Archive for August, 2010
By now you've probably seen the news — quarterly sequential home prices are finally going up! What a relief. For a moment, I thought we were in trouble.
In a much less rosy conversation today with Radar Logic CEO Michael Feder, we talked about indices such as the above and the ultimate usefulness provided in today's market. Radar Logic provided a great deal of groundwork for a Morgan Stanley report featured in the September issue of the print edition of HousingWire.
Basically, the research states that not only do properties need frequent, real-time data (quarterly reports today mean information is one month of new news, two months of old), but also data on changes to local economics and the actual size of property. They refer to it as the 'shift-in-mix' scenario. In our feature we break out the four major MSAs from Morgan Stanley and Radar Logic.
So while housing indices are getting much smarter, so are homebuyers.
At this point, the psychological damage is done and first time homebuyers are, well, simply being logical. According to a Gallup poll, one in four Americans are worried about the status of their jobs. So even if they don't fear unemployment, they still fear wage cuts.
At this point, buyers get that if they purchase a home, they will likely be underwater soon thereafter. They know that they can likely get short sales and REOs cheaper than new builds. They know that without the tax credit they can push for lower and lower prices.
And considering that riding the coattails of the homebuyer tax credit turned out to be misguided because there is little "pull-through" effect, there seems to be only one option to stimulating the market: bring back the homebuyer tax credit.
Perish the thought. The tax credit should be considered one of the most misguided attempts on stimulus by a government bent on spending its way out of recession. In fact, opinion in our space for a very long time has been that the homebuyer tax credit has done more harm than good.
Analysts estimated that July home sales would be bad, turns out they were actually too conservative.
"New home sales are getting to the stage where the distortions caused by the tax credit are fading, and as the smoke clears it is becoming blindingly obvious that underlying conditions are very weak," said Paul Dales, an economist who focuses on the US residential markets for Capital Economics.
In this schizophrenic economy, people would rather pay down their unsecured debt than spend money, and the last thing people want is a mortgage, unless they will get some money out of it.
So, I will make the argument that since bringing back the tax credit is such a fundamentally terrible idea, one that's proven to be a Pyrrhic victory — by that fact alone — it is even more likely to return.
Case in point, a note from Amherst Securities yesterday points out that the Home Affordable Refinancing Program was not as effective as it could have been. This, amid calls for a universal refinance program. The Fed is going forward with quantitative easing in the form of Treasury purchases, which in one way is likely to create volatility through duration risk in the MBS market.
This is based on the observation that within the mix of everything, the last thing the government wants to be is the bearer of bad news. Echoes of the tax credit — this money is well spent; think of how bad it could've been.
Therefore, why not revisit policy?
After all this housing market is stabilizing, according to the Obama administration, so what's the worst that can happen?
Write to Jacob Gaffney.
The financial meltdown has led to only a few civil and criminal cases against executives, and even those focused on peripheral issues: Goldman Sachs’s peddling of a credit derivative obligation and the communications of two former Bear Stearns hedge fund managers.
But the Securities and Exchange Commission’s securities fraud action against Angelo R. Mozilo, former chief executive of Countrywide Financial, promises to feature the aggressive mortgage practices of what was then the nation’s largest mortgage lender.
Commercial real estate if flourishing in the Austin metro statistical area (MSA) according to Keefe, Bruyette & Woods (KBW: 17.65 +1.32%), a financial firm that ranked the MSA at the top of three out of six categories in its Equity REITS/Commercial Real Estate MSA Tracker for the second quarter.
The report, released today, said Austin is the No. 1 hotspot in the multifamily property sector, the retail property sector and has the best overall economic conditions.
The Detroit MSA, on the other hand, consistently underperformed ranking fourth from last in the industrial property sector, second to last in both the multifamily property sector and the economic conditions evaluation, and dead last in the office property sector.
