Housing Bubble and Real Estate Market Tracker

by: Judy Weil

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

  • Housing Market to 'Spring Forward' (Gulf Breeze News, Mar. 22nd): "Florida Association of Realtors: The state's median sales price for existing singlefamily homes in January was $239,300. A year ago, it was $243,200, which represents a 2% price decrease… In January 2002, the statewide median sales price for single-family homes was $128,900, which represents an increase of about 85.6% over the five-year-period. Optimism about Florida real estate seems to be particularly strong among foreign investors… foreign investors and lenders are aggressively trying to invest more capital in the state's rental markets."
  • Buildings Trading Fast Despite Gains Taxes (NY Sun, Mar. 22nd): "To reduce tax liability stemming from capital gains, an astute real estate investor would typically wait just more than a year to close on a sale. In today's crazy market, investors are seizing the opportunity to sell quickly and capture the extraordinarily rapid price increases. In October, a joint venture of Murray Hill Properties and Westbrook Partners paid about $98 million for the 11-story, 175,000 Sq.ft Brill Building located on West 48th Street… The joint venture [now plans to sell] it in excess of $140 million, or $800/Sq.ft."
  • Las Vegas Median New Home Prices up 2.3% Since Last March (Stuccoed, Mar. 21st): "New Las Vegas home permits are down 48.7% since last March. However… Home Builders Research reported that the median price of new home transactions was $315,965. That’s up 2.3% y/o/y. [With] apartment conversions, high- and mid-rises and condotels, the median price of the traditional single family detached and condominium/townhomes becomes $330,070… an annual decrease of 4.4% …The report cautioned readers to take into consideration that resales of high- and mid-rise condominiums are pushing up the resale median and average prices in the Valley. In February the average resale price was $369,005, an annual increase of 10.2%."
  • Valley Home Sales Down 25% (Desert Sun, Mar. 21st) Palm Springs, Calif.: "DataQuick Information Systems: Home sales across the Coachella Valley dropped 25% last month compared with February 2006, fueled in part by a nearly 43% decline in new-home sales… Sales of existing homes fell 21% last month from year-ago figures, the median price shot up 6.9% to $451,000... The valley's combined overall median home price dropped 4% to $393,000… Both sellers and buyers are cognizant of mounting home inventories, which climbed to 8,852 homes on the market by mid-February compared with 7,046 at the same time a year earlier."

Real Estate Investing and Sentiment

  • Census Reports Arizona County Still Has Biggest Growth (NY Times, Mar. 22nd): "Maricopa County, which includes Phoenix and sprawls across 9,200 square miles, swelled by 100,000 people in the year ended last July 1… Maricopa, which is bigger than New Jersey, grew by nearly 700,000 people since 2000, or more than the population of all but 15 American cities… Flagler County, on the Atlantic Coast in northeast Florida, grew by 67% since 2000, a higher growth rate than any other county. Since 2005, Georgia led the states with 14 counties among the 100 fastest-growing."

