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Quote of the Day- "From the House's Mouth"
"Sales are down almost everywhere except Buffalo, N.Y., and that's because they never went up in Buffalo." - Mark M. Zandi, chief economist for Pennsylvania-based Moody's Economy.com. (Journal Sentinel, Oct. 24th)
Real Estate Sales and House Prices
- With Buyers Sidelined, Home Prices Slide (Wall St. Journal, Oct. 25th): "National Realtors Association: [A 10.5 months supply] of previously-owned homes listed for sale nationally... Doug Duncan, chief economist, Mortgage Bankers Association: [Foreclosure numbers may be higher because] not all foreclosed homes are sold through real-estate agents. Local real estate brokerage Esslinger-Wooten-Maxwell Inc.: In Miami-Dade County, there's a 57-month supply of condos... Single-family homes supply is 38 months... In Orlando...Single-family homes and condos supply is [at] 28 months...24 months in the Detroit metro area; 20 in Tampa, Fla. And 15 in Sacramento, Calif... In the Portland area [a stronger market] an 8.6 month supply, up from 4.5 months a year ago."
- Home Prices Now Falling In Broward (Miami Herald, Oct. 25th): "Prices of homes and condos in Broward County dropped in September compared with Sept. 2006... Stubborn sellers may finally be accepting the reality that they are no longer able to get the sky-high prices of the boom years... Broward's single-family home sales were off last year's number by 46%; condo sales declined 39%... The median home price [was] down 7% year-over-year to $345,200 while condo prices slipped 15% to $174,600.In Miami-Dade, single-family home sales... dropped 53% from September 2006. Condo sales were similarly off 47%. Home prices were mostly flat at $372,300, and median condo prices rose 2% to $275,000."
- Unprecedented Opportunities for Buyers as Bay Area Market Struggles in the Third Quarter (PR Newswire, Oct. 24th) California: "Prudential California Realty/MLS Q3 report: Home sales declined by 30% in the Bay Area, year-over-year, across all housing types... Median prices rose 9% y/y. Listing inventory... dropped by 7% after stabilizing in Q2. All counties reported decreases in sales, with Solano continuing to have the most significant decline (-46%) while San Francisco had the smallest drop (-16%), y/y... San Mateo and Marin recorded the highest overall increases in median price (12%) across all housing types. Prudential: "We are seeing some positive signs in the [beginning] of Q4 in several counties, but... the market is still struggling."
- O.C. House Prices At 2 1/2-Year Low, Realtors Report (OC Register, Oct. 24th): "California Association of Realtors: September sales of existing, single-family houses tumbled 32.9% in Orange County from September 2006. The median price for a single-family home was $673,770, down 4.6% from September 2006. That's the biggest percentage drop since April 1995. The sales reflect... August's credit crunch [which] made it harder for buyers to... get financing... Statewide California sales fell 38.9% from September 2006. September's sales pace [would mean] an annual total of 271,590 home sales, vs. 650,000 two years ago. The statewide median price was down 4.7%, to $530,830-- the first decline in the statewide median in 10 years."
Real Estate Investment and Sentiment
- HGTV Spruces Up 3 Real Estate Shows (Hollywood Reporter, Oct. 25th): "HGTV has re-upped three of its popular real estate series. "House Hunters," produced by Pie Town Prods., follows people through the process of looking for and buying home. "Hidden Potential," from Leopard Films, allows prospective homeowners the chance to see potential renovations before they buy using computer-generated graphics. "My First Place," produced by High Noon Entertainment, follows first-time buyers as they search for, finance and purchase their first homes."
- Calif. Wildfires Loss Reaches $1 Billion (Kentucky.com, Oct. 24th): "About 1,500 homes and more than 410,000 acres have been scorched across seven Southern California counties... Ron Lane, director of emergency services in San Diego County, the hardest hit area, said damage in that region alone has reached $1 billion. At least 1,200 homes had been destroyed in the county... Rebuilding homes and businesses with an influx of insurance and government aid should stimulate the lagging construction industry, which has lost 28,600 jobs in the past year amid the housing slump. The region [recovered quickly from] the 2003 firestorms that destroyed more then 3,600 homes and caused insured losses surpassing $2 billion.
