Housing Bubble and Real Estate Market Tracker

by: Judy Weil

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'd like to know what those damn things are worth." Fed chief Benjamin Bernanke, referring to complicated mortgage-backed securities. Bernanke was asked by the audience at the New York Economic Club where he spoke: What financial or economic information he would like to have but doesn't. (Trader Mark in Seeking Alpha, Oct. 17th)

Real Estate Sales and House Prices

  • Clark Home Sales Slowest In Area (The Oregonian, Oct. 18th): "Regional Multiple Listing Service: Clark County's housing market showed signs in September of slowing more than the rest of the Portland area… The median home price was $267,500, up from $266,000 in September 2006... At the rate homes were selling in September, it would take about 12 months to sell all of them [vs.] 6.4 months in Sept. 2006. In September 2005, it was 2.6 months. On average, sellers needed 75 days to sell, up from 60 days in September 2006. Closed sales dropped nearly 42% and pending sales fell about 30%. New listings fell 25%."

  • Rents On The Rise As Home Prices Slip (LA Times, Oct. 18th): "Research firm RealFacts: While homeowners [suffered] shrinking property values, renters across the state found... the average rent [in Q3] at larger apartment complexes in California increased 5.6% to $1,413 compared with Q3'06... Los Angeles and Orange counties remained the state's most expensive market for rentals, while the San Francisco Bay Area posted the highest rent increases -- as high as 12.2% in Santa Clara County... Average rents in San Bernardino and Riverside counties recorded the weakest percentage growth in the Southland, increasing 2.7% to $1,159. Occupancy was 2.3 percentage points lower than at this time last year."

  • Home Sales Fall 48.8% Countywide, Report Says (Ventura County Star, Oct. 17th): "DataQuick Information Systems: Ventura County’s home sales plunged… nearly 50% in September, from a year ago. Last month, there were 582 new and existing home and condominium sales, a 48.8% decline from the 1,137 units sold in September 2006. The median price was $545,500, down 7.9% from $592,500 a year ago... Bill Watkins, director of the UC Santa Barbara Economic Forecast Project: The significant sales decline... was a surprise. Because of job cuts at Countrywide (CFC)and Amgen (NASDAQ:AMGN), two of Ventura County’s largest private employers, he expected to see an uptick in sales for September, with more sellers pushed to leave their homes."

  • Ahwatukee Sees Spike In Resale Home Prices (AZ Central, Oct. 16th): "The median price of existing homes is heading up in Ahwatukee, the only Southeast Valley community to see a price increase. In September, the median price was $355,050, up from $340,000 in September 2006. However, transactions dropped in the same period to 60 in September from 95 in September 2006. Sales in Tempe dipped to 90 this September, from 130 in September 2006… In September, the median price of an existing house in Gilbert was $276,000, down $42,500 from last September."

Real Estate Investment and Sentiment

  • Investing in Preforeclosures (Realty Times, Oct. 18th): "Foreclosure notices contain an assortment of valuable information, including the case or reference number; the insertion date; the county; the legal lot, subdivision, and city (which you can use to obtain the property address); the name of the mortgagor (usually the homeowners); the name of the mortgagee (the lender who's foreclosing); the amount owed on the mortgage; the interest rate of the loan; the name and contact information for the lender's attorney; the sale (auction) date; the length of the property's redemption period (if any); and the liber (book) and page number of the recorded mortgage."

Mortgages and Real Estate Lending

  • Countrywide Chief Is Said to Face S.E.C. Inquiry (NY Times, Oct. 18th): "The SEC [is investigating] the stock sales of… Countrywide’s CEO Angelo R. Mozilo… Since 2004, Mr. Mozilo has sold shares through prearranged selling programs, known as 10b5-1 plans… But the pace of the sales, which have generated $300 million in gains for him since 2005, began to increase in October 2006… In December 2006, when Countrywide shares were trading at $40.50, Mozilo increased the number of shares to be sold each month to 465,000 from 350,000. Then in February, when shares hit a high of $45.03, he increased the number of shares sold each month to 580,000… Shares closed yesterday [at] $17.35."

