A Ford In The House ?

1939 Ford pick-up truck

1939 Ford pick-up truck (Photo credit: Wikipedia)

Ford Motor (F : NYSE : US$13.99)
SPDR Homebuilders ETF (XHB : NYSE : US$27.66)

The Globe & Mail published an article over the weekend highlighting Ford shares as a way to play the housing recovery. The article noted that the auto maker has ties to the housing market due to its heavy reliance on pick ups, and that a recovery in the U.S. be driving demand for trucks higher.

Truck sales increased to 645,300 in 2012, the third consecutive year of gains. Even with the steady gains, sales of pickup trucks still sit at 1994 levels and are well below levels seen during the U.S. housing boom, which could leave the door open for further growth. The Globe noted that while homebuilders still have a long way to go before hitting 2005 highs, Ford ay be able to have a stronger run for the following reasons:

1) Ford doesn’t have its history tainted by a bubble;

2) Ford’s P/E ratio is less than 11 versus an average of 36 for homebuilders; and

3) Ford recently doubled its dividend while homebuilders typically distribute little to nothing.

Commoditiy ETFs For A Housing Recovery

English: ETN Timberjack 225 D skidder, graded ...

English: ETN Timberjack 225 D skidder, graded black cherry logs, Catskills (Catskill Mountains), USA. (Photo credit: Wikipedia)

Homebuilders and other housing industry stocks have been strong performers in 2012 as low interest rates offset higher underwriting standards for home loans. The SPDR S&P Homebuilders ETF (XHB) rose more than 54% since the beginning of this year, while the iShares Dow Jones U.S. Home Construction ETF (ITB) is up more than 74% over the same period

While equities may offer exposure to homebuilding companies, commodities represent another great way to play the boom in the homebuilding industry. Timber,copper, cement and other commodities are widely used in the construction and therefore could benefit from the higher demand due to new home construction in the United States.

Timber: Money Does Grow on Trees

A typical 2,400 square foot, single-family home requires approximately 16,000 board feet of framing lumber and over 14,000 square feet of other wood products including plywood, particleboard and fiberboard, according to the Idaho Forest Products Commission. As a result, timber is one of the most essential commodities used in the homebuilding industry.Here are some ways for investors to build exposure:

  • iShares S&P Global Timber & Forestry Index Fund (WOOD): With a net asset value of $196 million and a 0.48% expense ratio, this ETF is one of the most popular options for investors looking for exposure to timber. The index’s 27 holdings consist of 53% paper and forestry companies and 28% real estate companies.
  • Claymore Beacon Global Timber Index ETF (CUT): With a net asset value of $170 million and a 0.65% ER, this ETF is another popular option for timber investors. The index holds 28 different companies that are 37.5% weighted in the United States and 72.6% weighted in materials [see also Timber Set to Soar Says Jeremy Grantham].
  • Plum Creek Timber Co. Inc. (PCL): With a market capitalization of $6.8 billion, PCL is the largest publicly traded timber company in the U.S., holding approximately 6.6 million acres of timberlands across 19 different states. In 2011, the company generated revenues of approximately $1.167 billion.

Copper: Electrifying the Housing Market

The average single-family home uses an average of 439 pounds of copper, including 295 pounds of building wire and 151 pounds of plumbing tube, fittings and valves, according to the Copper Development Association. While the copper industry extends well beyond residential homes, the commodity could still see significant upside from a boom in homebuilding. Here are some ways for investors to build exposure:

  • iPath Dow Jones AIG Copper Total Return ETF (JJC): With a market capitalization of $115 million and a 0.75% yearly fee, this ETN is the most popular way to play the copper market. The index consists of one futures contract on copper – the Copper High Grade futures contract traded on the COMEX.
  • iPath Pure Beta Copper ETN (CUPM): With a market capitalization of $2.7 million and a 0.75% yearly fee, this ETN is a distant second to JJC in popularity, but uses a number of different expiration dates instead of a single futures contract with a single expiration date, like many commodity ETFs [see also Physical Copper ETFs? Not So Fast].
  • Freeport McMoRan Copper & Gold Inc. (FCX): With a market capitalization of $37 billion, FCX is one of the largest publicly traded copper miners in the world, offering significant exposure to the commodity. As of 2011, the company had proven and probable reserves totaling about 119.7 billion pounds of copper.

