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Quote of the Day- "From the House's Mouth"
"The commercial market has not been dragged down by the residential mortgage mess because for the most part, buyers and sellers are more sophisticated, and have more financial flexibility and resources, to ride out credit-market turmoil." - Real Estate 'experts', as quoted by Associated Press reporter Dan Caterinicchia. (California Daily Bulletin, Oct. 22nd)
Real Estate Sales and House Prices
- Smart Money Knows It's A Good Time To Buy (Island Packet, Oct. 22nd) Hilton Head Island, South Carolina: "In the first 10 months in Sea Pines Plantations, 14 oceanfront homes have been placed under contract and 12 have closed... From Oct. 1, 2004 through the end of 2006, only 13 closed. So in a short 10 months, Sea Pines oceanfront sales have surpassed 27 months of sales. For the past two years, we've read about doom and gloom, yet, the money people are buying. Maybe they are sending us a big message... Who will take advantage of a perfect time to buy?"
- Large Drop in Houston Real Estate Sales in September (Houston Real News, Oct. 21st): "It's the worst sales decline in over ten years... Houston Association of Realtors: Total property sales of 5,984 for the month of September is a decrease of 16.7% from the previous year's numbers. That's two hundred million dollars less of overall sales volume... The average price for single-family homes increased by 2% from last September's average, while the median price rose by 0.3%. The latter marks one of the ten highest months for median price in Houston. Inventory is up as well. HAR reported a 15.5% increase in available homes from last year's active listings."
- Subprime Crisis Forces McMansions to Take McBreather (Reuters, Oct. 21st): "Across the U.S. even in wealthy areas like this -- Hinsdale's median asking price for a home is $1.5 million -- residential property sales have been slowed to a crawl by the subprime mortgage crisis... Hinsdale houses are now taking 6-9 months to sell, compared with 4-6 months during 2004 and 2005. There are 69 active listings in the town priced at $2 million or more. Local realtor Bryan Bomba Group: "At the current rate of absorption, it would take two and half years to work through that inventory."
- Plummeting Home Prices: A Crash or a Correction? (Sign On San Diego, Oct. 21st): "The peak-to-trough decline in the median home price in San Diego widened from 5.6% in July to 8.3% in August to 9.2% in September... Most local economists say... a rebound might not occur until 2009. Real estate tracker DataQuick: Since hitting a peak of $518,000 in November 2005, the median price of a home sold in San Diego County has tumbled to $470,000 as September... Last month, the median prices of homes sold in National City, San Ysidro, Linda Vista and northern Chula Vista were all off by more than 25% from September 2006. Prices in Golden Hill were down 35%."
- Median Home Prices Rise But Area Sales Slow (Courier Journal, Oct. 18th) Kentucky: "Greater Louisville Association of Realtors: The median price of homes sold last month in the metro area rose more than 5% from a year ago to $142,000... It would take 10 months to sell all the listings in Louisville given current sales trends, up from 61/2 months in September 2006... In September, 1,115 houses and condominiums sold, down 13% from a year ago. [Year-to-date] sales... are essentially flat. The median price for homes sold through the first nine months of this year is now $140,000 -- a 1.5% increase from the same period in 2006."
- Looks Like Slide's Still Ahead On Home Prices (Palm Beach Post, Oct. 22nd): "Florida Association of Realtors: The median price of an existing single-family home in Palm Beach County has already fallen 13% [to $366,200 in August] from its high of $421,500 in November 2005... Our take: Home sales have fallen because people can't afford to buy them anymore. Home prices have far outpaced income. The ratio of home prices to income should be about 3-to-1, federal guidelines say. In Palm Beach County, the ratio was 7-to-1 in last year's study by Housing Leadership of Palm Beach County."
Global Subprime Fallout
- Europe Feels Pinch As Housing Boom Slows (Wall St. Journal, Oct. 22nd): "Home prices in some of Europe's hottest markets are falling after a decade of double-digit-percentage increases. The reasons resemble those across the Atlantic: higher interest rates, faltering confidence and tighter lending standards... Facilisimo.com: Home prices in Spain more than doubled over the past 10 years, but the average price of an existing home has fallen slightly since July... France experienced its first quarterly home-price decline in almost a decade in Q3, according to its federation of real-estate agents, while Irish house prices in August were 1.9% below the year-earlier level... Construction in Spain and elsewhere is easing... Construction accounts for about 10% of Spain's annual output, compared with about 7% in the U.S."
