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- "Shouted From the Rooftops"
"I think we're still early in the cycle here. I think it's going to be tougher for a little while before it gets better, but there will come a day when it gets better, because the underlying demographics in job growth are there." - Jeffrey Mezger, CEO, KB Homes (NYSE:KBH) (FX Street, Apr. 11th)
Real Estate Sales and House Prices
- Home Sales Hit Skids Again in February (New Haven Register, Apr. 11th): "Warren Group: Single-family home sales slumped 0.7% statewide in February while the median sales price dipped 0.8%, compared with February 2006… The median sales price in February was $259,700, down from $261,859 in February 2006… In January, Connecticut home sales rose 4.6% and the median sales price inched up 1%, [the] first y/o/y gains since September 2005 … February condominium sales, [were] down 11% from… a year earlier. The median sales price for condos in February was $188,500, down 0.8% from February 2006’s median of $190,000."
- Experts Call Area Housing Market ‘Stable’ (Post Journal, Apr. 11th): "Charles Staro, NY State Realtors Association: "[2006 was] the third highest sales total on record." [In] Chautauqua County… [home sales] decreased 4.9% from 2005… Statewide, the median selling price was $248,500 — a 2.8% decrease from 2005. In Chautauqua County, the median selling price was $71,500 — a 3.6% increase from 2005. Median selling prices are lowest in the rural areas of Western New York. Only five counties in the state registered a median selling price below $80,000, and four were in the region — Chautauqua, Cattaraugus, Allegany and Wyoming counties. The fifth was St. Lawrence County in northern New York."
- Communities Cope with Growth and Affordable Housing (New West, Apr. 10th): "Santa Fe, New Mexico, has been a very expensive place to live over the past decade. With the median home price in the $400,000 range… Denver: March home prices… fell by 3.6% [since] March 2006. Seasonal inventory of homes for sale is up from February to March by 24%... Denver Median home prices… down about 3%, from $247,000 to $240,000… Montana: Total 2006 sales volume, including residential and commercial properties, topped $1.2 billion, up 12% from 2005… Residential sales increased 15% from the prior year, and median home prices… rose 10% to $235,000… Homes priced at $500,000 or above made up 40% of sales in 2006 in the northwestern part of the state… Affordable homes in neighboring Northern Idaho have become scarce… Utah: St. George is the fastest growing Metropolitan Statistical Area in the Census Bureau’s report."
- Plummet in Condo Sales Hits Strand (Myrtle Beach Online, Apr. 9th): "Grand Strand condominium sales dropped 41% in Q1, falling to a sales level that's lower than in the same quarter in the past three years - and the largest quarterly drop in sales in the past year… Q1 sales for single-family homes dropped – 17%, to 1,090… the largest quarterly drop in the past year. In Q4, single-family-home sales fell 4%... Down from 2006 but up from 2005… Economist Don Schunk at Coastal Carolina University: "We have about 9,000 condos [on the market] and sales about 10% of that. That's a pretty large imbalance."
- As Home Buying Gives Way to Renting, Rent Hikes Curiously Tame (National Association of Residential Real Estate Investment Advisors, Apr.9th): "Gary Sax, co-owner of Apartment Locators in Tucson, Arizona: "[Before] people we were turning down for an $8000 lease were somehow getting a $200,000 mortgage… It’s not so much asking rents going up as it’s concessions coming down..." Landlords, too, are more restrictive. “They no longer rent to felons, people with a record of evictions, and no people with dogs. Landlords can finally pick and choose their tenants. Yet rents are up just 3% to 5%. When people try to raise more, they can’t get it. That’s because Tucson is a low wage market."
Real Estate Investing and Sentiment
- A Word of Advice During a Housing Slump: Rent (NY Times, Apr. 11th): "A NYT analysis of buying vs. renting in every major metropolitan area… including data on housing costs… Found that even though rents have recently jumped, the costs that come with buying a home — mortgage payments, property taxes, fees to real estate agents — remain a lot higher than the costs of renting…Over the next five years… prices in Los Angeles… would have to rise more than 5% a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4%."
- More Homes Flooding Bay Area Housing Market (CBS5, Apr. 10th): "A new survey by ZipRealty shows Bay Area home listings jumped at one of the nation's highest rates… Anthony Germono is a real estate investor finding discounts among homes in foreclosure. "We are looking to get something on 80 cents on the dollar or less. If you want to bid you have to go a little higher than that like $256,000 and one dollar. He… and a team of researchers are finding properties with no tax liens or other issues. Then, they hope to buy and sell the homes to first time home buyers who couldn't afford to purchase during the real estate boom."
