Housing Bubble and Real Estate Market Tracker

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"

"When we survey the world from our corner of the credit markets, and view the disruptions that are happening globally, we assemble all of the pieces of the puzzle and come to one logical conclusion: We are witnessing the piercing of a worldwide debt bubble." –Mike Farrell, CEO of mortgage REIT Annaly Mortgage Management (NLY) (Seeking Alpha, Nov. 5th)

Real Estate Sales and House Prices

• Housing Woes Worsen In R.I. (Providence Journal, Nov. 6th): "Rhode Island Association of Realtors: The median Q3 price of a single-family house fell 2.2%, to $279,900, compared with $286,500 during Q3'06... The Q3'06 median price fell 1.2% from Q3'05... For the first nine months of this year, the median price was $276,000, down 3.2% from the first nine months of 2006... Single-family house sales during Q3 plunged 8.56% from Q3'06. During the last two years, the Realtors reported that house sales have fallen 27.5%. The average selling time stretched to 84 days, compared with 74 days during Q3'06, and 61 days during Q3'05."

• Houston Market Update (National Association of Residential Real Estate Investment Advisors, Nov. 5th): "The decline in sales experienced last month was the largest in more than a decade for the greater Houston area... Houston's inventory of homes relative to sales is still well below the past 10 year average. Total September property sales [were] 5,984, a 16.7% decrease versus September 2006. Properties sold during September totaled... more than $1.2 billion, an 11.9% decrease compared nearly $1.4B in September 2006 sales. Additionally, the median home price for a single-family home reached $150,500 for September, and the average single-family home price came in at $202,963, a rise of 0.3% and 2.0%, respectively."

• Home Sales, Values In State Decline (Connecticut Post, Nov. 5th): "Warren Group: The number of single-family homes sold in Connecticut dropped from 3,051 in September 2006 to 2,386 this September. The drop off from August 2007 to September was 21.8%... The median price for homes sold across Connecticut fell from $275,000 in September 2006 to $268,000 in September 2007... Fairfield County home sales dropped from 713 in September 2006 to 537 in September 2007, or 24.7%. The median price for a single-family Fairfield County home was $505,000 this September, up 1% from $500,000 a year earlier. New Haven County sales dropped by 21.5%, and the median price declined from $260,000 to $250,000."

• Median Price Falls For Houses On Kauai And Big Isle (Honolulu Star Bulletin, Nov. 5th) Hawaii: "Previously-owned home sales on the Big Island decreased 36.2% [from 185 in October 2006 to 118] in October 2007, [at a median price of] $386,000, a 5.9% year-over-year decline... The Big Island’s median condominium sale price rose 9.1% to $420,000 vs. last October’s $385,000... [and] 39 condominiums changed hands, versus 63 during October 2006. Kauai's median house price fell to $650,000, a 3.7% decrease from October 2006. Only 19 homes were sold, a 55.8% decrease from 2006. The median price for a Kauai condominium rose to $595,000 — a 40% gain from October of 2006."

Affordability Problems

• Think Home-Price Slide Is Over? The Worst Appears Yet To Come (Sign on San Diego, Nov. 4th): "Even after a year of decline, San Diego's home prices are still out of whack... U.S. Department of Housing and Urban Development: The median family income in San Diego County is $69,400... Slightly below the median family income of $73,700 in Madison, Wis. or $72,600 in Norwich, Conn... National Association of Realtors: In San Diego, the median sale price of an existing single-family home in Q2 was $614,000. Compare that with $223,500 in Madison, $276,600 in Norwich. Census Bureau: San Diego is the 42nd-most-expensive county in the nation for median housing costs for owner-occupied units."

Real Estate Investment and Sentiment

• SEC Gives OK for Grubb & Ellis, NNN Merger (Globe St., Nov. 5th): "Grubb & Ellis spokeswoman: The SEC has declared effective the registration statement for the merger of Grubb & Ellis and NNN Realty Advisors Inc. The action means that the two companies have been given the go-ahead to mail out proxy statements and have the companies’ shareholders vote on the merger. Grubb & Ellis and NNN Realty Advisors will both hold meetings on Dec. 6 for shareholders to approve the merger. The merger is expected to close a few days after the vote. The newly formed company will have a total capitalization of $725 million."

