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"
"Do we have a responsibility to prop somebody like that up?"- Sen. John Astle, D-Anne Arundel, on a case of a man who borrowed money to buy 4-5 houses he couldn't afford, and then defaulted on them all. Lawmakers wanting to help distressed homeowners are worried they'll end up helping speculators. (Forbes, Aug. 29th)
Real Estate Investing and Sentiment
The Race to Sell the Most Expensive Home (Yahoo! Finance, Aug. 31st): "The highest residential sale to date: Investor Ron Baron's $103 million purchase earlier this year of a 40-acre compound in East Hampton, N.Y… There are five contenders [to top that sale:] The former Hearst compound in Beverly Hills that's listed for $165m; the Aspen home of Saudi Prince Bandar bin Sultan ($135m); and an estate overlooking Lake Tahoe with a staircase modeled after the one aboard the Titanic ($100m). All have come on the market since summer 2006… [Then there's] a Los Angeles chateau for $125m… Donald Trump's Palm Beach estate rounds out the list at $125m."
Former HUD Secretary Henry Cisneros Challenges Public, Private Sectors to Collaborate and Invest in Rebuilding Homes in New Orleans (Cityview, Aug. 30th): "CityView Executive Chairman and former HUD Secretary Henry Cisneros has issued an innovative challenge to private companies and public entities to provide a solution which will bring desperately needed housing to New Orleans two years after Hurricane Katrina's devastation. Cisneros calls for more private capital investments and [less] dependence on government funding. The uniqueness of this model also relies on unifying local stakeholders, including elected officials, financial institutions, employers, non-profit organizations, builders, developers and neighborhoods to create homes more rapidly than the present building cycle… Cisneros points to the success of a recent collaboration in the area to rehabilitate 320 severely wind-damaged homes known as the Gates on Manhattan."
Mortgates and Real Estate Lending
Thornburg Mortgage Raises $473 Million in Stock Sale, Shares Climb (Roy Mehta in Seeking Alpha, Aug. 30th): "Thornburg Mortgage Inc. (TMA) announced Thursday it had raised about $473 million by selling convertible preferred stock. The funds will allow the company to resume making loans and buying mortgaged-backed securities. Earlier this month, Thornburg sold about a third of its mortgage assets and halted new loan applications as a result of margin calls. The preferred shares will pay a dividend of at least 10% and are convertible at $11.50/share… AG Edwards analyst Greg Mason: "It appears the bleeding in mortgage pricing has stopped for now…" There is the real potential for earnings dilution as a result of Thornburg increasing its share count by 35%."
Weekly Application Survey (Mortgage Bankers Association, Aug. 29th): "The MBA Weekly Mortgage Applications Survey for the week ending August 24, 2007, the Market Composite Index… decreased 4.0%... from one week earlier. The Refinance Index decreased 4.2% from one week earlier… The Purchase Index decreased 4.0% from one week earlier… The Conventional Index decreased 4.5% from the previous week, and the Government Index increased 0.1% from the previous week… The refinance share of mortgage activity increased to 40.4% of total applications from 39.9% the previous week. The adjustable-rate mortgage share of activity decreased to 15.0% from 18.6% of total applications from the previous week."
Freddie Mac Earnings Hit by Mortgage Losses (Seeking Alpha, Aug. 30th): "Government-sponsored mortgage lender Freddie Mac (FRE), Thursday posted a 45% drop in Q2 net income, taking a $320 million charges due to "credit deterioration on 2006 and 2007 loan originations". Freddie and Fannie Mae (FNM) don't buy many subprime loans… but they do buy portfolios secured by 'top-rated' subprime loans, which should be least vulnerable to default losses. Many feel the current market turmoil is a positive for the government-backed companies, because investors are more likely to bid up the securities they package out of fear of investing in other, less robust securities. FRE and FNM own or guarantee about 40% of the $10.9 trillion residential home loan market."
