Mike’s Real Estate Show

The following is from a survey I participated which was conducted by Bank of American (BofA). The contact is stated below. The report is interesting in that we now have a game of brinkmanship between Sellers not wanting to drop their house prices and Buyers waiting for that event to happen! So everyone seems to be staring at each other waiting for the proverbial “Blink”!  

Daniel Oppenheim, CFA
212.847.5733
doppenheim@bofasecurities.com

BofA Monthly Real Estate Agent Survey
Traffic Sharply Below Expectations in May; Increased Pricing Pressure Likely
Agents
Portfolio Managers’ Summary
􀁘 Our 12-month thesis on the sector. We are Neutral on homebuilding stocks. We
expect the stocks to trade in a range over the next 3-6 months. On the positive side,
we see increased discipline on new construction activity, modest improvement in
affordability and increasing traffic. On the negative side, we see risk from
continued pricing declines (necessary to remedy the excess inventory), which
should negatively impact earnings expectations along with the potential for
inventory levels to worsen further.
􀁘 Our call today in a nutshell. Traffic worsened further in May as agents indicated
a lower than expected level of buyers and also noted that buyers have become very
hesitant given the excess inventory of homes for sale. Buyers recognize that sellers
are becoming more motivated to sell as the season progresses and are waiting for
better pricing. Our traffic index measured 26.3, 4.8 points below 31.1 in March and
near the ’06 low. Our price index fell slightly to 31.3 in May, from 33.7 in April
(readings below 50 indicate falling prices) as agents noted the negative impact of
the high inventory levels. Our time to sell index, which is a good leading indicator
of pricing also worsened to 18.7 from 22.0 in April (any readings below 50
indicate a lengthening time to sell). We think we need to see continued reductions
in building activity given the weak demand. We continue to expect inventory
levels to peak later this Summer and prices to bottom in mid-’08 based on the
lower construction levels.
􀁘 Risks to our call. Higher long-term interest rates would lead to further troubles.
On the other hand, a significant decline in mortgage rates would aid affordability
and stimulate demand.