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 get this sent to your blackberry or desktop email by signing up for our no-spam free email subscription service.
Real Estate Sales and House Prices
- How Not To Scare Off Buyers (New York Times, Dec. 17th): "A couple of years ago, you could say, ‘I’m only showing the apartment from 10 to 5 o’clock, no evenings or weekends,’ and the apartment would sell,” said Matthew Mackay, a vice president at Corcoran. “Now with more inventory, sellers need to know that if a buyer is working all day and wants to see an apartment at 7 p.m., they have to be more accommodating."
- Blue Chip Economists See Housing Permits Back On The Rise In 2008 (Business Journal Of Pheonix, Dec. 15th): "Greater Phoenix Blue Chip Economic Forecast: The housing market expected to end the year with 45,943 new home permits, down from the 53,371 predicted in the June report and sharply down from 2004 (60,000) and 2005 (63,000). 2007 forecast: 41,767 single-family home permits, a 16 percent drop from June prediction. 2008 forecast: a rise with 45,519 new homes predicted. Multifamily permits issued on the rise... This year's tally is expected to hit 5,736, up from 3,250 in 2005... 2006 has been a good year for commercial construction and 2007 is expected to be even better. Vacancy rates are expected to remain relatively low and absorption strong."
- Maui Home Prices Fall 18 Percent (Honolulu Advertiser, Dec. 15th): "The median price on Maui made its most dramatic decline this year to a 21-month low-- $598,795 in November, down 18 % from $734,500 a year earlier. Sales surged 27 percent to 109, compared with 86% a year earlier. Maui broker: prices for many properties are getting back to where they're supposed to be... Maui's median single-family home sale price has risen in seven of the first 10 months of this year… There were 66 condo sales last month, down 55 percent from 147 sales a year earlier. The median price was $515,000, up 10 percent from $469,000."
- What's Out (Business Week, Dec. 15th): "Author Mark Nash's research on new trends in housing-- what's out in 2007... "As is" in home sale marketing. Anything went in the boom market, but if you're planning to use "as is" in 2007, forget it. The two letter-two word kiss of death, buyers see it as a red flag about the home and you the seller. You have too much competition to be chasing buyers away."
Real Estate Investing and Taxes
- UH Embarks On Ambitious Makeover (Chron.com, Dec. 17th) University of Houston, Texas: "The plan calls for doubling the usable square footage of classroom and office space…1.9 million square feet in new academic buildings, housing and retail near two proposed Metro light rail lines… reducing blight and encouraging more retailers to move in… Campus leaders estimate the first five-year phase cost at $300 million... Other urban schools, including Columbia University in New York City, the University of Pennsylvania in Philadelphia and the University of Southern California in Los Angeles, are working aggressively to improve and redefine their gritty surroundings, as well as their campuses."
- HousingPanic Calls On Congress And Bush To Repeal The Big Wet REIC Kiss That Caused The Housing Bubble (Housing Panic, Dec. 15th): "When Congress and Clinton passed the "Taxpayer Relief Act of 1997", they caused the Great American Housing Ponzi Scheme to take off. Code Sec. 121 greatly expanded the tax assistance afforded to individuals selling their homes. For instance, an individual can exclude up to $250,000 of gain ($500,000 if a joint return is filed) on the sale of a primary residence if the homeowner owned and used the home for at least two out of five years preceding the date of sale."
Mortgates and Real Estate Lending
- Roof Caving In On Some Owners (Newsday, Dec. 17th): "Recent foreclosure data shows that the total number of Long Island homeowners who received new legal notices of foreclosure, called lis pendens, rose 75 percent during the past two years. The recent slowdown in the housing market may make the situation worse. Because of the glut of houses on the market and flat or falling prices, it’s harder to cash out their biggest asset. It’s going to affect more than the lowest-income neighborhoods on Long Island. It’s going to be a middle-class phenomenon too."
- Retirement-Age Families See Their Debt Levels Rise (Akron Beacon Journal, Dec. 16th): "Debt levels have risen sharply for families nearing or in retirement, shaking the retirement security of lower-income families particularly, the Employee Benefit Research Institute says. The average debt of families headed by someone 55 or older had risen to $51,791 in 2004, a real increase in average and median debt of about 77 percent from 1992. The research institute has issued a series of reports focused particularly on housing debt-- steadily increasing since 1992 because of refinancing, cashing out equity or facing higher home values when buying."
