Housing Bubble and Real Estate Market Tracker

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Includes: AMB, BSC, BZH, CTX, DHI, GS, HOV, JOE, KBH, LEN, RDN, SPG, TOL
by: Judy Weil

Judy Weil submits: 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"

“As you can imagine, being the land provider in this environment is not the best end of the food chain." - Raymond James & Associates analyst Paul Puryear reacting to management changes at homebuilder St. Joe's. Puryear says the market is the problem – not the management. St. Joe sells land to homebuilders in a market where most of the homebuilders are selling land, not buying. (Forbes, Oct. 3rd)

Real Estate Sales and House Prices

  • House Prices Rising In Area (Penn Live, Oct. 5th) Pennsylvania: "Central Penn Multi-List: The average price of houses sold throughout the Harrisburg area continued to rise during Q3. The average price of $184,331 was 0.5% more than the average of $183,400 in Q2… Midstate house prices have increased 3.9% from Q3'06. So far this year, house prices are up 2% from the same period in 2006. Fewer homes were sold in Q3 when compared with each of the first two quarters of the year. More homes were listed for sale in the midstate during Q3 -- 4,077 -- than anytime since at least the end of 2000."

  • Home Sales Slide To 2004 Pace (Myrtle Beach Online, Oct. 5th): "From January-September… homes [sales] were down 19% from last year... Condo sales have dropped 38% from last year, and are selling at the same pace they did in 2003… There are 8,975 units on the market compared to 10,493 last year… Single-family home inventory is up 20% to 6,344 homes from 5,291 last year… Many of the Strand's oceanfront condo prices have fallen to their late 2004 or early 2005 price levels… Homes [are] selling in 164 days on average compared to 143 last year… Condos sell in 273 days compared to 188."

  • South Central Pennsylvania Home-Sale Prices Continue To Strengthen Amid Cooling In Home Sales (Central Penn Business Journal, Oct. 5th): "Average home-sale prices in south central Pennsylvania continued to increase in Q3'07 (July-September), rising 3.9% from Q3'06. Central Penn Multi-List, Inc.: The average sale price of residential homes rose to $184,331, compared to the average cost of $177,420 in Q3'06. The number of residential housing units sold in Q3'07 was 2,110, down from the 2,313 units sold in Q3'06… The number of active listings in the area rose to 4,077, compared to 2,933 active listings in Q3'06. Listings stayed on the market an average of 56 days. In Q3'05 and Q3'06, listing times averaged 41 and 42 days, respectively."

Affordability Impact

  • Survey Says Phoenix Is 'More Affordable' Housing Market (KNXV-TV, Oct. 4th): "Coldwell Banker Price Comparison Index: Phoenix is one of the more affordable housing markets in the nation… The survey looked at similar 2,200-sf homes in 317 U.S. markets and found homes in the Metro Phoenix area averaged about $367,711. Prices in Metro Phoenix compare to the average prices in Sarasota, FL and Nashua, NM. The same size home costs, on average, $525,667 in Scottsdale-- the most expensive market in the state. Mesa ranks as the most affordable with an average sale price of $257,467. The Metropolitan Phoenix area realized modest appreciation in average sales price (3.6%) over August 2006."

  • Home Sales Hit New Lows, Market Believes It's All Priced In (Trader Mark in Seeking Alpha, Oct. 4th): "People keep focusing on the wrong issue - the main issue is and continues to be affordability. With a standard 30 year fixed mortgage home prices at these levels do not allow an influx of buyers. They just cannot afford it. Period. Now thankfully inflation is defeated so their real wages are rising astronomically so maybe in a few months this all goes away (sarcasm dripping).... also remember Hovnanian CEO told us the bottom is here... a mantra he has repeated quarterly for a year now."

Subprime Fallout

  • 2 Executives Are Ousted at Merrill (NY Times, Oct. 4th): "Merrill Lynch, facing the prospect of a major write-down from its exposure to the sinking mortgage market, dismissed two senior executives in its fixed-income division yesterday… Osman Semerci, 39, the head of Merrill’s fixed-income division… [and] Dale M. Lattanzio, head of structured credit products… Bear Stearns (NYSE:BSC) fired its co-president, Warren J. Spector, in August; Huw Jenkins stepped down early this week as the chief of UBS’s investment bank; and in February, HSBC dismissed the head of North American business, Bobby Mehta… Merrill… is expected to make a pre-earnings announcement [soon] that it will write-down more than $4 billion in mortgage and other structured investments tied to the beleaguered credit market."