- LendersBestBid.com Launch (PR Leap, Apr. 10th): "A new eBay-style online service will group borrowers together providing bulk-buying power combined with an online auction technique’ known as (The 'Dutch' or 'Reverse' Auction). A network of up to 100 + nationwide mortgage lenders enter into a "Bidding War" to offer consumers cheaper mortgage rates of interest and fees on deals placed for auction: LendersBestBid.com… The mortgage lender offering the cheapest deal wins the business… The borrower can choose to accept the deal they are offered or just walk away. LendersBestBid.com receives a nominal deliberate fee from the network lender."
Mortgates, Real Estate Lending and Lender Stocks
- National City, SunTrust Banks May Say Profits Fell on Mortgages (Bloomberg, Apr. 11th: "Mark Batty, of PNC Wealth Management, which oversees $50 billion and owns shares of Wells Fargo & Co. and Wachovia Corp. "Wells and SunTrust reduced mortgages requiring little money down or proof of income. We'll see whether they moved fast enough.'' Wells Fargo… is the only regional bank with more than 10% of its loans to subprime borrowers, according to a March 26 Banc of America report. National City's are at 8% and Wachovia's are 6%... None of the other top 10 regional banks has more than 5% of its total loans with subprime borrowers."
- Mortgage Bondholders May Bear Subprime Loan Risk (Bloomberg, Apr. 10th): "The top Democrat and Republican on the House Financial Services Committee said investors in mortgage bonds should be liable for deceptive loans made by banks… An agreement by the two lawmakers may increase the likelihood legislation will be passed this year. David Brownlee of Sentinel Asset Management: The cost of borrowing would rise and curb financing for some lenders and subprime homebuyers… and reduce opportunities for the Wall Street firms that pool the home loans as securities... Securities Industry and Financial Markets Association: A total of $2.12 trillion of mortgage-backed bonds were sold last year… About $540 billion of the bonds are backed by subprime mortgages."
- Real Estate Woes Contained to Congress (Minyanville, Apr. 10th): "While Congress is busy "containing housing woes…" what this rush to legislate really means. 1) Ultimately Congress is going to "save" the current crop of "homeowners" from themselves by raising the cost of borrowing for everybody else. 2) Mortgages are going to be far more difficult to obtain for everyone. 3) [Fewer loan-backed securities means]… the existing pool of money available for mortgages will be reduced… Also raising costs to subsequent mortgage borrowers… 4) In the long run the greatest beneficiary of these new laws won't be either homeowners or mortgage borrowers, but the government-sponsored enterprises, Fannie Mae and Freddie Mac."
- Who's Next After American Home Mortgage? (Robert Ataniw in Seeking Alpha, Apr. 10th): "After American Home Mortgage (AHM) fell only 16% [more to come]… Who's next? I think it is Indymac (NDE). Their forward P/E is 9. If Indymac were updating their estimate today a la AHM, then that P/E is 18. Maybe stockholders should not worry, though. The market is extremely generous and doubling the P/E corresponds to only 16% drop in stock price. If that is the case, then perhaps moving your investment to a other companies that have "true" P/E of 9 will earn more market generosity. Countrywide Financial (CFC) also has a P/E of 9, and they are much more diversified (Prime, Alt-A, and Subprime Mix). In the end, the question is relative value around risk asymmetry. Both have the same earnings expectation, but one has a much larger downside risk. In a balanced world, that large downside risk can just be expressed as risk premium. In an unbalanced world where the housing market clearly is heading one way - downwards - that risk premium should materialize into the actual price."
Subprime Fallout and Foreclosure Impact
- Other Lenders Feel Sting From Subprime Meltdown (Seattle Times, Apr. 11th): "Doug Duncan, chief economist for the Mortgage Bankers Association in Washington, D.C., said that Alt-A mortgages made up a small share of the U.S. market at about 6% of outstanding loans. Loans to prime customers, who are the most creditworthy, make up 74%; those to subprime borrowers are about 11%, and government-backed loans total about 9%."
- Subprime Restructuring Tough (USA Today, Apr. 11th): "Lawmakers and regulators try to help strapped homeowners with "subprime" mortgages stave off foreclosure… [But] millions of subprime loans… aren't [even] held by the initial lenders… [they've] been put in trusts, repackaged as bonds and sold to market investors… Making it more difficult for borrowers to restructure their loans. Mortgage Bankers Association: [Many] trust rules bar servicing firms that administer the mortgages from modifying them... In others, servicers can follow standard industry practice, which… can spell legal trouble if market investors protest. Some servicers have modified trust conditions, with the consent of bondholders… but getting consensus can be tough."