Mortgages, Lending and the Subprime Fallout

  • Foreclosures Force Suburbs to Fight Blight (NY Times, Mar. 23rd): " In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic… officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away."
  • Private Equity Circles Cash-Desperate Subprime Lenders (Seeking Alpha, Mar. 22nd): "Subprime lenders efforts to stave off a cash crunch as Wall Street underwriters cut off credit lines is giving contrarian hedge funds a chance to buy up discounted assets on excellent terms… Before hedge fund Farallon Capital Management gave a $200 million, five-year asset-backed loan to Accredited Home Lenders Holding Co. at 13% interest, Farallon considered and is still considering taking over the subprime lender, of which it now owns 7.8%... Citadel Investment Group, which bought ResMae Mortgage two weeks ago, yesterday revealed a 4.5% stake in Accredited… Fremont General Corp. will sell $4 billion of loans at a discount, for a pretax loss of $140 million."
  • For Some Subprime Borrowers, Few Good Choices (NY Times, Mar. 22nd): "At the end of last year, more than 2.6 million home loans were either past due for more than 30 days or in foreclosure. About 40% of them were made to people with weak, or subprime, credit. Last year, more than 37% of subprime loans were made without verification of borrowers’ incomes, up from 15% in 2000, according to JPMorgan Chase. Also, a third of borrowers took out a second mortgage, up from 6.8% in 2003, suggesting that they did not have enough money for a down payment."
  • Subprime Meltdown Snares Borrowers With Better Credit (Bloomberg, Mar. 22nd): "Lenders are increasingly refusing to lend to homebuyers who can't make a down payment of more than 5%, especially if they won't document their income. Until recently such borrowers qualified for so-called Alt A mortgages, which rank between prime and subprime in terms of risk. Last year the category accounted for about 20% of the $3 trillion of U.S. mortgages, about the same as subprime loans, according to Credit Suisse Group… Mortgages are categorized as Alt A when they fall just short of the typical standards of Fannie Mae and Freddie Mac."
  • Financing Car Purchase With Home Equity not Very Smart Move (Clarion Ledger, Mar. 22nd): "Synergistics Research Corp: In 2006, about 24% of homeowners used Home Equity Loan's (HELOC's) to purchase a vehicle.. About 8% took out a second mortgage specifically to buy a vehicle… [assuming] that the HELOC is cheaper than a traditional car loan because of the mortgage interest tax break. However, if you don't make extra payments or pay the loan off early, you end up paying more in interest over the life of that loan than you would with an auto loan."
  • Subprime Lenders, Regulators Face U.S. Senate Panel (Reuters.com, Mar. 22nd): "Managers from major lending companies like HSBC Finance Corp., Countrywide Financial, General Electric's WMC Mortgage unit and First Franklin Mortgage are set to appear at the Senate Banking Committee hearing [on the subprime turmoil]… Executives from New Century Mortgage Corp., which faces a federal criminal probe into securities trading and accounting, refused to attend."
  • Biz Buzz: Subprime Mortgages Cast Shadow on Entire Industry (NJ.com, Mar. 22nd): "Even thoughthe the iShares Lehman MBS Fixed-Rate Bond Fund ETF doesn't hold riskier subprime loans… investors are staying away. On its first day of trading (Friday) on the American Stock Exchange, the ETF opened around 10:30 a.m. on Friday with 100 shares filled at $100.85, and closed with a second trade around 11:45 a.m., again of 100 shares at $100.86. No [trades]Monday. On Tuesday, some hapless soul snapped up another 100 shares at $100.98… the ETF's only trade that day. Yesterday, volume was clocked at 10,300 --not exactly a robust pool of liquidity. "
  • Concern Over Sub-Prime Woes Begins to Recede (CoStar, Mar. 21st): "The Federal Reserve held interest rates steady Wednesday -- including leaving the prime interest rate for commercial banks at 8.25% for the third time since August… That news followed a pair of reports issued by Fitch Ratings expressing guarded optimism that the sub-prime mortgage meltdown would likely not create undue hardship for holders of collateralized debt obligations (CDO) and asset-based commercial paper (OTCPK:ABCP). Along with commercial mortgage-backed securities (NYSEARCA:CMBS), the pools make up the second-largest class of commercial mortgages, trailing only commercial banks… In fact, one out of every five commercial loans is now held in such pools."
  • Corus Bankshares: Fremont General and the Impairment Charge (Geoff Gannon in Seeking Alpha, Mar. 21st): "Corus Bankshares (CORS) announced that it had determined the decline in… value of its stake in Fremont General (FMT) constituted an "other than temporary" impairment (as defined by GAAP)… Since the recent… declines in Fremont's stock price, Corus… purchased an additional 967,000 shares, bringing its total position to 2.5 million shares… In announcing the "other than temporary" impairment, Corus went out of its way to state it "has the intent and ability to retain its Fremont investment…" If [Fremont's] share price improves considerably, it is quite possible that any countervailing improvement will not be reflected in Corus' earnings for a very long time."

Global Alternatives To The Housing Slump

  • Investing: A Bust in Spanish Vacation Homes? (International Herald Tribune, Mar. 21st): "The median change in property value this year was a 3.01% increase… Prices for vacation homes in Spain, a leading indicator of the European property market, may face a slump that is worse than the real estate decline in the United States, based on the loan terms banks are imposing on developers. The property magnate Fernando Martín, the former Real Madrid soccer chairman, and Promociones Habitat are paying five times more to borrow than U.S. developers like Centex in Dallas."

Macro Impact, And Will The Housing Slump Cause A Recession?

