heinz, as a shorter of FNM, just for you ...
grantsinvestor.com
QUOTE
HOUSE AFIRE
by Ruth Hlavacek 07:00 AM 06|15|2001
Skyrocketing U.S. housing prices may have reached their zenith.
U.S. home prices have been rising like, well, a house on fire, for more than five years. The hottest markets, predictably enough, were in the Northeast corridor (New England and the Mid-Atlantic states), California, Florida, Georgia and Arizona. Perhaps not so predictably, prices in Kansas, Minnesota, Michigan and Washington state leapt ahead, too. Joe Carson, an economist at Alliance Capital Management, thinks one reason housing prices have held up so well for so long is because they've been cheap relative to stocks. On the face of first-quarter data from the Office of Federal Housing Enterprise Oversight (OFHEO), which showed another 8.8% splurge in prices year-over-year, the rapid home-price escalation would appear to be intact. Or is it? Charles Peabody, bank analyst at Mitchell Securities Inc., thinks otherwise, and the folks at International Strategy & Investment (ISI) have produced mortgage-refinance and lumber-price data that support Peabody's negative reading.
Peabody, as readers of Grant's Investor know, is convinced that higher interest rates, excess debt and consumer fragility are lapping at the edges of the real estate bubble (click here to read previous article). Now Peabody has new anecdotal evidence that suggests the housing market is starting to sag. Doing his own fieldwork, Peabody recently interviewed several New Jersey residential real estate agents -- a "limited" observation pool, he admits, but their on-the-ground experience is telling, nonetheless. The agents said that home-sale closing prices in April and May came in 10% below asking prices, something that hasn't happened "in several years," Peabody relates. The agents weren't ready to label this turn of events as "weakness," because, they say, the supply of "quality" homes is still tight in the Garden State. Peabody couldn't help but notice, though, that the softer pricing came during the usually heady spring selling season.
Meanwhile, ISI's "Daily Economic Report" for June 7 pointed to the data pictured below as evidence that housing prices might indeed be weakening. The first graph shows the continuing downtrend in mortgage refinancing applications, while the second suggests that the recent climb in lumber prices has topped out.
As for Carson's theory that the housing-price boom is yet another manifestation of a runaway stock market, the following graph, which plots house prices against the Standard & Poor's 500 Index, shows a slight reversal of the long-prevailing trend. If Carson is on the mark, only time (and stock market performance) will tell whether the relationship will continue to add curbside appeal to an asset that appears to have peaked.
UNQUOTE |