- MLN President Fails To Block Criminal Probe (Hartford Courant, Apr. 11th): "A U.S. bankruptcy judge ruled Tuesday that bankruptcy laws do not protect the president of the defunct Mortgage Lenders Network from arrest on criminal charges, should Connecticut decide to charge him with failing to pay commissions earned by former salespeople. Mitchell L. Heffernan, president of MLN, had sought an injunction in bankruptcy court in Delaware to stop Connecticut officials from pursuing criminal charges against him. He contended that MLN's problems are being resolved in bankruptcy, which is a civil court proceeding."
- Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley (Bloomberg, Apr. 11th): "American Business Financial was offering 13-month notes with a yield of 12.99% and an "uninsured money market note'' with a yield of 6.05% three months before seeking bankruptcy, according to an SEC filing. Bear Stearns, the largest underwriter of mortgage bonds last year, Zurich-based Credit Suisse, JPMorgan, the third- biggest bank, and Morgan Stanley, the No. 2 securities firm based on market capitalization, collected about $50 million in fees by lending money to American Business and repackaging home loans from the… company into $3.6 billion of mortgage-backed bonds between 2000 and 2003, a period during which [a] suit says the company was insolvent."
- FSA Looks at UK Sub-Prime Mortgage Lenders (Finance Markets, Apr. 10th): "With sub-prime mortgage lenders in the U.S. in the midst of somewhat of a crisis, the Financial Services Authority (NYSEARCA:FSA) wants to make sure that UK borrowers who secure sub-prime loans - either through convenience or because that is their only option - are being treated with fairness by lenders. The FSA’s inquiry follows its look last year at traditional mortgage lenders. In that investigation, the FSA found that borrowers shop around for the best deal on a mortgage than they did in the past and that they are better informed about the process involved in mortgages."
- Some Mich. Lenders Feel the Heat From Mortgage Meltdown (Detroit News, Apr. 10th): "Last year, one-time subprime lending leader Ameriquest Mortgage Co. closed 10 Michigan offices as part of a mass layoff of 3,800 employees, and Southfield-based Loan Giant went under after it engaged in improper practices such as submitting false data on applications. Other national lenders who operate in Michigan, such as Countrywide Financial, are laying off workers in their subprime operations and writing down bad loans… The mortgage lenders mostly dodging the bullet… are those that primarily sell mortgages to the most credit-worthy home buyers. Rock Financial, says less than 2% of its loans are subprime."
- Record foreclosures in Bexar County (My San Antonio, Apr. 10th) San Antonio, Texas: "Home foreclosures in the San Antonio area are increasing at an alarming rate. Foreclosures have more than doubled since 1990, Bexar County Clerk Gerry Rickhoff said… Lots are selling for $80,000, $100,000. They're putting $300,000 houses on it…" So, far this year there's been 3,200 foreclosures."
- Subprime lending: Lots to Hawaiians (Pacific Business News, Apr. 9th): "Lenders reported $21 billion in loans to Native Hawaiians and other Pacific Islanders in 2005, up almost a fifth from the previous year and part of a nationwide trend of heightened lending to Native Americans, much of it at subprime rates that are currently getting attention as borrowers fall behind in payments. The two biggest lenders to Native Hawaiian were the two biggest Mainland mortgage lenders with major operations in Hawaii, Countrywide Home Loans (lent $3.2b to Native Hawaiians in 2005, up 70% from 2004). and Wells Fargo Bank (lent $1.5b to Native Hawaiians)."
- Subprime Crunch Hitting N.O. Housing Market (Greater Baton Rough Business Report, Apr. 9th): "New Orleans-area home sales are slowing down because of woes in the subprime lending market, according to New Orleans CityBusiness. The Crescent City housing market was already a mess because of Hurricane Katrina, and several lenders say people are having trouble getting financing for a home. The situation is made worse because many people who live in New Orleans are self-employed, which causes them not to qualify for conventional loans."
Global Alternatives To The Housing Slump
- China’s Unknown Housing Magnate (Asia Sentinel, Apr. 11th): "Yang Guoliang's Country Garden Holdings aims to raise HK$12.9 billion from a Hong Kong market listing on April 20-- the largest Hong Kong IPO by a mainland property company ever and probably Hong Kong’s biggest this year… Morgan Stanley [and UBS, who are] arranging the share issue [say] the company has 27 projects under development, with an average gross floor area [of] 900,000 sf each, 87% of them in Guangdong… Estimated 2007 profit in 2007: US$3.9b, more than double 2006, and US$5b in 2008... 90% of the IPO is reserved for international institutional investors up to April 12."
