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"
"Although we believe that the U.S. subprime business will continue to face headwinds for the near term, we are seeing some positive signs such as gradual improvement in pricing power for lenders and a pickup in secondary market investor activity, including for non-investment grade positions… We continue to believe the subprime market challenges are, and will continue to be, reasonably contained to this asset class." - Christopher O'Meara – CFO, Lehman Brothers. (Lehman Brothers F2Q07 (Qtr End 5/31/07) Earnings Call Transcript in Seeking Alpha, June 12th)
Real Estate Sales and House Prices
- May Home Sales in O.C. Slowest in 20 Years (OC Register, June 14th): "DataQuick: Orange County prices are holding despite the competition among sellers, buoyed in part by a strong economy and the unwillingness of lenders to sell repossessed homes at steep losses. A total of 2,675 homes closed escrow in May... Sales fell nearly 29% from May 2006 and almost 50% from May 2005... May's closed sales represented deals made in March and April. Through May, 13,336 homes of all types sold in the county, marking the slowest start of a year since 1995… The OC median home price… was $635,000 last month, $500 above the median in May 2006. An increase of 0.1%."
- Home Sales Lag, but Prices Up (Bellingham Herald, June 14th) Washington: "Northwest Multiple Listing Service: Whatcom County home sales continue to lag behind last year, but prices continue to rise... Last month 314 homes and condominium units were sold in Whatcom County, down from 333 in May 2006. The median price for the homes sold last month was $280,450, up from $274,000 during the same period last year. Year to date, 1,233 homes and condos have sold in Whatcom County, with a median price of $271,111. For the first five months of 2006, 1,406 homes and condos were sold at a median price of $259,000."
- Pittsburgh's Rental Market Among Tightest in the Nation (Pittsburgh Live, June 13th): "National Association of Realtors: Pittsburgh's rental market -- along with that in Northern New Jersey -- is the tightest in the nation with a 2.3% vacancy rate… The real estate trade group believes the tightness is due to demand exceeding supply. It notes that first time homebuyers have been on the sidelines lately as mortgage interest rates creep up, adding to the number of individuals seeking rental apartments instead of buying houses."
- Midstate Home Prices Hit Record High (Tennessean.com, June 12th): "The median price for a single-family home rose more than 3% to $185,405 in May and set a Nashville-area record… Greater Nashville Association of Realtors: The increase came even as residential property sales dipped for the seventh consecutive month and the ninth time since fall. Compared with May 2006, sales dropped 6.7%... Condominium sales, went up almost 4%... The slowdown in sales helped push the number of homes on the market higher to 20,915 properties at month's end. That is the most since at least January 2000."
Real Estate Investing and Sentiment
- Commercial News Digest (San Jose Mercury News, June 12th): "Fines for housing kickbacks sought. U.S. Secretary of Housing and Urban Development Alphonso Jackson said last week he plans to ask Congress for authority to levy fines on real-estate professionals for giving or receiving kickbacks during home closings. "We are toothless now," Jackson said. HUD is largely limited to negotiating voluntary settlements when it finds that kickbacks and improper referral fees were paid among real estate agents, lenders, title insurers and appraisers. The agency's enforcement authority has little deterrent effect, and settlements often are viewed as "a cost of doing business," Jackson said."
- Even Order Cancellations for Fake Houses Surging! (Minyanville, June 11th): "KB Home (NYSE:KBH) is reportedly even seeing a spike in order cancellations for fake houses… WSJ: Macy's (NYSE:M) has reportedly canceled plans to build 3,000-sf fake homes inside stores [around the U.S.]… The fake houses were part of an ambitious plan to display a large new line of home goods produced by Martha Stewart (Pending:MSO)… Macy's is canceling the plans due to a sharp decline in the housing market. You know, that "sharp decline" in housing that is not spilling over into other areas of the economy... except retailers, automakers and other businesses that make money by selling things to people."
