Posts Tagged ‘JP Morgan’

Existing-House Sales Spike in April

Tuesday, May 29th, 2012

If you want to sell a product, price it correctly. That theory at long last appears to be working in the U.S. housing market.  The National Association of Realtors (NAR) reported that sales of existing homes rose 3.4 percent in April when compared with March.  One reason is that asking prices were remarkably affordable.  The interest rate on a 30-year fixed-rate mortgage was 3.79 percent, the lowest since record-keeping began in 1971, according to Freddie Mac.  The Realtors’ index of affordability hit a record high in the 1st quarter and factors in sales prices of existing homes, mortgage rates, and household income, which is gradually strengthening as the labor market improves.

The average sales price was 10.1 percent higher when compared with one year ago.  That has the potential to lure buyers who decide they can’t wait for even cheaper prices.  “Today’s data provide further evidence that the housing sector is turning the corner,” said economist Joseph Lavorgna of Deutsche Bank Securities.  The numbers could see more improvement in coming months.  Action Economics Chief Economist Michael Englund said that “The existing home sales data generally continue to underperform the recovery in the new home market and other indicators of real estate market activity.”  But, he added, “the trend is upward.”

Owner-occupied houses and condominiums dominated the market, a change from all-cash deals by investors snapping up distressed properties.  Employment gains and record-low mortgage rates may make houses affordable Americans, eliminating a source of weakness for the world’s largest economy just as risks from the European debt crisis rise.  “We are making incremental progress,” said Millan Mulraine, a senior U.S. strategist at TD Securities, Inc., who correctly forecast the sales pace.  “People are becoming more confident about job prospects and about taking on mortgages.  This is all positive for the economy.”

Even with this uptick, sales are well below the nearly six million per year that economists equate with healthy markets.  The mild winter encouraged some people to buy homes, which drove up sales in January and February, while making March weaker.

First-time buyers, a key segment critical to residential recovery, rose in April and accounted for 35 percent of sales, up from 32 percent in March.  “First-time homebuyers are slowly making their way back,” said Jennifer Lee, an economist at BMO Capital Markets.  “That is still below the 40-to-45 percent range during healthy times, but the highest in almost half a year.”  Homes at risk of foreclosure accounted for 28 percent of sales.  That’s approximately the same as was seen in March sales statistics, but down from 37 percent of sales in April 2011.

Wall Street analysts expressed caution about seeing the increase as a sign that home values are about to make a big comeback.  NAR’s price calculations may have been skewed by larger homes coming onto the market, analysts said.  According to NAR economist Lawrence Yun, seasonal factors might have played a role in the price increase because families tend to buy in the spring, which means bigger homes comprise a larger share of total sales.  “It does echo the message sent by most other related measures that have shown house prices stabilizing or firming,” said Daniel Silver, an economist at JPMorgan.  Home prices, according to the S&P/Case Shiller composite index, have fallen by approximately one-third since the middle of 2006.  “Although the data seem to imply that there is a relative good balance between buyers and sellers, it is unlikely that home prices can recover on a sustained basis until the number of distressed properties is more significantly reduced,” said Steven Wood, chief economist at Insight Economics.

The housing inventory climbed 9.5 percent to 2.54 million, representing a 6 ½-month supply.  CoreLogic estimates that the shadow inventory — homes that aren’t on multiple listing services that are either seriously delinquent, in foreclosure or real-estate-owned — totaled 1.6 million units as of January.

CNBC’s Diana Olick is unimpressed with the price spike.  “The median price of an existing home that sold in April of this year was $177,400, an increase of just over 10 percent from a year ago.  That is the biggest price jump since January of 2006.  The difference between now and then, though, is the 2006 price jump was real, this latest spike is not.  As we reported here on the Realty Check last month, a lack of distressed supply, that is foreclosures and short sales, is pushing overall home sales lower.  That’s because the majority of the sales action for the past few years has been on the low end of the market.  Now, as banks try to modify more delinquent loans to comply with the recent $25 billion mortgage servicing settlement, and as investors rush in to buy distressed properties and take advantage of the hot rental market, the distressed market is drying up.  The share of home sales in the $0 — 250,000 price range made up over 73 percent of all sales in February; that has already dropped to 67 percent in April.  If you look at sales by price category, you see the most startling evidence of this shift in what’s selling on the low end out west.  Sales of homes $0 — 100,000 dropped over 26 percent out west in April, but rose 21 percent in the $250 — 500,000 price range.”

Potential Facebook IPO Could Value Company at $100 Billion

Monday, June 27th, 2011

Facebook is likely to file for an initial public offering (IPO) as early as October or November that could value the popular social networking site at more than a whopping $100 billion.   Goldman Sachs is the top candidate to manage the lucrative offering, which could come in the 1st quarter of 2012.  Facebook, whose chief operating officer last month called an IPO “inevitable,” made no comment on the report.

The company’s IPO likely would probably be prompted by a section of the 1934 Securities and Exchange Act known as “the 500 rule” At heart, the rule mandates that once a private company has more than 500 investors, it must release quarterly financial information to the Securities and Exchange Commission, just as public companies do.  Facebook, which is likely to cross the 500-investor threshold this year, would probably launch a formal IPO in advance of a public-company reporting obligation that would be required next April.  Another factor motivating the IPO, according to people familiar with the plans, is Facebook’s wish to increase employee compensation.  Early in 2010, Facebook curbed employees’ ability to sell their company shares privately to other investors — a move that may now be prompting employees to quit Facebook so they can monetize their shares.  If the company goes public, however, employees will be able to sell their stock on the open market, allowing them to cash in on their holdings.