- London Prime Home Prices Rise Most in March Since at Least 1976 (Bloomberg, Apr.11th): "Luxury home prices in London rose at a record monthly pace in March… Sales in Belgravia, Mayfair and Knightsbridge regularly exceed $4,900/sf said Bailey. CB Richard Ellis Hamptons said in September that London prices per sf in the most expensive districts had overtaken Manhattan to become the priciest in the world… A property that cost 100,000 pounds… in 1976 was worth 3.99 million pounds at the end of March. The 40-fold increase is almost twice as much as the 21- times gain in the FTSE All-Share Index over the same period and a 400% gain in consumer prices."
- Shimao Sells Property Project Stake to Morgan Stanley Real Estate Fund (MarketWatch, Apr.10th): "Chinese developer Shimao Property Holdings said it sold a 29.99% stake in the Wuhan Shamao Splendid River development in China's central Hubei province to Morgan Stanley Real Estate Fund for CNY1 billion.. The project… has residential, hotel and office spaces… Shimao Property… expects a [profit] of CNY740 million from the sale. Shimao Property Holdings… raised HK$3.72 billion in its Hong Kong IPO in July last year. It has commercial and residential properties in first-tier mainland cities like Beijing, Shanghai, Hangzhou and Shenyang. Morgan Stanley Real Estate Fund owns a 5% stake in Shimao Property."
- S.F. firm Acquires Stake in Two European Real Estate Funds (San Francisco Business Times, Apr. 10th): "Liquid Realty Partners… [which] buys indirect real estate interests from institutional investors in the secondary markets, has committed $82 million to two pan-European real estate funds… The funds, which are both sponsored by the European affiliate of an unidentified global real estate fund manager, have invested in highly diversified portfolios including lodging, multi-family residential, retail and office properties. The real estate is in several European countries including France, Germany, Italy, Switzerland, Finland and the United Kingdom. Liquid Realty: This is the second-largest European real estate private equity secondary transaction in the past year."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Fallout in US Subprime Mortgage Market Could Spread (NZ Herald, Apr. 11th): "The IMF said in its semi-annual Global Financial Stability Report that a decline in the subprime market was more rapid than expected at this point in the overall housing downturn. Looser underwriting standards may have gone beyond the subprime sector into portions of "Alt-A" mortgages, the next-riskiest area, the IMF said. In addition, there could be losses in other consumer credit markets, including credit card and subprime auto loan asset-backed securities."
Homebuilders And Housing Stocks
- D.R. Horton: Q2 Orders Dropped 37% (Seeking Alpha, Apr. 11th): "U.S. homebuilder DR Horton (NYSE:DHI) reported a 37% drop in Q2 orders yesterday, lowering hopes for a spring season housing rebound. Horton's shares fell 2% to $21.60 on the news. DHI reported orders for 9,983 homes in Q2, down from 15,771 in Q2'06. The value of the orders plummeted 41% to $2.6 billion, down from $4.4 billion in Q2'06. California orders declined 59%; Northeast region orders declined 21%. The 37% overall order decline follows a 23% drop in Q1. The company's 32% cancellation rate is flat with previous quarters… Horton caters to first-time home buyers, and so is particularly susceptible to the tightening of credit standards from subprime problems."
- Jim Cramer's Stop Trading! Stock Picks and Comments, April 10 (Miriam Metzinger in Seeking Alpha, Apr. 11th): "American Standard (ASD), Fortune Brands (FO): Cramer likes ASD and FO as stealth housing plays, but says any pure housing stock is going lower and is "too hard to own."
- Rogers Shorts U.S. Builders, Eyes More Losses (Reuters, Apr. 10th): "Investment industry icon Jim Rogers, who helped launch one of the world's best performing hedge funds, said on Tuesday that he is betting against U.S. home builders and expects the sector will suffer more losses. "I am short home builders and Fannie Mae (FNM)… They will go down a lot more. You just don't clean out a speculative bubble in six months." He was short American Home Mortgage Investment Corp (AHM) and other mortgage companies as well… Other investors, most notably Legg Mason's Bill Miller… said in December he expected home builders to show new promise in 2007."
- D.R. Horton's 37% Decline In New Orders: Bad News For Housing (Zack's Equity Research in Seeking Alpha, Apr. 10th): "DHI's report… indicates the housing market is still under severe pressure… On a net basis, average selling prices on all orders taken in Q2 fell 5.9%... With the national inventory of new and existing homes on the rise, we see continued risk of further price erosion and continued risk that starts need to fall further. This will negatively impact all the homebuilders, including DHI... we expect DHI [as Lennar did yesterday] to continue to work with suppliers to regain some margin lost from lower prices and heightened incentive use… it will not be enough to stave off overall margin deterioration… We maintain our previously lowered FY07 EPS estimate of $2.04."
