JPMorgan Increases Bear Stearns Price to $10 and Home Sales Rise 2.9% After Six Straight Declines

Last week, the big news was that JPMorgan Chase was going to buy once multi-billion dollar rival Bear Stearns for around $2 per share, valuing the company even less than the value of their corporate headquarters building. Oddly enough, even after this announcement was made, the stock was still trading at a premium.

While the stock was hit hard on Monday following the news and trading under $4 per share, it was still a bit of a mystery as to why there were so many people buying the stock. Even on CNBC, the analysts seemed a bit dumbfounded as the stock continued to rise to $8 on Tuesday. After a few volatile trading sessions, the stock settled in around $6 as angry shareholders continued to protest the low JPM bid. For once, it looks like shareholders made their voices heard as JPMorgan agreed to increase its offer to $10 per share and bear the first $1 billion in losses on Bear Stearns assets.

Who wishes they had picked up a few BSC shares on Monday for around $4?

Home Sales Increase, Prices Drop

After six straight months of declines, the National Association of Realtors reports that average existing home sales rose 2.9% in February. This comes as quite a shock since most analysts expected a further decline for February. While that number is a good indication that more people are buying homes, the actual average sale price is still declining. The median home price compared to this time last year is still down a little over 8%. Still bad news for hoping that your home is increasing in value, but the increased supply is great for buyers.

Of course, any good news is welcome news in the housing sector, so hopefully it is a sign that things may begin to stabilize this year. I’m not terribly optimistic yet, but I’ll take any news that isn’t a sign of a continued downward spiral. With home prices still nearly 25% lower than they were on average a year ago, I think we still have a little ways to go. But as things do begin to settle down, the once again increased demand should slowly turn things around.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

6 comments
Larry
Larry

I've been looking around everywhere, and I'm sure it's a difficult question to answer, but:

What the heck are all the BSC stockholders supposed to do during this fiasco?

I've held BSC for 4 years now (yes, I probably should have sold when it was double in price), but I had no idea it would come to this, and I am pretty pissed off.

H_Roarke
H_Roarke

It's not a positive sign based on the overall market definition of a positive sign. Market definition: this is the beginning of the recovery. It's not and I will use your example to show why:

"If you’re running a business, and for six straight months you’ve been selling fewer and fewer widgets, and then finally you have a month with an increase in sales, that is a good sign. Even if it doesn’t match what you did in the same month in years prior, you have to walk before you can run."

Your increase in widget sales don't help you if the price dropped significantly. That's what is happening here. People are dropping their price expectations because their houses have been on the market for a long time. This is not a sign of recovery, but the beginning of capitulation. You didn't make any more money on your widgets by selling more at lower prices.

Also, my reasoning holds in comparing February to prior February. I will use a non-real estate example: An amusement park gets more visitors in the summer than the winter. If that amusement park has even less visitors in the winter than normal, and receives a less than normal increase of visitors in the summer, their profit still drops significantly. Just because they had a bump up in visitors in the summer, which always occurs, does not mean they are on a path to make more money. Stats like this are very predictable in businesses, such as real estate and amusement parks, so when they fail meet what happened in the past there is an issue.

Housing markets take longer to drop and recover than the stock market...much longer. This has years to go before the recovery truly starts.

Jeremy
Jeremy

While I won't argue that the extra leap day may have had a slight impact on the numbers, it is still a positive sign.

If you're running a business, and for six straight months you've been selling fewer and fewer widgets, and then finally you have a month with an increase in sales, that is a good sign. Even if it doesn't match what you did in the same month in years prior, you have to walk before you can run.

You'll never be able to begin increasing year over year numbers until you can begin increasing month over month numbers. So some people will put negative spin on it saying that it means nothing compared to years prior, and others will give it an overly positive spin. I say that it is one of the first positive signs we've had in this area in quite a while, and while it isn't the sign that we've hit the bottom, it is still better than another negative month.

H_Roarke
H_Roarke

The "postitive" housing number is actually incorrect, though I don't entirely blame GenX, as everyone is saying this is a good sign.

The problem with the 2.9% number is that it comes from comparing apples to oranges. The proper way to compare the February number is to compare it to February in prior years.

Feb 2008 = 2.9%
4 year Feb average = 7.2%

Thus, February actually had a major decrease when compared (apples to apples) to the appropriate time period.

Also, note that this year was a leap year, so there was an extra day of sales in this year's number. This artificially increased the number, which means the 2.9% increase is actually overstated.

On top of that February is always better than January, so an increase from January to February isn't a surprise, even in a down market.

Don't be fooled by this, we have a long way to go before housing bottoms and even longer until it starts to go back up.

42
42

The NAR number is (as usual) misleading. Compare Feb 08 to Feb 06/007 and you'll get a much clearer picture.

MilkYourMoney
MilkYourMoney

I believe it was the S&P that predicted our banks are currently facing their biggest write-downs from their mortgage losses. Meaning, the worse is apparently over or is currently overhead. Hopefully, this is the case, and we can escape without the mortgage credit crunch spilling over into the broader economy in the form of a all out recession. In the meantime, I believe the Federal Reserve has done more than their share to keep us afloat.