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"
"I got a letter saying they wanted me to write 10 loans by the end of the month -- superstars were doing five or six a month. I knew what they meant: They wanted me to go." - Steven Campisi, a mortgage banker who worked in Michigan lender Quicken Loans' Cleveland office. Campisi joins the other 69,664 mortgage and lending workers nationwide who lost their jobs between January-Sept. this year, according to Challenger, Gray & Christmas recruitment firm. (Detroit News, Oct. 15th)
Real Estate Sales and House Prices
- Pittsburgh Home Sales Tumble In September (Post-Gazette, Oct. 16th): "Recorded home sales in the metropolitan Pittsburgh area slid 14.5% [in] September compared with… September 2006… Looking at the quarterly real estate picture in Pittsburgh, the number of homes sold is down about 6% while actual sales dollars are down about 3% from the same quarter last year. For the month of September, however, money spent on residential property dropped 12% from $409 million last year to $360.7M this year. Median home prices rose 4.2% from $120,000 in Q3'06 to $125,000 this year."
- Some Housing Markets Seeing Strength (Inman News, Oct. 15th): "Veros Real Estate Solutions forecasts the top five strongest housing markets in terms of price growth through Q2'08 to be: Raleigh-Cary, N.C., at 7% growth; Austin-Round Rock, Texas, at 6%; Charlotte-Gastonia-Concord, N.C.-S.C., at 6%; Salt Lake City, Utah, at 6%; and Albuquerque, N.M., at 5%...Veros applies more than 50 metrics in the calculations, including interest rates… current inventory and buildable land... The markets expected to see the most rapid home value depreciation through Q2'08: Palm Bay-Melbourne-Titusville, Fla., with a 9% expected decline; Sacramento-Arden-Arcade-Roseville, Calif., an 8% drop; Sarasota-Bradenton-Venice, Fla., a 7% decline; Cape Coral-Fort Myers, Fla., down 7%; and Riverside-San Bernardino-Ontario, Calif., down 7%."
- Senior Brokers Say Manhattan Is Holding Its Own (The Real Deal, Oct. 15th): "While there is no doubt that lending standards have tightened, Manhattan has mostly held its own against the subprime turmoil. Sales have slowed down a bit, and price reductions are being seen on stale properties, but buyers expecting a lot of price reductions aren't necessarily finding them. Much has been made of the anticipated cuts in Wall Street bonuses, but brokers say the high-end segment appears to be faring better than less pricey properties."
- Where A Home Of Their Own Is An Elusive Dream (MSNBC, Oct. 15th): "A growing number of young Americans could become the first generation of the middle class to experience a serious decline in the rate of home ownership... National Association of Realtors: The ability of the average American family to buy the average home has fallen dramatically since 2004, when its index stood at 124. That number means that a family earning the median income made enough to afford 124% of the payment on an 80% mortgage on a median-priced home. But with the average mortgage interest rate up a full point, or nearly 20%, and housing prices up 15% since then, the nationwide affordability number has fallen to 106."
Mortgates and Real Estate Lending
- Radian Group Inc. Announces Appointment of PricewaterhouseCoopers as Its New Independent Registered Public Accounting Firm (CNN Money, Oct. 15th): "Radian Group Inc. (RDN) today announced that it has appointed PricewaterhouseCoopers LLP ["PwC"] as the Company's new independent registered public accounting firm. PwC's engagement will begin after the departure of the Company's current auditor, Deloitte & Touche LLP. As previously disclosed, Deloitte & Touche's engagement will end following the filing of the Company's Quarterly Report on Form 10-Q for Q3'07. PwC will immediately begin work in preparation for the completion of Radian's 2007 audit."
- MBA Study Shows Mortgage Industry Production Profits Fell in 2006 (Originator Times, Oct. 10th): "Mortgage banking production profits fell to negative $50 per loan in 2006 from positive $258 per loan in 2005, according to the Mortgage Bankers Association's annual cost study. While production revenues increased on a per-loan basis, this increase did not keep pace with the increase in production operating expenses which grew by 17% to $3,416 per loan in 2006."
Global Subprime Fallout
- China Citic Bids for Bear Stearns Stake, Jiang Says (Bloomberg, Oct. 16th): "Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission: China Citic Group, an investment arm of the nation's cabinet, is seeking to buy a stake in Bear Stearns Cos. (BSC), the fifth-largest U.S. securities firm… Beijing-based Citic Group is among Chinese financial companies expanding abroad through acquisitions... Buying into Bear Stearns… would underscore the growing clout of a nation with $1.43 trillion of currency reserves. Bear Stearns' market value has dropped by a quarter this year as two of its hedge funds imploded amid wrong-way bets on mortgage-linked securities."
