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Real Estate Sales and House Prices
Pending Home Sales Index Points To Easing Market (National Association of Realtors, September 1st): "Home sales should be leveling out in the months ahead at a lower pace, according to an index based on pending home sales, a leading indicator for the housing market published by the National Association of Realtors®.
The Pending Home Sales Index,* based on contracts signed in July, is down 7.0 percent to a level of 105.6 from a downwardly revised reading of 113.5 in June, and is 16.0 percent lower than July 2005. The index is derived from pending sales of existing homes... Regionally, the PHSI in the West declined 5.5 percent in July to 103.1 and was 20.3 percent below July 2005. The index in the South dropped 6.4 percent to 122.3 in July and was 11.3 percent below a year ago. In the Northeast, the index fell 7.7 percent in July to 92.1 and was 15.5 percent below July 2005. The index in the Midwest dropped 9.0 percent to 93.3 in July and was 20.1 percent lower than a year ago."
- On Housing Front, it's Beginning to Get Ugly (Motley Fool, September 1st): "I'm sure others have noticed, as I have, the increasingly desperate pleas from the housing-bubble cheerleaders, especially National Association of Realtors Chief Economist David Lereah. A longtime bubble denier — who, I think, is more interested in protecting his constituency of six-percenters than in offering realistic housing-market commentary — Lereah began asking the Fed to protect his bubble a couple months back. At the same time, he and his associates have tried to spin the situation with the news media, who, hungry for soundbites, are usually all too happy to parrot headlines such as "Existing-home sales down with softening prices.""
- High Prices and Rising Rates Push Houses Out of Reach for Buyers (RealEstateJournal, September 1st): "...high house prices and rising interest rates have pushed even more homes out of reach of the typical buyer. The housing-affordability index fell to a record low in the second quarter, with just 40.6% of the new and existing homes sold in the second quarter considered to be affordable for a family earning the median national income of $59,000... In the condo market, developers see supplies rising and new construction falling. A vast majority of developers -- 82% -- report more resistance from buyers to their prices. Three-fourths of developers are offering nonprice incentives, such as free upgrades or help in paying closing costs. A sizable number of builders have cut selling prices, with the average reduction of 9%."
- Real Estate Agents Try Truth on Home Sellers (AZ Central, September 1st): "There is a three-year supply of homes on the market in Johnson Ranch near Queen Creek, a real-estate agent told Republic reporter Betty Beard. Agents are encouraging sellers to - gasp - lower their prices, sometimes below appraisal."
- No Bubble Trouble (Toronto Sun, September 1st): "analysis by TD Economics points out that whopping housing price gains in Vancouver and Calgary are "unsustainable" and vulnerable to a significant downturn. Edmonton is also experiencing explosive growth, but affordability there remains high. In Calgary, prices of resale homes were up 45.6% in July compared to a year ago. Edmonton was up 31%, while Vancouver was up 20.3%... By contrast, the average price of a resale home in the Toronto area was $324,034 in July, up 4.9% from a year ago. The national average home price was $277,189 in July, up 10.6% from a year ago. Sales in the first seven months of the year remain on a record annual pace. "Canada's real estate markets appears to be in good shape and market conditions are becoming more balanced," said Craig Alexander, deputy chief economist of TD Economics. "Key exceptions are Vancouver, Calgary and Edmonton.""
- Q&A With Mortgage Banker Mark Cohen (Jewish Journal of Greater Los Angeles, September 1st): "JJ: How much do you expect housing in Southern California to drop in the next year? What price ranges will be hit hardest? MC: I don't expect prices will fall more than 5 percent to 10 percent from the market highs of a couple years ago, with the hardest hit homes being those in the mid-level price range between $1 million to $3 million."
- Struggling Condo Developers Looking for Million-Dollar Handouts from Hollywood (South Florida Sun-Sentinel, September 1st): "Throughout South Florida, as supply outpaces demand, prices are leveling off and could tumble by 30 percent or more by the time the market hits bottom, experts say. As of June 30, almost 52,000 condo units in South Florida were under construction or finished and still vacant, according to Metrostudy, a West Palm Beach-based consulting firm. About 104,000 units are planned, although analysts doubt most will be built. Soho Lofts developers told city officials last week they are experiencing the downturn firsthand. Developers said that after opening their sales office in August 2004, they have received reservations for 27 of the 40 units in the first phase. The units are priced from $400,000 to $1 million. Sales for the second phase are not scheduled until the end of the year. Developers say they have invested about $10 million and won't get any further financing without the city's help."
