Based on recently released housing price data, an index of 20 U.S. cities has fallen below forecast in September, highlighting the fragility of an economic recovery. After all, the industry that largely "broke" the U.S. economy should be somewhat healed, if not stabilized, before the rest of the economy can move on.
According to the S&P/Case-Shiller index, property values in 20 cities dropped 3.6% in September compared to a year ago. This comes after a year-over-year decline of 3.8% from August.
This was below forecast: The median forecast of 32 economists in a Bloomberg News survey projected a 3% decrease. A Reuters poll of economists had forecast no change.
18 of the 20 cities in the index showed a year-over-year decline, led by a 9.8% drop in Atlanta. Nationally, prices decreased 3.9% in the third quarter from the same time in 2010. August prices were also revised to show a decline of 0.3% after originally being reported as unchanged.
David Blitzer, chairman of the S&P Index Committee, gave CNBC his view of the situation: "Consumer attitudes have gotten a lot more negative about long-term commitments, and the No. 1 long-term commitment most people in this country made is buying a house."
Market stabilization and silver linings
Reuters reports that the number of U.S. homeowners who are behind on their mortgages decreased modestly in the third quarter, though levels remained high.
Furthermore, the number of properties with amounts owed on mortgages that exceed the actual property value (i.e., negative equity) is dropping. But not by much: From the second quarter to the third, those properties only fell from 10.9 million to 10.7 million. These slight drops, although a positive step, are hardly a drop in the bucket.
"An additional 2.4 million borrowers fell into the near-negative equity camp in the third quarter," promoting concerns of more foreclosures to come.
Yet, despite the depressing sentiment that goes along with foreclosures, some industry professionals are glad to see a race to the finish. "Industry experts say a housing market turnaround isn't likely to occur as long as there remains a glut of potential foreclosures hovering over the market." Meaning an increase in foreclosure activity means a potentially faster revival for housing, explains the Associated Press.
Investing ideas
With so much attention on the stability of housing, real estate investment trusts (REITs) will be on everyone's radar.
Below, we list eight REITs with significant short covering (i.e., short-sellers are reducing bets that these stocks are going to decline) over the last month.
Short-sellers seem to think there is greater upside than downside to these rental property owners -- do you agree?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. American Campus Communities (NYSE: ACC ) : Engages in the acquisition, design, finance, development, lease, and management of student housing properties in the United States. Market cap of $2.69B. Shares shorted have decreased from 5.92M to 4.69M month-over-month, a change representing 1.75% of the company's 70.47M share float. Relatively low correlation to the market (beta = 0.79), which may be appealing to risk averse investors. The stock has gained 23.79% over the last year.
2. BioMed Realty Trust (NYSE: BMR ) : Operates as a real estate investment trust (REIT) that focuses on providing real estate to the life science industry in the United States. Market cap of $2.25B. Shares shorted have decreased from 11.31M to 8.50M month-over-month, a change representing 2.18% of the company's 128.91M share float. The stock has lost 0.23% over the last year.
3. CYS Investments (NYSE: CYS ) : REIT-Residential Industry. Market cap of $1.07B. Shares shorted have decreased from 8.94M to 7.95M month-over-month, a change representing 1.21% of the company's 81.68M share float. The stock is a short squeeze candidate, with a short float at 9.67% (equivalent to 5.88 days of average volume). The stock has gained 13.36% over the last year.
4. Education Realty Trust (NYSE: EDR ) : Develops, acquires, owns, and manages student housing communities located near university campuses in the United States. Market cap of $815.95M. Shares shorted have decreased from 5.03M to 4.03M month-over-month, a change representing 1.10% of the company's 91.19M share float. The stock has gained 22.18% over the last year.
5. HCP (NYSE: HCP ) : HCP, is an independent hybrid real estate investment trust. Market cap of $15.03B. Shares shorted have decreased from 30.98M to 25.69M month-over-month, a change representing 1.31% of the company's 405.14M share float. The stock is a short squeeze candidate, with a short float at 6.53% (equivalent to 6.7 days of average volume). The stock has gained 18.07% over the last year.
6. Home Properties (NYSE: HME ) : Engages in the ownership, operation, acquisition, development, and rehabilitation of apartment communities in the United States. Market cap of $2.55B. Shares shorted have decreased from 4.01M to 3.43M month-over-month, a change representing 1.22% of the company's 47.44M share float. The stock is currently stuck in a downtrend, trading -5.9% below its SMA20, -5.84% below its SMA50, and -10.08% below its SMA200. The stock has performed poorly over the last month, losing 12.1%.
7. National Retail Properties (NYSE: NNN ) : National Retail Properties, is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. Market cap of $2.53B. Shares shorted have decreased from 13.14M to 11.68M month-over-month, a change representing 1.55% of the company's 94.44M share float. The stock is a short squeeze candidate, with a short float at 12.25% (equivalent to 7.66 days of average volume). The stock has gained 6.49% over the last year.
8. iStar Financial (NYSE: SFI ) : Operates as a finance company focusing on the commercial real estate industry. Market cap of $460.68M. Shares shorted have decreased from 20.48M to 19.43M month-over-month, a change representing 1.71% of the company's 61.45M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.74). The stock is a short squeeze candidate, with a short float at 25.49% (equivalent to 15.95 days of average volume). The stock is currently stuck in a downtrend, trading -13.03% below its SMA20, -13.79% below its SMA50, and -29.91% below its SMA200. It's been a rough couple of days for the stock, losing 15.2% over the last week.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
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Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.
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