumbo mortgage provider Thornburg Mortgage… now estimates it sold $22 billion in assets during Q3, vs. an earlier estimate of $20.4B. Projected losses on the sales were raised to $1.1B from $863 million. Thornburg expects to take a $286M writedown the value of its mortgage portfolio, vs. a previous estimate of $262M. However, Thornburg said it believes it has enough reserves to cover any future losses on its portfolio, adding that it has not seen material deterioration in the credit performance of its loan portfolio since July 31, [and even] "a modest improvement in financing conditions since August, President Larry Goldstone said."

• First Local Lender Falls Victim To Sluggish Mortgage Industry: Santa Cruz Mortgage Shuts Down (Santa Cruz Sentinel, Oct. 9th): "Santa Cruz Mortgage has suspended operations indefinitely, caught up in crisis in the wake of risky loans gone sour… In the past year, 161 lenders nationwide have collapsed due to shakeout from risky home loans going into foreclosure… As the median home price hovered earlier this year at $770,000 and the pool of would-be buyers contracted, Santa Cruz Mortgage struggled to cover its overhead. The company downsized from 42 employees earlier this year to about half that [and has now closed]… Plenty of mortgage companies remain. 'Yelp', an online service, lists 80 mortgage broker offices in Santa Cruz County."

Global Impact and Alternatives To The Housing Slump

• Housing Starts Jump To 29-Year High In September, Seen Heading Down In 08 (Canadian Press, Oct. 9th): "Condo construction pushed Canadian housing starts to a 29-year high in September, suggesting troubles in the U.S. housing market haven't reached home builders north of the border. Canada Mortgage and Housing Corp. said Tuesday that starts rose 19.6% to a seasonally adjusted 278,200 units, up from 232,700 in August - the biggest burst since 1978. The numbers drew most of their strength from an increase in multiple-family home starts in the country's big cities, especially condominiums."

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

• U.S. Economy to Avoid Recession as Housing Sinks, Survey Shows (Bloomberg, Oct. 10th): "The U.S. economy will skirt recession even as the housing slump takes a bigger bite from growth… The economy will grow at an annual rate of 1.8% in Q4, 0.4 percentage point less than forecast last month, according to the median of 71 analysts participating in Bloomberg News's monthly survey. Estimates for H1'08 were also reduced. Sales of furniture, appliances and building materials will slow as plunging home sales and falling property values erode consumer confidence, economists said. The Federal Reserve will follow last month's interest rate cut with a quarter-point reduction before the end of December, the survey shows."

• Fed Saw 'Exceptionally Weak' Housing Ahead Of Rate Cut (AFP.com, Oct. 9th): "The Federal Reserve's half-point rate cut last month came amid evidence of an "exceptionally weak" housing sector and risks of wider economic problems into 2008, minutes released Tuesday showed… FOMC members voted unanimously to cut the key federal funds interest rate by half a percentage point to 4.75%... The minutes indicated that the Fed staff in preparation for the meeting projected "moderate" economic growth in Q3 but had trimmed their forecast for Q4 and through 2008 as a result of housing and credit woes."

• Tracy Tax Revenue Remains Low (Inside Bay Area, Oct. 9th) California: "For the fourth consecutive quarter, the amount of money Tracy collects in taxes has dropped, this time by nearly 6%, the largest fall since revenue began declining a year ago. Coupled with fewer new homes being built in Tracy — limited to 100 until at least 2012 through Measure A — the city might have to tighten its belt before the end of the year… Sales tax collected in the Central Valley remained flat in Q2'07 compared to Q2'06. But in Tracy, the amount dropped by 5.8%, or nearly $200,000, according to a report generated by Fresno-based MuniServices, LLC. "

• NJ Facing $3.5b Budget Gap (NJ Report, Oct. 9th): "New Jersey Gov. Jon S. Corzine on Tuesday said the state could be facing a budget deficit as large as $3.5 billion next year. A deficit that large could require the state to either increases taxes or cut services to balance next year’s budget, but Corzine noted state tax collections remain ahead of projections. The deficit has been projected at $2.5B… New Jersey faced a $4.5B deficit in 2006. Corzine proposed increasing the sales tax to close that gap, sparking a dispute with lawmakers... The tax was increased, but half of it was devoted to property tax relief."

