Real Estate Makes the News

Market Action (Real Estate based):
Before the market opened Lennar (LEN), a homebuilder, announced a steep 73% drop in earnings and warned that conditions might get worse before they get better.  The company said it couldn’t determine when conditions might improve and they “have not yet seen evidence that the much-anticipated winter/spring selling season has yet kicked in” and maybe “there’s another shoe to drop”.  In fact, the company had been comfortable saying that 2007 earnings per share would meet the 2006 level but now they’re not so sure about making such predictions in this environment.  Of course, the recent deterioration in subprime was a contributing factor.

With this news, the stock market opened with a thud but before we get all teary eyed over LEN, you might consider that the stockholders of LEN only dropped the price 4 cents by the end of the day after being down nearly two dollars at the opening.  No fear.

There has been a rumor floating around that New Century Financial (NEWC, remember the cute name, nuke) was going to file for bankruptcy.  On Tuesday, the rumor was gaining some traction.  Of course, with the price of the stock dropping 15 cents to 1.41 or about 10% it’s only a matter of time anyway.  You may recall this stock was 30 in the beginning of February and 65 in December 2004.

A half hour into the normal trading day, the Conference Board released a weaker than expected 107.2 consumer confidence number.  The forecast was for 109.0 after last month’s 112.5.  Oh, last month’s number was revised down to 111.2 so maybe the decline didn’t look as bad as it could have.

The market managed to trade in a fairly tight range after the initial hit and the volume was painfully low.  After the market closed another home builder, Beazer Homes (BZH) announced that their lending practices had earned the attention of the FBI and that an investigation into their mortgage lending practices was being initiated.  BZH dropped about 15% in after hours trading to prices not seen in about four years.  

There was some other activity in the after hours market that we should mention.  You will most likely have heard this news by the time you read the Update but there was a brief moment when a rumor surfaced that Iran had fired a missile at a US ship in the Gulf, soon after denied by the State Dept.  Oil briefly popped above $68 but managed to shed most of the gains as soon as the denial crossed the wire.

There was one more real estate item we saw and that was on CNN Money.com.  While we have never heard of this organization, the Center for Responsible Lending, a non-profit policy and advocacy organization for home owners, suggested that 2.4 million holders of subprime mortgages would lose their properties to foreclosure.  The CRL said that the primary reason for the jump in foreclosures is “the abandonment of underwriting standards.”  

Quoting from the CNN Money article, “CRL contends that few subprime loans went to first time buyers” with some 11 percent of the total going to first time buyers.  Where did the mortgage money go, you may ask???  That would be refinancing existing mortgages including additional fees.  Did we mention that this was going to be about real estate???

Opinion/Analysis:
We don’t have much else to write about this evening.  We were thinking that the market might actually break on Tuesday (surprises to the downside) but when it didn’t, we went back to thinking we would see a little rally going into the later part of the week.  Friday’s Dow high is still in place so it may actually hold.  Remember that’s not the point—the point is that this rally phase is nearly complete and we are going to be looking at much lower prices over the next several months.  

Believe it or not, the market is short term overbought even after Tuesday’s trading.  The overnight futures are still down, maybe due to the rumored attack in the Gulf, but they are down.  If the market drops much at the opening on Wednesday it may break the minor support levels created on Monday.  If so, there could be some quick sand for the market.

One last item we keep wanting to mention, that being the NDX, NASDAQ 100.  We mentioned a few weeks ago that the NDX has crossed over the 1800 line in many trading days from mid-November to mid-February.  Over the past week, the NDX is back trading across the 1800 mark again.  We think it missed its old friend and decided to come back and say farewell, we’ll see you a long time from now.  

Dow Industrials:  12,397.29  -71.78
VIX: 13.48
HUI:  340.50
QQQQ:  43.99
QQQRR: 1.21 bid
QQQRT:  2.26 bid
RYVNX:   16.80
RYAIX:  21.44
RYCWX:  36.21
TLT:  88.75
BEGBX:  13.89