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.
Quote of the Day- "From the House's Mouth"
“Right now, a starter home, you're looking at a quarter of a million dollars, and that's just getting your foot in the door. If it keeps going up, 5-10%, that’s a heck of a return on your investment.” says Tacoma homeowner Nikko Tanaka. She’s selling her home on her own, instead of having to lose money on realtors’ commissions. (King5.com, Mar. 8th)
Real Estate Sales and House Prices
- Luxury Home Sales Remain Strong, Prices Still Climbing, Brokers Report (San Diego Business Journal, Mar 12th): "San Diego Realtor's Ass'n: Luxury home sales have not been affected by the slowdown as much as other sub-markets, including affordable housing and median priced housing… Luxury home sales are not usually impacted by economic issues such as job loss... Local luxury home values gained 3.3% in 2006 from 2005, according to the First Republic Prestige Home Index by First Republic Bank."
- About Real Estate: What's Behind Reports on Home Prices? (Mercury News, Mar. 10th): "The National Association of Realtors reported last month, the median price of an existing home nationwide fell by 3.1% in 2006… The Office of Federal Housing Enterprise Oversight reported that home values rose by an average 5.9% last year… Could they both be right? The NAR data… is influenced by changes in the geographic composition of where houses are selling… The government's survey… omits much of the country's highest-cost housing - dwellings with jumbo loans higher than the Fannie Mae-Freddie Mac limit, which is currently $417,000... That's an important omission because higher-priced homes tend to experience more volatile swings in values… The government's numbers also omit condominiums… [But] includes refinancings, which frequently yield higher appraised values than purchases."
- Housing Market Slumping Slightly (Post Star, Mar. 8th): "New York State Association of Realtors: The New York state housing market has started the year a bit on the slow side, with sales of existing single-family homes dropping 14.2% from December 2006 to January 2007. Y/o/y, however, the drop was not so severe: Sales dropped just 1.4% between January 2006 and January 2007. Regionally, the story was similar. In Washington County… housing sales were down 7.1% from December 2006 to January 2007. From January 2006 to January 2007, however, sales were up 30%. Sales between January 2005 and January 2007 were up even more -- by 73.3%."
- Manhattan Rental Market Data - Secret No More (PR Web, Mar. 8th): "The March's Manhattan Rental Market Report: Tribeca and SoHo continue to jockey for the title of highest average rental prices throughout the Manhattan residential market , and in most cases the Lower East Side continues to be the least expensive area for average market prices, though there are still good deals to be found on the Upper East Side."
- Spring Forecast: Hot Housing Market (King5.com, Mar. 8th)Washington: "Northwest Multiple Listing Service: "The price of a home in Pierce County jumped… 12% over the past year, to sell for $287,000. By comparison, King County's home prices showed slower growth at 9%. The median home price is still substantially higher at $430,000. Snohomish County is also 9% higher than a year ago, placing the average home price at $356,000…Seattle also remains a strong market. Prices have risen 7% over the last year. The median price is $440,000."
- Housing Sales Fall 8% in North Texas: Rate of Decline in Pre-Owned Transactions Doubles From January (Builder Online, Mar. 8): "North Texas Real Estate Information System: North Texas home sales dropped 8% in February -- the ninth consecutive month of declines and double the rate of decline in January. [Inventory] has swelled 7%...There is just over an eight-month supply of pre-owned North Texas homes for sale North Texas. A six-month supply of houses is considered a balanced market. Median home sales prices in February were unchanged from [Feb. 2006] at $144,900… Sales of Dallas-Fort Worth homes priced at $1 million or more rose 27% in [Jan.-Feb.] 2007."
- Missoula Housing Market Steady, Housing Prices Continue to Soar (New West, Mar. 8th): "2007 Missoula Housing Report: The… median Missoula home price jumped to $205,000 in 2006 compared to $185,000 in 2005… In 2003, the median price for [a bare lot] in Missoula was $75,900. In 2006, the median price for a lot in Missoula was $95,000—a 25.2% increase. Meanwhile, the median home price in that same time period tracked almost parallel—from $165,000 to $205,000—a 24.2% increase. .. The Housing Affordability Index for Missoula then is 65%... In 2005, the HAI in Missoula was 68%. In 2004 it was 82% and in 2004, it was 84%."