- Aging America Proves A Lucrative Real Estate Niche (Medill Reports, Oct. 24th): "U.S. Census Bureau: Between now and 2050, the population of older adults will double, growing at a rate of up to 2.8% a year... Senior Living Investment Brokerage Inc., sells nursing and assisted living facilities...Grant Kief, CEO: The capitalization rate, the rate of return on the investment... for apartment and retail real estate has dropped to around 4-5%, but the rate for senior housing is between 8-12%. In 2006 the company brokered 22 transactions totaling $260 million. Its revenues were over $4.2 million last year, and Kief expects that to jump to $6.5 million in 2007."
Global Housing Impact/Global Subprime Fallout
- Purchaser Of Jelmoli Real Estate Portfolio Refuses Closing (ABN Newswire, Oct. 25th): "The Israeli purchasers of Jelmoli's real estate portfolio have not confirmed their commitment to close the transaction within the time period set by Jelmoli. Jelmoli must therefore conclude that the purchasers intend, in breach of contract, not to close the transaction... On July 31, 2007, Jelmoli announced the sale of its Swiss real estate portfolio to Igal Ahouvis Blenheim Properties Group, Delek Global Real Estate (NYSE:DK) and Delek Belron International. The contractual purchase price is CHF 3.4 billion... On September 20, 2007, the purchasers asked for a renegotiation of the purchase price... The share purchase agreement, [gives] no such right."
- Copper Futures Drop On US Housing Slump (El Financiero, Oct. 24th) Mexico City: "The U.S. is the world's second largest consumer of the red metal, only behind China. In this context, the copper contract on the Commodity Exchange [Comex] for delivery in December fell $0.06.1, or 1.7%, to close at $3.4525/pound, after falling to an intraday low of $3.432, its lowest price since September 18. The National Association of Realtors reported Wednesday [that] U.S. sales of used homes in September declined to an annual rate of 5.04 million units, the lowest level in almost 10 years, reflecting a drop of 8.0% versus August's revised-down annual figure of 5.48 million houses."
- Japan's Mizuho To Report First-Half Losses Due To US Subprime Crisis - Reports (Forbes, Oct. 24th): "Mizuho Financial Group Inc may post wider-than-expected losses in FH1 due to the US subprime loan crisis. Asahi Shimbun newspaper: Japan's number two bank is expected to post 50 billion yen in losses for H1, well above the 600 million yen it initially forecast... The banking group's investments in US funds were hit by the subprime woes... Brokerage firm Mizuho Securities, a group subsidiary, is likely to post a loss of up to 10B yen for the six months to September as it is forced to write down the value of its securitized debt products."
- Buffett Sees Subprime Woes Lingering (Business Week, Oct. 25th): "American billionaire investor Warren Buffett said Thursday that he is still negative on prospects for the U.S. dollar and that problems in the U.S. subprime mortgage sector may continue to cause difficulties for some time. Buffett said that he remains "negative on the dollar relative to most major currencies." He said that subprime problems could weigh on consumers for anywhere from another six months to two years."
- Jeremy Grantham: 'I'm Fed Up' (Jeremy Grantham in Seeking Alpha, Oct. 25th): "Where has the credit crisis left us other than with a carefree stock market? Banks are still not happy lending to other banks, and their rates for this, which surged in the crisis, are still [high]. Mortgages are harder to get and will probably worsen. Leveraged corporate debt is still more costly, [and with stricter] provisions... Credit default swaps [which rose precipitously] have backed down 60%. The worst part of the crisis – the freezing of all lending – has passed... [But now] the reappraising of risk and other economic effects of the credit crisis will play out slowly over the next year or so."
- Why Merrill Lynch Got Burned (Business Week, Oct. 25th): "Merrill Lynch (MER) is left holding billions of dollars in less attractive pieces of unsold [subprime] CDOs. These "super senior tranches"—carry higher credit ratings because they are [least likely] to default, but... are [also] rarely traded, low-yielding, and difficult to value. Merrill [held] a lot of CDO tranches by virtue of its prime underwriting role, up to $32 billion... as of June 29. Now, Merrill has written down the value of those hard-to-trade securities by $5.8B and says it has cut its overall holdings by half. A future write-off [could be] looming... if ratings agencies downgrade Merrill's remaining CDO securities."