Subprime Mortgage Lenders Don't Need Help From Fannie and Freddie – Bernanke (Seeking Alpha, Aug. 30th): "In a letter to Sen. Charles Schumer released Wednesday, Fed Chairman Ben Bernanke said that "the Federal Reserve has... taken steps to increase liquidity in the markets.... [but that] it was unnecessary to relax portfolio limits on Fannie Mae and Freddie Mac. Government regulators for the two government-sponsored enterprises [GSE] rejected earlier requests to allow them to buy more home loans to ease the credit crisis: "The GSEs should be encouraged to provide products for subprime borrowers to the extent permitted by their charters…" Currently, the GSE portfolios include substantial holdings of GSE-guaranteed mortgage products, which are easily placed in the private secondary market even under current conditions."
Rising Defaults on Credit Card Bills (Barry Ritholtz in Seeking Alpha, Aug. 30th): "Financial Times: "US consumers are defaulting on credit card payments at a significantly higher rate than last year…" I suspect that there is a big swath of folks who can no longer refi their homes . . . So after their rates reset 300 bips or so, they take cash advances to pay the mortgage -- then default on the credit card debt, rather than the mortgage. Administrative Office of the US Courts: "Quarterly non-business bankruptcy filings have been rising since Q1'06…" This is worth watching, as it can reveals the degree of actual financial stress the consumer is under."
Countrywide Feels the Heat (BusinessWeek, Aug 29th): "Sources [say] embattled Countrywide CEO Angelo Mozilo will soon layoff about 10% of Countrywide's 60,000 employees in the face of a 20% decline in the mortgage business [and] that Countrywide is looking for further financing and that the next investor will likely come from private equity… Mozilo: "Our subprime company, which was Full Spectrum, offered [subprime loans]. But if a prime loan came through that subprime arena, that loan had to close at a prime price, not at a subprime price. And the reason why the subprime prices were higher is because they were about four times more expensive to originate than a prime loan. It was more difficult to get documentation. We had a lot of counseling involved."
Mortgage Ads Under the Microscope (Originator Times, Aug. 27th): "NY Times: Regulators are monitoring television ads as competition among the remaining mortgage lenders heats up, as mortgage applications diminish. Federal officials and various states are keeping a closer eye on ads promising low payments as the Federal Reserve tightens credit while borrowers fall behind in their payments…. Internet advertising alone by mortgage companies reached $378 million in H107, The Times said, and has topped $3 billion for all media since 2000."
22 of the Country’s Largest Mortgage Lenders Still at Risk (Originator Times, Aug. 27th): "SMR Research Corp. study: At least 22 of the country’s largest mortgage lenders… are still engaged in risky underwriting practices… Reviewing six measures of credit risk for each of 163 of the largest U.S. mortgage lenders. It scored each lender… against a national average score of 1,000. Nearly all lenders with risk scores above 1,750 are already bankrupt, closed [or] sold… Eight of the nation’s 10 largest mortgage lenders [apparently] maintained fairly high credit standards from 2004-2006… Among the top 10 lenders, Bank of America (NYSE:BAC) had the lowest risk score (465)... HSBC Bank (HSB) had the highest (1,444)… Countrywide Financial (CFC) had the second highest score among industry giants, at 1,016, indicating slightly above-average risk."
Foreclosure Investors Will Stop Showing Up At The Courthouse Steps And The Banks Will Be Left Holding The Bag (Real Estate Focus, Aug. 30th): "With uncertainty and instability… [foreclosure] investors will hold back and wait for the banks to take back property. They will then go to the lending institutions to review and purchase inventory. Up until recently there has been pressure for these investors to move… earlier in the cycle in order to obtain deals-- Courthouse steps pushed back to filings and pre-foreclosure—pushed back into delinquencies… in an effort to fend off competition and capture the adequate discount to fair market value investors required in order to make money... Falling prices and a slower sales pace makes the discount to fair market value an unknown quantity. Prudent investors will therefore step away… until this important number can be re-established with some degree of confidence… Bank REO (Real Estate Owned) departments will be growing, creating a drag on earnings."