- BNP Paribas Chief Repeats Subprime Reassurances (Forbes, Oct. 21st): "BNP Paribas CEO Baudoin Prot repeated his previous assurances today that the bank has only limited exposure to the subprime credit crunch: 'Less than 10% of revenues are at stake in businesses that are likely to slow down,' including housing, securitizations, collateralized debt obligations and leveraged loan financing. Prot said BNP's Asian operations and its substantial involvement in the energy and commodity businesses should 'protect the profitability base of our bank.' BNP Paribas was one of the first victims of the market liquidity crunch in August when it was forced to temporarily freeze three investment funds."
- Commerzbank CEO Says 80 Mln Eur Writedowns Due To Us Subprime Not Enough (Forbes, Oct. 21st): "Financial Times Deutschland: Commerzbank AG CEO Klaus-Peter Mueller said the bank's €80 mln writedowns due to its US subprime mortgage exposure is not enough: 'Commerzbank has invested €1.2 billion in the subprime sector. The €80M that has so far been announced as writedowns reflect the information available in early July. That is not enough.' He [reiterated], however, the bank's full year forecasts. 'We will do what needs to be done and we could also afford it.' Commerzbank has previously announced that its US subprime exposure will result in it writing off €40M in Q2 and another €40M in Q3."
- Crumbling Credit (Barron's, Oct. 22nd): "Markit.com, ABX keeper: Subprime mortgages -- as indicated by the ABX index of credit default swaps (a type of credit insurance) on asset-backed securities rated triple-B-minus (one notch above junk) -- traded at record low prices... Loan [values] from H1'07 fell to just $0.21.5 on the dollar, down from $0.28 at the beginning of the week and 97.47 at its peak at the beginning of the year... Treasury International Capital Data: August's credit crisis [precipitated] a... foreign capital exodus of $163 billion from U.S. long-term securities, money markets and, especially, banks... A stunning reversal from the $94B in inflows in July."
- Fitch Affirms $93.2MM & Downgrades $14.5MM from Meritage Mortgage Corp. (NYSE:MTH) 2004-2 (Business Wire, Oct. 19th): "Fitch Ratings: Meritage Mortgage Corporation asset-backed certificates... affirmations reflect an adequate relationship between credit enhancement [CE] and expected loss and affect approximately $93.2 million in outstanding certificates. The downgrades affect approximately $14.5M of the outstanding certificates. The negative rating actions reflect continued deterioration in the relationship between CE and future loss expectations. The transaction is experiencing monthly losses that exceed the available excess spread [XS]. As of the September 2007 distribution, the transaction has exhausted its overcollateralization [OC] and the most subordinate bond has begun to experience writedowns due to losses. Non-performing loans (i.e. loans in 60+ delinquency, including foreclosure, bankruptcy, and REO [real estate owned]) comprise 38.15% of the pool."
- S&P Cuts $22 Bln Subprime RMBS, Affirms $531.6 Bln (Reuters, Oct. 19th): "Standard & Poor's on Friday cut ratings on about $22.02 billion of U.S. residential mortgage-backed securities backed by subprime loans, citing increased delinquencies and foreclosures. The downgrades affected 1,413 classes of RMBS issued between Q4'05 and Q4'06. Delinquencies on the classes downgraded averaged 23.3%. The RMBS classes were backed by first-lien subprime loans from 325 transactions. "S&P expects that conditions in the U.S. housing market, especially in the subprime sector, will continue to decline before they improve, with home prices remaining under stress." Ratings on $531.6 billion of RMBS issued during this period were affirmed, S&P said."
- Buyers Pounce as Homes Go on the Block (NY Times, Oct. 21st): "Real estate agents say [Saturday's was] the largest-ever auction of foreclosed properties in Minnesota... The auction, like others that have proliferated around the country this year, tapped the contradictory forces of the current real estate market, in which mass foreclosures and sinking home values, along with predictions of more pain to come, still stoke the urgency to buy right now... Minnesota Homeownership Center projected statewide foreclosures at 20,000 this year, up from 11,000 last year, based on data from sheriffs’ sales... In Minneapolis, 55% of foreclosures this year involved houses not occupied by their owners, according to county records."
- Short Sales Increasing As Homeowners Seek To Avoid Foreclosure (KREN TV, Oct. 21st): "Some Las Vegas real estate brokers are seeing an increase in the number of short sales of homes as an alternative to foreclosures. Short sales represent the sales of homes below the amount remaining on the mortgage owed to the bank. Wingate Mortgage Group broker Arthur Marvin says there are 3,350 homes listed as short sales in Las Vegas, more than double the number from four months ago. Marvin says rising foreclosures are prompting short sales as a last resort. Short sales... are considered a better alternative to having a damaging foreclosure listed on the homeowner's credit report."