- Cemex Acquires Rinker: A Win on Both Sides (Travis Johnson in Seeking Alpha, Apr. 10th): "Rinker gets an even bigger percentage of sales from the U.S. than Cemex does and operates only in the U.S. and Australia, and it's pretty focused in some overheated markets like Florida and Arizona. This is probably why, with the housing downturn, the Rinker board was willing to accept a little bit less... So look outside for a blue moon - a company just upped a bid to acquire a major rival, in the absence of any competing bids of substance, and its share price has already jumped up by 5% or so… In the long run I think this will be a great deal for Cemex as it expands its dominant position in some of the world's key cement and concrete markets."
- KB Home CEO Sees Worsening Housing Slump (FX Street, Apr. 11th): "Jeffrey Mezger, CEO of "KB Homes (KBH), one of the nation's largest homebuilders, said Tuesday he expects the housing slump to worsen, even though sales have improved in some areas of the U.S… [Unlike] other homebuilders. KBH doesn't build a house until it has a buyer under contract... KBH's earnings plunged in Q1 as the housing market downturn continued and subprime mortgage defaults jumped… Mezger said the health of the housing market varies widely, depending on region and… inventory. "KBH is doing well in states such as North Carolina and South Carolina, but the market in Texas is softening."
- CNBC's Olick Tackles 'Homebuilder Extortion' Debate (CNBC, Apr. 9th): "Lennar, the sixth largest U.S. homebuilder, has asked some contractors to reduce bills by 20% or face exclusion from bidding jobs, CNBC's Diana Olick reported. In a letter sent to building contractors, the company outlined two options, Olick said: Reduce unpaid invoices 20% for work already completed, or keep costs unchanged and be prohibited from bidding on future work for a minimum of six months."
Commercial Real Estate and REITs
- Apollo Real Estate Advisors Acquires Multi-Family Properties in L.A. (PR Newswire, Apr. 10th): "Apollo Real Estate Advisors has acquired 24 multi-family rental properties in various submarkets of Los Angeles, with plans to maintain them as rental housing, the firm said. With a total acquisition value of approximately $83 million, the properties are located in the Silverlake, Westlake, Koreatown, Hollywood, West Hollywood and Los Feliz submarkets, and comprise 1,002 primarily rent-controlled units. The apartments consist mostly of studios and one-bedrooms, ranging from 700 to 1,000 sf. The sellers were not disclosed. Apollo… plans to continue operating 900-plus units subject to the L.A. rent stabilization ordinance."
- Morgan Stanley Connection Surfaces in Sunrise Battle (Canada Globe and Mail, Apr. 10th): "The unconventional battle for control of Sunrise Senior Living REIT has taken another twist with investment bank Morgan Stanley announcing that it holds almost 13% of the company [since May 2006] but failed to declare it… The Canadian seniors housing company [is] preparing for Wednesday's shareholder vote on a $15/unit or $1.1-billion offer from Ventas Inc... It positions the Wall Street firm as a major player in any efforts by Ventas to ensure its offer gets the support[ed] in the face of mounting investor pressure to sweeten its bid [against rival suitor Health Care Property Investors' $18/unit bid]"
- Friedman Billings' REIT Unit Files for IPO (Reuters, Apr. 10th): "FBR Capital Markets Corp., a REIT subsidiary of Friedman Billings Ramsey Group Inc. (NASDAQ:FB), filed with regulators on Tuesday for an IPO… Plans call for the sale of up to 13.5 million shares of common stock at an estimated price of $16-$18 each, according to a registration statement filed with the SEC… FBR Capital Markets was formed in June as the holding company for FBR Group's capital markets, including investment banking and institutional brokerage and research, and asset management businesses."
- CNL Hotels & Resorts Stockholders Approve Sale To Morgan Stanley Real Estate And Ashford Hospitality Trust (Trading Markets, Apr. 10th): "CNL Hotels & Resorts, Inc. announced that its stockholders have approved the previously announced sale transaction, consisting of the sale of select properties to a fund managed by Morgan Stanley Real Estate and to Ashford Hospitality Trust Inc. (NYSE:AHT), followed by the merger of the Company to a fund managed by Morgan Stanley Real Estate. Over 95% of the total shares that voted were in favor of the sale transaction."
Tracking the Housing Market and Homebuilder Stocks |
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