Singapore Real Estate UIC bid values SingLand more richly than peers But SingLand assets, with steady recurring income, deserve higher premium, say some analysts Source: Business Times / Top Stories [SINGAPORE] United Industrial Corp's (UIC) privatisation bid for Singapore Land (SingLand) values the property developer more richly than its peers, but not by enough to convince every analyst that the offer is attractive. SingLand shares edged up by 0.2 per cent, or two cents, to close at $9.44 yesterday, a day after parent UIC launched a $9.40 per share bid to take the property developer private. The UIC offer represents a 31 per cent discount to SingLand's revalued net asset value (RNAV) of $13.70 per share, according to average estimates compiled by The Business Times from four brokers and yesterday's closing prices. RNAV reflects the analysts' view of what a company's net assets are worth at current market prices, as opposed to the booked value. In the context of the sector, the UIC offer values SingLand more richly than the average estimated 40.1 per cent discount to RNAV for other Singapore-listed developers, according to BT's poll. The fact that UIC is willing to pay a premium to peers is not surprising. "Taking companies private usually dictate a premium against the market," OCBC analyst Eli Lee said. But whether the valuation is attractive beyond the takeover premium is a question that has split Shenton Way. DMG & Partners analyst Goh Han Peng reckoned that SingLand's assets on their own are deserving of a richer valuation than comparable stocks. "SingLand deserves a premium over its peers in the real estate sector as substantially all of its assets are in office, retail and hotel sectors, which tend to generate steady recurring income as compared to the more lumpy property development segment, which currently makes up a small part of SingLand's RNAV," Mr Goh said. "Operating risk is much lower as a landlord and SingLand has a large portfolio of prime real estate properties such as Singapore Land Tower, Clifford Centre, The Gateway, SGX Centre 2 and the Marina Square hotels and retail complex. Investment properties are highly marketable assets especially those with good rental streams as these can be packaged into Reits and sold at close to market value." Mr Goh noted that recent deals, such as UOL's privatisation of Pan Pacific Hotels Group in 2013, came close to RNAV. "UIC's offer is unattractive as its price does not reflect the intrinsic qualities of SingLand's assets, as well as the undervaluation of its hotels (in the Marina belt)," Mr Goh said. Maybank Kim Eng analyst Wilson Liew, however, thought that "under normal circumstances, it would be hard to envision SingLand trading at such rich valuations compared with its peers". Mr Liew said that the UIC offer was worth accepting. "Prior to the privatisation offer, our target price was $8.20, and we had a "hold" recommendation as we saw little upside given the lack of positive catalysts and poor trading liquidity," Mr Liew said. "As the offer came in at a 15 per cent premium to our own fair value and prices the company at relatively rich valuations on the back of the smaller-than-peers discount, we view the offer as attractive and have advised shareholders to accept the offer." At CIMB, analyst Donald Chua noted that "SingLand has a very robust capital structure with a very low net gearing ratio. Hence, a premium may be warranted if one looks solely at financials". In a report, Mr Chua thought that institutional investor Silchester International Investors may not be willing to let go of its 8.2 per cent SingLand stake at UIC's offer price. "We think that UIC may have to up its price," Mr Chua said. "History suggests that the Wees (who own about 54 per cent of UIC) and JG Summit (which owns about 37 per cent of UIC) will not overpay."
The offer by UIC, which owns 80.4 per cent of SingLand, represents an 11.24 per cent premium to the last traded price of SingLand on Feb 19, and includes a proposed 20-cents-per-share final dividend payout for the financial year ended Dec 31, 2013. -By Kenneth Lim Banyan Tree launching holiday home development in Bintan Source: Business Times / Companies BANYAN Tree Holdings is working on a new property development in Bintan, in a move that is in line with plans to revive its development arm. The resort operator will launch Laguna Shores Bintan at the Hilton Singapore Hotel this weekend. This is to be part of a collection of lower-priced holiday-home projects into which the group is venturing. Banyan Tree said that the prices of the one and two-bedroom units will start at $180,000. The smallest one-bedders are 441 square feet in size, and the largest two-bedroom ones, 786 sq ft.
