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
- Home Prices Heading South (In Business, Las Vegas, Feb. 11th): "Greater Las Vegas Realtors Ass'n: The median price of homes sold on the Multiple Listing Service dropped 1.3% in January to [a] total decline to 4.45 since June, when the sales price was an all-time high of $315,000… The median January home sale price on the service was $302,000 and is poised to fall below $300,000 for the first time in nearly two years. The prices, however, don't account for any incentives many sellers have been offering in recent months such as paying closing costs and other expenses, which… could be worth as much as 5%."
- Cashing in Equity Could Pay off Handsomely (Roseville & Rocklin Today, Feb. 11th): "The National Association of Realtors reported stark contrasts among several regions of the country in Q3'06 median existing-home prices… Median prices in the Midwest run $170,500; in the South, $187,300; in the Northeast, $276,000, and in the West, $349,000… In San Francisco the median home price is a whopping $749,400, while in Bridgeport, Conn., it's $466,600. Median prices are approaching the $120,000 range in Charleston, W.Va., $150,000 in Champaign-Urbana, Ill., and $140,000 in Columbia, S.C… You can still find homes well below $100,000 -- for instance, in Decatur, Ill., Youngstown, Ohio, and Elmira, N.Y."
- North County Homes Buck Countywide Trend (NC Times, Feb. 10th): "North County single-family home prices held fast in January even as prices elsewhere in San Diego County declined 5% y/o/y. North San Diego County Association of Realtors: Area Houses sold in January for a median price of $625,000, the same as in January 2006. Elsewhere, the median price slid from $543,000 a year ago to $516,900 last month. At the same time, the amount paid for single-family homes dropped 12.3% from a year ago, reflecting the 6.7% drop in the number of homes sold."
- House-Hunters Hope Prices Will Keep Dropping (Santa Cruz Sentinel, Feb. 10th) Santa Cruz, Calif.: "A sharp drop in prices doesn't seem likely, according to the Unsold Inventory Index, a predictor of changes in value. The index jumped from 5 months to 7.7 months, but it's still within the normal range of six to eight months... The index is based on the number of listings divided by number of sales, and sales are down while inventory remains high… The number of homes on the market is the highest in 10 years for this time of year — 842 listings, 5% more than 2005, and 97% more than 2004."
- Home Building Slows in '06 (Globe Gazette, Feb. 9th) Iowa: "New single-family home construction fell 16% in Mason City in 2006, reflecting the lowest number of starts since 2001. A total of 43 permits valued at just over $8 million were issued in Mason City last year, compared to 51 issued in 2005. The decline reflects a state and national slowdown of new-home building following a five-year boom… Statewide, home building decreased some 15%, just ahead of the national decline in building of 17%, according to the U.S. Census Bureau. Information was gathered through building permits."
- Median Home Price Plummets by $40,000 (Seattle PI, Feb. 8th): "Seattle's median home price in January was the lowest it has been in a year…The median price of $379,990 was down from $420,000 in December, according to the Northwest Multiple Listing Service. A seasonal decline is consistent with recent years, but Seattle's January median home price also was lower than King County's median -- a first since at least 2001… The median Seattle house price in January was up just 5.7% from a year ago, compared with an increase of 10.1% for the county as a whole and 15.5% on the Eastside."
- December Home Sales Fell 14% (IndyStar.com, Feb. 8th): "Metropolitan Indianapolis Board of Realtors: The drop in December was the third-largest monthly sales decline during 2006 for metro-area home sales. The nearly 14% drop in Indianapolis was worse than the 8% decline in December home sales nationally… There was improvement in January… The average sales price of homes sold in January fell 3.6%, to $137,529, over the average price a year ago. The median sales price of homes in the area last year fell 1.6%, to $122,900 from $124,900, though the average price of homes sold last year rose by 0.6%."
- Haven't Forgotten About You... (SF Home Blog, Feb. 7th): "The market here in SF is flying along at a nice clip. Sure, you can pick the stale fish out of the inventory and talk about how there are some properties that are sitting around, but the reality is that we are seeing DECLINING INVENTORY right now… However, the inventory will be back a bit in April and May, then with a vengeance in June, just after Memorial Day weekend… What has changed are the sellers who were speculatively putting their houses on the market. They snuck out… in late-December."