- As Defaults Rise, Washington Worries (NY Times, Oct. 16th): "Friedman, Billings, Ramsey investment bank report: Borrowers who took out loans in H1'07 are falling behind on payments faster than homeowners who took out loans last year. The data suggested that more Americans could lose their homes and that the housing market’s troubles might persist longer than many analysts have been predicting. The report [said] most mortgage companies and banks had not tightened lending standards for borrowers with weak, or subprime, credit until July or August, even though early this year regulators, analysts and mortgage investors knew that the easy lending policies of 2005-2006 were producing high default rates."
- Delphi and Calpine Bondholders Undermined by Subprime Seizure (Bloomberg, Oct. 16th): "Delphi Corp. and Calpine Corp. bondholders, who were promised returns of $0.20 or more on the dollar in cash plus stock for their investments in the bankrupt companies, can blame the subprime-induced seizure in the credit markets if they end up with a lot less. Delphi, the largest U.S. auto-parts maker, hasn't been able to secure the $7.1 billion in debt financing it needs to pay creditors including former parent company General Motors (GM) and exit court protection. Calpine, a California power producer, said its $8B financing package may fall through if it doesn't complete its reorganization by Jan. 31."
- Big U.S. Banks Try to Restore Confidence in Credit Markets (NY Times, Oct. 16th): "If the banks’ [fund to purchase risky mortgages] works as planned, many investors that helped to finance risky loans — including supposedly safe money market funds — will be spared distress. And the banks will collect fees for little more than promising to make loans if no one else will… The new entity, called a Master Liquidity Enhancement Conduit, or M-LEC, could raise as much as $200 billion or more through the issuance of its own securities, and use the money to buy securities that otherwise might be dumped on the market."
- SIV Bailout Plan: Don't Ask, Don't Sell (Michael Shedlock in Seeking Alpha, Oct. 15th): "[The plan to create a $75 billion fund to buy risky mortgage securities] boils down to this: Don't ask what the asset is worth. Don't Sell or you will find out and not like the result. If banks offer to buy that garbage then any hedge fund, foreign investor, or pension plan holding the crap would be silly to not unload it. If instead banks offer financing it would tie up capital [from] better use. It exposes the banks to potential bad loans. Desperate measures are being taken so that banks do not have to bring this garbage onto their balance sheets."
- FHA Has "Huge" Role In Housing Recovery--Bank Execs (Reuters, Oct. 15th): "The Federal Housing Administration will likely… pick up borrowers locked out of subprime and other private lending programs... David Lowman, CEO of JPMorgan Chase's global mortgage group: "I think FHA will play a huge role in the recovery of the market. I envision they will [have a] 10%-12%" market share [vs.] about 2% in recent years. National City Corp (NCC), the ninth largest U.S. bank, has already boosted its production of FHA loans to 11%-12% from as low as 2% six months ago, said Paul Bibb, CEO of National City Mortgage."
- The Subprime FHA (Wall St. Journal, Oct. 15th): "The FHA's recent credit history shows it is far from the prudent institution it is said to be… "Because of adverse loan performance," the FHA states in its budget submission for 2008, "total costs exceed receipts on a present value basis, and therefore would require appropriations… to continue operation." For the past three years, delinquency rates on the oh-so-safe mortgages insured by the FHA have consistently been higher than even those of the dreaded subprime mortgages. In Q4'06, for instance, the delinquency rate for subprimes had increased to 13.33% in the Mortgage Bankers Association's National Delinquency Survey. But… FHA's rate had risen to 13.46% -- "a new record." Nationally, FHA-backed loans do have a lower foreclosure rate than subprimes do, but one that's nearly twice as high as the rate for all mortgages."
- Housing Slump Hits Quicken (Detroit News, Oct. 15th): "Michigan's largest lender Quicken Loans Inc. [and] the parent of Rock Financial, is lowering goals for its loan writers, ending mortgages [it can't sell] on the secondary market, and introducing new federally-backed products… in its effort to gain market share in a shrinking industry. The company also has temporarily stopped hiring new loan writers, called mortgage bankers, to focus on retraining its staff on the new products and how to sell in a tough environment. As a result, Quicken has 160 fewer mortgage bankers now than it did in mid-August, but has avoided layoffs, company executives said."