Notably, J.P. Morgan has been attempting to launch the first physically backed copper ETF, but it is facing opposition from regulators concerned about the impact on the physical markets.

Concrete: The Unconventional Commodity

Concrete may not be a traded commodity on its own yet, but investors can build exposure to the universal building material in many ways. According to the National Association of Homebuilders, the average house built in 1998 used some 14 tons of concrete, or approximately 7.5 yards, to create foundations and slab floors for basements. Here are some ways for investors to build exposure:

  • Cemex SAB de CV (CX): With a $10 billion market capitalization, CX is the largest cement producer in the world, selling products into more than 50 countries. The company only realized about 17% of its revenues from the U.S., but remains one of the largest suppliers to the market given its $15.14 billion in annual sales.
  • US Concrete Inc. (USCR): With a $108 million market capitalization, USCR provides ready-mixed concrete, precast concrete products and concrete-related products in select U.S.-only markets. As of March 2012, the firm had the capacity to produce 4 million cubic yards of ready-mix concrete and 3 million tons of aggregates [see also How To Lose Money Investing In Commodities].
  • Eagle Materials Inc. (EXP): With a market capitalization of $2.5 billion, EXP is another U.S. provider of cement, concrete and aggregates. The company also manufactures and distributes gypsum wallboard which is used in construction, providing added exposure to the homebuilding industry.

Building Commodities into Your Portfolio

The homebuilding industry may have seen a sharp increase over the past year, but many analysts believe that there could be significantly more upside potential. Investors should keep an eye on leading indicators for the industry, like railcar volumes and new building permits, to determine whether or not these trends will continue through next year.

Many of the commodities mentioned in this article have also seen significant appreciation alongside the boom in U.S. housing. Investors may also want to consider the fact that some commodities, like timber, have seen some of the most consistent long-term returns when compared to anything from the S&P 500 to T-Bills to the Consumer Price Index.

Finally, investors should consider several factors when building these commodities into any diversified portfolio. For instance, commodity exposure should be balanced with other asset classes to diversify risk, while the beta co-efficient and risks associated with each of the commodities should also be considered relative to the overall portfolio’s acceptable level of risk.

Toll Brothers Housing Forecasts

English: A brand new Toll Brothers townhouse i...

English: A brand new Toll Brothers townhouse in Furlong, PA (Photo credit: Wikipedia)

Toll Brothers

(TOL : NYSE : US$31.86)
Selling homes on the road to recovery?

Toll Brothers, America’s largest luxury homebuilder, reported a higher quarterly profit and said new orders rose sharply, indicating that the U.S. housing market is well on its way to recovery.

Net income rose to $411.4 million, or $2.35 per share, in the fourth quarter from $15.0 million, or $0.09 per share, a year earlier. The fourth-quarter profit included a net tax benefit of $350.7 million while revenue rose 48% to $632.8 million.

Toll’s net signed contracts jumped 70% to 1,098 units in the fourth quarter ended October and the company’s backlog climbed 54%. The company’s cancellation
rate – the number of cancellations divided by the number of signed contracts – fell to 4.6% in the August-October quarter from 7.9% a year earlier. “With this backlog, and the lowest cancellation rate in our industry, we believe we will deliver between 3,600 and 4,400 homes in 2013 at an average price between $595,000 and $630,000 per home,” Chief Financial Officer Martin Connor said in a statement, implying a 34% increase in deliveries.

U.S. Housing In Recovery : Wall Street Journal

English: Lennar Corporation's headquarters in ...

English: Lennar Corporation’s headquarters in Fountainbleau. (Photo credit: Wikipedia)

Oct. 30

Some investors are sticking to their bullish bets on home builders, despite a number of warnings from Wall Street analysts that the massive rally in the stocks is overdone.

The optimists say they believe the recovery of the U.S. housing market still is in its initial phase, leaving plenty of room for the stocks to keep rising.

Getty Images

New home sales jumped 5.7% in September. Above, workers build a Toll Brothers Inc. home in Boca Raton, Fla.

The gains so far have been startling.PulteGroup Inc., PHM +1.59% the largest U.S. home builder by revenue, is up 214% in the past 12 months, when new-home sales began rising consistently. It also is the best performer in the Standard & Poor’s 500-stock index over the past year. Lennar Corp.,LEN -1.31% the third-largest U.S. home builder by revenue, is up 117% in 12 months. In the same period, the S&P 500 is up 10%.