Real Estate Investing and Sentiment
- Big Buildings, Big Prices (OC Register, Feb. 11th): "Green Street Advisors: The surge in real estate prices pushed the owner's yield on some properties to… "scratch your head" kind of lows… Numerous RE investors are making deals today that they hope will deliver earnings of 7% a year… down from 10% goals of just a few years ago – and not much above returns on corporate bonds… A Green Street "buy list" in various real estate niches: Retail: Taubman Centers (NYSE:TCO), Simon Property Group (NYSE:SPG), Regency Centers (NYSE:REG) Hotels: Starwood(HOT) Apartments: Archstone-Smith (ASN) Office: SL Green Realty (NYSE:SLG), Douglas Emmett (NYSE:DEI), Maguire Properties (NYSE:MPG) Medical: Nationwide Health Properties (NYSE:NHP)."
- Local Housing Market Appealing to Chicago Transplants (North Illinois News Tribune, Feb. 9th): "There will be many [residential lots] to choose from in 2007 in La Salle-Peru, Oglesby and Spring Valley, where developers witnessed double-digit sales declines in 2006. But don’t expect to pay less for land in the Illinois Valley just because developers had an off-year in 2006. The housing bubble that burst and left a nationwide glut of homes gave local sellers and developers a scare but had a limited effect on the local housing market."
- Foreclosures Fluctuate Around the Country, Reports Default Research (Yahoo! Finance, Feb. 10th): "Default Research: Michigan had an 8% decrease in foreclosures… Washington State recorded a 15% foreclosure increase… Two states hit hard last year by foreclosures were Florida and California. This year the two states are polar opposites. In fact, Florida, one of the country's most volatile states, had foreclosure rates continue to go up more than 20%. California, on the other hand, only had a minor increase of 4%, mainly in the northern bay area."
- State Sets Aside $1M for Foreclosure Prevention (Columbus Business First, Feb. 9th): "The Ohio Department of Development has made $1 million available in Ohio Home Rescue Funds to prevent foreclosures in the state…With Ohio reporting the eighth-highest foreclosure rate in the nation for 2006… Columbus, Dayton and Cleveland were among the top 20 largest cities in the nation for foreclosures last year. Columbus ranked 19th on the list with one house in foreclosure for every 45 households."
- Geographic Distribution of House Price Risk and Gains (Barry Ritholtz in Seeking Alpha, Feb. 8th): "The percentage of HSBC mortgages more than 60 days past due is climbing. Fraud by borrowers has been higher than expected." Since it's doubtful that HSBC is the only bank that will be increasing its reserves to deal with accelerating foreclosures, let's consider the parts of the country with the highest concentrations of at risk home prices…PMI… created a map that depicts the geographic distribution of house price risk for all 50 U.S. states and DC... The color codes rank order the 10 riskiest states in red (11 including the District of Columbia), followed by the next 10 riskiest states in tan, white, light blue, and aqua."
Mortgates and Real Estate Lending
- Subprime Lender Stocks Plummet: Easy Money Meltdown (Tim Iacono in Seeking Alpha, Feb.11th): "The combined market value of seven U.S.-based lenders active in the subprime market dropped more than $3.7 billion Friday… "Standard & Poor's Equity Research: "Countrywide, the No. 1 mortgage originator and fourth largest subprime mortgage originator in the U.S. is a "sell"…because they are going to face a pricing issue…" Washington Mutual, another big player in the subprime market, said in January that its mortgage business lost $122 million in Q4 thanks entirely to losses in its subprime segment… Credit Suisse… is reviewing for possible downgrades 24 asset-backed securities that were created from sub-prime home-equity deals in 2006."
- Why Housing Hasn't Hit The Skids (BusinessWeek, Feb. 10th): "Globalization and financial innovation are two key factors in keeping interest rates low. Investors know more about the loans they're buying, so they will pay more for them… Investors in mortgage-backed securities [used to] received two-page summaries of the portfolio. Now they get data on each loan... Credit default swaps, which let people bet for or against a bond or loan's creditworthiness, have also improved transparency. If investors bet heavily against an issuer's securities, its lending costs are driven up. This pushes out the marginal lenders… Keeping rates low."
- Wall Street Growing Leery of High-Risk Mortgages (Mercury News, Feb.10th): "Wall Street firms were attracted to [subprime] lenders because they helped feed a pipeline of securities backed by the mortgages, a market bigger than the one for U.S. Treasury bonds and notes. Merrill Lynch… backed $67.8 billion in residential mortgages in the first nine months of 2006, up 58.4% from the period a year earlier… Hedge Fund Research: Hedge funds that specialize in mortgage-backed securities had an outflow of $1.8b in 2006, down from an inflow of $1.8b in 2005.. The only category of hedge funds to have a negative flow for the year."
