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 get this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.
Quote of the Day- "Shouted From The Rooftops"
"Would you buy a property for $420,000 if you could only sell it for $400,000? It's a risky business."- Adnan Kabbara of Weston, Fla., a developer and contractor who has bought foreclosed homes in the past, on the risks of foreclosure property buying now. (Sun Sentinel, Apr. 1st)
Real Estate Sales and House Prices
* Stocks Surge On Home Sales Data (Helena Independent Record, Apr. 3rd): "The National Association of Realtors' index for pending sales of existing homes increased at a seasonally adjusted annual rate of 0.7% to 109.3 in February from a reading of 108.5 in January. The index was 8.5% below its level of a year earlier, but stronger than the market had been expecting. The data reassured investors that the housing sector, while weak, is not being pummeled by the struggling subprime mortgage sector. Fears that mortgage problems will spill over into the rest of the economy have been a big factor behind the market's volatility of the past several weeks, and the uptick in sales came as a pleasant surprise."
* Area Median Home Price Falls (Contra Costa Times, Apr. 3rd): "East Bay cities such as Berkeley, Brentwood, Clayton and Walnut Creek experienced a nearly 25% drop in median home prices from February of last year. DataQuick Information Systems: Walnut Creek's median home sales price dropped to $519,000, making it lower than the median home price for Martinez, Brentwood and Pinole. But many say those statistics can be misleading because DataQuick's numbers include condominiums and both resale and new single-family homes… Walnut Creek's statistics were based on 92 sales, which can be indicative of a trend."
* Sales Rise Steadily in Rhode Island; Prices Continue Declining in February, According to The Warren Group (Business Wire, Apr. 3rd): "Warren Group: Single-family home sales… rose 4.2% compared with February 2006, and rose 8.5% year-to-date. Prices… continued to decline. The median sale price of single-family homes fell 4.1% in February, from $260,000 in February 2006 to $249,250 in February 2007. The median price declined slightly more year-to-date, from $262,000 in the first two months of 2006 to $250,000 this year, a 4.6% decrease… Condominium… Sales fell 18.8%, from 165 in February 2006 to 134 this year. Year-to-date sales fell 8.9%, from 339 in 2006 to 309 this year. Condo prices fell by 14.9%."
* Coastal Home Prices Level Off, For Now at Least (Mail Tribune, Apr. 2nd): "After five years in which median sale prices for homes in the Florence area surged more than 100%, to $243,000, buyers have backed off. Tawfik Adhab, a Eugene appraiser: "What we had is a huge withdrawal of buyers." Florence home sales fell by 29% from 2005 to 2006, nearly triple the county average… In Lane County, most of the demand for housing comes from job creation, wage increases, new households. Those are the fundamental factors that affect housing in Lane County... But in Florence, it's not jobs or wage increases. It's in-migration."
* The Richest Zip Codes—and How They Got That Way (Business Week, Apr. 2nd): "During the five-year boom in housing prices, from Q3'01 –Q3'06… overall housing prices rose rapidly, but prices in the nation's richest Zip codes went up even faster. For the U.S. as a whole, the five-year increase in the Case-Shiller Home Price Index was 63.7%, while the increase was 79.5% for those Zip codes with a median sales price of $750,000 or more, according to Fiserv Lending Solutions… The increase in the ranks of the very well-to-do almost guarantees that demand to live in exclusive areas will continue to drive prices upward over the long run."
* Retirement Homes Go High-Rise and Urban (NY Times, Apr. 1st): "Continuing-care retirement communities… offers residents access to independent living, assisted living and skilled nursing care in the same complex. Most of these communities… are found in suburban or rural settings… A growing number of such retirement communities, many developed by nonprofit organizations, are coming to cities. Kathryn L. Brod, SVP for Zeigler, a senior living finance company: About 15 continuing-care communities are planned or under construction in city neighborhoods. There are communities in San Francisco and Philadelphia, and one in Boston. The first one in New York City [Queens]… is scheduled to open in 2008."
Foreclosure Impact
* O.C. Home Market Dodges Bullet (OC Register, Apr. 2nd): "Author Ryan Ratcliffe of the UCLA Anderson Forecast: "Markets with a higher proportion of first-time buyers and new homes – such as the Inland Empire and Ventura County – are seeing a bigger surge in defaults… than areas like Orange County. That's because "buyers without a major equity windfall from their last home are the most likely to stretch to afford their first mortgage," while builders trying to move inventory quickly might have lowered lending standards to close deals... Orange County is "not a first-time buyer market or a market with a lot of new building."
