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"
"I have major REIT clients, and investment banks are changing the deals on them as we speak because their costs of capital have gone up." - Gary Mozer, principal with commercial-real-estate finance firm George Smith Partners. In recent weeks, commercial securities investors have been either avoiding CMBS's or demanding higher yields for higher risk. Lenders have been raising rates accordingly.(Wall St. Journal, Aug. 1st)
Real Estate Sales and House Prices
- Valley Real Estate Continues To Seek Balance (Idaho Mountain Express, Aug. 1st): "Idaho: "Sawtooth Board of Realtors: While the total number of sales in this "resort area" [comprising Ketchum, Sun Valley, Elkhorn, Warm Springs and north of Ketchum] are down by approximately 30%, compared to the same time period last year, the median price has remained around $2 million… The volume of sales plus homes reported to be under contract is down 4% compared to the same period last year, although "high-end" homes over $3 million continue to sell… Home sales in Hailey have decreased as well, with volume down 26% YTD… The median price [dropped] from $519,900 in 2006 to $427,000.”
- Maine Home Sales Continue To Cool In June (Boston Herald, July 29th): "Maine Association of Realtors: Home sales dropped 17% in June, usually a busy sales period… All told, 265 fewer single-family homes were sold compared to the same period a year ago, but the median sale price edged up slightly, reaching $199,950, up a half a percent… Sales of new homes dropped 6.6% last month and sales of existing homes dropped dropping 3.8%, according to the U.S. Commerce Department… For H1'07, the number of homes sold in Maine dropped 12.6%, and home sales were down in 15 of Maine's 16 counties."
Real Estate Investing and Sentiment
- Condominium Auctions Emerging As Another Means Of Sale (KABC TV, July 31st): "In this sluggish real estate market, some property owners are looking for new ways to sell their homes fast. Eyewitness News Consumer Specialist Ric Romero reports some are turning to property auctions. But the auction could be just another sales gimmick… "Most people, at least in Southern California, associate the auction process with distressed property, REOs and foreclosures," says auctioneer Kirk Lewis. "However, the method of auction is very commonly used across the country."
Mortgates and Real Estate Lending
- American Home Mortgage: Continued Carnage from Mortgage Security Writedowns (Markham Lee in Seeking Alpha, July 31st): "People may try to paint this as part of the subprime mortgage mess. But… AHM only dealt in prime and near prime mortgages… A lot of prime loans were originated to people who were taking on more debt than they could comfortably service. We have a mortgage problem in the US, not a subprime problem… The AHM situation reveals the risks in being a veritable pure play mortgage lender, without having retail banking and other financial services business that can provide a cheap source of cash/liquidity. I would advise investors to take a close look at any other pure play lenders in their portfolios, in order to assess if those companies face the same liquidity risks that AHM is dealing with now.”
- IndyMac Marches To Its Own Beat (Forbes, July 31st): "IndyMac Bancorp (NDE), the second-largest mortgage lender in the US has remained afloat so far despite reporting a 60% decrease in Q2 earnings on Tuesday. Part of the reason at least may be the fact that IndyMac is pleasing investors, agreeing to maintain its $0.50/share dividend for Q3’07, despite the challenges the company faces. The dividend, payable Sept. 6, is the same as the payout in Q2 and 4% above last year's level… Michael Perry, Indymac’s chairman. “Indymac has both excess capital and substantial liquidity (over $3 billion) in support of this goal.”
- Fitch Rates $516.2MM Morgan Stanley Mortgage Loan Trust Mtge P-T Cfts, Series 2007-12 (Business Wire, July 31st): "Fitch believes that the amount of credit enhancement [for Morgan Stanley's (NYSE:MS) group of loans] will be sufficient to cover credit losses, including limited bankruptcy, fraud and special hazard losses. In addition, the ratings reflect the quality of the mortgage collateral, the strength of the legal and financial structures, the master servicing capabilities of Wells Fargo Bank, National Association (rated 'RMS1' by Fitch)… The mortgage loans were primarily originated or acquired by Morgan Stanley Credit Corporation, GreenPoint Mortgage Funding, Inc., and IndyMac Bank, FSB."
