October was yet another bad month for real estate stocks. Only two of the 10 companies that comprise the hypothetical Inman Index escaped negative returns for the period, and none of the companies is in positive territory for the first 10 months of this year.
Shares of Toll Brothers posted a healthy jump of 13 percent in October while shares of HouseValues eked out an insignificant gain of one cent for the one-month period. Yet both companies have suffered share-price losses of approximately 29 percent so far this year.
Of the other eight companies, mortgage lenders IndyMac and Countrywide and title insurer First American Financial were hit the hardest for the month. Shares of IndyMac dropped a scary 42 percent in October and have lost 71 percent of their value in 2007. Shares of Countrywide fell 18 percent in October and have declined almost 64 percent for the 10-month period. And, shares of First American fell 17 percent in October and are down a comparatively modest 26 percent for the year so far. The other five companies in the Inman Index have lost at least 23 percent to as much as 55 percent of their stock-market value through Oct. 31, 2007.
There were few major company announcements in October, but real estate stocks as a group were subject to wide up and down swings in investor sentiment with respect to the outlook for housing in general and mortgage lending in particular and the expectation — or not — of another interest-rate cut courtesy of the Federal Reserve.
Toll Brothers along with other home builders captured some upward momentum early in the month as pundits and industry watchers parsed the related housing news and investors placed their bets on the direction of the volatile home-building sector. Toll has scheduled a fourth-quarter outlook conference call for Nov. 8.
Shares of IndyMac, Countrywide and their brethren were hit especially hard during the week of Oct. 22. On that Monday, analysts at Lehman Brothers downgraded the two lenders from “equal-weight” to “under-weight,” and two days later, Merrill Lynch & Co. said its mortgage debt portfolio had lost $7.9 billion of value in the third quarter, a figure that was significantly higher than the $4.5 billion the investment company had estimated only two weeks earlier. In the aftermath, IndyMac’s shares traded at a seven-year low of $11.46 and Countrywide’s shares reached a four-year low of $13.64.
A Delaware court ordered Countrywide to open its books in connection with a shareholder lawsuit in which the Louisiana Municipal Police Employees’ Retirement System has accused the company of certain shenanigans with respect to stock-option grants. Countrywide also has been the subject of a controversy over CEO Angelo Mozilo’s sale of the company’s stock through a supposedly automatic and impartial 10b5-1 plan.
At month-end, Countrywide reported a loss of $1.2 billion, or $2.85 per share, for the third quarter of 2007 compared with a profit of $647 million, or $1.03 per share, for the comparable period last year. The recent result was the company’s first quarterly loss in 25 years, according to an AP news report.
First American acquired a geospatial technologies company called Proxix Solutions, which will be merged into a new division based in Austin, Texas. The company’s third-quarter earnings conference call has been scheduled for Nov. 1.
The Inman Index has become something of a textbook example of the perils of undiversified investments. As a group, the 10 companies lost more than 13 percent of their value in October and have lost nearly 42 percent for the first 10 months of this year. Meanwhile, the Dow Jones Industrials Average, Standard & Poor’s 500 Index and NASDAQ Composite Indices gained 0.2 percent, 1.4 percent and 5.7 percent, respectively, in October and have risen 11.4 percent, 8.8 percent and 18 percent, again respectively, for the year so far.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright 2007 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without the author’s written permission.