Housing Bubble and Real Estate Market Tracker

by: Judy Weil

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"

"It was like REITs were on the rack at Filene’s Basement, and they decided to buy before they missed their chance."- Brad Case, VP of research with the National Association of REITs, on investors who've pushed up the value of REIT shares since this summer's credit crunch sent them spiraling downward. (Commercial Property News, Oct. 10th)

Real Estate Sales and House Prices

  • Forecast For Existing Home Sales Slashed (Union Leader, Oct. 11th): "National Association of Realtors October report: U.S. existing home sales expected to be 10.8% below last year… 5.78 million existing homes will be sold in 2007, down from 6.48 million last year. Last month, the association predicted an 8.6% drop from a year ago. This year's sales would be the lowest since 2002 (5.63 million). Sale prices for existing homes are forecast to drop 1.3% to a median of $219,000 this year -- a slight improvement from September's prediction of a 1.7% decline… Existing 2008 home sales [should] climb to 6.12 million. That is 2.4% lower than last month's prediction."

  • Home Sales Slowed In '07 (Journal Sentinel, Oct. 10th)Wisconsin: "Average existing-home sale prices dropped in Waukesha and Ozaukee counties and rose in Milwaukee and Washington counties year-to-date [September]… The Metro Multiple Listing Service reported that sales were down12.3% regionwide. Peter M. Stefaniak, partner with The Stefaniak Group: [Fewer] entry-level buyers, due to a more restrictive lending climate, is shutting off the sales pipeline higher up - "the trickle-up effect." The region's 13,861 resales through September this year are down from 15,803 during the same period last year… With 32,952 new property listings this year – [there's] about 2 1/2 "for sale" properties for every property sold, a 19% jump from two years earlier."

Affordability Problems

  • Housing Not Affordable (Boston Herald, Oct. 11th): "Northeastern University researchers Barry Bluestone and Bonnie Heudorfer's annual “Greater Boston Housing Report Card:" Greater Boston housing is basically as unaffordable as ever despite real estate’s ongoing slump… Mortgage payments, taxes and insurance on a typical Greater Boston home ate up 40.1% of a median-income salary in 2006. That’s down from 44.6% in 2005, but up from 31.5% in 1999. People who earn a median income can only afford median-priced homes in 47 of Greater Boston’s 161 communities. That’s up from 19 cities and towns in 2005, but still far below the 148 affordable communities the state had in 1998."

  • Every Reason to Panic over Portland Condo Glut (Michael Shedlock in Seeking Alpha, Oct. 11th): "Portland has a condo glut, and thousands more are rising out of the ground. In the past six years, developers built 4,042 downtown condos, more than twice the figure from the previous 30 years. Today, developers have nearly 2,114 condos under construction… Older Xers and younger Millennials working 2-3 dead-end, part-time jobs do not make even a fraction of the income after taxes and existing debt service required to pay current prices (the median price is 80-100% above median household income of Portlanders in the 21-34 age bracket, implying a decline of 35% in real terms over 6-7 years)."

  • Putnam County Budget Raises Property Tax 23 Percent (Newsday, Oct. 10th): "Putnam residents will be digging deeper next year to pay for a $129 million county budget that was approved by the county legislature Tuesday night. The spending plan increases county property taxes 23%. Legislators worked for nearly one month to cut $4 million from the budget proposed by County Executive Robert Bondi - which would have cost a 40% tax increase. The legislature's budget eliminates the positions of county health commissioner and recycling coordinator."

Mortgates and Real Estate Lending

  • Affluent Senior Citizens Tapping Reverse Mortgages For Extra Cash (Post Gazette, Oct. 11th): "Reverse mortgages are growing in popularity with more affluent senior citizens. Eric Decler, managing director of the reverse mortgage unit for Countrywide Financial Corp. (CFC), said Countrywide had recently done two $10 million reverse mortgages… Reverse mortgages allows [owners] to pull out tax-free income they need from their home equity without having to sell, move or make monthly payments… Federal Housing Administration: Reverse mortgages in Pennsylvania have steadily risen from eight loans in 1990 to 2,185 reverse mortgages in 2006. The average property value of those homes in 2006 was $183,000, while the average loan amounts were around $113,000."