- The Downside of Progress Hits the Banking Industry (Michael Panzner in Seeking Alpha, Oct. 19th): "A growing number of investors... are walking away from their properties and ultimately sending their homes into foreclosure, lenders and real-estate agents say. Many ["flippers"] are now left with homes that can no longer be sold for more than the mortgage debt. In many cases, these investors can't even find tenants willing to pay enough rent to cover hefty mortgages... Mortgage Bankers Association August study: Defaults on mortgages where the owner doesn't live in the house are a major driver of the defaults in Florida, Nevada, California and Arizona -- four of the states with the fastest rising rates of seriously delinquent loans."
Global Opportunities and Alternatives to the Housing Slump
- French Retailer Casino To Sell Property Assets (Wall St. Journal, Oct. 22nd): "French supermarket company Casino Guichard-Perrachon & Cie. said it plans to sell a number of real-estate assets for €650 million ($932M) as it further restructures its property portfolio. Analysts welcomed Friday's sale-and-leaseback deal for its role in improving the company's debt-to-earnings profile, but said it wouldn't radically change the company's operating results... The real estate will be bought by a newly created property investment vehicle, taking advantage of tax breaks designed to promote property investment in France. A number of institutional investors are lined up to invest in the vehicle, with Casino owning 10%-18% of its capital."
- GE Real Estate Makes Debut Investment in Russia (CNN Money, Oct. 19th): "E Real Estate today announces... an investment of US$50 million in Heitman Russia Property Partners, a new fund which will have US$150M of equity. Along with GE Real Estate and two other institutional investors, Heitman LLC, who is acting as manager, is also taking a sponsor equity stake... HRUPP will aim to acquire development and refurbishment projects in the retail, office, warehouse and residential sectors, throughout Russia... GE Real Estate and Heitman, having previously co-invested in the €50m HCEPP I and €50m HCEPP II funds, which owns real estate investments in the Czech Republic and Poland."
- U.S. Commercial Real Estate Bulls Run South Of The Border (CNN Money, Oct. 18th): "U.S. real estate investors are staking claims in Latin American countries where growth has returned... Property yields have hit 9%-15% a year there, compared with roughly 5%-8% in the U.S... Real estate firm Jones Lang LaSalle: Foreign investors [bought] $143 million in Brazilian property in H1'06... [and] more than 15 times that in H1'07, about $2.2 billion. U.S. REITs, private equity funds and other backers are behind much of the activity... This year, developer Hines and CalPERS, the California Public Employees' Retirement System together raised a $100M fund to finance some $300M in property acquisitions and development in Mexico."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Housing Isn't Clobbering GDP (Barron's, Oct. 22nd): "The standard measure of gross domestic product shows [that] ever since the housing bust began, GDP growth, excluding residential investment, has accelerated...Probably, if housing hadn't gone bust, the rest of the economy would have expanded even faster. [This] suggests that, if the housing sector worsens even further -- which now seems likely -- the economy will nonetheless muddle through... One reason that construction jobs haven't suffered as much as you'd expect is that commercial building has been soaring at an annual rate of 13.5% since Q4'05."
- It's October - Should We Be Buying? (Alan Brochstein in Seeking Alpha, Oct. 22nd): "I am... betting that finally the consumer succumbs to his high debt burden. Like an alcoholic, he was never going to give it up, but it looks like... the tab [has] to be paid. Without the enablers, the consumer will retrench. The Financial and Consumer stocks probably still have some downside, but the real opportunities for price declines are in those sectors where investors mistakenly assume that there is safety. This next year could be very interesting – a slowing economy, a weak stock market and a Presidential election. My call: 1150 on the S&P 500 a year from now, a decline of over 20%."
- Housing Market Worries Affect Renovations, Too (Chicago Tribune, Oct. 21st): "Joint Center for Housing Studies at Harvard University, Leading Indicator for Remodeling Activity quarterly report: Credit availability is a critical factor for remodeling... Three months ago, the [report] was predicting a 3% increase in remodeling expenditures this year, but the recent report projected that spending on remodeling will remain flat for the next three quarters. Though the study found a large majority of homeowners said they agreed, at least to some extent, that putting money into their homes "is always a good investment," they were less confident when asked whether home values would increase in the next two years."
