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"
“It was virtually impossible to see a bubble forming and even more impossible to predict its timing. [And] there was unsuspected shock in the credit markets. It happened virtually overnight and reciprocally migrated from shock to panic.” – Countrywide Financial CEO Angelo Mozilo, speaking at the RealShare Apartments 2007 conference on Oct. 11th in Los Angeles. (Globe St., Oct. 12th)
Real Estate Sales and House Prices
- Bright Spots In Housing Slump (Arizona Republic, Oct. 14th): "Data-research firm Information Market: Median home prices have dropped in more than half of all metropolitan Phoenix's ZIP codes. Hardest hit were newer Valley fringe communities from Pinal County to Peoria and even some closer in, where home builders reduced prices. Several of the newer suburbs farther out such as Queen Creek, Surprise and Avondale posted double-digit drops in median home prices. Central Valley ZIP codes in west Phoenix and Glendale with more-affordable homes and established neighborhoods fared better, largely a result of little room for new building and shorter commutes."
- Fairbanks Real Estate Prospers As National Market Crumbles (Alaska Journal of Commerce, Oct. 14th): "In Fairbanks, [Alaska] the economy is strong, prompting low vacancy rates and a healthy job market. Demand is strongest in residential properties selling at less than $200,000. But for sellers, competition is high in the $300,000 category as well, said Fairbanks North Star Borough Assessor Patrick Carlson… Anchorage, Wasilla and Matanuska Valley housing sales are more or less mirroring the national trend, said state economist Neal Fried. But the boosts in military personnel stationed at Fort Wainwright and Eielson Air Force Base, both in the Fairbanks area, is likely affecting the demand for housing in the region."
- Housing Meltdown: There's No Time For Sorrows (Accrued Interest in Seeking Alpha, Oct. 12th): "If Joe Blo can't sell his house at a price that allows him to move up to the more expensive house, then he'll probably just stay in his current home. That means that if HPA [house price appreciation]is abnormally low, supply will decline, creating a floor around zero HPA… Ultimately my view that HPA will be flat for 5 years might turn out to be right, but we might go through some actual negative HPA for a couple years followed by modestly positive figures thereafter. I think my supply limitation idea is valid, and it's preventing HPA from falling more severely in the short-term. But with both speculators and foreclosures putting constant pressure on prices, its going to be a tough couple years."
- Oahu Q3 Home Prices Up, Sales Down (Pacific Business News, Oct. 12th): "Prudential Locations September report: The median price of a single-family home during… July-Sept. was $650,000. That was 2.4% higher than July-Sept. 2006, when the median price was $635,000. The median price of a condo during Q3 was $330,000, a 3.3% increase over Q3'06, when the median price was $319,450… There were 934 sales of single-family homes during Q3, a 12.5% decline from Q3'06, when 1,067 homes sold. Condo sales fell 13.4% during Q3 to 1,322 units sold, down from 1,526 units sold during Q3'06."
Real Estate Investing and Sentiment
- New-Homes Developer Looks To Buck The Trend (Cincinnatti Enquirer, Oct. 14th): "Businessman Donald Reuter isn't listening to "naysayers" who say it'll take a year before the sluggish housing market recovers. Reuter plans to buy 29.5 acres to develop land where 63 houses would be built [in Ohio]. Plans call for ranch-style homes [of 1,500-1,700-sf]. He says they would run from $175,000-$225,000… Reuter: "I'm hopeful that the housing market will rebound in the spring." He hopes to land a deal with a homebuilder by late December and begin construction by next spring. The project would be built in phases and be completed in the next five to seven years."
Global Subprime Fallout
- Julius Baer Says Has No 'Critical Risk Positions' In Subprime Market (Forbes, Oct. 14th): "Julius Baer Holdings AG has no 'critical risk positions' in the US subprime market as it has focused on asset management and has not participated in investment banking, said CEO Johannes de Gier… The banking group also sees no significant risks through its hedge fund investments as it has chosen diversified funds which are not heavily exposed to the subprime market… De Gier reiterated Julius Baer's strategy of avoiding high risks, adding that the group continues to advise its clients to be conservative as there is still uncertainty in financial markets. 'It will take time to rebuild trust,' he said."