- S&P Cuts 402 Subprime RMBS Ratings (Calculated Risk, Oct. 15th): "Reuters: Standard & Poor's on Monday cut its ratings on $4.6 billion worth of residential mortgage-backed securities exposed to subprime mortgages, citing expectations of further defaults and losses in the securities. The downgrades include 402 pieces of 138 transactions. All are backed by first-lien subprime mortgage loans issued in Q1-3'05. The majority of the ratings cuts were in the "BBB" category, which is the lowest tier of investment grade. S&P: "These rating actions… reflect our expectation of further defaults and losses on the underlying mortgage loans and the consequent reduction of credit support from current and projected losses."
- Underdog Catcher George Putnam's Long and Short Picks - Barron's (Eli Hoffmann in Seeking Alpha, Oct. 14th): "'Underdog catcher' George Putnam III of New Generation Research has averaged 17.1% returns for subscribers to his The Turnaround Letter by looking for companies with distressed shares ripe for a turnaround… Short ideas: Housing bottom is still "a fairly long way away." Mortgage lenders Washington Mutual, First Fed Financial, Downey Financial and BankUnited are likely to see far steeper-than-expected default rates down the road."
- Subprime Mortgages Crossing Income and Credit Strata (Markham Lee in Seeking Alpha, Oct. 12th): "We may actually only be seeing the foreclosures from 2003-2005’s loans, and haven’t seen 2006-2008s foreclosures yet. It’s quite likely that a lot of ARMs were originated to prime borrowers with prime teaser rates and subprime prime reset rates, which are currently off the radar with respect to statistics on subprime loans. If you consider [that] along with the 100s of billions of ARMs slated to reset between now and the end of 2008, it stands to reason that the housing slump could last into the next decade."
- Foreclosures Skyrocketing (Michigan Live, Oct. 15th): "The number of mortgage foreclosures in Jackson County this year has reached 950 -- the highest it's been in about 20 years, maybe longer, officials said. The number is 10 times greater than it was 10 years ago, and there are still two months left in the year… Officials say there are several reasons why the foreclosure rate is growing: job loss, rising adjustable-rate mortgages, an unstable housing market and flat or declining income. Record homeownership levels in the state increase the probability that more people can't make payments, according to a state mortgage brokers group."
- Area Foreclosures Up Slightly (The Standard Democrat, Oct. 14th) Scott County, Missouri: "A record number [of foreclosures] have been filed this year. More than 200 so far — a sharp contrast to the 153 total filed in 2006… Scott County Recorder: “In Scott County, there have been at least 300 fraudulent loans —meaning loans given on properties that were over-appraised. If it wouldn’t be for these foreclosures, I’d say I have 10-15% more.” Kay Asbell, the recorder in Stoddard County: "We have more than we used to. There’s been a jump over the past two years." Ann Copeland, the recorder in New Madrid County: "I’m not seeing a big influx."
- As Foreclosures Soar, Dreams Die (Orlando Sentinel, Oct. 14th): "Through the first eight months of 2007, more than 11,000 homeowners in a seven-county area in and around Orlando have entered the foreclosure process… 85% more than all of last year. An Orlando Sentinel analysis of public records gathered by [foreclosure data firm] RealtyTrac found the problem cuts across differences in income, race, ethnicity and geography… Statewide this year, home lenders started foreclosures on more than 60,000 properties through August -- three-quarters more than all of 2006... During those same eight months, more than 16,000 Florida properties were put up for sale at public auctions, two-thirds [more than] last year."
Global Impact and Alternatives To The Housing Slump
- ProLogis Plans to Double Investment in Asia and Japan (Bloomberg, Oct. 16th): "ProLogis CEO Jeffrey Schwartz: ProLogis [REIT], the world's biggest publicly traded warehouse developer, plans to double investment in Asia and Japan to as much as $12 billion. ProLogis (PLD) will double its Japan portfolio to 1.12 trillion yen ($9.5B) in the next three years and plans to double its investment in the rest of Asia to $2.5B this year, Schwartz said. Steps to expand will include an increase of staff in Asia by between 20%-25%in the next 12 months. ProLogis has 750 employees in the region."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Bernanke Says Housing to Remain `Drag' on U.S. Growth (Bloomberg, Oct. 15th): "Federal Reserve Chairman Ben S. Bernanke said the housing slump will be a "significant drag'' on U.S. growth into next year, though evidence of a broader impact on spending is limited. "The Federal Reserve will continue to watch the situation closely and will act as needed to support efficient market functioning and to foster sustainable economic growth and price stability,'' Bernanke said in a speech to the Economic Club of New York Monday. Credit markets have improved, he added, while a full recovery will take time "and we may well see some setbacks.''