  • Mortgage Servicers Aim To Head Off Foreclosures (MarketWatch, Oct. 10th): "A newly formed group called Hope Now, consisting of banks and lenders such as Citigroup Inc. (NYSE:C), First Horizon National Corp. (NYSE:FHN) and H&R Block Inc. (NYSE:HRB) subsidiary Option One Mortgage, will target at-risk borrowers by means of direct mail that encourages them to seek counseling. Counseling organizations are also members of the group. Additionally, the mortgage servicers [will] have dedicated teams of experts available to counselors as they work through foreclosure prevention with customers… Treasury Secretary Henry Paulson said Wednesday that the group consists of 11 of the largest mortgage servicers, representing 60% of the mortgages in the U.S."

  • Countrywide Home Loans Partners with RealEC Technologies to Deliver Online Closing Platform (PR Newswire, Oct. 10th): "RealEC Technologies Inc., provider of collaborative network solutions to the mortgage industry, today announced it has entered into an agreement with Countrywide Home Loans, Inc., a division of Countrywide Financial Corporation (CFC), allowing Countrywide to use RealEC's Web-based closing platform for mortgage refinance and home equity lending transactions… Countrywide has licensed RealEC's Web-enabled closing service and has integrated the service into its TS2 settlement services platform, which was built using the RealEC Collaborative Network Platform… RealEC's Web-enabled closing service enables Countrywide to… have closing orders supported by its preferred title and closing providers nationwide."

Global Subprime Fallout

  • ING Says to Boost U.S. CMBS Unit, Eyes REITs (Reuters, Oct. 10th): "ING Real Estate, the world's biggest property investment firm, said Tuesday it was expanding its $2.5 billion U.S. commercial mortgage-backed securities [CMBS] business to take advantage of recent market weakness in "pricing opportunities" and "overreaction in spreads that has occurred," said David Blight, ING Real Estate's vice chairman. CMBS issues, a key source of funding for big real estate deals, remain difficult to sell in the U.S. more than three months after originations first seized up amid fallout from the U.S. subprime mortgage crisis. Blight also said ING Real Estate… was eyeing undervalued REITs in Europe."

Subprime Fallout

  • The United States of Subprime (Wall St. Journal, Oct. 11th): "WSJ analysis: From 2004-2006… more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate [mostly subprime] loans… High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. [Since 2004] about 10.3 million high-rate loans were made… out of a total of 43.6 million mortgages... More than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act [analyzed by WSJ]… contradicts conventional wisdom: Although the concentration of high-rate loans is higher in poorer communities… high-rate lending also rose sharply in middle-class and wealthier communities."

  • Mortgage Turmoil Hits Renters (Wall St. Journal, Oct. 11th): "Across the country, a rising number of landlords are falling behind on mortgage payments, sending their properties into foreclosure, according to legal-services attorneys, local officials and financial experts -- and in many cases, their tenants are being forced out of their homes… The homes and apartments entering foreclosure are [often] owned by investors who got low-rate teaser mortgages and intended to hold the buildings for a few years and then sell them at a profit -- before their mortgage rates rose. Now, with the housing market badly depressed in many markets, the owners can't sell the homes or afford the higher mortgage payments. Many are defaulting."

  • Weak Housing, Subprime Weigh on Bank Earnings (The Street, Oct. 10th): "The 8,698 banks and savings and loans covered by TheStreet.com Ratings reported $37.0 billion in net income for Q2, a decrease of 2.4% from June 2006. The Fed rate cut… probably comes too late to offset the prolonged effect a decline in residential real estate values and asset quality of bank loan holdings should have on Q3 earnings… Provisions for loan losses increased 77% to $11.3B in Q2, vs. the year-ago period. This is ower than the peak of $12.2B in the Q4'06 [but still] a direct hit on earnings… Washington Mutual Bank (NYSE:WM), and FIA Card Services, held by Bank of America (NYSE:BAC), reported… problem loans more than doubling from June 2006."