The development, slated for completion in 2016, will be located within the integrated resort of Laguna Bintan, giving owners access to the restaurants and spas at Banyan Tree Bintan, Angsana Bintan as well as the 18-hole Laguna Bintan Golf Club. -By Felda Chay MCL Land tops bid for 2 Choa Chua Kang EC plots It offers $375.05 psf ppr for one and $338.94 psf ppr for the other Source: Business Times / Singapore MCL Land (Brighton) has swooped in on two adjoining executive condominium (EC) plots in Choa Chu Kang, offering $375.05 per square foot per plot ratio (psf ppr) for one and $338.94 psf ppr for the other. This works out to a tender price of $232.5 million for Plot A and $210.1 million for Plot B. This move is reminiscent of Kingsford Development's end-2013 purchase of two adjacent private housing sites in Upper Serangoon View, in which it paid a substantial premium of 16 per cent and 13 per cent over the respective second-highest bids.
In this round however, the premium was less stark. For Parcel A, the premium MCL Land paid over the second-highest bid from JBE Holdings ($373.26 psf ppr) was 0.48 per cent; for Parcel B, the premium over the second-highest bid jointly put up by Verwood Holdings and TID Residential ($333.14 psf ppr) was 1.74 per cent. -By Mindy Tan
http://www.straitstimes.com/premium/money/story/mcl-land-tops-bids-choa-chu-kang-ec-sites-20140226 JTC launches five small plots in Tuas Source: Business Times / Singapore FIVE more small industrial sites were launched yesterday, in line with JTC Corporation's plan to offer more affordable land parcels to small and medium-sized industrialists. Two sites in Tuas South Street 6 (Plots 45 and 47) were released under the confirmed list of the industrial government land sales (IGLS) programme. Zoned Business-2, they have a lease of 21 years and three months. They have land areas of 6,988 square metres (sq m) or about 75,218.1 sq ft each, and maximum permissible gross plot ratios of 1.0.
Ong Kah Seng, director at R'ST Research, said he expects the sites to attract at least five bids each, with the expected top bid of between $80 and $100 per square foot per plot ratio (psf ppr). -By Mindy Tan http://www.businesstimes.com.sg/premium/singapore/jtc-launches-five-small-plots-tuas-20140226 Garden City Singapore: A tale of toil and soil Source: Straits Times Singapore's evolution into a "garden city" since it gained independence will be familiar to most. But few realise the many problems that had to be ironed out behind the scenes. For instance, there was an initial need to choose plants and trees that were not only suited to the tropics, but which could also grow relatively quickly.
Real Estate Companies' Brief OUE Hospitality Trust's Q4 DPU at 1.67 cents Source: Business Times / Companies OUE Hospitality Trust's distribution per unit (DPU) for the fourth quarter ended Dec 31, 2013, was 1.67 cents, which surpassed its forecast by 2.5 per cent, thanks to strong performance of its portfolio assets - Mandarin Orchard Singapore Hotel and Mandarin Gallery. It reported a distribution income of $21.9 million for the financial period, beating its forecast by 2.3 per cent, on the back of higher net property income (NPI) and lower trust expenses. NPI was $25.5 million, exceeding its estimate by 0.6 per cent. For the period from July 25 to Dec 31 since the trust's listing, the DPU achieved was 2.90 cents, which is 2.1 per cent higher than the forecast, as NPI of $44.8 million exceeded estimate by 1.4 per cent.
Revenue per available room at Mandarin Orchard hotel touched $254, higher than the forecast of $252, while the retail mall Mandarin Gallery garnered higher revenue from the leasing of advertising panels and short-term leasing of outdoor space. -By Lynette Khoo
http://www.straitstimes.com/premium/money/story/first-distribution-oue-hospitality-trust-20140226 Viva's maiden DPS of 1.08 cents in line with forecast Source: Business Times / Companies VIVA Industrial Trust yesterday announced a distribution per stapled security (DPS) of 1.08 cents, just under its forecast of 1.082 cents for the period Nov 4 to Dec 31, 2013. Income available for distribution was $6.4 million, as forecast. This came on the back of gross revenue of $9 million, and net property income of $6 million - both of which exceeded its forecast in its prospectus. The trust is a stapled group comprising Viva Industrial Reit and Viva Industrial Business Trust. It was listed only last November.