Mortgates and Real Estate Lending
- Mortgage Applications Up Despite Rate Surge (Money News.com, June 13th): "Mortgage Bankers Association: U.S. mortgage applications rose for the first time in three weeks even as interest rates surged to their highest level since mid-2006... MBA's seasonally adjusted index of mortgage applications for the week ended June 8 increased 6.6% to 666.5. Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.61%, up 0.26 percentage point from the previous week… Interest rates were exactly where they stood a year ago."
- Fed May Ban Some Mortgage Lending Practices: Fed's Kroszner (CNBC, June 13th): "The Federal Reserve Board is weighing whether it should ban some mortgage lending practices that fueled the recent housing market boom, Fed governor Randall Kroszner told a panel of lawmakers Wednesday… Kroszner said that the Fed was specifically eyeing 'stated-income' loan applications and prepayment penalties, as well as considering whether lenders should require annual fees like taxes to be paid monthly."
Subprime Fallout and Foreclosure Impact
- RealtyTrac: Real Numbers or Hype? (CNBC, June 13th): "RealtyTrac gets its total number of foreclosures--176,137 in May--by adding up “default notices, auction sale notices and bank repossessions…" Were there 176,137 foreclosures in May? Nope. A house can go through several permutations: first the default, then the bank repossession, then the auction, [etc.]… Many of these homes are counted multiple times... But I do trust the percentage increases… They are credible in showing real movement in foreclosure activity… RealtyTrac [will soon be] offering a new number that will show only the specific number of homes involved, and that will clearly be less than 176,137."
- Foreclosures Are Skyrocketing (Toro in Seeking Alpha, June 13th): "Bloomberg: A jump in foreclosures at a time of year that traditionally is the busiest for home sales means the slide in prices probably isn't over, said James Saccacio, CEO of RealtyTrac. Typically, more than half of all home sales occur in the April to June period, according to Freddie Mac, the No. 2 mortgage buyer. "Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,'' Saccacio said. That will add "to the downward pressure on home prices in many areas.''
- Subprime Crash Squeezes Out First-Time Home Buyers (Bloomberg, June 13th): "National Association of Home Builders: Subprime mortgage lenders have tightened credit guidelines so much they're squeezing about 500,000 first-time buyers out of the market. A decline of that magnitude would reduce sales of new homes by 4% and sales of existing homes by 7%... Shares of homebuilders, including Toll Brothers Inc. (NYSE:TOL), fell more than 21% since the beginning of 2006, while shares of apartment owners such as Equity Residential (NYSE:EQR) advanced 23% as potential homebuyers keep writing monthly rent checks… NAHB: About 2.5 million people will buy homes for the first time this year, down from 3 million in 2005."
- Home Prices Fuel Subprime Woes (Wall St. Journal, June 13th): "Federal Reserve Bank of San Francisco: Areas of the U.S. with greater house-price appreciation last year tended to have lower delinquency rates on subprime mortgages... Economists there also found the reverse to be true. In an economic letter, "House Prices and Subprime Mortgage Delinquencies," San Francisco Federal Reserve economists noted a close link between house-price appreciation and the severity of recent subprime mortgage delinquencies, with metropolitan areas where home prices decelerated the most in 2006 showing the largest rise in subprime delinquency rates."
- Borrowers Must Understand What They're Signing (Gloucester Daily Times, June 13th): "In Gloucester, foreclosures on homes are soaring, with 64 foreclosure filings last year compared to 36 in 2005, an increase of nearly 78%. Petitions for foreclosure - the lender's first step in recapturing a property from a delinquent borrower - are also up sharply. Clearly, a weak economy and sagging home values are putting pressure on borrowers to sign on to loans they cannot afford."
- Subprime Mauls Bear's Hedge Fund (AOL Blogging Stocks, June 13th): "BusinessWeek reports that The Bear Stearns Company's (NYSE:BSC) $642 million High-Grade Structured Credit Strategies Enhanced Leverage Fund is not letting investors get their money out… The fund has lost 23% of its value this year. And another problem is that the fund has borrowed money -- three dollars for every dollar's worth of Collateralized Debt Obligation [CDO] -- to bet on an increase in the value of subprime mortgage-backed CDOs. (As I've posted, this is not necessarily a great bet.) So it lacks the funds to pay back those frustrated investors."