- The Best of Doug Kass (The Street, Feb. 10th): "Nationwide, the subprime default rate soared to 10.09% in November 2006… (vs. only 6.62% a year earlier)… November's industry default rate exceeded the level of November 2001… the bottom of the last recession… Nearly 15% of the mortgages made in 2006 were subprime… Almost triple [from] 2000-01… Subprime has never been more levered… Loan-to-value ratios have risen from about 78% in 2000 to 86% today… Low-documented loans have doubled to 42% of subprime loans since 2000. Creative loans -- non-interest paying, option ARMs, etc. -- represented nearly half of all loans made over the last 12 months."
- Why Countrywide Is Still a Buy (The Street, Feb. 10th): "Cramer on Countrywide: The long-awaited shakeout… You are seeing the small ones go under -- and some larger private ones, too. What you aren't seeing is the pullback in the major brokerages' business… A recognition that the margins got too bad in the subprimers that they bought to get the flow for mortgage back…If the brokers are pulling back and the smaller independents are going belly up, that leaves Countrywide to reap the benefits of the inevitable expansion in margin that comes from the end of the price wars for subprime."
- HSBC, Mortgage REITs, New Century and Novastar (Roger Nusbaum in Seeking Alpha, Feb. 9th): "Someone correct me, but didn't HSBC buy Household a while back? I wrote negatively about HSBC a couple of years ago because I did not see how a zillion very small accounts in China could be very profitable. I have never been a fan of sub-prime lenders because of the blowups that come along every now and then. While I would not call HSBC's stock a blow up, the action in New Century (NYSE:NEW) is a blow up. Novastar (NFI) is another one capable of blowing up now and then and was down 10% Thursday."
- Quick Take: More Pops From the Housing Bubble (Motley Fool, Feb. 9th): "HSBC (HBC) has to fess up to unpredictable big spending on loans gone bad, then New Century Financial (NEW) drops nearly 30% on… a warning about loan production, as well as… a do-over on 2006 results. Will we see the same from peers like Pacific Premier Bancorp (NASDAQ:PPBI), Countrywide Financial (CFC), or any of the lenders out there who most certainly, I'm sure, do not engage in that type of lending popularly known as "liar loans"? Stocks like Novastar Financial (NFI) and Accredited Home Lenders (LEND) have already been whacked."
- Market Collapse? Who Ya Gonna Call? (Salon.com, Feb. 9th): "Will the subprime lending industry trouble spread to the holders of "mortgage-backed securities" -- the disparate group of investors who have assumed the risk of potential mortgage defaults? WSJ: "In 1998, the Fed convened investment banks and worked out a rescue plan for hedge fund Long Term Capital Management LP, which was on the verge of collapse... But in today's splintered mortgage-securities market, the Fed wouldn't be able to "get the involved players into a room" to work out a plan to help a distressed institution sell off assets in an orderly manner."
- Questioning Sell-Side Research On The Subprime Lenders (Michael Panzner in Seeking Alpha, Feb. 9th): "Analysts were decidedly positive on HSBC Holdings coming into Friday. Brokerages covering the company out of Asia break down to nine "buy" ratings, eight "neutral" ratings and three "sell" ratings. But news that the capital needed to cover bad debts was $1.76 billion, or 20% higher than expectations, has only moved one analyst to action: J.P. Morgan Chase, which downgraded the stock to "underweight," noting a downgrade to "neutral" last month… Breakingviews.com's Mike Verdin notes today that "HSBC Finance's biggest problems are in recent loans, not the inherited book. As those loans mature, the bleeding may yet worsen."
- Subprime Pain Gets Worse (OCRegister, Feb. 9th): "Standard & Poor's downgraded its credit rating of Irvine's New Century Financial Corp. and might downgrade it further… citing New Century's increasing buy backs of bad loans from investors and the possibility that the company breached certain agreements with creditors, "which would pose a liquidity challenge." New Century's stock slipped 5% Friday, closing at $18.22, after a drop of 36% on Thursday… Lenders Direct Capital Corp., another subprime lender, shut down its wholesale lending operation but will continue to lend directly to consumers, said CEO Michael McQuiggan… The company laid off about 150 workers."
