The protracted housing slump that has devastated U.S. home prices now appears to have fully-enveloped the United Kingdom. Home prices in the United Kingdom in August fell at their fastest pace in two decades (pdf), U.K.-based mortgage lender Nationwide Building Society announced Thursday.
On a year-over-year basis, the average price of a U.K. home plummeted 10.5% to $301,500 or 164,654 British pounds in August, NBS said. Further, it was the first year-over-year double-digit decline in the U.K. since 1990.
London-based economist Mark Chandler told BloggingStocks Thursday the August U.K. housing data, "is just dreadful."
"Housing in the U.K. is becoming a bit of a 'magical mystery tour,' to borrow a phrase from The Beatles. For a month or so, we thought the declines in home prices had moderated. Apparently not," Chandler said. "Tighter lending requirements and real concern about the economy have sapped sales and it's really showing up in the price data."
It's a policy wonk truism arguing that when uncertainty abounds, sometimes the best action is no action. And, one could argue, today's potential home buyers and sellers would be wise to heed the Beltway axiom.
A case of the Case-Shiller jitters
Economist Peter Dawson was hoping for Case-Shiller house price statistics in July that were easier on the eye. Dawson was disappointed: the Case-Shiller Index of 20 major metropolitan areas plunged 15.9% from July 2007 (pdf). Prices in the 10-city index plummeted a record 17.0% from July 2007.
"The July Case-Shiller data is about as bad as it gets. It shows a housing sector where prices remain in free-fall in just about every market, save a few, such as Charlotte, North Carolina and Dallas," Dawson said. "The housing bottom has not occurred and it's not near."
So given the above, what's the best stance regarding housing? For sellers, Dawson said if one has to sell for a job relocation, a sale invariably has to occur. But for those who have a three-year or longer sales horizon, postponing a sale may net a better price, providing the U.S economy recovers in 2009, he said.
For buyers, Dawson said "time is on the buyer's side" in most markets. "At this stage, lease or rent through at least June 2009," Dawson said. "In most major markets, prices are likely to be lower by next spring than they are today."
TOL opened this morning at $22.42. So far today the stock has hit a low of $22.33 and a high of $23.43. As of 12:15, TOL is trading at $23.43, up $1.10 (4.5%). The chart for TOL looks bullish and S&P gives TOL a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just seven weeks as long as TOL is above $17.50 at October expiration. Toll would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.
"Home prices are becoming affordable again, so the decline in prices is likely more than half over," say Dr. Marvin Appel and Gerald Appel of Systems & Forecasts.
Meanwhile, the technical experts believe that long-term investors can now look to get back into the real estate investment market and recommend two ETFs that are based on rental REITs.
"Many analysts do not expect the financial markets to improve significantly until home prices stop falling. The pace of existing home sales remains low, and available inventory relatively high, both indicating that buyers are not yet able to step into the market at current prices.
"However, that could change within a year. Home prices are becoming affordable again, so the decline in prices is likely more than half over.
"The median home price is now more affordable to the median household than at any time since the start of 2004. My analysis suggests that housing prices will have to fall a bit more, but the housing market is not far from being reasonably valued for the first time in five years.
U.S. stock futures were lower this morning on fear Tropical Storm Gustav's path may pose a threat to refinery activity along the Gulf of Mexico coastline and some would have to shut down. Indeed, oil prices rose to above $117 a barrel Wednesday. Also in focus today is the upcoming durable goods order to be reported before the opening bell. Meanwhile, the FDIC is considering borrowing funds from the Treasury, amid an expected wave of bank failures. Nine banks have failed so far this year, and the number of troubled U.S. banks rose 30% to 117 in the second quarter. [Update: Futures turned positive after durable goods unexpectedly gained.]
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), which stocks jumped big Tuesday, both had several ratings cut by Standard & Poor's. Still, both stocks seem to continue their climb in premarket with Fannie shares up 7.5% and Freddie's up 10%. At least two analysts, from Citigroup and Goldman said Tuesday the situation isn't as bad as it may seem.
