Recession and the Real Estate Market

On data as early as September, the Economic Cycle Research Institute (ECRI) has been warning that their Leading Indicators were signaling a new recession. Economic forecasts are notorious for predicting 15 of the last 7 recessions and are unreliable at best. However, ECRI has never issued a false warning and their pronouncement is to be taken seriously; most recently, having called both the beginning and the end of the “Great Recession”. Furthermore, in the summer and early fall of 2010, the economy had slowed dramatically and fears of an informal “double-dip recession” were rampant; ECRI called the slowdown, but refused to predict the US would tip into a recession at that time. Their proprietary forward looking indicators were still dropping as of October 21, 2011 to a minus 10.1, the lowest level since July of 2010 and they are now warning of a global recession. There is a lag from Wall Street to Main Street of about 4-6 months; if Lakshman Acuthan is correct, the stock market will turn down followed by a dramatic slowing in the general economy. At the moment, business activity is still viable and active, but according to ECRI, the US is vulnerable to an economic shock, which could result in an explosive downturn.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Recession and Real Estate

Real estate cannot escape the effects of a downturn in the economy. Even though there is a diversification afforded by the nature of a distinctly different asset class, real estate and housing are still economically sensitive. The past 4 years have removed virtually all of the oversupply of new construction produced in the frantic bubble years, as well as clearing a huge volume of the distressed and lender-owned properties. A new recession will add to shadow inventory and reduce buyer demand as fewer buyers will qualify. Inevitably, this will put downward pressure on recovering real estate prices across the nation.

Nationally, it will be difficult to quantify the decline as areas such as the Dakotas, enjoying the benefits from both oil and agriculture, will feel little distress. Areas where finance and government drive the local economies, such as New York City and Washington DC, may be hard hit as payrolls shrink to adjust to lower revenues. The luxury home market will suffer both from current homeowners’ loss of income and potential buyers’ difficulty in obtaining Jumbo Loans above Fannie Mae (OTC: FMNA.OB) and Freddie Mac (OTC: FMCC.OB) limits, as risk averse lenders raise requirements to shield from potential losses.

Nick Russo of Russ Trading, www.russtrading.com, an investment adviser with an impressive record of insightful predictions including the real estate bubble and the financial meltdown of 2008, recently suggested a 10% decline annually for the next 3 years. Mr. Russo believes a debt driven event is inevitable and may be imminent, with some estimates of $300 trillion of global public debt and the possibility of $700 trillion in derivatives. Mr. Russo further believes the confluence of social fracturing, political polarization, and deteriorating financial factors have created an unsustainable debt load. The “Sand States,” which were devastated by the real estate implosion, may experience less impact, particularly in the financing favored entry level segments, as those areas have already corrected and in some instances over-corrected. Some properties are still selling at a considerable discount to insurance industry estimated replacement costs.

Mr. Nicolas Russo, who is credited with coining the phrase “The Big Rollover”, has advice for the possibility of a prolonged and deep recession:

1. Keep 3 months worth of expenses in cash; split 50/50 between US Dollars and Canadian Dollars and/or Swiss Francs.
2. 1 year’s worth of expenses in a Short-Term US Treasuries or an ETF such as SHY.
3. 1 year’s worth of expenses in physical gold and silver in 70% and 30% portions.

One’s portfolio should be proportioned:

• 25% Bonds in Ginnie Mae and Emerging Market Debt, not Long-Term US Treasuries which he believes may be in a bubble.
• 15% Gold/Silver ETF’s and stocks
• 25% Strategic Real Estate which would include a personal residence and a Back Door Escape where one’s family may seek refuge if there is social upheaval or chaos. Also included would be cash flow generating discounted residential real estate leveraged judiciously (70% LTV). Mr. Russo warned Real Estate is not as liquid, but represented a value play particularly in the entry level segment.
• 35% Foreign Commodity, Tangibles, Collectibles, and Oil (Mideast disruption), Pipelines, Natural Gas, Growth & Income Conservative Stocks, Utilities; all designed to enhance income.

One of the recurring themes for mitigating the effects of an economic downturn is cash flow enhancements to provide extra revenue streams from investments in a yield starved environment. Strategic Real Estate composed of discounted rental properties, which are still available, could yield to the passive investor a 5%-7% cash on cash net return. In an environment where 30-year Treasury Bonds are yielding under 3%, Residential Rental Real Estate and Commercial Properties tenanted by stable, long-term tenants, particularly a medical industry related tenant could be terrific investments providing income, capital gains potential, and should a conservative amount of leverage be employed, loan reduction. Although no guarantee of future performance, during the “Great Recession” of 2007-2009, the revenue stream from the Residential Rental Properties tended to hold relatively constant and produced consistent income; the value, however, did decline. This is an investment for a 10-15% allocation of the fixed income portion of a well-diversified portfolio with a time horizon of at least 5 years to allow for the potential economic storm to pass.

An economic downturn may not be inevitable, however, there is still time to take prudent precautions. Should the Federal Reserve continue to add to the monetary system, inflation could ignite, in which case, hard assets such as Real Estate will benefit. Should the economy continue to decline, fewer buyers will qualify causing greater rental demand which will result in consistent income. Badly beaten and devastated Residential Rental Real Estate may prove to be the asset class that protects wealth. Strategic Real Estate should be considered as part of a longer term cash generating investment portfolio. Conversely, properties purchased during the “bubble” years or shortly thereafter, those that are underwater and are cash flow negative, need serious consideration for immediate liquidation. These non-cash flowing properties represent a liability and drag on earnings that may jeopardize a portfolio; the short sale process should be fully utilized. Please consult with your financial advisor.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

A Closer More Painful Look at Housing

There seemed not much we could glean from the New Home Sales data for October generally speaking, but after a more painful closer look, there are nooks full of grime and crannies full of malaise worth discussing after all.