  • Subprime Crisis Good, Bad, Deja Vu For Trailer Parks (Reuters, Oct. 10th): "Country Meadows manufactured home community -- a.k.a. trailer park manager Frank Sigala: "Some (potential buyers) can't sell their homes and are stuck in the conventional market." Sigala calls [it] "the domino effect" from the subprime mortgage meltdown…Tighter lending standards have resulted in more business at the low end of the "mobile" market from young subprime borrowers now shut out of the conventional market. But many retirees -- high-end customers who usually pay cash -- are now unable to sell their conventional homes and move into communities like Country Meadows. People over 55 still own the majority of mobile and manufactured homes."

  • S&P Enhances Its Review of Data Quality Practices for U.S. Residential Mortgage Originations (PR Newswire, Oct. 10th): "Among the many factors contributing to the poor performance of recent vintages of U.S. residential mortgage-backed securities (NASDAQ:RMBS), the two cited most often are stretched underwriting guidelines and home price declines. However, industry reports have also mentioned fraud at the origination stage. S&P: Rating opinions are neither audits nor due-diligence reviews of mortgage originators. Yet, in light of industry reports questioning origination practices, it's increasingly important for both mortgage originators and RMBS issuers… to [assess] data quality… for fraud prevention and detection. S&P's Ratings Services is undertaking an analysis of data quality capabilities as part of its conduit and originator reviews."

Foreclosure Data

  • Real Estate Sales Down, Foreclosures Up (Outer Banks Sentinel, Oct. 11th) North Carolina: "Dare County has felt the crunch of a sluggish real estate market for the past 12 months evidenced by land transfer fees down more than 34. Adding to the financial squeeze is a 78% increase in the number of foreclosures in the county. Between Aug. 31, 2005 and Aug. 31, 2006, there were 217 foreclosures. From Aug. 31, 2006 to Aug. 31, 2007, the number jumped to 387. The increase is startling when compared to the percentage increase across the state which is 7%."

  • More To Face Loss Of Home In Mass. (Boston Herald, Oct. 11th): "Market tracker Warren Group: The number of Bay State homes falling into foreclosure is running at nearly double the pace seen a year ago… Lenders initiated foreclosure cases against 1,986 Massachusetts homes during August’s first three weeks. That’s up 90% from the 1,045 filings recorded during the same period last year… Warren also said lenders advertised 1,171 Bay State foreclosure auctions during August - a 57% increase from August 2006. Still, the number of advertised auctions has consistently fallen since peaking at 1,647 in April."

  • Detroit Foreclosures Up 30 Percent in September 2007 (PR Com, Oct. 10th): "Default Research: Detroit foreclosures increased by 983 Notices of Sales Filed in September 2007 over Sept. 2006… The Notices of Sales from August-September decreased in Wayne County by 374, followed by Oakland County with 185 and Macomb County saw 141 less. Foreclosures on the whole did not change over the past month with the Detroit area registering 4,265 Notices of Sales in August as well as September. Serdar Bankaci, President/CEO of Default Research: “Although foreclosures increased in Detroit from September 2006, all three major counties experienced decreases in the number of Notices of Sales filed over the past month."

  • Foreclosures Divided By Locale (Morning News, Oct. 10th) Northwest Arkansas: "RealtyTrac.com, Benton County had 1,103 foreclosures [year-to-date], up 85% over the 595 reported for the same time period last year. In Washington County, there have been 851 so far, up 130% compared to the 369 in 2006… Benton County had 186 foreclosures in September out of a total of 76,074 households… one out of every 409 households. Washington County, out of 77,035 households, had 129 foreclosures last month -- one of out of every 597 households… Foreclosures in Crawford County are down 16% to 264 so far this year from 316 reported in 2006."

  • Chicago To Address Rising Foreclosures (Medill Reports, Oct. 9th): "In H1'07, foreclosures in Chicago jumped to 6,329, a 35% increase from H1'06… Neighborhood Housing Services of Chicago: In 2006, the non-profit organization handled 668 foreclosure cases. Michael van Zalingen, NHS director of home ownership, said the housing market is creating a lot of work for the organization’s 10 housing counselors. By mid-September, housing counselors had already taken on 1,120 such cases. Van Zalingen estimates about 1,600 by the end of the year."