From financials to toys: A federal jury awarded Mattel Inc. (NYSE: MAT) $100 million in damages on Tuesday in a federal copyright lawsuit against MGA Entertainment Inc., the maker of the saucy Bratz dolls.
Moving to pharmaceuticals, Amylin Pharmaceuticals Inc. (NASDAQ: AMLN) and Eli Lilly & Co. (NYSE: LLY) shares are down 10% and 1% respectively in premarket trading after four more patients taking their Byetta diabetes medication have died. Baird downgraded Amylin from Buy to Neutral and cut its price target from $37 to $27. Soleil downgraded AMLN from Hold to Sell.
The Federal Open Market Committee (FOMC) released the minutes of its recent meeting on August 5. The event itself was a bit of an anti-climax because of the comments by Fed Chairman Ben Bernanke at the recent Wyoming summit.
Everyone knew that although members of the Fed are quite concerned about inflation, they are even more concerned about the deteriorating economic situation. This was clearly indicated in comments made at the Jackson Hole meeting. In addition, as I mentioned in my earlier analysis, the decisions by Fed Governors Plosser and Stern to vote to leave rates unchanged instead of dissenting indicates the gravity of the economic and monetary problems facing the United States. This was almost a complete reversal of the recent hawkish comments by both individuals.
The FOMC minutes actually give us insight into the thinking of the Fed. The Fed is very concerned about the fragile nature of the economy. It clearly believes that a rise in interest rates prematurely could damage the already battered credit situation.
However, the Fed is concerned about the inflation situation. It is particularly concerned that inflation could become embedded in expectations. This phenomenon is much more difficult to control once it begins.
It believes that the weak economic situation, combined with the recent decline in oil prices, may help to resolve this dilemma in the coming months. It may require a rise in interest rates if this does not occur.
Today's housing news on new home sales in July sounds eerily similar to the post I wrote yesterday about July existing home sales. In both cases, we are given a quick headline that sounds like good news, but once you dig into the details a little deeper you realize that the news is just not as pretty as it first sounds.
Let's first take a look at the positive headline: New home sales rise in July. Great, this is exactly the sort of news that the market needs to hear. After all, weakness in the housing market has been a major catalyst to the current economic slowdown, so any good news is like a breath of fresh air. During July the market saw a jump of 2.4%. Not too shabby.
After the closing bell last night, Thornburg Mortgage, Inc. (NYSE: TMA) managed to report a second-quarter profit, but the firm warned investors that it's in jeopardy of collapse as margin calls continue to roll in. Thornburg said that it covered $219 million of demands for collateral on August 21, and may face another $25.9 million of margin calls. Plus, uncertainty still remains about the outcome of an exchange offer that was meant to pull the New Mexico-based mortgage lender back from the brink of bankruptcy.
The jumbo-loan specialist said it swung to a second-quarter profit of $412.3 million, or 84 cents per share, after swallowing a first-quarter loss of $3.31 billion. During the recently concluded quarter, Thornburg wrote down $209.6 million in mortgage losses, which was offset by a $536.9-million gain from the declining value of a liability. Adjusted income for the period was $22.7 million.
Under the terms of a deal with MatlinPatterson Global Advisers, Thornburg agreed in March to conduct an exchange offer for some preferred stock. The offer expires on September 3, and holders of two-thirds of each of four classes of preferred stock must participate. The company warned that uncertainty about the outcome of the exchange offer, combined with the still-shaky market conditions, "raise substantial doubt about the company's ability to continue as a going concern for the foreseeable future."
U.S. stock futures were mixed on Tuesday. Following Monday's broad sell-off and volatile session, which was also marked by low volume, today might not be different -- volatile and low volume. Several reports are in focus today, specifically some housing data that could shine more light on the sector, and consumer confidence, which could also move stocks. Meantime, oil prices declined and the dollar strengthened against major currencies.