“Home sales tend to move higher over a five-year cycle, and this is year one,” says 

Kirk Mentzer, director of investment research with Huntington Asset Advisors, a $14 billion fund in Columbus, Ohio. “There’s still a ways to go, even if the rise from here is just half of the current rally.” The firm bought D.R. Horton Inc., DHI -1.66% a home builder in Fort Worth, Texas, at the end of 2011, and is hanging on even after a 71% run-up this year.

Data in recent months have indicated the pace of recovery has accelerated. New-home sales jumped 5.7% in September to their highest level in over two years. The Commerce Department said recently that housing starts had risen to 872,000, the highest seasonally adjusted annual rate in four years.

Investors are more optimistic about the housing sector than they are about the broader economy, in part because of the recent action by the Federal Reserve to further bolster the market by purchasing mortgage-backed securities. Both analysts and investors expect the housing market to continue to improve, though they note that if the recovery comes to a halt, shares of companies sensitive to the housing market—including those of builders—are likely to sell off.

Investors have poured $653.7 million into the iShares Dow Jones U.S. Home Construction Index Fund so far in 2012, putting it in the top 5% of exchange-traded funds in terms of inflows, according to Morningstar.

And home builders have shown resilience during the recent swoon in the broader market. The Dow Jones U.S. Home Construction Index has lost 0.5% over the past two weeks, compared with a 3.3% drop for the S&P 500.

Mr. Mentzer and other bullish investors point to history to bolster their position. During the housing upturn from 2001 through the end of 2005, shares of custom builder KB Home KBH -2.12% surged 357%. Since September 2011, they are up a relatively modest 145%. And because the housing-market slump of recent years was the most severe on record, there is more room for home-builder shares to rise this time around, investors say.

Sorin Roibu, a housing analyst for money manager Turner Investment Partners, which oversees nearly $12 billion, believes with the labor market in the U.S. still slack, home builders will have an easier time managing costs in the current upswing. He expects bigger margins as a result.

He also says investors shouldn’t underestimate the power of market sentiment, especially at a time when technology and other sectors are facing headwinds. “If you look at home-building stocks, they’re the best direct play on the U.S. housing recovery, and everybody wants to play it,” Mr. Roibu says.

The magnitude of the stock gains has elicited heavy skepticism on Wall Street, where analysts typically are seen as cheerleaders for stocks.

Megan McGrath, executive director and home-building analyst at brokerage MKM Partners, this month downgraded Ryland GroupRYL -0.88% a major builder on the West Coast, to sell, and cut her ratings on D.R. Horton and Lennar to neutral.

“You can still be bullish on housing but not necessarily the home-builder stocks,” Ms. McGrath says. “We’re still in the early stages of recovery, but these stocks are up around 150% in a year, so we thought, look, if you’ve made the trade and you’ve made some money, maybe it’s time to take some profits.”

Susquehanna Financial Group analyst Jack Micenko believes shares have become too expensive. Mr. Micenko says that for shares to warrant their current valuations, the U.S. will need to build an average of 2.6 million new single-family homes a year from 2013 through 2016. During the peak of new-home construction in 2006, the U.S. built 1.6 million new single-family homes. He has a negative outlook on the group.

But today’s annual rate of 872,000 homes is still well short of the norm over the past half century. On average, builders have started construction on about 1.5 million new homes a year since 1959.

Mark Luschini, chief investment strategist with Janney Montgomery Scott LLC, argues that the current level of new-home sales is so low that there still is nowhere for home builders to go but up. “At the end of the day, homes are being sold at an appallingly low rate.…That still bodes well for home builders,” he said. The firm, which oversees $55 billion in its Parker/Hunter Asset Management arm, is keeping its position in the Dow Jones U.S. Home Construction Index steady.

