For immediate release

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace.

Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; William Poole; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

hen Modern Is Out of Fashion
NY Times
FROM the start, Zane and Michelle Riester knew just what they wanted — a classic midcentury contemporary house. "As I like to say, we were looking for a house that came with plans," Mr. Riester said.
Mr. Riester, 31, grew up in downtown Manhattan with his father, but his mother remarried an Englishman, so he spent summers and holidays in England. His interest in modern architecture was cultivated by his stepfather, who designed and built a modern house, partly of glass, in Rothersthorpe, Northamptonshire. Middle Court House, as the house was known, became "important to my whole being," Mr. Riester said.
He met his wife, Michelle Cruz Riester, 29, when they worked together as legal assistants for a Manhattan law firm. Later, both attended Fordham Law School.
For six years, the Riesters rented an 800-square-foot studio in the Hudson Tea Building, the former Lipton Tea factory in Hoboken, N.J. They paid $2,150 a month, plus $150 for parking. Last year Toll Brothers, having bought the building, converted it to condominiums. Though the Riesters could have bought their unit for $379,000, they wanted more space. More significantly, changes made in the common areas during the conversion were too elaborate for their taste.
So, a year ago, they went on the hunt for what they really wanted: a modern home within commuting distance of their offices in northern New Jersey. Their target price was around $500,000, but they would go up to $650,000, depending on condition.
They knew their kind of house was scarce in this part of the nation. Real estate agents, they found, had no idea what they were seeking. Most agents said they had no such houses, so they sent the listings they did have. Others "sent stuff they thought would qualify but it just didn't," Ms. Riester said. The listings tended to be traditional houses with some modern touches.
They were "never, ever aesthetically what I wanted," Mr. Riester said. "I was looking for a house with plans, which was also a metaphor that somebody took the time to consider how this house was going to interact with its environment."
Hunting online, they experimented with search terms like "ranch" and "one-level." They sifted through hundreds of pictures, which let them instantly reject hundreds of houses. "Luckily, we both like this style," said Ms. Riester, who is from West New York, N.J. "We always had the same exact feeling whenever we walked into a house. We never disagreed on anything, which I thought was odd."
Driving around, they located some neighborhoods with suitable homes, like Highland Avenue in Upper Montclair. But the one midcentury contemporary for sale there was listed at $900,000.
Last winter, they found a three-bedroom house of steel and concrete built into a cliff on Kinnelon Road in Kinnelon. "It was really dramatic and kind of took our breath away," Mr. Riester said. Inside, green carpeting covered everything. One wall was all mirrors. They adored the lime-green kitchen.
The house had water damage, which is not uncommon in flat-roofed structures, and the agent said the property was soon to go into foreclosure. The listing price was $670,000, which the Riesters thought outrageous. Their final offer of $500,000 was declined. The house remains on the market, for $528,000.
They expanded their search terms, trying "architect-designed" and "architect-owned." They were frustrated to encounter old listings for nice houses that had just been sold. "Beaten to the punch again — this is driving me nuts," Mr. Riester said.
After months, they were discouraged enough to consider those traditional houses with modern touches — as long as they were perfectly symmetrical. They found two houses they liked in Maplewood, but they didn't quite resonate.
Last spring they visited "a beautiful, clean, modern, elevated box" on Sunset Road in Piscataway, overlooking the Raritan River. One of the owners, who wanted more space and a more traditional feel, was readying it for sale. The Riesters were horrified to see a door with a crescent-shaped window awaiting installation. The four-bedroom house was "tragically in the process of becoming a colonial from the inside out," Mr. Riester said.
"They had put molding around all the doors and lost all the modern aesthetics," he said.
The kitchen hadn't yet been revamped. "They showed us the kitchen in a very hesitant way," Ms. Riester added. "It was the thing we loved, but they were almost embarrassed to show us." The house is still for sale, for $549,900, said the listing agent, Christina Duncan of the Re/Max Classic Group in Branchburg.
Late one weekend night, on the real estate Web site Trulia.com, Mr. Riester checked out Upper Montclair and continued north. That's where he found it: a three-bedroom, two-bathroom glass-and-concrete box in Wayne, surrounded by greenery. Excited, they drove over the next morning. "People were coming just out of curiosity, just to see the house," said the listing agent, Louis Tordini of Weichert Realtors in Wayne.
The Riesters toured the house and the neighborhood. Their offer of $409,000, the asking price, was accepted immediately.
The house had been on the market for several weeks, and "I was frustrated it never showed up before," Mr. Riester said. "So many agents were sending us listings — how did this never come up?"
The 1964 house, designed by the architect Milton Klein, came with the original floor plans, which had been passed from owner to owner.
The Riesters moved in last month. Though they long for some original Le Corbusier and Florence Knoll pieces, those must wait for another day.
Mr. Riester even tracked down Mr. Klein, who practices in Mountainside, N.J., to ask for suggestions about repairing the roof, which had settled. Mr. Klein, who lives in a midcentury contemporary of his own, suggested a slightly tapered roof.
Why are such houses so rare? In the Northeast "the contemporary houses were the exception," Mr. Klein said, possibly because the region embraced a conservative aesthetic "as compared to, say, California during the same period." The houses were built for private clients, he said. "They were never tract houses and were never speculative."
The Riesters know their style of house is not for everybody. "But everyone who has been here thinks it's perfect," Ms. Riester said. "They know it's us."
 
 
 
 
 
House Available for $50,000 (Monthly, That Is)
Robert Spencer for The New York Times
TEMPORARY QUARTERS As home sales soften in many parts of the country, more high-end properties that would otherwise have been offered for sale are being rented, like this house in Brookline, Mass.
 
 
NY Times, September 24, 2006
JACK COHEN, a developer in suburban New York, is having a hard time selling a house that he built in Purchase and put on the market for $3.75 million. So last year he leased it to a New York Knicks basketball player for $17,000 a month.
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Sheldon Dubrow, who is also a builder, is not getting any bites on a $1.99 million home he owns in Brookline, Mass. Now he's hoping that he can rent it for $8,500 a month.
As housing sales soften in some areas, rentals are beginning to look good to sellers who do not want to cut prices. Renting is also becoming more attractive to potential buyers who would rather wait and see what direction the market is going to take.
"There's increased supply and increased demand," said John Pfeiffer, a senior manager of Associates for International Research Inc., which handles executive relocation for Fortune 500 companies.
A majority of the rental market nationwide is under $6,000 a month, but a handful of cities offer a fair number of rental properties at $8,000 and above — like Los Angeles, San Francisco, New York, Boston, Honolulu, Las Vegas, Miami and Washington, and their environs.
Owners who have properties that might have listed for $1.5 million a year ago may now have to lower the asking price to $1.1 million to make a sale, and so they rent instead.
"People are not willing to take the hit," Mr. Pfeiffer said.
Real estate brokers estimate that a $1 million home will rent for $5,000 to $7,000 a month, depending on size, condition and location.
So, who pays this kind of rent?
It might be someone who has recently moved into an area and is testing out a neighborhood. "Some of these people who rent are the ones who didn't buy," said Nancy McCreary, manager of the Hammond Rental Group in Boston. "Maybe because it wasn't their perfect choice, or the house was in the high $1 or $2 millions and with the increase in interest rates they said, 'I'm going to wait and see what happens.' "
Although the rents may seem exorbitant, those people do avoid a huge down payment, and aren't necessarily paying much more than monthly mortgage payments of, say, $10,000, on a $2 million-plus home.
Other high-end renters are diplomats and government officials, as well as executives relocating internationally or domestically, often for a stint of three to five years.
Many executives are given housing allowances, or "contributions," as they are more frequently called these days, which means the company will pick up part of the rent when they relocate.
Other people who might be willing to spend thousands of dollars a month for rent are those who are having expensive renovations done on their homes and need a temporary place to stay. And, of course, there are always the celebrities, along with a support crew of film directors, producers and others.
"The high-end lease market has always been extremely active in L.A.," said Jan Eric Horn, the founder and executive director of the architectural division of Coldwell Banker in Beverly Hills, Calif. "There are so many people brought in by the entertainment industry for 10, 11, 12 months."
Mr. Horn said he had noticed lately that "while the sales market has slowed, the demand for leases has gotten higher," which sometimes creates bidding wars.
A house in the west side of Los Angeles that was recently listed for rent at $30,000 a month is now being leased for $50,000, because several people were interested in it. The house — just under 7,000 square feet with a pool and horse stables — went to a businessman who paid the entire one-year lease up front, Mr. Horn said.
"A lot of leases are coming onto the market now," he said. "People are saying, 'If I sell now, I'll take a hit. Why do that? Let me put it on the market and lease and get top dollar.' "
Richard Kramer, a writer and producer who has worked on television shows like "Thirtysomething" and "My So-Called Life," is tempted to rent out his West Hollywood home and move to another state or country for a while. "I've fallen in love with my house; I've invested so much of myself in it, you can't recreate that," he said. "I can't imagine ever not having this house, but I would like to live somewhere else."
He bought his three-bedroom, 1920's house 15 years ago for $770,000 in an "insanely appreciating neighborhood," he said, and hopes to rent it out for $20,000 a month, which he says would be several times his mortgage.
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This beach house in Malibu, Calif., is also for rent.
"That might be high," he said, "but I'd like to get it."
Homeowners with beach property, especially on one of the rare private beaches in Los Angeles, can almost name their price.
Alan Mark, a real estate broker from Los Angeles, says he rents his 1,800-square-foot "cottage," which he estimates is worth $12 million, for $30,000 to $50,000 a month, depending on the length of the lease and the season.
His renters have included people like David Margulies, chief executive of the New Pacific Realty Corporation, who leased the house over the summer. Many renters work less than an hour away in Beverly Hills, Century City or Hollywood but are seeking a beach getaway.
"I'm very active — I wanted a place where I could scuba dive, swim and surf," Mr. Margulies said. "You can sit at the window and watch dolphins jump out of the water. I know this will sound astounding, but to be candid, I think it's a bargain."
Las Vegas, while not on the scale of Los Angeles, has a number of homes that rent for $20,000 to $30,000 a month that also cater to celebrities, including those who are the headlining acts at nearby hotels.
"We have 20 or so villas that fit that category," said Jack Woodcock, the founder of Prudential Americana Group Realtors in Las Vegas. "In the past some of the entertainers would have stayed in hotels because we didn't have the facilities, but now they prefer the houses."
There have always been some high-end rental homes available for reclusive celebrities, gamblers and top-level corporate executives, but it was only in the last seven or eight years that they have become more prominent as "security has become more of an issue," Mr. Woodcock said.
Many of these rentals are clustered around Lake Las Vegas, an upscale development a short limousine ride from the Las Vegas Strip, as well as in golf course resorts in nearby areas, he said.
"There's not a lot of publicity about these places," Mr. Woodcock said. "They're generally places people have moved out of and hold on to as an investment."
Manhattan can also bring very high rents. Paying $25,000 a month for a four-bedroom prewar town house on the Upper East or West Side is fairly typical, said Susan Greenfield, a vice president of Brown Harris Stevens in Manhattan. "I have seen a lot of empty-nesters selling homes in the suburbs and moving into the city," she said. "They're not opting to buy right away and they test the market to see if they like the neighborhood."<BR>Another rental scenario is an affluent family in the midst of a divorce and "the man needs to move out of his very high-end home," Ms. Greenfield said, but "needs to be close to the children."
While the high-end rental market may not shift much in Manhattan, give or take a few thousand dollars, brokers say the pricey rental markets in the outlying New York, New Jersey and Connecticut towns are more volatile.
"Over the last four months, I'm seeing two things," said Alix Sara Prince, vice president of Sotheby's International Realty in Rye, N.Y. "Those who want to wait out and rent until the market recovers, or those who are strapped because they have to leave town and put their house up for rent."
Ms. Prince says she has 13 homes available for rent at $11,000 to $35,000 a month in the three towns she serves in southern Westchester County, almost twice as much in that price range as last year. Quite a few rentals, she said, are sitting around unrented.
Ms. McCreary, the Boston real estate manager, who specializes in rentals in Boston and its suburbs, said she, too, had an unusually large stock. "I'm getting a lot of $6,000 to $10,000 rental inventory this fall, which is an odd phenomenon," she said. "Usually the busiest activity is in the late spring."
But even with the greater supply, she added, "we've done quite well" in the last 18 months.
Many of the rentals are from people who want to sell, she said. Some are planning to rent for a few years, while others just intend to lease their homes for a few months before listing their property for sale next spring, she said.
Mr. Dubrow, the builder with a home in Brookline, put his 4,500-square-foot house on the market almost a year ago. He has lowered the price once, but still, buyers are not pouring in. "Some people from California with one child looked at it and thought it was too small," he said.
In June, when his real estate agent "talked to me about renting, I wasn't too excited," Mr. Dubrow said.
But his attitude has changed. "Now, $8,500 will cover my nut," he said.
 