- Citigroup, Bank of America Agree to Set Up $80 Billion CP Fund (Bloomberg, Oct. 15th): "Citigroup Inc. (C), Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) agreed to set up an $80 billion fund… designed to help revive the asset-backed commercial paper market... The fund will buy assets from structured investment vehicles, units set up to finance purchases of securities such as corporate bonds and subprime mortgage debt. Other banks may join the fund, which would help SIVs avoid selling their $320B in holdings at fire-sale prices, further roiling the credit markets… Fed: The amount of asset-backed commercial paper outstanding tumbled to $899B [last] week, from $1.14 trillion at the end of June."
- Foreclosures Double Nationally; Countrywide Mortgage Fundings Drop 44% (Jonathan Liss in Seeking Alpha, Oct. 12th): "In related news, the U.S.'s top private mortgage initiator, Countrywide Financial Corp., reported foreclosures in September doubled while late payments increased as well. Countrywide reported its total portfolio of mortgage loans fell 44% in September from a year earlier to just $21 billion. A report by Credit Suisse believes the company's foreclosure rate will probably double over the next two years. Countrywide shares are down 57% YTD."
- Grin & Bear It (NY Post, Oct. 14th): "Dick Bove, an analyst at Punk, Ziegel: "Bear Stearns (BSC) has a major competitive disadvantage relative to its competitors [because their] funding… will be more expensive than what Citigroup or Merrill Lynch does… [which will] likely hurt the firm's ability to match [competitors'] low prime-brokerage rates… making it harder to hold on to profitable hedge fund business." If the mortgage market slump [is] prolonged, "not only will 40% of their earnings [possibly] get hurt, but their derivatives business could be at risk." CreditSights analyst: Bear's "company cash liquidity pool" has increased to $20 billion from $2B. Also, Bear estimated it has available at least a year's worth of funding locked up prior to having to liquidate positions or issue debt."
- I.R.S. Looks at Mortgage Securities (NY Times, Oct. 13th): "The Internal Revenue Service is checking out dozens of participants in a financial arrangement to see if they are reaping illegal tax benefits by underreporting income on mortgage-backed securities [specifically, real estate mortgage investment conduits or remics], which make up the bulk of the multitrillion-dollar market for asset-backed securities… The I.R.S. is looking at whether companies and firms that set up remics — including the giant housing agencies Fannie Mae (FNM) and Freddie Mac (FRE), as well as Wall Street investment banks, commercial banks and other mortgage originators — have undervalued the interest earned on those securities and underpaid their federal taxes."
- Subprime Loans Were 30 Percent Of Market From 2004 To 2006 (Bakersfield Californian, Oct. 13th): "It's too early yet to tell whether almost one in four of last year's local subprimes will eventually go south, as predicted [last December] by the Center for Responsible Lending… Most featured [adjustable mortgages] that have not yet reset to higher levels. LoanPerformance estimates 11,329 subprime loans originated in Kern during 2006. WSJ's analysis of subprime loans… pegged the Bakersfield area -- which includes all of Kern County -- as a hotbed for high-rate loans between 2004-2006. Bakersfield ranked fourth nationwide, the Journal found, with subprimes accounting for 30.2% of $26.75 billion worth of home loans made in that time frame."
- Moody's Cuts Credit Ratings On About 2,000 Subprime Bonds (Wall St. Journal, Oct. 12th): "Moody's Investors Service slashed credit ratings on about 2,000 bonds backed by subprime home loans that were originally valued at $33.4 billion, in its largest wave of downgrades… The latest downgrades affected 7.8% of the original value of bonds backed by first [and second-]lien subprime mortgages that were issued during 2006 and rated by Moody's. All of them are rated A and below… Moody's yesterday placed an additional $23.8B in first-lien subprime bonds on review for downgrades, including 48 securities that have the top Aaa rating and 529 with the next-highest Aa rating…. Moody's: There should be "a fair amount of rating stability going forward."