Mortgages and Real Estate Lending

• Banks Tighten Mortgage, Commercial Standards: Fed (Reuters, Nov. 5th): "The Fed's October survey of senior loan officers: More than 40% of domestic banks polled had tightened lending standards on prime mortgages -- mostly traditional fixed-rate loans made to borrowers with strong credit -- compared to 15% in the Fed's July survey. Of banks originating non-traditional residential loans, 60% reported a tightening of standards, compared to 40% in July. More than half the nine banks issuing subprime mortgages tightened standards for this troubled sector, about the same proportion as in the July poll. Half of the domestic banks surveyed said demand for prime, non-traditional and subprime mortgages had weakened over the past three months."

Global Housing Slump?

• Resale Property Prices Continue To Fall In Spain (Typically Spanish, Nov. 5th): "Facilisimo.com: The price of retail housing has fallen in ten regions of Spain for the fourth consecutive month... The average house price increased nationally [year-to-date] just 0.73%. That compares to an increase of more than six percent for last year over the same period... Navarra region fell (3.51%), Aragón (2%), Andalucía (1,06%), Cataluña (0,91%), y Castilla La Mancha (0,9%). Prices increased however in Extremadura (5.6%) La Rioja (2.09%) and Ceuta and Melilla (1.45%). The number of mortgages granted in August was also down 12.5% compared to the previous year."

Subprime Fallout

• Bankers’ Lesson From Mortgage Mess: Sell, Don’t Hold (NY Times, Nov. 5th): "Much stress still lies ahead. Fitch Ratings is considering downgrading more than 25% of the AAA-rated bonds issued by American mortgage-related C.D.O.’s, and... has placed 47% of AA-rated bonds on watch for downgrades. As the ratings get lowered, many C.D.O.’s will be forced to cut off interest payments to lower-rated bonds, [rendering] them worthless.... AAA-bond holders will have the option of liquidating the holdings of C.D.O.’s, which could further depress the value of mortgage securities... Some insurance companies, pension funds and other institutional investors may also be forced to sell bonds that have been downgraded, because they are only allowed to hold top-rated securities."

• Credit Crisis + Mortgage Mess = Deflation? (Herb Greenberg in Seeking Alpha, Nov. 5th): "If you think this housing “thing” is really no big deal, especially when you look at the bailout of the Resolution Trust in the early 1990s, Annaly Mortgage REIT CEO Mike Farrell, has some news for you: The mortgage crisis equals about 15% of the country’s GDP; Resolution Trust was more like 6%. “Even if we are wrong by 50%, it is 7.5% of GDP, still larger relative to the economy than it was in the early 1990s.”

• Kass: Next Shoe to Drop in Subprime Mess (The Street, Nov. 5th): "Further compounding the multiplying credit issues is the precarious state of the financial guaranty industry, which includes monoline insurers such as MBIA (MBI), Ambac Financial Group (ABK) PMI Group (PMI), MGIC Investment (MTG) and Radian Group (RDN). Should that industry fail or become even more materially capital-impaired -- a possibility I have suggested throughout all of 2007 -- the credit problems will cascade and produce even more massive writedowns in H1'08."

• Subprime Mergers Add to Writedowns (Chron.com, Nov. 5th): "A new wave of bank subprime mortgage writedowns... is partly due to a rush by those institutions to acquire lenders last year... Merrill Lynch paid $1.3 billion to purchase First Franklin Financial Corp. from National City Corp last year... Merrill Lynch took $7.9B in writedowns in Q3... An additional $10B in writedowns [is possible] in Q4. Morgan Stanley purchased Saxon Capital Inc., an originator and servicer of subprime mortgages for about $706 million in late 2006... Morgan Stanley took nearly $1B in writedowns in its FQ3. Wachovia Corp. acquired Golden West Financial Corp....in 2006 for $25.5B. Wachovia wrote down $1.3 B in assets related to broad credit market issues in Q3, and analysts [are] predicting further writedowns in Q4."