  • Profits Fall for Mortgage Banking Companies in 2006 (Realty Times, Oct. 18th): "Mortgage Bankers Association's annual cost study: Mortgage banking production profits fell to negative $50/loan in 2006 from positive $258/loan in 2005.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/loan in 2006... Total residential mortgage industry origination volume decreased by 7% in 2006, driven by lower purchase and refinance originations. Annual purchase originations dropped in 2006 for the first time since 1995, declining to $1,459 billion in 2006 from $1,512B in 2005."

  • California Broker Ties Jumbo Miles To Jumbo Mortgages (Reuters, Oct. 17th): "In Southern California, a jumbo mortgage can now land you on a jumbo jet. In a bid to draw high-end buyers to the region's floundering housing market, Beverly Hills-based real estate brokerage, Incentive Real Estate said on Wednesday homes buyers can earn 250,000 airline miles on the purchase of a newly constructed house valued at more than $500,000. That is enough miles for 10 free round-trip coach tickets within the U.S. to see how other depressed real estate markets are faring. Or two round-trips to Asia to get away from Southern California's bleak real estate news."

Global Subprime Fallout

  • CEO Says BBVA Has No U.S. Subprime Exposure (Reuters, Oct. 18th): "CEO Francisco Gonzalez: Spanish bank BBVA has no exposure to the types of toxic instruments such as subprime mortgages or SIVs that has cost rivals billions. Gonzalez: "We are not involved, neither in the subprime crisis, or SIVs or conduits. It has nothing to do with our activities in the U.S or anywhere else in the world." Investors have pressed banks to provide more transparency in recent months to their possible exposure to the volatile instruments such as SIVs, which are structured investment vehicles, and U.S. subprime mortgages, which have seen soaring default rates."

  • Fool News: The Credit Card Mortgage Trap (Motley Fool UK, Oct. 17th): "Housing charity Shelter survey: More than a million householders in Britain have used credit cards to pay their mortgage or rent in the last year. Of the 1,979 people polled, 6% admitted they relied on their plastic to make their mortgage payments - and in the 18-24 age bracket, the proportion was even higher (7.5%)… Most credit companies charge interest at between 15%-18% - around three times as much as most mortgage lenders... For people with poor credit ratings, card companies can charge interest at up to 40%."

Subprime Fallout

  • Novastar To Fight NYSE Over Possible Delisting (Kansas City Journal, Oct. 17th): "Subprime lender NovaStar Financial Inc. (NFI)… plans to contest its threatened delisting.... by the NYSE, [that] claims NFI does not meet the capitalization requirements of a so-called C corporation, the most familiar corporate form. NovaStar was a REIT until last month, when it announced that it would not declare a dividend related to its 2006 income… News of the threatened delisting comes after NovaStar agreed to sell its mortgage servicing rights to Saxon Mortgage Services of Fort Worth, Texas, a unit of Morgan Stanley, for $175 million in cash [using] the proceeds to pay down debt."

  • 2007's Mortgages Even Uglier Than 2006's (Felix Salmon in Seeking Alpha, Oct. 17th): "Michael Youngblood of Friedman Billings: “There are $10.6 trillion of mortgage loans outstanding in the U.S... Dean Baker says that falling house prices, not resetting mortgages, are responsible for the ugly numbers on the 2007-vintage mortgages; I think it's really, at base, an underwriting issue. House prices stopped rising a while back; it's the lenders own fault if they continued to make loans which could only be repaid in an environment of continued strong house-price appreciation."

  • Loan Drags Down Greater Sacramento Bancorp Earnings (Sacramento Business Journal, Oct. 17th): "A large real estate loan that is not current in its payments is [affecting] earnings at Bank of Sacramento. Greater Sacramento Bancorp (OTCQB:GSCB), the holding company for Bank of Sacramento, earned $851,000 in Q3, down 6% from earning $909,000 in Q3'06. Third-quarter income was reduced by $39,000 as a result of a regional homebuilder falling behind in a $6 million acquisition and development loan. The loan was put on non-accrual during Q3, [and] will cost the bank $66,000 in subsequent quarters in after-tax earnings. The bank is now appraising the collateral in the loan, though management considers the loan well collateralized."