- Foreclosure Figures Overstate Crisis (Atlanta Journal-Constitution, Oct. 14th): "RealtyTrac, one of the nation's leading sources of foreclosure statistics, reported 12,602 July foreclosure actions for Georgia. But that total counted more than 2,000 properties twice, and sometimes more, The Atlanta Journal-Constitution found in a review of the data… Georgia faces a foreclosure crisis, but the company's July report overstated the magnitude of the problem… RealtyTrac [investigated and] said Friday that its data show foreclosure filings in July actually rose by 14%— not by 75%... RealtyTrac said [it would check other state statistics and that] it also provides data to the Federal Reserve, the Federal Deposit Insurance Corp. and the FBI."
- Mortgage Meltdown Neighborhoods Crumble In Wave Of Foreclosures (San Francisco Chronicle, Oct. 14th): "Of the Bay Area's 236 ZIP codes, 25 are foreclosure hot spots… A big predictor of foreclosure hot spots is how far home prices have tumbled in a neighborhood since the Bay Area housing market peaked in spring 2006. That's because many recent homeowners put little or no money down and used riskier mortgages… First American LoanPerformance: The ZIP code with the Bay Area's highest foreclosure rate, Antioch's 94531, also had the region's biggest drop in housing prices - a 15% plunge since May 2006. In this southeastern corner of Antioch, 271 homes - 23 of every 1,000 - were lost to foreclosure from January-August."
- Foreclosure Filings Nearly Double (The Benton Crier, Oct. 14th): "RealtyTrac: Foreclosure filings across the U.S. nearly doubled last month compared with September 2006... The number of filings in September was down 8% from August‘s 243,947… Nevada reported one foreclosure filing for every 185 households, [giving it] the highest foreclosure rate in the nation for the ninth month straight. The state had 5,504 filings in September, down 11.1% from August and more than triple from September 2006. California‘s foreclosure rate was one filing for every 253 households. The state reported the most foreclosure filings of any single state with 51,259, down 11% from August but a fourfold increase from September of last year."
- Foreclosures Down for the Month but Up for the Year (Associated Content, Oct. 13th): "Realty Trac's September 2007 Foreclosure Market Report: While foreclosures for September 2007 were down 8% from August 2007, which was a 32-month high, they were up 99% y/y. This covered 223,538 filings, one for every 557 households nationwide, which included repossessions, default notices, and notices of sale at auction… Florida's 33,354 filings were second only to California in total, and at one filing for every 248 households, it had the second highest rate in the nation, with only a 2% drop in activity from the previous September… The [other] top ten foreclosure spots [include] Nevada, Michigan, Arizona, Georgia, Ohio, Colorado, Texas, and Indiana."
- Foreclosures Soar (Baltimore Sun, Oct. 12th): "RealtyTrac: The number of Maryland properties about to be put on the foreclosure auction block more than tripled last month from a year earlier, as homeowners struggle with the one-two punch of mortgages they can't afford and homes they can't quickly sell. About 1,730 notices of impending auction were issued last month, up from about 550 in September 2006. The number of properties taken back by lenders last month after no one bought them at auction increased 10-fold from September 2006, to about 220. Though some might be commercial properties, the great majority are homes."
- Subprime and Punishment (Washington City Paper, Oct. 11th) Virginia: "In Prince William County, there are a half-dozen houses for sale. Countywide, foreclosures have skyrocketed, mirroring the national trend. In the first eight months of 2007 alone, lenders moved to seize more than 1,500 properties, compared to just 34 for the same period in 2005, according to the data provided by the Prince William County Circuit Court clerk's office."