• More Problems Ahead From The Credit Crisis (Investment News, Nov. 5th): "A survey of industry professionals scheduled to attend the ABS East conference on asset-backed securities this week in Orlando, Fla., showed that 98% of respondents expected the weaknesses in the subprime market to affect many of the bonds backed by higher-quality mortgages. Of the 164 survey respondents, representing institutional-class investors and issuers involved in the securitization of bonds, 63% also expected the subprime mortgage problems to affect negatively other bond classes, including securities backed by auto, student, credit card and corporate loans."

• Fed's Kroszner: More Subprime Woes Likely Ahead (Reuters, Nov. 5th): "Federal Reserve Governor Randall Kroszner: More trouble lies ahead for U.S. borrowers who have subprime mortgages, as housing woes continue and loans reset at higher interest rates. "Conditions for subprime borrowers have the potential to get worse before they get better." All indications are that housing activity will continue to weaken. House prices are likely to remain sluggish for some time...As monthly mortgage payments rise along with borrowing costs for many holders of subprime mortgages, loan delinquencies and home foreclosures are also likely to rise "for a number of quarters," Kroszner said.

Foreclosure Data

• Borrowers Face Dubious Charges in Foreclosures (NY Times, Nov. 6th): "There is little oversight of foreclosure practices and fees that are charged... Katherine M. Porter, associate professor of law, University of Iowa [analyzed] foreclosures [and] found that questionable fees had been added to almost half of the loans she examined... On Oct. 9, Pittsburgh courts considered sanctioning Countrywide Financial (CFC) saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005-April 2007. Court trustee: Even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs... At Countrywide, $285 million came from late fees last year, up 20% from 2005. Late fees accounted for 7.5% of Countrywide’s servicing revenue last year."

• Foreclosure Picture Dims (Journal Sentinel, Nov. 5th): "ForeclosuresWI .com: Debts overpowered 2,280 Wisconsin homeowners in October. October's caseload... pushed the Wisconsin foreclosure tally to 17,013 in this year's first 10 months. That's 28% higher than the 13,256 a year earlier.... Worst [hit] was Milwaukee County, with 4,508 foreclosure filings in this year's first 10 months - 53% higher than a year earlier. Todd Weiler, Department of Neighborhood Services: City of Milwaukee cases, meanwhile, have about tripled: "A year ago, we had maybe 50 foreclosures a month. Now it's up to 150 a week Last year, we had 750 sheriff's sales. This year, we've already had 1,761."

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

• Housing Slump Means Lower Numbers for Wake Co. Schools (WRAL, Nov. 5th): "Nearly 6,000 more children showed up for school in 2007 than in 2006 – short of the increase of 8,000 students Wake County Public School System officials had expected. School systems in Mecklenberg and Forsyth counties saw similar down-turns. "What appears to be most related is the tight housing market in many areas across the country," Chuck Dulaney, WCPSS assistant superintendent for growth and planning, said.... Sales of existing homes and buildings in Wake County fell by 12.36% in October, vs. sales in October 2006. Overall, 6.4% fewer building permits were issued in January-September 2007 than Jan.-Sept. 2006."

Homebuilders, Housing Stocks and Housing-Related Stocks

• Beazer Cuts Jobs, Suspends Dividend; Estimates Charges (Susan Lerner in Seeking Alpha, Nov. 6th): "Beazer Homes USA (BZH) late Monday announced... net new home orders skidded 53% in FQ4... The homebuilder blamed the tightening of mortgage markets in August and September, which resulted in an "unusually high" cancellation rate of 68%, for the decline... In October, Beazer slashed 650 positions, or 25% of its work force, which has declined 50% from its March 2006 peak... resulting in annualized cost savings of at least $30M. Elimination of the $0.10/share quarterly dividend was expected to save $16M annually. Beazer continues to reduce its land holdings. Q4 results will include about $230M in land writedowns."