- National City's Subprime Misery (Forbes, Oct. 24th): "Midwestern lender National City Bank (NCC) [said] bad loans caused Q3 net income to plunge 80% to $106 million, or $0.18/share, from $526M, or $0.86/share in Q3'06. Analysts has projected EPS of $0.31. National City’s mortgage banking business lost $152M, or $0.25/share as the value of write-downs increased from $117M to $141M. Lending and non-interest income together fell 15%, while expenses increased by 3%. National City is one of the ten largest banks in the country in terms of deposits and mortgages. But the bank has heavy mortgage exposure in Michigan and Florida, two states hit hard by declining housing prices."
- Foreclosure.Com Partners with Indymac Bank to Help Lender Market and Sell REO Listings (PR Newswire, Oct. 24th): "Foreclosure.com announced a partnership with Indymac Bank (IMB)... to market and facilitate the sale of thousands of Real Estate Owned [REO] properties via the Internet. Foreclosure.com maintains a nationwide database of more the 1.2 million listings that includes foreclosures, preforeclosures, bankruptcies, For Sale by Owner (FSBO) homes and tax liens in one convenient location. Foreclosure.com President/CEO, Brad Geisen: "More than 80% [of] buyers now start their home searches on the Internet... We are confident... the agreement [with IndyMac] will help reduce the number of REO listings on its books."
- Ofheo Is Pressured Over Mortgages (Wall St. Journal, Oct. 24th): "The Office of Federal Housing Enterprise Oversight has [recently] fielded a steady stream of unsolicited letters from lawmakers and other parties urging the regulator to allow [government-backed mortgage funders] Fannie Mae (FNM) and Freddie Mac (FRE) to boost their portfolios... Pressure on the [regulator] has grown as mortgage-market problems have intensified. In early August, Fannie asked Ofheo if it could [ease] regulatory portfolio limits to provide more market liquidity. Ofheo [eventually agreed to a slight increase.] Neither Fannie nor Freddie has filed timely, audited financial statements in several years... The safety and soundness of both firms remains a concern."
- Foreclosure Filings Up 99 Percent Since '06 (CBS News, Oct. 24th): "Since last September foreclosure filings went up 99% nationwide... New York City comptroller William Thompson: "NYC will experience roughly 15,000 foreclosures filings this year, more than double the total two years ago... Far too often, lenders are being irresponsible." Tuesday, Countrywide Financial, the largest mortgage lender in the country, announced it would offer tailored solutions to its at-risk borrowers. Some say that move is too little too late. "This is a glorified payment plan. It's a very complicated razzle dazzle," said Bertha Lewis of the Association of Community Organizations for Reform Now, or A.C.O.R.N."
Global Real Estate Opportunities
- Istithmar Attains $10b Investment Landmark(Khaleej Times Online, Oct. 25th): "Istithmar Real Estate, the Dubai World business unit which manages investments in real estate around the world, yesterday celebrated its $10 billion investment landmark. Istithmar Real Estate was established in April 2006... under Istithmar PJSC, the investment arm of Dubai World... In 18 months... the company has invested in the V&A Waterfront in South Africa; in One and Only operator Kerzner and in Millenium Hotels and Copthorne operator CDL REIT... and in the Adelphi and in One Trafalgar Square in London, amongst others... It is also building 38 easyHotel properties across the Middle East, North Africa and the Indian subcontinent."
- HSBC Signs Big Property Financing Deal (Vietnam Economy, Oct. 25th): "Hong Kong-Shanghai Banking Corp.'s (HBC) branch in Vietnam on October 24 inked a 10-year deal to finance one of the Phu My Hung Company’s largest property projects. The $21 million deal is one of HSBC’s largest so far in the country. With this deal, HSBC has become the first foreign bank in Vietnam to provide commercial property development financing for a 10-year period. The HSBC-financed project includes two office buildings in District 7, one is expected to be finished late this year and the other in August 2009."
