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"
"Unethical people. They're responsible for this mess. The short-term folks. People who get a commission when the deal happens. For them, it's the number of loans that counts. Good loan? Bad loan? Who cares? For them it's all about their commission." - John Robbins, chairman of the Mortgage Bankers Association, referring to subprime mortgage brokers that he says have tarnished the mortgage industry's image. (Clarion Ledger, May 23rd)
Real Estate Sales and House Prices
- New, Resale Prices Still Sliding (AZ StarNet, May 23rd) Arizona: "Bright Future Business Consultants: Home builders are deeply lowering prices to sell houses quickly... The median new home sold for $241,020 in April, down 9.5% from $266,265 a year ago… Analyst John Strobeck: The glut in inventory caused builders to… decrease overhead and cut speculative building. Permit volume "is much slower… In 2005 builders took out almost 12,000 permits… The median resale home price was $210,000, down about 1% from $212,450 a year ago. Strobeck: "Prices likely will continue to decrease because they are inflated"… There are around 10,000 homes in the resale market now, about twice the normal number."
- Record Hamptons Home at $103 Million Signals Market Resilience (Bloomberg, May 23rd): "Financier Ron Baron [paid] $103 million for a 40-acre parcel in East Hampton, New York. It is the record for a residential property in the U.S... House prices in [East Hampton] rose 14%... to $970,000 in Q1 from $850,000 a year ago… The total sales volume rose to $300m from $216m a year earlier… In Southampton, where fund managers George Soros and Stanley Druckenmiller own homes, the median price was $795,000 in Q1, 6.7% higher than a year ago. The total sales volume fell to $545m from $572m, and the number of transactions declined to 337 from 391."
- With $37M in Land for Sale, City Hits Real Estate Market (Voice of San Diego, May 22nd): "The city of San Diego… placed 17 properties worth an appraised $37 million up for sale. The bundle of properties, which includes downtown high-rises, million-dollar La Jolla homes and vacant dirt lots, represents the first large-scale land sale in recent memory for a city with vast real estate holdings… Officials with the Mayor's Office have said they would be selling the land even if the city weren't in its current financial troubles. But Sanders is counting on the land sales to add $15m to his fiscal year 2008 budget."
- Mass. Real Estate Market Holds Steady in April (Boston Business Journal, May 22nd): "Massachusetts Association of Realtors: Single-family home sales dropped 1.7% and condominium sales rose by 0.7% compared to April, 2006. Single-family home prices dropped 2.3% in April compared to April 2006, while condo prices rose 2.6%... April was the fourth consecutive month in which inventory dropped compared to 2006 -- it dropped 22% in April to 50,777 listings… 10 months of supply… The volume of single family home sales in April was the lowest since 2003. The number of condo sales sold in April, 1,753, compares to an all-time April high of 1,880 in 2005."
Real Estate Investing and Sentiment
- Families Keep Getting Smaller but Homes Keep Getting Bigger (Memphis Commercial Appeal, May 23rd): "One in five American houses had at least four bedrooms in 2005. That's up from one in six in 1990, despite shrinking families and increasing costs for construction and energy… Houses with five or more bedrooms were the fastest-growing type in that time, adding to the nation's consumption of resources and reputation for excess… Census Bureau: Among states with the biggest percentage of large homes, Utah was followed by Maryland, Virginia, Colorado and Minnesota. Arkansas had the smallest share, at 12.6%... Nationally, the average household size has shrunk slightly since 1990, to about 2.6 people. Meanwhile, the average new house grew by nearly 400-sf, to 2,434-sf."
- Inland Empire's Wealthy Skeptic of Real Estate (OC Register, May 22nd): "A new study of affluent residents of the Inland Empire and eastern L.A. County found that 58.6% of those polled said a major financial worry was that returns in the real estate market would slow or decline in '07 vs. 23.4% in '05. That probably why the survey -- done for Glencrest Investment Advisors -- found that 20% of I.E. residents surveyed said they had more than one-fifth of their assets in real estate in '07, down from 29% in '05."
Mortgates and Real Estate Lending
- Fremont General Soars on Unit Sale to iStar, Lenders' Shares Rise (Seeking Alpha, May 23rd): "Shares of battered subprime mortgage lender Fremont General surged 41% to $10.00 on news iStar Financial Inc., a real estate lending and leasing company, will purchase its commercial real estate lending business for $1.9 billion and take up to a 20% stake in the remaining company. Shares of iStar rose 3.9% to $47.60, as other mortgage lender stocks also posted gains. Following the sale to iStar, retail banking will be Fremont's only remaining business. It has 22 branches in California. Gerald J. Ford, a billionaire banker and former chief of Golden State Bancorp, will lead Fremont as its new chairman."
