Housing Bubble and Real Estate Market Tracker

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"

“Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of nonprice incentives to work down sizeable inventory positions." - NAHB President Brian Catalde, announcing another slide in the National Association of Home Builders [NAHB]/Wells Fargo Housing Market Index [HMI], a measure of homebuilders confidence. (NAHB Press Release, June 18th)

Real Estate Sales and House Prices

• Monroe Home Sales Drop 35 Percent (Pocono Record, June 18th): "[Pennsylvania] Pocono Mountains Association of Realtors: Sales of homes in Monroe County [fell] 35% from May 2006 [291] to May 2007 [190]. The drop was about the same for both foreclosure and non-foreclosure homes sold… Sales volume fell from $61 million to $41.6m, a 35% decline. The average home was on the market 100 days in May 2007 from 82 days in May 2006. Inventory of unsold homes increased by 27%, from 2,464 in May 2006 to 3,123 in May 2007… Fitzgerald GMAC Real Estate: "What happens in New York and New Jersey affects us about 6 months later"

• Median Home Price Drops (Monterey Herald, June 17th): "Monterey County Association of Realtors: Monterey County’s median price for single-family homes fell… to $695,000 in May, down from $765,000 in April. Total number of houses on the market increased from 2,493 in April to 2,707 in May… The median price for condominiums and town houses rose in May, to $544,500 from $529,092 in April, as the number of units on the market dwindled from 271 in April to 222 in May… The Salinas-Monterey Highway area saw 15 sales with a median price of $1.075 million, up from 11 sales in April with a median price of $925,000.

Real Estate Investing and Sentiment

• Real Estate Industry Quietly Embracing Green Development, Progressive Investor Reports (Earthtimes.org, June 19th): "The real estate industry is quietly transforming by embracing sustainable business practices and green technologies. In an analysis of the industry, Progressive Investor reports that 41% of the 300 U.S. real estate investment trusts (REITs) are actively pursuing energy efficiency and green building upgrades and another 27% plan to do so."

• The Rich: Still Bullish On Real Estate (CNN Money, June 18th): "Coldwell Banker Previews International Luxury Survey: More than half of affluent homeowners expect their property value to appreciate at least somewhat during the next year. A tenth of them expect significant gains… [This] runs counter to most industry watchers' predictions for a continued slump in the overall market. Some see home prices dropping about 8%... through the end of 2008. Wealthy home owners' optimism… may confirm a basic contrarian investing impulse found among many of the wealthy: the best time to buy is when others are selling. 40% polled say they may buy a second home this year."

Mortgates and Real Estate Lending

• Countrywide Financial CEO Is Running For the Hills (George Gutowski in Seeking Alpha, June 19th): "Since May 1, Countrywide Financial Corp. (CFC) CEO Angelo Mozilo has disposed of approximately 2 million shares. He has been actively selling well before that. The stock sale was conducted under a prearranged 10b5-1 trading plan, which allows a company insider to set up a program in advance… even if he or she comes into possession of material nonpublic information… With Mozilo's perspective and long… experience, he has decided to liquidate as quickly as possible and put his money somewhere much safer, I assume. You can listen to all the guidance you want, but when the CEO runs for the hills investors need to worry."

• Fixed Rate Mortgages Popularity Reflects Long-term View, says GuideToLenders.com (Emediawire, June 19th): "A recent poll by GuideToLenders.com, an online consumer resource for broker and lender information, indicated the homeowners are increasingly interested in mortgage refinancing to convert their adjustable rate mortgages (ARMs) into fixed rate mortgages. Over twice as many borrowers selected this reason as their top motivation for refinancing in April than did in February... Dow Jones MarketWatch: 41.9% of all loans originated by mortgage companies in January 2006 were ARMs. That figure plunged to 18.4% in March of 2007. A MarketWatch article claims that consumers have been "fleeing to the relative safety of fixed-rate loans over the last 15 months."

• Countrywide CEO Exercises Options (Yahoo! Finance, June 18th): "The chief executive and chairman of mortgage lender Countrywide Financial Corp. exercised options for and sold 46,000 shares of common stock under a prearranged trading plan, according to a SEC filing. In a Form 4 filed with the SEC Friday, Angelo R. Mozilo reported he exercised the options Friday for $10.89 apiece and then sold all of the shares on the same day for $37.99 apiece. The stock sale was conducted under a prearranged 10b5-1 trading plan."

