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Here are highlights from Tuesday's Analyst Blog:
Housing Prices Still Falling
The April Case/Schiller Index shows that the decline in housing prices is not over yet. The best that can be said is that the rate of decline is slowing.
As the Freddie Mac (NYSE: FRE | Quote | Chart | News | PowerRating) presentation pointed out yesterday (see Foreclosure Waters Rising Fast), 17% of all homeowners (well, those that have mortgages that Freddie is involved with) owe more on their homes than they are currently worth. An additional 11% have less than 10% equity. Even this much improved rate of decline in April would mean that by the end of the year, most of that 11% would be underwater as well.
The people who are already slightly underwater would be pushed to the point where not ruthlessly defaulting becomes not a mark of honesty and integrity, but of stupidity. It is one thing to stick it out and continue to pay on your mortgage if you house is worth $5,000 less than your mortgage. You signed a contract and you want to honor your commitments. You have ties to that community, and you value your credit rating.
However, when the mortgage is $50,000 or $100,000 more than the house is worth...lets just say everything has its price. Add in loss of income from hours being cut or one or both earners being laid off, and defaults and foreclosures are bound to continue to rise. This means that the pressure on the mortgage related companies, including but not limited to the mortgage insurance companies like MGIC (NYSE: MTG | Quote | Chart | News | PowerRating) and the banks like Bank of America (NYSE: BAC | Quote | Chart | News | PowerRating) is not going to let up any time soon.
Nanosphere Sales Growth In 2H 2009
With the Verigene System and 2 currently approved assays not receiving approval until late-2007, Nanosphere Inc. (Nasdaq: NSPH | Quote | Chart | News | PowerRating) currently generates little in the way of revenue relative to their cost base. We expect the company to generate negative operating income for the foreseeable future as SG&A and R&D expenses remain elevated to support newly-approved products and the company's pipeline.
Manufacturing efficiency programs and economies of scale through higher production volumes should benefit gross margins and help offset increased operating expenses. Grants and government contracts, which had provided 25% of revenue in 2008, will likely be immaterial in 2009 and beyond.
Lear May File for Bankruptcy
Lear Corporation (NYSE: LEA | Quote | Chart | News | PowerRating) may file for bankruptcy protection no later than Jul 1.
The company has until Tuesday, Jul 30 to make $38 million in loan interest payments or face the possibility of filing for Chapter 11 protection. The debt holders are preparing for a Chapter 11 bankruptcy filing.
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