  • Sherwin Williams: Paint The Town Red (Todd Sullivan in Seeking Alpha, Mar. 21st): "Sherwin-Williams' (NYSE:SHW) is the leading brand of architectural paint used in the U.S. today… they operate 2,600 paint and automotive coatings stores in the Western Hemisphere… Their coatings are also used heavily in the marine and aerospace industries… They [bought professional contractor supplier] M.A. Bruder & Sons… with sales of about $146 million through 132 stores… in 2006 SHW earned record profits of $576 on $7.8 billion in sales, and has [paid] out 30% of earnings in rising dividends for 28 consecutive years… SHW has ramped up sales… in Latin America that are more than offsetting any U.S. residential weakness."
  • Production Strength and Trending: Whispers from the Federal Reserve (Blogging Stocks, Mar. 21st): "Trending analysis based on preliminary Fed numbers for industrial production: Appliances, furniture and carpeting are down over 5.5%... Most likely due to the continued home mortgage woes… This sector is also feeling increased pressure from abroad… Wood products are getting chopped down, with production decreases of over 14.5%. With the decrease of home building this should come as no surprise. Workspace improvements have also been declining slightly and the whole workspace proposition is being re-thought. Except in cases of "high end specialists," expect furniture makers to experience lean times for a while."
  • Sag in Housing Hurts Tax Revenue in Region's Cities (Press Enterprise, Mar. 21st) California: "Now that the housing decline has hit the region, cities that had used development-related fees to pay for everything from hiring more employees to redevelopment projects are suddenly grappling with a loss of revenue, forcing them to reassess their finances. Hemet faces a $2.8 million budget shortfall, prompting the city to order a hiring freeze and make cutbacks. Other cities, such as Temecula, Perris and Riverside, expect a hit from development-related revenue, but they do not expect their budgets to be severely affected. Some officials say growth in property, sales and other taxes would help make up for a drop in development-related revenue."
  • Overseas Competition Rattles Furniture Business (Scripps News, Mar. 21st): "A decade ago, nearly 100% of the dinette sets, cabinets, dressers, armoires, and other wooden pieces sold in the United States was produced here. Today, 75 to 80% is made in China, Taiwan, Vietnam, and other Asian countries… Sauder Woodworking Co., the $700 million ready-to-assemble furniture giant in Archbold, Ohio, in recent years moved some production to Asia to cut costs and stay competitive. Then Ikea officials, who had a similar problem, showed up on Sauder's corporate doorstep, planning to [cut costs] by moving cabinet frame and shelf production from Europe to America… Sauder CEO: "We are to Ikea what China is to a lot of furniture companies."
  • Detroit Homes Selling For Less Than SUVs: A Housing Bust Metaphor (Tim Iacono in Seeking Alpha, Mar. 21st): "When the sedans and SUVs that roll sparingly off of the Motor City's production lines are of more value than the residences they pass by en route to dealers, hasn't something gone terribly wrong somewhere in the economy? Detroit… leads the nation in new foreclosure filings [Realty Trac]... Banks are reclaiming and reselling Detroit homes from buyers who can no longer afford payments at seven times the national rate… Michigan was the only state to see home prices fall in 2006… Not surprisingly, million dollar condos are still selling in the revitalized downtown area."

