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Fears for Countrywide Countrywide Financial Corp. shares fell 13% as investors speculated about the mortgage lender's ability to cope with a worsening credit crunch. The Wall Street Journal reports that the slide followed a Merrill Lynch & Co. analyst putting a "sell" rating on the shares of Countrywide, the largest U.S. home-mortgage lender by loan volume, and discussed a scenario under which the company could be forced into bankruptcy-court protection. Countrywide shares fell $3.17 to $21.29 on the New York Stock Exchange. They have declined 50% so far this year. The Journal says that the "sell" call from Merrill analyst Kenneth Bruce came just two days after he published a note rating Countrywide stock "buy." A Merrill Lynch spokeswoman declined to make Bruce available to discuss the switch in his recommendation, which the report attributed partly to rapid deterioration in the credit markets. The pumping of liquidity by central banks into the world's leading banking systems was seen as easing of pressure on mortgage lenders such as Countrywide, who depend on short-term borrowings to finance their lending. "We had hoped, too optimistically in hindsight, that the market would calm down on the injection of liquidity," Bruce wrote. "It has not, in our view." The Journal says that in a report titled "Liquidity Is the Achilles Heel," Bruce said demands for more collateral or repayments from lenders, along with forced asset sales, could weaken Countrywide, long viewed by Wall Street as one of the most solid mortgage companies. He said the risk of such a "liquidity event" at Countrywide is rising. In one scenario, he wrote, if creditors were to cut off funding to Countrywide and force it to sell assets in a weak market, "then it is possible for [the company] to go bankrupt." Reports from Builders and Realtors The subprime mortgage market crisis that broke in February and revealed significant losses in loans to individuals with impaired credit records, contributed to an 11 per cent fall in sales nationwide in the second quarter, according to the National Association of Realtors. The National Association of Home Builders has only once registered a worse mood than that recorded in its latest monthly survey yesterday. Highly visible problems in the housing finance system are contributing to a wait-and-see attitude among prospective home buyers and reducing builder confidence in the single-family housing market, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released Wednesday. The HMI declined two points to 22 in August, its lowest level since January 1991. “Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home,” said NAHB President Brian Catalde, a home builder from El Segundo, Calif. “Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we’re dealing in a difficult market environment.” “There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt.-A and jumbo markets, delaying a revival of the single-family housing market,” added NAHB Chief Economist David Seiders. “However, the government-related parts of the mortgage market still are functioning well and the underlying economic fundamentals promise to remain solid for some time – providing support to the longer-run housing outlook. We now expect to see home sales return to an upward path by early next year and we expect housing starts to begin a gradual recovery process by mid-2008. From there, the market will have plenty of room to grow in 2009 and beyond.” Home price trends are improving in metropolitan areas but existing-home sales during the second quarter were below a year ago in most states, according to the latest quarterly survey by the National Association of Realtors. In the second quarter, 97 out of 149 metropolitan statistical areas 1 show year-over-year increases in median existing single-family home prices, including nine areas with double-digit annual gains; 50 had price declines; and two were unchanged. In the first quarter of 2007, revised data shows 83 areas had annual price increases, while in the fourth quarter of 2006 only 68 areas were up. Lawrence Yun, NAR senior economist, said the price trends are encouraging. “Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006,” he said. “Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets.” Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate2 of 5.91 million units in the second quarter, down 10.8 percent from a 6.63 million-unit pace in the second quarter of 2006. Six states showed increases in the sales pace from a year ago; one was unchanged and complete data for two states were not available. The national median existing single-family home price was $223,800 in the second quarter, down 1.5 percent from the second quarter of 2006 when the median price was $227,100. The median is a typical market price where half of the homes sold for more and half sold for less, but there has been a downward skew in the national comparison because sales have declined in many high-cost areas and risen in some lower cost markets. “Since all real estate is local, this report on metro area home prices is more meaningful than our monthly data on national prices because metro areas are less subject to price distortion that can result from geographic changes in the composition of sales,” Yun said. NAR President Pat V. Combs, from Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt, explained how homes are holding their value. “Unlike stocks, where significant equity can vaporize overnight, there is little volatility in home prices, and most homeowners are experiencing very healthy long-term gains,” she said. “The costs of construction trends up from one year to the next, so even in areas that