The Zacks Analyst Blog Highlights: Equity Residential, D.R. Horton, Berkshire Hathaway, Masco and Saks
CHICAGO, Aug. 31, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Equity Residential (NYSE: EQR), D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B), Masco (NYSE: MAS) and Saks Incorporated (NYSE: SKS).
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Here are highlights from Tuesday's Analyst Blog:
Case-Schiller: Housing Prices Mixed in June
In June, home prices were mixed. The Case-Schiller Composite 10 City index (C-10) rose a slight 0.04% on a seasonally adjusted basis, and is down 3.85% from a year ago. The broader Composite 20 City index (which includes the cities in the C-10) edged down by 0.06% on the month and is down 4.55% from a year ago.
Prices for both indexes rose on a not-seasonally-adjusted (SA) basis (which is how you will probably and incorrectly see most of the reports presented). Of the 20 cities, eight were up on the month-to-month basis (SA), and twelve were down. Year over year, though, all twenty were down. The rise in the C-10 was the third in a row.
The overall indexes are down 31.90% (C-10) and 31.87% (C-20) from the (4/06) bubble peaks. They set an interim low in May 2009 and rallied into the summer of 2010 before turning down again. The bounce has mostly faded, and the C-20 index set a new post-bubble low (ever so slightly). The C-10 has only a little bit more breathing space before setting a new low, up just 1.49% since that interim bottom.
The earlier bounce was due to extraordinary government support in the form of an $8,000 tax credit to home buyers. This very small increase in the C-10 is perhaps more significant since it is organic.
There is a seasonal pattern to home prices, and thus it is better to look at the seasonally adjusted numbers than the unadjusted numbers. Most of the press makes the mistake of focusing on the unadjusted numbers. Thus the numbers you read in this post might be slightly different than the ones you read about elsewhere.
The Case-Schiller data is the gold standard for housing price information, but it comes with a very significant lag. This is May data we are talking about, after all, and it is actually a three-month moving average, so it still includes data from April and March.
The spring selling season was a bit of a bust for both new and used homes, and it doesn't look like the summer is going any better. While the inventory-to-sales ratio for used homes is down from the year-ago record peak of 12.5 months, it is still elevated at 9.4 months. I don't think second leg in the housing price downturn is over, but we are probably getting very close to the bottom.
Results by City
Of the eight cities that posted month-to-month gains, Chicago led the way with a 1.32% rise. DC was the next best with a 0.95% rise on the month, followed by Charlotte up 0.86%, Boston up 0.73% and the Twin Cities (Minneapolis/St. Paul), with a rise of 0.47%.
On the downside, Portland was the hardest hit, falling 0.77% for the month. Phoenix followed with a drop of 0.61%. San Diego down 0.58%, Las Vegas off 0.36% and Cleveland down 0.34% were also noticeably weak. Tampa was down 1.48% in the month, while Las Vegas rolled snake eyes with a 0.93% decline.
On a year-over-year basis, DC was the strongest city by far with only a 1.20% drop. Only four others have managed to hold the losses to less than 4%. Boston is down 2.17%, followed by Denver off 2.56% and LA down 3.39% year over year. New York rounds out the list, down by 3.64%.
There were five metropolitan areas where the year-over-year declines were more than 7%. Worst hit were the Twin Cities, off 10.91% from a year ago. Portland, Oregon has a 9.59% decline. Phoenix fell 9.27% while Chicago was down 7.49%, and in Tampa prices are 7.03% lower than last year.
In every city, prices are below where they were in April 2006, but there is a huge variation. Las Vegas is the hardest hit, with prices down 59.16% from the peak, followed by Phoenix down 55.68%. Miami is almost a member of the "half-off club," down 49.44%. Tampa (down 45.90%) and Detroit (down 47.67%) are not far away from joining that rather dubious group.
At the other end of the spectrum, there is just one city that have managed to avoid a double-digit decline: Dallas, where prices are down only 7.87% since April 2006. Only four others are down less than 20%. Charlotte is off 10.62%. Denver is off 10.57% from the national peak. Boston, off 14.96% and Cleveland down 19.14% fill out the list.
(Note, the percentage declines I am quoting are from when the national peak was hit, the numbers in the graph are relative to that city's individual peak, so there is a little bit of difference). Also keep in mind that these are nominal prices. While inflation has been low over the past few years, it does add up, so in real terms the declines are much greater.
The Downward Curve Is Flattening
We are unlikely to have a decline anything like the first downdraft in housing prices. People need a place to live, but they do not have to own a house. They have the option of renting.
A house is a capital asset, and the cash flow from owning that asset is in the form of rent you do not have to pay. One of the clearest signs that we were in a housing bubble was that the prices of houses got way out for line with rental prices. While on this basis houses are not yet "cheap" nationally, neither are they absurdly expensive the way they were a few years ago.
If prices fall too far from here, it will become cheaper to own than rent, and lots of people who are now in apartments will start to buy. This graph also includes the CoreLogic housing price data, which is similar to the C-20, but if anything a bit weaker in recent months. Rental vacancy rates have started to fall significantly and in many areas of the country rents are rising, not falling.
The price to rent ratio is already at the high end of normal based on the Case-Schiller index, and in the middle of the normal range based on the CoreLogic index. Rising rents will move the ratio toward the middle or even low end of the range without more weakness in housing prices. The apartment oriented REITS such as Equity Residential (NYSE: EQR) should benefit from this.
It is existing home prices -- not the volume of turnover -- that is important. The level of existing home sales is only significant relative to the level of inventories, since that provides a clue as to the future direction of home prices.
If there is an excess inventory of existing homes, then it makes very little sense to build a lot of new homes. It is the building of new houses that generates economic activity. It is not just about the profits of D.R. Horton (NYSE: DHI). A used house being sold does not generate more sales of the building products produced by Berkshire Hathaway (NYSE: BRK.B) or Masco (NYSE: MAS).
Turnover of used homes does not put carpenters and roofers to work -- new homes do. When new home construction picks up, it could do so in a very big way from the current extremely depressed levels, and the national homebuilders will probably pick up market share as hundreds of small "mom and pop" home builders have gone out of business in this downturn. A doubling in new home construction would still put the level of construction at historically very low levels, and many of the national builders could see their revenues triple or more.
Saks Unveils Expansion Plans
As part its long-term expansion opportunity, Saks Fifth Avenue OFF 5th - a part of Saks Incorporated (NYSE: SKS) plans to add five new stores in its portfolio for 2012.
Further, the new stores will be located in upscale outlets of Merrimack, Syracuse, Livermore, Grand Prairie, and Nashville. The Merrimack store will be the first Saks Fifth Avenue OFF 5TH in New Hampshire, and the store in Nashville will be a replacement store for the one lost in the 2010 flood in Tennessee.
In addition, each store will feature an open air loft-like environment and will range from 25,000 to 28,000 square feet. Further, the layout will offer maximized efficiency and flexibility, while the space will be bright and uncluttered. Additionally, all fixtures will be on casters, ensuring easy movement and all hardware will be interchangeable between fixtures.
Being the savvy shopper's premier source for value-priced designer clothing and accessories, Saks Fifth Avenue OFF 5TH's new stores will have a collection of the best designer names in sportswear, handbags, shoes and more including an expanded assortment of fine jewelry and a newly launched beauty department under the label Saks Fifth Avenue.
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