MSAs with real estate investment trust (REIT) risk exposure exceeding 10% of properties are ranked by KBW in the best and worst markets. With regard to office property exposure, Richmond, Miami, St. Louis, Portland and Nashville are ranked as the best markets. KBW said Richmond reclaimed the the top spot due to positive rent growth outlook and a 5% net absorption of total office inventory.
Detroit, Dallas, Indianapolis, San Jose and Denver rounded out the bottom of the ranking. The bottom three MSAs had high vacancy rates — 31%, 28%, 20%, 27% and 24%, respectively — with future outlook "not much better." (MSAs are listed in order starting with the best/worst)
The Raleigh-Durham MSA jumped to No. 8 from No. 24 compared to Q110, and New York climbed to the sixth spot, up from spot 18 last quarter. Phoenix and San Jose were the hardest hit in the office property sector in Q210, dropping 15 spots to No. 21 and 14 spots to #28 respectively. KBW attributed the drops to poor vacancy rates and effective rent growth. Washington DC has the lowest level of vacancy and Detroit has the highest.
Overall, however, KBW noted that "no REITs have significant (greater than 10%) exposure in terms of portfolio square footage to either the top or bottom-ranked office markets in this report."
The best industrial markets for risk exposure are Richmond, Denver, Nashville, Baltimore and Houston, the top two of which are tied for rank No. 1. Miami, Tampa-St. Petersberg, Phoenix, Detroit and San Diego are the worst markets.
In this sector, three REITs have significant exposure to the top-ranked and bottom-ranked industrial markets. First Potomac Realty Trust (FPO: 15.06 +0.33%) located in Richmond, Va. has 15% of its portfolio square footage in the No. 1 MSA and Eastgroup (EGP: 48.15 +0.35%) has 17% of its industrial portfolio in the No. 5 MSA, Houston. PS Business Parks (PSB: 62.14 +0.13%) has 18% of its portfolio square footage in Miami, the No. 1 worst MSA.
Austin, Baltimore, Raleigh-Durham, Charlotte and Denver are the best markets for retail risk exposure while Tampa-St. Petersberg, Orlando, Indianapolis, Atlanta, and St. Louis have the worst. Austin has the second-best change in vacancy for 2010, down to 24%, and Baltimore has the highest increase in effective rent this quarter at 5%.
California has the top-three retail MSAs in terms of current vacancy with San Francisco (4%), San Jose (6%), and Los Angeles (6.2%). KBW reported that no Midwestern market ranked better than 20th in terms of current vacancy, although Indianapolis is expected to have the largest decrease in vacancy rate in 2012.
Several REITs have risk exposure in some of the 'worst' markets: Kite Realty Group (KRG: 4.97 +0.61%) has 27% of its GLA located in 27th ranked Indianapolis; Equity One (EQY: 19.25 -0.52%) has 12% of its GLA located in 26th ranked Atlanta; EQY has roughly 7% of its GLA located in both Tampa-St. Petersburg and Orlando, for a total combined exposure of 14% to the two lowest ranked markets.
In the hotel sector, the best markets for risk exposure are Boston, Minneapolis, San Francisco, Chicago, and Denver. Boston maintained it top ranking based on Q210 performance, near-term supply outlook, occupancy change, revenue per available room, demand change, average daily rate, short-term supply forecast and supply exchange. Hersha Hospitality (HT: 5.48 +2.43%) has 10% of its rooms in the city.
Strategic Hotels and Resorts (BEE: 6.25 -1.73%) has significant exposure to top-ranked markets, with 22% of its rooms in San Francisco and Chicago combined. DiamondRock (DRH: 10.60 -0.19%) has 20% of its rooms in chicago and LaSalle (LHO: 27.03 -0.11%) has 13%o fits rooms in Chicago.
The worst MSAs for hotel risk exposure are Houston, Orlando, Dallas, Tampa-St. Petersberg, and Seattle.
Austin topped the list of best market for exposure in the multifamily sector, followed by Charlotte, Houston, Seattle and the District of Columbia. The worst is Los Angeles, which has the sixth lowest vacancy rate at 5.5%, followed by Detroit, Cleveland, San Francisco and St. Louis.