“Unable to sell their private shares, Facebook employees are growing restless,” according to Kate Kelly at CNBC.   “An initial public offering is expected.  A factor in the company’s IPO timing is the Securities and Exchange Commission’s requirement that some companies like Facebook must disclose financial information if they have more than 500 private investors.”  The IPO speculation and record high valuation is comes on the heels of recent numbers showing declining user-ship in some of Facebook’s leading markets.

Writing in the Wall Street Journal, Shira Ovide says that “Facebook is on track to exceed $2 billion in earnings before interest, taxes, depreciation and amortization for 2011.  That’s even higher than the expected 2011 profit circulated in the early part of the year when Goldman Sachs and Russian investment house Digital Sky Technologies invested in Facebook at a $50 billion valuation.  If Facebook ends the year with $2 billion in Ebitda, would IPO investors stomach a 50 times trailing multiple valuation?  Seems bubble-like.  Trust us.  Wall Street bankers, lawyers, P.R. mavens, caterers and everyone else are slobbering for a slice of the Facebook IPO magic.  Facebook has been meeting with potential bankers that want to shepherd the IPO.  Goldman Sachs is thought to have an inside track to lead the IPO thanks to its recent investment in Facebook, but don’t count out big banks such as J.P. Morgan and Morgan Stanley, which have led recent big tech IPOs.  Facebook CEO Mark Zuckerberg has been non-committal about an IPO for a long time.  As recently as December, Zuckerberg gave his weird deer-in-headlights stare when ’60 Minutes’ asked him whether he would ever push his baby into the public markets.  ‘Maybe’ was Zuckerberg’s answer.  But momentum is taking over.”

Not so fast, says Fortune magazine’s Dan Primack. According to Primack, “Pay attention to news that Facebook is planning its IPO.  But take its proposed valuation with a grain of salt.  First, the most recent private trades of Facebook stock came in at around $85 billion, and private trades are meant to be done at a discount to public valuations.  LinkedIn shares, for example, traded at $23 per share on the private markets six months before going public at $45 per share.  At that velocity, Facebook actually would be valued at $165 billion next January.  More importantly, it’s impossible to intelligently speculate on an Internet company valuation 6-10 months out.  Will the bubble still be inflating?  Will it have popped?  Will macro trends have continued their anemic recovery, or double-dipped back down?  Facebook is probably immune to the timing issues related to IPO windows, but it does not stand apart from the economy at large.  If we experience a massive advertising pullback, for example, then Facebook could take a hit in its largest revenue pot (or at least a growth slowdown).  Not saying that will happen, but obviously it could.  To me, the only value in today’s ‘$100 billion’ report is in referring back to it when the company has an actual public valuation.”

One Year After Financial Meltdown, Obama Counsels Caution

Monday, September 21st, 2009

On the first anniversary of the collapse of Lehman Brothers and the onset of the global financial crisis,  President Barack Obama used a Wall Street speech to call for stringent new regulation of United States markets.  After Lehman’s collapse, the American government infused billions of dollars into the financial system and took major stakes in Wall Street’s most famous names.  Although this action stabilized the system, it could not forestall a shrinking economy or the highest unemployment rate in 26 years.lehmanbros

“We can be confident that the storms of the past two years are beginning to break,” he said.  As the economy begins a “return to normalcy,” Obama said, “normalcy cannot lead to complacency.”

Lobbyists, lawmakers and even regulators so far have opposed proposals to more closely monitor the financial system. The five biggest banks – Goldman Sachs, JP Morgan, Wells Fargo, Citigroup and Bank of America – posted second-quarter 2009 profits totaling $13 billion.  That is more than twice their profits in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the same timeframe two years ago – a time when the economy was considered strong.

Connecticut Senator Christopher Dodd, chairman of the Senate Banking Committee, is the point man for formulating new rules.  President Obama wants stricter capital requirements for banks to prevent them from purchasing exotic financial products without keeping adequate cash on hand.  It was precisely this type of behavior that caused last year’s financial crisis.

Geithner: The Patient is Out of Intensive Care

Friday, May 15th, 2009

It’s been a long, strange ride, but the nation’s financial system is finally starting what is certain to be an extended healing process. Treasury Secretary Timothy Geithner believes that “the financial system is starting to heal” as he promised to move returned bail-out funds to community banks that need help.bandaid-on-broken-and-cracked-piggy-bank

Improved lending circumstances are tempering concerns about systemic risk and reduced leverage at banks, according to Geithner, who noted that “a substantial part of the adjustment process” for the financial sector is now coming to an end.

Several of the larger banks – Goldman Sachs, JP Morgan and Capital One Financial – want to repay the funds they received under the Troubled Asset Relief Program.  The Treasury will increase the money community banks can access to five percent of risk-weighted assets from three percent.  The government has already invested in preferred stock in 300 smaller banks.

“As in any financial crisis, the damage has been unfair and indiscriminate,” Geithner said.  “Ordinary Americans, small business owners and community banks who did the right thing and played by the rules are suffering from the actions of those who took on too much risk.”

Why the optimism?  Geithner points to declines in corporate bond spreads, lower risk premiums in inter-bank markets and cheaper default insurance on big banks as evidence that the financial system is healing.  “These are welcome signs, but the process of financial recovery and repair is going to take time,” he cautions.