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 have 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"
“The recent path of prices in San Diego opens itself up to several types of spin. If you want to grab headlines and scare homeowners, you can point to the 5% decline in the median sales price. . . . If you'd rather soothe those fears, you can simply say that 2007's median sales prices are essentially the same as 2004's." - Ryan Ratcliff, a UCLA economist who evaluated the county's housing market in the Anderson Forecast report on the housing market. (Sign On San Diego, May 1st)
Real Estate Sales and House Prices
- 2006 Second Home Sales Decline: Doesn't Surprise NAR Economist (Tim Iacono in Seeking Alpha, May 2nd): "The median vacation home price in 2006 was $200,000, down 2.0% from $204,100 in 2005. The typical investment property cost $150,000 last year, down 18.3% from $183,500 in 2005. NAR economist David Lereah: “The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling. It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts."
- Home Values Drop Across Much of Area (Denver Post, May 2nd): "Home values fell across much of the metro area during the first quarter, according to a home price index from Zillow.com. Median home values in the Denver-Boulder-Greeley metro area declined 1.9% to $217,533 in Q1'07 versus Q1'06. Of 45 metro-area cities tracked, 10 experienced gains in home values, while 35 saw a decline."
- Existing Home Sales Drop Biggest Since 1989 (Baton Rouge Business Report, May 2nd): "National Association of Realtors: Sales of existing homes in the U.S. dropped 8.4% in March, their biggest tumble since a 12.6% decrease in January 1989. Economists… were expecting home sales to slip to a 6.45 million unit rate from the 6.69 million unit pace originally reported for February… The inventory of homes for sale fell 1.6% to 3.745 million units. But a sharper slowdown in sales meant there was 7.3 months' worth of supply of homes for sale, up from 6.8 months' worth in February… March national median existing home price down 0.3% from a year ago to $217,000."
- Housing May Have Hit Bottom (Sign on San Diego, May 1st): "The worst may be over for San Diego County's beleaguered housing market… The UCLA Anderson report: From Q1'04-Q1'06, the median home price shot up 23%– from $417,938 to $513,915.... In the past year, the median price has fallen 5.6%, to $485,789, [from] lower demand and tighter lending standards. [The report… predicted a housing slowdown nearly four years ago, and [now forecasts]… a median slide to $478,000 by Q2'08 – basically, 2004 levels – before prices start to rise again… The major wild card: Whether a wave of foreclosures might drag down local home prices and exacerbate the current economic slowdown."
- Second Home Market Outlasts the Bubble (New West.net, May 1st): "Butte, Montana appears to be in the midst of a building and economic boom, writes the Billings Gazette. Housing prices have increased 10-14% a year, and there’s actually a shortage of houses in the $100,000 to $250,000 price range. Unemployment was only 2.8% in Silver Bow County. What’s driving the growth? New industry, first of all, but the high price of land in Bozeman and Missoula has also driven business and residential investors toward the more affordable towns, like Butte."
- New Home Permits Plunge by More Than 50 Percent (New Mexico Business Weekly, Apr. 30th): "Home building… dropped by more than 50% in Albuquerque metro area [vs.] a year ago. DataTraq: In March, 435 permits were issued vs. 964 in March of 2006… In the Duke City, 223 permits were issued in March vs. 524 in March 2006. For Rio Rancho, just 124 permits were obtained this March vs. 336 a year ago… Sales of local single family homes… have been falling between 12-15% percent monthly. Overall, the March total was 35% higher than the February 2007 total of 322… The most active builders this spring… are D. R. Horton (NYSE:DHI), which obtained 55 permits, and Pulte Homes (NYSE:PHM), with 46."
Real Estate Investing and Sentiment
- Rents Peak in Housing Glut; New York Escapes Decline (Bloomberg, May 2nd): "McCabe Research & Consulting LLC: A record number of homeowners who can't sell condominiums and houses are competing for tenants with the country's biggest apartment owners led by Chicago-based Equity Residential... Metropolitan New York, where demand for housing exceeds supply, may be the only place where rents increase, albeit at a slower pace… Competition already is forcing the big apartment owners to offer concessions..." Reis Research: "Vacant rental apartments rose to 6.1% in the U.S. during Q1, the most in almost two years… The average monthly rent reached a record $991. Vacancies will continue to rise through 2007… New York had the lowest number of vacant units in Q1."