Editorial: Effort To Stop Waco Foreclosures (Waco Tribune, Aug. 30th): "Homeowners in McLennan County have not escaped the foreclosure phenomenon. Since January, 644 properties have been listed for foreclosure, which represents an 18% increase over the same period last year. NeighborWorks Waco urges homeowners to call its hotline [to] build a plan to avoid foreclosure… Applicants must live in the city of Waco and their payment delinquency must have been caused by a temporary setback such as an illness or job loss."
Mass. Foreclosures Way Up In July (Boston Herald, Aug. 30th) Massachusetts: "Warren Group: Foreclosure petitions filed by lenders in court shot up 66.5% in July compared to July 2006, the 18th straight monthly increase… Meanwhile, the number of auctions scheduled to sell off properties seized by lenders - the final step in the foreclosure process - also skyrocketed by more than 130% in July, to 1,128, compared to 490 in July, 2006… The Bay State’s real estate market [is] already mired in a slump… There have been 8,711 foreclosure auctions scheduled so far this year, a significant chunk in a market that has seen 27,861 single-family homes change hands so far this year."
Foreclosures Skyrocket; State Officials Take Action (Maryland Gazette, Aug. 31st): "RealtyTrac: In July 2006, Maryland ranked 41st in the nation in foreclosure filings per capita with one for every 6,532 households, or 328... Last month, the state moved up to 16th place with 2,214 filings, or one per 1,027 households. Over the first seven months of the year, foreclosures in Maryland jumped [345%] to more than 9,000, compared with about 2,500 during the same period in 2006. Meanwhile, foreclosures across the nation grew from almost 700,000 to 1.1 million during the same period. Foreclosures increased much more slowly from 2005 to 2006."
Cape Ann Bucks Foreclosure Trend (Gloucester Daily Times, Aug. 28th): "Warren Group: [Statewide], Massachusetts [foreclosure] petitions filed in [H1'07] jumped 66.5% from H1'06 to H1'07, from 7,777 last year to 12,945 this year... Essex County saw an increase of 74.5%, from 933 last year to 1,628 this year. [In] Cape Ann, Essex had one more petition this year over last year, and Gloucester had three more. Manchester held steady at seven. [Only] Rockport jumped from 21 petitions last year to 54 this year. Warren Group: Between 1999-2005, housing prices effectively doubled in Massachusetts, [but with] no corresponding increase in income here, people had to borrow more and more… Local lenders said Cape Ann banks typically don't make subprime loans."
Global Impact and Alternatives to the Housing Slump
Indian Real Estate To Shrug Off Global Credit Crunch (Reuters India, Aug. 30th): "Aashish Kalra, co-founder of Trikona Capital which last year raised $500 million via London-listed Trinity Capital: An estimated $10 billion was raised globally for Indian real estate in 2006, with giants like JP Morgan, Citigroup, ING and Credit Suisse flocking to India with funds since rules on inward investment in construction were eased in 2005. But formidable legal, structural, political and cultural barriers remain in place. Consequently much of this money still remains uninvested… After years of steep price rises, analysts believe a property correction of 10-40% is imminent in major Indian cities, while… liquidity problems from the U.S. subprime mortgage crisis may limit future overseas commitments."
HDFC Closes Intl Real Estate Fund At $800mn (India Business Standard, Aug. 30th): "Housing Development Finance Corporation (HDFC) today announced the closing of its first sponsored international real estate fund, HIREF International LLC, at $800 million. The nine-year, close-ended fund [for] foreign investors, was subscribed to by 28 investors. Renu Sud Karnad, chairperson of HDFC Property Ventures and executive director of HDFC: "The fund will target equity returns of 20-25%. The fund will have a conservative approach with no regional or sector bias, and would invest in residential, commercial, hospitality, education and healthcare sectors and at the developers’ entity level." With this international real estate fund, HDFC will be the largest player in the real estate private equity space in India."