- Builder Puts Cars in Driveways of New Homes (Santa Cruz Sentinel, August 31st): "Buy a house. Get a car — free. That's the deal being offered by green developer Clarum Homes, which hopes the incentive will speed the sale of the last five homes in its Pajaro Vista development on the eastern edge of the city. The incentive — a fuel-efficient hybrid Toyota Prius in keeping with the development's near zero energy homes — is yet another indication of a sluggish real estate market."
- Buying in the Hurricane Hot Zone (Business Week, August 17th): "...at the peak of hurricane season in the southern U.S. and with the scars of Katrina still fresh, it would seem that most sensible people would think twice about living on the Gulf Coast. Yet because it is also considered one of the most beautiful, and affordable, coastlines in the country, one where much of the population has deep roots, people have not abandoned the region. Moreover, many new developers and private individuals are buying there hoping to take advantage of the billions of dollars in federal and state aid, as well as the money from casino operators such as Harrah's (HET) and other private-sector investors, being pumped in to rebuild and, in many cases, improve the area. In addition to primary residences, much of the new construction is for second homes in some of the hardest-hit areas. As a result, home prices in many areas in the region are higher than first projected, and its real estate market is bouncing back sooner than expected."
Real Estate Investing and Sentiment
- Trump Jumps in to Help Tower (St. Petersburg Times, August 31st): "Frustrated by the failure of local developers to land financing for Trump Tower Tampa, the Trump Organization said it will take the lead in finding lenders for the proposed luxury condominium high-rise. At 52 stories, Trump Tower would be the highest skyscraper in west Florida. But the Tampa riverfront project has struggled to find a $200-million loan in the current housing downturn. Developer SimDag LLC is delinquent in paying a former contractor and is almost certain to postpone the tower's scheduled late 2008 grand opening... the $260-million, 600-foot project was sideswiped by rising construction costs, including huge jumps in the price of concrete and steel."
- Psst . . . Wanna Buy Some Swampland? (Orlando Sentinel, September 1st): "...a new generation eyeing property for investment or retirement is buying land that's miles from civilization, has no roads or utilities and sometimes is underwater. Known as "paper subdivisions," these undeveloped tracts are the remnants of developers' unfulfilled dreams -- if not outright scams -- in Osceola, Polk, Volusia and Brevard counties. Buyers are paying thousands of dollars over assessed value for a lot that can't be built on in a subdivision that does not officially exist. An acre-and-a-quarter lot -- usually assessed at $600 to $1,200 -- fetches 10 times that or more from unsuspecting buyers in Internet auctions. Florida officials estimate there are millions of these unbuildable lots in every part of the state. Some eBay sellers have owned their lots for decades -- purchased as part of a retirement dream dangled by a high-pressure salesman. Others scooped up lots in tax sales after owners stopped paying property tax on land they realized they never could use."
- 'Flipping' on a Housing Market (Recordnet.com, August 30th): "A new survey of "flipping" - the fast turnaround sale of a house for profit in a strong market - indicates that the levels of investors in the local and California real estate markets have shriveled from a year ago... In the second quarter, 2 percent of the sales in San Joaquin County were of existing homes that had been owned for six months or less, down by almost two-thirds from 5.1 percent in the second quarter in 2005. By comparison, 2.4 percent of the existing homes sold statewide were sold within six months, down from 3.5 percent for the second quarter of last year. In San Joaquin County, investors still made money, clearing a median profit of $34,750 in the second quarter, but 23.8 percent ended up losing on their home buys. Statewide, 24.7 percent of investors lost money, but the profits were richer on sales overall, with a median profit of $44,500 per residence."
- Biz Buzz: Local Homeowners Learn Cost of 'Flipping' (San Luis Obispo Tribune, August 31st): "While flipping does not make up a significant part of the homes sold in San Luis Obispo County, those buyers who did try to make a quick buck ran into trouble. More than 68 percent of county homeowners who flipped their houses during the second quarter lost money, and the median loss was $15,900..."