Our founder, Markos Kaminis, earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

A Look at Housing

In recent reports on real estate and homebuilders, we noted that the global macroeconomic meltdown would not likely leave out homebuilders. We were wondering this week if our detractors, a group basically consisting of homebuilder long positions today, noted the apocalyptic warning from the OECD Monday or Fitch’s U.S. outlook downgrade Tuesday. Well, they’ll argue that the efficient stock market blew off the news, with the Dow up both Monday and Tuesday on record Black Friday and Cyber Monday retail sales. Housing stocks rallied as well, with PulteGroup (NYSE: PHM) up 2.5% Tuesday, K.B. Home (NYSE: KBH) up 0.9%, Toll Brothers (NYSE: TOL) 0.5% higher and D.R. Horton (NYSE: DHI) increasing 0.3%. Now I’ll tell you why I think the week’s stock buyers will regret it down the road.

October’s New Home Sales were reported at the start of the week, and not much was made of the news. There was good reason for that; it’s because not much changed generally speaking. The annual pace of new home sales rose 1.3% month-to-month, to 307K, from a revised September pace of 303K. The sales pace was 8.9% greater than the year ago period, thanks to the low bar set when housing was left to its own devices absent of the First-Time Homebuyer Tax Incentive. I should note that this last bit of information is overlooked by the biased among us.

Economists were looking for a sales pace of 310K, so 3,000 more than the actual result. Clearly, the miss was insignificant. In fact, the entirety of the report seemed insignificant, except to regional markets and discerning eyes. Breaking the data down, we see that sales in the Midwest were red hot, surging 22.2% over September’s pace and 37.5% above the prior year rate. I expect this has at least something to do with the energy boom in North Dakota, if not all to do with it. That’s because the biggest barrier to growth in the state’s energy production boom has been inadequate housing capacity. Still, this is great news for the local housing market and builders participating there. This gem in the rough report is missed by reporters purposed to push a position or by the popular press’ pumping of paper. It’s the independent voice with a core competency of discernment that adds value. By the way, we take and need donations, so please do support our effort through these difficult times via the "donation" tab atop our Wall Street Greek blog.

The western region of the nation also enjoyed a surge in activity (+14.9%), taking it to a level not seen since the spring. The Northeast was even with September’s pace, but the South reported a 9.5% drop off.

Another noteworthy tidbit was the dip in housing inventory to 6.3 months, down from 6.4 in September. Supply was 8.5 months a year ago. You would think that we would eventually reach a point of equilibrium. Month-in and month-out this development in inventory is viewed positively, seen as another step toward growth revival. At some point, inadequate supply and absent production should leave a housing shortage. That’s not the case though in a nation that is not creating jobs. Rather, empty nester homes are refilling with an increasing number of family members, children returned from college or Iraq, and brothers returned from Wall Street or prison, etc.

The final data point most often observed here is the home price information. Like seen in the S&P Case Shiller data, though in this case it’s timely, new home prices fell. Obviously, that’s not a good sign for real estate nor for homebuilders. But stock valuations have an important component reflecting future expectations, the longs will remind us. Well then it would seem fiat currency dilution for the sake of debt digestion will simply result in the penalization of all the world for the faults of those who partook in excessive leverage and who were possessed by greed. That’s not good for the homeownership rate either my friends. However, I have one caveat for you real estate survivors: if you already own your own home, then that hard asset with the extra benefit of utility value, including the ability to rent it or to provide you with shelter, will benefit from the inflation I see ahead.

In conclusion, it would seem this mundane report with seemingly stagnant data did prove quite interesting after closer inspection.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Mortgage Applications Off 14.9%, but Don't Panic

The Mortgage Bankers Association (MBA) reported that weekly mortgage applications fell by 14.9% in the period ending October 14, but don’t panic. We believe we have got the reason for the drop pegged herein, and it’s a one-time event, so relax. If anything, the news out of housing has been positive this week, with Housing Starts reported up in September and the Housing Market Index also improved in October.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Mortgage Applications Off

The MBA’s Market Composite Index collapsed by 14.9%, while the Refinance Index sank by 16.6%. The give-away data point, with regard to panic reconciliation, is the Purchase Index, which measures mortgage applications on home acquisitions. The seasonally adjusted Purchase Index also fell excessively, declining by 8.8% against the week just prior.

The naïve reader of the report might want to attribute the mortgage application decline to the increase in mortgage rates that occurred through the same period. The average contracted rates on 30-year fixed rate mortgages across the spectrum of jumbo, conforming and FHA sponsored loans all rose. FHA sponsored rates increased to 4.12% from 4.06%. So, we would expect some sort of drop-off in activity, but not the dramatic decline that actually occurred.

As I indicated previously, Purchase Activity is the giveaway. Everything around the purchase of a home moves slowly and takes time and consideration. So, we hardly ever see dramatic changes around mortgage applications for purchases. One might give the rate increase as much weight for driving activity as for cutting it off, since it might spur prospective buyers into acting out of fear that rates might go even higher. Therefore, the near 9 point drop in purchase activity last week cannot be a naturally driven circumstance. Well, no comet struck the earth (yet), and Europe is still solvent, so what was the driver. I believe that it was a factor I’ve pointed out before in this column, the effects of holidays on the data.

While some are better than others, data managers fail to perfectly adjust for holidays. Even if they’ve got the loss of the day perfectly accounted for, they tend to miss the drop-off in business activity that occurs before and after holidays, especially three-day weekends. As a result, though, I expect we’ll see a commensurate unnatural increase in activity next week, when the period matches up against the holiday burdened period. As always, I’m here to clear out the noise for you.

