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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (57106)	12/9/2004 11:07:26 PM
From: Snowshoe	Respond to of 74559

Delete duplicate.

To: TobagoJack who wrote (57106)	12/9/2004 11:07:54 PM
From: Snowshoe	Read Replies (2) \| Respond to of 74559

Jay, I suppose housing could have an insane blow-off like the Naz in 2000. Here's what Cramer said today... Toll Has Earned Its Higher Multiple thestreet.com... By James J. Cramer RealMoney.com Columnist 12/9/2004 11:34 AM EST URL: thestreet.com... Oh my, danger, danger! Toll Brothers (TOL:NYSE) is selling at a double-digit multiple! I think people still have that misperception about homebuilders. I think that most people believe members of this group are monolithic, controlled by rates and totally and completely cyclical. Not me. My experience with Toll has to do with my life as someone who is anti-developer. I see the company in action. I know that it can get the parcels that are needed to build high-end homes and that its management's knowledge of markets and the law is so proprietary that you have to give the company a higher multiple than the others. I will have Joel Rassman, Toll's terrific CFO, on "Kudlow & Cramer" tonight to discuss some of these trends. Most of the time, we are so used to seeing proprietary, secular growth stories become cyclical low-multiple stocks that we can't accept the fact that the process can and occasionally does go in reverse. Toll is the poster child for that reversal. Toll has figured out how to build homes in areas where the profits are huge and the business is great. And it is still cheap.

To: TobagoJack who wrote (57106)	12/12/2004 2:02:57 PM
From: Ramsey Su	Read Replies (5) \| Respond to of 74559

Hello Jay, just some random thoughts on the homebuilders. All the data for indicators discussed below are readily available. Furthermore, the homebuilders have odd ending quarters so someone is always reporting something every month, making it easier to spot a trend. Backlog. This has to be considered the strength of the home builders. Ever builder that I looked at are carrying record backlog into the future and beyond. No builder has given any hint that cancellation rate is anything but normal. In fact, some said it is improving. Backlog is probably not going to be a leading indicator but a confirmation. If this starts to decline, then the end is near. # of contracts vs price. I looked at a number of builders and compared the percentage increase in contracts vs the actual increase in revenue. DHI is the only builder who appeared to have grown their revenue via building more homes. The rest benefited tremendously from the escalating real estate prices. While no builder is saying that they factor appreciation in their projections, it is unclear how they determine their estimates sales price for each tract. I suspect that if real estate stop appreciating, the profit margin has to come down substantially. Employment.I have long opined that employment is the single most important factor affecting anything to do with housing. While employment is not strong, neither is it that weak. Furthermore, just like the wealth effect of the equities dotcom bubble era, employment is supported by a real estate wealth effect. This obviously is creating a double jeopardy scenario if employment heads south and real estate appreciation became depreciation as the same time. Interest rate. Interest rate was not an issue, even if it goes up. However, the aggressiveness of lenders compounded by the high prices are making it an issue now. I had to visit a few bank branches last week and took the opportunity to do some field work. The Wells Fargo guy said business is good. Why? Refi and equity loans doing well, with cash outs. Also the 1 yr, 3 yr and even 5 yr ARMs are getting concerned and are looking at alternatives. The WM guy, after realizing that he had nothing to sell me, said he is concerned with all the ARMs with payments that are at best going to remain same but most likely going up. Any borrower who are stretched to qualify at the initial rate is going to be super stretched as rates go up. Why do I now think interest rate matters, a lot more than before? Listening to the TOL conf call last week, in the midst of the biggest bull session, TOLL said that average LTV is over 70% now and over 70% are ARMs, albeit the 1-3-5 yr type, not the monthly adjustables. TOL does not sell starter homes. I am certain that TOL has a much higher percentage of cash buyers than other builders. Bob Toll had repeated many times in the past the interest rate would not impact their sales. I think he is in for a rude awakening. The following is in today's San Diego Union. Look at that cancellation rate. signonsandiego.com December 12, 2004 Housing cool-down continues brings normalcy Advertisement If you need more confirmation that the super-heated housing market in San Diego County is cooling down, consider some thoughts from a large builder operating here. Lisa Gordon, president of Richmond American Homes' San Diego area division, said the number of cancellations from new home buyers seen by the company is running around 25 percent, up from 9 percent recorded in the market's more fevered days earlier this year. And, she said the days of a quick buck for home buyers wanting to parlay their new house into instant riches are behind us. That's when as much as $50,000 could be charged for the same model house in some projects in subsequent phase releases, allowing early buyers to make quick profits on quick sales. "It has normalized," Gordon said of new home sales business here. It may sound strange, she said, but that's a relief to builders as well as home buyers, who both can return to more prudent planning in a less-frenzied environment. Richmond American set up its San Diego division in January 2003 and this year plans to complete about 550 new houses, focused on the single-family detached market. The division, which builds houses in North County and southern Riverside County, is looking to expand operations to South County areas such as Chula Vista, said Gordon, who formerly worked for KB Home. The company says that next year it will have a larger presence here, with plans to build approximately 700 homes in the area. "All our land is lined up; we're going to be bigger here," said Gordon. Based in Denver, Richmond American is Colorado's largest home builder and is active in markets across the nation. The company is a subsidiary of publicly traded M.D.C. Holdings Inc. – CARL LARSEN Sequential comparison vs y-t-y. Every builder has been reporting blow out y-t-y growth numbers. That should continue for another quarter or two, then the strong 2004 qtrs are going to be very hard to blow out anymore. HOV is already showing sequential declines. With the huge inventory of lots that many of these builders have accumulated, along with the lofty growth projections, sequential decline has to be the leading indicator to watch for.