- Cohen & Steers Reports Third Quarter 2007 Results- Assets Under Management Total $34.7 Billion (PR Newswire, Oct. 24th): "Cohen & Steers, Inc. (NYSE:CNS) reported Q3 net income of $15.9 million, or $0.37/diluted share and $0.38/basic share, [vs.] net income of $15.7M, or $0.39/share (diluted and basic), for Q3'06. Total revenue for Q3'07 was $69.5M, an increase of 28.7% from $54.0M for Q3'06. Further diversifying the company's offerings for high-income portfolios, it has introduced [a] new fund: Cohen & Steers SICAV Asia Pacific Real Estate Securities Fund, an open-end mutual fund for non-U.S. investors on October 1, 2007. The fund seeks income and long-term capital appreciation, investing in shares of publicly traded Asia Pacific real estate companies."
- AMB Property Corporation Breaks Ground on 608,000 SF in China (PR Newswire, Oct. 24th): "AMB Property Corporation (NYSE:AMB), a global developer and owner of industrial real estate, today announced that it has broken ground on two development projects in China totaling more than 608,000-sf ... AMB Beilun Port Distribution Center is located in the Ningbo Economic & Technological Development Zone [NETDZ], one of China's premier business and port areas. The facility represents the first investment by an international industrial property developer in the NETDZ and is expected to be 398,000-sf."
Macro Impact, And Will The Housing Slump Cause A Recession?
- U.S. New-Home Sales Rose in September After Revisions (Bloomberg, Oct. 25th): "Commerce Department: Sales of new U.S. homes unexpectedly rose... 4.8% to an annual rate of 770,000... August purchases were revised down to an 11-year low of 735,000. Residential sales will remain weak as credit restrictions and higher mortgage rates limit the number of eligible buyers. Reduced demand is hurting purchases of housing-related products, such as furniture and appliances, and threatens [consumer] spending... The median price rose 5% from September 2006 to $238,000. The number of homes for sale at the end of September fell 1.5% to 523,000, the fewest since January 2006. At the current sales pace... inventory of unsold homes is down to 8.3 months.
- Reports Suggest Broader Losses From Mortgages (NY Times, Oct. 25th): "Economists say the troubles in the mortgage market could... cost financial firms and investors up to $400 billion... far more than the roughly $240B cost... of the savings and loan crisis of the early 1990s... The loss in total real estate wealth is expected to range from $2T-$4 trillion, depending on how far home prices fall... The stock market collapse earlier this decade erased more than $7T, or about 40%, of market value... [However,] the loss of real estate wealth could prove more damaging for the general public than falling stock values because more American families own homes than own stock."
- AutoNation Sees Housing Impact On Sales Continuing (CNN Money, Oct. 24th): "Mike Jackson, CEO of AutoNation Inc. (NYSE:AN), the nation's largest auto retailing chain, said Wednesday he expects the housing slump, which has depressed auto sales, to last "at least a year," but said that the sub-prime issues that have roiled the mortgage markets haven't extended to auto lending... AutoNation reported Wednesday that third-quarter net income fell 12% to $72.1 million, or $0.37/share, from $81.8M, or $0.38/share, a year earlier, on a decline in new-vehicle retail sales... California and Florida, two areas hardest hit by the real estate bubble, together represent 50% of AutoNation's new-vehicle business and 20% of industry retail sales of new vehicles."
- Rich Doing 'OK'; Not Middle Class (Journal Sentinel, Oct. 24th): "Maury Harris, chief U.S. economist for the global finance group UBS Securities LLC: "The middle class is hurting but the affluent are still doing reasonably OK," in the post-housing boom troubles... We're going to see over a half-million foreclosures (this year) and another half-million next year... [The] national marketplace already [has] 10 months' worth of resale homes and 9 months' worth of new construction... Nationally, home prices will drop 10% by this time next year... So far, income growth is holding up, and there's a positive wealth effect from stock prices. Companies are not making as much domestically, but their foreign affiliates are."