U.K. July Mortgage Approvals Higher Than Expected (Bloomberg, Aug. 30th): "U.K. Central Bank: Lenders granted 115,000 loans for house purchase last month, the same as in June. The June figure, the most since February, was revised up by 1,000. Economists had forecast a drop in approvals to 110,000… Today's report suggests interest rates at a six-year high have yet to deter British consumers from adding to a record 1.35 trillion pounds ($2.7 trillion) of debt. House prices are showing signs of cooling, even as investors scaled back bets of another increase in borrowing costs amid a global credit crunch. "Interest rate rises aren't making themselves felt as much as you would expect,'' [said] Vicky Redwood, an economist at Capital Economics Ltd.''
Outsourcing Firms Eye US Subprime Crisis (The Times of India, Aug. 30th): "Processing loan mortgages during the US housing boom was a profitable line of business for pure-play outsourcing firms that logged 47% growth to 209 billion rupees ($4.6 billion) in revenue during the year to March… [Outsourcer] Infosys Technologies, India's second-biggest software maker, and iGate Global Solutions… lost a major client when GreenPoint Mortgage was shut down by parent Capital One Financial Corp. Outsourcer WNS [expects] to lose business from US mortgage firm First Magnus Financial… Some outsourcing companies scent an opportunity in the crisis. Quatrro BPO Solutions this month paid an undisclosed amount to acquire the mortgage processing business of US-based Preferred Financial Group."
Britain's Housing Lenders Tighten Credit to Subprime Borrowers (Bloomberg, Aug. 30th): "U.K. lenders responsible for 12% of the nation's mortgages are tightening standards for loans on house purchases, withdrawing offers and raising the cost for borrowers with less than perfect credit. Merrill Lynch & Co.'s Mortgages Plc unit said yesterday that it raised its interest rates. Northern Rock Plc, the Newcastle-upon-Tyne building society that had 8.4% of the market last year, and Residential Capital Corp.'s GMAC-RFC unit, with a 3.5% share, said they stopped some offers and lifted costs for others. Deutsche Bank AG did the same, while Investec Plc's divisions have stopped subprime lending."
Australian Fund Falls To U.S. Subprime Crisis (Int'l Herald Tribune, Aug. 29th): "A court in the Cayman Islands has placed the Basis Yield Alpha Fund in provisional liquidation after the Australian-run fund's evisceration by the U.S. subprime mortgage crisis… The Basis Yield Alpha Fund, which once had assets of over $1 billion, has lost over 80% of its value [from] investments in securities that were backed by subprime mortgages… Just two months ago Basis Yield's two main funds, including Yield Alpha, had five star ratings from S&P, and the company had won 'Fund of the Year' at the 2005 Asiahedge awards and been Macquarie Bank's 'Skilled Manager of the Year' in 2004."
Macro Impact, And Will The Housing Slump Cause A Recession?
How Lower Home Prices Hurt Everything (BusinessWeek, Aug. 30th): "A year ago, consumers were still taking out home equity loans and using the tax-deductible cash to buy new cars. That's drying up, says Mike Jackson, CEO of AutoNation (NYSE:AN), the nation's largest car dealer chain. [Also,] consumers with adjustable-rate mortgages are paying more every month in interest, causing many to put off buying big-ticket items such as cars and appliances… The most direct hit to the economy is through the downturn in housing construction… a major source of job growth during the boom. JPMorgan Chase (NYSE:JPM) economists now see additional contractions in residential construction taking a full percentage point off of growth for the next three quarters."
U.S. Housing Prices Rise at Slowest Pace in a Decade – OFHEO (Roy Mehta in Seeking Alpha, Aug. 30th): "Office of Federal Housing Enterprise: Q2 housing prices in the U.S… increased only 0.08% from Q1, the slowest since the end of 1994. The 3.2% increase in single-family homes was the smallest since 1997… Home resales slumped to 5.75 million, the lowest number since 2002 and the fifth consecutive monthly decline… OFHEO director James Lockhart saw a positive side to the data: “House prices were basically flat in Q2 despite tightening credit policies, rising foreclosure rates, and weakening buyer sentiment. Significant price declines appear localized...” The study only includes price information through June; to the extent that recent mortgage market instability may have affected housing demand and prices, those effects would be evident in OFHEO’s next HPI release."