To: TobagoJack who wrote (57106)	12/19/2004 2:39:19 AM
From: LKO	Read Replies (1) \| Respond to of 74559

And if I am wrong on US housing in the intermediate (2-3 year term), I would be more right on Hong Kong and Japan real estate, as the same liquidity drives both. Since my HK real estate plays are leverage 1:1, and Japan leveraged 10:1 Jay, Just wondering how a retail US investor can play with Japan real estate investments (on either side). Here is some recent news/opinion to cheer you up: BusinessWeek Online Japan Inc.'s Real Estate Binge, Part II Thursday December 2, 8:18 am ET By Chester Dawson biz.yahoo.com BusinessWeek Online Japan Inc.'s Real Estate Binge, Part II Thursday December 2, 8:18 am ET By Chester Dawson Cotton Harbor Towers is a potent symbol of the revival of Japan. Rising on the site of a former shipyard along Tokyo Bay in Yokohama, the project includes four towers with 920 expensive condos, a supermarket, a nursery school, and a medical clinic. Investors in the $381 million project include Mitsubishi Estate Co. and Nomura Real Estate. But the single biggest investor is not a property company. It's JFE Holdings Inc. (jfeef.pk.PK), a leading steelmaker. And JFE is not alone. It's just one of many Japanese companies that have developed a new taste for real estate. The property units of Nippon Steel Corp. and Oji Paper Co. jointly set up a $476 million real estate investment trust on Oct. 22 to invest in condos and commercial sites. Diamond City Co., a unit of retailer Aeon Group, is buying the site of a closed Nissan plant outside Tokyo for $118 million. Digital-camera powerhouse Canon Inc. (NYSE:CAJ - News) has gobbled up $526 million worth of property in the past two years. CEO Fujio Mitarai told Japanese media earlier this year his company was intent on purchasing real estate "on an unprecedented scale." Industrial companies' lust for property might be good news for the long-depressed Japanese real estate market. But it is nevertheless a lamentable trend. First of all, it's a reversal of an admirable development: Japanese companies restructuring themselves by shedding noncore assets, paying off debt, and focusing on their main businesses. Second, such investment is risky, since Japan still has a surplus of office space and high-end housing. Finally, it's unfair to shareholders, who have every reason to expect that when companies have extra cash they will distribute it to investors through dividend increases and share buybacks. Indeed, the rush into real estate is driven by a glut of corporate cash. Goldman, Sachs & Co. (NYSE:GS - News) expects pretax profit growth for Japan's biggest public companies to hit 20% for the fiscal year ending next March. Nikko Citigroup Ltd. notes that nonfinance companies' free-cash-flow surplus rose 32%, to $157 billion, for the year ended in March, and is expected to rise as much as 10% more this year. But investors will see little of that money. "Dividend payout ratios (the percentage of earnings handed out in dividends) are at all-time lows," says Alexander Kinmont, Nikko Citigroup's strategist in Tokyo. The ratio, he says, is 18% in Japan, compared with 50% in the U.S. "Japanese managers apparently don't give a fig about their companies' shareholders," says Kinmont. Instead, some of the money that might have gone to shareholders is going into real estate, proving that Japan's corporate leaders have short memories. Japanese corporations have traditionally been big land buyers, in part because land could be leveraged for access to cheap capital from banks. But Japan Inc.'s landholdings brought disaster in the late 1980s, when the property bubble popped, prices collapsed, and borrowers ended up with loan balances far bigger than the value of the deflated real estate used as collateral. Aggregate numbers on the most recent corporate land purchases are hard to come by. But the Japanese Finance Ministry's most recent quarterly survey of total assets held by nonfinancial companies -- including land and cash -- climbed 3.7% in the April-June period, to $11.8 trillion. That marked the second consecutive quarter of year-on-year growth and the biggest rate of increase in seven years. Even given Japan's overall economic recovery, investing in real estate remains a gamble. True, property prices, which have fallen for 13 consecutive years, appear to have bottomed out. Land and building prices are increasing this year in Japan's six biggest cities for the first time since 1991, according to Goldman Sachs. But the turnaround is too fragile to justify any big bets. Japan's corporate captains should stop playing Monopoly and do the right thing -- give Japan's long-suffering shareholders a break by sharing the wealth.