- Credit Crunch Takes Its Toll (Wall St. Journal, Aug. 1st): "Real Estate Developer Hines Interests raised $828 million in equity [for its U.S. Office Value Added Fund II] that will allow for $2.7 billion of investment. Dave Congdon, Hines Senior VP: "We are welcoming the change in the debt markets, which will remove some of the potential buying competition." SNL Financial: A slowdown in REIT buyouts, which hit a record of $64.5 billion in 2006, [is likely]. The biggest pending transaction is Tishman Speyer Properties and Lehman Brothers Holdings, Inc.'s $15.2 billion [$60.75/share] buyout of apartment REIT Archstone-Smith Trust… The REIT's stock dropped below $59 on fears that Lehman would have trouble offloading the debt.”
- Are Hedge Fund Collapse Fears Overblown? (Australian Age, Aug. 1st): "Hedge funds actually turned in a strong performance in Q2, despite surging defaults on loans by subprime borrowers, with the average fund seeing gains of 4.77%, according to Hedge Fund Research. Some funds, like New York-based Paulson & Co, are profiting from the subprime debacle. [Up 129% shorting sub-prime in the first half of the year- Financial Times]."
- Bear Hedge Funds File for Bankruptcy (Yahoo! Finance, Aug. 1st): "The Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd. and the Bear Stearns High-Grad Structured Credit Strategies Enhanced Leverage Master Fund Ltd. (NYSE:BSC)-- which invested in securities backed by risky mortgages -- filed for bankruptcy late Tuesday… In July, Bear said the assets in the Enhanced fund were essentially worthless, while the other was worth 9% of its value at the end of April… Bear is the nation's fifth-largest investment bank and specializes in mortgage-backed securities."
- Bear Stearns Halts Redemptions on Third Hedge Fund (Bloomberg, July 31st): "Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back… Bear spokesman: The Bear Stearns Asset-Backed Securities Fund had about $900 million invested in asset-backed securities, including mortgage bonds. The fund was overwhelmed by redemption requests. The fund's stumble… illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5% of its assets in securities linked to loans to subprime borrowers. The two funds that collapsed invested almost fully in subprime bonds.”
- American Home Can't Fund Mortgages, Shares Plummet (Bloomberg, July 31st): "American Home Mortgage Investment Corp. (AHM) shares plunged 90% after the lender said it doesn't have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure. AHM said… Investment banks cut off credit lines, leaving [it] without money yesterday for $300 million of mortgages it had already promised. AHM anticipates that $450m-$500m of loans probably won't get funded today, and the lender may have to sell off its assets.”
- Subprime Write-Down Cuts CNA Profit (Chicago Tribune, July 31st): "Shares of CNA Financial Corp. (NYSE:CNA) on Monday fell to their lowest level since March after [it] wrote down $20 million in securities linked to subprime mortgages. The write-down contributed to $91m in Q2 investment losses and a 9% decline in net income, to $217m, or $0.80/share, from $239m, or $0.86/share, a year earlier... CEO Stephen Lilienthal: CNA held $834m of securities linked to subprime mortgages at the end of June, less than 2% of invested assets… 94% are rated A or better, and none are among those recently downgraded by rating companies.”
- Possible Local Foreclosures Jump (Times-Leader, Aug. 1st) Philadelphia: "RealtyTrac: 828 Luzerne County homes were in some stage of the foreclosure process during H1’07, compared to 314 in H1’06. The spike continued a three year trend – only 141 mortgage holders were in similar trouble during H1’05. [However, that number… is only 4% higher than in H2’06… Nationwide foreclosures increased 32%... The current rate of foreclosure filings is only 1 per 177 households in Luzerne County. That’s better than the national average of 1 per 134 households but worse than RealtyTrac’s average for Pennsylvania of 1 per 335 households… RealtyTrac monitors default notices, auction sale notices and bank repossessions."
- Foreclosures Soar in Arizona (AZ Central, Aug. 1st): "RealtyTrac: Foreclosure-related filings in Arizona increased by 128% in H1'07, over H1'06. In Maricopa County, for example, there were 19,394 properties in some stage of foreclosure in H1'07, up from 7,671 during H1'06. Nationally, the increase in filings was 55%, with other Sun Belt states like California and Florida seeing the biggest jumps. In total, RealtyTrac has estimated that one of every 92 households in Arizona is in some stage of foreclosure… The situation is likely affecting both speculators and average homeowners."