It said that its higher gross revenue was due to higher rental income from its business park and hotel property, UE BizHub East, located in Changi Business Park. -By Lee Meixian Views, Reviews & Forum Budget 2014: A macro view Source: Straits Times Most of the attention surrounding Budget 2014 justifiably revolves around Budget initiatives, such as the Pioneer Generation Package, the Productivity and Innovation Credit Plus scheme, and CPF contribution rate increases. But it is also instructive to think about the Budget as a whole, and consider the size of the Budget balance, the level of government spending, and what they mean for public finance in the near future. http://www.straitstimes.com/premium/opinion/story/budget-2014-macro-view-20140226 Global Economy & Global Real Estate GLP in venture with Guangdong Holdings Source: Business Times Global Logistic Properties (GLP) has entered into a strategic alliance with China's state-owned Guangdong Holdings to jointly develop logistics and industrial facilities in Dongguan, Southern China. Both parties will collaborate on the Guangdong GDH Equipment Technology Industrial Park, which will comprise industrial, commercial and residential components.
http://www.businesstimes.com.sg/premium/companies/others/company-briefs-20140226 German economy up 0.4% in fourth quarter Foreign trade expands; domestic demand shrinks Slource: Business Times / World [BERLIN] Foreign trade propelled growth in Europe's largest economy in the fourth quarter while domestic demand, which had been a key growth driver throughout the rest of the year, was a drag. Seasonally-adjusted data from the Federal Statistics Office yesterday confirmed an earlier flash estimate showing German gross domestic product (GDP) increased by a modest 0.4 per cent on the quarter between October and December compared with 0.3 per cent during the previous three months. A detailed breakdown showed domestic demand subtracted 0.7 percentage points from growth while foreign trade, which had been weak for much of 2013, added 1.1 percentage points to GDP.
The statistics office said the domestic economy sent "mixed signals". Capital investment picked up significantly, big inventory reductions slammed the brakes on growth and public expenditure was stagnant while private consumption dipped. -From Berlin, Germany http://www.businesstimes.com.sg/premium/world/german-economy-04-fourth-quarter-20140226 Potential pitfalls in China's road to urbanisation Source: Straits Times Lend Lease Profit Drops on Tough U.K., Australia Building Source: Bloomberg / Luxury Lend Lease Group, Australia’s biggest listed developer, said first-half profit fell amid challenging construction markets in Australia and the U.K. and after last year’s one-time boost from a Sydney redevelopment. Net income declined 16 percent to A$251.6 million ($227 million) in the six months to Dec. 31 from A$300.9 million a year earlier, the Sydney-based company said in a statement to the Australian stock exchange. Profit from Lend Lease’s construction division in Australia decreased and Europe recorded a loss even as the company’s Australian and U.K. residential businesses received a boost from improved housing markets. Its planned projects have an estimated end value of A$38.4 billion and include the A$6 billion Barangaroo South development in downtown Sydney and the 1.5 billion pound ($2.5 billion) Elephant and Castle regeneration in central London. The weakness in Europe “should be temporary with the U.K. construction purchasing managers index the strongest it’s been since 2007,” Ben Rundle, an analyst at Moelis & Co. in Sydney, wrote in an e-mailed note. Shares Fall Lend Lease shares were 3.7 percent lower at A$11.14 at the close of Sydney trading. They’re unchanged this year, compared with a 1.6 percent gain in the benchmark S&P/ASX 200 index. The developer, which has leased 77 percent of the first two office towers at Barangaroo, is in talks with potential tenants for the rest of the space, as well as for the third building it hasn’t begun work on yet, Chief Executive Officer Steve McCann said by telephone today. The company, which partnered with its unlisted Australian Prime Property Fund Commercial, Canada Pension Plan Investment Board and local pension fund Telstra Super to finance the construction of the two office towers, hasn’t decided how it will fund the third building, McCann said today. Profit fell 27 percent to A$223.5 million in Lend Lease’s Australian business and slumped 86 percent to A$8.2 million in Europe. It more than doubled in Asia to A$69.1 million and increased 85 percent to A$48.1 million in the Americas. Construction work in Australia fell 1 percent in the three months to Dec. 31 from the previous quarter, government data showed today, compared with expectations for a 0.2 percent gain. Asia ProjectsIn Asia, Lend Lease has “a number of irons in the fire,” after completing projects including the Jem development in Singapore and Setia City Mall in Malaysia, McCann said. “We’ve a pretty active development business looking at a number of relatively large-scale projects in Malaysia and Singapore,” he said. “We’re pretty confident about the outlook.” The company is also