• Countrywide COO Exercises Options (Yahoo! Finance, June 15th): "The president and chief operating officer of mortgage lender Countrywide Financial Corp. exercised options for 6,375 shares of common stock under a prearranged trading plan, according to a SEC filing. In a Form 4 filed with the SEC Thursday, David Sambol reported he exercised the options Thursday for $13.24 apiece and then sold all 6,375 of them on the same day for $37.79 apiece. The stock sale was conducted under a prearranged 10b5-1 trading plan."

• Desperate Measures For The Mortgage Business (CNN Money, June 18th): "Recent GMAC Mortgage (GM) direct mail solicitation: [Dear] "Washington Mutual customer… Many mortgage lenders all across the country are heading for financial trouble… What will become of [their borrowers] if that happens? Allow us to help you refinance your mortgage." GMAC's… below-investment-grade credit rating is actually several notches below that of WaMu (WM)… WaMu's home-loan business is struggling - subprime-related losses contributed to a 20% decline in bank profit during Q1. However… at the end of last year, subprime comprised 10% of WaMu's mortgage portfolio - about $20 billion total. GMAC, meanwhile, reported $48b in subprime loans, 76% of its total home-loan portfolio."

Subprime Fallout and Foreclosure Impact

• Troubled Bear Fund Gets Breathing Room from Creditors (Deal Book, June 19th): "Bear Stearns (BSC) High Grade Structured Credit Strategies Enhanced Leveraged Fund, has experienced large losses and margin calls from creditors, as its bets on the subprime mortgage market went bad. WSJ: The fund’s creditors, which include J.P. Morgan, Citigroup and Merrill Lynch, agreed to give the fund an extra day to finalize a rescue plan pitched yesterday… Merrill Lynch, which was about to auction off $400 million in fund assets amid worry about the fund’s inability to meet a margin call, agreed to delay the sale... WSJ: If the auction goes ahead, it could be the death knell of the hedge fund."

• Foreclosures Keep Climbing (Cincinatti.com, June 19th): "Ohio Supreme Court: New foreclosure filings in Southwest Ohio in Jan.-Apr. 2007 rose 10% from Jan.-Apr. 2006. As of March 31, Ohio was still leading the nation in the percentage of homes in foreclosure - 3.54%... Warren County foreclosures jumped 23.3% to 424 through April 30. Foreclosure filings grew 16% to 929 cases in Butler County, even before April data were fully compiled last week. Foreclosures rose 13.5% to 361 cases in Clermont County. [Surprisingly,] Hamilton County, with its large numbers of old homes and low-income borrowers, experienced a mere 4.4% increase in new foreclosure filings in Jan.-Apr. 2007."

• Foreclosures Not as Big a Problem in Hawaii (Pacific Business News, June 18th): "Honolulu Board of Realtors… and Bank of Hawaii: In Hawaii, subprimes are far less common than on the Mainland. Hawaii is more likely to be affected through slower tourism, since Mainland residents who are late with mortgage payments aren't likely to undertake an expensive Hawaii vacation. California and Arizona, among the greatest sources of Hawaii visitor traffic, are among states contributing heavily to the national delinquency statistics."

• Some Top-Rated Subprime Bonds Downgraded By Moody's (Reuters, June 18th): "Moody's Investors Service on Friday downgraded 131 bonds backed by "second-lien" or "piggyback" subprime mortgages, which allow home buyers to borrow the cash needed for a down payment, effectively putting no money down for a house. The downgrades, which affected subprime loans made in 2006 to borrowers with patchy credit, included a small portion of securities carrying Moody's highest "Aaa" rating… Moody's also warned on Friday that it may cut its ratings on 136 other piggyback subprime mortgage bonds worth $1.3 billion, along with ratings on 111 of the bonds already downgraded, worth $1.1b."

• ForeclosureS.com: Forget the Foreclosure Hysteria (DS News, June 18th): "ForeclosureS.com—a provider of nationwide foreclosure data: Calculating foreclosures per-capita would resolve unnecessary hysteria in the marketplace: Year-to-date, ForeclosureS.com has calculated 343,745 pre-foreclosure and auction filings (both prior to a homeowners actually losing his or her home) and 185,369 REO filings (indicative of a property lost to foreclosure). That compares with 178,492 pre-foreclosure and auction filings, and 126,889 REO filings for the same period a year ago… Up 92.6% and 46% respectively y/y.” But some of the filings are possibly counted multiple times because they're counted during each stage of the process."