* Foreclosures On the Rise (Desert Sun, Apr. 1st): "Home foreclosures climbed in February across the Coachella Valley, up to 62 from just seven at the same time last year. DataQuick Information Systems: Mortgage default notices jumped to 282 valleywide in February, up from 104 in February 2006… Although February's numbers represent a whopping 786% increase in foreclosures and a 171% increase in defaults, such percentages can be misleading, experts said. That's because numbers in February 2006 and before were extremely low amid a climate of strong home sales and steep home-price appreciation. So even the slightest increase in February resulted in triple-digit percentage increases."
* Even Foreclosures are a Tough Sell (Sun Sentinel, Apr. 1st): "Realty Trac: Florida has more foreclosures in the pipeline than any other state, 19,144 in February… In South Florida… homeowners have been socked by high prices, high property taxes, soaring insurance premiums and gimmick mortgages that have blown up in their faces… The real estate market has become so uncertain, and the debts racked up on these properties so high… Properties that would have attracted a bidding war a year or two ago, when the real estate market was soaring, now stay with the lenders. The banks sell them through major national real estate firms, more frequently at a loss."
Real Estate Investing and Sentiment
* Rate Cuts Get a Bad Rap Even Before They Happen: Caroline Baum (Bloomberg, Apr. 2nd): "The glut of homes on the market, which is apt to get larger as foreclosed properties are dumped into inventory, will take a long time to work off, just as it did in the last boom-bust real estate cycle of the late 1980s, early 1990s. Housing won't be leading the economic recovery… Empty homes can't be co-opted for a new business venture. The asset class standing alone in the corner when the music stops isn't the first one asked to dance when the band starts up. Something else is. And it will be lower interest rates that make that something else do a jig."
* Zillow Upbeat, No Matter What (Seattle Times, Apr. 2nd): "[On the housing] downturn, Zillow founder Rich Barton said: "I'm not at all worried, just not worried. If I were a homebuilder, I would be worried, but we're not worried… There's a "tidal shift from offline activities to online activities" happening regardless of "vagaries" in the real-estate market… Whether the market's up, down or sideways, people are interested in real estate, people are moving and buying houses and selling houses… A slower market could even result in more people using Zillow, which is centered on providing free property-value estimates called "Zestimates."
* Spring May Turn into Season of Reckoning for Housing Industry (Naperville Sun, Mar. 31st): "Investors on the Chicago Mercantile Exchange are turning more pessimistic too. A housing futures index tracking 10 major U.S. cities is now projecting January 2008 prices in those markets will be down 5.1% from early 2007. At the end of February, the same futures index put together by Tradition Financial Services had forecast a 3.7% drop."
Mortgates, Real Estate Lending and the Subprime Fallout
* New Century Financial Begins a New Chapter: 11 (Seeking Alpha, Apr. 3rd): "Battered subprime lender New Century announced yesterday it filed for bankruptcy protection under Chapter 11. It will receive up to $150 million in debtor-in-possession financing from The CIT Group and Greenwich Capital Financial Products. Also, it has entered an agreement to sell its servicing assets and platform to Carrington Capital Management for around $139m. Greenwich Capital will buy certain loans and residual interests in some securitized trusts for $50m… New Century plans to cut its workforce by about 3,200, or 54%, in order to align its cost structure and in preparation for a possible sale of its businesses."
* Barclays Buys U.S. Subprime Lender EquiFirst (Scotsman.com, Apr. 2nd): "Barclays Bank said on Monday it completed the acquisition of subprime lender EquiFirst Corp. for $76 million (38.5 million pounds), about two-thirds less than it originally agreed to pay. In January, Barclays said it would buy EquiFirst from Regions Financial for about $225 million."
* How Many Debtors are Enough? (Barron's Apr. 2nd): "In the Great Depression... Every three to five years, homeowners were obliged to get new mortgages to pay off their old ones. Sooner or later, hard times would arrive when one's mortgage was due, so that the creditor could not pay just when the lenders were least willing to lend… The new Federal Housing Administration… was creating a mutual insurance fund to insure mortgages for any amount up to $16,000, not to exceed 80% of the value of the property, up to a term of 20 years, on an amortization schedule that would pay off the loan at the end of the term… Mortgage debt was the largest capital category in the U.S. in 1935, at $47 billion. Household mortgages were $21 billion of that. (Federal debt -- not the deficit, the debt -- was $31 billion.)"
* Tighter Credit Could Reverse Home-Ownership Gains (San Jose Business Journal, Apr. 2nd): "The National Association of Realtors doesn't see a disaster for the overall housing market. Only one out of every 200 homes in the United States actually will be foreclosed on, predicts NAR economist Lawrence Yun, and most of these will be bought as soon as they go back on the market… Sandor Samuels, Executive Director of Countrywide Financial Corp.: Congress and regulators need to "be careful about an overcorrection... It is important that we preserve access to credit for those who cannot qualify for prime loans… [Overcorrection] could materially reduce housing demand, especially among first-time homebuyers, and delay the housing recovery."