U.S. Housing -: No Recovery ? – A Subsidized Bounce

Wipe our Debt

Wipe our Debt (Photo credit: Images_of_Money)

October 21

Instead of actual responsible behavior of paying down debt, the primary if not only reason there has been any “deleveraging” at all at the US household level, is because of excess debt which became insurmountable, not because it was being paid down, the result of which is that more and more Americans are simply handing their keys in to the bank and walking away, and also explains why the US banking system is now practicing Foreclosure Stuffing, as defined first here, as the banks know too well, if all the housing inventory which is currently in the default pipeline were unleashed, it would rip off any floor below the US housing “recovery” which is not a recovery at all, but merely a subsidized bounce, as millions of units are held on the banks’ books in hopes that what limited inventory there is gets bid up so high the second housing bubble can be inflated before the first one has even fully burst.

hyperinflation

The Automatic Earth

Naturally, two concurrent housing bubbles can not happen, Bernanke‘s fondest wishes to the contrary notwithstanding, especially since as shown above, US households do not delever unless they actually file for bankruptcy, and in the process destroy their credit rating for years, making them ineligible for future debt for at least five years.

It is thus safe to say that all the other increasingly poorer US households [..] are merely adding on more and more debt in hopes of going out in a bankrupt blaze of glory just like everyone else: from their neighbors, to all “developed world” governments. And why not: after all this behavior is being endorsed by the Fed with both hands and feet.

The following graph from TD Securities ( through Sam Ro at BI ) makes a good case for the “subsidized bounce” definition Durden applies to the present US housing market. It’s no secret there’s a huge shadow inventory overhanging US housing, and now it comes out that those great new home numbers are not what everybody would like to think they are.

hyperinflation

The Automatic Earth

Many more houses are built than sold. And get shoved on top of the pile that’s already there, both the shadow inventory and the out of the closet one. Which begs the question: how long does a home stay in the “new” category? Does it take 1 year of staying empty for it to move to “existing”? 2 years, 3 years? 5? For one thing, builders and developers certainly have a huge incentive to continue to advertise it as new.

A graph from the same source:

hyperinflation

The Automatic Earth

How this constitutes a recovery I just can’t fathom. I think that is just something people would like so much to see that they actually see it. Moreover, there remains the issue that it’s very hard for most to comprehend what debt deflation is, what its dynamics are, and what consequences it has.

KB Homes : California Dreamin’

 

Brancifort Creek development

Brancifort Creek development (Photo credit: Richard Masoner / Cyclelicious)

KB Home (KBH : NYSE : US$15.31)

Sept. 24

 

Shares of KB Home got a lift after the homebuilder posted a surprise Q3 profit and said that its backlog rose to a four-year high on the back of better pricing and demand in the housing market.

Earnings came in at $0.04 per share on  revenue of $424.5 million while analysts were expecting a loss of $0.16 on revenue of $430.0 million. In addition to the positive earnings, the company said its revenue backlog as of August 31 had increased 33% year-over-year to $744.7 million.

CEO Jeffrey Mezger commented, “It is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise.” He went on to say that KB is seeing “dramatic improvement” in California, its largest market, where foreclosures had acted as a headwind in recent quarters. Net orders rose 3% to 1,900 homes while average selling prices increased 8% to $245,100, marking the ninth consecutive quarter of year-over-year price increases.

Prior to the release of the results, KB had the fourth-largest short position of S&P 1500 stocks with 44.41% of its float shorted as of August 31.

 

 

Barron’s Housing Predictions – Too Many and Too Early


Barron’s: Home Prices Heading Up 7%

Posted: 09 Sep 2012 09:00 AM PDT

 

The Barron’s cover story this week is about how Home prices are heading higher. It is their third Housing Bottom story since 2008.

We’ve covered each of these in great detail over the years, but what the hell, once more won’t hurt:

• The explosion in home construction this cycle has totally and utterly exceeded all previous home construction booms. Its so much larger than any expansion over the past 40 years as to make the prior 1M drop meaningless (see chart at top);

• Housing completions passed the minus 1MM figure a year ago — you could have called a housing bottom in August 2007 by the same logic . . .

• An unprecedented 10% of homes built after 2000 stand vacant, according to Stansberry & Asssociates Investment Research;

• In just about every area of the country, the ratio of sale prices to per-capita income remains significantly elevated over its historical averages. And, that assumes there won’t be a significant economic downturn. As of July 12 2008, a significant recession is looking increasingly likely;

• Sales have ticked up several times, only to be revised lower in subsequent months. And, the selling season improves each month, from January (the slowest month) to August. Seasonal adjustments sometimes seem to not fully reflect this.

• Median Sale Prices are rising not because home prices are going up, but because less of the inexpensive homes are selling (i.e., smaller starter houses) . The mix of homes — not price increases — are skewing the numbers;

• By nearly every traditional metrics, Home prices remain extremely elevated; Median Price to Median Income or Homes vs. Rentals. All of these imply further price adjustment towards the historical norms;

 

Barry Ritholtz repeats – Barron’s Is Wrong ( AGAIN).