Global Alternatives To The Housing Slump
- Indiabulls Real Estate: Book Profits (Sify Business, Oct. 14th): "Investors can consider booking profit in Indiabulls Real Estate, as the stock’s current valuation appears to capture a good proportion of the potential earnings growth over the next couple of years… After the company was demerged from Indiabulls Financial Services and listed… the stock doubled from its Day 1 close of Rs 325 in March 2007. While the ambitious plans of Indiabulls Real Estate may hold the potential to turn in returns over the long term, we see little scope for any fundamentally-backed upside at this juncture, given that the company is yet to complete execution of any of its projects."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Red Barron Faces Uncertain Future (Herald Mail, Oct. 14th) Maryland: "Two years ago… the housing market began its long slide… With it, furniture sales began to slip as "so many people, strapped for a mortgage payment or a car payment, they just don't have the money" for furniture, said Randy Barron, owner of the Red Barron furniture store in Willaimsport… For U.S. furniture makers and retailers, the other problem… is the furniture imports flooding American markets from China, Taiwan, South Korea and Vietnam, Barron said. Using cheap labor, the imports are less expensive than American-made furniture, forcing many domestic plants to close and slashing profits for others."
- Local Furniture Stores Weather Storm (Herald Mail, Oct. 14th) Maryland: "The Furnishings Digest Newsletter, a research publication by association consultants Mann, Armistead & Epperson Ltd., of Richmond, Va., sales have slipped badly for many U.S. furniture makers. The October issue shows, for instance, that with one exception, sales in the latest quarter fell compared to a year ago for each of the eight companies it listed. Sales by La-Z-Boy (LZB) slid 12.5% to $344 million, sales by Bassett Furniture (BSET) dropped nearly 14% to $75M and sales by Ethan Allen (ETH) slipped about 5% to $258M."
Homebuilders And Housing Stocks
- Homebuilder Centex Posts Steep Sales Drop (Denver Post, Oct. 13th): "Centex Corp. (CTX) said Friday that its home sales fell 13% in its FQ2 and it will charge nearly $1 billion against earnings to write down land values and other holdings… The homebuilder also expects its wholly-owned financial services affiliate to report a loss provisions of $60 million… Centex said preliminary results show net sales dropped to 5,953 units in FQ2 and that it closed on 7,350 units, down 14% from the year-ago period. Its backlog decreased 38% to 9,633 units. The homebuilder, with operations in 25 states, is scheduled to report financial results on Oct. 23."
- Centex Homes Cuts Prices At Palm City Community Up To 30% (TC Palm, Oct. 13th) Florida: "Centex Homes has slashed prices at its Copperleaf community in Palm City by as much as 30%. When the residential development launched earlier this year, prices for 373 planned homes ranged from $534,990-$1 million+. On Friday, Centex announced much lower prices of $384,990-$874,990… Manuel Olivier, director of sales for Centex's southeast Florida division: The new prices reflect pricing [as if] the… last few years never happened… Existing contracts, including those that have already closed, will reflect the new prices… Brad Hunter, director of Metrostudy: Centex [and] Lennar (LEN) are among the most aggressive in discounting prices and offering extras to move sales."
- Builder Plans Holiday Sale (Baltimore Sun, Oct. 13th): "Pulte Homes (PHM) [plans] a Halloween-themed "monster" sale at seven Maryland communities, including Baltimore, with incentives that include selling at cost and guaranteeing the purchase of buyers' current dwellings. The homebuilder… hopes to entice buyers frightened by plummeting sales, stagnant or falling prices and the potential of getting stuck with two mortgages. The builder said the size of incentives and availability vary by community and home site… The three-day sales… attempt to shed excess inventory in Pulte's 51 markets across the nation, marks the second such event in Maryland by a national builder [after Hovnanian's "Deal of the Century" last month]."
- Toll Brothers Cuts 20 Jobs (Post-Tribune, Oct. 13th) Illinois: "Toll Brothers Inc. (TOL) will lay off a quarter of its production staff in Knox. The plant employs about 80 people, and once the layoffs take effect, they will be left with 60. Manfred Marotta, VP of Toll, said the cuts were due to continuing slow home sales in Illinois and Michigan, but that as soon as the housing market turns around he will be adding people to the plant… When the Knox plant opened in May 2006, they promised the plant would employ close to 300 people from Northwest Indiana and surrounding areas with wages between $16-$17/hour on average."