  • Goldman In Talks To Buy C-BASS Loan Servicing Unit (Reuters, Oct. 3rd): "Goldman Sachs Group (NYSE:GS)… is in talks to buy the subprime servicing business of Credit-Based Asset Servicing and Securitization LLC, people familiar with the situation said... Radian and MGIC, the joint owners of C-BASS, [had] said they would pursue [the] sale of their venture, which had plunged in value… Goldman has its eye on Litton Loan Servicing LP, a Houston-based servicing unit of C-BASS and the 12th-largest U.S. subprime servicer. Litton makes changes to mortgages that can help struggling borrowers pay their debt, a business that would do well as delinquency rates rise."

  • Radian Tumbles After Deloitte Steps Down as Auditor (Bloomberg, Oct. 3rd): "Shares of Radian Group Inc., the mortgage insurer whose sale to rival MGIC Investment Corp. collapsed last month, fell the most in eight weeks on concern a new auditor may force it to write down asset values… Accounting firm Deloitte & Touche LLP declined to renew its contract… The risk of owning Radian's bonds rose the most in five weeks, according to credit-default swap traders. The contracts, used to speculate on the company's ability to repay its debt or hedge against the risk it won't, rose 48 basis points to 420 basis points, according to CMA Datavision in London. An increase suggests deterioration in investor confidence."

Foreclosure Data

  • Indiana Has 10th Highest Foreclosure Rate In U.S. (Indiana Daily Student, Oct. 5th): "Indiana ranks 10th in the country for the highest number of filed foreclosures, RealtyTrac Inc. spokeswoman Daren Blomquist said. RealtyTrac Inc. is a leading online database for foreclosure properties nationwide. Indiana foreclosure rates have increased by 41% since August 2006… The foreclosure rates for the country as a whole have increased by more than 50%."

  • New Twists Already in the Mortgage Forgiveness Act (Michael Shedlock in Seeking Alpha, Oct. 4th): "IRS website: "The IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure. Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets. The IRS cautions that under the law, relief may be limited or unavailable in some situations where, for example, part or all of a home was ever used for business or rented out." The IRS is essentially warning people not to attempt to get out of problems by renting their houses."

Macro Impact, And Will The Housing Slump Cause A Recession?

  • U.S. Housing Woes May Spur Recession, CN Rail Says (Bloomberg, Oct. 4th): "North America may slip into a recession in 2008 as the U.S. housing slump spills into railroads and other industries, Canadian National Railway Co.'s finance chief Claude Mongeau said: "The risks of a recession are real." Shipments of construction materials at Canadian National are down as much as 12% this year. Canadian National, the country's largest railroad, depends on the U.S. for about one-third of revenue. Lumber producers and other forest-products makers represent about 22% of the company's annual sales, Mongeau said."

  • Mortgage Equity Withdrawal Only Modest Drag on Consumer Spending (Dr. Scott Brown in Seeking Alpha, Oct. 4th): "The extraction of home equity wealth has been an important factor supporting consumer spending growth in the last few years… Fed’s Flow of Funds figures show that… the pace of mortgage equity withdrawal has slowed, but remains high by historical standards (equivalent to 4.9% of disposable income in 2Q07)… While home price declines have become more noticeable… homeowners who have been in their homes for three or more years are still sitting on a sizeable capital appreciation. The pace of mortgage equity withdrawal is likely to cool, but not fall off a cliff – resulting in a moderate drag on consumer spending growth over the next few quarters."

  • U.S. Economy: Factory Orders Declined in August (Bloomberg, Oct. 4th): "Orders placed with U.S. factories fell by the most in seven months in August as the turmoil in credit markets eroded business confidence. Weaker demand for furniture, home appliances and construction machinery helped drive orders down 3.3% from July, the Commerce Department said today in Washington. The numbers were interpreted as signaling slower consumer and business spending because of the housing recession."

  • Home Sales Lower Than September 2001 (Tim Iacono in Seeking Alpha, Oct. 3rd): "Mike Larson, a real estate analyst with independent research firm Weiss Research… expects that pending home sales might show some improvement going forward. But… it will [not] be the sharp rebound seen after September 2001… "The credit markets are a little better than in August. But I'm certainly not expecting a strong, lasting surge. I think the existing home markets will stay weak into H2'08 and perhaps into 2009." Larson said that economic fundamentals will be the next drag on home sales. In August, the Labor Department reported its first drop in four years of workers on U.S. payrolls, while economic growth is slowing."