- Freddie Mac Portfolio Size Loses Lead Over Fannie Mae Holdings (Bloomberg, May 23rd): "Freddie Mac's (FRE) home loan portfolio contracted $5.2 billion in April to $709.2b, while Fannie Mae's (FNM) holdings fell $2.2b to $710.6b… In March, FRE's assets surpassed FNM's for the first time, rising to $714.5b, or $1.7b more than its rival… The government-chartered companies in February and March had taken advantage of higher yield premiums on so-called non- agency bonds, adding $6b each in both months of the riskier securities… The 3.7% annual rate of decline in FNM's portfolio in April followed the first month of growth since December. The contraction at an 8.8% annual rate in FRE's holdings was the first monthly drop of the year."
- O.C. Lending Jobs at 34-Month Low (OC Register, May 21st): "O.C. real-estate and lending job counts remain flat as lending jobs -- primarily mortgage -- fell to their lowest level since June 2004. One year ago, real estate/lending was adding workers at a 12,600-jobs-per-year pace. non-real-estate jobs grew by 14,500 in year ended in April, the best pace since January. Here's key real estate/lending job slices, their job counts last month and how that compares to a year ago: click on chart to enlarge
Subprime Fallout and Foreclosure Impact
- New York Seeks Data on Appraisals (LA Times, May 23rd): "As part of a New York state investigation into whether mortgage brokers pressure appraisers to inflate property values, First American Corp. (NYSE:FAF)… EAppraiseIT, which values up to 15,000 homes a year in NY… appraiser Mitchell, Maxwell & Jackson and broker Manhattan Mortgage Co… were subpoenaed for information about NY appraisals… October Research Corp. 2006 Study: 90% of appraisers said they felt influenced to write bogus appraisals. Four years ago, that number was 55%... 71% said mortgage brokers asked them to do it… FAF is one of the largest real estate services companies, with a market value of $5.1 billion."
- U.S. Bank Regulator Urges Curbing Stated-Income Subprime Loans (Bloomberg, May 23rd): "U.S. Comptroller of the Currency John Dugan: "Stated income'' lending… accounted for nearly 50% of subprime mortgages last year… The Office of the Comptroller of the Currency, the Fed and other U.S. regulators in March proposed guidelines that would direct banks to give clearer information on loan risks and ensure borrowers can repay. Dugan: Stated-income mortgages should be addressed "even more strongly'' in the subprime guidelines than in others regulators have issued… Mortgage Asset Research Institute 2006 study: Almost 60% of stated income loans were exaggerated by at least 50%."
- Experian Beats Forecasts in Maiden Results (Times Online, May 23rd): "Experian (OTCQX:EXPGF), the newly demerged credit checking company… announced market-beating profits of $825 million… In the US, sales rose by 15% to $1.9 billion, helped by its interactive business growing revenues by 37% to $751m… Experian admitted it had seen a slowdown in revenues generated from its LowerMyBills website, which is aimed at providing sub-prime mortgages to customers. In Q3'06, sales from LowerMyBills were flat before declining in Q4 by 8%. CEO Don Robert: Experian [is] repositioning LowerMyBills to appeal to prime mortgage lending... The sub-prime problems in the US are now working themselves through."
- Bill Tightens Reins on Fannie Mae (Desert Sun, May 23rd): "Legislation to tighten federal oversight of the two biggest buyers of home mortgages, Fannie Mae (FNM) and Freddie Mac (FRE), cleared the House on Tuesday. However, the bill could lose the critical support of the Bush administration because of a new provision trimming the authority of federal regulators... The legislation also would create a housing aid fund - worth as much as $3 billion - to be financed by Fannie Mae and Freddie Mac… An estimated $500m-$600m a year from the companies' profits would go to the five-year fund… Diverting company profits to the housing fund would impose a "mortgage tax" on every home loan financed by FNM and FRE, Republicans said, thereby making middle-class homeowners pay for the fund."