Rio Tinto (NYSE: RTP) shares are down over 3% in premarket trading after the mining giant reported fiscal first-half profit more than doubled. RTP's acquisition of Alcan and soaring commodity prices helped Rio achieve the results. RTP shares have been declining due to worldwide slower growth.
Meanwhile, Anadarko Petroleum (NYSE: APC) shares were 2.4% higher in after-hours after it announced a plan to buy back up to $5 billion of stock.
Staying with share buybacks, Coach (NYSE: COH) are also 1.7% higher in premarket trading after announcing a buyback program of up to $1 billion, which follows the completion of a similar repurchase.
And of course, Lehman Brothers (NYSE: LEH). Shares of the embattled banker are rising this morning following speculation that Kohlberg Kravis Roberts may be interested in buying Neuberger Berman, according to CNBC, while Blackstone Group backed away.
The Wall Street Journal reports (subscription required) that incidents of mortgage fraud rose 42% year over year, based on loans originated in the first quarter that have since been declared fraudulent. The Journal cites data from Mortgage Asset Research Institute.
That number is appalling, and it's hard to know what to make of it. There are two possibilities, as far as I can tell. Either:
The tightening of the credit markets and the newfound conservatism of lenders is a myth, and fraudulent loans are being originated at a more rapid rate than ever before, with crooked consumers and mortgage salesmen thwarting the system even as national headlines warn about the huge problems caused by sloppy lending and mortgage fraud. Or
The 42% jump is more a result of lenders actually doing the research to classify loans as fraudulent. Back when everything was going well, less energy might have been devoted to this.
It seems likely that the answer is some combination of the two. But based on this data, it's hard to conclude that lenders have cleaned up their act and stamped out bad loans. That doesn't bode well for the futures of the industry.
Trading today was an obvious broad-based sell off in the equity markets. But looking for a main theme or a major culprit was not so easy as we are in the quietest non-Christmas week of the year. Existing home sales did post a modest rise, but the prices paid were worse and dropping still.
Below are today's unofficial closing bell levels: DJIA 11,386.25 (-241.81) NASDAQ 2,365.59 (-49.12) S&P 500 1,266.85 (-25.35) 52-WEEK LOWS Top Analyst Calls
American International Group (NYSE: AIG) was a disaster today following Fitch putting the insurance giant on review for possible downgrades to the bond ratings. Shares closed down over 5% at $18.78 on active volume at 45 million shares.
Gilat Satellite Networks Ltd. (NASDAQ: GILT) was the big loser in merger-land today. The company missed earnings estimates and also was notified that the proposed buyer was not going to honor the $11.40 price. Shares closed down over 7% at $8.01, but that was much better than the lows and indications of the day.
As politicians and Obama talked up the need for mortgage GSE's (with an undefined structure), shares of Freddie Mac (NYSE: FRE) rose 17% to $3.29.
In the current housing market, it has been hard to find any sort of silver lining, but we do see a little positive news today, as existing home sales in July jumped more than expected, mainly due to lower home prices.
During July, sales of existing homes rose by 3.1%. This was well above the 1.6% that Wall Street was hoping to see, but analysts caution against assuming that this is a sign that the market has finally bottomed out. Despite beating Wall Street estimates, we still have to consider the fact that home sales were over 13% lower than the same period a year ago.
While we can view the July sales figures as promising, we must also take a minute to look at home inventories, and here the picture is not so rosy. Here we see that the number of unsold single family homes is running at all time highs. Currently the market is trying to deal with a total of 4.67 million unsold homes. This is the highest level that we have seen since 1968 when the National Association of Realtors started monitoring the data.
There are signs that banks and others are expecting another round of credit write-offs. Banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens, Bloomberg News reported Monday.