Article should interest investors in Savings & Loan stocks including Alaska Pacific Bankshares (OTC: AKPB.OB), Allied First Bancorp (OTC: AFBA.OB), Astoria Financial (NYSE: AF), AMB Financial (OTC: AMFC.OB), Ameriana Bancorp (NasdaqCM: ASBI), Anchor Bancorp Wisconsin (Nasdaq: ABCW), Bancorp of New Jersey (AMEX: BKJ), Bank Mutual (Nasdaq: BKMU), BankAtlantic (NYSE: BBX), BankFinancial (Nasdaq: BFIN), Banner (Nasdaq: BANR), BCSB Bancorp (Nasdaq: BCSB), Beacon Federal (Nasdaq: BFED), Berkshire Hills (Nasdaq: BHLB), Blackhawk Bancorp (OTC: BHWB.OB), Blue River Bancshares (OTC: BRBI.OB), Bofi (Nasdaq: BOFI), Broadway Financial (Nasdaq: BYFC), Brookline (Nasdaq: BRKL), Brooklyn Federal (Nasdaq: BFSB), Camco Financial (Nasdaq: CAFI), Capitol Federal (Nasdaq: CFFN), Carver (Nasdaq: CARV), Cecil Bancorp (OTC: CECB.OB), Center Financial (Nasdaq: CLFC), Central Federal (Nasdaq: CFBK), Chicopee (Nasdaq: CBNK), Citizens South (Nasdaq: CSBC), CKF Bancorp (OTC: CKFB.OB), Clarkston Financial (OTC: CKFC.OB), Clifton Savings (Nasdaq: CSBK), Close Brothers (OTC: CBGPY.PK), Columbia Banking (Nasdaq: COLB), Consumers (OTC: CBKM.OB), Dime Community (Nasdaq: DCOM), Enterprise (Nasdaq: EBTC), ESB Financial (Nasdaq: ESBF), ESSA Bancorp (Nasdaq: ESSA), Eureka Financial (OTC: EKFC.OB), FedFirst Fin’l (Nasdaq: FFCO), FFD Fin’l (Nasdaq: FFDF), FFW (OTC: FFWC.OB), First Bancorp of Indiana (OTC: FBPI.OB), First Bancshares (Nasdaq: FBSI), First Capital (Nasdaq: FCAP), First Clover Leaf (Nasdaq: FCLF), First Defiance (Nasdaq: FDEF), First Federal Bancshares of Arkansas (Nasdaq: FFBH), First Financial Holdings (Nasdaq: FFCH), First Independence (OTC: FFSL.OB), First Investors Fin’l Services (OTC: FIFS.PK), First Niagara (Nasdaq: FNFG), First Robinson (OTC: FRFC.OB), First Security Group (Nasdaq: FSGID), First South (Nasdaq: FSBK), Flagstar (NYSE: FBC), Flatbush Federal (OTC: FLTB.OB), Flushing Financial (Nasdaq: FFIC), Greene County (Nasdaq: GCBC), HF Financial (Nasdaq: HFFC), HMN Fin’l (Nasdaq: HMNF), Home Bancorp (Nasdaq: HBCP), Home Federal (Nasdaq: HOME), HopFed (Nasdaq: HFBC), Hudson City (Nasdaq: HCBK), Indiana Community (Nasdaq: INCB), Investors Bancorp (Nasdaq: ISBC), Jacksonville Bancorp (Nasdaq: JXSB), Jefferson Bancshares (Nasdaq: JFBI), Kaiser Federal (Nasdaq: KFFG), Kearny Fin’l (Nasdaq: KRNY), Kentucky First Federal (Nasdaq: KFFB), Lake Shore Bancorp (Nasdaq: LSBK), Louisiana Bancorp (Nasdaq: LABC), LSB Fin’l (Nasdaq: LSBI), Malvern Federal (Nasdaq: MLVF), Meridian Interstate (Nasdaq: EBSB), Meta Fin’l (Nasdaq: CASH), NASB Fin’l (Nasdaq: NASB), Naugatuck Valley (Nasdaq: NVSL), New England Bancshares (Nasdaq: NEBS), New Hampshire Thrift (Nasdaq: NHTB), New York Community (NYSE: NYB), North Central Bancshares (Nasdaq: FFFD), Northeast Community (Nasdaq: NECB), Northwest Bancshares (Nasdaq: NWBI), OceanFirst (Nasdaq: OCFC), Ocwen (NYSE: OCN), Oneida (Nasdaq: ONFC), Park Bancorp (Nasdaq: PFED), Parkvale Fin’l (Nasdaq: PVSA), Pathfinder Bancorp (Nasdaq: PBHC), People’s United (Nasdaq: PBCT), Provident Community (Nasdaq: PCBS), Provident Fin’l (Nasdaq: PROV), Provident Fin’l Services (NYSE: PFS), Provident New York (Nasdaq: PBNY), Prudential Bancorp of PA (Nasdaq: PBIP), PSB Holding (Nasdaq: PSBH), Pulaski Fin’l (Nasdaq: PULB), PVF Capital (Nasdaq: PVFC), QC Holding (Nasdaq: QCCO), River Valley Bancorp (Nasdaq: RIVR), Riverview Bancorp (Nasdaq: RVSB), Roma Fin’l (Nasdaq: ROMA), Salisbury Bancorp (AMEX: SAL), SI Financial (Nasdaq: SIFI), Southern Missouri (Nasdaq: SMBC), Sterling Fin’l (Nasdaq: STSA), Teche Holding (AMEX: TSH), TF Fin’l (Nasdaq: THRD), Timberland Bancorp (Nasdaq: TSBK), United Community (Nasdaq: UCBA), United Community Fin’l (Nasdaq: UCFC), United Fin’l Bancorp (Nasdaq: UBNK), Valley Fin’l (Nasdaq: VYFC), Washington Federal (Nasdaq: WFSL), Waterstone Fin’l (Nasdaq: WSBF), Wayne Savings (Nasdaq: WAYN), WSB Holdings (Nasdaq: WSB) and WVS Financial (Nasdaq: WVFC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Homebuilder Mood Slightly Less Suicidal

The National Association of Home Builders (NAHB) Tuesday reported its Housing Market Index. The metric is a measure of the mood of homebuilders, and has been mired in the mud where home foundations might otherwise be for years now. The popular press jumped on the news of improvement in the index, but failed to note, except in the details few Americans likely read, that the absolute value of the Housing Market Index is still dreadful.