- Lipstick on the Housing Pig (Motley Fool, May 1st): "Now that it's becoming clear that a pulse doesn't guarantee cash flow, lending is getting a bit tighter… there are fewer and fewer suckers out there willing to pay two or three times equivalent rent to get in on "the American dream." This isn't a buyer's market yet. Just wait until the crummy loans of the last couple of years reset in 2008. Then find a property you like, and make a bid at 20% less than list. Paying less than rent for more space in a place you want to live -- that's the real American dream."
Mortgates and Real Estate Lending
- Bankrate Announces First Quarter 2007 Financial Results (PR Newswire, May 2nd): "Mortgage rate Bankrate's (NYSE:RATE) Q1 earnings: Revenue increased by 12% to $22.2 million from $19.8m in Q1'06. Net income increased by 129% to $5.4m, or $0.28/share, in Q1'07 compared to $2.3m, or $0.14/share, in Q1'06. EPS excluding stock compensation expense, increased by 57% to $0.33/share for Q1'07 compared to $0.21/share for Q1'06… CEO Thomas R. Evans "The industry's concerns regarding the problems of subprime lenders and the slowdown in the mortgage market have not had a negative impact on our business. In fact, we continued to see strong consumer traffic and experienced significant demand from both graphic and hyperlink advertisers."
- Reverse Mortgages Boom While the Rest of the Industry Swoons (Realty Times, Apr. 30th): "Volume in Home Equity Conversion Mortgages (HECMs), the dominant form of reverse loans currently, jumped by 77% to more than 76,000 new loans last year, according to HUD. The biggest players in the American financial sector have noticed the growth trend and are now plunging in with their own proprietary versions of the FHA-insured HECM. Last Thursday, Bank of America Corp…. announced its acquisition of Seattle Financial Group's reverse mortgage business for an undisclosed sum. Seattle Financial services approximately 40,000 reverse mortgages with outstanding balances of $4 billion, and is ranked the third largest originator in the field."
Subprime Fallout and Foreclosure Impact
- FTI Consulting Sees Profits Rise (Law.com, May 2nd): "FTI Consulting Inc., which provides services like forensic and litigation consulting, said Tuesday its Q1 earnings grew 24% on higher corporate finance/restructuring and technology revenue… FTI's corporate finance/restructuring revenue increased y/o/y to $62.1 million from $54.1m on demand for services in the subprime lending, home building, health care and auto sectors… FTI shares gained $1.20, or 3.3%, to $37.97 in afternoon trading, after hitting a new 12-month high of $39.76 earlier. The stock has traded between $19.82 and $38.76 during the past year."
- Foreclosures Add Work to Government Officials (Springfield News/Sun, May 2nd): "Clark County Sheriff Gene Kelly signs deeds for and auctions foreclosed properties. Pam Underwood prepares the sale documents. When she started about 10 years ago, she handled 117 foreclosures, not including for taxes… Last year Underwood had 916 foreclosures…"My work load increased tremendously." Kelly worked with judges to order attorneys to prepare deeds, saving some of the work. His office rarely sees much money for its effort if banks buy back properties. He is pushing for banks to pay the fee that outside buyers do. "The county gets nothing for all of that work."
- Subprime Lending Root of Deferred Dreams for African Americans (Frost Illustrated, May 2nd): "Subprime loans have been the gateway to the American dream of homeownership for many, especially African Americans. These loans, however, are in close relation to high trends in foreclosures and is having a significant effect on black borrowers, say fair-housing experts… The National Urban League reports that in 2004, African American homeownership soared to nearly 50%, a historic high. White-American homeownership was at 76%. But, black homeownership slipped to 47.9% in 2006 largely because of foreclosures."
- Subprime Mess Impacts Women (News Click, Apr. 30th): "Although women are the fastest growing group of new home buyers, a Consumer Federation of America study revealed that about a third of women have mortgages with interest rates over 7.66%, well above the 5.87% prime. In addition women with higher incomes were 46.4% more likely to have subprime loans compared with men of the same income level… National Association of Realtors: The percentage of single-women buyers has increased from 14% to 22% over the last ten years."
