Debt Management

Rabu, 20 April 2011

March Housing Starts May Indicate the Long Awaited Turn

Real Estate

It appears the news we've long awaited may have arrived Tuesday - the start to some spring housing activity, if not recovery. Just a day after the NAHB's Housing Market Index indicated that builder sentiment was extremely negative in April, March Housing Starts and permitting activity told another story.

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.

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March Housing Starts May Indicate the Long Awaited Turn

We intimated in our recent article Home Builder Sentiment Sinks in April that the home builder association's regular release is likely biased by the influence of the inclusion of many smaller, capital constrained builders, and also by political purpose. We found some vindication of this theory in Tuesday's release by the U.S. Census Bureau.

Housing Starts ran at an annual pace of 549K, 7.2% higher than February's revised pace of 512K (from 479K). March's Starts also caught economists by surprise, exceeding the consensus estimate of 525K compiled by Bloomberg. While the pace was certainly short of awesome, sitting 13.4% below the prior year period pace, it offered a glimpse of hope, if not a sign of something more. Single family starts improved by 7.7%, while multi-family property starts of five or more units increased by 14.7%. This is an understandable difference, given the increased tension against home ownership today.

There was even better news to be found in permitting activity, which is the forerunner of Starts. The pace of building permit authorizations jumped by 11.2% in March, to 594K. Bloomberg does not compile consensus estimates for permitting, but it would appear this result would also have beaten expectations. Still, this year's March compared poorly to the prior year level of activity, down 13.3% against last year. Permits for single family properties rose by 5.7%, while those for the construction of five units or more increased by 28%.

As we've indicated in the past, securities markets prefer change in direction and pace over absolute levels of activity, and so change in housing activity should be enough to drive real estate and construction related shares higher should a trend materialize.

The regional details of the report offered prospective information as well. The faster developing markets of the West and South saw solidly improving permitting activity, with the South rising 6.3% and West gaining 37.1% over February, after seasonal adjustment. The Midwest rose 6.9%, and the Northeast saw no change. As far as Starts went in March, the Midwest led all comers, with activity rising 32.3%. The Western portion of the nation marked strong starts up 27.6%. Starts were up 5.4% in the Northeast, but down 3.3% in the South. We again remind that permitting activity justly gets more attention from securities markets due to its prospective value.

In conclusion, I believe that builder confidence is not matching with real activity within the broader real estate market. There are signs of life. While demand for new construction is still burdened by the overhang of lender owned distressed property and foreclosures generally, as a seasoned equity analyst, I reiterate my recurring theme to you that the market will notice recovery early and begin rewarding homebuilder and housing related shares despite a new construction lag. That said, the broader economy remains vulnerable to the slightest of shocks, and is not without burdens, given the pressures of the budget deficit and also rising prices. So there is no clear buy signal free of risk, but a faint buy signal for risk takers.

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), 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), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, 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).

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.

Senin, 18 April 2011

Home Builder Sentiment Sinks in April

The NAHB Housing Market Index Fell but it Should Not be Construed as the Overriding Barometer for Real Estate

The National Association of Home Builders (NAHB) today released its latest tally of home builder sentiment, and the news reported was not good, especially for the heart of the important spring selling season. However, it does not necessarily reflect poorly for real estate generally, nor does it condemn housing stocks even.

Home Builder Sentiment Sinks in April

The home builders' association reported the NAHB/Wells Fargo Housing Market Index fell one point, to 16 in April. That reflects poorly for the voiced views of most home builders. However, using this index as a broad measure of the state of the real estate market would be a mistake. First of all, there is regional variation currently evidenced within this report, which should be expected at inflection point. Imagine taking a snow globe and rushing it downward to a sudden stop. You would find the "snow" inside unsettled, with some rising and some falling, rather than all rushing downward at once. The "globe" is in a situation of flux, from which broad direction is unclear. That's the state of the real estate market now. This report also does reflect the optimism that exists in some regions of the market.

The Southern Region of the nation basically drove the overall decline in sentiment, with the South falling four points to a regional index mark of 15. However, the congested Northeast saw improvement, gaining two points, to a mark of 20. The Midwest also rose, gaining two points to a slim mark of 14. The important Western region stuck at 17 in April. That said, the South represents the largest and most important new home market in the US currently, so weakness in the South still means a lot to the overall home building industry. Also, the absolute numbers reported here are all clearly weak. While that's important to home builders, change in direction and pace matter more to securities markets than absolute numbers in the determination of investment.

We remind readers that the NAHB includes the views of many small builders who face disadvantage now, given their more constrained capital situation. While large publicly traded builders are typically well capitalized, the smaller players, who are still aplenty, cannot get loans as easily today as they could five years ago. This index includes the small builder's views and is biased by them.

The NAHB lists the usual complaints from a builders' group that stands to benefit from government aid if its collective voice is loud enough. Some of these complaints are certainly true, and all of them carry weight though. These complaints include the effect of foreclosures on the appraisals of homebuyers making a trade up. Those homes for sale are burdened by the effect of foreclosure sales on a comparative pricing model. But the NAHB Chief Economist says "more foreclosures seem to be hitting the market," and that's just inaccurate. Just last week, RealtyTrac reported a 15% decline in first quarter foreclosure activity. It would be hard to fathom April being worse than the preceding months.

The NAHB reported that the index measuring current sales activity slipped one point, to 16. Even so, the measure of foot traffic of prospective buyers gained a point, to 13. However, the metric for the forward six month outlook fell sharply, shedding three points to a reading of 23. We expect this is directly related to rising uncertainty and creeping prices generally.

