Housing Bottom?

Is the Bottom Near for Housing?


.......There's a lot of money to be made in picking the tops and bottoms of cycles. But it's an extremely difficult exercise, and even a minor error in timing can lead to severe losses.

With that said, I'd like to examine some possible events that could signal that the bottom of the housing and credit cycle is near.

Off with their heads!During a crisis, the public needs someone to blame. Ivan Boesky, Ken Lay, and Bernie Ebbers are some of the toppled titans who have been the focus of public ire. It's part of the cathartic experience to dispatch those deemed responsible and to start fresh with a new era.

At many major banks, we can see that the catharsis has begun. The CEOs of Citigroup, Bear Stearns, and Merrill Lynch have fired underlings they deemed accountable for the crises. And in the case of Merrill Lynch, CEO Stan O'Neal politely retired today, leaving a big void.

However, analysts, shareholders, and the general public don't seem satisfied. They seem to want to fry bigger fish in an attempt to close the books on the current era of the housing bubble.

Berkshire Hathaway enters the frayIn an interview with Fox Business News, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) Chairman Warren Buffett said he hasn't bought any homebuilder shares yet because he doesn't think they're underpriced. No doubt Buffett is paying very close attention to the industry and may be simply waiting for his price.

In fact, the four largest homebuilders -- D.R. Horton (NYSE: DHI), Pulte (NYSE: PHM), Centex (NYSE: CTX), and Lennar (NYSE: LEN) -- sport a combined $15 billion market cap. If you assume the shares of those homebuilders will slide another 20%, then the price tag would fall to $12 billion, plus a takeout premium. That's very doable for Berkshire and its $40 billion cash hoard.

In addition, if Berkshire were to buy several major homebuilders, it could be taken as a self-fulfilling prophecy that the end of the housing slump is near. Although the top 10 homebuilders have only a combined 23% market share, according to an article by the Dallas Morning News, markets are extremely local.......

By Emil Lee - Motley Fool

Could This Be The Bottom?

Despite getting caught in the cross hairs of the mortgage and credit debacle of September new homes sales were up month over month. Sales in the west were up a remarkable 38% in September. Since the west led this housing recesssion, possibly it will soon lead the U.S. out...............

excerpts from WSJ

New-Home Sales Rose Last Month,But August Drop Revised Lower

........Overall, the median price of a new home increased by 5.0% to $238,000 in September, compared with September 2006. But the average price declined by 2.8% to $288,000 from a year earlier.

The ratio of new houses for sale to houses sold, an indicator of supply, fell during September, going to 8.3 from 9.0 in August. There were an estimated 523,000 homes for sale at the end of September, down from August's 531,000.

Regionally last month, new-home sales increased 37.7% in the West and 0.5% in the South. Sales decreased 6.6% in the Northeast and 19.5% in the Midwest.

By ELIZABETH PRICE - WSJ

Bright Spots in Real Estate

It's not all bad out there in the residential real estate world. Areas with less for sale inventory and lower supplies of land have faired quite well this last year despite national woes. Areas such as Portland, Seattle, and some trophy areas of California. I was especially intrigued by this relatively recent article in Wall Street Journal regarding America's Riviera, Santa Barbara, and the strength of its housing market..............

The New Gold Coast
One Stretch of California Defies Housing Slump;
Median Sale, $1 Million

CARPINTERIA, Calif. -- Other than an 18-foot-tall rooftop Santa Claus visible from the highway, this middle-class beach town used to be but a blur for wealthy vacationers speeding toward tony Montecito and Santa Barbara, about 10 miles up the road. Today, the statue is gone, and a clutch of the megarich have made Carpinteria an unlikely stop for buyers who can afford any ocean view in the world.

Public records show that New York billionaire hedge-fund manager Bruce Kovner spent $83.3 million this year to amass 15 bluff-top acres, including a luxury villa, near the end of a highway exit ramp. He also has agreed to buy part of Kevin Costner's field of dreams next door: Last year, the actor acquired 17 grassy acres dominated by a polo field for $28.5 million. Just down the road, a beachfront house on a mere quarter-acre is listed for sale at $24 million.

Carpinteria's arrival on the luxury-estate scene illustrates how California's gold coast is defying the downdraft in the national housing market. Eye-popping sales are spreading along a 40-mile stretch of southern Santa Barbara County, through sprawling ranch lands and past hillside homes, to the enclave of Carpinteria. In July, when existing-home sales slumped by 9.3% nationally and plummeted 23% in California compared with a year ago, sales along the county's southern coast soared nearly 28%, according to the California Association of Realtors. It also was the only region of California where the median sales price surpassed $1 million.