- Housing, Car Markets May Spark Credit Crunch (Reuters.com, Dec. 15th): "The housing slowdown may mean higher delinquencies and more rating downgrades next year for subprime residential mortgage-backed securities, or RMBS, and structured products known as collateralized debt obligations, or CDOs. For consumers and companies, that means borrowing costs may rise and access to capital may dry up. Bond prices also may fall if CDO investors buy fewer subprime bonds. U.S. subprime RMBS represent a majority of the composition of newly issued CDOs, which in the first half of 2006 have averaged a 64 percent concentration in U.S. subprime RMBS, compared with 48 percent in 2005, according to Fitch Rating."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Bond Prices Edge Up On Sign Of Housing Weakness (Reuters.com, Dec. 18th): "Intermediate- and long-term U.S. government bond prices edged up on Monday after a drop in a December housing index challenged the view that the housing market was stabilizing. A one-point drop in the NAHB/Wells Fargo Housing Market index in December to a reading of 32 put the index above its trough of 30 in September, the lowest since 1991, when the economy was slipping into recession... Last week's housing starts report was expected to show a rise to an annual pace of 1.530 million units in November from October's 1.486 million pace."
- Marketplace: Housing Too Hot To Not Cool Down (The Columbian, Dec. 17th) Washington: "In November, sales of new and preowned single-family homes in Clark County were down 30.8 percent from November 2005... The lowest since 2002. While most employment sectors in the region tanked in the 2002 recession, home sales and construction increased every year from 2002 through 2005. The good news is that as housing cools... technology is hiring, manufacturing is generally positive, mortgage rates have stabilized and building activity, while down, is not out, with commercial construction taking up some of the slack. Job growth is expected to continue, which means people still need housing."
- U.S. Homeowners Remain Optimistic (Statesman.com, Dec. 17th): "Pew Research Center survey: "Some 34 percent of homeowners say their home accounts for 'all or most' of their personal financial worth and another 34 percent say it represents about half of their worth." [Despite] gloomy housing bubble scenarios the poll found that for the most part homeowners aren't panicking over the market's softening. Only about a quarter say it has had some or a great deal of effect on their personal finances, while three-quarters say it has little or no effect."
- Inflation Lull May Be Sign Of Trouble Ahead (Chicago Tribune, Dec.16): "A drop in housing prices and a loss of production in the auto industry are among signposts that suggest a lack of inflation may augur recession. The Labor Department's CPI was unchanged in November, following declines of 0.5 percent in each of the two previous months. Lack of inflation is creating enormous pressure on businesses to boost profits through cost cutting by reducing workers and telling survivors they must boost productivity. Companies are [also] faced with rising costs for health care, benefits and wages, but cannot raise prices because consumer equity borrowing has flattened as houses sit unsold and prices have stagnated or fallen."
- Study: Housing Out Of Reach For Many (Eagle Times, Dec. 14th) New Hampshire: "National Low Income Housing Coalition study: As rent gobbles up larger and larger percentages of a family's income, it leaves less and less money for other items, from transportation to health care. Rent increases also affect the taxpayer... NH's Welfare Department: Rising housing costs have driven the number of applications for assistance up by 70 percent in the last six years... So additional taxpayer money is being used to help families in need. By the end of October, the welfare dept. had already overspent its $130,000 budget for 2006 by nearly $37,000."
- What's Ahead for 2007? Knowledge@Wharton Network Surveys The Globe (Knowledge@Wharton, Dec. 13th): "Richard Marston, Wharton Finance professor: "The Prospect of a recession is about 30%, which is not alarming.... The housing slump is going to be a more prolonged decline than people think... After real estate prices dropped in 1989, it took many parts of the country until the mid-1990s to recover... Recessions often come in the wake of big gains in asset prices. The recession of 2001, for example, followed the big stock gains of the late 1990s... Yet inflation does not appear to be a serious threat, so the Fed may be able to cut short-term interest rates in 2007, helping stimulate the economy to offset damage from the housing sector."
Homebuilders and Hedging Your House Price With Stocks
- Forest City Trading At NAV (Joseph Citarrella in Seeking Alpha, Dec. 18th): "Forest City (FCE) is an $8 billion (asset) commercial, residential and land development (Non-REIT) real estate operating company. Non-REIT status... enables the company to reinvest its free cash flow into the business (and not pay out income to investors). For those seeking safety and small upside potential, I feel the stock is safe given its financing strategy, diversified real estate portfolio, and strong, shareholder friendly management. There is no substantial discount in FCE and further big advances are unlikely, but it’s a great company to have on the radar screen in the event of price declines opening the door for buying opportunities."
- Goldman Building Market For Home Price Derivatives (Reuters.co.uk, Dec. 18th): "Next month Goldman Sachs is to begin trading forwards, swaps and options linked to U.S. house prices indices, letting investors benefit from rising prices, take positions more quickly and at lower cost than physical home sales-- but also hedge against a slump, which could be useful as an extended bull run for house prices grinds to a halt... Property derivatives have the potential to become big on Wall Street. The value of U.S. housing, at $22 trillion as of March, exceeds the $16-trillion value of U.S. equities and is not much smaller than the $26-trillion market for U.S. debt. CEO Blankfein: "The property derivatives market has enormous growth potential given the size of real estate held by institutions."