Global Alternatives To The Housing Slump
- Jones Lang LaSalle Releases New Real Estate Investment Report (Immo News, Feb. 10th): "In 2006 a total of €26 billion was transacted in Continental European retail real estate, up by 77% on 2005 (€14.6b) and more than three times higher than in 2004. The number of transactions in 2006 was up by two thirds from 2005: Jones Lang LaSalle recorded some 420 transactions in 2006 compared with 249 in 2005… Some €10 billion, nearly 40% of the total volume for the year, was transacted between October and December. Over 200 investors bought retail property in 2006, with the top ten investors accounting for a third of the total investment volume."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Home Prices – Expert Opinion Is Leaning Toward the Possibility of Additional (FX Street, Feb. 10th): "The sharp increase in prices of homes during 2004 and 2005 helped households support their expenditures by enabling large mortgage equity withdrawals amounting to $544 billion in 2004 and nearly $600 billion in 2005.The recent sharp drop in home prices has reduced the volume of mortgage equity withdrawals to an annual rate of $215 billion in Q3'06 from a peak rate of $730 billion in Q3'05… trim[ing] the pace of consumer spending. Further reductions in home prices are predicted to translate into soft growth in consumer spending in 2007."
- Things That Go Boom (Wall Street Journal, Feb. 8th) Robert J. Shiller, professor of economics and finance at Yale University: "The failure of anyone really to predict today's high home prices… Maybe it [means] that high home prices today are just an enormous anomaly that will have to correct downward sometime, if not right away… We are [in] a deeply uncertain situation, but… it would seem that a sequence of price declines continuing for many years has some substantial probability of happening… Evidence that institutional changes will be coming in future years to fundamentally change the nature of [residential RE] markets."
- Weak Demand Hurts Whirlpool’s Profit (NYTimes, Feb. 8th): "Whirlpool reported a 13% decline in quarterly earnings, hurt by soft demand in the United States, and cut its profit forecast for the year. Whirlpool said it expected 2007 appliance shipments to fall 2% to 3% in North America, its biggest market, where sales have been hurt by the slumping housing market and higher borrowing costs… In North America, which accounts for about 65% of Whirlpool’s sales, revenue rose 29%, to $3.2 billion. But shipments of washers, refrigerators and other major appliances fell about 8%."
- Hillary Clinton Sponsors Bill to Bar Banks from Real Estate (Real Town, Feb, 8th): "Hillary Clinton’s bill… will bar banks from real estate brokerage... The National Realtors Ass'n praised the legislation that "would ensure the nation’s real estate industry remains competitive… Without passage of this legislation we are concerned that national bank conglomerates will continue their attempts to enter into the real estate industry, putting both competition and the nation’s economic health at risk… However, attempts by the Federal Reserve and Treasury to redefine real estate as a financial activity would have harmful effects resulting in less competition, higher costs for consumers, and unfair competitive advantages for banks.”
- Study: Rentals Affordable, Except for Poorest (Times Argus, Feb. 8th): "Rents in Vermont are the second-lowest in New England and much lower than the national average. But the Federal Reserve Bank of Boston also found that… there is a critical shortage of affordable housing for low-income residents. Though rental housing in New England is expensive relative to the rest of the nation, the region's incomes are high enough that rental housing is affordable to most New Englanders"… The lack of affordable housing "may be undermining the region's ability to attract and retain workers, especially those with skills in high demand."
Homebuilders And Housing Stocks
- Toll, Centex, Lennar Join 'Moron' Speculators in Land Grab Bust (Journal News, Feb. 11th): "St. Joe Co., Florida's biggest private landowner, said the average price per acre of land it sold in Q4 dropped to $1,900 from $4,100 in Q3… Jack McCabe, a real estate consultant in Deerfield Beach, Fla., said land prices in his region would keep falling. He said investors were waiting for prices to hit bottom, probably in the second half of this year."
- Has the Homebuilder Rally Run Its Course? - Barron's (Seeking Alpha, Feb. 11th): "Cancellations are still 34% higher than 2005, and inventory overhang is large… A cold spell has likely ended the December-January building pickup. Aggressive incentives and discounts along with land writedowns are expected to take a big bite out of homebuilders 2007 bottom line, impacting recent stock price gains. Homebuilders' 20 P/E average is also well above the broad market average of 15. So as capital flows in to the SPDR homebuilders ETF (NYSEARCA:XHB), Tom McManus of Banc of America councils caution. Michael Benhamou of Louis Capital Markets projects a pullback risk of about 25%."
- Toll Brothers F1Q07 (Qtr End 1/31/07) Preliminary Earnings Results Call Transcript (Seeking Alpha, Feb. 9th): "CFO Joel Rassman: "There were some increases in incentives during the quarter, on average, probably about $8,000 more in incentives than they were last year." CEO Robert Toll: "Activity picked up in California, both North and South, activity in New York, exurb, suburbs, and of course in the urban stuff. We picked up some activity in Pennsylvania, Raleigh, Charlotte. Actually, the market is not -- it doesn't seem to be recovering as fully as some of the others. [In] Arizona, we've recently looked at some deals."