In Miami, Condos and Hotels Now Wed in Higher Style
Canyon Ranch
SELLING A LIFESTYLE Plans for Canyon Ranch Living, left, include renovating and adding onto the 1950's-era Carillon Hotel on Miami Beach, below top.
 

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NY Times: September 24, 2006
DR. STEPHEN MEISEL, a radiologist in Los Angeles, had not heard of a condo-hotel until a year and a half ago when he checked into the Ritz-Carlton in Key Biscayne, Fla. Because of a reservation mix-up, he and his family were given a condo-hotel unit, a privately owned apartment rented by the hotel, instead of a hotel guest room. "I said, 'What is that?' I had no idea," Dr. Meisel recalled.
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Alex Quesada for The New York Times
The lobby of the luxury condo-hotel will feature a three-story sculpture made of mangrove branches, designed by the architect David Rockwell, and an igloo in the 70,000-square-foot "leisure and lifestyle space."
But Dr. Meisel was so impressed with the condo, which had a kitchenette, a washer-dryer unit and an ocean view, that he quickly bought a two-bedroom unit in the building for $1.8 million. Then he bought an adjoining studio for $500,000 and a one-bedroom for $650,000. Eight months later he picked up two preconstruction units, a studio for about $900,000 and a one-bedroom for about $1.2 million, at the W condo-hotel on South Beach.
While sales of homes and condominiums in much of Miami's real estate market are sagging, many buyers are gambling on a new style of condo-hotel property that is backed by design-conscious hotels and located on expansive lots on Miami Beach. Although condo-hotels have been around for decades, it is only recently that trendsetting hotels have entered the field: besides the W, other boutique brands heading south include the Gansevoort, Canyon Ranch, the members-only SoHo House and the Regent.
Miami is attractive for condo-hotels, said Michael Achenbaum, president of the Gansevoort Hotel Group, because it draws young, affluent tourists — the kind who would stay at the Hotel Gansevoort in New York's meatpacking district. "I wouldn't buy a condo-hotel in Tulsa," Mr. Achenbaum said. "Nothing against Tulsa, but it doesn't get the same occupancy and premium room rates."
A condo-hotel in Miami can cost as much as a regular condominium. But because the unit can be rented when the owner is absent, with the revenue split 50-50 with the hotel, after service fees are paid, buyers hope to earn income from hotel guests. That was why Patrick Simeon, a real estate dealer from Queens, N.Y., bought a one-bedroom five months ago at the Gansevoort, paying $900,000. "The area and the hotel are known for luxury and restaurants and parties," Mr. Simeon said. "With a place like that, you will always make money."
Most of the new condo-hotels are north of Miami Beach's quaint Art Deco district, known for its low-rise buildings, dense traffic and vibrant street life. The newcomers are on a section of beachfront above Collins Avenue and 21st Street that was home to high-rise hotels and condo towers dating from the 1950's to the 1970's. The large lots appealed to developers who needed room for spas, sports facilities and more towers.
The amenities planned for the new condo-hotels are flamboyant, even by Miami standards. At the Gansevoort South, a makeover of the old Roney Plaza Hotel, rooms will be swathed in gray suede, and the pool area décor will include flaming fire pits at night. The $435 million W, a new 19-story building, will feature black ceramic floors in the rooms and a Bliss Spa.
Meanwhile, Canyon Ranch Living, a renovation of and addition to the 1950's-era Carillon Hotel on Miami Beach, features a three-story sculpture in the lobby made of mangrove branches, designed by the architect David Rockwell, and an igloo in a 70,000-square-foot "leisure and lifestyle space." The Regent features a glass-bottom pool.
Yet it is unclear whether these condo-hotels will make money from rentals or eventual resale. There are no reliable data on a secondary market for condo-hotels, and rental rates and occupancy levels fluctuate with industry cycles. Even thriving tourist towns like Miami have off seasons, and Florida's fierce tropical storms can dampen visitor numbers.
"If you only consider rental income and expenses, it's hard to justify buying these properties at these prices," said Joel Greene, president of Condo Hotel Center, a real estate agency in Miami. Mr. Greene advised that, instead of expecting cash flow, would-be buyers should regard condo-hotels as a type of "hassle-free real estate ownership" and a second home that has a likelihood of appreciating in value.
Dr. Meisel, 62, said he was just about covering costs, with down payments of 20 percent to 30 percent, at his first condo-hotel units at the Ritz-Carlton. He expects to do at least as well at the W because of its flashier image and ocean frontage on Collins Avenue, where an aging Holiday Inn is being demolished to make way for the hotel.
Nely Galán, a 42-year-old television producer in Los Angeles who bought at Canyon Ranch, is counting on rental income, too. Two years ago, she paid around $500,000 for a unit designed for disabled use after seeing plans for the hotel's "wellness community" on the beach. A year later she bought a larger, regular condo unit, with a lanai, for $1.9 million, in the mixed-use complex.
Long a devotee of the hotel's spas and spiritual retreats, Ms. Galán figures she will use the condo, and possibly live there part of the year, and have no trouble renting the smaller unit, which has special features for people with disabilities, including a larger bathroom and wider hallways.
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Gansevoort South
In With the New The Gansevoort, a New York trendsetter, is moving south with plans for a condo-hotel in Miami.
The W, above, will bring its flashy image to the oceanfront on Collins Avenue, after an aging Holiday Inn, below, is demolished.
 "People who come to Canyon Ranch want a healthier lifestyle, and they are older and wealthier," Ms. Galán said. "Even if they are not disabled, who wouldn't want a bigger bathroom?"
Developers like condo-hotels because selling preconstruction units helps them finance projects. Canyon Ranch, at $500 million, includes three towers and 600 units, including a hotel, a condominium and 151 condo-hotel rooms. "Basically developers are selling the air up front and can use the money for construction costs," said Jan D. Freitag, a vice president at Smith Travel Research in Hendersonville, Tenn.
For owners, however, fees can be steep. Costs include property taxes, maintenance charges, homeowner's insurance and, most probably, a mortgage. Moreover, a service fee as high as $125 a day — for a two-bedroom at the Gansevoort South — is deducted from the gross rental revenue to reimburse the hotel for administrative costs.
In Florida, hurricane insurance premiums, which have more than doubled in the state over the last year, are another factor to consider. These costs are absorbed by the developer but may be passed on to owners in higher maintenance fees.
In addition, if condo-hotel owners join the voluntary rental program they must book in advance: 45 days' notice is required at the Gansevoort. Rental rates are set by the hotel, and developer-owned hotel rooms are usually given priority over owner rooms when parceled out to guests. Although room furnishings are uniformly high quality, individual decorating is not permitted.
So far, sales have been brisk, developers say. Two years ago, Canyon Ranch sold out all units within six months at prices ranging from around $500,000 to $1.5 million. "Those who understand Canyon Ranch were drawn to it," said Philip Wolman, chairman of WSG Development, a partner with Canyon Ranch on the project.
The W is also attracting those who enjoy the hotel's style. Gary Brecka, chief executive of Life Asset Group, a life insurance company in Miami, paid just under $2 million for a 1,900-square-foot, two-story bungalow at the W South Beach. Besides the private "infinity-edge" pool and ocean views, Mr. Brecka, whose main residence is just a few miles away, said he liked "the atmosphere and European energy" at W hotels.
While sales of existing condos in Miami fell 37 percent in July compared with a year ago, according to the Florida Association of Realtors, the W has sold 63 percent of its condo-hotel inventory since January. Marketing began last December with a W-sponsored event during Art Basel Miami, an annual art fair that attracts a wealthy crowd.
David Edelstein, principal of Tristar Capital, a co-developer of the W South Beach, contends that the beachfront location and the W hotel chain's reputation will trump any downward trend. In a softening market, Mr. Edelstein said, "I have always believed that Miami Beach oceanfront is immune, or at least, a last bastion of strength."
Demand was so strong for the W's larger, more expensive units, Mr. Edelstein added, that many one-bedrooms were combined to create larger configurations with dens, reducing the overall number of condo-hotel rooms to 419 from 511.
Still, Mr. Freitag, of Smith Travel Research, cautions that condo-hotels historically have a high attrition rate between planning and completion. Competition is growing, with around 50 projects currently in various stages of development in the Miami area. While it is unlikely that a well-financed hotel chain will abandon a project, Mr. Freitag says there are unanswered questions about this type of real estate.
"What if the hotel industry doesn't do well and a hotel pulls the flag?" Mr. Freitag said. "You might be left owning a piece of the lobby of a different hotel. It can get messy very quickly."
For his part, Dr. Meisel, the Los Angeles radiologist, said he was focused on the long-term financial prospects of his condo-hotel units and the chance to vacation at different locations. "With five properties you can move around and keep the rest rented," he said. "I'm not concerned about any potential drop in value. They will both be good investments."
 
