Contrarians and bargain-hunters boosted the fortunes of three of the 10 real estate companies that comprise the hypothetical Inman Index in November.
At the top of the chart was First American Financial, which opened Nov. 1 at $30.11 and closed Nov. 30 at $34.18, a gain of $4.07 per share, or 13.5 percent. Fidelity National Financial, meanwhile, rose from $15.09 to $15.62, a gain of 53 cents per share, or 3.5 percent, and home builder D.R. Horton ticked up from $11.75 to $11.97, a gain of 22 cents per share, or almost 2 percent.
Alongside dramatic headlines about the downturn in the nation’s housing markets, November was also ripe with lower third-quarter earnings results for real estate companies.
First American reported net income of $46.6 million for the recent third quarter, a steep drop from net income of $90.4 million in the prior-year third quarter. Revenue for the recent period was $2.1 billion, or 49 cents per share, a 6 percent decrease compared with the prior-year quarter. The current quarter’s results included a $17.1 million pretax charge for restructuring costs, an $8 million addition to legal and regulatory reserves and $1.7 million of net realized investment gains, according to a company statement.
Just before month-end, analysts at Keefe Bruyette downgraded FirstAm’s stock from “outperform” to “market perform.”
First Am also was the target of a new lawsuit, in which New York state’s attorney general alleged that the company illegally colluded with home-loan giant Washington Mutual to inflate home appraisals. FirstAm has asked a federal court to dismiss the lawsuit.
Separately, First Am settled a complaint in which the U.S. Department of Housing and Urban Development and Florida regulators alleged that the company’s title insurance unit had set up sham affiliated business to pay kickbacks for referrals. The company agreed to pay a $5 million fine and shut down 87 limited partnerships in Florida to settle the matter.
The other seven companies that comprise the Inman Index suffered stock-market losses in November. The declines ranged from as little as 2.5 percent to as much as 30 percent.
The most severe loss was sustained by Freddie Mac, which had been out of the brightest spotlights during this year’s prolonged mortgage lending crisis, but landed back in the news when New York’s attorney general added the company and Fannie Mae to the investigation that had already ensnared WaMu and FirstAm.
Freddie Mac was also hurt by a third-quarter 2007 loss of $2 billion, or $3.29 per share, compared with a loss of $715 million, or $1.17 per share, in the comparable prior-year period. Three analysts downgraded Freddie Mac’s stock: Lehman Brothers cut the company’s shares from “overweight” to “equal weight.” Friedman Billings shifted from “market perform” to “under-perform,” and UBS moved from “buy” to “neutral.”
At month-end, Freddie Mac announced a new issue of $6 billion of preferred stock and a smaller fourth-quarter dividend. Both moves were intended to shore up mandatory capital surpluses that had shrunk in September and October, according to a company statement.
Two other mortgage companies, IndyMac and Countrywide, suffered the second and third largest stock-market drops among the Inman Index companies in November. Both companies lost approximately 27 percent of their value during the one-month period, and both have lost more than 70 percent of their value so far this year.
The Inman Index companies collectively declined more than 12 percent over the one-month period, and as a group the 10 companies have lost half their value so far this year. None of the companies is in positive territory on a year-to-date basis.
The Dow Jones Industrials Average, Standard & Poor’s 500 Index and NASDAQ Composite Indices all lost ground in November, but are solidly ahead this year with gains of 7 percent, 4 percent and 9.8 percent, respectively.
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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