Wall Street Devalues Real Estate Sector

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Wall Street devalues real estate sector Inman Index: HouseValues, Fannie Mae, Freddie Mac shares suffer declines Monday, April 03, 2006 By Marcie Geffner

Wall Street has hung a 'SOLD' sign on HouseValues. The company's shares lost more than 17 percent of their value last month to close at $8.24 per share March 31 and have fallen by half since Jan. 27, when the price last peaked at $17 per share. Investors and analysts have punished HouseValues since it lowered its 2006 earnings estimates at the end of February. A Piper Jaffray analyst downgraded the shares from "outperform" to "market perform" and cut his target price on the company from $23 to $13. A March 1 note to investors said the analyst sees "little catalyst for the shares during 2006," according to a Forbes.com report. An analyst at Banc of America Securities also downgraded HouseValues from a "buy" recommendation to "neutral" and cut his target price for the company from $14 to $8.50, according to NewRatings.com. Analysts may well have their own concerns about HouseValues' business model in a softer housing market and more competitive online sector, but some of the piling on has seemed a bit, well, foolish. One Fool.com reporter entered his own personal data into the HouseValues' Web site, though he had no intention of selling his home, and then became downright indignant after he received a mock-up of a for-sale brochure that included a photo of his home taken by a real estate agent who'd received his data from HouseValues. "Zillow isn't perfect, but at least I know it's not coming after my digs voyeuristically with a digital camera," he wrote, no doubt with nary a thought for the hapless agent whose time he'd wasted with his false intentions. Yet even this scribe felt compelled to add that he wasn't "giving up" on HouseValues as an investment just yet. As a small capitalization company, HouseValues is susceptible to large short-term swings in its stock price. John Cook's Venture Blog pointed out that one private equity firm has sold more than 1.4 million shares of the company's stock. Supply in excess of demand naturally triggers lower prices, and HouseValues has fought back. The company in March announced it will expand its HomePages service with listings data from an additional 16 MLSs and add a mortgage center that includes an advertising and content deal with Quicken Loans. The company also announced an e-postcard service for its customer management system for real estate salespeople. An advertising campaign on cable television is under way as well. HouseValues wasn't the only real estate issue out of favor on Wall Street last month. Fannie Mae and Freddie Mac suffered share-price declines of 6.2 percent and 9 percent, respectively. Dozens of news reports publicized the discovery of additional accounting problems at Fannie Mae, which missed the March 16 deadline to file its annual report to investors with the Securities and Exchange Commission. Freddie Mac announced it will file its reports after a two-month delay to implement certain accounting practices. The company's chief financial officer resigned in March after three years on the job. A search for a replacement is under way. The hypothetical Inman Index of 10 publicly traded real estate and mortgage corporations in February lost slightly more than 2 percent of its value in March, a worse performance than all three of the broader market indices. The Dow Jones Industrials, Standard and Poor's 500 and Nasdaq Composite were up 1.4 percent, 1.5 percent and 2.8 percent, respectively. Two real estate technology plays -- Homestore and ZipRealty -- and two mortgage companies -- Countrywide Financial and IndyMac -- were among those Inman Index companies that were in the plus column. Homestore, which will soon change its name to Move Inc., announced changes to its Realtor.com marketing agreement with Cendant Corp.'s NRT brokerage ownership arm. ZipRealty opened for business in Tampa, Fla., and announced plans to enter the Minneapolis-St. Paul market this summer. Analysts at AG Edwards reiterated a "buy" rating on Countrywide and increased their target price from $41 to $43, according to NewRatings.com. Bloomberg News reported that some institutional investors have increased their holdings of Countrywide, IndyMac and Wells Fargo, a sign of competitive optimism in a shrinking loan market. Ticker Company March 1, 2006 March 31, 2006 change          % CD Cendant Corp. $16.74 $17.35 $0.61 3.6% CFC Countrywide Financial Corp. 34.69 36.7 $2.01 5.8% FNM Fannie Mae 54.8 51.4 ($3.40) -6.2% FRE Freddie Mac 67.04 61 ($6.04) -9.0% HOMS Homestore 6.15 6.56 $0.41 6.7% IACI Interactive Corp. 29.6 29.47 ($0.13) -0.4% NDE IndyMac 39.25 40.93 $1.68 4.3% SOLD HouseValues 10.01 8.24 ($1.77) -17.7% WM Washington Mutual 42.94 42.62 ($0.32) -0.7% ZIPR ZipRealty 8.44 8.78 $0.34 4.0%   Inman Index $309.66 $303.05 ($6.61) -2.1% DJI Dow Jones Industrials 10,993 11,151 158.00 1.4% GSPC S&P 500 Index 1,281 1,300 19.00 1.5% IXIC Nasdaq Composite 2,281 2,345 64.00 2.8%   Source: Yahoo Finance