In Las Vegas, Downtown Steps Up to the Table
John Gurzinski for The New York Times
WHERE THE ACTION IS A view of downtown shows the construction on Newport Lofts on the left and the recently opened Soho Lofts on the right.
 
NY Times September 24, 2006
LAS VEGAS is one of those places that always seem to be expanding — and usually with plenty of fanfare. In the last couple of years a number of high-profile high-rise condominium projects have been announced for the Strip. And while questions remain on how many of those condos will actually be built, another group of high rises is going up downtown, just five miles north of the Strip.
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John Gurzinski for The New York Times
Several high-rise residential projects are taking shape in downtown Las Vegas, including the Allure condominiums whose first tower is nearly complete.
Since taking office in 1999, Mayor Oscar B. Goodman has made revitalizing the city's downtown a priority. Where the area used to be seedy, he wants it to be civilized. Where the only draw was the Fremont Street Experience, a touristy outdoor entertainment center, he wants locals to dine, drink, shop and enjoy the arts. More important, he also wants locals to live there.
"We're different than the Strip," Mayor Goodman said, adding, "What I'm trying to get downtown is the lights on 365 days a year. I'm looking for the resident; they're looking for the visitor who wants a Vegas address."
So far, most of the downtown units have been bought by second-home buyers and investors, but the mayor says he is confident that will change. And as several high-rise condo projects emerge out of the ground, the fruits of his efforts are starting to show.
In his first term, Mayor Goodman acquired 61 acres in the heart of downtown for a development officially called Union Park, but more often referred to as 61 Acres. It is to include a performing arts center, an Alzheimer's research facility designed by Frank Gehry (set to break ground on Oct. 25), two boutique hotels, a casino and residential property. Next to that site, the World Market Center is already partly open and is to eventually be a 12-million-square-foot trade-show complex housing one of the largest furniture markets in the world.
But residential growth is what is turning heads. The first person to dig into the market was Sam Cherry, a 28-year-old real estate developer and high school dropout whose first building, called Soho Lofts, is attracting buyers downtown. The lofts, in a tower at Las Vegas Boulevard and Hoover Avenue, opened in June and are almost sold out: 114 of the 120 units are taken.
When sales began two years ago, prices ranged from $300,000 to $2 million; now, units are reselling for $600,000 to $4 million.
"Soho Lofts, being the first one that got out of the ground here, really opened up the eyes of a lot of people that 'Wow, they sold half-million to three-million-dollar units in downtown Las Vegas,' " Mr. Cherry said, "where two years prior to that you could have bought all of downtown for $3 million."
What Mr. Cherry said he was envisioning was a lively, pedestrian-friendly neighborhood where business, art and a quintessential coolness exist side by side.
"We're trying to create a village atmosphere by putting the projects right next to each other," he said. "All the projects have retail on the ground floor. We want to make it like New York City, Chicago or San Diego, when you walk out your front door and there's retail right there. You're mixing with your neighbors, you're contained in a village atmosphere."
Mr. Cherry has two more projects in the works: Newport Lofts, which is in the construction stage, will be a 23-story tower with 168 units and is to open next spring with prices in the same range as Soho Lofts (135 are sold); and Stanhi, a 65-story complex that will have 425 slightly more upscale units starting in the $400,000 range when it opens for sales on Oct. 1. Ground has not been broken for that project, but Mr. Cherry expects it to be completed in 2009. Both are within two blocks of Soho Lofts.
"Sam Cherry went out on a long limb in building his first tower there," said Dick Geyer, president of the Las Vegas Arts District Neighborhood Association. "It stands out as a big beacon on the corner of the arts district." (The arts district is one of several enclaves in the newly coalescing downtown; others include the office, entertainment and casino districts.)
Construction has also begun on several other high-rise projects. The twin 41-story towers of Allure Las Vegas, developed by the Fifield Companies of Chicago, mark the gateway to downtown with 428 units ranging from studios to penthouses. The first tower is nearly finished and is 90 percent sold. Prices start around $400,000 and average $600 per square foot.
Juhl, a project by CityMark Development of San Diego, which broke ground in June, is a six-tower complex of residential and retail space that has already sold 60 percent of its 341 loft units, which range from $200,000 to $700,000.
Mayor Goodman is quick to note that many of the buyers — almost 80 percent — at Juhl are full-time residents who work downtown. According to Juhl's sales manager, John Eiseley, these buyers are paralegals, lawyers and judges who work in the area. But Mr. Eiseley said the complex was also getting a few creative types and entrepreneurs for its shopkeeper units, which allow small-business owners to set up boutiques on the ground floor and live above them.
Streamline Tower, a 21-story project (although it has no floors 4, 13, 14 or 24 for feng-shui reasons), will offer 275 units when it opens in December 2007; it is being developed by Barclays North. About 60 percent of the units have been sold, said Dusty Allen, the building's project manager, with a third of the buyers from California, a third from Nevada and the rest from around the country. "We have about 40 percent identifying themselves as primary users," Mr. Allen said.
Two more high-rises, Hue Lofts, a project by the developer Eddie Haddad, and Evolution Lofts, by Boulevard Properties and the Greenwald Group, are also in the pipeline.
While none of these projects embrace the glitz and glamour of abodes on the Strip, they do offer upscale modern design and amenities: fitness centers, pools and parking facilities are standard features.
Condo sales "went in a pretty predictable pattern," said Bea Goodwin, president of the Las Vegas High Rise and Condominium Association and part of the sales team at Allure, referring to the investors who bought there. "But I think what will happen is the investors who bought in real early will flip their residences. We'll have one flip of those folks and then it will be more a community of people who actually live there or actually spend a lot of time there."
As with so many revitalized neighborhoods, artists were the first ones to move downtown, before the redevelopment got started.
"When I moved to Las Vegas, I found myself in a warehouse space like the beginning of SoHo, or any other arts district you've ever seen anywhere in history," said Wes Myles, a commercial photographer who was one of the first artists to live and work downtown. "I moved into an old, trashed building and tried to convince the people of the city that this was the arts district and this is where it was going to happen. They didn't believe me."
In 1993, Mr. Myles moved into an industrial commercial building; three years later he bought it, evicted a tattoo parlor and furniture store and persuaded his artist friends to set up studios and galleries. By the late 90's, Mr. Myles began holding biannual art parties and huge gallery openings. (He also began actively working with city officials to rejuvenate the area, which he still does.)
In 2002, Cindy Funkhouser, a longtime downtown resident and owner of The Funk House antiques shop, formalized the random gallery openings into a monthly First Friday event. The first one drew 300 people; in August, more than 10,000 attended. As the Friday event grew in size and scope, developers said, it became a catalyst for the change that is visible now downtown.
Mr. Myles's building, now known as the Arts Factory, is home to 26 art-related tenants, 17 of which are galleries. Bars like the Icehouse Lounge, Art Bar and Triple George are drawing an after-work crowd, while Beauty Bar (a branch of the East Village, N.Y., night spot) opened last year for the hipster contingent.
Paul Devitt, the owner of Beauty Bar, said downtown was "the heart and soul of Las Vegas, the only spot where you could see the potential for a place where people could walk around." He added, "If I lived there, I would long for that."
Although the complete turnaround of downtown may take an additional 5 to 10 years, it is on the way. "It's already happening," Ms. Funkhouser said. "It's not something that can be stopped or is going to fall apart at this point. For one thing, we have people moving here from large cities, and they want this type of downtown."
 