Our founder, Markos Kaminis, earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Homebuilder Mood Slightly Less Suicidal

The NAHB/Wells Fargo Housing Market Index (HMI) improved by four points to a mark of 18 in October. That information alone set the real estate wire on fire Tuesday with news of “good news in housing.” While I’ve been forecasting growth in real estate for the second half of 2011, until noting this year that economic complications would stall the real estate recovery, I must point out that the homebuilder mood is not sanguine; suicidal would be a better description for homebuilders, though perhaps slightly less so this month. You see, the divider between a positive and negative mood is set at an index reading of 50. While my math is not as sharp as it once was, I can say pretty confidently that October’s reading of 18 is still deeply discounted to that break-point.

Now that I’ve made that important point, I have to note why the positive change still matters. It’s because “change,” or delta as mathematicians might refer to it, matters to the stock market. I favor delta myself in decision making, as it is a catalyst for profit in my view. That said, can we really say there’s a spark in housing based on this latest measure of the homebuilder mood? I think not, and even if it were, it would soon be smothered out by an economic situation that is at least less enthusing and possibly even defusing.

Looking more closely at the data, the report shows improvement across most of the spectrum of sub-measures. The HMI’s component measure for current sales activity shows a four point improvement to a mark of 18. The gauge counting prospective buyer traffic rose three points to a reading of 14. Where we really see the most robust change in the data, though, is in expectations. When surveyed regarding where homebuilders saw things going over the next six months, well that resultant component index gained seven points to a mark of 24. So what’s got homebuilders hopeful now?

I think they’re basically buying into the numbers. We’re seeing year-over-year results beating many of last year’s low bar marks. It’s amazing to me that it takes this actuality for people, including homebuilders and many of my readers, to realize it. We’ve been forecasting it since the start of the year here, and I’ve found mostly resistance to my “growth” statements. But what you have to understand is that, one, the base for growth is at a dramatic low point, and that, two, the growth we’re forecasting is nothing to write home about. Yet, it’s growth nonetheless. I suppose the clearing away of the negative trend, or the delta, helps sentiment, however surely it should have been expected.

My view regarding this measure is that its great dependence on the views of smaller builders, which are greater in number and which have suffered more than the larger, publicly traded players, who have easier access to capital, has weighed on it. Thus, it’s been mired in this mud of low-teen readings for months. Whenever it has changed, it’s been mostly due to expectations, not significant changes in real sales activity or traffic.

As we look regionally, we see the largest market of the Northeast stuck at a reading of 15. I suppose that is because of the well developed nature of the region. In the West, the component reading improved by nine points to a mark of 21. The Midwest and South saw increases of four points, to readings of 15 and 19, respectively.

The report and the reporters of the report have noted all the usual suspects behind the absolute low level of confidence, including the weight of foreclosures on appraisal values and competitive properties, and the obstacle of tighter lending criteria. When seeking a reason for the gains made this month on a relative basis, those same scribblers attributed the move to record low mortgage rates. Certainly, the lower rates fall, the more folks qualify for homeownership. Still, the real barriers to this housing recovery are the result of our economic illness, including high unemployment and the hangover we must bear due to our previous housing overindulgences. Therefore, I say temper your enthusiasm until the latest economic stumbling blocks are cleared away.

Stocks of homebuilders reacted to the news just the same, with the shares of Toll Brothers (NYSE: TOL) up 9.9%; Hovnanian (NYSE: HOV) +6.7%; D.R. Horton (NYSE: DHI) +8.5%; Lennar (NYSE: LEN) +7.9%; Beazer (NYSE: BZH) +11.3%; and K.B. Homes (NYSE: KBH) up 8.1% at about two hours ahead of the close.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Did You Notice the Housing Growth

The latest Housing Starts data from the U.S. Census Bureau's Department of Housing and Urban Development showed housing market growth against the prior year period. That is the growth that I have been forecasting here against a tidal wave of criticism for nearly a half year now. There it is, manifest before you, so deal with it detractors!



Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.



Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Did You Notice the Housing Growth?

Through most of this year, I’ve been forecasting the turn in housing that is unfolding now before the eyes of all. Yet, I’ve faced a tidal wave of criticism from the herd, the same cattle that bought deep into the real estate bubble when I was screaming warnings to deaf ears. So, as the government reports the turn from contraction to growth, I’m making sure to remind detractors where they heard it first.



The Housing Starts data for July showed a 1.5% decline versus June of 2011, but the level of activity at an annual pace of 604K, still measured 9.8% higher than last year. The prior year comparables have suddenly gone from challenging to easy game. That’s certainly due to the expiration of the tax credit program in the spring of 2010, and the absence of incentive driven activity in the 2010 comps now.



As you can see by the month-to-month comparison, which is seasonally adjusted, it does not reflect a generally robust recovery in housing. But, it does reflect growth, a point I tried desperately to make time and again this year. More recently, I have been qualifying those growth forecasts for the full year of 2011 to the risk of political bumbling with regard to the debt ceiling and the risk of US sovereign debt rating downgrade. Thus, it is now unclear whether the remainder of the year will be strong enough to provide for full year growth, but it will be close to it. I think I can say with certainty that the second half of this year will provide growth over the second half of 2010 across housing metrics.



Take note also of the Building Permit results, which indicate activity is still on pace for gains. In July, Building Permits ran at an annual rate of 597K, 3.2% short of the revised June level of activity, but still 3.8% better than July of last year. Housing Completions also performed well on a year-over-year basis, running at an annual rate of 636K, which was both above this June (569K) and last July (581K).



It’s important to note as well that single-family home construction, excluding multi-family projects, performed relatively well. While Starts were 4.9% below June’s activity, Permits ran 0.5% higher and Completions were 6.1% above the previous month.