Real Estate Investing and Sentiment
- Incentives for Lower-Cost Housing in the Works (American-Statesman, Mar. 11th): "For rental housing, 10% of the bonus square footage would have to be affordable for residents with incomes of less than 80% of Austin's median family income — which translates to $56,900 [per] family. To earn an extra 10,000 Sq.ft. for a downtown apartment project… the developer would have to include at least 1,000 Sq.ft. of lower-cost housing. To get the space bonuses for downtown owned units, such as condominiums, developers would have to make some units affordable to households that earn less than 120% of the median family income, or $85,350 [per] family."
- Retirees One Key to Area's Future (Arizona Republic, Mar. 10th)Arizona: "Magma sold the [San Manuel] mine in 1997 to Australia's BHP Billiton, which closed it two years later when copper prices slumped… BHP… owns 20,000 acres surrounding the town, which many people believe may be the key to the community's future. Last year, BHP announced a joint venture with Los Angeles developer Lowe Enterprises to build a luxury golf resort and as many as 15,000 new houses in San Manuel. The plans were put on hold when Lowe backed out because of the softening national real estate market, but BHP is doing the project in its own."
- Morgan Stanley Splits Real Estate Investing, Banking (bbj.hu, Mar. 9th): "Morgan Stanley, with $45 billion in property assets, saw revenue from real estate investing, banking and lending surpass $1 billion for the first time in 2005, jumping 57% to eclipse equity underwriting. The firm stands to collect almost $500 million of fees in the next several years on a new $8 billion property fund it plans to close this year, before profits… The firm expanded into property investing in 1991 after the US savings and loan crisis, when the collapse of more than 1,000 thrifts that speculated on real estate forced the federal government to sell defaulted mortgages at discounts."
- Morgan Stanley Reorganizes Real Estate Banking, Investing (MarketWatch, Mar. 8th): "Morgan Stanley (NYSE:MS) has promoted Jay Mantz, co-head of its rapidly growing real estate investment management business, to share leadership of a new direct investing group that will take more risk for the firm in pursuit of higher returns… The moves are the latest by Morgan Stanley Chief Executive John Mack to revive what he said was a tired asset management group that failed to create attractive products for affluent investors or take enough risks with the firm's own money."
- Are Home Foreclosures on the Rise in the Heartland? (Heartland News, Mar. 7th): "An online company that monitors foreclosures reports nationwide, said more than 800,000 home owners lost their homes in January alone… Lenders say home loans that don't require you to put down any money may be partly to blame. They say it leaves buyers without a sense of commitment… Sandy Schooler, a loan officer for Best Mortgage in Cape Girardeau: "People not only… want a 100% loan but want the seller to pay their closing costs and their prepaid so virtually go from their apartment into their house without spending a dime of their own money."
Mortgates and Real Estate Lending
- Global Investing, Housing and Growth: The Market's New Three-Headed Beast (Caleb Sevian in Seeking Alpha, Mar. 12th): "The subprime market, according to Mortgage Banker Association, is about 6% of the mortgage market. Delinquency rates on subprime have risen from about 7% to 12%, but delinquency rates on the entire mortgage market are only 1.4%... The increase of 5% in the subprime delinquency rate is a rounding error on the total delinquency rate, i.e. it’s insignificant. The concern is that weakness in the subprime market may be a precursor to the rest of the market. I’m not confident we have enough information pointing to a meltdown in the entire mortgage market, in which case it would inadvisable to make decisions based on the subprime market."
- D.R. Horton's CEO Breaks Out of Housing bust Spin Game With Negative View (Business Examiner, Mar. 10th): "Economist Nouriel Roubini says some banks might be downplaying their involvement in loans to individuals with shaky credit. He believes that many banks engaged in "highly cosmetic accounting" in how they actually defined subprime candidates _ meaning that they gave loans to individuals with credit scores that were technically subprime, but didn't count them as such. Therefore, their exposure for now seems limited. In addition, the increased use of creative loans _ such as adjustable-rate, interest-only or piggyback _ across the spectrum of all mortgages broadens the potential fallout from the industry's meltdown."
- Any Value Left In New Century Financial? (Notable Calls in Seeking Alpha, Mar. 9th): "Merrill Lynch: NEW has mortgaged its few remaining unencumbered assets, a move that essentially leaves equity holders holding the liabilities of closing the lending platform. Credit positioned marginally better but more losses seem likely in near-term… Keefe, Bruyette & Woods: New Century's… operating expenses were running at almost $200 million a quarter and although this would go down moderately because of reduced loan acquisition expenses, the majority of those costs are fixed in the near term… JP Morgan: NEW has relatively no unencumbered source of operating cash flow from which to satisfy any new margin calls or working capital requirements… On Dec. 31, 2006 NEW had $350M of cash and liquidity, it is easy to see how quickly the $195M remaining from the loan could be used up."