 
Weighing the Cost of Insurance
NY Times: September 24, 2006
In recent years, borrowers have gotten increasingly creative about avoiding private mortgage insurance, the cushion that lenders require when homes are bought with small down payments. These borrowers have used adjustable-rate mortgages and so-called piggyback loans to reach 20 percent down payments, the minimum required to avoid P.M.I.
But now that such loans are getting more costly, private mortgage insurance, or P.M.I., is becoming a more attractive financial option again. P.M.I. protects lenders against foreclosures, which are more common among those with less equity in the house.
"Depending on your circumstances, P.M.I. can be less expensive," said Ariel Solomon, a vice president of the Premier Mortgage Group in Denver. "That's the case especially if you have lower credit scores, or you're in a lower tax bracket, or both."
These factors are particularly important, Mr. Solomon and other mortgage executives said, when it comes to the piggyback loans that many borrowers use to avoid P.M.I. With such loans, borrowers take a first mortgage and a second mortgage in tandem, with the second loan increasing the down payment to 20 percent. The savings can be significant. On a $230,000 home, mortgage insurance premiums would range from $50 to $100 a month. But interest rates for second mortgages often hover around 1 percent higher than the prime interest rate, which has jumped from 4 percent to 8.25 percent in the last two years. As a result, those with piggyback mortgages can face higher monthly payments than those with P.M.I.
Borrowers with lower credit scores pay even more interest on the second mortgage, Mr. Solomon said, to say nothing of the additional closing costs for the second loan. Still, in most cases P.M.I. is not tax deductible, whereas borrowers can deduct mortgage interest. And while mortgage payments build home equity, insurance does not.
Even while increasing interest rates have made P.M.I. more attractive, Lisa Rambler, a senior vice president of A.I.G. United Guaranty, a mortgage insurance company, said that insurance companies had "made great strides" in developing more flexible products so consumers have more ways to buy homes with low down payments.
Lenders will, in some cases, essentially buy the P.M.I. on the borrower's behalf and build the premiums into the loan's cost, making a part of the insurance tax-deductible.
A.I.G. United Guaranty is also working with lenders to allow borrowers to buy down their interest rate by up to two percentage points, which the borrower pays off over the term of the loan. The product, United Guaranty's RateXchange, leaves borrowers with less initial equity in the house but with lower monthly payments than they would have with other financing options. And with the cost of insurance figured into the loan, there is more tax-deductible interest paid, which in turn takes away some of the sting of the extra expense.
Although extra costs are never palatable, P.M.I. can provide valuable benefits, mortgage professionals said. Genworth Mortgage Insurance, among others, pays a borrower's mortgage, taxes and insurance costs, up to $2,000 monthly for six months, if the borrower becomes unemployed involuntarily.
Premiums, meanwhile, have remained steady over the last decade, mortgage insurance executives said, and are expected to remain steady. Factors like the loan amount and type, credit history and the home's anticipated rate of appreciation help determine a borrower's premiums.
"It's the same with any insurance company — if losses go up, the rates will go up," said John Tuccillo, the principal in John Tuccillo & Associates, a real estate consultancy in Arlington, Va. "But the foreclosure rate is very, very low over all, so these companies can reflect that in their premiums."
 
 
Your Home
How to Select a Pressure Washer
NY Times: September 24, 2006
WHILE a garden hose and some detergent and elbow grease will get the job done, there is nothing like a pressure washer to take the pressure out of all sorts of chores: preparing patio furniture for storage, degreasing the grill or cleaning oil stains from the garage floor.
Skip to next paragraph
"There are three things to consider when buying a pressure washer," said Tom Kraeutler, the host of "The Money Pit," a nationally syndicated radio program about home improvement. "Water pressure, gallons per minute and price."
Water pressure, expressed in pounds per square inch, can range from about 1,000 p.s.i. to 4,000 or more for commercial washers.
Gallons per minute is the volume of water a machine produces at a given pressure. For household units, the gallons per minute ranges from one to four.
As for price, pressure washers range from less than $100 for electric units to $1,000 or more for large gasoline-powered washers.
When choosing between electric and gas, consider how you want to use the machine. "You can get decent performance from an electric washer,'' Mr. Kraeutler said, "but they're not very convenient because you have to run a cord to it. That's fine for washing the car, but it gets old really quickly if you're going to be scooting around the house."
Kim Liechty, the president of Campbell Hausfeld Powered Products, a power-tool maker in Juliet, Tenn., said consumers often believe that "bigger is better" when buying a pressure washer. "That is not the case," he said, "because there is an optimum pressure and flow for each job."
For example, someone who wants a pressure washer primarily to clean a car should buy a machine that has relatively low pressure — 1,000 to 1,300 p.s.i.
On the other hand, someone who wants to pressure-wash siding, strip paint or clean a patio or sidewalk should choose a unit with higher pressure — 2,400 p.s.i. or more.
Jon Hoch, the founder of PressureWashersDirect.com, an Internet retailer, said that while some pressure washers allow the user to vary the pressure, most homeowners will be satisfied with a fixed-pressure unit of 1,300 p.s.i. to 2,600 p.s.i.
The detergent used will make a difference in how the machine performs, too. "Pressure washers work best when combined with chemical cleaners," Mr. Liechty said. "There are different cleaners available for different jobs, and there is a lot of price competitiveness. But if you buy the least expensive cleaner, it's going to perform like the least expensive cleaner."
Rachel Lombardo, a senior product manager at DeWalt, the power tool maker in Towson, Md., said that anyone who uses a pressure washer should remember that it's an aggressive machine. "With a high-pressure washer, you can carve your name in a wood deck or even break a window."
Used carelessly, pressure washers can also inflict injury. "These things are extremely powerful," said Mr. Hoch, the Internet retailer. "Never point a pressure washer at yourself or anyone else."
Since most washers come with an assortment of tips that deliver different spray patterns, users should pick the least aggressive tip that will get the job done.
"We suggest using the 40-degree nozzle first," Ms. Lombardo said, referring to the tip with the broadest spray pattern. "And test a small portion of the surface first."
All kinds of attachments are also available, Mr. Hoch said. Brushes, starting at about $20, are handy for cleaning cars or patio furniture, and a surface cleaner ($50 and up) is good for cleaning large areas like decks or patios.
Homeowners who plan on storing their pressure washers in an unheated garage should consider a Pump Guard ($10), which fills the washer with special antifreeze.
 
 
 
