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Five Things You Need to Know: Impending Home Sales Increase as Pending Home Sales Decline; Note to NAR: Perception Is Reality; Wal-Mart Kicks Off Price War Early; Credit Managers Face "Challenging Environment"; Prince on Prince


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. Impending Home Sales Increase as Pending Home Sales Decline

The number of Americans signing contracts to buy previously owned homes fell more than forecast in August, according to data from the National Association of Realtors.

  • The National Association of Realtors reported that its index of signed purchase agreements dropped 6.5% in August.
  • That's the lowest level since record-keeping began in 2001 and puts the index more than 21% lower year-over-year.
  • The blame was quickly laid at the feet of credit markets.
  • "Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments," NAR senior economist Lawrence Yun said.
  • But perhaps there is something else besides "pure mortgage availability" at work?
  • Which leads us to today's Number Two...

2. Note to NAR: Perception Is Reality

Minyan MMM forwarded us an interesting story from the Myrtle Beach Online news that paints an interesting picture of the fundamental and psychological pricing issues at work in real estate.

  • Last Saturday a real estate auction was held at the Myrtle Beach Marriott Resort at Grande Dunes.
  • "Only a few of the 50 properties offered had final bids above what the auctioneer sought as opening bids, a number were withdrawn because they had no bids at all and others likely won't make it to the closing table," the article said.
  • The auctioneer refused to even consider a $1 million bid on a 7.5 acre property with a 3,700 square foot house, which was estimated (prior to the auction) to be worth $10 million.
  • The auctioneer had sought an opening bid of $4.5 million.
  • "I think the good that happened today," said Joe Exum, one of the owners of Coastal Auction Co., "is our sellers saw what the market perception of value is now."
  • Like most things, perception is reality.

3. Wal-Mart Kicks Off Price War Early

Wal-Mart (WMT) kicked off the annual holiday price wars two weeks early yesterday, announcing price cuts of 10% to 50% on its "top 12 toys of Christmas."

  • The company ominously warned that still more price cuts are forthcoming.
  • Recently, Wal-Mart has "reemphasized" its lowest-price image, marking down 16,000 items for the back-to-school season in July to move products.
  • That price markdown was significant in that it resulted in quite a bit of positive spin placed on back-to-school retail sales, which we now know were largely due to price cuts.
  • Look for competitors such as Target (TGT) to be forced to follow suit and match the Wal-Mart price war.
  • Wal-Mart posted same-store sales increase of 2.1% for the year-ending in January, its slowest pace on record, and an increase of just 1.5% through August.

4. Credit Managers Face "Challenging Environment"

The Credit Manager's Index (a survey of 500 trade credit managers) fell 0.3 points in September to 54.8, the lowest since level since December of last year, according to a report National Association of Credit Managers released yesterday afternoon.

  • Although credit managers of manufacturing and service companies reported only a slight decay in credit conditions, Dan North, chief economist with credit insurer Euler Hermes ACI pointed out that seven of the 10 components fell.
  • "The credit managers who have done so well keeping problems to a minimum up until now might find a more challenging environment in the rest of 2007 and into 2008," he concluded.
  • Most affected was the manufacturing sector, which fell 1.3 points as seven of 10 components fell.
  • North said, "one respondent from the machinery industry seems to be encountering particularly bleak conditions by the comments, 'Had more companies just closing their doors and walking away. No assets to recover.' And another reported, 'Orders are being canceled or modified after the initial order.'"
  • Least impacted was the service sector index, which gained by 0.6 as seven of 10 components rose.
  • As well, all of the components are above the 50 level indicating expansion, and the declines were very modest.
  • "Once again, despite mostly positive results, the few negative comments received centered on the housing industry," North said.

5. Prince on Prince

Citigroup's (C) 60% decline in third-quarter profit was a "mere hiccup," according to Prince Alwaleed bin Talal, Citigroup's largest shareholder.

  • "No financial institution is immune from the financial turmoil in global markets or its ripple effects,'' the Prince said in an e-mailed statement today according to Bloomberg.
  • The Prince added that he's "backing the management of Citi," a vote of confidence in the management skills of Citi's other Prince, CEO Chuck.
  • The Prince (Alwaleed bin Talal, not Chuck) and his Kingdom Holding Company retain a 3.6% stake in the company.
  • The Prince (Alwaleed bin Talal) no doubt felt the need to back Prince (Chuck) after Prince's (Chuck's) ill-timed comments in July about the subprime market, namely that, "when the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
  • Three weeks later in early August Prince (Chuck) complicated things further by boasting to the New York Times, "We see a lot of people on the Street who are scared. We are not scared. We are not panicked. We are not rattled. Our team has been through this before."
  • Hoofy and Boo offer a bit more color on this Prince on Prince action:

    A Tale of Two Princes

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