- For Whom the Bell Tolls: Perchance for a Home-Builder? (David Phillips in Seeking Alpha, Feb. 8th): "During fiscal 2006, TOL sold a home to a daughter of Robert I. Toll… for $1,582,186, at a discount of $48,934… [And] a home for a daughter of Vice Chairman Bruce E. Toll… at a discount of $105,925… Management anticipates that SG&A as a percentage of total revenues for 2007 will rise to… between 11.2% and 11.7% of total revenues… The Company blames an anticipated reduction in revenues, the expenses associated with opening new communities, and advertising expenditures to help promote sales. Add to this list, unnecessary perquisites to the Toll Brothers, too."
Commercial Real Estate and REITs
- Institutional Investors Dumping REITs as Equity Office Deal Pressures Yields (Seeking Alpha, Feb. 12th): "State St.: Institutional investors with $11.9 trillion in assets have been net sellers of REITs since November. Deutsche Bank and MFS Investment Management joined the list of sellers just as Blackstone Group finalized its bid for Equity Office. US REIT yields are at their lowest relative to Treasury Bonds since 1985. The National Association of REITs estimates that average yield on US REITs fell to 3.78% at end-January, 1.03 percentage points below the 10 year Treasury's 4.78% yield Friday. Leuthold Group: US REITs trade at 18.8x adjusted funds from operations... their highest level since 1997 and almost 50% higher than their average over the last ten years."
- Blackstone's Purchase of Equity Office May Mark the Top for REITs - Barron's (Seeking Alpha, Feb, 11th): "Blackstone Group's purchase of Equity Office Properties (EOP) might leave the private equity firm overstretched, and mark the top of the REIT market. Blackstone's bid… $39 billion including $31 billion of debt, [was made] with the intention of selling some of EOP's prime 585 buildings at top dollar and raising rents for properties it will keep. But Blackstone's purchase is highly leveraged as the equity it committed to the deal is likely worth only 11% of assets, versus a more normal 50% for REITs, and interest on the debt may easily exceed the 5% current yield on the portfolio... So selling the properties for 10% more than their cost would mean a $4 billion profit, but a sale of the portfolio for $35 billion would wipe out Blackstone's equity. Blackstone is now vulnerable to a downturn in the commercial real estate market."
- Lookahead: A Friend Like Ben (Wall Street Journal, Feb. 10th): "Next week, the IPO market cools off, with just a handful of deals, the biggest of which will likely be Quadra Realty Trust, a REIT hoping to raise more than $280 million."
- Battle for EOP Boosts Real Estate Funds (The Street, Feb. 10th): "Investors compared the valuation placed on EOP with other REITs, [making] the entire sector look undervalued… The open-end fund ProFunds Real Estate UltraSector ProFund (MUTF:REPSX), tracking 150% of the index return, rose 4.26%... Vornado, jumped 7.09%, Mills Corp (MLS) up 19.06%; ProLogis (NYSE:PLD), up 10.08%; KKR Financial (KFN), up 9.57%; and Felcor Lodging (NYSE:FCH), up 7.09%... By taking on even more leverage and risk, the Ultra Real Estate ProShares (NYSEARCA:URE), a brand-new ETF that targets 200% of the index's performance, succeeded by returning 5.95%... The LMP Real Estate Income Fund (NYSE:RIT), a closed-end fund, returned 8.86% over the same period."
- Vornado Chief Loses a Deal but Keeps His Reputation (NYTimes, Feb. 9th): "The Blackstone Group is expected to complete its purchase today of Equity Office for $39 billion, $3 billion more than it would have paid had Mr. Roth not entered the fray… Cohen & Steers Equity: "Roth’s reputation as a disciplined investor remains intact." As buyers, private equity companies like Blackstone always enjoy an advantage over REITs like Vornado because they can finance as much as 90% of their acquisitions. Wall Street tends to punish REITs that take on too much debt. SNL Financial: “Vornado is subject to different pressures than Blackstone. They have to answer to the market.”
- Aimco Tops Estimates: Apartment REIT Posts Higher Profit on Solid Property Operations (Market Watch, Feb. 8th): "Aimco (NYSE:AIV) said Thursday its funds from operations, a key profit measure for real estate investment trusts, before impairment and preferred redemption charges… rose to $0.90/share from $0.60 in the year-ago period… as a result of strong performance in property operations, higher fee income due to tax credit syndications and other transactional fees... Quarterly net income rose to $85.1 million from $15m… Aimco said it acquired four properties in Q4'06 for $83.7 million."
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