progressing on talks on a development fund in China, primarily focused on retail projects, McCann said, declining to provide further details on plans. “It’s not an easy place to get momentum,” McCann said. “We’ve been there as a builder for a long time but as a developer investing our own capital and our investors’ capital through the investment management business, we’re determined to make sure we only get into the right projects, and we don’t get too aggressive.” McCann first revealed plans for the fund in 2012, saying he expected to establish a vehicle to invest in China’s biggest cities within the next three years. -By Nichola Saminather Oxford to Purchase NYC’s 450 Park Ave. From Somerset Source: Bloomberg / News Oxford Properties Group, part of a Canadian pension fund, agreed to purchase 450 Park Ave., a 33-story building in Manhattan’s Plaza District, an area with some of the highest office rents in New York. Oxford Properties, a Toronto-based arm of the Ontario Municipal Employees Retirement System, is under contract to buy the 330,000-square-foot (30,700-square-meter) tower at East 57th Street from Somerset Partners LLC and British investor Michael Tabor, said Doug Harmon, senior managing director at Eastdil Secured LLC, the brokerage that represented the sellers. The buyer agreed to pay $575 million for 450 Park, or more than $1,700 a square foot, according to the New York Times, which reported the agreement earlier today. That would exceed the $1,583 a square foot the buyers paid for the building in October 2007, around the time real estate values peaked before the credit crisis, when prices fell more than 40 percent. Harmon, who brokered the transaction with colleague Adam Spies, wouldn’t disclose the terms of the deal. The 2007 sale set a record for an office building on a per-square-foot basis, according to data from Real Capital Analytics Inc., a research firm that tracks commercial real estate sales. It was broken last year when 650 Madison Ave. was sold for $2,235 a square foot, in a deal in which most of the value was in the building’s retail portion. Harmon also arranged the 2007 deal for the building, as well as the 650 Madison sale. ‘Were Right’“We felt comfortable investing a large amount of cash in this quality location and asset,” Keith Rubenstein, a Somerset founder, said in an e-mail today. “The thinking back then was this location was bulletproof, would withstand any downturn in the market and value would recover faster. Looking back, I guess we were right.” Rubenstein didn’t comment on the building’s sale price. A telephone call to Claire McIntyre, an Oxford spokeswoman, wasn’t immediately returned. Oxford, which has made $8.7 billion of acquisitions in North America and Europe since 2001, has interests in seven Manhattan properties, according to Real Capital. It is a partner with Stephen Ross’s Related Cos. in the $20 billion multi-use project at the Hudson Yards rail depot on Manhattan’s far west side, which Related has called the largest private development in U.S. history.
Rents for top-tier office space in the Plaza District averaged almost $80 a square foot in the fourth quarter, compared with $61 a square foot for all of Manhattan, according to Newmark Grubb Knight Frank. -By David M. Levitt http://www.bloomberg.com/news/2014-02-26/oxford-to-purchase-nyc-s-450-park-ave-from-somerset.html Toll Falls on Lower Home Orders, Reduced Sales Forecast Source: Bloomberg / Luxury Toll Brothers Inc. (TOL), the largest U.S. luxury-home builder, fell after reporting that orders declined in the fiscal first quarter from a year earlier as bad weather and slowing demand hurt sales. Signed contracts fell 6 percent to 916 homes in the quarter ending Jan. 31, the Horsham, Pennsylvania-based company said today in a statement. Toll lowered the upper end of its sales forecast for the year by 4 percent to 5,850 homes. “The first three and a half weeks of February were down 8 percent in units,” Chief Executive Officer Douglas Yearley Jr. said on a conference call today. “Confidence is still a bit fragile and I think we’re all feeling that.” U.S. homebuilders have been hurt as rising interest rates and climbing prices deter some buyers. New-home (NHSLTOT) sales in January probably fell to an annual pace of 400,000, the median of 81 economist estimates compiled by Bloomberg. That would be the third consecutive monthly decline. The Commerce Department reports the new-home sales data tomorrow. Toll was the only company of the 11 in the Standard & Poor’s Supercomposite Homebuilding Index to have a share-price decline today, falling 0.2 percent to $38.25. Toll has gained 16 percent in the past 12 months, compared with a 15 percent increase for the index. Toll’s net income for the three months through Jan. 31 was $45.6 million, or 25 cents a share, compared with $4.4 million, or 3 cents, a year earlier. The average estimate of 10 analysts was for earnings of 17 cents a share, according to data compiled by Bloomberg. Prices RiseToll’s first-quarter revenue was $643.7 million, up from $424.6 million a year earlier. The average price of homes sold rose to $694,000 from $569,000. Severe weather hurt business in the Northeast, Mid-Atlantic