Of the top-five ranked MSAs, the heaviest concentration of multifamily REIT net operating income (NOI) exposure is derived from the District of Columbia, a total of six: Home Properties (HME: 59.25 +0.94%) at 29%; Post Properties (PPS: 44.61 +0.13%) at 20%; Camden Property Trust (CPT: 64.59 +0.64%) at 19%; Apartment Investment and Management Company (AIV: 24.64 -0.44%) at 13%; UDR, Inc. (UDR: 26.01 +0.39%) at 12%; and Equity Residential (EQR: 59.63 +0.64%) at 10%.
Colonial Properties (CLP: 21.60 +0.79%) earns 14% of NOI from #2-ranked Charlotte, while Essex Property Trust (ESS: 144.26 -0.92%) earns 15% of revenue from #4-ranked Seattle. While Apartment Investment and Management Company (AIV: 24.64 -0.44%) derives 13% of NOI from highly ranked DC, 10% of AIV’s NOI comes from the lowest-ranked MSA, Los Angeles. Also deriving NOI or revenue from Los Angeles are BRE Properties (BRE: 52.27 +0.75%) 13% of NOI, and ESS (21% of revenue). BRE is also largely concentrated in #28-ranked San Francisco (21% of NOI).
See where all cities are ranked by clicking the chart below.
Write to Christine Ricciardi.
Home prices inched up during the second quarter in the Federal Housing Finance Agency's house price index, the first increase in three years.
The agency said its second quarter HPI – calculated using information from mortgages acquired by Fannie Mae and Freddie Mac – rose 0.9% on a seasonally adjusted basis from the prior quarter, yet fell 1.6% from the year ago. Still, prices of other goods and services in the second quarter were 3% higher than the year earlier. This puts the second quarter inflation-adjusted home price about 4.4% higher than last year, according to the FHFA.
The Phoenix metropolitan area experienced the largest decline in home prices during the second quarter with a 5.5% drop from a year earlier. The Oakland area saw the largest increase with a 9.9% gain, the FHFA said.
The agency’s all-transactions index for the quarter fell 0.5% from the first quarter and dropped 4.9% from the year earlier.
"The news on the housing market has gone from bad to dire," said Paul Dales, economist with Toronto-based Capital Economics. "New home sales are getting to the stage where the distortions caused by the tax credit are fading, and as the smoke clears it is becoming blindingly obvious that underlying conditions are very weak."
As HousingWire reported earlier today, new homes sales reached all-time lows in July.
Dales expects the US economy to expand at no more than 2% annually "for a number of years" because of the double-dip in both housing activity and home prices, as well as sagging data from other economic indicators.
The chart below shows quarterly home sales for the three months ended July 31 plummeted 34% to a level not seen since March 1993, according to Dales.
Write to Jason Philyaw.
Canadian risk management and data analytics firm Solidifi is continuing to get a makeover. The firm recently changed its name to Real Matters and today announced that Rob Burgess is joining the company's board of directors.
Burgess served as chairman and CEO of Macromedia Inc., a graphics and web-development software agency, from 1996 to 2005 before it was acquired by Adobe Systems Inc. He currently acts as a board member of Adobe.
Real Matters president and chief executive officer Jason Smith said Burgess' experience in technology will help Real Matters infiltrate new market solutions. Solidifi changed names last month and acquired Canadian Underwriting Services.
"Since it's inception in 2004, Solidifi has grown phenomenally as a next-generation appraisal management company. However we're seeing tremendous demand in the market for unique property information," Smith said. "As a result, we're converting to a cloud-driven property information services organization that serves multiple verticals."
The firm said Real Matter's other business units, Solidifi (appraisal management solutions) and iv3 (inspection loss and control solutions) will remain wholly-owned subsidiaries.
Write to Christine Ricciardi.
Disclosure: the author holds no relevant investments