  • For Baltimore, Housing Slump Slows a Revival (NY Times, Oct. 4th) Maryland: "Baltimore's port is thriving from trade. Financial services companies are strong, and the federal government is channeling money into medical research and to companies that locate here… But the fallout from the housing downturn is already showing up as a setback in this struggling city’s effort to reinvent itself as a robust commercial center, one in which a spruced up and rebuilt downtown has attracted new residents, particularly young people, as well as more office workers. August homes sold in the greater Baltimore area had been on the market for 84 days, on average, up from 58 days a year earlier."

  • Fed Politics: Location, Location, Location (Felix Salmon in Seeking Alpha, Oct. 3rd): "WSJ Real Time Economics blog: JP Morgan's Michael Feroli says that all Fed politics is local. Which Federal Reserve banks wanted a cut in the discount rate? The ones where housing prices were looking weak. The Federal Reserve Banks with strong housing markets, on the other hand, didn't want a cut in the discount rate. [See chart]… After all, if it was that easy to treat all parts of the country equally, there would be no need to have separate Federal Reserve banks at all… The idea with the [current] system is that if you're located in a certain place you'll be more attuned to what's going on there."

Homebuilders And Housing Stocks

  • New Condo Development in Lansdowne Hosts "Meet & Greet" For New Homeowners (PR Web, Oct. 4th) Virginia: "Lansdowne Town Center, Lansdowne's new development of condos, townhomes, shops and restaurants, held the first official "housewarming party" for its buyers on Tuesday, September 18th… Lansdowne Development Group, the developer of Lansdowne Town Center, along with all three of the condo and townhome builders, Beazer Homes (NYSE:BZH), Centex Homes (CTX) and Van Metre Homes, hosted the two-hour cocktail social for its homebuyers… The[ir] new condos and townhomes [are] for sale at Lansdowne Town Center… All three builders recently opened decorated condo models and townhome models are expected to open in November."

  • Homebuilders Decline After UBS Says Worst Isn't Over (Bloomberg, Oct. 4th): "Lennar Corp. (NYSE:LEN) and D.R. Horton Inc. (NYSE:DHI) led declines by homebuilders… after UBS Investment Bank said the worst isn't over for the industry. UBS analyst David Goldberg: "We do not believe the housing market has shown signs of bottoming and expect further deterioration in the near term… We expect a negative tone for third-quarter earnings season, leading to a reversal in recent gains." Goldberg's view stands in contrast to Citi Investment Research's Stephen Kim, who fueled a 13% surge in the S&P's Supercomposite Homebuilding Index [last] week… after saying that the industry's decline had made the stocks attractive."

  • This Dead Cat Won't Bounce (Motley Fool, Oct. 4th): "[Don't] enter the [homebuilders] market too soon… From the February peak to the end of last week -- just before investors became heartened by the words of a lone analyst who upgraded the sector -- shares in homebuilders fell a collective 61%... With prices depressed, plentiful inventory, and lenders wary of extending themselves too far, too soon, homebuilders' chance of hammering out some decent numbers within the next few quarters seems remote… While builders are trading at apparently low book values, they're still marking down and writing off assets… We could see book values drop even farther."

  • Gray Tract Development Gets Final OK (Bucks County Courier Times, Oct. 4th): "The Upper Makefield supervisors voted 3-2 Wednesday to grant final land development approval for Toll Brothers’ (NYSE:TOL) development on the Gray tract. A sewage and water treatment facility would be constructed on 3.2 acres of a former junkyard. Once the state Department of Environmental Protection grants a permit for additional volume, Toll said they would amend plans and seek approval for a 60,000-gallon-per day capacity. The extra capacity would service 125 other Toll homes and potentially a national veterans cemetery proposed for Old Dolington and Washington Crossing roads. Toll officials will [pay for] the estimated $8M-$10 million sewer plants… in full."

  • KB Home Declares 25 Cent Dividend (Trading Markets, Oct. 4th): "KB Home's (NYSE:KBH) board has declared a quarterly cash dividend of twenty-five cents per share on the company's common stock, payable on November 21 to shareholders of record on November 7. Los Angeles-based KB Home is a homebuilder with domestic operating divisions in fifteen states."