- To Woo New Buyers, Hovnanian Helps Fix Credit Reports (CNN Money, Oct. 12th): "An experimental program run by K. Hovnanian American Mortgage, a Hovnanian Enterprises Inc. (HOV) subsidiary, partners with an outside firm to help consumers rehab their credit for a traditional loan… Hovnanian, the nation's sixth-largest builder, is expanding the free program nationwide… Build[er] D.R. Horton (DHI) runs a similar service… Buyers can [actually] do [it] themselves: there are complimentary credit reports at www.annualcreditreport.com and private groups help [too]… Some critics say the companies take advantage of consumers' woes to boost sales… [Builders] have done anything for a deal: paid closing costs, tacked on appliances, gift cards, vacations and even offered up cars."
- Levitt Expects $160M-$170M in Q3 Charges (South Florida Business Journal, Oct. 12th): "Levitt Corp. (LEV) expects to take $160M-$170 million charges in Q3 related to subsidiary Levitt and Sons. The homebuilder also said it may not loan Levitt and Sons any more money... [Levitt is] trying to reach agreements with its five lenders… Levitt and Sons did not pay about $2.6M of interest payments due to its five lenders on Oct. 10. Press Release: "Absent a restructuring of the debt which addresses Levitt and Sons' long term requirements, Levitt and Sons' viability is uncertain." Through September 30, 2007, Levitt Corp. had loaned Levitt and Sons about $84M… The controlling shareholder of Levitt is BFC Financial Corp. (BFF), which is also the parent company of BankAtlantic Bancorp (BBX)."
- Lennar, Centex, Pulte Debt Cut to Junk by Moody's (Bloomberg, Oct. 11th): "Lennar Corp. (LEN), Centex Corp. (CTX) and Pulte Homes Inc. (PHM) had their credit ratings cut to junk by Moody's Investors Service… The ratings were lowered to Ba1. About $9.4 billion of debt securities are affected. Lennar is the largest U.S. builder by revenue, Pulte is third and Centex is fourth. "Moody's does not see a sector recovery beginning before 2009 at the earliest, with any recovery likely to be very measured at first,'' Managing Director Tom Marshella and Vice President Joseph Snider, a senior credit officer, said."
- Beazer Homes' Latest Problem: Mortgage Loan Violations (AJC, Oct.11th): "Hobbled by a dismal housing market, a damaged reputation and extraordinary costs for lawyers, consultants and accountants, Atlanta-based Beazer Homes USA (BZH) appears to be struggling for survival. On Thursday, Beazer reported that employees violated federal regulations governing its mortgage loan business dating back almost a decade. The revelations were uncovered by a five-month internal investigation. This latest setback for a company beset with federal probes and lawsuits -- as well as the prospect of a devastating loan recall by creditors -- puts Beazer at a competitive disadvantage in the most volatile housing market of the past decade."
- M/I Homes Reports Unit Results for the Third Quarter of 2007 (CNN Money, Oct. 11th): "New contracts for M/I Homes, Inc. (MHO) Q3'07 were 561, down 2% from Q3'06's 571. For the 2007 nine-month period, new contracts declined 11% to 2,191 from 2,472 in 2006. Homes delivered for Q3'07 decreased 15% to 787 from 2006's 927. For the nine-month period ended September 30, 2007, homes delivered were 2,246, down 18% from 2,746 in the same period of 2006. Backlog of homes at September 30, 2007 was [worth] $481 million with backlog units of 1,468 and an average sales price of $327,000… [vs.] last year's backlog value of $923M with backlog units of 2,533 and an average sales price of $364,000."