- Colorado Foreclosures: Mostly Comprised of ARM Loans and Loans from Non-Bank Lenders (DS News, Mar. 8th): "More than 77% of Colorado's home loans that entered foreclosure last year originated at non-bank lenders, according to a new report released by the Colorado Bankers Association. And… more than 77% of those loans facing foreclosure were classified as adjustable-rate mortgages. Meanwhile, bank lender loans made up only 16.8% of the loans in Colorado facing foreclosure, while 5.6% of the loans came from bank affiliates… [Also] a combined 32% of Colorado home foreclosures in 2006 were either cured, withdrawn, or redeemed at the time of the report's creation."
- Freddie Mac Unveils Asian Homebuyers Program (New America Media, Mar. 8th): "[Lender Freddie Mac] announces the unveiling of CreditSmart Asian, a Freddie Mac initiative designed to familiarize Asian communities with establishing credit… and housing counseling… and ideally leading to homeownership. According to the company’s data, only 60% of Asians own their homes as compared to 72% of non-Hispanic whites."
Global Alternatives To The Housing Slump
- Launch Of First REITs Index In Europe (Mondovisione, Mar. 8th): "Euronext and Institut de l’Epargne Immobilière et Foncière (IEIF) have joined forces to produce a new index with a view to raising the profile of the listed real-estate sector in Europe. Set for launch on 4 June… the component stocks of the Euronext IEIF REIT Europe are a selection of the most representative REITs in Europe, chosen for their market capitalization and liquidity. Investors, fund managers and issuers will be able to use the index to track European real estate companies that have opted for REIT status and assess the relative performance of the sector and individual companies."
Macro Impact, And Will The Housing Slump Cause A Recession?
- The Real Threat Isn't Housing (Business Week, Mar. 12th): "Bureau of Labor Statistics: Since 1995… gains in nonfarm business productivity (output per hour) have averaged about 2.7% per year… A full percentage point higher than the preceding two decades. Faster productivity growth means that the annual output of the economy today is about 10%, or $1.2 trillion, bigger than it would have been at the previous anemic pace... Creat[ing] a total of $6.4 trillion in extra output since 1995, measured in 2006 dollars… American household nonhousing net worth, then, adjusted for inflation and federal debt, has soared by almost $14 trillion over the same period, despite the dot-com debacle that crashed the market."
- China Exports Trouble, Too (Newsweek, Mar. 10th): "There is more than the "China factor" to consider in framing the global growth debate. Equally important are the ever-mounting reverberations of America's post-housing bubble shakeout. The combination of a Chinese and a U.S. slowdown would undoubtedly make the shortfall in global economic growth even more acute. That's the last thing increasingly complacent investors were looking for—reason enough to believe that there could well be more to come from the world's first financial market correction made in China."
- Which Came First - Home Foreclosures or Urban Blight? (Paul Kedrosky in Seeking Alpha, Mar. 9th): "Remarkable stuff today in a Federal Reserve hearing about how home foreclosures are already leading to urban blight in some areas. I find it somewhat of a stretch, and I'm guessing that at least some of the blight predates the recent rate increases -- that is, there's an element of opportunistic local officials looking for handouts -- but I'm willing to be convinced otherwise."
Homebuilders And Housing Stocks
- KB Homes: What Happened To Bonuses Linked To Creating Stockholder Value? (David Phillips in Seeking Alpha, Mar. 9th): "KB Homes… says its core compensation directive is to “closely link executive bonuses to the creation of stockholder value…” CEO Jeffrey Mezger’s employment agreement memorializes that he earns a cash bonus based on the pre-tax, pre-incentive profits of the Company… [But] KB Home reported a November-quarter loss per share of 64 cents, including $343 million of pretax inventory and other charges, vs. a [Q4] year-earlier share-net of $3.44… Since earnings visibility has dimmed—not too mention ROE—Messer. Metzger employment agreement permits the Compensation Committee to consider other factors, like “customer satisfaction and backlog,” when deciding how much to pay him in an under-performing year!"