and Midwest, where Toll sells about half of its homes, according to the statement. “This was the coldest January since 2001 and one of the worst winters since we entered the business,” Chairman Robert Toll said in the statement. “Although the weather will result in some delays and some additional but not major costs, it should not result in lost sales or deliveries.” Orders also fell in the West, where weather has been less severe and Toll this month completed its $1.6 billion purchase of Beverly Hills, California-based Shapell Homes. Activity in the most populous U.S. state remains strong, Yearley said. “Really everything we have in California, whether it be the new Shapell land or the old Toll land, it’s fabulous,” he said. “Huge numbers. Price increases.” -By John Gittelsohn http://www.bloomberg.com/news/2014-02-25/toll-falls-on-lower-home-orders-reduced-sales-forecast.html Billionaire Paulson Said in Talks to Buy Puerto Rico Resort Source: Bloomberg / Luxury Paulson & Co.,the hedge-fund firm founded by billionaire John Paulson, is in talks to buy a resort complex in Puerto Rico. Paulson & Co. is seeking to acquire La Concha Resort and the Condado Vanderbilt, neighboring beachfront hotels in the capital city of San Juan, according to two people with knowledge of the transaction. The firm will pay about $200 million for the properties, in which the territory’s Government Development Bank owns a stake, said the people, who asked not to be named because the deal hasn’t been completed. Paulson, 58, is expanding investments on the island as the commonwealth and its agencies wrestle with a $72 billion debt load. Its economy has shrunk 14 percent since 2006 and the population has declined every year since 2005. The New York-based firm, which took a stake in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Golf Club in September, plans to invest $1 billion in Puerto Rican projects over the next two years, according to island officials. Paulson & Co. “continues to negotiate different opportunities in Puerto Rico,” Alberto Baco Bague, Secretary of Economic Development and Commerce, said during webcast last week with bondholders hosted by the Government Development Bank. “These commitments are over $1 billion, half a billion in 2014 and half a billion in 2015.” Tourist DestinationAt the time of the prior hotel purchase, Paulson said the firm was interested in buying more real estate, citing the island’s popularity as a tourist and retirement destination and a local economy poised for growth after years of stagnation. He’s also the largest investor in the biggest bank, Popular Inc. (BPOP), and last year weighed moving to Puerto Rico to reduce his taxes. Armel Leslie, a spokesman for Paulson & Co. with WalekPeppercomm, and Barbara Morgan, spokeswoman for Puerto Rico’s Government Development Bank declined to comment. The La Concha Resort and the Condado Vanderbilt underwent an overhaul that started in 2004, which included the construction of towers designed also to be condominiums. The project was valued at about $450 million in October 2009, according to a statement from the GDB. The unveiling of the refurbished properties, which were shuttered in the 1990s, was delayed as funding ran out. The Condado Vanderbilt, built on land acquired by Frederick William Vanderbilt in 1919, was partially opened in October 2012, though the adjacent towers remained closed. The La Concha, which houses the Casino Del Mar, reopened in December 2007. Ritzy CornerThe hotels are located on Ashford Avenue in the San Juan’s Condado district, a ritzy corner of the island. The street is lined with shops including Louis Vuitton, Salvatore Ferragamo, Gucci and Cartier, according to the Condado Vanderbilt’s website. Paulson is best known for making $15 billion betting against subprime mortgages as the financial crisis hit. He considered a move to Puerto Rico to take advantage of a new law that would eliminate taxes on his gains from money he has invested in his own hedge funds, four people who had spoken to him said in March. Less than a week later he said he had no plans to move there “in light of the media attention” surrounding his possible relocation. Puerto Rico is seeking to attract investment as it attempts to rebuild its economy after years of contraction. The three biggest ratings companies cut the island’s credit ranking to junk this month. -By Sarah Mulholland and Stephanie Ruhle Home Depot Profit Tops Estimates as Housing Spurs Sales Source: Bloomberg / Personal Finance Home Depot Inc. (HD) posted fourth-quarter profit that topped analysts’ estimates, marking six straight years of meeting or exceeding projections, as the U.S. housing rebound spurs spending on renovations. Net income in the three months ended Feb. 2 fell 0.8 percent to $1.01 billion, or 73 cents a share, from $1.02 billion, or 68 cents, a year earlier, the Atlanta-based company said today in a statement. The average of 25 analysts’ estimates compiled by Bloomberg was 71 cents. The chain has topped quarterly projections 23 times since mid-2008, while matching estimates once. The largest U.S. home-improvement retailer has benefited from two years of rising housing prices, fueling spending on