Homebuilders And Housing Stocks
- Beazer Offers Creditors Cash To Stay Afloat (Atlanta Journal Constitution, Oct. 15th): "Beazer Homes (BZH) [is] trying to stay afloat after admitting last week that it violated federal mortgage guidelines… In exchange for a waiver of financial reporting for the next seven months, Beazer on Monday offered each of its creditors a cash incentive. The amount is based on the size of the debt held by each creditor the day the waiver is signed and gives Beazer until May 15 to issue new certified financial statements for 1999-2007. Chip MacDonald, a securities lawyer at Jones, Day, estimated the settlement offer could cost the company about $7.5 million if its creditors accept the deal."
- Kiss Levitt Goodbye and Pucker Up for Beazer (Michael Shedlock in Seeking Alpha, Oct. 15th): "Beazer's preliminary quarterly results showed that… sales fell 39% in FQ4'07 ended Sept. 30, new orders declined 52%, and order cancellation rates soared to 68% . Agency Trading Group analyst Alex Barron: "People are going to interpret this as a net positive simply because it quantifies how much we're talking about… It kind of puts it behind them." Things might be bottoming for some homebuilders (not housing itself,) but… Beazer cannot survive with 68% cancellation rates… Consumer psychology might be such that it will be impossible for Beazer to turn things around."
- Home Improvement Value Faceoff: Home Depot vs. Lowe’s (Michael Shedlock in Seeking Alpha, Oct. 15th): "CHART Two-thirds of the value investors… polled found Lowe’s to be a better value [than Home Depot]. Surprisingly, only 9 out of the 27 poll takers thought HD's stock provided a better value… Though I don’t like HD as a consumer, [it] has a lower P/E, P/B, and P/S ratio than Lowe’s… Looking at the key ratios [in the chart]… HD is cheaper relative to its current revenue and earnings, and it has a much more generous dividend yield. Lowe’s has better margins, growth rates, and lower debt. Either way, I’d still like to see both of these stocks get cheaper before investing."
- Builder Marks Homes That May Have Bombs On Property (WFTV, Oct. 15th) Florida: "A local builder marked dozens of Orange County houses Monday that may have bombs on the property. Lennar Homes (LEN) will dig up the yards of the marked houses in the Vista Lakes subdivision... The Warwick area of Vista Lakes has quite a few spots spray-painted by geophysicists who spent the day marking people's yards. They used a GPS tracking device and identified where munitions from the old Pinecastle Jeep Bombing Range might be buried… Homeowners became aware of the potential problem back in July, when the Army Corps of Engineers found a live WWII-era bomb in an empty field behind nearby."
- Centex Declares Quarterly Dividend (CNN Money, Oct. 15th): "The Board of Directors of Centex Corporation has declared a regular quarterly cash dividend of $0.04 per share of the company's common stock. Dividends will be payable on Nov. 21, 2007, to shareholders of record at the close of business on Oct. 31, 2007… In addition to its home-building operations, Centex's related business lines include mortgage, title and insurance services and integrated pest defense systems."
- John Bollinger: A Contrary Bet on Homebuilders (Blogging Stocks, Oct. 15th): "Technical analyst John Bollinger: I looked at the percentage drop from [homebuilders] stocks most recent swing high and then the number of months from the peak to the trough or the present if a swing low has not been established. I then looked to determine if there is a swing low in place."After reviewing 20 homebuilding stock, I've chosen 3 candidates to start: WCI Communities (WCI), Standard Pacific (SPF) and St. Joe (JOE) [are] our first commitments."
- Stuck in a Housing Glut (LA Times, Oct. 14th): "Dani Babb, a real estate author and consultant, [castigated] Hovnanian (HOV) over its banner sale: "What Hovnanian did hurt everyone, including the long-term, broader market -- which includes them too. The ability to get loans is based on… the sales prices of comparable homes nearby. Now, homes near the ones for which Hovnanian slashed prices will appear inflated by comparison and may make financing more difficult… Realtor/investor Tomora Tonioli… has been eyeing a Lennar home in Riverside County's Corona Valley. A year ago, this model sold for $769,000. Now, it's been discounted to $575,000 with $40,000 in incentives on top of that."