Mortgates and Real Estate Lending
- Home Mortgage Rates Drop Across the Board (WSJ, September 1st): "The average for 30-year fixed mortgage rates for the week ended yesterday was 6.44%, down from 6.48% a week earlier, Freddie Mac said in its weekly primary mortgage market survey. One year ago, the rate averaged 5.71%. The average for 15-year fixed-rate mortgages this week was 6.14%, down from 6.18% one week ago. A year earlier, the mortgage averaged 5.32%. The average for five-year Treasury-indexed hybrid adjustable-rate mortgages, was 6.11%, down from 6.14% one week ago but up from the year-earlier 5.30%. The average rate for one-year Treasury-indexed ARMs was 5.59%, down slightly from 5.60% one week ago but up from the year-ago 4.48%."
- Nightmare Mortgages (Business Week, September 1st): "While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket... There was plenty more going on behind the scenes they didn't know about, either: that their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan's interest rates and up-front fees might not have been set by their bank but rather by a hedge fund; and that they'll soon be confronted with the choice of coughing up higher payments or coughing up their home... Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization. And once balances grow to a certain amount, the loans automatically reset at far higher payments."
Macro Impact of Housing Market
- Housing Slump Slashes Jobs (Baltimore Sun, September 1st): "U.S. homebuilders and residential specialty trade employers cut 21,200 jobs in May, June and July, usually the peak building months, according to the most recent preliminary numbers from the Labor Department. The statistics, adjusted for seasonal variations, also showed a significant job loss in March. In Maryland, where the federal government tracks homebuilding only as part of the larger construction, natural resources and mining sector, declines were also evident. Job cuts in May, June and July totaled 2,200. Cuts in that sector accounted for slightly more than half of the state's losses in overall employment in June and July."
- Dollar Recovery Comes to a Halt on US Housing Market Collapse Fears (Forbes, September 1st): "The dollar's early afternoon recovery, in the wake of a solid US jobs report for August, came to an abrupt halt on mounting concerns that the US housing market is teetering on the verge of collapse. The National Association of Realtors revealed that pending home sales slumped by 7 pct in July to their lowest level in three years. Its pending home sales index, based on contracts signed in July, fell to a seasonally adjusted 105.6 in July from a downwardly revised 113.5 in June... The housing market has been the main reason behind the US growth spurt over the last couple of years and any suggestion that it is in trouble stokes up concerns about the economic outlook and the likely path of US interest rates."
- Palm Beach County Teachers Migrating North for Better Pay, Lower Cost of Living (South Florida Sun-Sentinel, September 1st): "Now Bailey teaches history at South Forsyth Middle School in Cumming, Ga., about 40 miles north of Atlanta. He is selling his two-bedroom house in Loxahatchee for $410,000 and was able to buy a five-bedroom house in Dawsonville, Ga., for $292,000... School district figures show that 284 teachers stated in their May exit interviews they were moving out of Palm Beach County, up from 210 in 2005 and 140 in 2004. The information doesn't specify where the teachers moved or why. But district officials say they're hearing anecdotal evidence that many teachers find it's too expensive to live here."
Housing `Short Sales' Are Latest Sign of Stress (Caroline Baum in Bloomberg.com, August 31st):
"Residential real estate accounts directly for 5 percent of real gross domestic product and indirectly for a greater share: Newly built homes require furnishings and appliances. When prices stop rising, as they have in many previously hot areas of the country, the game is up for all but the savviest speculators who know the real estate market in a particular area and can spot undervalued properties. That endgame is contributing to the practice of ``short sales,'' according to an Aug. 21 story in the Sacramento (California) Bee. Homeowners who owe the bank more than the house is currently worth try to convince the lender to accept less than the loan value to avoid the costs of foreclosing on the property. With Sacramento County home prices down 5 percent in the past year and foreclosures rising, short sales are reappearing like clockwork, according to the Bee. Nationwide, foreclosures rose 5 percent in July from the prior month and 18 percent from a year earlier..."
Hedging Your House Price By Shorting Stocks
- Can Banks Weather Housing Market Chills? (Eli Hoffmann in Seeking Alpha, September 1st): "Real estate, including mortgages, home-equity loans and commercial loans, represents 33.5% of the U.S. banking industry's $9.3 trillion in assets. At bigger banks with multi-faceted operations the percentage is smaller (from 5-15%), but growing... The various financial sector ETFs — (NYSEARCA:XLF), (NYSEARCA:IYF), (NYSEARCA:IYG), (NYSEARCA:VFH) and (NYSEARCA:RKH) — can be used to play the short-side of the banking industry."
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