- Foreclosures Cast Cloud Over Slumping Housing Industry (MSN Money, June 13th): "RealtyTrac: In May, Florida posted 21,704 foreclosure filings… the second highest in the nation behind California and an increase of 52% from April and 144% from May 2006. Florida had one foreclosure filing for every 336 households. In the nation, there were 176,137 foreclosure filings -- default notices, auction sale notices and bank repossessions -- during May, up 19% from the previous month and up nearly 90% from May 2006... Nevada registered a May foreclosure rate of one foreclosure filing for every 166 households, the nation's highest for the fifth month in a row and nearly four times the national average."
- Lehman Brothers F2Q07 (Qtr End 5/31/07) Earnings Call Transcript (Seeking Alpha, June 12th): "Christopher O'Meara – CFO: In our securitized products business, which includes residential mortgages, revenues were down versus Q1 levels due to the ongoing challenges in the subprime sector. Our global origination volumes for the period were up a bit from Q1, primarily driven by higher Alt-A and non-U.S. activity while U.S. subprime origination volumes were flat for Q1. Our global securitization volumes were up from Q1, mostly driven by securitization activity on government agency collateral, which generates lower fee spreads… Overall… the credit quality of originations has improved. We believe the securitization business environment improved toward the back end of the quarter including for subprime and we have a strong non-U.S. residential securitization pipeline for the second half of the year."
- Housing Slump into '08 Likely, Study Finds (Builder Online, June 12th): "Harvard's Joint Center for Housing Studies report: The implosion of the subprime mortgage market, overbuilding and the inventory correction is likely to prolong the national housing slump…well into 2008… Even as prices ease somewhat, affordability remains an issue in many areas, including San Diego. As home prices doubled in San Diego County between 2000-2005, they far outpaced middle-wage incomes. With job expansion here concentrated in the low-paying service sector, the report foresaw no quick improvement in the region's low housing affordability… "Skilled workers will move to a part of the country where they can get a job and afford a place to live."
Global Impact and Alternatives To The Housing Slump
- AMB Europe Fund Attracts $350M from Institutions (Globe St., June 13th): "AMB Property Corp. has attracted $350 million from 20 institutions for its first investment fund focused on Europe. With 60% leverage, the fund has buying power of $1.1 billion. The locally based distribution REIT stoked the euro-denominated, open-end commingled fund with 4.7 million sf of distribution facilities (38 properties) valued at $585 million that it had previously developed or acquired. AMB's current development pipeline in Europe includes an additional three million sf that is expected to be contributed to the fund upon stabilization."
- Real Estate Attracts Record Foreign Investment (Jerusalem Post, June 13th): "Israeli real estate attracted a record $209 million in foreign investment in May as French and US Jews purchased second homes in the Holy Land… Bank of Israel: Foreign investment in real estate made up almost a third of direct investment last month, which totaled $633m… Foreign investment in Israeli real estate [rose] to $1.4 billion in 2006 from $1.2b. in 2005, and $800m. in 2004. During the first five months of the year, sales to overseas residents climbed by 22% in average monthly terms from last year… Property prices in Israel are [considered] low relative to those in Europe and the US."
- Real Estate Opportunities Remain in Central and Western China as the Industry Enjoyed a 36.3% 32.1% Rise Respectively Since 2005 (Business Wire, June 13th): "City dwellers represent less than 3% of the current total population… No other country presents such a tremendous and sustainable market demand in all aspects of real estate — land, commercial, industrial and residential. And China is one of the few countries with absolutely no restriction or policy barriers on investment by foreigners… In 1998, the scale of real estate development totaled 0.5 billion-sq.m, driving up [China’s national] economic growth rate at least by 1%. Since then, this rate has continued to expand, reaching 0.7 billion to 0.8 billion m2 each year… The real opportunities are in Central China which enjoyed a 36.3% rise and in Western China which witnessed a 32.1% rise."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Could Interest Rates Affect House Prices? (American Prospect, June 13th): "Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC: My guess is that [interest rates] can and will [affect house prices]. In a bit over a month, the 10-year treasury rate has gone from around 4.6% to more than 5.25%. This rise will be passed on almost one to one in higher mortgage rates. With many people already stretching to the limits to buy homes at their current bubble inflated prices, my guess is that this rise in rates, if it sticks, will be a huge hit on an already weak housing market."