remodeling kitchens and bathrooms. That demand helped Home Depot more than double its initial forecast for a 2 percent increase in 2013 sales, with revenue climbing 5.4 percent to $78.8 billion last year. Home Depot topped earnings estimates “while managing through a difficult retail environment” that included “extreme winter weather,” Gary Balter, an analyst with Credit Suisse Group AG in New York, wrote today in a note to clients. These results should reduce concerns that the housing market may be slowing down, he said. The company also raised its quarterly dividend 21 percent to 47 cents a share. Shares RiseHome Depot rose 4 percent to $80.98 at the close in New York. The shares have gained 27 percent in the past 12 months. That compares with a 34 percent advance for Lowe’s Cos. and a 24 percent increase for the Standard & Poor’s 500 Index. The decline in fourth-quarter earnings was attributable to an extra week that boosted profit by 7 cents a share a year earlier. If that week were removed, sales gained 3.9 percent to $17.7 billion, the company said. Heavy snowfall and cold weather hurt results during the quarter and contributed to a sales decline in New York and New Jersey. Those areas also had a tough comparison because of the surge in demand last year following the cleanup of Hurricane Sandy, the company said. The unusual weather should boost sales this spring, which is the company’s largest sales period of the year, as people repair homes damaged this winter, the company said. Home Depot said today that sales in the current fiscal year will increase 4.8 percent, compared with a December forecast of about 5 percent. The retailer also reiterated that operating margin would expand by 0.7 percentage points, spending on share repurchases will total about $5 billion, and earnings per share will gain about 17 percent. Housing TailwindThe company expects the housing rebound to continue this year, including more gains in prices, and serve as a “tailwind” for its business, Chief Executive Officer Frank Blake said today on a conference call with analysts. Housing contributed 2.5 percentage points last year to a 6.8 percent increase in same-store sales -- the biggest gain since 1999. This year that benefit will be 2 percentage points, Chief Financial Officer Carol Tome said on the call with analysts. Revenue by that measure is projected to advance 4.8 percent as the housing recovery enters a “moderate” phase, she said. Growth StrategyBlake has embarked on a growth strategy that relies on boosting sales within existing stores and online rather than opening new locations. The chain has “effectively saturated” markets in the U.S. and Canada and doesn’t plan to expand into new countries because it can get a better return by investing in current locations, Blake said at an investor conference in December. To drive home the point, Blake said that in the third quarter Home Depot boosted revenue at existing U.S. locations by about $2 billion, which would take years to match in an overseas expansion. The company generates about 89 percent of its sales in the U.S. “A wildly successful venture into a foreign country might yield $2 billion in sales after a decade of effort,” Blake said in December. “Opportunity and capital efficiencies strongly argue for intense focus here.” In stores, Home Depot has pushed employees to spend more time helping shoppers by reducing tasks such as stocking shelves, especially during peak periods. The chain said it should soon reach its goal of having store workers use 60 percent of their day on customers, which would be an increase from 40 percent in 2007. On the Web, the chain is trying to better connect with its more than 2,200 stores. In 2013, it began shipping online orders to stores and this year plans to deliver online orders from stores to homes. Home Depot also is adding three fulfillment centers in the U.S. to improve delivery times of Web orders. Online sales rose 53 percent to $2.7 billion last year, after growing 38 percent in 2012, the company said. -By Matt Townsend Home Prices in 20 U.S. Cities Increase at Slower Pace Source: Bloomberg / Luxury Home prices in the U.S. climbed at a slower pace in the year through December, pointing to a moderation in the market that will help keep more properties within reach for prospective buyers. The S&P/Case-Shiller index of property values in 20 cities rose 13.4 percent from December 2012 after increasing 13.7 percent in the year ended in November, the group said today in New York. It was the first deceleration since June. The gain matched the median estimate of 33 economists surveyed by Bloomberg. Price appreciation is slowing as rising mortgage rates combined with harsh winter weather to cool home purchases over the past few months. Smaller increases mean more homes will remain affordable as the labor market improves, helping maintain the rebound in residential real estate that has boosted growth. “The housing recovery continues, but perhaps not as vigorously as it did in the first half of last year,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. and the best forecaster of the home-price index during the past two years, according to Bloomberg calculations. “Even