Tag Archives: Moody’s

Pending Home Sales Rise — But Don’t Expect the Housing Market to Recover Soon

There was some unexpected positive news on the housing front today: pending home sales rose in April 2008 to the highest level since October 2007, according to the National Association of Realtors (NAR).

NAR complies a monthly “Pending Home Sales Index” (PHSI), which tracks housing contract activity based on signed real estate contracts for existing single-family homes, condos and co-ops. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The PHSI gives figures for the nation and four regions, and includes seasonally adjusted as well as not seasonally adjusted figures.

A reading of 100 on the PSHI is equal to the average level of sales activity in 2001.

April’s PHSI figures show that the seasonally adjusted index of pending sales for existing homes across the nation rose to 88.2 percent from a March reading of 83.0 percent.

March’s figure of 83.0 percent was the lowest since the index was started in 2001.

Moreover, the April 2008 figure of 88.2 percent is still 13 percent below April 2007’s reading of 101.5 percent.

Some regions fared much better than others.

The region that did best was the West — with a seasonally adjusted figure of 98.8, its highest level since June 2007.  The West also showed an 8.3 percent increase from last month and a 4.0 percent increase from 95.0 percent a year ago. 

The Midwest — at a seasonally adjusted rate of 83.7 percent — posted a 13.0 percent increase from last month, but a 13.1 percent drop from last year’s figure of 96.4 percent.

The South — at a seasonally adjusted rate of 88.8 percent — showed a moderate 4.6 percent increase over last month, but that was still a stunning 22.5 percent decline from last year’s figure of 114.6 percent.

The worst region in regard to pending home sales was the Northeast — with a seasonally adjusted rate of 79.3 percent — which indicated both a monthly decline ( -1.9 percent) and a sharp decline (-12.2 percent) from 101.5 percent a year ago.

As usual, NAR strained to see these very modest national gains in the most positive light, claiming that they show that “the underlying fundamentals point to a pent-up demand.”

NAR chief economist Lawrence Yun again predicted that an upturn in the housing market is just around the corner.

“Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” Yun said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely.”

Other analysts are not nearly as optimistic about the meaning of the PHSI figures. 

They point out that banks are dumping properties at fire-sale prices, and that inventories will continue to grow as foreclosures continue to rise.  NAR’s PHSI does not differentiate between full-market sales, short-sales, and foreclosures.

Even NAR’s economist Lawrence Yun acknowledges that much of the increase in pending home sales comes from “bargain hunters” who have “entered the market en mass.”

The New York Times reports that Mark Zandi, the chief economist for Moody’s economy.com, believes that April 2008 marks the bottom for home sales, but he also believes that home prices won’t bottom out for another year. ”It’s the beginning of the end of the housing downturn, but it will be a long painful ending,” he said.

We think that Zandi is being overly optimistic — when the housing downturn ends depends on many factors, including straightening out the mortgage and credit industries, that are still a very long way off.

 

More Terrible News for Terrible Herbst — Bonds Ratings Lowered and Still No Deal with Creditors

We wrote a post last month about the likelihood that Herbst Gaming will have to file for Chapter 11 bankruptcy protection from its creditors if it is unable to alter its payment structure for $1.14 billion in debt. 

The company is privately held by brothers Ed, Tim and Troy Herbst, but roughly $371 million of its debt is through publicly traded bonds, which have been negatively affected by the fall-out from the subprime mortgage crisis.

Now there is more terrible news for Terrible Herbst.

On Wednesday, Moody’s Investment Service lowered its bond credit ratings for Herbst Gaming.  The bonds were cut from B3 to Caa2. 

Standard & Poor’s also cut Herbst’s credit rating, from B to CCC. 

In addition, Standard & Poor’s announced that it had placed Herbst Gaming on a “developing watch,” indicating an ongoing reevaluation of the credit quality of Herbst’s debt obligations and the likelihood that its credit rating will be downgraded further.

Bonds rated A (“investment grade”) are judged to be of the highest quality, with minimal credit risk; bonds rated B (“junk bonds”) are considered speculative and are subject to high credit risk; and bonds rated C (also “junk bonds”) are judged to be of poor standing and subject to very high credit risk.

Moody’s said the downgrade took into consideration that Herbst Gaming may not meet its financial obligations in 2008.

“It remains unclear at this time what course of action the lenders may pursue with respect to the event of default,” Moody’s said. “The downgrade acknowledges that the continued volatility in the capital markets along with the high cost of borrowing makes it less likely that a strategic alternative will emerge that does not involve some level of impairment.”

The rating actions came after Herbst Gaming said it had engaged Goldman Sachs for evaluation of strategic and financial alternatives. These alternatives may include a re-capitalisation, refinancing, restructuring or re-organisation of the company’s obligations or a sale of some or all of its businesses.

So far, Herbst Gaming has been unable to negotiate a forbearance agreement with its lenders.

UPDATE:

For the lastest news on Standard and Poor’s Ratings Services lowering its rating on Herbst Gaming’s notes ‘D’ from ‘C’, following the Herbst’s failure to make an interest payment on June 1, 2008, and on the debt crisis across the casino industry, click here