Builder confidence up...how about yours?

Each of the HMI’s component indexes recorded substantial gains in April. The largest of these gains was a 10-point surge in the component gauging builder sales expectations for the next six months, which brought that index to 25. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points, to 13 and 14, respectively.

The HMI also rose in every region in April, with an eight-point gain to 16 in the Northeast, a six-point gain to 14 in the Midwest, a five-point gain to 17 in the South and a 4-point gain to 9 in the West.

Source: National Association of Home Builders

Looking forward: Numbers to be released this week might bring clarity

Home sales will likely hit a bottom first — and may have already done so. Data on existing home sales in March is scheduled to come out Thursday and new home sales on Friday. Both measures of housing activity picked up in February, a sign that between cheap foreclosed-on houses and low mortgage rates, the volume of sales may finally have stopped falling. This week’s data will be a test of that thesis. Analysts are expecting a mixed bag, with new-home sales rising modestly but existing home sales falling a bit.

Whatever the March numbers say, there are good reasons to think that home sales will improve as the spring selling season gets underway. Anecdotal reports suggest that low mortgage rates and an $8,000 first-time home-buyer tax credit are coaxing buyers back into the market. And while foreclosures are set to rise as banks begin to move on delinquent homeowners, that actually could boost home sales as banks auction homes for whatever the market will bear.

Source: Washington Post

Economic outlook from Robert Shiller

Professor of economics at Yale and co-creator of the Case-Shiller House Price Index, as well as the forthcoming MacroShares’ Major Metro Housing product:

Another thing is risk management with regard to housing, for example. We have a huge mess-up here, because people have been urged by experts and by national leaders to invest all of their life savings in a single risky investment, a home in a city, in a leveraged way. They would borrow 80 percent, 90 percent, or even more of the money to buy the home. And so they’re putting their life savings on the line in a crazy way. So this shouldn’t be the new normal; but we have to then redesign our mortgage institutions.

We have over 12 million people who are underwater—that is, they have negative net worth in their homes. And, typically, these people have nothing else, so they’re wiped out. How can it be that we were anywhere close to the right system? There are some people who doubted it would ever happen. I’ve talked to these people, and it seems to be often based on the assumption, one way or the other, that home prices would only go up. Well, we’ve just learned that they don’t just only go up.

We didn’t have the right system. It was normal. We thought that the conventional mortgages that were being issued represented some kind of enlightenment, but that was a group thing. That was taking for granted that what we have now is right, and it’s not right. So it has to be fixed. So I’m hopeful that this event that we’re going through now will trigger a lot of institutional rethinking that will make our economy work better.

SOURCE: The McKinsey Quarterly

Turnberry lot up for sale

According to Socketsite, Turnberry is shopping their lot at 45 Lancing. The ritzy builder, famous for its projects The Residences at MGM Grand in Las Vegas and Fontainebleau in Miami Beach, said in September 2006

"We have big plans for California overall, and San Francisco fits our model. We like world-class cities and San Francisco is certainly one of them."

So either San Francisco is no longer a world-class city, or Turnberry is no longer a world-class builder. Which do you think it is?

The implications: likely no new building at 45 Lansing for 5-10 years, and extremely low odds that once developed it will be the uberluxury product Turnberry (and neighbors) had envisioned.

For those of you looking forward to the ultra-luxurious finishes Turnberry was promising, you'll have to settle for the opulence of Russian Hill and Pacific Heights instead.

iShares Dow Jones U.S. Real Estate Index Fund Showing Bullish Technicals

For those of you day traders following real estate:

iShares Dow Jones U.S. Real Estate Index Fund (PCX: IYR) closed yesterday at $29.31. So far IYR has hit a 52-week low of $20.98 and 52-week high of $71.76. IYR has been showing support around 25.43 and resistance in the 31.35 range. Technical indicators are Bullish.

For a hedged play on this stock, look at a Sep '09 23 covered call (BJN IW) for a net debit in the $20.41 area. That is also the break even stock price for this trade.