It Seemed Like a Good Bet at the Time ...
WSJ
FOR Inga Rogers, the party ends in 38 days.
On Nov. 1, the adjustable-rate mortgage, or ARM, she took out three years ago at the spectacular rate of 3.875 percent will get considerably more expensive. Ms. Rogers, a single mother of two living in a three-bedroom ranch in suburban Boston, faces a rate increase of three percentage points, raising her monthly house payment by $300, to $1,419, and putting her at a financial crossroads.
Her choices: keep the loan and run the risk of future increases, or ditch her adjustable mortgage in favor of a more stable loan with a higher monthly payment.
Ms. Rogers, a hairstylist working 32 hours a week, will have to work more in either case. The 6.85 percent 30-year fixed-rate loan she is considering would cost $100 a month more than her higher ARM payment, but it would at least protect her from future increases that could go far higher.
"I still might not be able to make the extra money, because with my job I don't have a set income," she said. "So I have an adjustable salary, too. My whole life is a roller coaster."
As housing prices shot up in recent years, ARM's gave borrowers a way to jump into the market while paying only a fraction of the interest that traditional mortgages require, at least for the first few years. But the risk they took — that rates would not rise too steeply when the loans entered their adjustable period — now haunts millions of borrowers, who have seen their monthly payments skyrocket. Now, if they can afford it, they are moving to 30-year fixed loans or ARM's that remain at the same rate for at least seven years.
ARM's have come in and out of vogue, but their latest surge began about five years ago, when the Federal Reserve Board started cutting key short-term interest rates in an effort to stimulate the economy. But now that the Fed's focus is on reining in inflation, rates have risen steadily.
The increases have caught many homeowners in a "can't pay, can't sell, can't refinance" vise, in which their ARM payments are outpacing their incomes and their homes have not appreciated enough to help cover the cost of a refinanced mortgage or to allow them to sell and walk away. For them, foreclosure looms.
But for most ARM borrowers whose house values rose sharply in recent years, there is ample fiscal room to switch to a loan with higher interest but lower angst. "Instead of facing significant payment shock, a lot of people are looking to refinance because they're fearful of further increases," said Craig Focardi, an analyst with TowerGroup, a financial-services consultancy in Needham, Mass.
Some borrowers are simply taking out new ARM's, which carry a fixed rate for three years or less. "But some of them are thinking, 'Do I really want to double-down?' " Mr. Focardi said.
He said a borrower who took out a three-year ARM in August 2003 could expect initial interest rates of about 4.6 percent. On a $300,000 loan, the monthly payment was $1,610. That rate would rise this year to about 6.6 percent, leaving the borrower with a $327-a-month increase, plus the possibility of future annual increases (or decreases) of as much as two percentage points.
Nearly 37 percent of all loans taken out in a single week in late March 2005 were ARM's, roughly 10 percentage points higher than the same period a year earlier and 23 percentage points higher than the same period in 2003, the Mortgage Bankers Association says. The loans were most heavily concentrated on the East and West Coasts, economists said, where housing prices spiked more sharply.
There is no consensus on how many of those loans are nearing the so-called reset point, when rates are adjusted. Some economists estimate that next year anywhere from $162 billion to $1 trillion worth of adjustable-rate mortgages will be reset. Douglas Duncan, the chief economist of the mortgage bankers' group, said: "The truth is probably somewhere in the middle of those estimates, but whatever the number, we've seen that consumers are already acting."
And what they're doing is getting out of those ARM's. Refinancing activity is back up to nearly 44 percent of all loans, after slumping to about 33 percent in May, the lowest point since June 2004, according to the mortgage bankers' group. As of early September, slightly more than 25 percent of all loans were adjustable, the lowest level since October 2003. The rest are fixed-rate mortgages; the interest rate for 30-year fixed-rate loans now averages 6.36 percent.
According to lenders and mortgage brokers, borrowers who are staying with ARM's are divided into three groups: those for whom the possibility of higher interest rates is not a concern; those who know they will not be staying in their homes for long; and those who simply cannot afford higher monthly payments — people who are essentially at the mercy of the market.
In San Francisco, Marc Geshekter, a broker with Residential Pacific Mortgage, said of his ARM customers: "A lot of them are just taking out a new five-year ARM at 6 or 6.25 percent rather than taking a chance on the current loan adjusting upward. Maybe they had a three-year ARM before, so they're opting for a slightly longer-term loan because they're wishing they had a few extra years now."
As in other pricey real estate markets, ARM's are popular in New York. Steven Schnall, the president of the New York Mortgage Company, said ARM's represented 57 percent of its loans in New York, compared with 48 percent nationally.
New York, he said, has a higher percentage of affluent homeowners who are more mobile and therefore less likely to need a long-term mortgage. "And they're more able to afford the risks associated with ARM's,'' he said.
Affluent they may be, but many New York borrowers are unwilling to accept sharp mortgage increases. Michael D. Cohen, a partner in Phillips Nizer, a New York law firm, will soon refinance the ARM on his five-bedroom apartment on Park Avenue. The new ARM has a 7 percent rate cap for 10 years. "I've been receiving the benefits of low rates for years,'' he said. "But you have to take the bad with the good."
Others are more desperate. Stephen Parnell, the chief executive of the Lynxbanc Mortgage Corporation in Boca Raton, Fla., said some of his clients had taken out so-called "option ARM's," wherein they can choose to pay less than the nominal interest rate on the loan, so the debt actually grows until it reaches a limit. After that, or after a certain period of time, the interest rate is locked in, often at a steeply higher level.
"Some people are taking that short-relief pain pill in a last-ditch effort to stay in the house,'' Mr. Parnell said. "Their hope is that the real estate market in the next two to three years will be kinder to them.''
Some others are in more desperate situations. Mr. Parnell used an example of buyers who had used ARM's to buy homes in new developments last year, only to be facing payments they cannot afford. They would sell their houses to rid themselves of the loan, but the builders in those developments are selling off the last of their new homes for much less than what buyers paid last year, leaving the buyers with ARM's little choice but to drop their resale prices sharply to compete.
One such owner, who requested anonymity rather than risk the embarrassment of exposing a financial blunder, bought a house in Port St. Lucie, Fla., as an investment in April of last year and financed the $410,000 purchase with an ARM, with an introductory rate of nearly 7 percent. The loan was an afterthought, since he expected to sell the house almost immediately for a profit. He didn't, and now the developer recently sold a similar house in the neighborhood for $325,000.
"I just didn't know what I was doing, and I shouldn't have done it," said the man, who does not have enough equity in the house to refinance and who will run out of money to pay the mortgage in 10 months. "Maybe the Lord will send a miracle."
The more precariously positioned ARM borrowers are very much on the minds of economists, some of whom fear that masses of consumers will not be able to afford the new higher payments, setting off a recession. According to Christopher Cagan, an analyst with First American Real Estate Solutions, a housing consultancy in Santa Ana, Calif., about 19 percent of the 7.7 million ARM's taken out in 2004 and 2005 are at risk of defaulting.
But many more will escape these loans unscathed, Mr. Cagan said. Melinda Johnson, a dietitian who lives in the Phoenix suburb of Chandler with her husband and two children, recently refinanced to a 30-year fixed loan, six months after the rate on her ARM jumped to 5.85 percent from 3.85 percent.
"That was fun," Ms. Johnson said, referring to the initial interest rate, which ran for three years. "But if the market climbed and we still had the loan, we could be at 9.85 percent in another two years."
Ms. Johnson and her husband plan to own their home for the long term, so a 30-year fixed loan makes more sense, she said. But the $4,500 the couple spent on the refinancing probably erased most of the interest-rate savings from the ARM, she said.
"I'd do it again in the right circumstances," Ms. Johnson said. "If rates are low and it's looking like the start of a great market, we might take that gamble."
Ms. Rogers, of Stoughton, Mass., outside Boston, said she would give herself a little more time before deciding whether she could stomach the uncertainty of her mortgage. Others, like Richard and Sandra Strauss of Oakton, Va., are done with the drama.
About five years ago, the couple, who have lived in the same house for 22 years, took out an adjustable-rate mortgage with an introductory rate of 1.95 percent. Since then, the rate has climbed 13 times, to about 7.5 percent in August. They could have saved money simply getting a new adjustable-rate loan, but instead they opted for a 30-year fixed loan, cutting about one percentage point off the interest rate and saving hundreds on their previous monthly payment.
"We don't want to track rates regularly," Ms. Strauss said. "And the rates on fixed mortgages are fairly decent."
Mr. Strauss put it more bluntly. "We're done with ARM's," he said. "We don't want any more surprises."
 
Plan to turn factory into housing site is debated
Friday, September 22, 2006

The Record

FAIR LAWN -- A proposed development that would transform a polluted chemical factory into 178 town houses is dividing nearby residents into two factions.
There are those who say a new complex would spruce up what has long been an eyesore, and others who believe there is simply no more room for high-density housing in Fair Lawn.
One thing everyone agrees on is that change is not only essential but long overdue at the site of the defunct Clariant Corp. complex, which churned out dyes and chemicals for nearly 50 years along the Passaic River.
The developer, Glen Rock-based Shellmarc LLC, must go before the Planning Board for site plan approval. In the meantime, it has asked the Borough Council to adopt an ordinance to rezone the 13-acre site from industrial to multifamily residential, said Colin Quinn, an attorney for the developer.
BY THE NUMBERS
A proposal to redevelop the defunct Clariant Corp. complex calls for:
•  48 senior housing units in a gated building.
•  130 two-bedroom units of traditional town houses.
•  18 senior apartments to be set aside as affordable housing under state guidelines
•  $125,000 to $350,000 -- expected price range for the senior units
•  $450,000 to $650,000 -- expected price range for the regular units
Source: Shellmarc LLC
Though still in draft form, the ordinance sparked a debate among more than two dozen residents who attended a council work session this week. Some voiced their support, while others expressed such concerns as the potential for heavy traffic and overcrowding in schools.
 
 
Preservationists also weighed in on the project, raising concerns about its impact on a nearby
Native American fishing weir -- a low stone dam that stretches across the Passaic River just north of Fair Lawn Avenue. The town houses would be on First through Third streets along Fair Lawn Avenue, and on Third Street almost up to River Road.
Those supporting the proposal said they would prefer that the height of the building not exceed 44 feet and that the majority of units be set aside for age-restricted housing. As it stands, the project calls for a 48-unit gated building of senior housing and 130 two-bedroom units of traditional town houses.
"I'm a 30-year resident, and I like the idea that we'll have something better to look at," said Taina Stremler of nearby Legion Place.
"I wish it could be an adult community and that we could trim the height down a bit."
Harry Poster, who lives on Second Street, agreed.
"I would prefer to see a three-story building, about 44 to 45 feet high. ... I'd be really disappointed to see something higher than that."
But Toni Fasano, also of Second Street, called the proposed development a "traffic nightmare."
Fasano said she circulated a petition to 43 of her neighbors and claimed all of them cited concerns that include a possible influx of children to the neighborhood, density and height concerns and building on a contaminated site.
"This project as it stands only works for the developer, and the people of Fair Lawn expect you as their elected officials to make sure this madness of overdevelopment stops," Fasano told the mayor and council.
Environmental concerns have long been raised about the site, which is among thousands identified by the state as contaminated. It remains in the midst of a lengthy cleanup.
The Clariant Corp. factory closed in 1992, but a small group of workers has supervised a cleanup of benzene and other organic chemicals from soil and groundwater since the 1980s.
The developer unveiled its concept for the town houses in May, touting the site as an ideal example of "brownfield" redevelopment, adding that the project would accelerate the cleanup and that pollution would not be a concern for residents.
"The developer has asked the council to review its proposal with the fullest consideration in changing a dilapidated, contaminated, worn-down, underdeveloped piece of property and returning it to a viable, tax-generating, beautiful part of the community," Quinn said Thursday.
The council has reviewed the concept plan for several months, obtaining comment from the Fire Department, planners and Superintendent of Schools Bruce Watson, who issued a letter saying the district could easily absorb the developer's projected number of 11 children at the site.
Some residents, however, were skeptical of that number.
"No matter what the superintendent tells me, the schools will be overcrowded and the burden is going to fall on the taxpayer," said Third Street resident John McGarry.
Further discussion of the rezoning ordinance is likely to continue at the next work session meeting, on Oct. 3.
Borough Manager Tom Metzler has asked a representative from Shellmarc to attend the meeting and answer questions about the site.
 