  • GMAC Financial Services and ResCap Announce Restructuring of Mortgage Operations (CNW Telbec, Oct. 17th): "MAC Financial Services today announced it is restructuring its mortgage operations, Residential Capital, LLC (ResCap), as severe weakness in the housing market and mortgage industry continues to prevail... This will include ResCap reducing its current worldwide workforce of 12,000 associates by approximately 25%, or by approximately 3,000 associates, with the majority of reductions occurring in Q4'07. This reduction in workforce is in addition to the measures undertaken in the H1'07 in which 2,000 positions were eliminated… ResCap will incur restructuring charges, which are expected to range from $90-$110 million… The majority of these charges will be incurred in Q4'07."

  • S&P Cuts $23.4 Billion of 2007 Subprime, Alt-A Debt (Bloomberg, Oct. 17th): "Standard & Poor's lowered ratings on $23.4 billion of subprime and Alternative-A mortgage securities that were created as recently as June. [S&P said] the cut covers 1,713 classes of bonds sold in H1'07. Some debt with the highest AAA rankings were reduced. S&P's action, in the same year as the securities were created, is its swiftest mass downgrade of mortgage bonds and the first time 2007 bonds have been cut by any company. The cuts follow criticism that the ratings companies gave excessively high assessments of bonds… S&P two days ago reduced ratings on $4.6B of subprime bonds from 2005."

  • Housing's Foundations Crumble Still More (Forbes, Oct. 17th): "Thornburg Mortgage Co. (TMA) sold $22.0 billion of mortgages since August to alleviate a suffocating credit squeeze. The company sold the mortgages quickly and at a discount because it feared values would fall further. The sale of mortgages was just one of several moves by the company to boost liquidity. It also issued debt and sold $500 million of preferred stock earlier this year. During Q3, Thornburg Mortgage sold a total of $21.9B of loans at a loss of $1.09B. Thornburg also posted a loss of $11.5M to fund forward commitments."

  • Senate Banking Democrats Urge Paulson To Press Harder For Subprime Loan Workouts (Forbes, Oct. 17th): "Democratic members of the Senate Banking Committee today told US Treasury Secretary Henry Paulson that he must do more to ensure that lenders and mortgage servicers modify their loans to subprime borrowers so the borrowers can meet their payments… The Democrats, led by Committee Chairman Christopher Dodd of Connecticut, [cited a] 'Moody's Investor Service survey [of] servicers that cover about 80% of the market, [which] found that only 1% of re-setting subprime loans had been modified in the months studied. Those loans that had reset without modifications had delinquency rates as high as 15%."

  • Company Debt Risk Rises for Third Day on Housing Slump Concerns (Bloomberg Oct. 17th): "The risk of owning corporate debt rose on concerns that losses from the worst housing slump in 16 years will be deeper than anticipated, according to credit- default swaps traders. A benchmark credit-default swap index climbed after housing starts fell to a 14-year low and the Mortgage Bankers Association's chief economist warned a decline in lending has "a ways to go.'' Contracts on mortgage insurers MGIC Investment Corp. (NYSE:MTG) and PMI Group Inc. (PMI) rose after MGIC reported its first quarterly loss on writedowns of subprime debt."

  • E-Trade’s Dilemma: It’s not Subprime! (Herb Greenberg in MarketWatch, Oct. 17th): "Comments from E-Trade President Jarrett Lilien… about the company’s mortgage mess, pretty much says... all you really need to know about this country’s credit crunch: “Our issue is that the value of high-quality loans is underperforming.” I live in [an] upscale part of... San Diego. Lots of [recently-built] homes nearby. [For] the first time I [saw] a sign on the main drag pointing to an open house and “foreclosure auction” in an area where homes are probably in the $1 million range… Also, lots more Realtor open house signs on the weekend than there were in the peak spring selling season."