Estates in the exclusive Hope Ranch and Montecito communities set the standard in an area long prized by tycoons and Hollywood players for its mild climate, natural beauty and low-key sophistication. Indeed, at Oprah Winfrey's Montecito fund-raiser tomorrow for Democratic presidential candidate Sen. Barack Obama, more than her political firepower will be on display. Ms. Winfrey's 40-acre hillside estate, bought six years ago for around $50 million, has swelled in value to $84.7 million, according to public county-assessor records.

Santa Barbara's high-end housing market is set for its best year ever, according to Wendy Gragg, chief executive of the Distinctive Real Estate agency. Just counting properties with a value of at least $10 million, the area notched more than $195 million in sales so far this year, putting it on track to beat last year's local record of $219 million............

By JONATHAN KARP - WSJ

For rest of article click here

Stealth Rebound

It's always darkest right before the dawn.....................

U.S. MBA's Mortgage Applications Index Rose 8.1% Last Week

By Shobhana Chandra

Aug. 8 (Bloomberg) -- Mortgage applications in the U.S. rose last week by the most since January, as cheaper borrowing costs encouraged more Americans to seek loans for home purchases and refinancing.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan jumped 8.1 percent to 656.5 from 607.1 the prior week. The group's gauge of demand for credit for home purchases gained 7.4 percent, while a measure of refinancing increased 9.1 percent.

A resilient labor market and lower home prices may support sales and eventually help reduce the glut of unsold properties, economists said. A report last week showed Americans signed more contracts to buy previously owned homes in June, a sign the weakness in the housing market may not get much worse.

``We're at the bottom right now in housing,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina. ``The biggest declines are over.''


For Bloomberg Link Click Here

Paulson: Housing 'at or near bottom'

Paulson: Housing 'at or near bottom'

But Treasury secretary gives no timetable for recovery; says financial markets remain healthy despite subprime mortgage mess.

July 2 2007: 4:40 PM EDT

WASHINGTON (Reuters) -- Treasury Secretary Henry Paulson said Monday the U.S. housing market correction was "at or near the bottom," although it could be some time before an upturn.

"In terms of looking at housing, most of us believe that it's at or near the bottom," he told Reuters. "It's had a significant impact on the economy. No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it's at or near the bottom."

Courtesy CNN Money.com

Link Here

Homeowners Optimistic about Home Prices

Homeowners upbeat despite housing slowdown


NEW YORK - Slumping home sales and drooping prices haven't diminished homeowner optimism about their own nest egg's value, a recent survey shows.

The survey by Boston Consulting Group showed 55 percent of Americans believe they could sell their house for more money now than a year ago, down slightly from the 59 percent who felt that way last summer.

Nearly three-quarters think they could sell their homes within the next six months at a price they set, and 63 percent feel that real estate is a good or excellent investment.

Associated PressJun. 24, 2007 12:51 PM


For Rest of Story Go To Link Here

London Home Prices on Fire

Despite recent interest rate increases in the UK, home escalation continues proving that the fundamentals of income growth and supply and demand are the key factors..........

London Homeowners Reap $150,000 as U.K. Prices Jump (Update3)

"April 16 (Bloomberg) -- London homeowners gained an average 76,000 pounds ($150,000) on the value of their property in the past year, triple the median salary, as U.K. house prices rose the most since 2004, the country's biggest property Web site said.

Asking prices for a home in the British capital reached an average 379,846 pounds in the four weeks through April 7, up 25 percent from a year earlier, Rightmove Plc said today. The cost of an average house in the U.K. rose 3.6 percent on the month and 15 percent from the previous year, the most in almost three years.

Three interest-rate increases since the start of August have failed to contain a housing boom that has driven up the price of a parking space in the London borough of Kensington and Chelsea to equal that of a home in the Midlands. Soaring property values are stretching mortgages to six times salary and prompting young people to live at home with their parents for longer. ........"

By Jennifer Ryan - Bloomberg

Story Link Here

Subrime Bigger Hoax than Y2K?

Put me in the camp that agrees this subrime headline grabbing issue is a big hoax to get eyeballs and sell fear..........

Subprime concerns overblown, fund manager says
Shakeout will be 'most hyped disaster that never occurred since Y2K'

SAN FRANCISCO (MarketWatch) -- The shakeout in the subprime-mortgage business won't escalate into a disaster capable of undermining the U.S. housing market and the economy, the chief investment strategist at fund-management firm DWS Scudder said Monday. ...