 
New-Home Starts Sink
As Sales Slow, Inventories Rise

September 20, 2006, WSJ
Construction starts on new homes plunged last month as builders curtailed production in response to mounting inventory and slowing sales.
The Commerce Department reported yesterday that housing starts dropped 6% in August from a month earlier to a seasonally adjusted annual rate of 1.665 million units. That was the fifth decline in construction starts in the past six months and the slowest rate of starts since April 2003. When compared with a year earlier, construction starts were down 19.8%.
The weak housing report helped send stocks lower yesterday, with the Dow Jones Industrial Average falling 14.09 to 11540.91. (See article.)
Construction starts on single-family homes fell 5.9% in August from a month earlier and declined 20.6% from a year earlier, the government report showed. Housing starts for multifamily homes with five or more units fell 8.2% in August from the previous month and declined 16.9% from a year earlier.
The Commerce Department report also showed that building permits -- a barometer of future construction activity -- fell 2.3% to a seasonally adjusted annual rate of 1.722 million in August when compared with the month before and were down 21.9% in August from a year earlier.
It is "pretty darn clear that ... we're in a pretty substantial downswing here," said David Seiders, chief economist of the National Association of Home Builders. Developers "can't keep bringing new supply on the market until [home] inventories come down and affordability is restored. The downside risk of [housing] to the real economy should be getting a lot of attention."
Yesterday's report on construction starts and building permits comes on the heels of a pessimistic reading on the home-builder association's confidence index, which was released Monday. The index indicated that home builders feel pessimistic about housing-market conditions and are likely to cut construction activity further for the rest of the year. The association reported Monday that its sentiment index for U.S. sales of new, single-family homes fell in September to 30 from 33 in August, indicating that most builders think the housing market is in poor shape. The housing index, compiled by the NAHB and Wells Fargo, was at 65 a year ago. A reading of 50 would indicate builder sentiment was balanced between good and poor.
Phillip Neuhart, an economic analyst with Wachovia Corp. in Charlotte, N.C., said the pullback in housing-construction activity will likely trim economic growth in the second half by at least 0.5 percentage point. The NAHB's Mr. Seiders said the slowing housing market could shave second-half economic growth by as much as a full percentage point. The 56 economists surveyed in WSJ.com's September survey said they expect economic growth averaging roughly 2.7% during the second half.
Amid a national housing boom, residential-construction activity contributed at least 0.5 percentage point to economic growth in 2004 and 2005, according to government data. However, a slowing housing market subtracted 0.63 percentage point from economic growth in this year's second quarter. "That's a dramatic swing" from previous years that is likely to worsen, Mr. Neuhart says. In the housing sector, "we expect choppy waters for the rest of the year."
Meanwhile, inflation pressures on the producer, or wholesale, level moderated last month -- offering welcome news for the economy. The Labor Department said its producer-price index for finished goods rose a seasonally adjusted 0.1% last month, matching July's increase. Producer prices in August were 3.7% higher than a year earlier, on an unadjusted basis, down from July's year-over-year increase of 4.2%. Core producer prices, excluding food and energy, fell 0.4% in August from a month earlier, in part because of a steep decline in automobile prices. The August decline in core producer prices was the sharpest drop since April 2003 and the second-straight monthly slide.
"We're not going to get these types of [auto-price] declines every month," said Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc. Nonetheless, yesterday's data underscoring a cooling housing market and easing inflation "offer an overall message of comfort to the Fed. There's no incentive for them to do anything right now" with interest rates.
Separately, the Federal Reserve reported yesterday that the total net worth of U.S. households rose 0.1% to $53.33 trillion in the second quarter, marking the 15th consecutive quarterly increase. That was up from the revised first-quarter figure of $53.27 trillion, the Fed said in its quarterly "flow of funds" report. Meanwhile, the Fed reported that U.S. household debt grew at a seasonally adjusted annual pace of 9.1% in the second quarter, as "home-mortgage debt slowed to a single-digit pace for the first time in several years." U.S. household debt grew at a 9.6% annualized rate in the first quarter.
+++++++++

September 26, 2006, WSJ
Home sales continued to decline last month, and the nation's median home price dropped for the first time in more than a decade.
The National Association of Realtors said existing, or previously owned, homes changed hands at a seasonally adjusted annual rate of 6.3 million units in August. That was down 0.5% from July and 12.6% from a year earlier.
Last month's sales decline was steepest for condominiums and cooperatives, with sales down 3.5% from July and 14.5% from August 2005. Sales of single-family homes were unchanged from July but were down 12.3% from a year ago.
Yesterday's report also confirmed home prices are coming under pressure. The median sales price of an existing home was $225,000 in August, down 1.7% from a year earlier. That was the first year-to-year price decline since 1995 and the second sharpest in the nearly 40 years the data have been collected.
Prices fell faster for condominiums than for single-family homes. In August, the national median price of a single-family home fell 1.7% from a year ago to $225,700. The median price of an existing condominium fell 2.4% from a year earlier to $223,200.
Economists had been expecting a price correction for some time, after months of slowing sales and an erosion of confidence among home buyers. David Lereah, the National Association of Realtors' chief economist, said the price decline will help the housing market by making homes more affordable and by helping to reduce rising inventories of unsold homes.
"This is a sellers' market turning into a buyers' market," Mr. Lereah said in an interview. "We needed a price correction. Prices had gotten too high, too quickly."
Falling prices have a flip side. If their homes are worth less, consumers may feel less wealthy and therefore spend less on goods and services, a worrisome trend for the broader economy. "We have to acknowledge that this is a clear risk to the consumer," said Haseeb Ahmed, U.S. economist at J.P. Morgan Chase & Co. In the short term, he said the recent drop in gasoline prices should offset the effect of declining home values.
The inventory of unsold homes rose 1.5% last month to 3.9 million housing units, a 7.5-month supply at the current sales pace, and the biggest supply since April 1993. The increase was smaller than in July, when inventories rose 3.2%.
Some economists say prices will have to continue to fall before a sizable number of buyers jump back into the market. "You've got a ways to go," said Thomas Lawler, a former economist at Fannie Mae. "You still have affordability issues in a lot of markets."
Separately, the Federal Reserve reported that banks and hedge funds boosted their lending to larger borrowers this year, while the percentage of problem loans remained relatively low.
In a trend the Fed said reflects increased merger-and-acquisition activity, the volume of syndicated credits -- in which three or more lenders team up to make a large loan -- reached $1.9 trillion in the second quarter, up nearly $250 billion, or 15.2%, from a year earlier. The share of problem credits rose to 5.1% from 4.8%. The report covers loans of more than $20 million.
The lending role of nonbank institutions, such as hedge funds, brokerages and insurance companies, has increased in recent years. According to the report, such institutions accounted for 14% of all loan commitments in the second quarter, up from 2% 10 years ago. The share of problem credits among nonbank institutions stood at 11.8% as of the second quarter.
 
How Low Will Home Prices Go?
Terri and Her Sister Tour Open Houses To Gauge the Local Real-Estate Market
September 14, 2006
My younger sister Melissa and her husband Joe are ready to move.
Today the couple live in an apartment in New Jersey just across the Hudson River from Manhattan. At 33, Melissa's had it with city life, tired of dragging bags of groceries up steep flights of stairs, frustrating hunts for a parking space and worrying about having her new car stolen or broken into.
And they know what they want: a three-bedroom, single-family home near us in Monmouth County, N.J. Melissa wants to move closer so our families can spend more time together. Joe lived in the area as a child, and he's eager to return.
But our neck of the woods has seen some of the steepest home-price increases in the nation over the last several years. In the second quarter of 2006, the median price for a single-family home in our region was $393,600, more than double the median of $188,200 in 2000, according to the National Association of Realtors.
Those price increases have reflected fierce competition, something my sister knows all too well. Last summer Melissa and Joe found the perfect place -- a roomy home near us on a fair-sized lot for a hair under $250,000. (Roomy was key -- standing 6 foot 5 plus, Joe's a guy who needs space.) After making an offer, they thought the house was theirs, only to see it snatched out from under them at the last minute by a counteroffer for $10,000 more. That was too much for my sister; deeply disappointed, she and Joe stopped looking. Still, they did keep an eye on real-estate sites, hoping for signs of a letup in the insanity.
Recently she's seen reasons for hope: Far more homes were showing up in their price range, and others she'd seen a year ago were being relisted at reduced asking prices. Melissa decided it was time to look around again, and last weekend she asked me to come along on a tour of open houses in her price range. My sister had a list of homes she'd found online, but I suggested we tour as many open houses as we could to get a feel for the market.
What we saw was bleak news for sellers in our region, but good news for buyers like Melissa and Joe: block after block of open-house signs. In fact, we were hard-pressed to find a street that didn't have at least one home for sale -- and many had more than one. What's more, most of the 20 or so homes we visited were vacant -- a sign that homeowners have moved on and are motivated to sell, or that speculators are looking to unload properties before prices go any lower. (Asked why one home was vacant, one agent said frankly: "This was a 'flip' that flopped.")
Though some of the agents we encountered continued to promote their "charming" homes as "a steal," a surprising number were more candid. "The owner way overpriced this home," said one. "I bet if you offered $30,000 less they'd jump at it." We believed her, because she was running the open house as a favor for another agent.
Another sign of a turning market: We saw very similar houses with prices all over the map -- ranging from the low $200,000s to $270,000. That's evidence that sellers aren't sure what houses are worth these days, with some reluctant to accept that market dynamics have changed.
"They look at home-price comparisons from a year ago when there was far more demand than supply," says Pat Lashinsky, senior vice president of Emeryville, Calif., real-estate firm ZipRealty. Now that there's excess supply, he says, sellers need to be more willing to negotiate.
One agent on our tour encouraged Melissa to look at homes "in the $270s or $280s" -- well out of her price range -- and make lowball offers. Think that wouldn't work? We encountered a husband and wife going the "for sale by owner" route, with an asking price of $315,000. While his wife pointed out the home's features to my sister, the husband gave me a wink and whispered, "Don't let that $315 scare you, we're extremely negotiable."
After our exhausting open-house blitz, Melissa asked for my thoughts. Though I'm too young to have experienced the 1980s real-estate market implosion, something told me that things are going to get a lot worse for sellers before they get better. To get an expert's take, I asked Robert J. Shiller, a Yale economics professor, for his insight on where the East Coast real-estate market may be headed.
"We don't know exactly what's going to happen because we've just experienced the biggest housing boom this country has ever seen," he says. In addition to homeowners struggling to sell existing homes, construction is at near-record levels: The last time this much inventory entered the market was 1950, when builders were building suburban homes for soldiers returning from war, he says.
Prof. Shiller suggests that the Japanese housing bust may provide a precedent. Home prices there remained depressed for a decade before the market recovered. He says: "The real question is, 'Is this the beginning of a major period of decline as we saw in Japan, or will we see a kind of sharp and sudden correction?' " (Read more of Prof. Shiller's thoughts on the housing market here5.)
Despite evidence of a cooling real-estate market, Melissa and Joe decided they weren't quite ready to wade back in: They'll take the market's temperature again in the spring.
That settled, my sister wanted to know what I thought they could reasonably afford. When they began looking, Melissa believed homes around $250,000 to $260,000 were in their price range, based on the going mortgage rates. But as rates have marched steadily higher, the maximum they can afford to borrow has become a bit of a moving target. To pinpoint how much they could afford, I told Melissa to plug in the numbers on our home-affordability calculator6; after doing so, she estimated the most they could afford was a $230,000 loan, assuming they put $20,000 down.
Affordability has long been a problem for first-time home buyers who are strapped for cash. Mortgage payments are taking a bigger bite out of household incomes: The median monthly payment as a percentage of income was 24.3% in July 2006, up from 20.5% in 2000. And now double-digit jumps in home prices in some areas of the country -- like ours -- are even squeezing households with higher-than average income.
In 1992, when he was 25, Gerry bought a three-bedroom house on a 50 foot by 100 foot lot for $134,000. The home was located in one of the coastal towns Melissa and Joe have been looking at. Money was tight for a few years, but he managed the monthly payments with no problems. Today, comparable homes are listed in the same neighborhood in the $400,000 range, three times as much. But Melissa and Joe's household income is less than double what ours was back then. Home-price inflation had clearly outpaced incomes.
To get into pricier homes, many homebuyers have turned to adjustable-rate mortgages, which offer low upfront interest rates that fluctuate over time. But as these loans begin to reset, rising interest rates have begun to take a toll on family finances, as this article7 notes.
For this reason, I've urged my sister to avoid ARMs, even though there's a possibility she and Joe might want to upgrade to a nicer home within seven years -- the average length of time before homeowners either sell their homes or refinance their mortgages. A 30-year fixed-rate mortgage averaged 6.53% statewide in New Jersey for the week ending Sept. 8, according to HSH Financial Publishers. Compare that to 5.48% for a one-year ARM.
True, an ARM would allow Melissa and Joe to get more home for the money: Using this calculator8, Melissa used the terms of two mortgages she's comparing and found her monthly mortgage payment would be $1,458 with the fixed-rate loan, and just $1,303 with a one-year ARM if rates remained where they are. But that's a big if: If rates hit the 12% cap, she'd be looking at a monthly nut of $3,252. The thought of a sudden mortgage-payment increase of even a few hundred dollars makes my sister queasy, so she agreed the fixed-rate loan is a better fit.
I also urged her to tune out mortgage brokers who tell her she can afford a much more expensive home by using exotic loans such as interest-only mortgages or option ARMs, which let you choose how much your monthly payment will be. These loans leave the homeowner at risk of being "upside down" on their loans, where the mortgage is greater than the value of the home. If forced to sell, they could be in serious trouble.
Finally, since Melissa and Joe have decided to wait to see how market conditions unfold, I suggested they begin "paying" her mortgage now so their first payment won't come as such a shock to the system. Their current rent is roughly $700 (yes, a spacious apartment can still be had near New York City for less than a grand a month).
So, back to the math: If their monthly mortgage payments are likely to be in the $1,500-a-month range, Melissa and Joe should start using the difference ($800 a month) from their disposable income to either pay down debt or save for a larger down-payment. That will help when the time comes for them to hop off the fence and become first-time homeowners.
 
