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 at the moment, the outlook is very, very promising. But we're all standing on eggshells because this little building bubble that we've got going on could collapse."- Arthur Mize of the Home Builders Association of Southern Illinois. (Heartland News, Mar. 12th)
Real Estate Sales and House Prices
- UF: Florida Single-Family Housing Hits Bottom (South Florida Business Journal, Mar. 13th): "A University of Florida study suggests the state's single-family residential housing market has bottomed. "If you're thinking of buying a house, there's probably not much to be gained by holding out at this point," said Wayne Archer, director of UF's Bergstrom Center for Real Estate Studies. "It doesn't look like prices are going to fall anymore." The quarterly survey of real estate industry professionals completed in January shows the share of respondents observing a drop in single-family housing prices has dipped, while a growing number find prices staying even with inflation."
- January New Home Sales off Year-to-Year, Up From December (Central Valley Business Times, Mar. 12th): "Monthly CBIA/Hanley Wood report: Sacramento region sales in January [are] up 36% from the same month a year ago and up 37% from December... Visalia-Porterville… sales of single-family homes jumped 44.8% in January, compared to a year earlier and by 61.7% when compared to December 2006… Visalia-Porterville median prices were down by 6 % y/o/y to $292,950 in January 2007... The combination of sales incentives and fewer releases of new homes by builders also kept statewide inventory levels in check, which rose by less than 1 % to 16,770 homes by the end of January 2007."
- Area Home Sales Down 1.3% in February (Nashville Business Journal, Mar. 12th): " Greater Nashville Association of Realtors: Home sales in Middle Tennessee were down 1.3% from February 2006... Last month's tally, which totaled 2,575, represents the second-highest February home sales on record in the Nashville market... The average number of days on the market for a single-family home was 72 days… The median residential price for a single-family home during February was $169,900. A condo price was slightly lower at $163,000. This represents an increase from last year's median residential and condominium prices of $164,900 and $145,000, respectively."
- County Home Prices Holding Steady (Sign On San Diego, Mar. 12th): "DataQuick: San Diego County's resale home prices remained relatively steady last month with the median price of single-family resale houses unchanged at $540,000 for the fourth straight month…. The overall median stood at $480,000, up 1.7% from January and down 5.9% from February 2006. The median price of resale condos dropped slightly from January's $380,000 to $378,750, while the median in the highly volatile new housing sector, including condo conversions, rose from $395,000 to $410,000 from January to February… February represented the third straight month of relatively small declines in y/o/y activity."
- Home Prices up Slightly, Sales Steady (The Capital, Mar. 12th) Annapolis: "County homes sold for a higher price last month and sales remained steady, but experts say it's too early to tell what this year holds for the local real estate market. Metropolitan Regional Information Systems: The median sale price for a county home last month was $349,000, up 7.5% from February 2006... That price marks the second straight monthly increase since December's median of $337,500, the lowest since $324,500 in February 2006. The 477 county homes sold last month represented a 1.45% decrease from February 2006, according to MRIS."
Real Estate Investing and Sentiment
- Goldman Sachs F1Q07 (Qtr End 2/23/07) Earnings Call Transcript (Seeking Alpha, Mar. 13th): "David A. Viniar GS CFO: "Excluding FAS-157 [the new fair value accounting standard] gains, our corporate and real estate investment business still had a record quarter… Guy Moszkowski - Merrill Lynch: "You had… about $600 million in gains in the corporate real estate portfolio. Can you give us some sense of how much of that was corporate versus real estate? DV: "Both of them were meaningful contributors… It was pretty good performance across the board. GM: "And did FAS-157 affect only the corporate or also the real estate?" DV: "Both."
- Are Home Prices Higher, or in Decline? (The Morning Call, Mar. 11th): "For most of the former high-flying areas – from Washington, D.C., to southwest Florida to Nevada to Arizona and California – is that the ''give back'' is relatively small. If your area saw an average doubling in values during the five most effervescent years of the boom, is it a big deal that prices are down by 1% to 4% from the peak? (No big deal unless you bought at the peak.)"
Housing Affordability Impact
- US Housing Boom Gone, but Prices Still Out of Reach in California (Christian Science Monitor, Mar. 12th): "Calif. Realtors Ass'n: Even after a sharp housing slowdown… statewide, just 25% of households can afford an entry-level home… far below the national average of 61%… First-time California homebuyers paid a median price of $477,400 last year – 2-1/2 times the US median… Prices are expected to fall more… [California] will set the tone for the US market… not just because it is home to nearly 1 in 8 Americans… From Washington to Dallas, home prices have jumped in remote exurbs by nearly the same percentage as in the inner suburbs… A long commute is no longer [means] an affordable home."