- Is America Relying on Overseas Savers to Save its Skin? (Money Week, June 13th): "During the heyday of the property bubble, net equity extraction from residential property rose from 3% of disposable personal income in 2000 to nearly 9% in 2005. During that same period, however, the spending side of the US economy still needed to be funded on a cash-accrual basis – leaving America to run massive current account deficits in order to make up for the difference between asset-driven aggregate demand and production-driven income generation… In a post-housing bubble climate, the asset effects are now swinging the other way – suggesting that national income-based saving measures are likely to become much more meaningful in shaping US aggregate demand than has been the case in a long time."
- Employers in U.S. to Keep Hiring at Same Pace, Manpower Says (Bloomberg, June 12th): "Manpower Inc., the world's second-largest provider of temporary workers: Construction companies, suffering through a second year of a homebuilding slump, and manufacturers of non-durable goods predicted little change in payrolls next quarter. Demand for workers at commercial projects has helped offset some of the decline in residential real estate to prevent overall construction hiring from falling even more, economists said. Total construction payrolls have fallen by 54,000 since reaching a high of 7.7 million in September 2006."
Homebuilders And Housing Stocks
- New Home Development Repurchased By Lenders (Baltimore WJZ, June 14th): "Eighty-five acres of the new Greenway Farm housing developing was foreclosed upon and purchased by the lenders Wednesday for… $21 million; the debt was about $28 million. The lenders are a group of local investors who previously owned the property… K. Hovnanian Homes (NYSE:HOV) is the national builder constructing townhouses and condominiums in Greenway Farm's first phase. It emphasized this week that its 276 phase-one homes, whether they had been built or not, were not part of the auction… Acacia Capital Corp. bought the property to develop it for Hovnanian. After the housing market cooled down, the builder did not exercise its option to buy the last two phases, approved for 414 homes."
- Toll Brothers Has a Secret (The Street, June 13th): "Toll Brothers (TOL) CEO Robert Toll said [recently] that sales of the company's Brooklyn condos have been going "pretty strong," but… In recent weeks, Toll slashed prices by nearly 20% to sell a block of condo units that have less-than-desirable views in the first tower of Northside Piers…. What's more, the company appears to be having trouble selling the remaining 11 units [with] poor views at North 8, a project… on the market since October 2006… In recent months Toll management has said NYC—[those] developments specifically -- are the one bright spot in an ugly national housing market. "
- MO Lead Paint Lawsuit (Insurance News Net, June 13th): "The Supreme Court of Missouri today rejected a public nuisance lawsuit filed by the City of St. Louis against former manufacturers [Millennium Holdings, LLC (OTC:MNHG), NL Industries, Inc. (NYSE:NL) and The Sherwin-Williams Company (NYSE:SHW)] of lead pigment or paint. The Court's decision means that the public nuisance theory has now been rejected in the only two states [Missouri and Illinois] in which such cases have been fully adjudicated… The Court held that it was not sufficient for the City to show that the companies marketed and sold lead pigment or paint in the past."
- Homebuilder Sector Weakens (Orlando Sentinel, June 13th): "Homebuilders saw particular weakness [this week] as investors worried that Americans could be dissuaded from buying homes if mortgage rates rise. Toll Brothers Inc., Centex Corp., KB Home, Pulte Homes Inc. and Lennar Corp. each fell more than 2%, while Hovnanian Enterprises Inc. dropped more than 4%... Bankrate.com: The average 30-year fixed-rate mortgage was at 6.33% Tuesday. Investors are awaiting retail-sales data today, the PPI on Thursday and the Consumer Price Index on Friday… closely watched inflation gauges."
Commercial Real Estate and REITs
- Vanguard REIT Hard to Beat (Courier Post Online, June 13th): "Matt Krantz, financial reporter, USA Today: Due to favorable tax laws, REITs generally pay large dividends, and that appeals to investors looking for income and stability. And because they generally do not own single-family homes, REITs usually do not move in lockstep with the rest of the housing market or the stock market. If you just want to own standard U.S. REITs, the Vanguard REIT ETF is hard to beat. It has a low 0.12% expense ratio, which is well below the 0.35% charged by the iShares Cohen & Steers Realty Majors ETF."
