What May gaveth, June tookth away.
After a promising uptick in May, real estate stocks retreated with a vengeance in June as eight of the 10 issues that comprise the hypothetical Inman Index moved lower and the Index overall declined more than 10 percent, a significantly worse performance than the stock market overall.
Hardest hit were shares of Fidelity National Financial, which dropped from $28.16 on June 1 to $23.70 on June 29, a decline of almost 16 percent and a reversal of fortune compared with earlier this year. The downturn could have been a negative reaction to Fidelity’s deal with a private equity firm to take over human resources outsourcer Ceridian or might represent a vote of no confidence in Fidelity’s new CEO, Alan Stinson. The deal and Stinson’s ascension from co-chief operating officer to the top slot were both announced at the end of May. Disgruntled shareholders have filed a lawsuit and hired financial advisors to challenge the Ceridian deal, arguing the pricing is unfavorable to their interests.
Shares of competitor First American also posted a loss in June, but FirstAm now holds the distinction of being the only Inman Index issue that has rewarded investors in 2007. Shares opened at $40.74 on Jan. 2, traded at $53.67 on June 2 and closed at $49.50 on June 29, a loss of nearly 8 percent for the recent month, but a gain of more than 21 percent for the year to date. Fidelity’s shares were near break-even for the year with a 1.4 percent loss as of June 29, the second-best performance in the Index.
Shares of Toll Brothers and D.R. Horton were also hit hard in June. The two home builders, added to the Inman Index earlier this year, both lost nearly 15 percent of their value in the one-month period. Toll’s shares opened at $29.37 and closed at $24.98 while D.R. Horton’s shares opened at $23.41 and closed at $19.93.
Home builders as a group were beset by more bad news that again disappointed investors. The National Association of Home Builders’ housing market index dropped to its lowest level since February 1991, a sign of weak sales expectations among builders for the second half of this year, according to an AP report. The U.S. Census Bureau reported that the annualized pace of new-home sales fell to 915,000 in May 2007, a 1.6 percent drop from the prior month’s pace and the 18th consecutive year-over-year decline.
Toll Brothers was the subject of an in-depth and mostly complimentary MarketWatch profile, which said the company’s outspoken CEO Robert Toll “has Wall Street’s ear and a knack for coining distinctive aphorisms that can move markets.” A Standard & Poor’s Equity Research analyst reiterated a three-star “hold” rating on the company with a target price lowered to $30.
Mortgage sector stocks were still under siege as well. Shares of Countrywide Financial, IndyMac and Freddie Mac all traded lower in June as reports continued of weakness in the nation’s housing markets, and mortgage interest rates hung above 6.5 percent. Freddie Mac reported a first-quarter 2007 loss of $211 million, or 46 cents per share, compared with a first-quarter 2006 profit of $2 billion, or $2.80 per share.
The only bright spot in the Inman Index in June was Move Inc., which rose from $4.14 to $4.48, a gain of more than 8 percent. During the month, the company named Vaughan Smith, an electronics and electrical engineer and former eBay executive, to a position with the very long title of executive vice president of corporate development and strategic partnerships. Nollenberger Capital initiated investment coverage of Move with a “neutral” rating.
This year’s woes in real estate stocks have been counter to an upswing elsewhere on Wall Street. The Nasdaq Composite, Dow Jones Industrials, and Standard and Poor’s 500 indices all lost a bit of ground in June, but were up 7.4 percent, 7.3 percent and 5.5 percent, respectively, at the midpoint of 2007.
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.
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