Mortgates and Real Estate Lending
- Fed, OCC Publicly Chastised Few Lenders During Boom (Bloomberg, Mar. 14th): "The Federal Reserve and the Office of the Comptroller of the Currency took little action in public to police the $2.8 trillion boom in the U.S. mortgage market -- whose bust now risks worsening the housing recession. The Fed, which is responsible for the stability of the banking system, didn't publicly rebuke any firm for failing to follow up warnings on home-lending practices between 2004 and 2006. The OCC, which supervises 1,793 national banks, took only three public mortgage-related consumer-protection enforcement actions over the same period."
- Next: The Real Estate Market Freeze (MSN Money, Mar. 12th): "Essentially, the subprime mortgage industry -- which lends to consumers with credit issues -- is gone. Alt-A lenders, those one rung up the ladder creditwise, will be next. Together, they comprise approximately 40% of the market… The Office of the Comptroller of the Currency recently enacted rules that, in essence, require lenders who provide mortgages using federally guaranteed depositor funds to behave in a somewhat intelligent fashion. Subprime lender Fremont General (FMT), by its own admission, owes its demise in part to that rule change."
- Fed Chair Calls For Changes In GSE Portfolios, Public Purpose (Mortgage News Daily, Mar. 12th): "Fannie and Freddie… are certainly large, holding 20% of outstanding residential mortgages worth $1.56 trillion in 2003. In 2005 the two GSEs [Government Sponsored Enterprise] together had $5.2 trillion in debt and MBS obligations outstanding. By comparison, the U.S. government has $4.9 trillion in publicly held debt. The GSEs also engage in extensive hedging activities and consequently are among the most active users of derivative instruments… Fed chief Bernanke: GSEs face little or no market discipline from their senior debt holders because of the belief among market participants that the U.S. government will not allow the GSEs to fail."
Subprime Market Fallout
- Massachusetts Official Subpoenas Documents from UBS, Bear Stearns (DS News, Mar. 14th): "The Securities Division within the Secretary of the Commonwealth's office has subpoenaed documents from UBS Securities LLC and Bear, Stearns & Co., Inc. in an effort to analyze any research the firm's subprime analysts made in relation to today's embattled subprime lenders. The subpoenas are to include all documents created by the firms' subprime lending analysts... William Galvin, Massachusetts Secretary of the Commonwealth: “Recent revelations that research analysts issued positive reports on mortgage lenders to those with less than sold credit ratings even as those companies faced more and more defaults suggests that the commitment of 2003 has not been met.”
- Goldman Not Overly Concerned With Sub-Prime Meltdown (Jonathan Liss in Seeking Alpha, Mar. 13th): "With the unraveling of the U.S. sub-prime mortgage market… there has been speculation that several of the large investment firms would see their earnings negatively affected… David A. Viniar, CFO, Goldman Sachs: "Mortgage revenues were up on a sequential basis, despite a more challenging sub-prime market.… So far you really have not seen any contagion from the sub-prime markets to the other parts of the mortgage market. You have seen a little bit of spread widening, a little bit of nervousness, but nothing substantial. Really the difficulty in the market has been, so far, largely contained to the sub-prime market."
- Subprime Shakeout Will Erode New Home Sales – Analyst (Seeking Alpha, Mar.13th): "Credit Suisse analyst Ivy Zelman: The rapid decline of the subprime mortgage industry will lead to yet another drop in new home sales in 2007… The current trend of credit tightening for risky borrowers will make it harder for many buyers to get financing, leading to a 20% drop in sales to about 890,000… credit tightening will affect "the entire housing food chain," because a lack of entry-level buyers [the bulk of subprime loan candidates] makes it harder for second-tier buyers to upgrade their homes. Zelman… expects rising mortgage delinquencies to further flood the market with houses as current owners lose their homes, adding as much as 20% to existing inventory."
- Big Banks Come Out Swinging Against Subprime Originators (Seeking Alpha, Mar. 13th): "During 2005 and 2006, prior to the onset of the decline in the housing sector, banks enthusiastically purchased subprime loans -- with repurchase agreements attached. Those agreements oblige the originator to buy back a loan in the event that the borrower fails to pay. As more and more banks demand repurchases, more and more originators are filing for bankruptcy protection. Subprime lender New Century Financial said yesterday it has been hit by a wave of defaults and might owe its creditors a combined total of $8.4 billion for mortgage repurchases. If all its lenders demand repurchases, the company will have to enter Chapter 11. Creditor Morgan Stanley gave New Century a $265 million advance last week but also said it was discontinuing further financing. HSBC is making its case for repayment at bankruptcy hearings across the country. HSBC Finance Director Douglas Flint: "It's proving quite difficult in the sense that many of the parties...don't have the wherewithal" to buy back the loans.