- Credit Suisse is Sued Over Subprime Bond Issue (International Herald Tribune, Apr. 30th): "Credit Suisse (NYSE:CS) is being sued by a Florida insurer that says it lost money on investment-grade bonds backed by subprime mortgages sold by the bank… Bankers Life is seeking to recover about $1.3 million to make up for losses… on about $1.4m of bonds that it bought in 2004… Bankers Life claimed that… Credit Suisse caused it to lose money by overstating how much of a loss after foreclosures that the insurance on the loans would cover. It also says that the bank accepted "shoddy, inferior" loans, failed to buy back fraudulent ones, and covered up delinquencies of homeowners."
Global Impact and Alternatives To The Housing Slump
- U.K. Stocks Fall, Led by Hanson, Balfour on U.S. Housing Market (Bloomberg, May 1st): "U.K. stocks slid, led by construction companies on concern a slowing U.S. housing market will erode earnings growth in the industry. Hanson Plc, the world's largest supplier of crushed rock used in construction, led the decline. Balfour Beatty Plc, the U.K.'s biggest construction company, also fell. "The longer the U.S. housing slump continues, the more likely we will see investors cashing in on the good year-to-date performance of building stocks,'' said Stephen Pope, head of equities research at Cantor Fitzgerald Europe in London."
- Casa En Peligro (Forbes, May 1st): "Spanish Central Bank: Spanish home prices have more than tripled over the past decade… Real estate lenders have increasingly targeted the country's burgeoning population of poor, young immigrants, who very often have short and/or sketchy credit histories… A striking 98% of mortgages in Spain [are] structured as variable-rate loans… More than 700,000 housing units [were started] in 2006 (well above the rate of new household creation in Spain, which is approximately 500,000)... Bank of Spain: Real estate spending by foreigners fell 11% during 2006… Spanish Mortgage Association: New mortgages sold to Spanish families fell 10%."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Manufacturing Bounces Back; Pending Home Sales Decline (Seeking Alpa, May 2nd): "If the factory sector is indeed emerging from a period of weakness, analysts believe it should help the overall economy withstand pressure from the slumping housing sector. Exports are being strongly boosted by European and Asian demand combined with a weak dollar... The National Association of Realtors said pending home sales in March fell 4.9% from February to 104.3, their lowest point in four years. Home sales in April may thus be weak, leaving excess inventory on the market and forcing production constraints."
- Circuit City Revises Downward: Where Does That Leave Best Buy? (William Trent in Seeking Alpha, May 1st): "Early in April… we speculated that the market favored Circuit City’s (NYSE:CC) poor performance because the worst appeared over… [But] Circuit City announced Tuesday: "In light of uncertainties in the current operating environment, the company is withdrawing its previously issued guidance for the first half of fiscal year 2008…" [Is] the weakness… specific to Circuit City? Radio Shack’s (NYSE:RSH) positive move on Monday resulted from better than expected cost savings. The revenue performance was atrocious. [Now] Circuit Ciy's report… If we see the same from Best Buy (NYSE:BB), those who have long been calling the death of the American Consumer may finally be proved right.
- Removing Housing from GDP (Barry Ritholtz in Seeking Alpha, May 1st): "Bloomberg's Caroline Baum… punctures the absurdity [that] "Excluding housing, the U.S. economy is doing just fine." The latest rationalization [for] the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate [that will] protect the economy… [It's] like saying that ex-housing, the economy is doing just fine… [Or,] ex-Iraq, Bush's Middle-East policy is a rousing success…" Deutche Bank's Joe Lavorgna: "Backing out housing today is like going ex-Capex in the late 1990s. Corporate Capital Spending was huge in the the nineties, and if we remove its contribution from GDP from 2000 forward, well, then there was no recession in 2001-02."