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

  • Stanley Furniture Cutting Va. Jobs (Citizen Times, Oct. 10th) Virginia: "Stanley Furniture Co. (NASDAQ:STLY) said Wednesday it is eliminating 250 jobs [13% of Stanley’s work force of 2,000] at its facilities in Martinsville and Stanleytown, where it is based. The company’s North Carolina factory lost more than 200 workers earlier this year… The decline in new-home sales has hurt several furniture makers as the purchase of a new home is often a catalyst for buying new furniture. Stanley… expects to record a $6 million charge ($4.1M after tax) related to the layoffs. That amounts to about $0.39/share and most of the impact should occur in Q4'07 and Q1'08."

  • Greenspan: US Economic Reports Look Favorable Through Third Quarter, But Growth Will Drop Off (Int'l Herald Tribune, Oct. 10th): "Former U.S. Federal Reserve chairman Alan Greenspan: While U.S. economic data looked good in Q3, the growth rate will continue to slow and the housing market will weaken further. Economic growth should continue to slow through the rest of the year and into Q1'08, while home prices have further to drop… Given the current climate, the odds that the U.S. will skirt a recession now look better than 50/50. In March, Greenspan put the odds of a recession over the next 6-9 months at one-third, but that could be offset by stock market prices if they continue to rise."

  • Weak Housing, Subprime Weigh on Bank Earnings (The Street, Oct. 10th): "The number of full-time employees in the [financial] industry dropped modestly in Q2. A sharper drop… is expected for Q3, accelerating in Q4, with recent staff reduction announcements by Countrywide Financial (CFC) IndyMac Bancorp (IMB) and National City (NCC). Bank of America's (BAC) pending acquisition of LaSalle Bank from ABN-Amro (ABN) is also expected to lead to significant layoffs… The recent failures of NetBank and Miami Valley Bank… have been quite rare in recent years. While individual deposit accounts are FDIC-insured... many small businesses, municipalities and other organizations could be caught with uninsured deposits in unstable banks."

Homebuilders And Housing Stocks

  • Rumor: Hovnanian Ripe for Toll Bros. Buyout (Asbury Park Press, Oct. 11th): "Shares of Hovnanian Enterprises Inc. (NYSE:HOV) climbed as much as 6.6% on speculation it may be bought by Toll Bros. Inc. (NYSE:TOL), the largest U.S. luxury homebuilder. "We don't comment on market speculation," said Doug Fenichel, spokesman for Hovnanian. A spokesman for Toll Bros. couldn't immediately be reached to comment. Hovnanian shares gained $0.57, or 4.7% Wednesday, to $12.63 at 4 p.m. in NYSE composite trading after earlier climbing as high as $12.86. Toll Bros.added $0.39 to $23.12."

  • Lennar Down $500M Cash (MSN Money, Oct. 10th): "Lennar's SEC quarterly report: Lennar Corp.'s cash position fell by more than $500 million between November 2006-August 2007. The homebuilder's cash position dropped to $128M on Aug. 31 from $662M on Nov. 30, 2006 and its total assets fell to $10.4 billion from $12.4B for the same time period. Lennar (NYSE:LEN) also reported its net receivables grew to $194M in August from $159M in November. The company has about $3.1B in finished homes and construction in progress, down 30% from $4.4B in November. Land under development inched up, to $3.2B from $3B."

  • Applying Ben Graham To The U.S. Markets (Globe and Mail, Oct. 10th): "Benjamin Graham's classic value screen… takes a company's current assets, minus all short- and long-term liabilities, to find a potential liquidation value for a company. The idea is to buy a stock that is trading for less than its net current asset value per share… Several home building stocks are still high on the list, including Dominion Homes, Comstock Homebuilding, M/I Homes and Orleans Homebuilders."

  • High-End Homebuilder Humbled (Motley Fool, Oct. 10th): "Luxury homebuilder Robert Lord Builders this week announced the auction of five high-end homes in snazzy St. Charles, Ill., by Inland Real Estate (NYSE:IRC)… The sale… includes a home owned by Robert Lord. It's unclear from that PR whether or not [it's] Lord's home… [Lord assured] Crain's Chicago Business… that he wasn't "pressured to sell the homes at auction." Of course not. But… up at the top of the article [it reads] "There are no homes selling." This is simply "out of the box marketing," according to Lord. Just one more desperate homebuilder trying to unload inventory, sounds like."