  • AG Coakley Issues Mortgage Regulations (Boston Globe, Oct. 17th): "Massachusetts Attorney General Martha Coakley issued final mortgage broker and lender regulations Wednesday that aim to ban unfair or deceptive practices that contributed to the foreclosure crisis… The regulations include provisions that would prohibit mortgage brokers or lenders from making a loan if they do not have a reasonable belief that the borrower is able to repay the loan. Mortgage broker and lenders will also be required to disclose how a mortgage's interest rate or other charges will increase, and will [be] prohibited from steering borrowers to loan products that are more costly than those that the borrowers qualify for."

Foreclosure Data

  • MATCU Offers Way Out Of Foreclosure (WREG TV, Oct. 18th): "Memphis Area Teacher's Credit Union, MATCU, is one of the first lending institutions in Memphis to [help] homeowners... caught in the cycle of foreclosure. The credit union started offering home protection loans in July. They'll pay off 95% of a customer's high interest loan and refinance it at a more affordable rate. MATCU: "We'll pay off that existing mortgage that [borrowers] have along with closing costs... [and] delinquent taxes if we can get that into the 95%... We have [also] done some home repairs." Those who file bankruptcy are not eligible for the home loan program."

  • Foreclosure May Have Led To Homicide-Suicide (Indianapolis News, Oct. 17th): "A house foreclosure may have led to a homicide-suicide of a husband and wife in southern Indiana. Police said Timothy Ellingsworth, 58, and his wife Sandra, 44, were found dead in their home Monday night of gunshot wounds. Investigators said they think Sandra shot her husband and then turned the gun on herself. A Dubois Circuit Court judgment and decree of foreclosure on the couple's house was filed earlier this year and was recently placed on their front door."

  • ACORN Urges Minneapolis City Council's Support For Freeze On Foreclosures (Star-Tribune, Oct. 17th): "An advocacy group has started a campaign calling on the Minneapolis City Council to support a three-month voluntary freeze on foreclosures in the city to give some borrowers more breathing room… County officials project that the number of countywide foreclosures this year will jump 60% over last year's 3,039, and that was an 82% increase from 2005. Earlier this year, foreclosures were occurring in north Minneapolis alone at a rate of more than four daily."

  • Firm To Auction Off About 400 Foreclosed Homes (Orlando Sentinel, Oct. 15th): "About 400 foreclosed homes from Orlando to Fort Lauderdale and Jacksonville to Tampa [are] on the "online auction block." Hudson & Marshall, one of the nation's largest foreclosed real-estate auction outfits, will auction off the homes from cities throughout Florida, Monday through Sunday... The single-largest batch, 150 homes reclaimed by banks and lenders, is in the Fort Lauderdale and Miami area... Valued from $50,000 to more than $800,000, the foreclosed homes -- also known as Real Estate Owned, or REO... have been taken back by national lenders and come with title insurance but no warranties."

Global Alternatives to the Housing Slump

  • Online Real Estate Advertiser Grows Global Legs (Inman News, Oct. 18th): "The REA Group, [is] an online real estate advertising company based in Australia... Known for operating the property listings site realestate.com.au in Australia, in the past few years has grown [around] the globe, including U.K., Hong Kong, New Zealand, France, Germany, Belgium, Italy and Luxembourg. REA Group most recently entered Dubai and the United Arab Emirates, with a 51% acquisition of AlBabWorld.com, Dubai's largest real estate advertising magazine and a leading Web site. REA Group said it is paying an initial $1 million for the ownership stake and will pay an additional $2.1M during the current financial year."

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

  • Housing Downturn Takes Toll on Cities’ Revenue (NY Times, Oct. 18th): "National League of Cities survey: Across the country, local governments are feeling a financial strain driven largely by the nation’s real estate downturn. City finance officers predict slowing revenue even as they remain under pressure to keep spending, especially in areas like health care and pensions. To handle [expected] budget deficits... many cities are increasing fees for services, and some are considering raising property taxes... Flattening property assessments (which mean flattening property tax revenue) as well as rising mortgage foreclosures... bode poorly for revenue collections… Some city and county budget officials said the direct effects of the housing downturn could have a lag time of several years when it comes to local government revenue, whose level depends on property reassessments."