SOURCE: Market Intelligence Center

Is this a good idea??!!

Robert Shiller, of S&P/Case-Shiller House Price Index fame, is set to launch a new financal derivative product this month

MacroShares’ Major Metro Housing product, brainchild of economist Robert Shiller, will offer investors a way of betting on rising house prices by buying “Up” shares, or expressing pessimism via “Down” shares. Unusually, these won’t be backed with the underlying physical housing assets.

Instead, MacroShares will be tied to the Standard & Poor’s/Case-Shiller Composite 10 Home Price index. When the Up and Down shares float, proceeds will be invested in U.S. government bills to ensure liquidity. If the index moves up, the trust behind the Down shares will shift a corresponding portion of its assets to the Up shares trust, raising the net asset value underlying the Up shares. The prices should follow.

Aren't financial derivatives tied to real estate what helped us into our current global financial mess? Or will the ability to invest in "Down" shares balance the optimism that led to valuations at 30x with mortgage-based securities?

Let's just hope AIG isn't planning on insuring your investment in Major Metro Housing!

SOURCE: WSJ

Watermark news: Penthouse feels the pain

Via Socketsite comes news of a short sale or bank owned penthouse at the Watermark, the sleek high rise building at the corner of Beale and Bryant St (aka: the other building next to the Bay Bridge that doesn't look like Sharper Image's Ionic Breeze)

Two months after its initial sale for $1,250,000 in October of 2006 Watermark (501 Beale) Penthouse #2B was flipped for $1,375,000. (Ah, the good old days.) It's now a little over two years later and the top floor condo is back on the market and asking $1,094,500.

In related news, there are currently 8 units on the market in the building.

LINK: Socketsite

LINK: MLS Listing

Details on the $8,000 tax credit

The National Association of Realtors estimates that the tax credit will bring an additional 200,000 to 300,000 first-time buyers into the market this year.

The tax credit is equivalent to 10 percent of the purchase price of the home, for a maximum of $8,000. It applies to first-time buyers of principal residences. Unlike an earlier $7,500 tax credit program that was approved last year, the newer tax credit doesn't have to be repaid. The program applies only to homes that are purchased between Jan. 1 and Dec. 31, 2009. Anybody who purchased a home during 2008 doesn't qualify.

The regulations define a first-time buyer as somebody who hasn't owned a principal residence within the last three years. That provision could appeal to thousands of former homeowners who sold because they moved or because of life-changing experiences such as divorce or a death in the family, lenders say.

ARTICLE: BUILDER MAGAZINE

Should renters jump into real estate market now?

WSJ weighs the options available to renters

Reasons to buy:

-Prices will eventually recover. Although no one can predict with certainty when the housing market will reach bottom, over the long run pressures from immigration and the formation of new households (currently around 800,000 a year) will push home prices up. The longer you stay in your home, the more likely you will see equity build up. And most owners do stick around long enough to outlast economic downturns. Government data show that 50.2% of single-family owners stay put for at least a decade.

-Your investment is leveraged. Even though lenders are requiring much greater down payments than they did during the boom, if you are borrowing money to buy your house, your investment is leveraged. In other words, if you put $10,000 in stocks, and it increases 10%, you've made $1,000. But if you put $10,000 down on a $100,000 home, and its value increases 10%, you've made $10,000.

Reasons not to buy:

-It's expensive and hard to move. If you're suddenly out of a job, being able to pack up and move quickly increases your employment prospects. But if you live in a city that's experienced massive layoffs, like Detroit, it may be extremely difficult to find a buyer for your home.

-Your money is tied up. Lenders are now requiring substantial down payments, which cuts back on the amount of money available for alternative investments, as well as the amount of money you have available for emergencies. Not long ago, you could access this money easily through a home equity line of credit, but nervous lenders have been severely restricting these as home prices have plunged.

Read the article for more points on both sides of the debate. ARTICLE: WSJ

Related: HighRiseSF posting - March 26, 2009