- Chart of the Day: Boston Properties (The Street, June 13th): "Recent interest rate concerns have added to the selling pressure on REITs. Higher interest rates translate directly into higher operating expenses for these companies. The cost associated with financing becomes more expensive… Liquidity is leaving the sector… Boston Properties (NYSE:BXP) has been deteriorating over the past few months after a strong multiyear rally. This recent weakness is concerning due to the long-term trend-line break… A negative change is underway… At a new reactionary low… this negative technical configuration [is] indicative of further weakness. Simon Property Group (NYSE:SPG)… is under pressure [as well] flirting with its long-term trend line and is at risk of breaking to the downside. We would avoid this issue and use strength to sell."
- Mack-Cali Realty Corporation Declares Quarterly Cash Dividends (Business Wire, June 13th): " Mack-Cali Realty Corporation (NYSE:CLI) today announced that its Board of Directors has declared a cash dividend of $0.64/share (indicating an annual rate of $2.56/share) for the period April 1, 2007 through June 30, 2007. . The Board also declared a cash dividend on the Company’s 8% Series C cumulative redeemable perpetual preferred stock ($25 liquidation value per depositary share, each representing 1/100th of a share of preferred stock) equal to $0.50/depositary share for the period April 15, 2007 through July 14, 2007."
- Joint Venture Raises Bid for Wells REIT (Forbes, June 12th): "A joint venture of Lexington Realty Trust and Winthrop Realty Trust on Tuesday raised the price of its tender offer and the number of shares of Wells Real Estate Investment Trust Inc. it wants to acquire. Lex-Win Acquisition LLC raised its offer price to $9.30/share from $9 and increased the number of shares being sought to 45 million from 25 million, which represents 9.3% of Wells' outstanding shares, according to a SEC filing."
- Forest City Posts Q1 2007 Decline (New Mexico Business Journal, June 11th): "Forest City Enterprises Inc. (FCEA) reported a net loss of $17.2 million, or $0.17/share, for Q1'07 [vs.] net earnings of $53.3m, or $0.52/share, in Q1'06. Company officials [attributed the] difference in net quarterly earnings [to a] gain on the disposition of a hotel property in 2006 with no similar transaction in 2007… Forest City is a $9.2 billion national [commercial and residential] real estate company… Charles A. Ratner, CEO: "Our strategy of emphasizing diverse products in strong urban markets nationwide has provided us with the ability to produce 27 years of consecutive EBDT growth, and we expect 2007 to be another record year."
- Don't Be Fooled by $1 Salaries (Yahoo! Finance, June 9th): "Of the 386 Standard & Poor's 500 CEOs whose companies reported under the SEC's expanded disclosure requirements this year, salary accounted for only 9.5% of total pay. For the 11 CEOs in the group who earned more than $30 million, salary was just 2.7% of total pay… Terry Considine, CEO of Apartment Investment & Management (NYSE:AIV) reported a salary of zero, although footnotes in the company's proxy statement show that he received stock options valued at $600,000 as his base salary. Considine's total pay, as calculated by the AP, was $4.8 million in 2006."
Web Site of the Day
A little levity in these troubled times. Flipper Nation is a comedy/parody of all those TV shows about entrepreneurs buying, fixing up and selling homes at huge profits. For those that haven't caught on yet, the party's over and Flipper Nation shows us how it ends.
It's an ongoing story about two would-be real estate flippers who just don't seem to have the hang of it. From trusting shifty mortgage brokers to way underestimating renovating costs, this one's for anyone who needs to laugh about the housing situation. By the looks of their advertisers though, maybe it's not all just a joke.
Tracking the Housing Market and Homebuilder Stocks |
If you have a blog or website of your own, you can track developments in the sector and provide great content for your readers with our Housing Market widget (left).
It's simple to add -- just select "Housing Market" from the drop-down menu here.