  • Buy a Home, Get a Lexus (Phoenix Business Journal, Oct. 8th): "Luxury builder Cachet Homes is partnering with Lexus for "Live and Drive in Luxury." From Oct. 12-21, Cachet Homes will offer anyone who purchases an inventory home in one of its 12 Phoenix-area communities a two-year lease on a Lexus. Cachet also is reducing prices on the homes by up to 20%, officials said. Local Cachet communities include Carrara Estates in Gilbert, Cachet Homes at Verrado in Buckeye, Cachet Homes at Vistancia and Blackstone in Peoria and the exclusive Villas at Whisper Rock Estates in Scottsdale. Earlier this year, Mountain Ridge Condominiums in Phoenix's Arcadia neighborhood offered Hyundai sedans to buyers."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

  • Wells Completes First Timberland Acquisition (PR Inside, Oct. 11th): "Wells Timberland REIT Inc., the first public, nontraded timberland fund, announced today it has completed its acquisition and lease of approximately 320,000 acres of commercially managed forestland in Georgia and Alabama from MeadWestvaco. It's the year's fourth-largest timberland transaction by acreage, as ranked by Forestweb. The $400 million transaction was announced in August, three months after Wells announced the launch of the new fund, and was completed with a sophisticated financing package… The company's business model seeks to generate revenue for the fund through the sale of timber-harvesting rights, as well as by leasing land-use rights."

  • The Ticker (Boston Herald, Oct. 11th): "MGM Mirage plans to spend as much as $5 billion on a new resort in Atlantic City, N.J., a bet some supporters believe will help stem the city’s declining gambling revenue."

  • NJ Commercial Real Estate Resilient In 3rd Quarter (Courier News, Oct. 11th): "Cushman & Wakefield: During Q3'07, North Jersey’s overall office vacancy rate declined slightly to 15.4%, down from 17.0% from one year ago. At the same time, average rental rates continue to hover at $27/sf, reflecting little change despite attempts by landlords to attract a growing number of tenants with incentive package offers… In Central Jersey, overall office vacancy rates edged down to 17.9%, as compared to 18.6% in Q3'06, and average rental rates increased slightly to $25.18/sf. Leasing activity in the central counties escalated during the normally slow summer months."

  • Fannie And Freddie Get REIT Action (Peter Slatin in Forbes, Oct. 10th): "Fannie Mae and Freddie Mac [bought] $9 billion in [Archstone LBO] debt, while the Irvine Co. bought a 90% stake in Archstone assets for a reported $1.4B. The closing of this high-profile and high-stakes deal… is a soft-landing watershed for the commercial real estate world in general and the REIT world in particular. That it was completed in the face of widespread market turmoil… appears to be a vote of confidence in the eventual return of liquidity to real estate capital markets, and in the present and long-term value of high-quality apartment assets in top U.S. regional markets, where Archstone has most of its properties. At the same time, it is an indication of where real estate deal makers who actually want to get deals done will have to go: Somewhere else."

  • Hypo, Depfa Merger Does Not Affect Ratings On Involved Banks - Moody's (Oct. 10th): "Moody's Investors Service: The debt and deposit ratings and the financial strength ratings of the various banks involved in the completed acquisition of Depfa Bank PLC by Hypo Real Estate Holding AG would remain unchanged at their current levels… Moody's also affirmed the ratings and stable outlooks of the groups' various special-purpose vehicles established for raising regulatory capital. Moody's has an 'A1/P-1' rating on Hypo Real Estate Bank International AG and an 'Aa3/P-1' rating on Depfa Bank. Moody's said Hypo's expertise in international commercial real estate and Depfa's know-how in public finance should allow for a complementary combination."

  • REITs Rise, Reversing Trend (Commercial Property News, Oct. 10th): "National Association of REITs (NAREIT): September marked the second consecutive month that REITs outperformed all other major U.S. market benchmarks. REITs did suffer collateral damage from the blow-up of the subprime residential lending industry, noted Brad Case, VP of research with NAREIT. “Since the collateral damage happened while underlying commercial real estate fundamentals remained very strong, equity REIT prices eventually represented a bigger and bigger discount relative to net asset value. Eventually, some investors recognized the big discount."

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