Join The Canadians Buying U.S. Housing

Sept. 5, 2012Join The Canadians Buying U.S. Housing 

At the depths of the New York commercial real estate market the Reichmans bought a group of office towers .  The New York Times described that purchase as occurring at 11:45 before the day the market turned up.Warren Buffett was recently quotes as saying that if he had the capacity he’d buy up 1000’s of homes to take advantage of the market.

Today many predict that there is about to be the long  sought/ predicted turn in housing in the U.S.  In Canada there are weekend seminars on buying  U.S. properties but individual investors have few choices outside of home builders. .  Self anointed gurus are promoting  ( mainly ) Arizona and California single family homes  and multi-unit investments.  An individual is limited if their option is one home .For an investor there is a publicly traded Canadian company buying properties on a national basis and in amounts that offer both diversity and leverage.

Tricon Capital ( TCN on Toronto – website www.triconcpital.com)  describes itself as a leading residential real estate investment company with over $1 billion in assets. It offers a size and diversity which is large by Canadian standards but a small cap by U.S. measurement. In addition to Canadian assets it has raised capital for projects in California , Texas, Arizona , Georgia and Florida. A caution is that – in addition to predicting a turn in the market – these U. S. investments are only at a starting point . The Company through partnerships has purchased more than 400 homes with the intention of renovating  and renting properties – awaiting a turn in valuations . Some properties will be listed for sale after renovation. In July it raised $51 Million in convertible debentures to fund the acquisitions. That money will go into several projects as the company contribution and as with most real estate ventures the funds are leveraged by way of mortgage financing .The results of the first series of purchases – the company states – will not benefit its financials until the last quarter of 2012 because it will take two to three months to upgrade the newly acquired homes.

The Company raises funds through partnerships and then earns a fee as a manager and a further fee based on performance – in addition to the return it sees as an investor. One recent example is a partnership to purchase 242 homes in Florida. This is the fourth such partnership  in 2012 in the U.S. The company’s U.S. distressed single-family strategy appears to be progressing well. In its Q2/12 results (reported August 13), Tricon had advanced $32 million towards the purchase of 185 distressed single-family homes with its three operating partners. Currently, the total number of homes has grown to 420, of which approximately 50 homes will be renovated for immediate sale and the remainder will be held as rental units. This business appears to be the key growth driver for Tricon, and management expects to have $90-100 million invested in this strategy by the end of 2012.

 

The Company reported a profit of $2.159,000  (  $.08 )for the quarter ending June 30,2012 compared to a loss of $ 509,00 ( $.03) the prior year. Assets under management were $ 1.2 billion – up $200 Million ( all figures are reported in Canadian dollars).

There is a further caution. In addition to these U.S. housing projects being at a start-up stage the shares trade at a very modest daily number ( 25,000 plus).  Therefore use market orders and stage your investment  if you are going to make a purchase in Tricon ( $5.32 on August 31) .

 

Insider Buying : CEO David Berman purchased 100,000 Tricon shares in the public market at an average cost of $5.50. Berman now holds 3,930,355 shares representing 12.6% of Tricon. In addition to his stock holdings, Berman also holds $1 million worth of Tricon’s recently issued 6.375% Convertible debentures due 08/31/2017 

I own shares in Tricon but will not be making any additional purchases in the next 72 hours .

 

 

 

Toll Brothers – Housing Recovery ?

English: A brand new Toll Brothers townhouse i...

English: A brand new Toll Brothers townhouse in Furlong, PA (Photo credit: Wikipedia)

August 23

 

Toll Brothers, the largest luxury home builder in the U.S., reported its highest revenue since 2008, helping send shares to a five year high.

The company posted a 41% increase in revenue to $554.3 million while earnings rose to $61.6 million, or $0.36 per share, from $42.1 million, or $0.25 per share a year earlier.

CEO Douglas Yearly said, “We are enjoying the most sustained demand we have experienced in over five years. The housing recovery is being driven by pent-up demand, very low interest rates and attractively priced homes.” Net signed contracts rose 57% to 1,119 units during the quarter while the company’s backlog jumped 59% to $1.62 billion.