  • The Fed May Cut Rates Again: What Will Be the Reaction? (Trader Mark in Seeking Alpha, Oct. 17th): "I think a 25 basis [rate cut] on Halloween is in the bag, and heck we might have another 50 coming... If it's 50 it will definitely be party time, but if it's "only" 25 (those Fed party poopers!) At some point won't people question why we need so many cuts if things are just so rosy (or will be in 6 months once we get through this very temporary housing issue)... It appears now we are only agreeing that housing will be an issue out to "early next year". So by May 2008 it will all go away[!] Yeh..."

  • Housing Slump Affecting Dalton Industry (WDEF, Oct. 17th) Tennessee: "The national housing market slump affects more than home buyers and sellers. Last month, Dalton reported about a 70% increase in jobless filings -- mostly from the carpet industry… George Woodward, Pres. Chamber of Commerce: "In the last month or so, we've seen some layoffs, maybe two weeks off and then come back to work so those kinds of trends will continue…" The downturn could have a ripple effect on manufacturing cities like Dalton."

  • Luxury Goods Category Stays Strong In Face Of Depressed Consumers (Blogging Stocks, Oct. 17th): "U.S. consumers are going to start living within their means again… companies that depend on consumers living above their means probably won't fare too well: This could include many middle-market apparel stores, furniture stores, and other non-essential moderate-luxuries. An old couch looks like a lot more comfy when you can't pay your bills. But investors seeking solace from the weakened consumer (you should only seek solace if you think this is likely to be a long-term shift. If you think it's temporary, you may want to buy on the bad news) may want to look toward luxury goods makers."

Homebuilders And Housing Stocks

  • More Desperate Developers Selling Homes Through Auctions (SF Gate, Oct. 18th): "Pulte Homes, (NYSE:PHM) which built [San Francisco development] Devon Square... decided to auction 24 units in the development... Research firm Morpace International.Residential real estate auctions (including existing homes) grew 12.6% in 2006. National Auctioneers Association: Residential real estate is the auction industry's fastest-growing sector... growing 39% from 2003-2006. This year, they jumped 3% from Q2-Q3... Last week, Anderson Homes auctioned off 34 single-family homes in its Paseo West subdivision in San Joaquin County with minimum bids starting at $285,000. The homes went for about $400,000, according to press reports - a 27% plunge from the most recent $550,000 asking price."

  • Toll Brothers Drop Project (Boston Globe, Oct. 18th): "Merrimac, Massachusetts: "Citing the downturn in the real estate market, Toll Brothers (NYSE:TOL) has decided not to move forward with plans to build a 216-unit affordable housing development on Route 110. The development was to be built under the state's Chapter 40B law, which allows builders to skirt local zoning bylaws if they agree to guarantee that at least 20% of the units are affordable for those who earn low to moderate incomes."

  • Ryland Announces Amendment to Revolving Credit Facility (Business Wire, Oct. 17th): "Homebuilder Ryland Group, Inc. (NYSE:RYL) announced that it has amended its unsecured revolving credit facility and reduced the aggregate commitments from $1.1B-$750 million. This reduction reflects Ryland's reduced capital needs and lowers related unused and administrative fees. The facility maturity date of January 2011 and the uncommitted accordion feature to $1.5B remain unchanged. The amendment provides Ryland with additional operating flexibility under the consolidated tangible net worth covenant, eliminates the interest coverage covenant, modifies the leverage covenant to increase/decrease based on interest coverage levels with a maximum permitted leverage ratio of 57.5%, and revises pricing."

  • Are Builder-Lenders Better? (Realty Times, Oct. 17th): "J.D. Power and Associates survey: For the first time measured the experience of purchasers who used their builders as their lenders in 17 markets of the 24 markets covered in the larger survey. The study found that the majority of those who opt to obtain financing through their builder do so because of competitive rates. They also claimed the process was easier and more seamless, according to the global marketing information services firm."