  • Ask Us Anything: What's happening with the KB Homes project? (OC Register, Oct. 4th) California: "The City Council voted in December to allow KB Homes to build 55 Mediterranean-style single-family homes and a 1-acre park on the former McDowell School site at the corners of Oak Street and La Paloma Avenue. But the project has been on the back burner while KB concentrates on other areas of Orange County, KB Homes spokesman Ray Gomez said. "We are building in Irvine and Anaheim," he said. "We simply haven't made a decision on when to start in Fountain Valley."

  • Martha Stewart's New Homes in Texas Development Offer HAI Home Automation Technology (Ecoustics, Oct. 4th): "Large Martha Stewart designed homes [of] KB Home’s WoodCreek Reserve in Katy, Texas [have] state-of-the-art HAI (Home Automation, Inc.) home automation technology wired into each home… All homes include state-of-the-art, HAI Omni Family UL-listed security systems with programmable features that allow homeowners to monitor their home and obtain notifications when potential problems need their attention… With the HAI Omni Control system, problems such as a water leak, fire or carbon monoxide can be sent to the homeowner’s phone alerting them of the issue at home."

  • Disney Magic Coming To KB Homes In Lathrop (Inside Bay Area, Oct. 3rd) California: "From now until Nov. 30, KB Homes (KBH) is holding the Magical Dream Sweepstakes, which will give away 10 children's bedrooms with Disney-themed furniture. Furnishings and decor match the Disney films "Cinderella," "Cars" and "Pirates of the Caribbean" and characters from the Princesses line… By 2008, Disney home decor items like Mickey Mouse bathroom tiles will be one of the thousands of options available at KB Homes' design studios. The collaboration between the two companies marks the first time Disney (NYSE:DIS) Home products will be showcased through a national homebuilder. "

  • Beazer Debt Prices Face More Weakness (Reuters, Oct. 3rd): "Beazer Homes USA's (BZH) debt protection costs have fallen amid a broad home builder rally this week, but… now still isn't a good time to buy its debt… The cost of insuring Beazer's debt with default swaps is trading at distressed levels, costing 18% of the amount insured paid upfront, or $1.8 million to insure $10M in debt for five years, in addition to payments of $500,000/year… Earlier this month, Beazer's debt protection [stood] at $1.95M. Protection costs for fellow junk-rated home builder Hovnanian Enterprises (NYSE:HOV) dropped by more than 50 basis points on Wednesday to around 937.5 basis points, which means it costs $937,500 annually to protect $10M of its debt for five years… Homebuilders like D.R. Horton (DHI), Lennar Corp (LEN) and Centex (CTX) also saw their costs fall 10-15 basis points."

  • Builder Plans 180 Units in Aberdeen (Aberdeen Independent, Oct. 3rd) New Jersey: "A pair of applications for 180 multifamily housing units were scheduled for public hearings last week, but were postponed at the last minute… The developer, Centex Homes LLC (CTX), hopes to build two distinct developments in town. Plans for the Renaissance at Aberdeen call for 120 units, while the Villages at Aberdeen calls for another 62… Twenty of the [Renaissance] units would be deemed low-income housing. The Villages would be built along Route 34 with eight of the 62 proposed units deemed low-income housing. Both concepts require a use variance to allow multifamily housing."

  • St. Joe Shuffle Unlikely To Cure Its Woes (Forbes, Oct. 3rd): "St. Joe, one of Florida’s largest real estate development companies, is hoping that a management change will help revive its sagging fortunes, but a Band-Aid cannot resuscitate Florida’s weak housing market. On Wednesday, the Jacksonville, Fla.-based company announced that Britt Greene was promoted to president and COO and Chris Corr was elevated to executive VP… But Raymond James & Associates analyst Paul Puryear says the market is the issue – not the management. St. Joe essentially sells land to homebuilders in a market where most of the homebuilders are looking to shed real estate, cut back on building and unload inventory."

  • Beazer 'Loophole' No Defense, Say Creditors (AJC.com, Oct. 3rd): "Creditors holding $1.5 billion in debt extended to Beazer Homes (BZH) over the past five years [are] insisting that Beazer either provide a certified financial statement for its most recent sales and revenues or pay back the loans… The crux of the dispute is Beazer's failure to file a timely certified financial statement for [Q2]. Beazer is arguing that its SEC filing for an extension… and its prompt payment of loan installments should prevent its creditors from calling in the loans. Attorneys for U.S. Bank National Association: Beazer should not be allowed to decide what parts of its loan agreements to live up to."

