I hope this was not a surprise. We have been pounding this point here repeatedly. April was the month moratoriums in foreclosures expired. It should not be a surprise that folks in November 2008 whom could not afford their home still can’t in April 2009. People losing their jobs who put no money or minimal money down on a home and then tapped what little equity they may have had in it have no ability at all to stay in those homes, none.
Here is the Realty Trac Report:
RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its April 2009 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 342,038 U.S. properties during the month, an increase of less than 1 percent from the previous month and an increase of 32 percent from April 2008. The report also shows that one in every 374 U.S. housing units received a foreclosure filing in April, the highest monthly foreclosure rate ever posted since RealtyTrac began issuing its report in January 2005.
“Total foreclosure activity in April ended up slightly above the previous month, once again hitting a record-high level,” said James J. Saccacio, chief executive officer of RealtyTrac. “Much of this activity is at the initial stages of foreclosure – the default and auction stages – while bank repossessions, or REOs, were down on a monthly and annual basis to their lowest level since March 2008. This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. It’s likely that we’ll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months.”
the more important number in my opinion each month is the foreclosure number. It represents not only an addition to the existing housing inventory, but a more permanent reduction in demand as foreclosed buyers are not going to then go out and purchase another home.
When you add these folks to those losing jobs, demand is plummeting. What’s worse is that this is not demand destruction in terms of those waiting for better prices, this is a more permanent kind of demand destruction as these buyers are not coming back into the market for quite some time (years).
I have still yet to been offered any type of evidence that housing is going to do anything but fall further from here for at least the next 6 months..
If you have it, please either email it or add it to the comments…
Disclosure (“none” means no position):
5 replies on “April Foreclosures Hit Record: You’re Not Surprised Are You?”
Cramer keeps saying housing will bottom June 30. Bottom maybe, but will it bounce back up or sit on the bottom like a sunken ship?
Cramer was a critic of Obama and Geithner up until March but has been singing their praises since then. Actually called Obama “pro-business” the other night (maybe the same way a mosquito is “pro-human”?) Does anyone else think this attitude and the general CNBC bullishness has anything to do with the fact that CNBC-parent GE needs TARP money and additional govt “forebearance”?
You should do a writeup on Mastech (MHH) – so cheap it’s mindboggling. They have never lost money in any quarter ever and just reported eps of .14 and cash generation of 1.2mm in Q1 alone. People are beginning to catch on to this one but it is easily worth $8 share.
I usually don’t pay much attention to $10mm market cap companies, but in this case it’s a recent spin-off with $90mm in revenues selling at a seemingly absurd price. The stock is trading at 2x average EPS of the past 5 years. The company has no debt, low fixed costs, has been around for 20 years and has never lost money – even in the technology meltdown of 2000-2002.
Two additional facts to consider: the board turned down an offer to sell the company over the summer and management has been buying stock in the open market.
Price $2.7
Shares 3.6mm
Market cap $9.7mm
Cash $5.6mm
Book value $13mm (cash + A/R from likes of IBM)
Mastech is a niche IT staffing company. The company was founded in 1986 by two Indian IT engineers who came to study in the US who remain co-chairmen and together own 56% of the company. As Mastech grew, excess cashflow was used to create an offshore outsourcing/services business and the parent company name was changed to iGate. Now that iGate has reached critical mass (mkt cap $300mm), the founders decided to spin off the legacy business (Mastech) to focus on the sexier, higher growth offshore offering. The spin off occurred on Sep 30th, jut in time for the October market carnage.
The investment case is straightforward here, so I’ll keep it short:
o Revenues over the last few years have been around $100m. EBIT has been in the $6-8mm range. Capex is de minimis.
o In the three years from 2005 to 2007, Mastech transferred to its former parent $33mm.
o Given the economy, 2008 was a tough year. Still in the first 9 months, MHH generated $73.6mm of sales and EBIT of $3.6mm.
o The company was founded 20 years ago. The current management has been in place for most of the last decade. Mastech has always remained profitable and cashflow positive. 2001 and 2002 were very tough, as IT industry hit the wall after going 100mph in the late 90s. The business survived that depression and the management is confident they will be able to weather the current economic uncertainty.
o The business has very low fixed costs, essentially only a small corporate office. The rest of the employees get hired to work on specific projects. The cost of keeping consultants on the bench is low and can be further reduced if necessary.
o No additional overhead costs are expected as a standalone entity, above what was previously allocated by iGate.
o During the summer, the iGate board received an offer for the business. They decided it was inadequate and proceeded with a spin. In conversations with the management, it’s clear that insiders expected the stock to trade around $10 when they decided to set the spin ratio at 15:1. They knew that iGate shareholders would likely sell and expected some weakness initially, but they didn’t think MHH would trade at $3. Since releasing Q3 earnings, management has been buying stock in the open market.
Catalyst:
Founders take the company private. They “steal” the company at $6-7 per share. You still make 3x your money.
The business earns $1 a share in 2011, somebody notices and stock trades at PE of 10.
Perhaps the company makes significantly less money over the next two years, but when the economy recovers they make $8mm of EBIT and get bought for 5x or $40m, which is $12/share.
There is essentially no downside to this company as they will have earned their entire market cap in cash by the end of this year. It is complete optionality on anything in the future. And again, the company has NEVER lost money. The valuation is absolutely absurd.
Todd –
Think it might be time to load up on SRS here at $24 and change? I think we are seeing a major inflection in the MACD for both this name and the VIX.
Your thoughts? I piece of news like this could move the stock to north of $29 in no time.
Thanks,
Steve
Obama—
i think the MSM disembowelment of Cramer was a shot across the bow… lay off Obama or else. CNBC is stepping in line….most of them. thank god for Santelli
Steve,
don’t do technical stuff. on the fundamentals, i think the worst of it may be over and the downside from here, while real, not as dramatic as prior. that being said, i do not see any upside for the rest of the yr. in RE .
hope this helps