Case Shiller 4/10

The Case Shiller Indices crept up for the 3rd month in a row in April with a .4% gain over March.  You would have hoped that the market stimulus would have provided a little more price impetus than it appears.  The price rebound looks shaky at best.  I continue to expect lower prices by years end with low tier, mid tier and high tier prices dropping 5%, 7% and 10%, respectively.
 

Year over year, the 20 city index has gained 3.8%.  I'm sure that anything above 0% is music to the ears of Lenders.  Fllat pricing allows them to curtail loan loss provisions, thereby, stemming the financial bleeding.  This would provide an opportunity to shift their loss provisions to commercial properties which appear to be woefully under reserved.  Of course, following FAS 157, and not writing off anything is giving them a chance to shore up their capital base (which many Washignton Banks have been ordered to do) in hopes of living to fight another day.

New Homes 4/2010

New Home Sales got a nice shot in the arm in April. The expiring tax credit and low rates probably played a big role in the increase. I'm looking for Sales to drop of steeply come June.


Inventory levels have dropped to levels not seen for a long time. I would imagine builders will be playing it pretty close to the vest as far as new starts are concerned. The memory of holding too many spec homes is too fresh in their minds.

It appears the impetus to borrow is already waning in Buyer's minds: http://www.mbaa.org/NewsandMedia/PressCenter/72973.htm

Used Homes 4-2010

Spurred by glib Sales Agents touting an expiring tax credit and an end to the FED's support of the mortgage market, April sales exploded to levels not seen since 2007. With mortgage rates still low and the credit set to expire at the end of June, I wouldn't be surprised to strong sales thru June. After that, anything goes.


Potential Sellers apparently smell an opportunity as they rush to get their homes on the market. Just like Sales, Inventory levels exploded in April. I'd say they have two months to get their home sold. I hope they priced it right.

Case Shiller 3/10

The good news is that nationwide home prices have stopped falling, for now. March saw the second consecutive month of annual price increases. That is great news for banks and builders. Stabilizing their balance sheets is a key ingredient to their recovery.


The not so good news is that the price recovery looks quite feeble. Considering the effort the FED has put into keeping rates low and the amount of money the Govt has spent towards pushing prices up one would certainly hope for better results. Once the home buyer credit expires there appears to be very little to prop up prices. I'm going to hold my forecast of 2010 price declines of 4%-7%-10%, for low end, middle and high end homes, respectively

Bank steps up

Cascade has decided to bite the bullet and write off/down some of its assets.

Cascade Financial expects big 1Q loss as it sheds 2 land-development assets

In particular, "Cascade said it agreed to sell 263 residential lots in Marysville on which it foreclosed last month. It will record a $5.6 million charge on the $13 million loan that went bad." Not quite sure why there is 263 lots in Marysville, but if the loan was underwritten at an LTV of 75% the value was about $17,333,000. A $5,600,000 write off on the note indicates a selling price around $7,400,000, approximately 43% the value when the loan was done. Seems a little rich, but certainly a better deal than it was in 2007.

SFR

It's been a dismal week so far for the housing market.

The Case Shiller has shown a pretty feeble pickup in prices during 2009, especially considering the total lack of interest in new homes as shown by the number of new homes sold in December.

A new record low for new home sales. One has to ask what is going to cause new home sales to increase. Sure inventories have dropped significantly, but what is going to cause a new home buying spree? Unemployment is menacing. The foreclosure, shadow inventory numbers are not good. Interest rates can't go markedly lower. So, where does that leave land prices. Here's a look at Seattle land values using the Land Residual Value Calculation. In the good 'ol days it worked something like this:
Home Price 300,000 100%
Construction costs 105,000 35%
Carry costs 30,000 10%
Selling Costs 30,000 10%
Land Improvements 45,000 15%
Gross Profit 45,000 15%
Raw Ground Value 45,000 15%
Case Shiller shows a 22% peak to current price decrease dropping the idealistic price example above to $234,000. The first to absorb this blow was the builder's gross profit expectation. The balance has been taken out on the Raw Ground Value dropping it to $30,600. A nasty 32% drop, jeopardizing the lenders original LTV of 70% to 75%. Another 10% to 15% dropped in home values will wipe out the value of the land on the builder's books. What's a builder to do? Another builder won't buy the land unless the profit is put back into the deal. Per the above calculation adding in a 15% gross profit takes another $35,000 from the land value taking it negative. So even without a further decline in home prices, raw ground is already underwater. The clever buyer would be looking to Bank REOs and be prepared to negotiate prices down with Subs, Suppliers & Agents.
Do you think it's not happening? Check out this article:
http://www.theolympian.com/2010/02/14/1137264/missing-headline-for-14obuildings.html
Here's the money quote:
“There are so many lots being flooded on the market right now that you can buy lots at or less than the cost of production,” he said. “Land values have essentially gone to zero.”

Seattle SFR Stats

I came across some graphs from Altos Research

Median Listing Price dropped 12.5%.

The average days on market jumped 25%.

Inventory dropped 30%.

I came across some interesting graphs from Altos Research:

Banks putting the squeeze on Developers

Here’s a round up of recent articles discussing properties heading into foreclosure:

Banks foreclosing on Whatcom County's unsold condo projects
http://www.thenewstribune.com/news/northwest/story/927549.html

Chapter 11 for Cascadia
http://www.thenewstribune.com/topstories/story/919317.html

Seattle developer Mastro has huge debts, bankruptcy papers show
http://seattletimes.nwsource.com/html/localnews/2009843640_mastro11.html?prmid=obnetwork

Frontier Bank sues Edmonds developer over $40 million in unpaid loans
http://www.heraldnet.com/article/20091016/BIZ/710169861

The following Banks were mentioned in the articles:

Horizon Bank
Bank of the Pacific
Whidbey Island Bank
Seattle Bank
Columbia State Bank
First Sound Bank
Venture Bank
HomeStreet Bank
Frontier Bank

Guess what many of these banks have in common?
Check the Troubled Bank List at Calculated Risk.
http://www.calculatedriskblog.com/2009/10/unofficial-problem-bank-list-grows-to.html
Regulators are putting the screws to many of the Banks pressing foreclosure.

Horizon Bank _______3/3/09 _____Cease & Desist
Bank of the Pacific
Whidbey Island Bank
Seattle Bank ________6/08/09 ____Cease & Desist
Columbia State Bank
First Sound Bank
Venture Bank _______9/11/09 _____Failed
HomeStreet Bank ____5/08/09 _____Cease & Desist
Frontier Bank _______3/20/09 ____Cease & Desist

I imagine they would also fit the classic definition of “motivated sellers.”

Used Home Inventories July '09

The seasonal inventory build is underway. It's going to be hard to get much pricing traction with inventory still too high. Any strength is going to be met by higher listings sapping pricing power.