- The Future Appears Grim for Levitt and Sons (Builder Online, Oct. 14th): "The end may be near for the home builder best known for building New York's Levittown on Long Island from 1947-1951. The Levitt Corp. (LEV) Thursday [questioned the viability of] subsidiary Levitt and Sons… The builder is [also] abandoning the Memphis, Tenn., market after only three years and recently scrapped a 650-unit senior subdivision in Georgia. Memphis is the second Tennessee market Levitt and Sons has left - its Nashville offices closed in 2006. The Levitt Corp. also announced in early September that 200 employees of Levitt and Sons (roughly one-third of its workforce) would be laid off."
Commercial Real Estate and Real Estate Investment Trusts (REITs)
- News Corp Joins Related in Hudson Yards Bid (NY Observer, Oct. 15th): "Rupert Murdoch's News Corporation has joined Stephen Ross's Related Companies in its bid for the Hudson Yards project, a source familiar with the bid said. If Related won the bid to develop on the far West Side, News Corp. would move its headquarters from its Sixth Avenue tower into… Hudson Yards... Conde Nast would [reportedly] leave 4 Times Square for a new, 1.5-million-square-foot tower if Douglas Durst and Vornado won a bid; and it was also reported that Morgan Stanley (MS) had teamed up with Tishman Speyer… The source said Brookfield Properties' (BAM) bid was also being taken seriously."
- BPG Properties Buys Tremont St. Building for $49.5M (Boston Business Journal, Oct. 15th): "BPG Properties Ltd. closed on its purchase of a 202,033-square-foot office tower from Meritage Properties for $49.5 million. The 12-story building is located at 18 Tremont St. in downtown Boston and is 91% leased. The purchase of the property was made on behalf BPG Investment Partnership VIII and VIIA, L.P. (Fund VIII), a fully discretionary private equity fund with total equity commitments of $850 million."
- Valley Continues to Build Retail Space (AZ Central, Oct. 15th): "More than 3 million square feet of new retail space was constructed in the Phoenix metro area in the last quarter, as the area continues to be one of the fastest-growing retail markets in the nation. The new CB Richard Ellis market analysis said Monday that two shopping centers under construction in the Valley are among the eight largest in the nation [and that] 3.3 million-sf of retail space were constructed in the last three months."Arizona is very strong in migration and in job growth and that is good for retail," said David Larcher, executive VP for developer Vestar."
- CIOs and REITs: What Were They Thinking? (Toro in Seeking Alpha, Oct. 12th): "At the start of the decade, REITs were cheap, trading at ~7x funds from operations [FFO], whereas stocks were nose-bleed expensive, trading at ~30x trailing earnings. On Thursday, REITs were 14x FFO - sky-high expensive - and stocks were 18x trailing earnings - not cheap but not expensive either. (At least on current profit margins.) On FFO, REITs are trading at a 40% premium to equities, and nearly 100% on forward estimates. All this while at least one category of commercial real estate is at the highest vacancy rates in 5.5 years."
- Kimco's YTD Acquisitions Tally 8.3M SF and $2.0B (CoStar Group, Oct. 15th): "Kimco Realty Corp (KIM), retail REIT with 1,519 shopping centers comprising 180 million square feet, acquired 15 retail properties totaling 1.1 million-sf during its FQ3. Through these transactions, Kimco placed $185.4 million on properties primarily in the areas of Long Island, NY; Riverside-San Bernardino, CA, Charlotte, NC and Mexico City, Mexico. Kimco also disposed of 14 properties totaling 1.3 million-sf during the quarter for $201M. As one of the country's largest retail property owners, Kimco has acquired much more than it has disposed of so far this year."
- Tenant Nearly Doubles Space on Broadway (Globe St., Oct. 15th): "Micro Office Solutions signs a deal to expand to 36,392 sf at 1375 Broadway. The company, which provides affordable full-service office space to businesses, already occupied 20,000/sf of space on the third floor and inked a deal for the additional 16,392 sf on the 11th floor… Asking rents are approximately $52/sf. Others on the tenant roster include Omnicom Group, Anchin, Block & Anchin, Meryl Diamond Ltd., Apparel Assoc., New York GT Asset Management and Land N’ Sea."
- Master Development Acquires 100,000 SF (Globe St., Oct. 15th) California: "Master Development Corp. of Newport Beach has acquired two industrial buildings totaling 100,020-sf from Fleetwood Aluminum in a venture with GE Asset Management (GE). The deal… expands what is already a significant number of holdings for Master Development in Corona. The [acquisitions] are part of what EVP Bryan Bentrott of Master Development describes as an industrial market that benefits from growth from within its existing 25-million-sf base, expansion from adjacent markets like Chino and Ontario, and relocation from Orange County companies seeking affordable space that is close to their work force."
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