so, appreciation trends still look pretty good even though they may not be as strong as they were.” Another report today showed consumer confidence fell more than forecast in February as Americans grew increasingly pessimistic about the outlook for the economy and employment. Less ConfidentThe Conference Board’s index decreased to 78.1 from a revised 79.4 in January that was weaker than initially estimated, the New York-based private research group reported. The median forecast in a Bloomberg survey of economists called for a reading of 80. Stocks fell after the Standard & Poor’s 500 Index touched an intraday record yesterday. The S&P 500 declined 0.1 percent to 1,846.66 at 10:44 a.m. in New York. Estimates (SPCS20Y%) in the Bloomberg survey ranged from year-over-year gains of 10 percent to 13.9 percent. The Case-Shiller index is based on a three-month average, which means the December figure was also influenced by transactions in November and October. Another report today showed property values continued to climb. The Federal Housing Finance Agency’s index, covering only purchases financed with conforming loans, rose 0.8 percent in December from the prior month and was up 7.7 percent year over year. National DataToday’s S&P/Case-Shiller report also included quarterly figures for the market nationally. Prices covering all of the U.S. climbed 11.3 percent in the fourth quarter from the same period in 2012, the biggest year-to-year gain since the first three months of 2006, and following an 11.2 percent advance in the quarter ended in September. Home prices adjusted for seasonal variations increased 0.8 percent in December from the prior month after climbing 0.9 percent in November. The month-over-month price gains in cities were led by Miami, which showed an adjusted 1.2 percent advance, followed by 1.1 percent gains in Detroit and San Francisco. Cleveland was the only city to show a decrease. “Gains are slowing from month-to-month and the strongest part of the recovery in home values may be over,”David Blitzer, chairman of the S&P index committee, said in a statement. “Higher home prices and mortgage rates are taking a toll on affordability.” Unadjusted DataUnadjusted prices decreased 0.1 percent in December from the prior month, the same as in November, today’s report showed. The year-over-year gauge, which uses records dating back to 2001, provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index. All cities in the index showed a year-over-year increase, paced by gains of 25.5 percent in Las Vegas and 22.6 percent in San Francisco. Cleveland showed the smallest increase at 4.5 percent. As Federal Reserve policy makers continue paring back their stimulus program, higher mortgage rates may limit gains made in household equity. Borrowing costs for prospective buyers have climbed since Fed officials last year signaled they would pare purchases of mortgage-backed securities and other bonds, a process that began in January. An added challenge comes as the central bank tries to move away from its unemployment threshold of 6.5 percent without raising expectations of an increase in the short-term interest rate, according to minutes of their January meeting. Mortgage RatesThe average rate on a 30-year, fixed-rate purchase loan was 4.33 percent in the week ended Feb. 20, up from 3.56 percent around the same time a year ago, according to McLean, Virginia-based Freddie Mac. After reaching a four-month low of 4.10 percent at the end of October, the average rate rose to 4.53 percent at the start of this year. Harsh winter weather in much of the U.S. risks further restraining the housing market. January was the coldest start to a year since 2011, according to the National Oceanic and Atmospheric Administration. Sales of previously owned U.S. homes dropped 5.1 percent in January to a 4.62 million annual rate last month, the fewest since July 2012, figures from the National Association of Realtors showed last week. Fewer SalesNew home sales are projected to fall 3.4 percent to a 400,000 annualized pace in January from the month before, according to the median forecast of economists surveyed by Bloomberg before the Commerce Department figures tomorrow. That would be the slowest pace since August. While D.R. Horton Inc., a Fort Worth, Texas-based homebuilder, expects to have some pricing power in 2014, momentum will probably slow, Chief Financial Officer Bill Wheat said in a Jan. 28 earnings call. “Seeing early results that point toward a strong spring, we would expect to continue to see some further pricing increases over our current levels, but perhaps not the same pace we saw last year,” Wheat said in the call. Higher home prices are needed to help sustain gains in household wealth, which would in turn stoke consumer spending. Net worth for households and non-profit groups rose by $1.92 trillion in the third quarter, or 2.6 percent from the previous three months, to $77.3 trillion, according to Fed data. Household real-estate assets climbed by $428.5 billion, the data show. Owners’ equity as a share of total household real-estate holdings increased to 50.8 percent last quarter from 49.7 percent in the previous three months. -By Victoria Stilwell |