Slow Home Sales Crimp Retirees (Sun Journal, Aug. 30th): "Joe Morse has bought a 40-foot motor home that he plans to drive across America over the next several years, visiting the state capitals and the national parks he wasn't able to get to before he retired. But Morse hasn't been able to take off on his grand tour because he hasn't been able to sell his house in Cerritos, Calif… Morse is among thousands of Americans who can't take the next step in their lives because they can't sell their houses. Some are seniors trying to downsize for retirement, others are young couples trying to move up from their starter condominiums or growing families that need more space."
The Problem With 'Median Housing Price' Data (Michael Shedlock in Seeking Alpha, Aug. 30th): "DataQuick Information Systems: [Southern California's] overall median price [rose] to $505,000 in Q2, up 4.4% [y/y], even though sales fell 33%. [This is partly because] high net worth individuals are willing to buy a house. Prices then become skewed towards increasing median prices even though real prices may be falling like a rock. [Also] new home sales are recorded when the agreement to buy is recorded. Cancellations are not subtracted. Homebuilders are reporting 20-40% cancellation rates… The Shiller index does not look at new home prices. If a homebuilder drops the price on a model from $400,000 to $280,000 that does not show up in the Shiller Index. Nor do incentives."
Home Explodes After Thief Nabs Copper Pipes (Des Moines Register, Aug. 30th): "A thief who stripped copper tubing from a propane tank is blamed for a gas buildup and house explosion that severely burned an 80-year-old Onawa man, authorities said Wednesday… Investigators say the gas buildup was linked to the disappearance of the tubing, which has increasingly been targeted by so-called "urban miners" who hope to cash in on the high price of certain scrap metals… The burglar… "maybe got $15 worth of copper," Monona County Sheriff Jeff Pratt said. "They cut the propane line going to the furnace of the house in an attempt to steal the copper."
Homebuilders And Housing Stocks
Highland Homes Named To Inc 500 List St. Louis Builder Has Grown Quickly Because Of Its Focus On GREEN, Urban-Friendly Projects (PR Leap, Aug. 30th): "How does a homebuilder achieve a growth rate of more than 1,000% in just four years? Highland Homes has done so by creating urban-friendly, affordable GREEN residences throughout St. Louis… The builder was recently named #293 on Inc Magazine’s list of the fastest growing companies in the country… St. Louis Business Journal: Highland Homes become the #1 fastest growing company in St. Louis in 2005, as well as the 20th largest homebuilder in St. Louis… Highland Homes is a green builder that develops environmentally-responsible homes which appeal to customers’ lifestyles with “urban friendly” floor plans and extensive options."
H&R Block Q1 Loss Widens on Mortgage Woes (Steven Towns in Seeking Alpha, Aug. 30th): "H&R Block (NYSE:HRB) reported a Q1 net loss of $302.6M, or -$0.93/share, more than double last year, as losses from its Option One mortgage arm totaled $192.8M. Excluding Option One and other items, H&R Block lost $0.34/share, better than estimates of a $0.36 loss. Sales rose 11% to $381.2M, but came up short of expectations ($448.4M). H&R Block said it is trying to renegotiate the sale of Option One to a subsidiary of private equity firm Cerberus, [saying] "there can be no assurance [the original agreement] will close." HRB narrowed its full-year guidance for earnings from continuing operations to $1.30-$1.45, from $1.25-$1.45 previously. Analysts had forecast $1.33/share on average."