For borrowing, banks are charging each other a 77-basis-point premium above what traders predict the U.S Federal Reserve's daily, effective Federal Funds rate will average over the next three months, up from 24 basis points in January, Bloomberg News reported. Banks concerned about potential write-offs, global slowdown
Economist Peter Dawson said Monday two factors are driving the widening short-term lending spread.
"Rightly or mistakenly, there's a suspicion that selected banks will announce another round of write-offs," Dawson said. "Second, banks are coming to grips with the reality of the global slowdown. The slowdown suggests reduced revenue for banks, which would further hurt already strained balance sheets, and make banks more-reluctant to lend."
In August 2007, banks began to hoard cash and pare-back lending after subprime mortgage defaults forced two Bear Stearns hedge funds to seek bankruptcy protection. A series of regional, mortgage asset-related write-offs followed, as the housing boom ended, first in the United States, then in the United Kingdom. Mortgage-related credit losses now total more than $500 billion worldwide, Dawson said.
Stock futures were mixed Monday morning, indicating stock would start on a down note a week full of economic data. This morning, investors are focusing on rising oil prices and existing home sales data to be released at 10:00 a.m. EDT. Also, over the weekend, Federal Reserve Chairman Bernanke commented from the Fed's yearly retreat, saying that problems in credit markets not yet over and are a threat to economy. Meanwhile, economists are saying inflation is catching up to the credit crisis as the major concern for the economy.
American International Group's (NYSE: AIG) credit ratings may be downgraded by Fitch due to uncertainties over AIG's exposure to mortgage backed securities. AIG was down 1.5% in after-hours Friday.
The Australian government approved Chinalco 14.99% stake in Rio Tinto's (NYSE: RTP) but warned the Chinese firm against buying more shares without prior approval. Alcoa (NYSE: AA) backed the purchase. RTP shares were up over 1% in Australian trading.
Broadcom Corp. (NASDAQ: BRCM) will pay around $192.8 million in cash to acquire chipmaker Advanced Micro Devices Inc.'s (NYSE: AMD) digital TV business, the companies announced Monday.
It would seem to be stating the obvious, but the habits of home buyers will probably hold the key to whether the economy will go into its deepest recession in decades. That is the prevailing wisdom, but is it right?
According to Reuters, "a sharper housing bust would leave deep scars in consumer sentiment, which would likely lead to a deep recession." Some economists and real estate experts see home prices falling another 15% to 20% from current levels.
Real estate may be a critical part of an economic recovery, but it is not the only one. Oil and commodities recently had their sharpest correction in years. If oil moves below $100 and the price of agricultural products moves down substantially, the implied cost of living for most Americans will get much better. Under those circumstances, homeowners have more money to pay mortgages.
Wages could also rise. Recent pressure on consumer prices makes it more likely that unions and employees will press for higher compensation. In many cases, they will be turned away. But, worker demands for higher pay spread across the entire economy should yield some improvements in how much people take home.
Housing prices are important, but they are not the only game in town.
Douglas A. McIntyre is an editor at 247wallst.com.
There is an old axiom among lobbyists 
U.S. stock futures were lower this morning on fear Tropical Storm Gustav's path may pose a threat to refinery activity along the Gulf of Mexico coastline and some would have to shut down. Indeed, 
Today's housing news on 
U.S. stock futures were mixed on Tuesday. Following Monday's broad sell-off and volatile session, which was also marked by low volume, today might not be different -- volatile and low volume. Several reports are in focus today, specifically some housing data that could shine more light on the sector, and consumer confidence, which could also move stocks. Meantime, oil prices declined and the dollar strengthened against major currencies.
The Wall Street Journal 
Trading today was an obvious broad-based sell off in the equity markets. But looking for a main theme or a major culprit was not so easy as we are in the quietest non-Christmas week of the year. Existing home sales did post a modest rise, but the prices paid were worse and dropping still. 
In the current housing market, it has been hard to find any sort of silver lining, but we do see a little positive news today, as 
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