Five Things You Need to Know: Jump in Pending Home Sales Forecasts Jump in Pending Failures to Close
It will be interesting to see how much tighter credit conditions impact the ability for these buyers to actually close on the pending contracts.
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Jump in Pending Home Sales Forecasts Jump in Pending Failures to Close
The National Association of Realtors' Pending Homes Sales Index based on contracts for homes signed in April rose 6.3%, far above most economists' expectations for a 0.4% decline. The Pending Home Sales Index is based on contracts for homes that have been signed, but have not yet closed.
According to the NAR it's the highest level for the index since last October, but the more important datapoint is the year-over-year decline, which remains 13.1% below April 2007 levels.
Lawrence Yun, NAR chief economist, said pending sales contracts picked up in areas that experienced double-digit price declines, "but it's unclear if they are investors or owner-occupants."Regionally, the West saw the best performance with pending home sales 4% higher year-over-year, but that is also the region that has seen the largest price declines.
The bottom line is lower prices are needed to reduce inventory, and many areas have not yet seen prices decline to levels where buyers are willing to step in. It will be interesting to see how much tighter credit conditions impact the ability for these buyers to actually close on the pending contracts.
2. Peer-to-Peer Lending
Speaking of tighter credit conditions, a friend directed us to the peer-to-peer lending network site, prosper.com, to check out the loan performance of borrowers rated "A," the second highest credit rating on the site.
A total of 2.96% of "A" loans originated in the past year are listed as one or more months' late. Looking at "A" loans originated between May 1, 2006 and May 1, 2007, more than 7% are listed as one or months' late.
But what was really interesting looking at the performance metrics is the average annual return lenders receive net defaults, adjustments and servicing fees. For loans originated in the past year, the average return for "AA" loans, the highest-rated borrowers, was 6.73%. The average rate for "A" level borrowers was 7.38%. The drop-off in return from "A" to "B," however was stunning, from 7.38% to 1.57%.
USA Today this morning reports on the rise of more flexible work weeks by companies ranging from IBM (IBM) to Sun Microsystems (JAVA) as fuel prices increase workers' commuting costs. Sun estimates that its more than 18,000 employees who can choose to work at home or the nearest office avoid buying 135 gallons of gas a year, which at $4 a gallon would save $540 each, the newspaper reported.
Chuck Wilsker of The Telework Coalition estimates that more than 26 million Americans now telecommute at least some days, which would be about 18% of people employed nationwide. "It's affecting people's disposable income," Wilsker told the newspaper. "And all of the sudden they're saying 'I've got to do something about this!"'
But telecommuting, long popular at tech companies such as Sun, is now beginning to gain traction in other areas of the economy, notably public employers. The U.S. House of Representatives approved legislation last week requiring the head of each federal agency to set policies allowing qualified workers to work from home or another convenient location.
4. Beware Package Shrink
First, let's get this out the way.
There, feel better? Now, let's talk about package shrink. We ran across a recent article in the Arizona Republic discussing the fact that a wide range of manufacturers, from dog food to chewing gum, are scaling back the size of their products. This "package shrink" is a stealth drain on many consumer wallets.
Last summer, General Mills (GIS) told investors about its new "Right Size, Right Price" program in which prices of cereals such as Cheerios, Wheaties and Total went up while the weight went down 1.5 ounces per box, the article noted. And recently Wrigley (WWY) announced that next year it will replace current gums with reformulated flavors in packages that will contain 15 sticks instead of 17 sticks. Meanwhile, Coca-Cola (KO), Pepsi (PEP) and Kroger (KR) have plans to start packaging soda in 16-ounce bottles and milk in three-quarter-gallon jugs.
According to the article, many manufacturers have simply quietly reduced package sizes while maintaining costs, a stealth drain on consumer wallets.
5. Another Horseracing Hedge Fund?
By now just about everyone has heard about the horse racing hedge fund set up by "investment banker" Michael Iavarone's IEAH, the owner of Big Brown. A Bloomberg story a couple of weeks ago detailed Iavarone's shady Wall Street past. Now, some bigger names from inside horse racing's inner circle are apparently starting a hedge fund of their own.
According to the Wall Street Journal, trainers D. Wayne Lukas, Bob Baffert and Nick Zito are teaming up to launch a $75 million fund with horse they will personally select and train. The trio has collectively won 26 Triple Crown races since 1980 and earned more than $460 million in purse money, the article notes.
But, like the typical hedge fund, only the truly well-heeled should apply. The minimum investment level calls for $3 million spread over three years. The fund will charge a 2% management fee and collect 20% of all winnings and profits from sales, of course.
What is unclear is why anyone with a $3 million bankroll would consider paying such a large premium (20% of profits) to be involved with the "fund."
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