- Foreclosures May Hit 1.5 Million in U.S. Housing Bust (The New Standard, Mar. 13th): "As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime-mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries. At least 2 dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since the start of 2006."
- TREASURIES-Growing US subprime Woes Boost Bond Prices (Reuters, Mar. 12th): "U.S. Treasury debt prices rose on Monday as strains in the subprime mortgage industry heightened demand for U.S. government bonds, which carry lower risk than equities and other fixed-income securities. Uncertainty over the fallout from rising loan defaults and home foreclosures offset Friday's jobs data, which had showed the U.S. economy was expanding at a moderate clip."
- Foreclosures May Hit 1.5 Million in U.S. Housing Bust (Bloomberg, Mar. 12th): "Though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since the start of 2006. Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year."
- Lenders to Halt New Century Financing (Canada National Post, Mar. 12th): "Robert Froehlich, chief investment strategist at DWS Scudder, said a crimp in subprime lending could hurt U.S. housing demand. "Because of the virtual collapse of mortgage lending standards over the past couple of years in the U.S., rapid growth in sub-prime lending has accounted for much of the incremental home purchase demand in recent years," Froehlich said. "Removing this segment will soften already slowing demand."
Globalization and The Housing Slump
- Oz Investors to Test the Bottom (Daily Telegraph, Mar. 15th) Australia: "The domestic [Australian] market trading towards fair value despite a US-led sell-off yesterday that saw Australian shares drop another 2.1 per cent, leaving them almost 5 per cent below their late February peak… Hardest-hit yesterday was BHP Billiton, on the back of weaker commodity prices overnight, and stocks with US exposure, particularly to the housing market, such as James Hardie, Rinker and Boral. The major banks were also the target of sustained selling, prompted by fears of repercussions in the US banking market from the sub-prime lending scandal."
- European Stocks Drop on U.S. Loan Concerns; Banks Lead Slide (Bloomberg, Mar. 13th): "European stocks fell for a second day on speculation that rising loan defaults in the U.S. will hurt earnings at the region's banks. Royal Bank of Scotland Group Plc and Commerzbank AG led the slide after Accredited Home Lenders Holding Co. of the U.S. said it will seek debt waivers as creditors asked for more money to cover the risk of defaults… Royal Bank of Scotland, the U.K.'s No. 2 bank by market value, declined 1.3% to 2,064 pence. The U.S. is the bank's second-largest market after Britain."
- Faber Likes Asian Property, Says Stocks `Vulnerable' (Bloomberg, Mar. 13th): "Asian real estate offers better value than property stocks because the region's equity markets are still "vulnerable,'' said Marc Faber, an investor who predicted the U.S. stock market crash in 1987… Asia's economic expansion is expected to drive demand for real estate, attracting interest from investors drawn to rising rents… Rental rates for office space in Singapore's central business district rose to $644 a square meter ($60 a square foot) at the end of 2006, still lower than the $692… in 1996 before the Asian financial crisis… In Hong Kong, rents reached $1,105 in 2006, lower than the high of $1,237 in 1994."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Is America Headed for a Depression? (Bill Cara in Seeking Alpha, Mar. 13th): "The scenario… [of] angry mobs across America, if market interest rates rise beyond the tipping point that would collapse the entire U.S. mortgage market. Yes, I believe there will be a U.S. economic recession, but the elements are now in place for the first time in 80 years for America to sink into a depression. Should a depression unfold, there will be big name financial houses that will fail. Accordingly, the owners and managers of wealth ought to be researching today how to protect themselves beyond FDIC-insured accounts."
- Subprime Lending Woes Take Center Stage. What Took So Long? (Barron's, Mar. 13th): "The weakening of the real estate market is hurting the wealth of Americans… Dunne and Henwood write. The wealthiest 1% of Americans own one-third of stocks and mutual funds, and the richest 10% own 75% of equities and funds. "By contrast, the richest 10% hold less than half of all residential net worth; the majority belongs to the 50th to the 90th percentiles… So their stock market gains are not much comfort to those who see their principal value eroding in value." (The bottom half doesn't hold much in the way of real estate or equities.)"
- Illegal Immigrants and the Housing Bubble (Ludwig Von Mises Institute, Mar. 12th): "The normal number of housing starts is about one million per year, but housing starts have exceeded one million every year since the early 1990s… Housing starts have already returned to normal levels, but are soon likely to go below normal levels… Immigrants, particularly illegal Mexican immigrants, have largely found jobs in industries associated with the housing bubble. Immigrants work at jobs in the construction, landscaping, and road construction industries. Employment in the construction industry alone is currently nearly two million jobs above trend (7.7 versus 5.9 million)… A slump in construction will lead to unemployment and bankruptcies."