On a regional basis, the best Housing Starts news was seen in the Northeast region of the country. Starts were up 34.7% over June, and 27.6% over last July, but much of the gains were in multi-family projects. Single family starts increased 7.5% over June, but were down 15.7% against last July in the congested Northeast. However, permitting was down in the Northeast, except for in single-family projects. Permits were 18.3% lower than June, while 7.9% short of July of last year. Single family project permitting was up 2.9% against June, but down 16.3% against July of 2010.



Starts activity was especially soft in the Midwest, where they measured 37.7% short of June of this year and 17.4% below July of last year. Single family starts were down 22.6% against June and 14.5% against July of last year. Starts in the West and South were less robust in change, with the South seeing a 5.6% increase and the West seeing a 3.0% decrease.



The big take-away from the report was missed by every major publisher, that we have turned the corner in housing. We will come close to seeing yearly growth for 2011, and we will certainly see the second half of this year outpace the second half of last year. Whether housing double-dips in the near-term or not may be more closely tied to the government’s inability to provide further stimulus to a still ill economy. In other words, recession renders all housing bets void.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Real Estate Insights from Homebuilders and Us in August

The National Association of Home Builders (NAHB) reported its Housing Market Index for August. This is a measure of homebuilder sentiment, and as you might expect, it has reflected a miserable mood for an extended period. However, this month’s report offered some insight from the mouths of builders and inspired some theorizing on our part as well.



Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.



Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Real Estate Insights from Homebuilders and Us in August

The NAHB Housing Market Index held at a miniscule mark of 15 in August, reflecting the ongoing misery of homebuilders. In the past, we’ve noted that this measure should lag other metrics tied to Real Estate, and it has generally missed the recent slight rebound seen in other measures. We see the reason for this as two-pronged. One big reason is that the new home market should lag existing home sales recovery, simply due to the degree of distressed property and related value available in the overall market as a result. Secondly, the index surveys a broad range of home builders, including a significant number of smaller distressed operators, who may never enjoy recovery. As we’ve mentioned previously, this creates opportunity for larger well-capitalized and often publicly traded builders to gain market share. But any enthusiasm seen in those larger builders will be watered down by the many smaller builders expressing their negative views in this survey.



Before we get to the insight we’ve garnered from the latest report, let’s review the data details. First of all, a reading of 50 would reflect a positive mood, so at 15 the index really does portray the pure misery of construction. On a regional basis, a better mood was seen in the Northeast segment index (+4 to 19) and West (+1 to 15), while the South held steady at 17 and the Midwest fell 2 points to 10.



The weakness actually reflects improved current conditions being offset by reduced expectations for the future. Home builders saw better traffic in August, with that component index gaining a point to 13. They also rated current sales conditions better, with that component index gaining a point to 16. As one might expect, and as seen across several consumer sentiment measures, the component index measuring builder expectations for sales conditions six months down the road deteriorated two points to 19. We can mostly blame Washington for this, with some attribution going to S&P and European economic issues, in my view.



One intriguing insight offered by the HMI was that 41% of respondents indicated that they had lost sales contracts due to buyers’ inability to sell their current home. This speaks to the bifurcation of our economy, between the employed and underemployed. So, this is an example of the unemployed impact on the broader marketplace, where it impedes the fluid economic progression of the employed, or the healthy market participants. But, where an old home must be sold cheaper than preferable, a new home is also acquired at better value, so I’m not sure the argument here is not limited to the psychological.



This does not speak to another factor holding up the employed from buying homes, and that is uncertainty. The employed remain worried about their own job security, which they see tied to overall U.S. economic health. This drives concern about the purchase of a home, because if the employed man or woman’s own independent situation changes they could be left without means to maintain their progressive or newly extended lifestyle. Another important concern of the employed and capital unconstrained is their worry about the future of the real estate market, specifically the risk of losing value post closing. Nobody wants an underwater mortgage or to lose value, despite its being tied to a tangible asset with utility.



I heard a real estate player on Bloomberg radio suggest that if our government or private organizations could alleviate that concern, suppose by insuring against the risk of real estate value decline, then that might lead an important number of prospective buyers off the fence and give traction to the real estate market. But this does not play to the capitalist tune; instead the government should find ways to normalize market conditions by alleviating uncertainty where it can manage it. Given that the U.S. government is now capital constrained, creative ideas like the aforementioned may be impossible anyhow.



If record low interest rates and deeply discounted home prices from their peak cannot bring buyers to the floor in a more significant way, perhaps only time will, as market factors like lending and employment heal. In other words, the housing market might not be capable of healing in a meaningful way until the economy does, and so the effects of direct stimulus are limited. Still, the disruptive relics of the real estate bubble, including the inventory overhang, must be cleared to allow economic improvement to more effectively flow through to real estate.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Basic Shelter May Soon be Unaffordable