Homebuilders And Housing Stocks

  • KB Home F1Q07 (Qtr End 2/28/07) Earnings Call Transcript (Seeking Alpha, Mar. 22nd): "Domenico Cecere, CFO: The average sales price of homes delivered in Q1'07 decreased 5% to $261,400 from $276,200 in Q1'06. In the U.S., the average sales price in the Q1'07 was down 8% to $267,400 from the year earlier quarter, while France was up 15%. Our order cancellation rate in Q1 improved to a more historical normal rate of 31% of gross orders compared to 48% in Q4 and 53% in Q3'06 respectively… Improvement in order cancellations in Q1… [due to] replenishing backlog with buyers at more affordable price points or obtaining loans under the more restrictive guidelines that are now in place."
  • Jim Cramer's Mad Money Lightning Round Picks (Miriam Metzinger in Seeking Alpha, Mar. 22nd): Bullish calls: KB Home (NYSE:KBH): 'KBH is a struggle. Without definitive Federal Reserve relief, you've got a stock that's going to go $45-$50, because the other housing companies have not taken the bait, but I say they should, and bought this company."
  • Options Earn $59.4 Million for Schar (Washington Post, Mar. 22nd): "Homebuilder NVR CEO Dwight C. Schar, gained $59.4 million on paper last year from exercising stock options… NVR SEC filing: A downturn in the housing market took a pinch out of Schar's potential paycheck. Because the company fell short of a profit target by almost a third, neither he nor three other top executives received cash bonuses last year... Schar ended 2006… owning NVR stock worth about $350m, including about $160m in deferred compensation... Schar took home $1.5m in salary in 2006, but at his request, that was reduced to zero for 2007."
  • KB Home's Q1 Net Income Plummets 84% (Seeking Alpha, Mar. 22nd): "Number-five U.S. homebuilder KB Home has suffered an 84% plunge in fiscal Q1 net income to $27.5 million ($0.34/share) from $173.3 million ($2.01) a year ago. Revenue fell 19% to $1.78 billion. The results came in ahead of analyst expectations of about $0.25 EPS on revenue of $1.67 billion. New-home orders dropped 12%, with the Southwest and Central regions particularly hard-hit. CEO Jeffrey Mezger… does not expect the housing slump to reverse this year, in part because the continued rise in defaults among subprime borrowers will likely increase market inventory, maintaining pressure on prices."
  • 'Short Sellers' Who Predicted Subprime Rout See More Declines (Bloomberg, Mar. 21st): "The collapse in shares of subprime- mortgage companies over the past month rewarded so-called short sellers who bet that rising defaults among the riskiest borrowers would curb lenders' profits. Some traders who predicted declines in shares of New Century Financial Corp., NovaStar Financial Inc. and Accredited Home Lenders Holding Co. say such stocks may fall further as loan delinquencies increase and demand for mortgage-backed securities wanes. New Century sank 90% last month, while NovaStar lost 73%. Accredited slid 54%.New Century, NovaStar and Accredited Home were some of the most-shorted U.S. stocks from Feb. 12 to March 12."
  • Beazer CFO headed to Kaydon (Atlanta Business Chronicle, Mar. 21st): "Beazer Homes USA Inc. Chief Financial Officer James O'Leary will leave the company March 23 to become president and CEO of Ann Arbor. Mich.-based Kaydon Corp. (NYSE:KDN). However, O'Leary will continue to advise Atlanta-based Beazer (NYSE:BZH) until May 1. O'Leary joined Beazer Homes in 2002 after a stint as chairman and CEO of the LCA Group. He first served Beazer as an executive vice president responsible for corporate development and supply chain and national purchasing initiatives. He became Beazer CFO in 2003."

Commercial Real Estate and REITs

  • Real Estate Professionals See Pros, Cons in Market (Triad Business Journal, Mar. 22nd): "Ray Collins, president of Collins Commercial Properties in Winston-Salem: There's more development now than the Triad has ever seen… Susan Passmore, of Blue Ridge Cos. in High Point: Vacancy rates have fallen in the market over the past year and… the amount of concessions apartment owners were having to make to get renters had significantly decreased… Speaking on both the industrial and office markets, Arthur Samet, president of Samet Corp. in Greensboro, said that while the industrial side saw a good year, office continued to struggle, with Class A vacancy rates around 19% throughout the region."
  • ProLogis's China Growth Gives REIT a Leg Up on Its U.S. Rivals (Wall St. Journal, Mar. 22nd): "For many investors, the shine has come off U.S.-listed REIT's as they look expensive given the uncertain outlook for the American economy and property. One U.S.-based REIT that is retaining fans is doing so in part because of growing income from a country with an economy that remains hot: China. ProLogis… has been investing in warehouses that play a role in the country's huge trade. For ProLogis, China is the only portfolio that is growing 100% a year, Chief Executive Jeffrey Schwartz says."
  • $360M Financing Fuels 100-Unit Extended Stay Plan (Globe St., Mar. 22nd) Orlando: "Locally based Liberty Lodging LLC is planning to build more than 100 Value Place extended-stay properties with the closing of a $360-million debt financing facility with Goldman Sachs. Liberty Lodging, a subsidiary of Value Place hotel franchisee Liberty Investment Properties, will build properties in Boston; Central Florida; Denver; Indianapolis; Montgomery, AL.; Providence, RI; Salt Lake City and Springfield, MA, and plans to develop 30 properties per year over the next three to four years."
  • $71M Apartment Portfolio Draws 30 Offers (Globe St., Mar. 21st) Los Angeles: Sperry Van Ness realtors: "The winning buyer submitted a bid of nearly $3 million over list price in… a “fever” of bidding for an 812-unit seniors housing portfolio that ultimately sold for $70.77 million… The portfolio of eight properties in the Los Angeles area attracted bidders from throughout the US and internationally… The intense bidding illustrates that “This type of senior housing is in very high demand” because investors have a very high level of confidence in Southern California and feel that the rental market will continue to grow."
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