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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: pcyhuang who wrote (24606)	8/16/2006 10:50:22 AM
From: gcrispin	Respond to of 78753

From my experience, most sectors bottom from a benign indifference after investors have accepted their market losses. I like to see a decrease in short interest and some insider buying. Maybe even a 13-D filed. None of these are evident to this point. Furthermore, with tax loss selling expected to continue into the end of the year, I don't see a recovery in WCI for 06.

To: pcyhuang who wrote (24606)	8/16/2006 5:00:08 PM
From: Madharry	Respond to of 78753

what is your basis for saying that the market has already discounted the worst? How can you possibly predict when a bubble burst how low things can get and what default rates can lead to, not to mention when a recovery will take place? Or do you think that because the pe ratios are low they are good values now?

To: pcyhuang who wrote (24606)	8/16/2006 5:46:53 PM
From: Broken_Clock	Respond to of 78753

"You can't compare oranges with apples. The financial condition in the United States is totally different than those prevailed in South East Asia during the Aisan crisis. Moreover, buying real estate is very different from buying stocks of homebuilders. Don't forget the market discounting mechanism -- the market has already discounted the worst to come in the physical real estate market in many regions of the country." Really? xanga.com Naturally, your blogger will now take a look at one aspect of the collateral behind housing agency notes (and by extension asset backed debt). I will go into the trends in foreclosures and delinquencies Thursday, but today's focus is on land values. Land is an important component of housing collateral and valuation, especially in Bubble locales. As homebuilders have reported for the last quarter, we see a number of them doing substantial land inventory writeoffs: DL Horton, $57 million, Pulte $62 million, NVR, $26 million, Centex, $23 million, Lennar $22 million. If Riskloves have any notion whatsoever about the land portion of their mortgage backed collateral, then maybe they missed DL. Horton's Don Tomnitz's frank comments: "June absolutely fell off the Richter scale for us." Twenty-nine percent of Horton buyers walked away without closing their deals in the quarter, the highest bust-out rate in company history. Horton responded by canceling option contracts for more land, eating the earnest money and other fees. It took a $57 million write-off in the quarter, primarily because of the land deals. Profits will be squeezed, because Horton will have to give more incentives to move homes; it expects to cancel more land contracts; and its average home price is falling. Now the company is demanding some relief from suppliers and subcontractors. Division presidents are pushing land sellers, who had agreed to an option price, to reduce it. "It doesn't make any difference whether we're short [of] land in that market or not," he said. "We're basically using the excuse that the market is softer across the U.S. ... Across the board, we're asking for decreases in our land prices." The company is getting some discounts, just not as deep as they need to be, Tomnitz says. Some land sellers are still in denial, and he wants the big write-off to send a message: "The first loss is the best loss, and we're going to walk away if we can't get the land price correct," Tomnitz said. Horton had 396,000 home lots, 43 percent of them secured through options. It plans to reduce that to 340,000 and get a 50-50 mix of lots owned and optioned. Apparently one of the nations largest banks, Bankamerica has figured this one out now too, even if Riskloves haven't. There will be a slowdown," said Eugene Godbold, president of commercial real estate lending at Bank of America, speaking of both residential and commercial real estate. "The question nobody knows the answer to is how far will it dip and how long will it last." BofA's commercial real estate division specializes in loans to professional developers of income-producing real estate, including retail, office, industrial and multifamily properties. Godbold said at the webcast conference. "We're watching residential builders very closely in those areas," he said. Capitalization rates, which measure how fast a real estate investment pays itself off through the income the asset generates, remain at an all-time low. But "this doesn't make sense mathematically," Godbold said. "They're going to have to go up" as energy and insurance costs on real estate properties have soared. The BofA executive said his division began taking defensive measures such as cutting back on its land advances to developers and keeping tight debt-to-cover ratios. The debt coverage ratio measures the ability of an income-producing property to cover monthly mortgage payments.