With the dastardly debt deadline less than a week away now, interest rates are poised to climb significantly higher on a dime should a major rating agency determine to cut the American sovereign debt rating. Yet, in the latest reported week, mortgage activity declined. Mortgage brokers and other real estate professionals are missing an important opportunity to get mortgages refinanced and nonchalant home buyers into favorable mortgage contracts while they still last, because basic shelter may soon be unaffordable for the average American.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: BAC, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: PNC, NYSE: JPM, NYSE: BBT, NYSE: CIT, NYSE: BKU, Nasdaq: UBSI, NYSE: BK, Nasdaq: MBFI, NYSE: AF, NYSE: NYB, Nasdaq: HCBK, Nasdaq: PBCT, Nasdaq: FNFG, Nasdaq: CFFN, Nasdaq: WFSL, Nasdaq: ISBC, Nasdaq: NWBI, Nasdaq: STSA, NYSE: OCN, NYSE: FBC, NYSE: PFS, Nasdaq: COLB, Nasdaq: KRNY, Nasdaq: BRKL, Nasdaq: DCOM, Nasdaq: FFIC, Nasdaq: DNBK, OTC: FCNCA.PK, NYSE: SNV, Nasdaq: UBSI, Nasdaq: HMPR, Nasdaq: WSBC, Nasdaq: CHCO, Nasdaq: SASR, OTC: FCBN.OB, Nasdaq: SCBT, NYSE: WL, Nasdaq: WSFS, Nasdaq: SBSI, Nasdaq: STEL, Nasdaq: UBSH, Nasdaq: EGBN, Nasdaq: FBNC, Nasdaq: ABCB, Nasdaq: TBBK, Nasdaq: FCBC, Nasdaq: CCBG, Nasdaq: FISI, Nasdaq: NKSH, Nasdaq: CZNC, Nasdaq: CHFN, Nasdaq: SBCF, Nasdaq: TIBB, Nasdaq: AMNB, Nasdaq: UCBI, Nasdaq: MBRG, Nasdaq: HBOS, Nasdaq: ZION, Nasdaq: EWBC, NYSE: CYN, NYSE: BOH, Nasdaq: SIVB, Nasdaq: WABC, Nasdaq: CATY, Nasdaq: UMPQ, Nasdaq: GBCI, Nasdaq: PCBC, Nasdaq: PACW, NYSE: WAL, OTC: FBAK.OB, Nasdaq: FIBK, Nasdaq: NARA, Nasdaq: WCBO, Nasdaq: TCBK, Nasdaq: TBNK, Nasdaq: WCBO, Nasdaq: BMRC, Nasdaq: HAFC

Basic Shelter May Soon be Unaffordable

The Mortgage Bankers Association (MBA) reported Wednesday that mortgage activity fell 5% in the period ending July 22nd. Contracts tied to the purchase of a home declined 3.8% from the immediately preceding week, while mortgage refinancing applications dropped 5.5%. The decline in refinancing occurred even while mortgage rates remained attractive. Contracted rates on average 30-year and 15-year fixed rate mortgages inched higher to 4.57% (from 4.54%) and 3.67% (from 3.66%), respectively.

This lackadaisical activity in the mortgage market is reflective of the slow going housing market now, but it’s also indicative of idle real estate professionals. Those pros are missing an important opportunity to generate business now, and more importantly, to get people into affordable contracts while they still last.

If a default occurs on American credits, or if Standard & Poor’s (NYSE: MHP) or Moody’s (NYSE: MCO) downgrades American credits, Treasury rates will increase and rates will rise across the board. That means mortgage rates too… Far too many Americans are in variable rate contracts or are in position to buy a home today but are sitting on the sideline idle due to fear. It’s unfortunate that this frozen state is exactly what makes them vulnerable today, because inaction will price many out of the ability to buy a home should events proceed as they appear poised to today.

One of the few assets I would want to own in an economic depression is the shelter provided by an owned home. The basic necessities must be accounted for, and those include shelter, food and water. If the economy deteriorates as it should in the scenario that is growing in probability, that situation brought on by Washington’s debt debacle, then it will get much harder for many Americans to even afford rent. So, even if home prices were to drop further on decreased demand, which is certainly likely in a harder economic environment, at least many would be able to better endure it within a home. As a renter, you are dependent on your landlord’s compassion in desperate times, but as a home owner, you can rent out space to afford your home in tough times.

Say what you will about scare tactics, but in this case if real estate professionals were to employ them responsibly (in other words, to simply warn folks about imminent rate rise), it might actually do some important good for a good many Americans. The interest rates we see today should not exist for much longer, even if Washington somehow circumvents a debt downgrade.

In the positive growth scenario, we also see rising rates, as global economic growth driven by the expanding emerging markets drives scarcity in commodity resources. In this case, inflation should feed through the system, in my view. Thus, I feel compelled to share what I believe is helpful information with those who can take advantage of it now, renters who can afford a home now but may not be able to if/when rates rise.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Don't Sweat Softer New Home Sales

New Home Sales were reported lower in June, but I suggest you not read too much into the report. Sales were expected to be slow, and the new home market is seen lagging broader recovery. That said, there was also plenty of good news for those willing to read the report or Wall Street Greek.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Don't Sweat Softer New Home Sales

New Home Sales ran at an annual rate of 312K in June, down just slightly from May’s revised rate of 315K. Economists surveyed by Bloomberg had been forecasting for a sales pace between 309K and 342K, with the consensus sitting at 321K. Thus, the report was relatively disappointing, but the data effectively shows no change in activity nonetheless. While that was also less than enthusing, it was expected, as the new home market is especially burdened by the heavy inventory of distressed properties on the market and held by banks in so-called shadow inventory.

Distressed property inventory has driven down home prices generally, and put a good number of relatively new properties for sale below replacement cost or the price of a new home. Given the prudent management of most large better-capitalized builders and the capital-strapped positions of the smaller ones; and most importantly a generally light demand for housing in an uncertain economic environment, new home sales are not going to lead the real estate recovery. However, just as I’ve recently written, housing is on the road to recovery in a broader sense.

A closer inspection of the data shows June sales softness in the Northeast (-16%) and West (-13%) was partly offset by strength in the Midwest (+9.5%) and South (+3.4%). Good news was also seen in housing inventory, which showed that despite the slower pace of sales, new home inventory fell to 6.3 months from 6.4 months supply in May. The number of homes for sale continues to ease, which is a necessary pain to find solid support for the next growth market for new homes. At this level of activity, when new home demand revives, it should be akin to a big blue fish taking a hook - there’s no doubt about it when it happens.

More good news was found in the home price data. The median price of a new home increased 5.8% in June, to 235,200. The average price of a new home increased 1.8% to 269K. And while the quick-to-print popular press and investors are crying over S&P Case Shiller data for May that shows year-over-year price decline, they’re missing year-over-year price increase seen in June via this report. It’s pretty substantial too, with the median price of a home up 7.2% on a year-to-year basis.