  • MILLVILLE: Large Housing Project Is Dead (Millville Daily Journal, Oct. 17th) New Jersey: "The developer of the Villages at Millville is asking for the return of its escrow funds because the project is not going forward. The project was disclosed in early 2005, but it quickly was caught in a zoning dispute with the city over a change in housing density rules. No building took place. At one point, the proposal called for 149 single-family houses and 352 townhouses. K. Hovnanian Homes (NYSE:HOV) was the intended developer. The firm had rights on a 110-acre owned by a family trust."

  • Housing Even Hairier (Motley Fool, Oct. 17th): "The Census Bureau reported that September 2007 privately owned housing completions were an incredible 31.1% below the September 2006 rate. Looking forward, housing starts dropped 30.8% below the prior-year rate. Analysts who've been calling the bottom of the housing bust -- such as Citigroup's (NYSE:C) now-notorious Steven Kim -- are likely to look silly for a long time to come.In the abstract, the reduction in starts should be the beginning of a good thing, a signal that builders are finally scaling back and no longer dumping so much inventory on an already-glutted market."

  • U.S. Housing Market Worst Since World War II: Cat CEO (Reuters, Oct. 16th): "Caterpillar Inc (NYSE:CAT) Chief Executive James Owens said on Tuesday that the downturn in the U.S. housing market is the worst it has been since World War II and is likely to weaken further next year. Owens said at an event hosted by the Executives' Club of Chicago that there was a bubble in the U.S. housing market and it will take time to work through it."

  • Ryland Homes in Eustis (Orlando Sentinel, Oct. 15th): "Ryland Homes (RYL) in Orlando has opened a community amenity center in Grand Island Reserve off State Road 44 and Grand Island Shores Road in Eustis. According to Jeff Agar, president of Ryland Homes in the Orlando region, the center includes a pool and cabana, basketball court and ball field. Ryland Homes is building 269 single-family homes in Grand Island Reserve, with prices starting in the high $190,000s."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

  • Commercial Real Estate Loans Tighten Up (CNN Money, Oct. 17th): "Commercial real-estate lenders, spooked by the collapse in residential housing, are reining in riskier loans on fears that underwriting standards were too loose. [Recently,] lenders have been requiring significantly more equity to get projects rolling, while the cost of obtaining debt continues to shoot higher. Meanwhile, banks are avoiding making loans to commercial real estate on concerns about the quality of construction and development loans. Commercial real-estate developers are having to provide about 25% of equity financing, up substantially from the 10%-15%... a few months ago... Developers face dwindling opportunities to raise funds from the commercial mortgage-backed securities market… Early signs that a correction in the commercial real-estate market is under way."

  • Skechers Signs $98M Distribution Lease (Globe St., Oct. 17th): "Shoe manufacturer and marketer Skechers USA has signed an 11-year, $97.5 million lease for a 1.8-million-sf build-to-suit distribution center in this Inland Empire community in what CB Richard Ellis describes as likely the largest industrial lease of its kind ever signed… A public filing by publicly held Skechers says that the company will pay $679,540/month for the first five years of the 11-year deal and $788,267/month for the remaining six years. The agreement includes options for Skechers to renew for up to 14 years beyond the original 11-year lease."

  • Market Correction Good for the Industry (Globe St., Oct. 17th): "Urban Land Institute and PricewaterhouseCoopers LLC's Emerging Trends in Real Estate 2008 report: The recent sizzling commercial real estate market in the US will slow in 2008, a healthy correction that will likely bypass long-term investors but penalize overleveraged buyers and late-to-the-game speculators… More than 500 people contributed to the report… Jonathan Miller of PricewaterhouseCoopers noted the credit crunch has created a dose of fear and uncertainty will characterize 2008: "Fundamentals are still good, but the economy is key and right now, with high household debt, declining household values, rising energy costs and basically stagnant wages, the economy is stressed."

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