- Property Worsens: Beginning, Middle or End? (Barry Ritholtz in Seeking Alpha, Oct. 18th): "The manifest problems in Housing are twofold: Prices are too high, and inventory is too great... Once prices come down further, the supply problems will begin to clear up. So the enormous drop in permits/starts is, perversely, a good thing. New construction of homes in the U.S. fell 10.2% in September (seasonally-adjusted 1.19 million units). [The] 4th consecutive monthly decline [and] the lowest level for new home construction since March 1993. Starts of single-family homes fell 1.7% to 963,000 (annualized); Construction of large apartment units plummeted 34.4% to 228,000. Building permits fell 7.3% to a seasonally-adjusted rate of 1.23 million -- the lowest level since July 1993."
- Surprise! Housing Down, Inflation Up (Tim Iacono in Seeking Alpha, Oct. 18th): "Housing starts plunged to a 14-year low last month, falling 10.2% from August, and building permits fell 7.3% to the lowest level since 1995... On the inflation front, higher consumer prices across the board lifted the consumer price index 0.3% in September putting the year-over-year increase at 2.8%... Now would probably be a good time for the Bureau of Labor Statistics to revert to using "real" (i.e., falling) home prices rather than owners' equivalent rent in calculating the consumer price index. These falling prices may help to offset rising prices just about everywhere else and then they could still say that consumer prices are only rising at an annual rate of 2%.
Homebuilders And Housing Stocks
- U.S. Stocks Rise, Led by Banks, Builders; Beazer Homes Rallies (Bloomberg, Oct. 22nd): "Beazer Homes (NYSE:BZH), the most-shorted company on the NYSE as of Oct. 15, climbed $0.80, or 8.8%, to $9.86. "Chatter went around this morning that there was going to be a strategic infusion of cash in the company... [or] about Beazer as a possible takeover candidate because the price of the stock is so low '' said Frank Davis, director of sales/trading at Lek Securities Corp....'' D.R. Horton (NYSE:DHI), whose shares are down 52% this year, added $0.84, or 7%, to $12.79. A gauge of homebuilders in S&P indexes climbed 6.8%, the most since October 2002, as all 15 members advanced."
- Market Slump Carries Over To New-Home Developments (Record Net, Oct. 21st): "Florsheim Homes'... marketing strategy to try to move a few remaining "close-out" homes in two longtime projects - three homes in Turlock and seven in Ceres. Through next weekend, the company is staging a "Name Your Price" sale... with no minimum price set... Pulte Homes (NYSE:PHM), one of the national home builders that jumped into the Central Valley market during the boom years, has a marketing promotion this weekend at its Spanos Park West developments in north Stockton.The promotion includes free hot dogs for lookers, plus, for buyers, no mortgage payments for the first 12 months."
- NVR's Profit Falls, But Housing Orders Rise 12% (CNN Money, Oct. 19th): "Residential builder NVR Inc. (NYSE:NVR) on Friday said its third-quarter net income fell 30% y/y... Quarterly profit fell to $91.1 million, or $15.26/share, from $129.2M, or $19.63/share in Q3'06... Results included land-deposit impairments of about $96.5M... New orders rose 12% to 2,660 units, although it noted activity slowed "significantly" in August and September due to tightening in credit markets. The average new-order price in Q3 fell 9% y/y to $330,100. The cancellation rate rose to 27% from 16% in Q2. Home-building revenue fell to $1.27 billion from $1.53B in Q3'06. NVR closed 10% fewer homes at 3,476 units."
- 24 Townhomes To Be Auctioned Sunday (San Jose Mercury News, Oct. 19th): "Beverly Hills-based auctioneers Kennedy Wilson will be auctioning off 24 townhomes Sunday in Berkeley. The 24 townhomes are part of Devon Square, a San Pablo development by Pulte Homes (PHM), and will be starting off with minimum bids of $250,000, approximately $100,000 less than their original asking price... No bids below the minimum bid of $250,000 will be recognized. The homes are 1,500 to 1,675 square feet and up to four bedrooms and three bathrooms per unit. They feature stainless steel appliances, maple cabinets, tile floors and Corian counters."
- Number Of Foreclosures Taking A Jump (Pahrump Valley Times, Oct. 19th) Nevada: "The real estate slump has also affected building activity. While commercial projects are going up, Pahrump Building and Safety issued only 24 permits for new single-family residences in September, the lowest monthly total since May 2003... At the Beazer Homes Tesora at Pahrump project, 14 large homes from 2,357-2,995-sf were already constructed on Sedgwick Avenue at The Enclave. But no one seemed to be on duty at the sales office Wednesday morning. A walled community of Beazer's Burson Ranch up the street, where the sign advertised homes of 1,625-2,749-sf, was empty inside the walls."