The subprime sector is too small to have such a big impact, according to Robert Froehlich, who is chairman of the investor-strategy committee at DWS Scudder, a division of Deutsche Bank AG ....

...."For all this to occur, the subprime-mortgage collapse has to be big enough and important enough to set the wheels in motion. And the fact is that it isn't," he wrote in a market commentary Monday. "It will be the most hyped disaster that never occurred since Y2K." ...

....Froehlich said Monday that, like Y2K, investors are worrying too much about a subprime-fueled disaster that probably won't happen.

"The subprime-mortgage market is big, but it's not big enough to push the U.S. economy into a recession by causing a credit crunch," he added. .......

By Alistair Barr, MarketWatch

Read this story Link Here

Housing Turnaround and Consumer Confidence at 5 Year High

From the Associated Press
Sales of Existing Homes Jump in January

"WASHINGTON (AP) -- Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one-month increase since a 3.3 percent advance in January 2005, a time when housing was roaring toward the peak of its five-year boom....."

And consumer confidence is up.....

In other economic news, the Conference Board, a private research group, said consumer confidence rose in February to its highest level in more than five years.........The New York-based Conference Board said its confidence index increased to 112.5 this month, a bigger than expected rise from a February reading of 110.2. The gain reflected increased optimism about jobs and business prospects. Link Here

Bay Area Luxury Housing Hot

In the $1 million-plus market: `plenty of buyers,' not enough houses

Bay Area luxury-home prices were up 1.5 percent in the fourth quarter of 2006 compared with a year earlier. However, they dropped 1.5 percent from the previous three months, according to a report released today by First Republic Bank.

According to the banks' Prestige Home Index, the average price of a luxury home was $2.92 million -- or, to put it simply, a lot more than most of us can afford. The banks' survey considers home prices in the Bay Area's ritzier communities, specifically: Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside.

Luxury homes are defined as those with at least 3,000 square feet, three to six bedrooms, and three to six bathrooms. And if it's worth less than $1 million, it doesn't make the cut.

Just how is the market doing in that rarefied space? ``For anything under $5 million, buyers are chomping at the bit because there is so little inventory,'' Lea Ann Fleming of McGuire Real Estate in San Francisco said in a statement provided by the bank. ``There are plenty of buyers, but there just aren't enough houses.''
The bank's survey found similar trends in the Los Angeles and San Diego areas, with prices down in the fourth quarter from the previous three months, but up from a year ago.

For more real estate news, check out our Square Feet blog.

By Frank Michael Russell
Mercury News

USA Today - 96% of Economists say Housing Bottoming This Year

Here is why you can't just read the attention grabbing headline. This from the USA Today "Most agree: Housing crunch isn't over yet". Well that sounds really awful, right? Not if you read the article. Excerpt below......................

"WASHINGTON — Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.
Only 9% of economists say the housing decline ended in 2006, according to a USA TODAY survey of 55 economists taken Jan. 18-24. Another 42% said the downturn will end in the first half of the year, and 45% said housing will bottom out in the second half."

Well excuse me but let's look at what the economists are saying. More said that housing already bottomed in 2006 or will bottom in the first half of 2007 than won't. And the "down side" nearly all of the rest of the economists say it will bottom in the second half of 2007. So add it up 96% say bottom is near so as a would be home buyer better to buy at the bottom than the top. More excerpts below.

"Seeing things stabilize and hearing reports that housing is stabilizing is good for consumer confidence," he says.

The NAR's index of pending home sales, which is adjusted for seasonal variations, rose in December at the fastest pace since March 2004. The level of unsold homes on the market appeared to have peaked in July, the group says. "

Contributing: Barbara Hansen, Noelle Knox - USA Today - Feb 5, 2007

New Home Sales Better than Expected, Durable Goods Orders Strong

So two bits of good economic news today. Durable Goods (those lasting more than three years) orders were up last month as well as new home sales. New home sales were also adjusted up for November and inventory in December fell below 6 months, a number that many consider a balanced market. Could we have had a bottom in November? Time will tell..........

From the WSJ

New Homes

"New-home sales finished 2006 on a positive note, rising a second straight month in December....In the home-sales report, sales of single-family homes increased by 4.8% to a seasonally adjusted annual rate of 1.120 million, the Commerce Department said Friday. November sales rose 7.4% to 1.069 million, revised from a previously estimated 3.4% advance to 1.047 million. Economists had expected a 1.2% increase to an annual rate of 1.060 million last month......