• As Foreclosures Mount, More People Are Considering Bankruptcy (Minnesota Public Radio, June 18th): "There are no official numbers tracking whether there's a commensurate spike in bankruptcy filings. Yet, talk to local bankruptcy lawyers, and you grasp the beginnings of a trend. "I've seen four clients today, and everyone is losing their home. So it's 100% today," says bankruptcy attorney Barbara May… A lot of her clients' problems stem from having an adjustable rate mortgage they can't afford. "I haven't had a case this year where someone wasn't in trouble in their mortgage," May says… Mike Aymar, a local mortgage broker [also] sees a growing number of customers facing bankruptcy and foreclosure at once."

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

• U.S. Stock-Index Futures Retreat; Lennar, Best Buy Decline (Bloomberg, June 19th): "U.S. stock-index futures fell after housing starts dropped in May, stoking concern the real-estate slump will continue to weigh on economic growth. Lennar Corp., (LEN) the largest U.S. homebuilder, declined. Best Buy Co., the biggest consumer electronics chain, slid after reporting earnings that trailed analyst estimates. Builders broke ground on new houses at an annual rate of 1.474 million last month, 2.1% less than April, the Commerce Department said. Housing construction is in its worst recession since 1990-1991, cutting 0.9 percentage point from growth in the first quarter after detracting 1.2 percentage points in the second half of 2006."

• Metals - Copper Dips Amid Renewed Worries Over US Housing Market (Forbes, June 19th): "Copper dipped as traders remained cautious following yesterday's weaker-than-expected US housing data, but analysts said declining inventories and the ongoing risk of supply disruptions will limit falls going forward… BaseMetals.com analyst William Adams: On the surface this could undermine confidence in metals, however it may also reduce the chance of the Fed having to hike interest rates, which in turn could see bond yields dip, treasuries rise and the dollar weaken."

• S&P 500 Performance and the NAHB Home Builder Index: How Correlated? (Hickey and Walters in Seeking Alpha, June 18th) :"Last Summer just as the Homebuilder index was hitting multi-year lows and shortly after the market's sharp decline in May, [several reports said] that… the S&P 500 closely follows the direction of the NAHB index since 1995. [But] the NAHB index [dates] back to 1985… As the chart below shows, the missing 10-year history… made the argument look a lot less compelling. [Also,] since last year at this time, the S&P 500 has gone on to gain 23%. Had an investor read one of those incomplete reports, and sold equities, they would have missed out on quite an impressive gain."

Homebuilders And Housing Stocks

• Homebuilder Confidence Drops to 16-Year Lows (Seeking Alpha, June 19th): "The Homebuilder index decline was in line with economist expectations. The index bounced in early 2007 on unseasonably warm weather, but builders are more pessimistic as delinquencies and foreclosures force lenders to send potential homebuyers away… NAHB chief economist David Seiders: "Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007." On June 6, the National Association of Realtors lowered its forecasts for homebuilding and sales again."

• Builder Confidence Slips Again in June (NAHB Press Release, June 18th): "National Association of Home Builders NAHB/Wells Fargo Housing Market Index [HMI]: Ongoing concerns about subprime-related problems in the mortgage market and newfound concerns about rising prime mortgage rates caused builder confidence to decline [to] 28… The lowest level in its current cycle… the lowest point since February 1991… [and down from a high of 72 in June 2005] All three HMI component indexes declined in June. The index gauging current single-family sales slipped two points to 29, the sales expectations index for the next six months fell two points to 39, and the traffic of prospective buyers index fell one point to 21."

• Notes From Standard Pacific's Investor Presentation (Colin Peterson in Seeking Alpha, June 18th): "I'm still short Standard Pacific (SPF): SPF has 57,000 lots controlled; down 25% from Dec 2005… 60% are owned… They have a seven year supply of lots, [if] sales don't slow further… They have only impaired one-third of owned lots. They expect to pay off the $350M revolver by the end of the year [by] trading a lower leverage covenant for a more flexible interest coverage covenant. They take impairments only once a community has a negative operating margin. They have 730 completed and unsold units, which is 3.17 per community. The JVs have an average 58% leverage. SPF is… required to post additional equity as the value of the land/lots in the JV falls. SPF lenders can slap low appraisals on JV's and demand more equity. Their only "remargin call" so far was in SoCal during Q1."