Black Incomes Surpass Whites in Queens
October 1, 2006, NY Times
Across the country, the income gap between blacks and whites remains wide, and nowhere more so than in Manhattan. But just a river away, a very different story is unfolding.
In Queens, the median income among black households, nearing $52,000 a year, has surpassed that of whites in 2005, an analysis of new census data shows. No other county in the country with a population over 65,000 can make that claim. The gains among blacks in Queens, the city's quintessential middle-class borough, were driven largely by the growth of two-parent families and the successes of immigrants from the West Indies. Many live in tidy homes in verdant enclaves like Cambria Heights, Rosedale and Laurelton, just west of the Cross Island Parkway and the border with Nassau County.
David Veron, a 45-year-old lawyer, is one of them. He estimates that the house in St. Albans that he bought with his wife, Nitchel, three years ago for about $320,000 has nearly doubled in value since they renovated it. Two-family homes priced at $600,000 and more seem to be sprouting on every vacant lot, he says.
"Southeast Queens, especially, had a heavy influx of West Indian folks in the late 80's and early 90's," said Mr. Veron, who, like his 31-year-old wife, was born on the island of Jamaica. "Those individuals came here to pursue an opportunity, and part of that opportunity was an education," he said. "A large percentage are college graduates. We're now maturing and reaching the peak of our earning capacity."
Richard P. Nathan, co-director of the Nelson A. Rockefeller Institute of Government in Albany, called Queens "the flip side of the underclass."
"It really is the best illustration that the stereotype of blacks living in dangerous, concentrated, poor, slum, urban neighborhoods is misleading and doesn't predominate," he said.
Andrew A. Beveridge, a Queens College demographer who analyzed results of the Census Bureau's 2005 American Community Survey, released in August, for The New York Times, said of the trend: "It started in the early 1990's, and now it's consolidated. They're married-couple families living the American dream in southeast Queens."
In 1994, an analysis for The Times found that in some categories, the median income of black households in Queens was slightly higher than that of whites — a milestone in itself. By 2000, whites had pulled slightly ahead. But blacks have since rebounded.
The only other places where black household income is higher than among whites are much smaller than Queens, like Mount Vernon in Westchester, Pembroke Pines, Fla.; Brockton, Mass.; and Rialto, Calif. Most of the others also have relatively few blacks or are poor.
But Queens is unique not only because it is home to about two million people, but also because both blacks and whites there make more than the national median income, about $46,000.
Even as blacks have surged ahead of whites in Queens, over all they have fallen behind in Manhattan. With the middle class there shrinking, those remaining are largely either the wealthy, who are predominantly white, or the poor, who are mostly black and Hispanic, the new census data shows.
Median income among blacks in Manhattan was $28,116, compared with $86,494 among whites, the widest gap of any large county in the country.
In contrast, the middle-class black neighborhoods of Queens evoke the "zones of emergence" that nurtured economically rising European immigrants a century ago, experts say. "It's how the Irish, the Italians, the Jews got out of the slums," Professor Nathan said.
Despite the economic progress among blacks in Queens, income gaps still endure within the borough's black community, where immigrants, mostly from the Caribbean, are generally doing better than American-born blacks.
"Racism and the lack of opportunity created a big gap and kind of put us at a deeper disadvantage," said Steven Dennison, an American-born black resident of Springfield Gardens.
Mr. Dennison, a 49-year-old electrical contractor, has four children. One is getting her doctoral degree; another will graduate from college this school year. "It starts with the school system," Mr. Dennison said.
Mr. Vernon, the lawyer from Jamaica, said: "It's just that the people who left the Caribbean to come here are self-starters. It only stands to reason they would be more aggressive in pursuing their goals. And that creates a separation."
Housing patterns do, too. While blacks make more than whites — even those in the borough's wealthiest neighborhoods, including Douglaston — they account for fewer than 1 in 20 residents in some of those communities. And among blacks themselves, there are disparities, depending on where they live.
According to the latest analysis, black households in Queens reported a median income of $51,836 compared with $50,960 for non-Hispanic whites (and $52,998 for Asians and $43,927 among Hispanic people).
Among married couples in Queens, the gap was even greater: $78,070 among blacks, higher than any other racial or ethnic group, and $74,503 among whites.
Hector Ricketts, 50, lives with his wife, Opal, a legal secretary, and their three children in Rosedale. A Jamaican immigrant, he has a master's degree in health care administration, but after he was laid off more than a decade ago he realized that he wanted to be an entrepreneur. He established a commuter van service.
"When immigrants come here, they're not accustomed to social programs," he said, "and when they see opportunities they had no access to — tuition or academic or practical training — they are God-sent, and they use those programs to build themselves and move forward."
Immigrants helped propel the gains among blacks. The median income of foreign-born black households was $61,151, compared with $45,864 for American-born blacks. The disparity was even more pronounced among black married couples.
The median for married black immigrants was $84,338, nearly as much as for native-born white couples. For married American-born blacks, it was $70,324.
One reason for the shifting income pattern is that some wealthier whites have moved away.
"As non-Hispanic whites have gotten richer, they have left Queens for the Long Island suburbs, leaving behind just middle-class whites," said Professor Edward N. Wolff, an economist at New York University. "Since home ownership is easier for whites than blacks in the suburbs — mortgages are easier to get for whites — the middle-class whites left in Queens have been relatively poor. Middle-class black families have had a harder time buying homes in the Long Island suburbs, so that blacks that remain in Queens are relatively affluent."
The white median also appeared to have been depressed slightly by the disproportionate number of elderly whites on fixed incomes.
But even among the elderly, blacks fared better. Black households headed by a person older than 65 reported a median income of $35,977, compared with $28,232 for white households.
Lloyd Hicks, 77, who moved to Cambria Heights from Harlem in 1959, used to run a freight-forwarding business near Kennedy Airport. His wife, Elvira, 71, was a teacher. Both were born in New York City, but have roots in Trinidad. He has a bachelor's degree in business. She has a master's in education.
"Education was always something the families from the islands thought the children should have," Mr. Hicks said.
In addition to the larger share of whites who are elderly, said Andrew Hacker, a Queens College political scientist, "black Queens families usually need two earners to get to parity with working whites."
Kenneth C. Holder, 46, a former prosecutor who was elected to a Civil Court judgeship last year, was born in London of Jamaican and Guyanese parents and grew up in Laurelton. His wife, Sharon, who is Guyanese, is a secretary at a Manhattan law firm. They own a home in Rosedale, where they live with their three sons.
"Queens has a lot of good places to live; I could move, but why?" Mr. Holder said. "There are quite a number of two-parent households and a lot of ancillary services available for youth, put up by organized block associations and churches, like any middle-class area."
In smaller categories, the numbers become less precise. Still, for households headed by a man, median income was $61,151 for blacks and $54,537 for whites. Among households headed by a woman, the black and white medians were the same: $50,960.
Of the more than 800,000 households in Queens, according to the Census Bureau's 2005 American Community Survey, about 39 percent are white, 23 percent are Hispanic, 18 percent are Asian, and 17 percent are black — suggesting multiple hues rather than monotone black and white.
"It is wrong to say that America is 'fast becoming two nations' the way the Kerner Commission did," said Professor Nathan, who was the research director for the National Advisory Commission on Civil Disorders in 1968 and disagreed with its conclusion. "It might be, though, that it was more true then than it is now."
 