- Buying Homebuilder MDC Holdings For The Long Term (David Harper in Seeking Alpha, Mar. 9th): "MDC is a buy and hold, long-term growth play. Of all the homebuilders, MDC probably has the best balance sheet. Their land policy is extremely conservative, as the company avoids spec homes and doesn't purchase land until they are ready to build. The stock, at $50, is selling at a slight premium to book (around $47 and change). Given the company's conservative business approach, book value is meaningful, tangible and not at much risk, especially compared to many other builders. MDC is in a prime position to capitalize on opportunities within the industry as the shake out continues."
- Hovnanian Enterprises F1Q07 (Qtr End 1/31/07) Earnings Call Transcript (Seeking Alpha, Mar. 9th): "Once it is clear that the market is not recovering rapidly, we are optimistic that land sellers will more fully adjust prices and we expect to be in a position to tie-up new parcels of land. Typically, land sellers' behavior lags the market index by about six months to a year. Today, land sellers have lowered their asking price, but not significantly enough to fully reflect the decline in conditions for selling homes. Thus, very few deals meet our return targets."
- Hovnanian Swings to Q1 Loss (Seeking Alpha, Mar. 9th): "U.S. homebuilder Hovnanian Enterprises reported Florida land write-offs of $93m. Q1 revenue was $1.17 billion, down 8.8% from $1.28b in the year-ago period… The company is forecasting a net loss in Q2 of -$0.05-0.20/share. Florida homebuyers canceled 36% of their contracts with Hovnanian in the quarter; elsewhere in the country, the company's cancellation rate was 29%. “Most of our markets have begun to show signs of stabilization," said CEO Ara K. Hovnanian, "but we are not yet confident that we have found the bottom of this housing slowdown...Once the housing market bottoms out, we are not expecting a rapid recovery.”
- Homebuilder Stocks Plunge: Not Out Of the Woods Yet (Dan Carty in Seeking Alpha, Mar 8th): "PHM's situation: weak fundamentals but selling pressure that is overdone… I would consider covering parts of a short but would let the rest run with a tight stop… If the stock does not hold $29, the next level of support is roughly around $28. A break of that level would set up a much bigger fall down into the low 20s. Power levels rejected at the 65 week MA indicating that more weakness is set up to follow… Centex, another overvalued stock in my models (in fact negative), is just as oversold as PHM. This is the most oversold the stock has been since August when the stock bottomed from $44. This area is now setting up on the weekly chart as a possible double bottom. If it fails, CTX could be headed down towards the $40 level. The power model is breaking down through the 65 week – the last time this occurred, CTX fell more than 10%."
- Horton Predicts Hard Times Through 2007 (Builder Online, Mar. 8th): "D.R. Horton CEO Don Tomnitz: "We may have more impairments coming…We'll know that on a quarter-by-quarter basis. Horton… has demanded price reductions from vendors… reduced its own expenses in recent months… cut its housing starts and has also slashed prices and offered incentives to sell its existing inventory…" Tomnitz pointed to Las Vegas as a formerly "hot" market that has cooled. There are 2,500 unsold new homes on the market there, and another 25,000 unsold existing homes, many unoccupied. Tomnitz: "I don't think '08 is going to be a great year, but it's going to be much better than '07."
Commercial Real Estate and REITs
- Grayco Partners Executes Investment Agreement With Camden Property Trust National Real Estate Firm to Develop Multifamily Projects in Target U.S. Markets (PR Newswire, Mar. 10th): "Grayco Partners, a national multifamily real estate development firm specializing in well-designed properties in major U.S. markets, today announced an investment agreement with Camden Property Trust (NYSE:CPT) to identify, acquire and develop multifamily projects. Initial developments under the Grayco-Camden agreement will include two planned communities in Houston, TX - Braeswood Place (344 units) and The Belle Meade at River Oaks (119 units)."
- Strategic Could be Target of Takeover (Chicago Tribune, Mar. 10th): "Chicago-based Strategic Hotels & Resorts Inc., which owns and operates luxury accommodations, might be the target of a buyout effort by private-equity firms… Barry Vinocur, editor of REIT Zone Publications: Possible buyers for the REIT, which is run by Laurence Geller and owns 20 properties with 10,006 rooms, include the Blackstone Group, the Carlyle Group and Chicago-based Walton Street Capital… Two or three private-equity groups may offer $24 to $26 a share… That would amount to a price tag of about $2 billion for the company's equity."
Tracking the Housing Market and Homebuilder Stocks |
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