- Possible Foreclosures Up 281% In Riverside County (LA Times, July 31st): "RealtyTrac: Possible household foreclosures in Riverside County are up 281% in Q2 compared with Q2’06. RealtyTrac reported 12,759 filings of mortgage default notices, auction sale notices and bank repossessions during Q2. RealtyTrac spokesman Daren Blomquist: "There's concern there, but the increases may not be as bad as they sound because we were in a real low spot as far as foreclosure in 2005.” Los Angeles County led the state with 24,054 foreclosure-related filings."
- Sussex County Sheriff Busy With Cape Region Foreclosures (Cape Gazette, July 30th) Delaware: "Sussex County is experiencing the highest number of foreclosures in years... The county sheriff’s office has been busy conducting the foreclosures throughout the county and Sheriff Eric Swanson says he plans to hire additional staff to help with the work. He is also considering holding sales twice a month, instead of today’s practice of holding them once a month. So far this year, there have been 511 reported foreclosures in Sussex County, most of them in June, reported the Office of the State Banking Commissioner. That’s 30% more than the previous high of 396 foreclosures reported in 2003.”
- Foreclosures Skyrocket, Locally And Nationally (WATE6 TV, July 30th): "Tennessee ranks 12th in the nation for home foreclosures. There's one filing for every 123 households and local numbers show the same trend. Realtors say the number of foreclosures in Knox County alone has sky rocketed in the past year. And many say it will get worse before it gets better. Local realtor Tammie Hill: In the Knox County area, there are currently 107 homes listed for sale by foreclosure. [And] it's happening in every price range. "It's not just your $30,000 $40,000 and $50,000 homes anymore. There are homes as high as $839,000 foreclosing."
- Alabama Foreclosures Up 34%; Ranks State 35th (Birmingham Business Journal, July 30th): "RealtyTrac [reports that] 4,113 properties were in some form of foreclosure in the state during H1’07 - up 223% from H1’06 and up 34% from the previous six-month period. That's one filing for every 506 households, ranking the state 38th for foreclosures in the country.”
Global Impact and Alternatives To The Housing Slump
- Sub-Prime Spreads To France As Oddo Shuts Funds (Financial News, Aug. 1st): "French asset manager Oddo & Cie has blamed the "sudden and unprecedented" sub-prime crisis for the closure of three of its funds, in the latest indication that the woes of the US mortgage market are spreading to Europe. The Oddo Cash Titrisation, Oddo Cash Arbitrages et Oddo Court Terme Dynamique funds were suspended on 26 July. They held a combined €1bn ($1.37bn) in assets, according to Bloomberg… The firm hopes to realize the assets least affected by the crisis as soon as possible, pending regulatory approval, and to reimburse investors in September. However, it admitted that it could take several months to realize those assets most severely affected."
- Macquarie's Fortress Funds Fall Amid Subprime Rout (Bloomberg, August 1st): "Macquarie Bank Ltd., Australia's largest securities firm, said investors in two of its high-yield funds may lose 25% of their money as a rout in the U.S. sub-prime market spreads. Macquarie Fortress Investments Ltd., with $873 million of funds, [said it] was forced to sell assets to avoid breaching its loan agreements. The company's notes slumped while shares in its parent headed for their biggest drop in 5 1/2 years… Funds are being caught in a downward spiral because banks are forcing borrowers to sell assets as the value of collateral declines… Sydney-based Absolute Capital Group Ltd. and Basis Capital Fund Management Ltd. are trying to avoid making sales at distressed prices.”
- International Monetary Fund Chief Warns on Globalization Risks (CNBC, July 31st): "The head of the International Monetary Fund warned Tuesday that global investment and growth prospects were at risk from a dramatic rise in private equity buy-outs and threats posed by financial globalization. Rodrigo Rato said the trouble in the U.S. subprime housing market was an example of such risks. Rato: "There is ground for concern in the recent dramatic growth in large private equity buy-outs." Such deals financed by huge debt could trigger risk aversion when they turn sour, curtailing broad market access… worldwide. [However,] "The scale of any potential subprime losses in our opinion looks to be much lower than earlier savings and loan crises."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Slump Hammers Homebuilders (Florida Today, Aug. 1st): "U.S. Bureau of Labor Statistics: The number of Brevard County jobs in construction, mining and natural resources fell to 17,100 in June, down 1,500 jobs from 18,600 jobs in June 2006. However, local homebuilding officials estimate the local job losses in construction may be much steeper, [but have] gone relatively unnoticed… because many laid-off construction workers have gone back to mostly lower-paying jobs they held before the housing market boom, or they have moved to jobs in other states where the housing market is more active [and] because many of the jobs were filled by undocumented immigrants."