  • Bethel Panel Settles With Home Builder (New Times Live, Oct. 3rd) Connecticut: "A settlement over a Reservoir Street project… allows developer Toll Brothers to apply to build a 62-unit housing development on a 22-acre site near the Danbury border. Planning and Zoning Commission member Kitty Grant said the commission had little choice after losing several lawsuits with the developer over its original 2002 proposal to build 128 units on the property, 30% of which would have been affordable housing… Since none of the 62 proposed units will be affordable housing, Toll will owe the town $960,000 to go into an affordable housing trust fund to be established by the Board of Selectmen."

  • Lennar Plans Open Space, Parks and Pedestrian Trail for Redeveloped Hunters Point Shipyard (Business Wire, Oct. 3rd): "The San Francisco Redevelopment Agency approved Tuesday night a plan by Lennar (LEN) to build an extensive park and trail system as part of the first phase of the revitalization of Hunters Point Shipyard. New recreation and open spaces are intended to enhance a new neighborhood overlooking the Shipyard… Lennar envisions more than 350 acres of new parks and open space, the rehabilitation of wetlands closed for decades to the public and the creation of new wildlife habitat as part of the company’s conceptual plan for the combined redevelopment of Candlestick Point and the Hunters Point Shipyard."

  • Bargains in Homebuilders (Kiplinger.com, Oct. 2nd): "The surest sign of a bottom? Not lower interest rates, or political proposals to circumvent foreclosures. Instead, look for a convincing decline in the inventory of unsold homes -- now at some 4.6 million homes and condos, at a ten-month supply. Getting back to a more normal four-month supply will simply take time."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

  • AMB Property Corporation(NYSE:R) Expands Global Platform With Entry Into the United Kingdom (PR Newswire, Oct. 4th): "AMB Property Corporation (NYSE:AMB), a global developer and owner of industrial real estate, today announced it has expanded its European platform to the UK with the acquisition of a 320,000-sf industrial development project in London, England… AMB's Europe portfolio totaled more than 9 million-sf of operating and under development properties as of June 30, 2007. Subsequent to the end of Q2, AMB has announced 795,000-sf of additional space, including AMB East London Distribution Park."

  • Simon Property Group Announces $500 Million Increase in Revolving Corporate Credit Facility (CNN Money, Oct. 4th): "Simon Property Group, Inc. (NYSE:SPG) announced Thursday that it has successfully implemented the $500 million accordion feature in its existing unsecured corporate credit facility, thereby increasing [its] revolving borrowing capacity from $3.0 billion to $3.5B. The expanded credit facility includes a larger $875M multi-currency tranche for Euro, Yen and Sterling borrowings. The facility will mature in January 2010 and contains a one-year extension... The base interest rate on the facility is currently LIBOR plus 37.5 basis points. CEO David Simon: "There was strong interest in the $500 million facility increase, with lender commitments received from 26 institutions aggregating over $1.1B."

  • Miami Group Sells Pinehurst Apts. to REIT for $7M+ (CoStar Group, Oct. 3rd): "Pinehurst Associates LLC, of Miami, FL, sold the Pinehurst Apartments to Paladin Realty Income Properties Inc., a Los Angeles, CA-based REIT. The 146-unit apartment complex at 400 - 606 NW 63rd Street in Kansas City sold for $7.13 million, or approximately $48,801 per unit, with a 7% cap rate. The property is comprised of seven buildings with 146 one- and two-bedroom units totaling approximately 119,150 square feet of living area on 12 acres. Built between 1986 and 1988, the property was 97% occupied at the time of sale."

  • Hines REIT Acquires Minneapolis Office/Flex Portfolio (CoStar Group, Oct. 3rd): "Hines REIT acquired a portfolio of nine office/flex buildings in the Minneapolis market from a joint venture of First Industrial REIT and CalSTERS. The buildings sold for $87 million, or about $113.50/sf, according to an SEC filing… The portfolio of buildings totals 766,240 square feet and is 86% leased. Tenants include: Preferred One, Cyber Optics, General Dynamics, Prime Therapeutics, Eschelon Telecom and the state of Minnesota."

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