So in conclusion, I suggest readers and real estate players not lose any sleep over June’s New Home Sales Slippage. All your nightmares should be about our Congress’ potential failure to raise the debt ceiling before a major rating agency downgrades American credit. I even continue to favor homebuilder shares for long-term investment, as when recovery is clearly seen, the stocks should outperform the broader market. However, I must continue to qualify these recommendations and forecasts on the passage of debt ceiling legislation and the maintenance of the AAA rating for the United States. A scenario that includes a failure to do so is one wildly different than most living Americans can ponder in my view.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Real Estate Recovery on Track

Many in the popular press and a good number of analysts saw this week’s housing data as either mixed or negative. That had a lot to do with the weak Existing Home Sales Report, but in my view, which is inclusive of that data, the week’s news was purely positive. In fact, I see the real estate recovery on track. Allow me to explain...

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Real Estate Recovery on Track

The current week offered several housing data points, including the Housing Market Index (home builder sentiment), Housing Starts (new construction), Existing Home Sales, Weekly Mortgage Activity and the FHFA House Price Index. Four of five reports showed improving trends, though each report showed the usual low level of activity on an absolute basis.

Students of securities markets will recall that it is the forward outlook which matters to markets, and so change in trend or the anticipation of it acts as catalyst to start securities higher. My articles this year have called for and reported that change in trend, oftentimes against the tide of overwhelmingly negative real estate market sentiment. That’s the same tide I faced on the way in, when I was forecasting the real estate bubble implosion and financial crisis.

Housing Market Index
Working from first to most controversial: We covered the Housing Market Index independently in an article earlier this week. We reported that homebuilder confidence, which is what is measured by the index, improved. We noted that the gains came solely on prospective hope for the next six months, and we theorized that homebuilders were simply looking forward to the improving real estate market that most economists and trade organizations are openly forecasting for the second half of this year. In the past, we have stated that even while new home activity should lag, the stocks of homebuilders might lead if real estate were to turn toward growth and price recovery, which is what we see through the second half of the year. Certainly, we view the current real estate environment as attractive for home purchase, barring new catastrophic event, which by the way is also not lacking in potential.

Housing Starts
Housing Starts, which measure the beginning of new construction, were reported next and offered what we thought was just delightful news for real estate investors. Housing Starts rose 14.6% in June, to an annual pace of 629K. The rate of Starts in this year’s period also marked an impressive 16.7% increase over the June 2010 pace. We expected some improvement here, given the comparison against the prior year period within which the First-Time Homebuyer Tax Incentive had just become ineffectual. New construction tied to the deal would have had to have begun earlier than June, which was when sales were to have been completed.

More good news arrived in Building Permitting activity, which rose 2.5% over May, to 624K, and stood 6.7% over the prior year period. This offered some evidence that Starts would remain higher than the prior year period in the months ahead as well. Finally, single family home starts (+9.4%) and permits (+0.2%) both rose over May. The single-family structure market is often viewed as the purest metric of the real estate market. Thus, Housing Starts data clearly offered a positive catalyst for real estate and housing stock investment in my view.

Weekly Mortgage Activity
Jumping over the Existing Home Sales data for now, we note that Weekly Mortgage Activity improved dramatically in the period ending July 15. However, the move was due to anomaly in my view. Last week, we theorized that the holiday period was not adequately adjusted for, as seasonal adjustments accounted for the July 4th holiday, but could not perfectly account for the soft business activity that precedes and immediately follows the holiday. That can be seen clearly in the data, as the unadjusted Market Composite Index of mortgage activity gained 43.9%, but still rose 15.5% on an adjusted basis.

We believe we were proven correct this week in our holiday impact theorizing, as both Mortgage Activity and Weekly Jobless Claims moved in counter directions to the prior week, seemingly balancing out the impact from the prior week change. Mortgage activity mysteriously gained robustly over the immediately preceding week despite mortgage rates basically holding steady. Average contracted rates on 30-year and 15-year fixed rate mortgages improved to 4.54% (from 4.55%) and 3.66% (from 3.68%). The Mortgage Bankers Association’s Refinance Index improved 23.1%, while the adjusted Purchase Index, which measures mortgage applications tied to the purchase of a home, declined fractionally. Due to the holiday, we cannot give weight to this weekly data point, but it has been proven that the prior week’s bad news was equally negligible.

FHFA House Price Index
On Thursday, the Federal Housing Finance Agency (FHFA) reported its House Price Index for May. The FHFA reported that American house prices rose 0.4% in May, marking the second consecutive month of price increase. The index benefited from a downgrading of April’s average pricing, making that month’s rise only 0.2%, versus the 0.8% increase initially reported. Thus, the bar was lowered for May, but that doesn’t change the fact that home prices have increased for two months in a row. While prices varied across the nine regions measured, only 2 of those posted price decline in May. This is clearly good news, and supports my case that the bottom in housing has just been established (barring catastrophic event, like S&P downgrading the American sovereign rating).

Existing Home Sales
The only real estate report that offered deterioration in data this week was the Existing Home Sales Report for June. Unfortunately, this was the most important report, based on the vision of the masses. Worse yet, the report was misunderstood, and drove a decline in housing stocks Thursday that countered earlier week strength. However, the drop in the SPDR S&P Homebuilders (NYSEArca: XHB) was just $0.03 at the day’s close of trading, and the security is higher Thursday. So, clearly the market understood something differently than the popular press once it had a chance to analyze beyond the headline.

Looking at the report in more detail, and thinking about it a bit, leads one to realize the decline is not too weighty to the real estate outlook. The big reason why I say this is because the Existing Home Sales Report measures completed transactions. Thus, its 8.8% shortfall against the prior year count is due to the advantage gained a year ago; June of 2010 marked the final month for completed transactions to qualify for the First-Time Homebuyer Tax Break. Still, that doesn’t explain the month-over-month shortfall of 0.8%.