Homebuilders And Housing Stocks

• Sky Fire Only A Minor Holdup (NJ.com, Oct. 10th): "K. Hovnanian (HOV) [and] Equity Residential are building a pair of 48-story residential towers in [New Jersey.] Hovnanian is constructing one tower - 77 Hudson - that will feature 420 condo units, ranging in price from roughly $400,000-$3 million. The developer has already entered into agreements with 75 buyers… Equity Residential is constructing the second tower… that will feature 481 rental units… A fire took place at the Equity Residential portion of the project and company officials [said they] hoped the setback would not interfere with their plans to open in 2009. Hovnanian: "There is no damage to our project, and we expect to remain on schedule."

• Developer Pushes For More Homes (Philly Burbs, Oct. 9th) Pennsylvania: "DeLuca Enterprises is proposing 81 houses [a nearly 50% increase] on the 116-acre parcel at New Hope and Smith roads, sewer treatment that would discharge into Mill Creek and traffic access from Smith Road. All three ideas are changes from a previous proposal… abandoned after lengthy protests by residents… In the spring, the township pursued a 2004 legal agreement with DeLuca and Toll Brothers (TOL)… [to] settle a lawsuit over 159 homes Toll is seeking to build in the Mechanicsville/Victoria Park section of the township… Neighbors of Victoria Park and Mechanicsville both took legal action to try to block the agreement."

• November Trial Date Set For Condemnation Case (AZ Central, Oct. 9th) Arizona: "Scottsdale will meet the Toll Brothers (TOL) developers in court on Nov. 6… Toll says Scottsdale should pay $85 million for land it condemned for the McDowell Sonoran Preserve…. Toll bought 800 acres of state trust land in 2002 for about $85,000/acre. Scottsdale [made clear that] the city would take about half the property [for a nature reserve]. Negotiations over the value of the land repeatedly broke down over the ensuing years... Scottsdale has offered Toll more than $100,000/acre, but Toll said the fair market value of the land is closer to $320,000/acre, [citing] nearby property price[s]."

• A Quick Take: Ryland's Desperate Too (Motley Fool, Oct. 9th): "The Washington Post: The buyer of an auctioned Ryland Group (RYL) condo wept tears of joy on hearing that a $429,999 bid was accepted for a home originally priced more than 20% higher… In the supposedly setback-proof Washington D.C. market, Ryland (RYL) [was] forced to dump 140 homes [through auction], [and] is only one of many trying anything to get houses off the books. Hovnanian Enterprises (HOV) led the way with a "Deal of the Century" "fire sale." Once prospective buyers see just how desperate builders have become, I think we'll be seeing deals of the century, and better, every day."

• Joe Admits Failure (Motley Fool, Oct. 9th): "St. Joe (JOE) admits its failure as an "end-to-end" developer. [Rendering it] a fancified land-flipper. But St. Joe's already giving a hint of just how great that's (not) going to go, announcing that it has 100,000 acres of "rural land" (i.e., stuff no one wants) on the block, along with 1,200 "developed" home sites and 190 homes that are "priced to sell." Doesn't get more desperate than that. And somehow, I don't think a public admission like this puts Joe in a strong bargaining position… Joe also admits that it's had to [meet] with creditors in order to avoid potential debt defaults in the years to come."

• Home Builders' Foundations Shift With Shaky Market (Builder Online, Oct. 9th): "Stephen Kim, RE analyst, Citigroup: Since mid-2006, builders have written off $10 billion in real estate… [He] expects the companies to write off nearly $4B in Q3… KB Home (KBH) said its cancellation rate jumped to 58% for FQ3, [and] said it abandoned plans to build homes in Indiana and Fort Myers, Fla... Gordon Milne, CFO Ryland Group: Half of Ryland's (RYL) buyers backed out of their contracts in the most recent quarter… and the company had to lay off 30% of its staff… [and its combining offices in Florida and California] Lennar CEO Stuart Miller says he walked away from 15,000 home sites the company had planned to develop and has laid off 35% of his staff."