For the full year, the company forecast home-sale revue of $1.71 billion to $1.84 billion. It also raised the lower end of its full-year home delivery outlook range by 300 units to 3,000. It expects to deliver up to 3,200 units.

We are In A Global Recession: Only Time Can Heal the Economy, Says Gary Shilling

English: Representatives to the Conference on ...

English: Representatives to the Conference on Unemployment The meeting was called by U.S. President Warren G. Harding in response to the 1921 recession. (Photo credit: Wikipedia)

More than two years before the housing bubble burst in 2006, economist Gary Shilling warned that subprime loans were probably “the greatest financial problem” for the future U.S. economy. In 2007 he said “housing would sink the economy,” and a year after that he warned of a “serious recession” that would consume most of 2008. He was right every single time.

Now Shilling says a new recession has begun in the U.S. — in the second quarter — following on the heels of the recession in Europe. He says the current recession is different from previous ones because it wasn’t caused by rising rates or another housing downturn but rather a drop in consumer spending due to a weak job market.

“We’ve had three consecutive months of declines in retail sales,” says Shilling, president of A. Shilling & Co., an economic research and forecasting firm. “That’s happened 29 times since they started collecting the data in 1947, and in 27 of the 29 we were either in a recession or within three months of it.”

Shilling expects this recession will last about a year and shave about 3.5% from growth from peak to trough.

This time is different, says Shilling “because a lot of things that normally go down in a recession are already there, like housing.” And policies that normally help revive the economy are absent. The Fed can’t cut interest rates because they’re already near zero and the housing market won’t be a catalyst for growth, Shilling says.

One thing that hasn’t changed, says Shilling, is the economy as the number one issue in the presidential election. Before the last presidential election Shilling said that whoever got elected then wouldn’t get re-elected because the economy would still be weak with high unemployment.

Now Shilling says he’d like to see one party in control in Washington because it increases the odds of cuts for entitlements and could help “restore confidence in Washington.” But even then he says it will take five to seven years to complete the deleveraging that’s already underway before the economy recovers.

Flood of Foreclosures Could Cause Home Prices to Drop 20%

There is a consensus forming that the U.S. housing market may finally be on the rebound. Home prices are up 4-straight months, according to the latest S&P Case-Shiller index and Zillow’s U.S. home value index increased for the first time since 2007 in the second quarter.

But Gary Shilling of A. Gary Shilling is not convinced home prices have turned to the upside for good.

“The fundamental reason is there is a huge excess of inventory out there,” he tells The Daily Ticker’s Henry Blodget. “Some of it is listed but a lot of it is a so-called shadow inventory.”

Shadow inventory refers to homes in foreclosure and waiting to be sold or properties that homeowners have delayed selling, likely to get a better price.

In his latest Insights investment note, Shilling writes “excess housing inventories, the mortal enemy of prices, measure about 2 million over and above normal working levels. Thats huge considering that housing completions averaged about 1.5 million in earlier balmy years.”

He also cites the backlog of delinquencies and foreclosures that were put on hold during the robo-signing investigation and settlement process.

A CoreLogic report in June showed shadow inventory fell almost 15 percent from 2011 levels to 1.5 million properties. More than half of those 2.8 million homes were “seriously delinquent, in foreclosure or REO.”

“Since peaking at 2.1 million units in January 2010, the shadow inventory has fallen by 28 percent. The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices,” said CoreLogic chief economist Mark Fleming. “This is one of the reasons why some markets that were formerly identified as deeply distressed, like Arizona, California and Nevada, are now experiencing price increases.”

As Shilling sees it, the banks have three options to get the bad mortgages off their books:

  1. Flood them onto the market
  2. Institute a mortgage modification plan
  3. Try to convert the properties into rentals

He says the second and third options are a lot less likely because mortgage modifications rarely work and rental properties are very difficult to maintain on a large scale, which may detract institutional inventors.

As a result, he believes the more likely scenario could very well end up being option number one, which would have a negative impact on home prices. The latest National Association of Realtors survey shows foreclosed properties tend to sell at a 19 percent discount to the market.

Too many foreclosures flooding the market at the same time could drive down prices of the surrounding homes.

“It would take a 22% house price drop to return to the long-run trend going back to 1890,” he writes in his research note. “Since corrections of bubbles often overshoot on the downside, our forecast of a further 20% decline may be conservative.”

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