- Ailing Lender Wins OK for Sale (Baltimore Sun, May 23rd): "Shareholders in Fieldstone Investment Corp. (FICC) approved yesterday the sale of the struggling nationwide subprime lender to Credit-Based Asset Servicing and Securitization LLC in a deal valued at $188 million or $4/share. Fieldstone agreed in February to be acquired by… C-BASS, which collects mortgage payments and buys troubled loans… C-BASS earlier agreed to buy some of the company's assets to keep it afloat until the deal is completed. Legg Mason Capital Management: The merger is a "nice marriage," giving Fieldstone, which sells mortgages through branches and independent brokers, the ability to use the loan servicing capabilities of C-BASS."
- Ex-Subprime Loan Officers Eye Booming Senior Market (Reuters, May 22nd): "Goldman, Sachs & Co. (NYSE:GS) and Wells Fargo Home Mortgage (NYSE:WFC) executives: Between 12,000-15,000 displaced mortgage lenders may begin to seek employment in the growing market for reverse mortgages, an increasingly popular home equity loan for homeowners who are 62 years old or older… The number of federally insured reverse mortgages… climbed to 76,351 in 2006, from 7,781 in 2001… National Reverse Mortgage Lenders Association: Home Equity Conversion Mortgages, make up 90% of such securities in the U.S… Bank of America Corp. (NYSE:BAC) in April [bought] the reverse mortgage business of Seattle Mortgage… IndyMac Bancorp (IMB) is the industry leader."
Global Impact and Alternatives To The Housing Slump
- Favorable Exchange Rate Driving Europeans' Purchase of U.S. Real Estate (EMedia, May 23rd): "With one British pound worth $2.00 U.S. and the euro also strong, a lot more British, Irish and other Europeans are coming to America to vacation--and to buy vacation homes and investment properties. Florida and New York City aren't the only places experience an influx of buyers from "across the pond"; New Hampshire's White Mountains and nearby western Maine is, too."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Economy A Mystery These Days (Akron Beacon Journal, May 23rd): "Labor Department's Business Employment Dynamics report, showed private-sector employment growth of just 19,000 in Q3'06 compared with the 498,000 reported previously… Construction jobs fell 77,000 in Q3'06… The report uses quarterly state unemployment insurance records… Joe Carson, AllianceBernstein: "Never before have the nonresidential and public construction decoupled from housing. Strong commercial spending (up 19.2% in the past year) and a stepped-up pace by state and local governments (up 14.3%) have taken up the slack from housing.... Consumers are [also] opting to renovate rather than build, increasing their spending on home improvements by 18.5% in the past year."
Homebuilders And Housing Stocks
- KB Home to Sell French Unit Stake to PAI (Reuters, May 23rd): "KB Home (NYSE:KBH), the fifth-biggest U.S. home builder, said Wednesday it had agreed to sell its 49% stake in its French unit, Kaufman & Broad (KBH.PA) to private equity firm PAI Partners for €55/share… KB Home, whose shares have been hurt by a slowdown in the U.S. housing market, said last week it had entered into exclusive talks with PAI to sell its 10.9 million shares in the French unit. The purchase price consists of €50.17/share in cash to be paid by PAI to KB Home after payment of a cash dividend of €4.8/share by Kaufman & Broad."
- Economist Says Housing Problems are Not Over (Florida Today, May 23rd): "Emile Haddad, CIO, Lennar Corp. (NYSE:LEN): LEN has taken steps to adjust to market conditions. They include cutting back by about 20% on its homebuilding activity this year; trimming staff levels; renegotiating land deals; walking away from land options; and having daily conference calls with its senior managers around the country to discuss the latest industry and company developments… Amy Crews Cutts, deputy chief economist with Freddie Mac (FRE): FRE is projecting a gain in home sales and home starts for the current Q2 that ends June 30."
- Masco Initiated With "Neutral" - Update (New Ratings.com, May 22nd): "Banc of America Securities initiated coverage of Masco Corp (NYSE:MAS) with a "neutral" rating. The target price is set to $29. The analysts mention that the company is expected to post a decline in sales volume, and witness price competition going forward. Significant challenges that Masco is facing include the deteriorating construction environment and a decline in spending related to housing… [BAS expects] the company’s sales… to decline by 5% in 2007."
- USG to Cut 500 Salaried Positions (Chicago Tribune, May 22nd): "SEC filing: Gypsum wallboard-maker USG Corp. (NYSE:USG) on Monday disclosed plans to eliminate about 500 white-collar jobs, or about 10% of its salaried workforce… citing adverse "current market conditions" as the nation's deep housing slump continues to take a financial toll on the Chicago building-products company… The cutback, which will make use of a voluntary severance package to the extent possible, is likely to generate pretax charges of between $8-$12 million… The company has already scaled back its operating capacity, as a drop-off in U.S. housing starts has dampened previously white-hot demand for wallboard… USG's total workforce is about 14,700."