• Hovnanian Reports Double-Digit Decline in Deliveries and Contracts (Steven Towns in Seeking Alpha, Nov. 6th): "Homebuilder K. Hovnanian's preliminary fourth-quarter operating data: Hovnanian delivered 3,969 homes during its Q4 ended Oct. 31, a y/y decline of 19%, while net contracts decreased 10% to 2,781 homes. Cancellations increased to 40%, compared to 35% in Q3 and last Q4. Hovnanian cited "the tightening of mortgage underwriting standards" for the increase in cancellations. Backlog fell 30% to 5,938 homes. Hovnanian also said Q4 total debt was reduced by $390M... All of the data exclude unconsolidated joint ventures. Hovnanian is still completing a review of its Q4 results and plans to officially report on December 18."

• Wis. Jury Rejects Claim In Lead Paint Case (USA Today, Nov. 6th): "A Wisconsin jury decided Monday that a 17-year-old boy who sued paint makers after ingesting deteriorated lead paint as a baby isn't entitled to damages... The [jury] said that, properly handled, lead paint is safe and that landlords should be held accountable for letting properties deteriorate. Bonnie Campbell, a spokesperson for four of the paint companies, said Monday's verdict showed that under Wisconsin law, "property owners are legally responsible for keeping their properties free from lead paint hazards."

• KB Rises, Irani Quits Board (LA Business Journal Online, Nov. 5th): "Shares in KB Homes (KBH) rose a bit Monday after CEO Jeffrey Mezger said KBH expects “increased momentum” in demand for its Martha Stewart-branded communities. Mezger: “Demand is there." The co-branded home designs... are available in nine communities from North Carolina to Southern California... KB has lowered the average sales price of a branded home about 12% to less than $260,000. [Separately,] Ray Irani, CEO of Occidental Petroleum Corp., resigned from KB’s board after serving on it for 15 years. No reason for Irani’s departure was given."

• Why is Ryland’s Management Dumping Shares? (Reggie Middleton in Seeking Alpha, Nov. 5th): "The upper management of Ryland (RYL) has sold more than $33 million dollars of stock in the past year with at least $25M of that dumped very recently in the last three months - right before the quarter reports [Ryland reported on Oct. 24th - Ed.]. Here's another coincidence: despite the fact that the stock has been rapidly decreasing over the last year, none of the management have taken advantage of the opportunity to buy the stock at this cheap price - they have just sold... Insiders have (net) sold 2% of total shares outstanding in just 90 days."

• Jim Cramer's Mad Money Lightning Round Picks, 11/5/07: Superior is Inferior (Miriam Metzinger in Seeking Alpha, Nov. 5th): "Jim Cramer's Bearish calls: Radian Group (RDN): 'The RDN conference call was really a nightmare. It was a gigantic loss.' Fannie Mae (FNM): ' Basically, what I am saying is that I wish FNM was able to get, let's say, some of these bad loans off of its balance sheet, but it's not allowed to... I cannot buy FNM here.' Countrywide (CFC), Home Depot (HD)."

• Does 1x Book Value Mean a Bargain For Homebuilders? (James Cullen in Seeking Alpha, Nov. 5th): "Why Avatar Homes (AVTR)? Try $197M in liquid current assets [LCA], excluding inventories, and $197M in total liabilities - just $36M of it current. LCA and total liabilities nets out to zero. You get the other $525M in assets for $0.68 on the dollar. If you consider this article urging you not to bottom-fish in homebuilders because of their generally poor liquidity, you'll see why this is so important. Beazer (BZH): $290.6M in liquid current assets, $608M in current liabilities. KB Home (KBH): $890M in LCA, $1.76B in current liabilities. Toll (TOL): $771.7M in LCA, $1.5B in current liabilities. Avatar has a strong balance sheet."