What does is the same factor that impeded April’s Pending Home Sales, the weather. April of 2011 was the rainiest month on record, and very likely kept home shoppers indoors. May’s Pending Sales showed nice improvement, but those would not likely be reflected in Existing Home Sales until July. June’s sales pace of 4.77 million was also impacted by multi-family structure sales weakness. Single-family home sales ran at about the same pace as in May, about 4.24 million. Existing condominium and co-op sales fell 7.0% from May. Finally, cancellations impacted the figure, and this may be the result of a pending (Oct. 1) unfavorable change to FHA loan limits that some banks may be already implementing. This relative legislation needs to be renewed if Congress really wants real estate recovery.

Housing inventory increased to 9.5 months from 9.1 months in May, but this is impacted by the pace of sales, which was lower in June. It acts as the denominator in the calculation, and so the monthly supply figure is ratcheted up as a result. Good news was discovered within the pricing data, and it coincides with the data seen on a lag from Standard & Poor’s and the FHFA. The median existing single family home price was up 0.6% from a year ago, to roughly $184,600.

In conclusion, when considering that the dip in Pending Home Sales seen in April should have allowed for expectations for the decline in Existing Home Sales seen in June, then the housing data reported this week is absolutely positive. We saw price improvement, new construction growth, better sentiment among homebuilders, mortgage application improvement and we have good reason to expect June’s Existing Home Sales disappointment to prove short-lived. Thus, the data continues to come in supportive of my case for the bottom being already set in real estate. The real estate recovery is on track! However, I continue to qualify that statement with the risk notation that the environment should deteriorate dramatically if a catastrophic downgrade occurs to the American sovereign debt rating.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Beware the Unaccounted for Post Holiday Impact on Mortgage and Other Data

The Mortgage Bankers Association (MBA) produced its Weekly Applications Survey this morning, which is a measure of mortgage applications. The MBA reported that in the week ending July 8, 2011 mortgage activity declined 5.1% from the immediately preceding period. But be careful, because there’s a fly in the ointment.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: BAC, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: PNC, NYSE: JPM, NYSE: BBT, NYSE: CIT, NYSE: BKU, Nasdaq: UBSI, NYSE: BK, Nasdaq: MBFI, NYSE: AF, NYSE: NYB, Nasdaq: HCBK, Nasdaq: PBCT, Nasdaq: FNFG, Nasdaq: CFFN, Nasdaq: WFSL, Nasdaq: ISBC, Nasdaq: NWBI, Nasdaq: STSA, NYSE: OCN, NYSE: FBC, NYSE: PFS, Nasdaq: COLB, Nasdaq: KRNY, Nasdaq: BRKL, Nasdaq: DCOM, Nasdaq: FFIC, Nasdaq: DNBK, OTC: FCNCA.PK, NYSE: SNV, Nasdaq: UBSI, Nasdaq: HMPR, Nasdaq: WSBC, Nasdaq: CHCO, Nasdaq: SASR, OTC: FCBN.OB, Nasdaq: SCBT, NYSE: WL, Nasdaq: WSFS, Nasdaq: SBSI, Nasdaq: STEL, Nasdaq: UBSH, Nasdaq: EGBN, Nasdaq: FBNC, Nasdaq: ABCB, Nasdaq: TBBK, Nasdaq: FCBC, Nasdaq: CCBG, Nasdaq: FISI, Nasdaq: NKSH, Nasdaq: CZNC, Nasdaq: CHFN, Nasdaq: SBCF, Nasdaq: TIBB, Nasdaq: AMNB, Nasdaq: UCBI, Nasdaq: MBRG, Nasdaq: HBOS, Nasdaq: ZION, Nasdaq: EWBC, NYSE: CYN, NYSE: BOH, Nasdaq: SIVB, Nasdaq: WABC, Nasdaq: CATY, Nasdaq: UMPQ, Nasdaq: GBCI, Nasdaq: PCBC, Nasdaq: PACW, NYSE: WAL, OTC: FBAK.OB, Nasdaq: FIBK, Nasdaq: NARA, Nasdaq: WCBO, Nasdaq: TCBK, Nasdaq: TBNK, Nasdaq: WCBO, Nasdaq: BMRC, Nasdaq: HAFC

Beware the Unaccounted for Post Holiday Impact on Mortgage and Other Data

The MBA’s Market Composite Index was adjusted to compensate for the July 4th holiday. Its adjusted index fell 5.1%, while the unadjusted measure dropped 24% because of the day off. While the holiday itself is accounted for by economic data counters, the lull in business activity that occurs the day after a long holiday is of course not captured and may be partly to blame for the weekly adjusted decline in mortgage activity.

Interest rates were certainly conducive to activity, as contracted rates on 30-year and 15-year fixed rate mortgages improved to 4.55% (from 4.69%) and 3.68% (from 3.79%) during the week. This should have been supportive to refinancing activity, but the holiday and also saturation of the refi market led the MBA’s Refinance Index to instead decline by 6.2% through the period.

Purchase activity, or mortgage applications tied to the purchase of a home, decreased 2.6% on a seasonally adjusted basis and was down 21.9% when not adjusting for the holiday. Again, I think the general malaise that impacts the days immediately following July 4th, which are not adjusted for, drove the softness.

Now the four-week moving averages of these measures should offer better insight, but those are also impacted by the week’s noise. That said, the four-week moving average for the seasonally adjusted Market Index was off 4.7% in this latest reporting. Refinance Activity led the trend, with a decline of 6.3%, while the four-week average for Purchase Activity eased 1.0%.

The take-away here is that because of the difficulty in adequately adjusting for holidays, we would be best served not to base any avoidance of real estate on this week’s mortgage activity data. Also, any economic data that compares sequential week periods should be likewise discounted. Instead we suggest investors look towards the longer term factors, trends and outlook, and assemble a mosaic basis for investment decision making.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

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