- City Council Votes to Make New Austin Homes Energy Efficient (My FOX Austin, Oct. 18th): "The Austin City Council approved... energy efficient home building rules. The City Council approved a plan to achieve "zero energy capable homes" by 2015... The anticipated result is that every home built after January 1st is 19% more energy efficient... But the new energy efficiency would make the home building more expensive. The initial costs can be recouped rather easily, but the long term plan might make homes unaffordable... "LED lighting is still very expensive to install in homes. We'll also need to see the availability of silicone and those prices come down," Tara Thomason with Centex Homes (CTX) says."
- HNI 3rd-Quarter Profit Falls Slightly (Forbes, Oct. 18th): "HNI Corp. (NYSE:HNI), which manufactures office furniture and fireplaces, said Thursday third-quarter profits... totaled $35.3 million, or $0.76/share, from $35.8 M, or $0.72/share. Revenue fell 1% to $674.6M from $684.3M a year ago. Analysts predicted a profit of $0.62/share on revenue of $672.7M. HNI said it expects... a difficult retail environment will continue. Stan Askren, HNI chairman, president and CEO: "We anticipate office furniture market conditions to remain similar to recent quarters - continued softness in the supplies-driven channel and solid demand in our contract businesses. Conditions in our hearth business continue to deteriorate with the general housing market."
Commercial Real Estate and Real Estate Investment Trusts (REITs)
- Commercial Real Estate Slows (California Daily Bulletin, Oct. 22nd): "Real-estate research firm Real Capital Analytics: Led by strong growth in the office and retail segments, commercial property sales hit $401 billion through Oct. 18, outpacing last year's $359B total. Commerce Dept.: Construction spending on office buildings, shopping centers and other private, nonresidential projects jumped 15.2% in August. There are some signs of slowing growth, analysts say, but nothing compared to the residential real estate market, where foreclosures and mortgage defaults are still rising rapidly... Most economists forecast further declines in home sales and prices, making it "the most significant current risk to our economy," Treasury Secretary Henry Paulson said last week.
- Pittsburgh Commercial Real Estate Market Shows Steady Improvment (Pittsburgh Tribune Review, Oct. 21st): "Moody's Q3 report: Continued improvement in the Pittsburgh commercial real estate market over the last two years, with the region tying Tucson and Minneapolis for sixth-best market in the nation. The lofty ranking came thanks to an improved performance in several of the seven categories of the real estate market evaluated by Moody's -- multifamily, community or neighborhood shopping areas, central business district offices, suburban offices, industrial, full-service hotels and limited service hotels. Pittsburgh's score of 77 [out of 100] was driven mainly by a 100 for its multifamily housing market segment and a 78 and 70, respectively, for limited-service and full-service hotels."
- Accredited Announces Plans to Delist and Deregister REIT Preferred Shares (Trading Markets, Oct. 19th): "Accredited Home Lenders Holding Co. (LEND) and its subsidiary, Accredited Mortgage Loan REIT Trust (NYSE:AHH), announced today that REIT has [notified] the NYSE of its intent to voluntarily delist its 9.75% Series A Perpetual Cumulative Preferred Shares (par value $1.00 per share, CUSIP 00438G 20 5) from the NYSE and to deregister the Preferred Shares, and Accredited's guarantee with respect to the Preferred Shares... REIT anticipates filing the Form 25 on or about October 29, 2007, and the Form 15 for each of the Preferred Shares and the Guarantee will be filed approximately ten days thereafter."
- U.S. Commercial Real Estate Bulls Run South Of The Border (CNN Money, Oct. 18th): "Brazil's rising retail sales, up 10% at midyear, are drawing American retail REITs. Developers Diversified Realty (NYSE:DDR) last year acquired a 50% interest in Sao Paulo-based Sonae Sierra Brazil, which owns nine retail assets. The partnership will open a mall in 2009. Developers Diversified's initial stake was valued at $150 million. Chicago-based General Growth Properties (NYSE:GGP) has acquired an ownership interest in eight centers since entering into a joint venture known as Aliansce Shopping Centers in 2004. Aliansce is building four regional shopping centers in Brazil. Two are due to open late this year.".
Tracking the Housing Market and Homebuilder Stocks
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