• Pope Resources: The Forgotten Timber Company (Aaron Levitt in Seeking Alpha, Nov. 5th): "Timber, as a long life-based asset class, benefits from limited partnership's tax efficient structure and estate planning features... Compared to the rest of timber stocks, Pope Resources has an industry low price to earnings ratio of 9.16. Plum Creek timber REIT [has] a P/E of over 27 [and] a market cap right near $200 million and earned $4.54/share last quarter. Pope also pays a market beating dividend of 3.9% and recently upped its quarterly payment by 43%. Pope Resources... would make a perfect core timber holding or supplement to the big three REITs: Plum Creek (PCL), Rayonier (RYN) and Potlatch (PCH)."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

• Real-Estate Financier Gramercy Agrees to Buy American Financial (Wall St. Journal, Nov. 5th): "Gramercy Capital Corp. agreed to buy American Financial Realty Trust, a REIT that specializes in properties leased by financial institutions, for about $1.1 billion in cash and stock... American Financial holders [will] get $5.50/share in cash and 0.12096 Gramercy share for every share of American Financial. That values American Financial shares at $8.43/share, a 31% premium over Friday's closing price... Separately, Gramercy announce that a fund managed by Morgan Stanley Real Estate bought $100 million of Gramercy stock last week at $26.25 each. The purchase makes Morgan Stanley Gramercy's largest shareholder after SL Green Realty Corp. (SLG), an office REIT."

• Gramercy To AFR: Bank On It (Slatin Report, Nov. 5th): "Greg Hughes, COO and CFO of Gramercy's progenitor, SL Green Realty Trust: Gramercy has already identified about $300 million of "held-for-sale" assets and a similar amount of value-added assets it hopes to upgrade... Adding a new dimension [Gramercy as landlord] to the company, especially one that contours neatly into the folds of SL Green, [is] a daring move during a challenging time for the REIT sector as a whole and mortgage REITs in particular... The premium [buyout price] is still well below a per-share net asset value of between $10-$14 assigned to the stock by some REIT analysts."

• Behringer Harvard Buys Four Downtown Office Buildings (Chicago Tribune, Nov. 5th): "Behringer Harvard REIT I Inc. closed on its $832.5 million purchase of four downtown office towers from affiliates of Beacon Capital Partners, Behringer announced today. Behringer expects to realize economies of scale in managing the properties at One Financial Place in the South Loop and 10 South Riverside Plaza, 120 South Riverside Plaza and 200 South Wacker Dr. in the West Loop. This 3.3 million-sf purchase brings to 4.4 million-sf its holdings in Chicago."

• Commercial Real Estate Heads South (Minyanville, Nov. 5th): "Simmering beneath the surface and unbeknownst to most is a pronounced deterioration in commercial real estate. The evidence is can be seen in widening spreads in the tranches of Commercial Mortgage Backed Credit Default Swap Benchmark CMBX Indices... Rising spreads represent a greater chance of default in commercial real estate. Most spreads are now wider than they were in the peak of the mid-summer credit crunch... indicating problems that previously affected only residential real estate have now spread in a big way to commercial real estate. In spite of the big stock market rally off the summer lows, underlying credit conditions are deteriorating rapidly. See charts

• Boston Capital REIT Agrees to Be Acquired (Multi-Housing News, Nov. 5th): "Boston Capital REIT Inc. recently announced... an affiliate of BPG Properties Ltd. will acquire the company in an all-cash transaction valued at $13.30/share... The purchase price represents a 33% premium over the company’s original $10.00/share offering price. In addition to the merger consideration, the agreement permits Boston Capital REIT to continue to pay regular monthly distributions at a rate of $0.00164384/share through the closing of the merger with a pro-rated dividend for the month in which the transaction closes. This monthly distribution is equivalent to an annual rate of return of 6%, assuming the share was purchased for $10.000."

Website of the Day

Wondering how is it that people can be so stupid as to lend a subprime mortgage to someone who can't pay it back, or how investors could agree to buy securities backed by those subprime mortgages? This YouTube video by English comedy duo John Bird and John Fortune is the hilarious answer you're looking for. I don't know if it's that they use the Queen's English, or just their dead-on description of the players in the subprime market and how they brought about their own demise. Either way, unless you're a CDO or SIV investor, you'll find this very funny.

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