.....New-home inventories fell in December, a sign builders are getting supply under control. There were an estimated 537,000 homes for sale at the end of the month -- the lowest level since 522,000 in January 2006, the government data showed. That represented a 5.9 months' supply at the current sales rate. An estimated 542,000 homes were for sale at the end of November, a 6.1 months' inventory....

....The median price rose to $235,000 last month from $232,200 in November but was lower than the year-earlier level of $238,600.

Spending on Durable Goods Climbs

Orders for durable goods, big-ticket items such as cars and appliances meant to last three years or more, advanced 3.1% last month to a seasonally adjusted $221.87 billion, the Commerce Department said Friday. Durables rose 2.2% in November, revised from a previously estimated 1.6% increase. For all of 2006, durables rose at a not seasonally adjusted 7.0%, after rising 8.6% during 2005.

Orders for commercial planes increased 26.5% last month, while military aircraft orders rose 20.5%. Overall, transportation orders were up 4.8%, after rising 10.2% in November. However, a key barometer of business-equipment spending -- orders for nondefense capital goods excluding aircraft -- increased by 2.4%, after falling 1.0% in November."

By Jeff Bater - WSJ

Businessweek - Housing May Have Bottomed

Housing: The Best Indicators Of A Rebound

"Has the home market hit bottom? That is the key question for the U.S. economy in 2007. According to some housing indicators, there is some light at the end of the tunnel for homebuilders, but that cautious optimism comes with caveats.

To get the most reliable signal that the housing recession is over, keep an eye on the average monthly supply of new homes for sale and the average mortgage rate each quarter. Analysis by Goldman Sachs U.S. economist Edward McKelvey of eight pieces of housing data widely used as leading indicators of the housing cycle showed those two series are better than quarterly averages of new and existing home sales, housing starts, mortgage applications, housing affordability, and homebuilder confidence. In housing market upturns, all eight indicators do a good job of forecasting market peaks by two to five quarters. However, "a contraction is swifter and more cathartic," says McKelvey. That places a premium on indicators that give a more consistent signal.

The monthly supply of homes--a ratio of new home inventories and home sales--has peaked one quarter before residential investment bottomed every time since 1961. Mortgage rates are nearly as consistent over that same period and have a similar lead time.The supply of new homes for sale in the fourth quarter should decline after a November reading of 6.3 months, from 6.7 in October and the recent peak of 7.2 months last July. Mortgage rates also fell in both the third and fourth quarters of 2006......"

By James Mehring - Businessweek

Salad and Garbage

What is the difference between salad and garbage?...................the answer is timing. I found and interesting article from Fortune Magazine (Here) published in March of 2002 predicting that the housing bubble was about to burst. If anyone followed that advice they'd had left anywhere from 50-150% appreciation on the table pending their market. Below are some interesting excerpts to give us a little perspective for the New Year............................................

Fortune Magazine - March 28, 2002.

The Economy: Is Housing the Next Bubble?

...So is that it? Have we just had something like a 15-minute recession, and is it all smooth sailing from here? Not so fast, says a chorus of economists--plenty can still go wrong. Leaving aside such nightmare scenarios as further terrorist attacks, all-out war in the Middle East, or an oil embargo, the thing that spooks some economists the most is housing....

....In fact, housing didn't just hold its own during the slump. It zoomed. Activity has been so strong that sales of new and existing homes hit all-time records last year. Not exactly what you'd expect when around two million people were losing their jobs, is it? What's more, we've seen record growth in mortgage refinancing, and annual home-price increases between 6% and 8% nationally for three years in a row. "That's unsustainable by any measure,'' says David Levy, chairman of the Jerome Levy Forecasting Center. "Especially now that mortgage rates are on the rise." And that's the problem, according to Levy and others. The one sector we've relied on to keep the economy afloat is unlikely to hold up much longer. Worse still, housing could even turn out to be the next bubble--and we all know how that usually ends....

And one really bad prediction from permabear Mr. Shiller.......Mind you.......this is 2002...........

Certain regional markets may already be in trouble. According to data from Case Weiss Shiller, home prices in San Francisco have been dropping precipitously. In the first quarter of 2001 the average price of a single-family home there rose 4%, but by the end of the year had fallen 7%. "We're seeing a bubble bursting right now in San Francisco," says Robert Shiller, an economics professor at Yale University and partner at Case Weiss Shiller. "We've never seen such a sharp drop, and we're expecting it to fall even more." (Actually not quite Mr. Shiller - Santa Clara County median home prices rose from about $450k in early 2002 to currently approx $750k )

So despite short to medium term corrections in market, long term fundamental always eventually win out.