- Case Shiller Housing Composite: Worst Since 1991 (Barry Ritholtz in Seeking Alpha, July 31st): "Annual returns of the S&P/Case Shiller Composite now show… an annual decline rate of 3.4%. These place the national market for real estate and single family homes at levels not seen since the summer of 1991 (the 20-City annual decline rate is 2.8%). Robert J. Shiller, Chief Economist at MacroMarkets: "At a national level, declines in annual home price returns are showing no signs of a slowdown or turnaround. Y/y price returns are continuing to either move deeper into negative territory or experience persistent diminishing returns. If there is any positive news in these numbers, it may be that in both May and April eight of the 20 markets showed positive monthly growth rates. This compares to only one or two of the 20 in the late winter and early spring."
Homebuilders And Housing Stocks
- Beazer Calls Liquidity Rumors 'Scurrilous' (The Street, Aug. 1st): "Beazer Homes (NYSE:BZH) plunged Wednesday amid market buzz that the homebuilder would be filing for bankruptcy -- a rumor the company categorized as "scurrilous and unfounded." The stock had tumbled as much as 42% midmorning but recovered ground and recently was down $2.44, or 17%, to $11.55… Last week, Beazer reported a FQ3 loss of $123 million, or $3.20/share, compared with a profit of $102.6m, or $2.60/share, a year earlier… Beazer is under [a] formal SEC investigation… about alleged violations of federal securities law [and] is the subject of various lawsuits related to its mortgage-origination business."
- The St. Joe Company Reports Second Quarter 2007 Financial Results (Business Wire, July 31st): "The St. Joe Company (NYSE:JOE) today announced that Net Income for Q2'07 was $25.3 million, or $0.34/share, compared with $19.0m, or $0.25/share, for Q2'06… Net Income for H1'07 was $45.0m, or $0.60/share, compared to $22.7m, or $0.30/share, for H1'06… In July, JOE [created] the RiverTown Builders Guild, a group of local, regional and national homebuilders for a JOE [development near] Jacksonville, Florida. To date, five builders have been announced as members of the Guild: American Homebuilders, Beazer Homes, Cornerstone Homes, David Weekley Homes, and ISSA Homes. JOE also announced a strategic alliance with Haven Custom Homes, one of the nation’s leading providers of precision-built modular homes."
- Don't Expect Home Depot To Restructure Its Buyback Offer (FP Trading Desk in Seeking Alpha, July 31st): "Shares of Home Depot Inc. (NYSE:HD) had been free-falling for the past couple of weeks until Monday, as the market reacts to general weakness, subprime concerns and the surprise restructuring of Expedia Inc.’s (NASDAQ:EXPE) offer to purchase its common stock because of credit market conditions. Concerns about where the remaining 85% of Home Depot shares would trade after its own tender could also be to blame, says Deborah Weinswig. The Citigroup analyst thinks this negative reaction is irrational… Citigroup’s Risk Arbitrage Team… says even if the shares fall 10%, a restructuring is highly unlikely since “it could discredit the company and portray management as having little confidence in the stock price.” Home Depot’s tender offer expires on August 16."
- Mt. Laurel Homebuilder Going To The 'Extreme' (Philly Burbs, July 31st): "J.S. Hovnanian & Sons (NYSE:HOV) and its building partners ha[ve] 106 hours… to construct a dream house here for a deserving Camden family as part of ABC-TV's hugely popular “Extreme Makeover: Home Edition.” Construction starts Tuesday at noon. The fully furnished home must be ready Sunday,” [when] the show reveal[s] the new home to Victor Marrero and his five sons as they return from an all-expense-paid trip to Spain, courtesy of ABC and Disney. Hovnanian will donate its workforce and construction expertise to lead the project, which must be completed in just six days."
