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Five Things You Need to Know: Existing-Home Sales; Some Housing Containment; Less Housing Containment; No Housing Containment; No Minyuanville?


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Existing-Home Sales Prices

Existing-Homes Sales for February showed an upside surprise, coming in up 3.9% and showing an annualized rate of 6.69 million units.

  • Expectations were fairly bearish heading into this morning's release.
  • Most economists predicted a decline of 2.5%, while whispers were for something potentially even worse, some expecting a decline of as much as 3%.
  • As it is, the monthly increase was the largest in three years.
  • NAR "Chief Economist" David Lereah, author of 2005's "Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market", the more recent "All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer's and a Seller's Market" and (seriously!) June 2000's "The Rules for Growing Rich: Making Money in the New Information Economy," said "Some of the rise in home sales may be from mild weather... but fundamentals have improved in the housing market and buyers see a window now."
  • Perhaps more than the mild weather, the rise in existing-home sales was helped by the 1.3% year-on-year decline in home prices.
  • The national median price for all types of existing-homes was $212,800 in February.
  • Since "all real estate is local," which local regions bucked the trend of lower prices?
  • Only one, the West. Prices fell in the Northeast, Midwest and South.
  • Meanwhile, total inventory rose 5.9%.

2. Some Housing Containment

As if on cue, Bloomberg is running an article on housing trouble containment, "Investors Absorb Worst of Subprime Rout, Markets Show."

  • The damage from subprime defaults has been "contained,'' declared Michael Materasso, a senior portfolio manager at Franklin Templeton Investments, which manages $124 billion, Bloomberg said.
  • Sure enough, the perceived risk of owning corporate bonds has fallen from a five-month high, and an index of derivatives tied to subprime mortgage bonds has gained about 14 percent in the past three weeks, the article noted.
  • More than 30 subprime lenders have closed in the U.S. since late 2006.
  • And lenders are expected to foreclose on anywhere from 1.5 million to 2 million homes in the next two years, according to a recent report from Lehman Brothers.
  • That's a lot of eligible voters.
  • Meanwhile, in a separate but related story, Freddie Mac Chairman and Chief Richard Syron this morning said in a conference call, "I think that there may be some slight bleedover, but we really haven't seen very much."
  • "I think that some of this will overflow into the broader economy as many consumers become more concerned about their debt burdens," he added.

3. Less Housing Containment

While a handful of portfolio managers at Bloomberg talk up their growing subprime book, KB Home (KBH) this morning reported profit fell a whopping 84% as (to quote the Fed) "the adjustment in the housing sector is ongoing."

  • KBH Chief Executive Jeffrey Mezger said "We're not ready to say that the markets have stabilized."
  • Mezger added that he expected the "adjustment" to remain "ongoing" throughout 2007.
  • A number of builders have written down their land values, or walked away from options, amid an oversupply of homes for sale and continued pressure on home prices, according to the Wall Street Journal.
  • KB Home previously took an inventory-impairment charge of $255 million, as well as an $88 million charge from the abandonment of some land-option contracts.
  • In a separate "less containment" piece in this week's The Economist, "Cracks in the Facade," a recent study by First American CoreLogic shows that 60% of all adjustable rate mortgages made since 2004 will reset at monthly payments at least 25% higher.
  • Twenty percent will reset at payments as much as 50% higher.
  • Moreover, CoreLogic has found that houses whose value is less than what the buyer initially paid has surged to 18%, triple the houses with negative equity at the end of 2006.

4. No Housing Containment

The New York Times this morning says the sharp rise in foreclosures nationwide is beginning to hit the suburbs in a unique way: blight.

  • "In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation's hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic," according to the the Times.
  • There are more than 200 vacant houses in Euclid, a suburb of Cleveland.
  • Oh, and it's not just Cleveland.
  • Near Atlanta, Gwinnett and DeKalb Counties have mounted antiforeclosure campaigns.
  • And several towns south of Chicago are forcing titleholders to fix up empty houses, or repay the government for doing it, the Times reported.

5. No Minyuanville?

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