Homebuilders And Housing Stocks
- Icahn, WCI Management Trade Barbs at Hint of Hostile Bid; Shares Jump (Seeking Alpha, Mar. 14th): "Carl Icahn claims he will soon launch a $22-a-share takeover bid for WCI Communities Inc., of which he already owns a 14.6% stake... Wall Street pundits predict continuing weakness for the company, which is based in one of the nation's weakest housing markets, Florida. Luxury condominium builder WCI also has more debt than its peers. Icahn likely took the following three things into account when formulating his current valuation: 1) its large land holdings in Florida are very possibly undervalued, 2) the 20% deposit on unfinished apartments WCI charges prospective buyers, making cancellations unlikely 3) WCI trades below book and will likely bring in more than $1 billion in revenue in FY2007. Icahn's proposed offer values the company at just over $950 million."
- The Bear Stearns-NEW Connection: Time To Short Select Investment Firms (Investing in the Middle Way in Seeking Alpha, Mar. 13th): "NY Times: The Bear Stearns analyst who upgraded New Century [in the middle of its free fall], Scott R. Coren, wrote… that the company’s stock price reflected the risks in its industry, and that the downside risk was about $10 in a “rescue-sale scenario.” New Century says Bear Stearns is among the firms with a “longstanding” relationship financing its mortgage operation…Hmmm… It can't be that Bear Stearns was trying to cover its own behind with that upgrade, can it? How much are they on the hook for? I shorted Bear Stearns (NYSE:BSC) and Merrill (MER) yesterday."
Commercial Real Estate and REITs
- Consortium to Buy REIT Spirit Finance For $1.9 Billion (Wall St. Journal, Mar. 13th): "Spirit Finance Corp. agreed to be acquired by a consortium including Macquarie Bank Ltd., Kaupthing Bank and others for $1.6 billion and the assumption of $1.9b in debt. The consortium will acquire the Scottsdale, Ariz., real-estate investment trust for $14.50/share, a 15% premium to Spirit's 90-day average closing share price and an 11% premium to Spirit's closing price of $13.05 March 12. The consortium will also buy 6.15 million newly issued shares of Spirit stock at $12.99 a share, or $80m."
- Chase Sells Detroit Tower, Signs 10-Year Lease (Digital50, Mar. 13th): "JPMorgan Chase has sold its Chase Tower to Sterling Group, a Detroit-based real estate company, and signed a 10-year commitment with renewal options to lease eight floors totaling nearly 215,000 square feet. "Chase will continue to serve our customers from the downtown Detroit location that's been our home for almost 48 years," said Dick Wade, president of Chase in Michigan. "It makes more sense to be a long-term tenant rather than owning the building. We look forward to a long relationship with the Sterling Group, which has earned a solid reputation as owners and managers of the neighboring Guardian Building and many other commercial sites in the city."
- $310M Fund Fuels Noble’s $1B Acquisition Goal (Globe St., Mar. 12th): "Noble Investment Group has closed on a $310-million fund with plans to acquire and develop more than $1 billion in hotel assets over the next three years… The Noble Hospitality Fund LLC, is comprised of seven institutional investors, including major public pension funds and university endowments and investment by the principals of Noble. Noble CEO Mit Shah: “We know that lodging is an active business that operates in economic cycles… Without debating the stage of the current cycle, NCREIF data shows that active lodging and hospitality specialists are better positioned to provide superior risk-adjusted returns throughout challenging market conditions.”
- Simon Property, General Growth Climb (MSN Money, Mar. 12th): "Analyst Jonathan Litt upgraded real estate investment trusts Simon Property Group (NYSE:SPG) and General Growth Properties on their potential value. Citigroup analyst Jonathan Litt raised ratings on both SPG and [GET SYMBOLS FOR BOTH] to "Buy" from "Hold. "Mall REITs have monopoly positions and attractive revenue growth prospects with limited volatility, as such the internal rate of return on Simon Property and General Growth are likely to be higher than the office REITs, given the attractive going-in cap rate of the mall REITs," he wrote in a client note."
- Strategic Hotels In Play? (Blogging Stocks, Mar. 12th): "Strategic Hotels & Resorts (NYSE:BEE) focuses on operating upscale and luxury hotels and resorts, mostly in North America and Europe… Wachovia analyst Jeffrey Donnelly… thinks there could even be a buyout… Fundamentals of Strategic Hotels are perking up. In Q4, funds from operations and revenue increased from $9.2 million, or $0.17/share to $20.3m, or $0.26/share. Sales increased from $119.7m to $242.5m. And… private equity firms have been targeting leisure properties. But… Donnelly thinks a deal would be valued at $24-$26 per share. Thus, with the stock price currently at $23.51, there's not much upside left."
Tracking the Housing Market and Homebuilder Stocks |
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