We believe that the most significant threat to this year's broadly anticipated housing recovery would be that caused by uncertainty with regard to the geopolitical situation and its impact on energy prices, namely gasoline. Gasoline is at a point now that it is affecting every consumption decision, especially those involving big ticket items like homes. Thus, while this data is not supportive of housing recovery on the surface, I'm not sure it should be expected to be an early indicator either.

Minggu, 17 April 2011

Spinach and Rice

New York Stories

Wall Street Greek's Fine Arts Contributor and New York Stories Columnist Nicholas Zaharakos offers us a Lenten treat that's not at all lean on humor, sprinkled with the witty antics of his "good boy" brother John. Apparently Spinach and Rice was spiritually filling to the Zaharakos clan for years after one such meal. (In photo from left to right, Nicholas' Yiayia Eleni, brother John and mother Panagiota)

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Spinach and Rice

In the Greek Orthodox Lenten Season there are dietary restrictions that can vary with respect to their severity. Some people give up eating meat on certain days others sacrifice dairy products as well as their beloved olive oil, up until the day of The Resurrection. Usually, the fast is kept more ardently by the older ones. That was the case in my family. My grandmother who lived with us in Brooklyn, fasted strictly for the entire 40 days of lent. However, I with my four brothers and two sisters, were the recipients of my mother's ingenuity to keep us meatless.

This was the time when food that certainly seemed strange to an eight year-old appeared. I can remember suppers of sandwiches with peanut butter, jelly, sliced bananas, and apples; another combination, was cream cheese and cucumbers on rye bread. I never knew there were that many different kinds of beans in the world until Lent. They were used in the various soups, salads, and side dishes that were constantly on the table.

One dish that stands out in my memory because my older brother John just couldn't stand it was spinach and rice (Spanakorizo in Greek}. Now, John was considered by all to be a good boy. I believed this was so for one reason only, and that was that he was very quiet.

At one particular Lenten Supper, spinach and rice was the main course. My mother, knowing of John's intense dislike for what was being served, offered him an incentive. If he would eat a plate full of spinach and rice, she would give him Greek butter cookies covered with confectionary sugar (Kourabiethes in Greek) as a treat. If he didn't finish the spinach and rice, he would get no cookies. Mom was known to say what she meant.

We lived in a railroad flat of six very small rooms over a Laundromat and the IRT subway line on Nostrand Avenue. This should say a lot about the financial and social condition of our family of seven children, two parents, and my mother's mother (Yiayia Eleni). An elderly Italian couple, the Santella's occupied the one apartment above us.

Mr. Santella as far as I could tell, didn't have a first name. He was Mr. Santella to one and all. Another thing was I doubted if I would live to see the day that he would be without an unlit stub of a cigar clenched in his yellow teeth. In summer he wore sleeveless T-shirts which exposed faded tattoos on both his arms. Night and day he would shuffle around in slippers. In the cold months, Mr. Santella would keep the coal burner going.

The delivery of coal was a wondrous event for me. A dark truck would park near the cellar opening. A huge dusty man wearing a leathery apron would open a chute on the side of the truck into a big barrel where the shinny coal would spill with loud clunks. Then he would roll the barrel by using hand-over-hand to the cellar. It would be tipped into a metal chute that ran the length of the stairs into another barrel at the bottom. Mr. Santella would be behind that barrel to steady it. The sound of that coal streaming down was the same as bacon sizzling in a pan.

Summer or winter, Mr. Santella was always in and out of that cellar. My father said that he hid his money there. My mother would chuckle and say, "No, that's where he banks the coal at night." All I know for sure was that it was Mr. Santella who had the only key to those heavy metal doors. Now, back to that fateful day when mom gave John the spinach and rice to eat.

Our dining room, which was used as my sister's bedroom at night, was right off the kitchen. My father and yiayia were never in time for supper. My father would still be working in the restaurant, and my yiayia would be hanging out with her friends who had lost their hot-dog stands when the Brooklyn Dodgers had left the year before. That was okay, because the table wasn't big enough for everyone at once. When mom served supper she was usually scurrying back and forth, and she depended on "the eyes in the back of her head," that she said she had, to know if we were getting out of hand.

I can still see the glow in my mother's eyes because she was so pleased that John's plate was clean. I still remember that she gave John three Kourabiethes when she only gave me two. Just as she finished making sure that everyone was served cookies, there was loud knocking on the door.

The door was in the kitchen, and when my mother opened it, I could see Mr. Santella standing there with his bald head covered with a greenish mash, but with his cigar still in his mouth. My mother's name was Panagiota in Greek, Bertha in English. To Mr. Santella then, it was, "Hey Bertina, looka what happened to me."

My mother had a very infectious nervous laugh, similar to that of Lou Costello of the Abbott and Costello comedy team. Also, once she starts it takes a long time for her to stop. At that point, we all abandoned the dining room and gathered around our mother giggling uncontrollably. The seven of us with the widest eyes possible turned back and forth between mom and Mr. Santella to see what would happen next.

My spunky mother managed to straighten up and waved her arms over her seven "ducklings" by her side and through tears of merriment exclaimed! "Hey Mr. Santella, looka what happened to me."

Mr. Santella, to his everlasting credit, threw up his hands and started to laugh too, and, without losing his cigar, he turned and started up the stairs to his apartment. My mother didn't stop giggling until she went back to the dining room and put the kourabiethes that she had given John back into the metal container. For you see, it was quiet John who was seated next to the open window directly over the cellar below.

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