- Black Decker Initiated With "Sell" (New Ratings.com, May 22nd): "Banc of America Securities initiate coverage of Black Decker Corp (BDK) with a "sell" rating. The target price is set to $85. BAS [says] BDK is facing several challenges on account of a decline in consumer spending and deteriorating construction environment. BDK is expected to witness challenges in rolling out its lithium ion cordless tools going forward, since contractors might not pay a premium during a downturn… The company’s operating margins are expected to decline by 140bps in 2007 and by 20bps in 2008 on account of commodity inflation and the absence of pricing power advantages."
Commercial Real Estate and REITs
- Israeli billionaire Buys MetLife Tower (Mercury News, May 22nd): "Africa Israel Investments, Israeli billionaire Lev Leviev's property arm, will buy the clock tower of MetLife's former New York headquarters from SL Green for $200 million, its third purchase of a Manhattan landmark since March. Africa Israel plans to invest an additional $110m in the building to convert it into luxury apartments over about two years. The price including conversion costs works out to $1,160/sf, "an enormous price to pay for that neighborhood," said Bruce Ehrmann, executive VP, Stribling & Associates, who said residential units he's selling about six blocks to the north are going for about $1,100/sf."
- First In-Depth Assessment of Commercial Real Estate Job Market Gives Cause for Celebration as well as Concern for the Economy (PR Newswire, May 21st): "SelectLeaders Job Barometer, an online job board for the commercial real estate industry reports: Job postings for the commercial real estate industry have soared by 35% during Q1'07… 66% of senior executives expect compensation to increase in the next six months, and over 60% of industry employers expect to increase hiring over the same period. The Southeast region, led by the Atlanta and Charlotte markets, had the fastest job growth of any region, experiencing a 60% increase in job postings in Q1, and, surprisingly, the Midwest region, led by the Chicago market, experienced a 43% increase in job postings, making it second in job growth nationally. New York and California are the hottest areas for real estate finance jobs, but New York attracts twice as many applicants as California, which has led to a talent shortage on the West Coast. Despite the fact that demand is growing for asset and property managers, the majority of job candidates seek the highly desirable "deal-making" positions that involve acquisitions, development, capital raising and investment banking."
- US Commercial Real Estate Growth Slows in Q1 –NAR (Reuters, May 21st): "The National Association of Realtors: Future commercial property activity index rose to a record high of 120.3 in Q1, up 0.2% from Q4 and up 0.8% from Q1'06. The modest uptick suggested steady absorption of industrial and office space in the next 6-9 months with slightly higher completions of office, warehouse, retail and hotel buildings… Leasing and sales of commercial real estate are predicted to rise 0.8% in Q3 versus Q3'06. Q3 net space absorption in office and industrial sectors would be 10-20 million sf, with about $335-$345 billion in newly completed commercial construction… vs. $323b of brand-new construction recorded in Q1."
- Morgan Stanley to buy Crescent Real Estate (MLive, May 22nd): "Crescent Real Estate Equities (NYSEMKT:CEI), which has been aggressively selling off its resort and hotel assets, has agreed to be sold to… Morgan Stanley Real Estate (NYSE:MS) [for] $6.5 billion, the companies said Tuesday. MS [will] pay $22.80/share in cash for the Fort Worth-based REIT and assume about $3.1b of Crescent's debt. The $22.80 price is a 5.5% premium over Crescent's closing price Tuesday of $21.62… Crescent announced a plan in March to sell off its resort and hotel assets to focus solely on office real estate... The company reported a loss of $15 million, or $0.15/share, for Q1."
- Jeffrey Saut: T-Note Yield Gains Spell Trouble for U.S. REITs (Jeffrey Saut in Seeking Alpha, May 21st): "The yield on the 10-year benchmark Treasury Note has broken out to the upside, lifting the yield on the 10-year T-note to its highest level since mid-February. Also of note is that the inversion in the yield curve between the 90-day T-bill and the 10-year T-note has disappeared as the yield curve steepened, implying higher interest rates going forward. And that sense seemed to put a "bid" under the Dollar Index as it lifted from its recent multi-year low of 81.10… The potential for higher rates has not been lost on the REIT complex. The REIT Index has broken below its rising trendline and accelerated on the downside. We think this has negative implications for investment positions in U.S.-based REITs. While we still embrace international REITs, we are selling many of our domestic REITs."
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