Homebuilders And Housing Stocks
- Ryland Posts Another Loss On Weak Housing Market (LA Times, Oct. 25th): "Ryland Homes (NYSE:RYL) said Wednesday that it lost $54.7 million, or $1.30/share, for the three months ended Sept. 30. That contrasts with net income of $87.9M, or $1.97/share, for the like period last year. Revenue fell 35% to $732M... The company said that new home orders in Q3 fell 20.9% from a year earlier and that the dollar value of the new orders declined 27%... Ryland shares traded near $60 in February, but the housing slump and the mortgage meltdown have hammered it and other builders. [Shares closed at $26.26 Wednesday.]"
- S&P Maintains Hold Opinion On Centex Shares (Business Week, Oct. 24th): "S&P: Centex (CTX-OLD) posted a September-quarter operating loss of $0.18 vs. EPS of $0.72, before asset impairments and writedowns of $983 million for homesites and land deposits, narrower than our $0.25 operating loss estimate. Revenues fell 33.2%, driven by weak demand in all regions. Cancellation rate declined by 200 basis points from Q2 to 35.4%. We see extended sales incentives driving positive sales growth. We are widening our estimate for F2008 to a loss of $9.00 from a loss of$0.95. We see Centex with $500M in cash by the end of F2008 and believe it will weather the storm and gain share when housing recovers."
- Pulte Homes Swings To 3Q Loss (Business Week, Oct. 24th): "Pulte Homes (NYSE:PHM) lost $787.9 million, or $3.12/share, in Q3, compared with a profit of $191.5M, or $0.74/share, in Q3'06, [vs.] analysts' forecast of -$0.81/share... Pulte recorded a pretax accounting charge of $1.18 billion, or $3.33/share, [on land value] writedowns... Sales of homes plunged 31% to $2.44B. Total revenue including mortgage services, sank 31% to $2.47B from $3.56B. Analysts expected revenue of $2.38B... The average price of a home sold slipped 4% to $322,000. New orders fell 37% to 4,572. Pipeline business [fell] to $4.1B from $5.8B a year ago. Pulte expects to break even or earn as much as $0.10/share excluding land-related charges in Q4."
- Neumann Homes Plans to Sell Most of Its Land Assets (Builder Online, Oct. 24th): "Neumann Homes expects to... start selling off most of its land assets in four states. But the builder is likely to encounter reluctance among builders and developers to acquire more land while [housing is] soft. Builders also fear Neumann Homes' failure could further erode consumers' shaky confidence in the housing industry... Neumann lost $60 million in Detroit [land holdings] [and] still controls 334 lots in Detroit... 3,148 homesites and 860 acres in Chicago and southeast Wisconsin... In Denver... Neumann controls 703 sites [and] a 960-acre master planned development that's been entitled for 4,400 homes and 1.35 million-sf of commercial space."
- Interface Reports Third Quarter 2007 Results-- Sales Increase 19.3% Year-Over-Year (CNN Money, Oct. 24th): "Interface, Inc.(IFSIA), a worldwide floorcoverings company, announces Q3'07 results: Sales for Q3'07 increased 19.3% to $279.5 million from sales of $234.2M in Q3'06... Interface sold its fabrics division in July 2007, and therefore Q3'07 financial statements, and all other periods presented, now reflect the fabrics division as discontinued operations... CEO Daniel T. Hendrix: "As we enter Q4, typically our best quarter of the yearly cycle... opportunities for our business have never been better. We continued to see solid order growth in Q3, with consolidated orders increasing 10% year-over-year and modular carpet segment orders increasing 14% year-over-year."
- Housing Woes Nail USG (Chicago Sun Times, Oct. 24th): "Wallboard manufacturer USG Corp.'s third-quarter earnings plunged 95% from a year ago. New home construction accounts for 40% of USG's wallboard sales, and another 25% comes from home repair and remodeling. Housing starts plunged 10.5% in September, the slowest level in 14 years, and home repair and remodeling has started to weaken... Wallboard prices have dropped 35%, to $122 per thousand sf, from Q3'06... U.S. Gypsum division sales [were] down 26% in Q3 [with] an operating loss of $14 million... USG cut 1,100 jobs, reduced its debt balance, closed four L&W Supply sites and shuttered 2.6 billion-sf of wallboard production capacity."
