Wall Street has soured on real estate stocks.
Eight of the 10 real estate brokerage, mortgage and technology companies that comprise the hypothetical Inman Index lost ground in February, and the Index overall was down 3.7 percent, a worse performance than the Dow Jones Industrials, Nasdaq Composite and Standard and Poor’s 500 indices, which dropped 2.8 percent, 2.3 percent and 2.2 percent, respectively.
Hardest hit were Countrywide Financial, which dropped 12.6 percent from $43.88 to $38.34, and IndyMac Bank, which fell 12 percent from $39.02 to $34.33. IndyMac has suffered the largest decline of the 10 Inman Index issues so far this year. Washington Mutual also backed off in February with a 3.4 percent drop from $44.59 to $43.08.
An unexpectedly high rate of homeowner defaults on certain subprime mortgages triggered a swirl of negative news for the lending sector. All told, 27 major U.S. lenders have “croaked” since late 2006, according to The Mortgage Lender Implode-o-Meter, while other companies involved in subprime lending also have announced financial setbacks. Among the injured were London-based HSBC Holdings, New Century Financial Corp., NovaStar Financial and Fremont General Corp.
An analyst at Goldman Sachs, who said the outlook appears “bleak” for subprime mortgage credit, reiterated a “sell” rating on Countrywide, according to Forbes.com, while a Standard & Poor’s analyst “upgraded” Countrywide, in a back-handed compliment of sorts, from “strong sell” to “sell” with a target price of $36, according to BusinessWeek.com.
Expansion-minded IndyMac plans to acquire New York Mortgage Co.’s retail operations in a $13.4 million deal that includes a pipeline of mortgage applications, plus 31 full-service and satellite retail mortgage offices in 11 states along the East Coast, according to news reports.
Analysts at UBS reiterated a “buy” recommendation on IndyMac in early February with a target price of $44, according to NewRatings.com.
An exception to the downward trend in mortgage stocks was Fannie Mae, which eked out a 0.4 percent gain in February.
Real estate technology companies suffered Wall Street’s sourpuss attitude as well. Move Inc. declined 5.8 percent from $6.34 to $5.97; HouseValues dropped 3.2 percent from $5.26 to $5.09, and ZipRealty fell 1.2 percent from $7.49 to $7.40. Move is still in positive territory for the year, while HouseValues and ZipRealty are in negative territory so far.
Move announced a profit of $17.6 million, or 9 cents per share, for the fourth quarter of 2006 compared with a loss of $4.6 million, or 3 cents per share, in the comparable prior-year quarter. The recent quarter’s results included a $15.7 million gain from the sale of investments. Revenue increased from $66.6 million in the 2005 fourth quarter to $71.8 million in the 2006 quarter.
Analysts at Deutsche Bank Securities downgraded Move from “buy” to “hold” with a target price of $6 per share, according to NewRatings.com.
Move also announced that Errol Samuelson will replace Allan Dalton as president of Realtor.com. Dalton is slated to spearhead development of a new business venture at the company.
HouseValues reported a net loss of $5.3 million, or 22 cents per share, for the fourth quarter of 2006 compared with net income of $4 million, or 15 cents per share, for the fourth quarter of 2005. The recent quarterly loss included a $4 million after-tax charge related to intangible assets from an exited business, while the prior-year quarterly profit included a $1.2 million after-tax gain from settlement of a state tax audit. Revenue of $21.5 million for the recent quarter was impaired by an “unexpected surge in customer cancellations,” according to Inman News.
A writer for The Motley Fool who has repeatedly panned HouseValues’ business model concluded: “Until Realtors come back, the model is broken. Until cash flow bounces back, the cash cushion is a mirage. Until HouseValues proves that it can be profitable in this competitive market, I would be very careful about diving into the shares.”
Interactive Corp., which operates both real estate and mortgage and non-real estate-related Web sites, was an exception to Wall Street’s wrath. Shares rose 2.2 percent from $38.36 to $39.20.
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 written permission of the author.