- NVR Announces $300 Million Buyback (Forbes, July 31st): "Homebuilder and mortgage lender NVR Inc. (NYSE:NVR) said Tuesday its board has authorized the repurchase of $300 million of its outstanding common stock. The purchases will occur from time to time in the open market or in privately negotiated transactions. The buyback is a continuation of the company's stock repurchase program that began in 1994. NVR currently has about 5.4 million shares of common stock outstanding… trading on the American Stock Exchange."
- Centex Posts Loss (Fauquier Times Democrat, July 31st) Dallas, Texas: "Centex (CTX) is hoping to build Freedom Place, a development of about 350 homes near the intersection of U.S. 17 and Route 28 in Bealeton, and Arrington Knolls, a 298-home development on Arrington Farms. The last-named package includes a tentative $15.2 million proffer to the Town of Warrenton. Centex pulled out of a similar deal last summer when the housing market began its slide. At that time, the nation's fourth-largest homebuilder offered the Town of Warrenton $15.2 million, with another $2.8 million earmarked for the county."
- M/I posts $43M loss in 2Q (Columbus Business First, July 31st): "M/I Homes Inc. lost $42.62 million in Q2 [or] $3.05/share, was a reversal from an $18.28m profit, or $1.29/share, in Q2'06… M/I (NYSE:MHO) was hurt by… Land-related impairment and abandonment charges totaling $64.2m. Joint venture investment write-offs of $2.7m. $5.2m to write down the value of its 2005 acquisition of Shamrock Homes. M/I's Q2 sales also fell 10% in Q2 [with] homes completed and delivered… dropping 24% to 755 in Q2, from 987 in Q2'06. The value of homes awaiting construction totaled $554 million as of June 30, compared with a backlog worth $1.03 billion a year ago."
- Homebuilder Sees 'Subdued' Market (BBC News, July 31st): "Taylor Wimpey… said though the market was "subdued", conditions remained stable. It added that short-term conditions in the struggling US housing market "remained difficult to predict", but it was confident for the longer haul. The firm saw pre-tax profits of £259m in H1'07. Shares climbed 5% as it revealed it had found an additional £30m in cost savings from the [George Wimpey-Taylor Woodrow] merger and announced a £750m share buyback… Plunging US land values in Florida and California had forced Taylor Wimpey to write down £60.9m from its books, on top of a £25m provision announced in May."
Commercial Real Estate and REITs
- Overwhelming Majority OKs $6.5B Crescent Merger (Globe St., Aug. 1st): "Crescent Real Estate Equities Co. shareholders this morning overwhelmingly approved the public company's sale to Morgan Stanley Real Estate (MS). If past M&A votes are any indicator, the $6.5-billion pass could be sealed as early as Friday. Of those who voted today at the REIT's crown jewel, the Crescent at 400 Crescent Court Uptown, 98.7%--representing 73.9% of the outstanding shares--cast ballots in favor of the deal… Four shareholders have lawsuits pending in Tarrant County district courts contesting the sale. But even that failed to undermine the outcome of a vote."
- Vornado Second-Quarter FFO Rises (Reuters UK, July 31st): "Vornado Realty Trust (NYSE:VNO), which develops and builds office and retail properties, on Tuesday reported better-than-expected quarterly funds from operations… or FFO, a measure of REIT performance that removes the effects of depreciation, increased 22% to $281.7 million, or $1.72/share, from $230.4m, or $1.49, a year earlier. Analysts on average had expected FFO of $1.64/share… Revenue rose nearly 20% to $793.5m. Vornado, which owns primarily retail and office properties in New York, Chicago and the Washington area, also acts as a hedge fund that invests in several other companies… [including] 13.5% of student and military housing owner GMH Communities Trust (GCT)."
- Reits Don't Compete Well With Treasuries (USA Today, Aug. 1st): "Why [do REIT] values go down when bonds go down? REITs are holding companies that own baskets of commercial real estate. REITs may invest in and own apartment buildings, office buildings, strip malls or any other business-related property… REITs ran into trouble this year as rising share prices effectively reduced [previously high] dividend yields. Because dividend yield is measured by dividing the dividend payment by the stock price, the higher the stock price, the lower the yield. Meanwhile, rising yields on safer U.S. Treasury securities gave REITs competition among investors looking for income… When Treasury yields rise, as in Q2, that's usually bad news for both corporate bonds and REITs, which carry more risk."
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