Gottschalks Ends Strategic Review; Posts Loss (Reuters, Aug. 30th): "Departmental store chain Gottschalks Inc (GOT) said it ended a strategic review that included a possible sale of the company, and decided to focus on a revised business plan to improve sales and operating performance… "We experienced softer sales and gross margin for the quarter, primarily due to weakness in our home store merchandise and select apparel merchandise categories, as well as increased promotional activity to manage our inventory," CEO Jim Famalette said in a statement."
Redone Home Depot Deal Not Thought Contagious (NY Times, Aug. 28th): "Home Depot (NYSE:HD) agreed Sunday to make several concessions in the sale of the unit, HD Supply, including lowering the price by $1.8 billion, to $8.5b, and keeping a sizable stake in the unit… some investors have been fretting that anxious banks and private equity firms may try to repeat the feat with other buyouts … It remains unclear whether the buyers actually had legal ground to walk away without paying a $309 million breakup fee. The material adverse change clause, which requires something significant to change, specifically ruled out “changes affecting any or all of the wholesale distribution industries for construction” and “general financial or capital market conditions, including interest rates or currency exchange rates.”
Commercial Real Estate and REITs
Subprime Crisis Could Be Boon For Some (The Real Deal, Aug. 31st): "Experts say that the commercial lending market has been spooked [by the subprime crisis] and predict a drop in commercial property prices. That could mean a buying spree for traditional real estate companies, pension funds and other investors with cash-rich balance sheets -- including New York's real estate dynasties. Peter Hauspurg, chairman and CEO of brokerage Eastern Consolidated: Commercial prices could drop 5-10% in the next 6-12 months. Michael Berman, president of CW Capital, a large commercial lender: Pension funds, like TIAA-CREF and the California Public Employees Retirement fund (Calpers), are rich in cash holdings and could swoop in if the price is right."
Real Estate Firm Sells To N.J. Company (Kansas City Business Journal, Aug. 30th): "A Kansas City commercial real estate company has sold its assets to an out-of-town buyer. Terms of NAI nVision's sale to NAI Global of Princeton, N.J., weren't disclosed... Neil Uebelein [Kansas City office head] led a group that bought the commercial real estate business of Cohen-Esrey Real Estate Services Inc. in 2005. The firm, once the largest in Kansas City as measured by brokers, shrank considerably during the past two years. NAI Global's 350-office network covers more than 45 countries."
CB Richard Ellis To Provide Real Estate Services For Nissan (Nashville Business Journal, Aug. 29th): "CB Richard Ellis Group Inc. (NYSE:CBG) was chosen by Nissan North America Inc. as its exclusive real estate services provider for non-manufacturing facilities across the U.S., the company said Wednesday. Under the five year deal, CB Richard Ellis will provide transaction management, portfolio administration and project management for 31 properties totaling 4.2 million-sf of regional sales and marketing offices, call centers, parts distribution facilities and service training centers throughout the U.S... CB Richard Ellis has provided brokerage and portfolio administration services to Nissan North America for the last eight years, primarily in Southern California."
The Blackhawk Fund to Generate $2.2 Million From Sale of Real Estate Holdings (CNN Money, Aug. 29th): "The Blackhawk Fund, is actively marketing the real estate holdings [it owns], which have an appraisal value in excess of $2,200,000. Upon sale of these properties, Blackhawk's revenue will increase to the highest level in [its] history. The Company is in the process of liquidating its real estate holdings as the final phase in the shift to becoming a pure Media Company."
REIT Investing $60M In China (Denver Business Journal, Aug. 29th): "ProLogis (NYSE:PLD) will spend $60 million to develop a warehouse facility in Shanghai, the company said Wednesday. The REIT has purchased a 48-acre parcel near Shanghai Hongqiao International Airport. The site is home to an existing warehouse and two closed manufacturing facilities, which will be converted to use as distribution centers… The land has room for four more two-story buildings from 200,000-450,000-sf. At buildout, what will be called ProLogis Park Hongqiao West will have more than 1.8 million-sf. ProLogis entered China three years ago. The REIT had 12.7 million-sf in operation or under development there as of June 30."
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