• Pulte Details Cash Expenditures For Restructuring (Reuters, June 18th): "U.S. home builder Pulte Homes Inc. (PHM) said on Monday it expects cash expenditures of $32 million - $40 million for a restructuring program that it announced in May because of a difficult market. Pulte also disclosed details of the pretax charge it expects for the restructuring. Pulte expects employee severance of $25m-$30m, asset impairments of $8m-$10m, and lease terminations and other costs of $7m-$10m."

• Form 8-K for Toll Brothers Inc. (Yahoo! Finance, June 18th): "On June 13, 2007, Toll Brothers (TOL) and Mr. Bruce E. Toll [agreed that] the company will employ Mr. Toll as Special Advisor to the Chairman for a period of three years at compensation of $675,000 per year, (b) he will be paid $675,000 for each of three years following the term (or termination) of the agreement so long as he does not violate certain non-competition and other provisions, and (c) he will be entitled to group health insurance of the type and amount currently being provided to company executives… The amendment extends the term of the agreement until October 31, 2010."

Commercial Real Estate and REITs

• Hines + Nouvel = More Moma (Slatin Report, June 19th): "Developer Hines Interests and Whitehall Street, the Goldman Sachs group, are developing [a MOMA extension with office space and luxury condominiums] on a West 54th Street 17,000-sf [lot]… Earlier this year the developers were seeking more than $125 million in debt financing for the project… Sources say [that] could rise by an additional $100m+, depending on potential zoning variances for the site… At the time, even though Manhattan's high-end condo market had begun to rebound from a stall in the last half of 2006, at least one lender balked at the borrowers' willingness to pay more than $750-a-buildable-sf for the site."

• Tax Advantages of Inverse ETFs Not So Clear (Eli Hoffmann in Seeking Alpha, June 18th): "To short the downtrending REIT sector there are short [inverse] ETFs… If stocks in the fund go down, your shares go up, and visa versa. Alan Abelson's Up and Down Wall Street suggests that inverse ETFs… may convey a potential tax benefit…As buying one of ProShares short funds [denotes] long-term capital-gains treatment. [But] most of ProShares short offerings are UltraShorts [which] use futures and swaps to amplify their leverage… Futures positions are marked-to-market at year-end and taxed 60% as long-term gains and 40% as short-term, while swaps are taxed as 100% short-term gains… ProShares relies almost exclusively on swaps to achieve its leverage… So your tax savings may be little-to-none, depending on exactly how ProShares achieves its short position. ProShares six straight-up short ETFs are: ProShares Short QQQ (PSQ), ProShares Short Dow30 (DOG), ProShares Short S&P500 (SH), ProShares Short MidCap400 (MYY), ProShares Short SmallCap600 (SBB), and ProShares ShortRussell2000 (RWM).

• Investing in Commercial Real Estate (Lloyd Sakazaki in Seeking Alpha, June, 18th): "HRPT Properties (HRP), an office REIT now trading at about $11/share, 17% below its dividend-adjusted all-time high of $13.31 reached in February 2007. With shares priced at below book value (price-to-book ratio is 0.98) and forward price-to-FFO of 9.2, HRPT looks relatively cheap compared to the other major office REITs. Based on its stable long-dated lease portfolio of high-quality government and medical-related tenants and presence in markets offering incrementally higher cap rates and cash flow, HRPT offers very good upside potential with limited downside risk at present price levels. Also, its dividend yield of 7.6% (at $0.84 per share annually) should be appealing to anyone seeking current income beyond money market and bank CD rates."

• Commercial Real Estate Hits Record (Star Telegram, June 18th): "U.S. commercial real estate investment reached a record $157 billion in the first four months of 2007, up 62% from a year earlier, as office purchases surged, the National Association of Realtors said. Office-building transactions from January through April totaled $95b, a record for the period, the Chicago-based association said today in its Commercial Real Estate Outlook. Markets with the highest transaction volume were Manhattan, Chicago, Northern Virginia and San Francisco… Last year U.S. commercial real estate transactions totaled a record $306.8b."

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