• Shea Homes Enters Florida Market (Builder Online, Oct. 9th): "Shea Homes, a private California home builder announced on Tuesday that it has entered the Florida home building market. Victoria Gardens, a gated, active adult community located between Orlando and Daytona Beach, will offer five models for viewing beginning in early 2008… Even with the national housing downturn Shea Homes believes it's a "great time to do business in Florida." The company estimates that roughly 1,000 people move to Florida every day, and Florida's population will grow nearly 100% by 2025. In addition, Shea expects baby boomers to be the driving force behind the population explosion."

• Let's Hear from Newsom on Lennar (San Franciscon Bay Guardian, Oct. 9th): "Superintendent Chris Daly and Ross Mirkarimi joined educators, spiritual leaders, and families and residents from Bayview-Hunters Point outside City Hall today to commend the San Francisco School Board for unanimously passing a resolution that asks the City to halt Lennar BVHP’s construction at Parcel A of the Hunters Point Shipyard—at least until testing proves that it is safe… [After the protests] the crowd headed inside and upstairs to the Mayor’s Office to hand deliver a copy of the School Board’s resolution to Mayor Gavin Newsom."

• Sector Glance: Homebuilders (Chron.com, Oct. 8th): "Shares of homebuilders fell Monday as the market braced for nasty warnings from companies in a struggling sector… In a weekly preview, Banc of America Securities analyst Daniel Oppenheim said with two weeks left until the other homebuilders report third-quarter results, he thinks there is a chance homebuilders will report their losses ahead of schedule. In fact, Oppenheim said the only reason more homebuilders will not be telling the market they missed their profit targets this quarter is companies in the sector have given up setting targets."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

• 'Orderly' Office Building Boom Coming To NYC (The Real Deal, Oct. 9th): "Between 65M-70 million-sf of office space could be built in New York City over the next 25 years, more space than in all of downtown San Francisco. Mary Ann Tighe, CEO of CB Richard Ellis, New York: The gradual build-up will be "a very orderly delivery of space compared to the boom and bust cycles we had in the 1970s and '80s." The biggest construction area will be on the far West Side, from the Hudson rail yards between 30th and 33rd streets and north to 42nd Street. The city plans on 24 million-sf of new office space being built there."

• iStar Financial Announces Intention to Offer Convertible Senior Floating Rate Notes due 2012 (CNN Money, Oct. 9th): "iStar Financial Inc. (SFI), a… commercial real estate finance company… will publicly offer… convertible senior floating rate notes due 2012. The Notes will be senior unsecured obligations of the Company and will rank equally with all of iStar's other senior unsecured indebtedness… iStar expects to use a portion of the proceeds from the offering to repay outstanding indebtedness under the unsecured interim financing facility which iStar used to fund its acquisition of the commercial real estate lending business of Fremont General Corporation. iStar expects to use the balance of the net proceeds to repay other outstanding indebtedness."

• Tender Offer for MGM Mirage Stock Bombs (Globe St., Oct. 8th): "Dubai World subsidiary Infinity World Investments said Monday its tender offer for up to 14.2 million shares of MGM Mirage common stock netted it just 348,903 shares. The $84/share offer was made in August, when MGM’s share price was in the mid $70s/share. Since mid-September, the company’s has been trading above the offer price [closed $99.75 on Tueday]… The tender offer was part of a larger transaction between Dubai World and MGM Mirage that also included Dubai World acquiring a 50% stake in MGM Mirage’s $5.4-billion CityCenter development on the Las Vegas Strip and acquiring 14.5 million shares of MGM Mirage common stock directly from MGM."

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