- How Far Will Housing Drag Down The Economy? (Market Participant in Seeking Alpha, Dec. 18th): "Spill over effects from the slowdown in housing and inverted yield curve have also done serious damage to the Active originator/Prime Investor AOPI REIT sector. Nice, ethical companies like Homebanc (HMB) and New York Mortgage Trust (NYSE:NTR) have imploded. This is sad because these companies have unrecognized franchise value from origination platforms and large books of prime residential mortgages. Eventually this will be a very profitable sector for distressed value investors to pick through. SSgA's KBW Mortgage Finance ETF, which has been in process for a long time, will be a very timely investment once the deflation of the housing bubble settles down."
- Builders Take Big Write-Downs As Housing Market Slows (Arizona Republic, Dec. 17th): "Companies have some discretion over some inputs used to calculate the write-downs, including the future selling price, the rate which properties are expected to be sold and current rate for similar assets, fexibility in deciding what discount rate to use when deducing potential future cash flows. Wall Street analysts warn that builders might see this as the right time for large write-downs... While market conditions are tough, they still have profits to show this year. Their earnings are likely to deteriorate more in 2007."
- Housing Sector Still Causing Confusion (Nashua Telegraph, Dec. 17th): "Financial markets are puzzled about whether the housing sector has bottomed out or not. Homebuilder CEO's are publicly saying more doom and gloom is likely on the way, while providing a more upbeat outlook behind closed doors… Wall Street worries more bad news could come with a massive rise in land-value write-downs, reducing already weak earnings, and lead to further erosion in the “book value” of many homebuilders. Investors have also grown increasingly wary of other sectors with housing-market ties like home-improvement retailers, whose stocks have been badly battered in recent months."
- James Grant's Investment Strategies For The Housing Predicament (John Bethel in Seeking Alpha, Dec. 15th): "James Grant in Forbes: WSJ Economists said 2-1 that the worst of the residential real estate slump was history... But house prices soared on the wings of the modern, optimistic, growth-obsessed mortgage industry-- and now bodes for a hard landing... Investment strategies to deal with this predicament could involve two exchange-traded funds. Bears on residential real estate could sell [if they own it] or short [if they don't] the StreetTracks SPDR Homebuilders (NYSEARCA:XHB) or buy the puts thereon... To profit from a housing-induced drop in short-term rates, buy the iShares Lehman 1-3 Year Treasury Bond Fund (NYSEARCA:SHY) or its call option."
Commercial Real Estate and REITs
- Realogy Announces Agreement To Be Acquired By Apollo Management In $9.0 Billion All-Cash Transaction (Yahoo Finance, Dec. 17th): "Realogy Corporation, the world's largest real estate franchisor is to be acquired by private equity firm Apollo in a $9 billion deal, including the assumption or repayment of approximately $1.6 billion of net indebtedness and legacy contingent and other liabilities of approximately $750 million. Realogy stockholders will receive $30.00 per share, representing a premium of 18 percent over Friday's market closing price of $25.50 and a premium of 26 percent over Realogy's average closing share price since its spin-off from Cendant in August."
- Realogy to be Bought by Apollo Group (WSB in Seeking Alpha, Dec. 18th): "Realogy is involved in a quarter of all U.S. home sales annually and has almost triple the number of agents employed by Re/Max, its closest competitor. Its earnings are declining, however, because of the housing slowdown and increased competition from online brokerages and discount houses. Still, its $500 million in annual cash flow, relatively low level of debt, strong brand names and longevity in the industry made it an attractive acquisition candidate."
- Realogy Roots Run Deep With Prospective Buyer (Inman News, Dec. 18th): "Chuck DelGrande of Presidio Financial says Apollo/Cendant deal shows confidence that the real estate market will soon recover. Apollo helped launch NRT, the brokerage division of Realogy... Apollo has committed to provide $2 billion in equity to complete the planned transaction, and the deal also includes Apollo's assumption or repayment of $1.6 billion of net indebtedness, and legacy contingent and other liabilities valued at about $750 million... Apollo is now investing in its sixth private equity fund and has invested more than $16 billion in companies from a broad range of industries."
Web Site of the Day
Biggerpockets.com is another all around real estate investment site, offering advice to the homeowner on all aspects of the purchasing/selling process. The site was founded by Joshua Reed Dorkin in 2004. An entrepreneur, web designer, real estate investor and one-time realtor, Dorkin has built a site geared primarily to the do-it-yourselfer, those that want to save on all the various (and expensive!) add-ons that can make the buying and selling process so prohibitive.
The housing slump has put a lot of homeowners into crunch mode where every dollar that can be squeezed out of their largest asset is hard won. This site offers a lot of free information about things like mortgages and credit reports, (particularly helpful for those looking to improve their credit rating before taking out a mortgage), as well as basic forms for contracts and lease agreements to save money on legal fees.
The site's legal section offers links to important real estate legal archives, like municode.com, a library of municipal codes from around the U.S., and another great feature is the nifty mortgage calculator.
Tracking the Housing Market and Homebuilder Stocks |
If you have a blog or website of your own, you can track developments in the sector and provide great content for your readers with our Housing Market widget (left).
It's simple to add -- just select "Housing Market" from the drop-down menu here.