* U.S. Mortgage Woes Could Hit Regional Banks (Reuters, Apr. 2nd): "Shares of M&T Bank Corp. (MTB) dropped more than 8% on Monday, after the bank said it was writing down mortgages in its portfolio of loans to people unable to document regular income, known as "Alt-A mortgages…" Such mortgages are considered less risky than subprime ones… But if 'Alt-A' home loans are broadly weakening, shares of banks and finance companies including SunTrust Bancorp., (STI), Capital One Financial Corp. (COF) and BB&T Corp. (BBT) could get hit in coming weeks, said Frank Barkocy, of Keefe Managers."
* Rise and Fall of Subprime Lenders Began on Wall St. (NPR.org, Mar. 30th): "Subprime lending has long been the forgotten, low-rent corner of the mortgage business, touched by a down-market taint. But the image is deceiving, industry analysts say: Subprime lending is based on the support of Wall Street's old-line banking establishment. "It encouraged it; it funded it," says Guy Cecala, publisher of the Inside Mortgage Finance newsletter. "Since the mid-90s, warehouse lending by Wall Street firms is what's kept companies like New Century in business." Cecala says that at one time, companies that were in the mortgage business lent out their own money."
Global Alternatives To The Housing Slump
* Morgan Stanley Investing in Russian Real Estate (Real Russia Project, Apr. 2nd): "Morgan Stanley's Special Situations Fund III has recently acquired a minority stake in RBI development holding. According to experts, this is the biggest deal of its kind thus far in Russia – some estimate it at about $200 million. This is the third transaction for Morgan Stanley in this sector, which previously acquired 10% of RosEvroDevelopment and minority shares in Moscow-based commercial real estate developer RGI International. Morgan Stanley recently announced that it plans to increase direct investments in Russia with a focus on Russian developers. For this purpose the bank plans to add about $1 billion to its fund."
Macro Impact, And Will The Housing Slump Cause A Recession?
* Mortgage Crisis Calls American Dream into Question (Reuters, Apr. 3rd): "With an estimated 1.5 million homeowners facing foreclosure this year, Congress is now looking at tighter lending standards… Statistics show poor and minority homeowners are bearing the brunt of the [subprime] crisis… The belief that every American can or should own their own home remains pervasive… Massachusetts Democratic Rep. Barney Frank says: "A lot are not economically ready now [for homeownership]…" It's a tricky thing to say. Key to the American Dream is the belief that everyone can make it to the top. Restricting lending is expected to disproportionately hurt blacks and Hispanics -- voters coveted by both Republicans and Democrats."
* The Perils of Bankrolling Slackers (Barron's Online, Apr. 2nd): "Loans in First Marblehead's securitizations suggests that defaults are nearing the danger level, as higher interest rates and falling home prices take a toll on families' abilities to make payments. That, in turn, could reduce investors' appetite for the securities and crimp the company's margins.… And this is occurring during an economic recovery that has seen unemployment levels sink to near record levels and real incomes resume their upward march. Debt-encumbered graduates ought to have their pick of satisfactory job opportunities and have no need to apply for six-month forbearances or to not service their loans."
* The Threat to National, Local Economies from the Housing Sector (IndyStar.com, Apr. 1st): "Midwest states, and Indiana in particular, lead the nation in delinquency and foreclosure rates. This is not a story about creative, or even deceptive, financing of home purchases, however. It's a story about our economic performance. For every type of loan -- prime, subprime, fixed rate, or variable rate -- Indiana's delinquency rates are in the top five for all 50 states, joined by Ohio and Michigan in sharing this dubious distinction… In Indiana, the correction is already happening, but less from speculative excess than from economic transition.
Homebuilders And Housing Stocks
* Subprime, Alt-A Woes to Shrink Borrower Market (Builder Online, Apr. 3rd): "Credit Suisse analyst Ivy L. Zelman says possible lender restrictions involving subprime and Alt-A mortgages, which accounted for an estimated 40% of purchase dollar originations in 2006, may result in a shrinking pool of buyers for new homes… The bottom line for builders is that as lenders go under, tighten the qualification process, or face possible government restrictions on future subprime or Alt-A loans, the pool of potential borrowers for new home purchases could be negatively impacted by as high as 20%."
Commercial Real Estate and REITs
* Steve Heyer Resigns as CEO of Starwood Hotels & Resorts (Business Wire, Apr. 2nd): "Steven J. Heyer has resigned as Chief Executive Officer and a director. Heyer, 54, had been CEO and a director since October 2004. Bruce W. Duncan, will serve as interim CEO… Stephen R. Quazzo, Chairman of the Governance and Nominating Committee of the Starwood Board: “While the Board appreciates the good work Steve Heyer has done to position Starwood for the future, issues with regard to his management style have led us to lose confidence in his leadership. Starwood today is performing well and has a strong market position, a winning strategy, and significant growth potential."