experience price declines, owners who maintain their property generally retain most of the equity that has built-up in their homes over time.” A separate NAR survey shows the typical owner stays in a home for six years. “While local conditions vary greatly, a typical owner who bought six years ago is seeing a 45 percent increase in the value of their home. Even so, it isn’t valid to directly compare homeownership with stocks. Although a home is normally a long-term appreciating asset, it is primarily shelter – most owners sell when their needs change, not when the market turns,” Combs said. An analysis of all available data over the past six years shows almost every market experienced price gains from the second quarter of 2001 to the second quarter of this year. The best total sales performance was in Wyoming, where existing-home sales rose 10.8 percent from the second quarter of 2006. In Iowa, the second-quarter sales pace rose 4.1 percent from a year ago, while North Dakota experienced the third strongest gain, up 2.9 percent. Oklahoma, Indiana and Nebraska also posted annual sales gains. In the second quarter, the largest single-family home price increase was in the Salt Lake City area, where the median price of $233,100 rose 21.9 percent from a year ago. Next was Binghamton, N.Y., at $111,200, up 19.8 percent from the second quarter of 2006, followed by Salem, Ore., where the second quarter median price increased 16.7 percent to $227,900. Most of the metros with price declines were modest, although four areas experienced double-digit drops. Median second-quarter metro area single-family home prices ranged from a very affordable $71,700 in Elmira, N.Y., to 12 times that amount in the San Jose-Sunnyvale-Santa Clara area of California where the median price was $865,000. The second most expensive area was San Francisco-Oakland-Fremont, at $846,800, followed by the Anaheim-Santa Ana-Irvine area (Orange County, Calif.), at $727,000. In addition to Elmira, other affordable markets include the Youngstown-Warren-Boardman area of Ohio and Pennsylvania, at $76,700, and the Saginaw-Saginaw Township North area of Michigan, with a second-quarter median price of $86,900. In the condo sector, metro area condominium and cooperative prices – covering changes in 55 metro areas – show the national median existing condo price was $226,800 in the second quarter, up 1.0 percent from $224,500 in the second quarter of 2006. Thirty-seven metros showed annual increases in the median condo price, including seven areas with double-digit gains; one was unchanged and 17 areas had price declines. The strongest condo price gains were in the Salt Lake City area, where the second quarter price of $162,200 rose 25.2 percent from a year earlier, followed by Reno-Sparks, Nev., at $220,500, up 17.0 percent, and the Austin-Round Rock area of Texas, where the median condo price of $172,100 rose 14.9 percent from the second quarter of 2006. Metro area median existing-condo prices in the second quarter ranged from $116,400 in Greensboro-High Point, N.C., to $608,700 in the San Francisco-Oakland-Fremont area. The second most expensive condo market reported was Los Angeles-Long Beach-Santa Ana, at $413,400, followed by the San Diego-Carlsbad-San Marcos area at $368,600. Other affordable condo markets include Wichita, Kan., at $117,900 in the second quarter, and Rochester, N.Y., at $118,900. Regionally, existing-home sales in the Northeast fell 6.8 percent to an annual pace of 1.05 million units in the second quarter from the same period a year ago. The median existing single-family home price in the Northeast rose 0.7 percent to $298,000 in the second quarter from the same period 2006. After Binghamton, N.Y., the strongest price increase in the Northeast was in the Allentown-Bethlehem-Easton area of Pennsylvania and New Jersey, with a median price of $274,500, up 12.8 percent from the second quarter of last year, followed by the Reading, Penn., area, at $157,800, up 11.2 percent, and Glenn Falls, N.Y., which rose 10.7 percent to $175,500. In the Midwest, total existing-home sales dropped 8.4 percent to a 1.39 million-unit annual level in the second quarter compared with a year ago. The median existing single-family home price in the Midwest was $163,500, down 2.2 percent from the second quarter of 2006. The strongest metro price increase in the Midwest was in the Bismarck, N.D., area where the median price of $151,400 was 9.2 percent higher than a year ago. Next was Gary-Hammond, Ind., at $137,800, up 7.3 percent from the second quarter of 2006, and Bloomington-Normal, Ill., at $161,500, up 7.0 percent. Total existing-home sales in the South were at an annual rate of 2.31 million units in the second quarter, down 10.7 percent from the second quarter of 2006. The median existing single-family home price in the South was $185,000 in the second quarter, which is 1.6 percent below a year earlier. The strongest price increase in the South was in the Beaumont-Port Arthur area of Texas, at $127,700, up 11.8 percent from a year ago, followed by the Cumberland area of Maryland and West Virginia, with a 9.3 percent gain to $109,300, and Raleigh-Cary, N.C., at $225,100, up 8.4 percent. In the West, the existing-home sales pace of 1.16 million units fell 16.9 percent from the second quarter of 2006. The median existing single-family home price in the West was $349,400 in the second quarter, down 0.4 percent from a year ago. After Salt Lake City and Salem, the strongest metro price increase in the West was in Farmington, N.M., at $201,900, up 14.0 percent from a year ago, followed by the Spokane, Wash., area, at $197,700, up 10.4 percent from the second quarter of 2006. © Copyright 2007 by Finfacts.com |