Homebuilders And Housing Stocks
- Owens Corning: A Homebuilding Company Worth Considering (Eric Schleien in Seeking Alpha, May 2nd): "Owens Corning (NYSE:OC), the wallboard company, which has recently come out of bankruptcy due to asbestos lawsuits… has a great management team… From almost any way you value Owens Corning whether it be using Net Present Value Analysis, Private Market Analysis, or even taking Liquidation Value + Earnings Power conservatively gives you prices much higher than the current price of $32.99 today… OC could even be a takeover target… For a long term leveraged play on the common stock, one could consider buying the Owens Corning Warrants (OCWAZ) that expire in 7 years at a strike of around $45."
- Corporate Perk Pig-Outs: Not Just For CEOs (David Phillips in Seeking Alpha, Apr. 30th): "In 2006, the average CEO of a S&P 500 company received $14.78 million in total compensation, according to a preliminary analysis by The Corporate Library… A 9.4% increase in CEO pay over 2005... Flying under the radar—the Boards of Directors—who are responsible for setting NEO pay (and perquisites)—are lavished with perks of their own, too: Directors at American Standard Companies (ASD), a provider of air conditioning, bath and kitchen products, earn compensation in excess of $200,000. In addition, directors are entitled to receive company products at no cost in connection with their service on the Board."
Commercial Real Estate and REITs
- A Warning on Risk in Commercial Mortgages (NY Times, May 2nd): "Low interest rates and an abundance of investment capital have led to record prices [for commercial properties]… Loan terms [are] increasingly generous, with many buyers putting little or no equity into the deals. Like residential loans, commercial mortgages are pooled and packaged into bonds that are sliced up into… different risk [categories]. Moody’s: There were $769.6 billion in commercial mortgage-backed securities at the end of 2006, representing 26.1% of all outstanding commercial mortgages, including apartment buildings. Bond rating agencies [will now] adjust their ratings to reflect their concerns… The readjustment is occurring just as… the office market slows nationwide."
- REIT AvalonBay Communities: A Blast From The Past (Jack Ciesielski in Seeking Alpha, May 2nd): "REIT AvalonBay Communities (NYSE:AVB) put the non-reliance tag on its financials for the fiscal years 2006, 2005 and 2004 and the quarterly filings for 2006… After seeing other companies examine their land lease accounting, AvalonBay figured it might be more in line with SFAS 13 to straight-line land lease obligations over the full term of the lease, ignoring the expected holding period. The company expects… “a reduction of net income… from amounts previously reported of approximately $11.9 million for… 2006, 2005 and 2004, respectively, or a reduction in the previously reported net income available to common stockholders of 4.4%, 3.8%, and 5.7%, respectively."
- Schwab Starts Real Estate Fund (East Bay Business Times, May 1st): "Charles Schwab & Co. Inc. will start a real estate securities fund through its asset management unit, Charles Schwab Investment Management. The global real estate fund, managed by Jeffrey Mortimer, Dionisio Meneses and David Siopack, will mainly invest in domestic and international commercial REITs. The fund will use research from Global Real Analytics, which Schwab bought in January. It will not invest directly in property. This new fund will start trading May 31… Charles Schwab & Co. is a unit of San Francisco-based Charles Schwab Corp. (NYSE:SCHW)."
- Shangri-La Lux Headed for Lex (Slatin Report, May 1st): "Bjorn Hanson, who heads Pricewaterhouse Coopers' Hospitality and Leisure practice, recalls that in 2000, "a record year for lodging in the U.S. and New York City, people tried to count how many hotels had ADRs (average daily rates) over $400." Things have changed: "Today," he says, "we're counting hotels with ADRs over $800." That means, he adds, "the luxury sector is outperforming the extraordinary performance of the overall New York City market." That market as a whole has certainly done well, notes Hanson, posting a rate increase of 28% over the past two years."
- Buyers Reiterate Support for REIT (Barron's, May 1st): "Four insiders at Colonial Properties Trust… purchased a total of $13.7 million in shares the day after the company issued Q1 [results] and announced joint-venture agreements that would allow it to focus on multifamily properties and issue a special dividend of about $10.75/share to shareholders. On April 27, Chairman Thomas H. Lowder and trustees M. Miller Gorrie and Harold W. Ripps bought a total of 225,000 shares for $11.2m… On April 30, trustees and twin brothers Thomas H. Lowder and James K. Lowder, purchased 50,500 shares for $2.5m.… The REIT owns properties in the… southern states from Virginia to California."
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