Deutsche Bank: Local Home Resale Analysis Shows How National This Downturn Is

April 10, 2008 3:15 PM EDT

Deutsche Bank today commented on an analysis which highlighted how national the local home resale market downturn is. Their recent analysis shows a soft spring season as well as a broadening of the markets being affected by the slowdown. The firm said the mortgage crisis is clearly the common culprit.

The firm notes that home price declines accelerated to -9%, the highest figure recorded to date. Declines were as high as -30% year/year in places like Palm Bay FL, Sacramento and Inland Empire. Florida and California remain the hardest hit states, with prices down -16% and -24%, respectively.

The firm noted that distressed inventory is starting to move in the hardest hit markets, Detroit and Sacramento, with volumes up 10% and 11% year/year, respectively. They said it is no surprise that these markets are the #1 and #2 foreclosure markets. The firm said, "Heavily discounted distressed inventory explains both why volumes in Detroit and Sacramento improved, as well as why pricing was off -25% and -31%, respectively." The don't think the volume spikes related to distressed inventory are reflective of improved demand and said with foreclosures still at more than 200,000 per month, price pressure should persist.

The firm said, across the markets that they track, listings were up 1.8% in March, in line with seasonal averages.

Commenting on the home builders, the firm said, "At this juncture, the chief risk for the builders is a weakening broader economy. On the upside, government policies so far have had little impact on the market, but if policies are aimed at directly stimulating demand, it could improve the market in the near-term."

The firm is updating their price targets across the industry to incorporate earlier recovery of deferred taxes and a decrease in 5-year default rates as ascribed by the CDS market.

The firm raised their price target on Meritage Homes (NYSE: MTH) from $13 to $17, which is still below the current market price of $20.74. The raised their price target on Ryland Group Inc. (NYSE: RYL) from $32 to $37 ($33.94 current price). Hovnanian Enterprises (NYSE: HOV) price target was raised from $7 to $9 ($11.27 current price). [LJ]

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