There’s no soft way to say it: Investors who consistently favored real estate and mortgage-related stocks lost their shirts in 2007. As a group, the 10 companies that comprise the hypothetical Inman Index of such stocks lost more than half their value in the just-ended one-year period.
By comparison, investors who stuck with the Dow Jones Industrials, Standard & Poor’s 500 or NASDAQ Composite indices fared far better. Those three market measures gained a strong 6.1 percent, modest 3.1 percent and attractive 9.5 percent, respectively, last year.
The two hardest-hit groups among the Inman Index were mortgage lenders and home builders. Countrywide Financial and IndyMac Bancorp were caught in the subprime loan tsunami that swept through the sector in the second half of the year while builders were stung by weak housing markets that resulted in lower prices and higher inventories of unsold new-built homes.
Shares of IndyMac opened the year at $46.21 and ended the year at just $5.95, a whopping 87 percent decline, which was the largest among the 10 Inman Index companies. IndyMac CEO Mike Perry in December told shareholders the company expected to report a fourth-quarter loss, but might return to a modest profit by mid-2008. IndyMac also needed to raise capital, according to an SEC filing reported by AP. A contributor to MotleyFool.com, an investment Web site, named IndyMac to a short list of the “Worst Stocks in the World” on one Thursday in early December.
Countrywide’s shares performed almost as poorly: An opening price of $42.80 became a closing price of just $8.94, a one-year loss of 79 percent, the second-worst among the 10 Inman Index companies. The loss of market capitalization was so massive that one analyst called the company’s mere survival “something of a triumph,” according to a SmartMoney report.
Shares of Freddie Mac, which rounds out the Inman Index’s mortgage sector, suffered a decline of 52 percent for the year. In December, Credit Suisse joined the list of research firms that have downgraded the company’s shares. This time, the analyst’s position was switched from “neutral” to “under-perform.”
Sales of new-built homes fell to a 12-year low on an annualized basis in November, by one measure, a trend that explained in part why D.R. Horton and Toll Brothers, both new additions to the Inman Index this year, also closed in negative territory. Horton’s shares dropped just a hair under 50 percent from $26.29 to $13.17 while Toll’s declined from $31.95 to $20.06, a softer drop, relatively speaking, of 37 percent.
Horton reported a fiscal-year 2007 loss of $712 million, yet paid out year-end bonuses of $1.6 million to two top executives, Chairman Donald R. Horton and CEO Donald Tomnitz, according to an AP story. At least two major investors believed the bonuses, which were a fraction of the $12 million awarded in 2006 and 2005, were justified given the executives’ performance in such a difficult climate. Other investors may have shared that sentiment since the company’s shares rebounded more than 11 percent in December, after a zigzagging, yet downward, pattern since January 2007.
Toll Brothers reported a loss of nearly $82 million, or $0.52 per share, for the fourth quarter that ended Oct. 31, 2007, compared with a profit of almost $174 million, or $1.07 per share, in the prior-year fourth quarter. The recent results included a $315 million noncash pre-tax write-down of open-for-sale housing developments, land and options to purchase land. The loss was Toll’s first in its 21 years as a public company, but was not as severe as analysts had anticipated, according to a Reuters report.
Finally, a footnote for 2007 may be the fact that Move Inc., HouseValues and ZipRealty, which represent the technology-oriented segment of the Inman Index, failed to sustain a rally on Wall Street, though like Countrywide and IndyMac, all three of the companies survived the market turmoil.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright 2008 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.