Commercial Real Estate and Real Estate Investment Trusts (REITs)
- A Global View Helps Industrial REITs (NY Times, Oct. 14th): "National Association of Real Estate Investment Trusts: In Q3, industrial REITs were first among all REIT sectors, with an average return of 13%... Year-to-date, the sector was up nearly 14%… Property REITs over all posted a 2.59% return, on average, in Q3 and a 1% return YTD… Ross L. Smotrich, a senior managing director at Bear Stearns: Industrial real estate "tends to be a relatively defensive asset class." The two largest of the seven publicly traded industrial REITs — ProLogis Trust (PLD) and AMB Property (AMB) — have been expanding onto other continents… Other REITs with overseas interests, though to a far lesser degree, are First Industrial Realty Trust… and DCT Industrial Trust."
- FRT Well-Positioned in Tight Market (Trading Markets, Oct. 13th): "A Hold recommendation has recently been issued to realty company Federal Realty Investment Trust (FRT) by Zacks REIT analyst Greg Sukenik: Shares of retail-focused REITs have recovered after a sell off earlier in the year. Consumer spending has held up reasonably well despite pressure from declining home prices and rising energy costs. Federal had a good Q2, as funds from operations [FFO] of $0.91/share exceeded our estimates by a penny. Rental growth on new/renewal leases continues to accelerate and overall portfolio occupancy is still above 96%. FRT is one of the best positioned strip mall REITs with class A assets in high growth areas of the country."
- Demand For Talent In Commercial Real Estate Is Growing (AZ Biz, Oct. 12th): "Hiring and compensation [in the commercial property sector] is continuing on the upswing, say experts in the industry… [However,] Anthony LoPinto, CEO of real estate executive recruitment firm Equinox Partners… says "demand for seasoned asset managers will continue to outstrip supply." A survey by SelectLeaders, an online job board for the commercial real estate industry, found that industry job postings increased 35% in the Q1'07, and most employers and senior executives expected hiring and compensation to continue to increase at least through 2007. There is now a shortage of people in their 30s and early 40s in commercial real estate."
- DLA Piper 2007 “Credit Crunch” Real Estate Survey Reveals “Bearish” Outlook (Business Wire, Oct. 11th): "DLA Piper’s “State of the Market” Real Estate Survey… measuring the attitudes and perspectives of 332 top executives within the commercial real estate industry, reveals that only 31% describe their 12-month outlook for the U.S. commercial real estate market as bullish… down sharply from the 78% in April['s survey]. Consequently, 68% of respondents now describe their 12-month outlook as “bearish,” more than tripling the percentage of bearish responses from April (22%). The market for public-to-private M&A has also cooled considerably since April, yet 62% of respondents still believe that the public-to-private trend will continue despite the credit crunch."
- As Logging Fades, Rich Carve Up Open Land in West (NY Times, Oct. 13th): "Forest Service study… more than 1.1 million new families became owners of an acre or more of private forest from 1993-2006 in the lower 48 states, a 12% increase. And almost all the net growth, about seven million acres, was in the Rocky Mountain region. Institutions, pension funds and REITs have been particularly aggressive buyers. Bob Izlar, the director of the Center for Forest Business at the University of Georgia: Over the last 10 years, at least 40 million acres of private forest land have changed hands nationwide… Plum Creek (PCL)[became a REIT] in 1999... Some Plum Creek property has been bought by conservation groups… With money surging into funds organized by groups like the Nature Conservancy and the Trust for Public Lands."
- View From The Top (The Economist, Oct. 11th): "The credit crunch has… so far has not been catastrophic. “A number of transactions are on hold while investors wait to see how deals are repriced,” observes Jonathan Thompson, head of real estate at KPMG accountants. “Debt is still available but the cost has gone up a bit and the loan-to-value ratio has fallen.” Ken Cohen of Lehman Brothers says that the volume of new loans to finance property deals has fallen by half since May-June when credit was widely available. In turn, this has led to a sharp fall in the issuance of commercial mortgage-backed securities (CMBSs), the products that consist of repackaged loans which helped propel the structured-finance market before it seized up."
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