- Tupperware 3Q Sales Up, Profits Down (Orlando Business Journal, Oct. 24th): "Tupperware Brands Inc. (NYSE:TUP) reported quarterly sales of $454.7 million, up 15% from $394.9M a year ago. Year-to-date, sales have topped $1.4 billion, an increase from nearly $1.26B for the first three quarters of 2006. Q3 profits were $6.9M, or $0.11/share, down 47% from $13.1M or $0.22/share in 2006. The decline was attributed to one-time charges, including implementing a new credit agreement. Year-to-date profits have reached $62M, compared to $54.3M during the first three quarters last year. Tupperware also reported sales growth in... most parts of the world with Australia and Japan leading way at 20%."
- Wells Fargo Lifts Passive Stake In Champion Enterprises To 16.85% (Market Watch, Oct. 23rd): "Wells Fargo (NYSE:WFC) on Tuesday reported increasing its passive stake in Champion Enterprises Inc.(CHB) According to a SEC filing, the financial-services giant beneficially owns 11.4 million shares of Champion, a manufacturer of prefabricated houses. Wells Fargo reported its stake on a Schedule 13G, an SEC document for passive investors -- those not seeking to change or influence a company's operations. Such filers aren't required to provide a reason for any changes in holding and don't have to disclose any transactions to the SEC. In May, Wells Fargo reported beneficial ownership of 7.1 million Champion Enterprises shares."
Commercial Real Estate and Real Estate Investment Trusts (REITs)
- Long-Term Impact of California Fires on Commercial Real Estate Unlikely (Commercial Property News, Oct. 24th): "Insurance Information Network of California: Fires continue to scorch thousands of acres in parts of Los Angeles and San Diego Counties, destroying an estimated 1,100 homes so far... Jim Hamilton, former president of the California Association of Realtors: "It may be tougher to get insurance in the short-term, but... the last time we had fires in Malibu and Orange County, we didn't see a major ripple in the market."... California Department of Forestry and Fire Protection: Losses include... 100 commercial properties and 50 outbuildings in San Diego County. Threatened properties [include] 200 commercial buildings, and 100 outbuildings in Malibu Canyon in Los Angeles County."
- Global Real Estate ETFs - Correlation to U.S. Market (The Sun in Seeking Alpha, Oct. 24th): "Investing in global REIT structures offers investors the benefit of diversification. Real estate markets around the globe are affected by supply and demand factors that are highly localized. Because the correlations of returns between international markets are relatively low, even lower than for global equities, there are significant diversification advantages of investing in REITs on a global basis."
- Grubb & Ellis: Slowing Economy Should Temper Commercial Real Estate Market in '08 (Commercial Property News, Oct. 24th): "Bob Bach, Grubb & Ellis senior VP: A slowing economy should cool down the U.S. commercial real estate market in 2008, but the four main real estate sectors should remain relatively healthy next year... Office development has been under control... so net office absorption should remain positive--about 48 million-sf in 2008, off by about 20% from 2007. Office vacancy by the end of next year should be 13%, about the same level as this year. Rental rate growth in office properties nationwide should decelerate next year, rising from 0-5%."
- Chicago Expected To Fare Well In A Downturn (Chicago Tribune, Oct. 24th): "Urban Land Institute and PricewaterhouseCoopers LLP report: The hottest commercial property market is New York, followed by Seattle, Washington, Los Angeles, San Francisco and Boston. Overall, Chicago is ranked 12th among the top 15 markets. Minneapolis [and] Chicago have sidestepped "the Midwest blahs" and managed to retain a varied corporate base that "has staying power with investors." Part of its appeal is its diversified economy, led by the transportation industry, and the knowledge base in financial institutions and universities. But "new office projects lease up at the expense of existing buildings," the report added. "In classic Chicago fashion, developers keep building, unfazed by market softness."
Website of the Day
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