$100 Million Homes Hit the Market
NY times, Sept 30
PALM BEACH, Fla. (AP) -- Donald Trump's property for sale here has all the big-time extras one might expect. Pricey marble and 24-karat gold fixtures decorate bathrooms. There's a gargantuan fountain in the driveway and 475 feet of oceanfront out back.
Perhaps the biggest thing about the home, however, is its price tag: $125 million. And (sorry Donald) that price has already been trumped. A home in Aspen, Colo., is now listed at $135 million. Another home in Lake Tahoe, Nev., was recently listed at a flat $100 million.
The listings represent a monetary milestone in American real estate: the first time U.S. homes have broken into a whopping nine figures, according to real estate experts, and they've done so in quick succession. A May survey of the nation's most expensive homes by Forbes.com put Trump's home at the most expensive and the first to break the $100 million mark. At the time, the next highest listing was a $75 million estate in Bridgehampton, N.Y.
Now, the trio has market followers wondering: Will they sell? And what do you really get for $100 million?
''I'm surprised it took so long for people to realize value,'' Trump said of the listings. ''I'm the one that did it, started the trend, and I'm surprised that people haven't done it sooner.''
Usually the top 10 percent of any marketplace is considered the luxury market, but these properties are a tier above.
''They're super luxury properties,'' said Trump, the real estate mogul and reality TV star.
Shari Chase, whose company Chase International has the Lake Tahoe listing, acknowledged the shock value of the recent prices.
''This is stratospheric for offering prices, but I think we're going in that direction,'' Chase said. ''I think these three properties, they are really the Super Bowl of real estate.''
And the listings are extreme. At these prices, bedrooms, bathrooms and square-footage are almost irrelevant. The homes, like their price tags, are gigantic.
At the Aspen property, owned by Saudi Prince Bandar, the main residence, finished in 1990, has over 56,000 square feet (about 1,000 square feet bigger than the White House). That's set on a 95-acre site. Think roughly twice the size of Boston Common. It even has its own car wash and gas pumps.
Need more space? The recently listed Lake Tahoe home, owned by Tommy Hilfiger Corp. co-founder Joel Horowitz, comes with 38,000 square feet of livable space on 210 acres. That includes a private trout-stocked lake and two par-three golf courses. Features also include a grand staircase replicating one built on the doomed ocean liner Titanic.
Smaller on acres but bigger in square footage is Trump's property, called Maison de L'Amitie, which he bought for about $41 million in 2004. He assigned renovations to ''Apprentice'' winner Kendra Todd. The home's approximately 80,000 square feet are spread over several buildings. Separate coat closets and bathrooms for men and women off the main entryway make entertaining easy, and the large pool overlooking the ocean seems like a given.
Sara Clemence, an editor for Forbes.com who wrote its listing report, said properties at the top end of the market have been moving upward for years, but the recent 100-million-plus listings are significant.
''One of the things that surprises me is that all this is happening all at once,'' Clemence said. ''I'm not sure if all these sellers and Realtors are looking at each other or if they're just coming to the same conclusion all at the same time ... you can price a property for $100 million and up.
''That said just because you ask for it doesn't mean you're going to get it,'' Clemence said.
The price tags on the homes don't seem to have deterred a small cadre of buyers. The Lake Tahoe property, called ''Tranquility,'' and the Aspen property called ''Hala Ranch,'' have both already entertained buyers according to agents. The interested parties are confidential, but they include business people from the U.S. and overseas.
Owning properties like these requires a large bank account. Taxes alone on the Palm Beach property if sold at its current asking price would amount to more than $2 million annually, according to the Palm Beach County property appraiser Web site.
Trump, for his part, was surprised to hear his property had competition for the top spot in the U.S. ''Who's at 135?'' he asked.
He didn't seem sore, though.
''I think my property is worth more than $125 million,'' he said. ''It's a bargain.''
 
October 1, 2006
Sweetening the Pot for Home Buyers
By LISA PREVOST
WHAT does it take to sell a house in a slowing real estate market? Lou Aloupis thinks he knows: a 2006 Mercedes E-Class sedan.
A partner in a contracting firm that renovates houses for resale, Mr. Aloupis is trying to sell a remodeled ranch on a dead-end street in Stamford. "Every single thing in that house has been replaced," he said. Yet the listing has languished since February, and Mr. Aloupis is growing impatient.
He has shaved more than $100,000 from the initial asking price, bringing it down to $679,000. He is offering the property through both a real estate agency and for-sale-by-owner Web sites. He even invited a woman who runs estate sales to display merchandise at the ranch, then distributed sales fliers to her customers. "At the end of the day, nothing came of it," he said. "Not even a phone call."
So now he has sweetened the pot: Mr. Aloupis will sign over the lease on his Mercedes for one year to the buyer who closes on the house. He will prepay the lease; the buyer will have only insurance costs to cover.
As for Mr. Aloupis and his partners, Scott Kaluczky and Robert Bove, "we'll be happy right now if somebody buys the house for $660,000," he said. "We've got too much money tied up in it."
Mr. Aloupis is not alone in his frustration with the changing market. Though median sales prices in Connecticut were still rising, albeit modestly, as of the end of July, single-family home sales were down 13 percent statewide for the year to date, according to the Warren Group, a real estate research and publishing company based in Boston. The drop was steepest in Fairfield County, where sales were down more than 20 percent for the first seven months of the year and 30 percent for July.
The accompanying increase in the number of available properties has many sellers scrambling for ways to make their houses stand out from the pack. While some agents are sticking to traditional marketing strategies like competitive pricing and added online exposure, others are adopting more creative attention-getting methods — aimed not just at buyers, but at fellow agents as well.
"There's so much inventory out there that, to a great extent, it's a matter of just getting the brokers to your house," said Patti Ballard, a sales agent with William Pitt Sotheby's International in Ridgefield. "Last year, we averaged 8 to 10 brokers' open houses on any one day in Ridgefield. Lately, we've had a couple of days with 34, 36 broker open houses. It can be overwhelming."
One local plastic surgeon is offering free Botox treatments to the agent who sells his home. Such incentives arouse curiosity, Ms. Ballard said. "I'm not a big Botox girl myself," she said, "but it certainly got my attention."
Carole Maisano, an agent in the same office, is using a more exotic incentive to drum up agent interest in her 4,400-square-foot contemporary home in Wilton. Ms. Maisano listed the four-bedroom home in April for $1.375 million and has since reduced the price to $1.285 million. Showings dropped off, however, so she is now offering an African safari for two to the agent who brings a sale to closing.
The idea arose from her husband's newest business venture: arranging customized safaris. The offer has not attracted significantly more traffic, but it has drawn agents from outside the immediate area, Ms. Maisano said.
Mark Markelz, a sales vice president at William Raveis Real Estate in Southport, sees extravagant incentives as more gimmick than effective sales tool.
Earlier this year, he worked with some builders who tried to attract buyers by offering to pay points and closing costs. "It fell flat on its face," Mr. Markelz said. "The consumer is sharp enough to say, 'Listen, what's the bottom-line price?' "
Dawn Grabover, an agent with Keller Williams Realty in Ridgefield, has tried a similar approach with her listing for a three-bedroom town house in Danbury. The unit has now spent five months on the market, so the owner is offering to credit the buyer six months' worth of common charges at closing. Coupled with a price reduction to $469,500 from $499,000, the offer was an attempt to distinguish this unit from the other 15 town homes for sale in the complex, Ms. Grabover said. As of yet, it has not attracted much interest.
If buyers see through certain incentives, agents also sometimes steer clear of them. Safaris to Africa notwithstanding, state law stipulates that any incentive for selling a house must be given to the brokerage, not the individual agent, said Eugene Marconi, general counsel for the Connecticut Association of Realtors. The brokerage then decides what to do with it. The aim is to remove the temptation for sales agents to bump up their income by working out side deals, he said.
The value of incentives is further diluted by the arrangements that many buyers' agents have with their clients that limit their ability to accept additional rewards, he noted.
"This incentive business is almost becoming an urban legend — do this and you'll get droves of people coming to your house," Mr. Marconi said. "But when you start peeling the layers away, oftentimes the incentive is not an incentive at all."
Typically, however, brokerages do pass the incentive along to the deserving agent, according to Ms. Maisano. In offering the safari, she said, "we assumed that the agency would just let the agent benefit. I've yet to see one that doesn't."
Paul Colombie, director of sales and marketing for the New York-Connecticut division of Baker Residential, is trying a different tack for increasing sales at the company's Villages at Timber Oak, a 328-unit development in Bethel. Playing off the popularity of home-staging shows on HGTV, Mr. Colombie decided to try schooling homeowners interested in moving to Timber Oak how to sell their properties quickly.
Although more than 50 units at Timber Oak are in contract, Mr. Colombie said, some potential buyers appear reluctant to move forward because they have houses to sell.
About 40 people recently turned up for free food and marketing advice at Mr. Colombie's first home-selling seminar in the development's gracious clubhouse.
A staging specialist recommended cleaning out closets and deodorizing carpets. A mortgage broker explained the intricacies of bridge financing. A real estate agent offered reassurances that the declining market was in fact returning to normalcy.
"We want to increase their comfort level," Mr. Colombie explained. "To be honest with you, we're going to help some people sell their house, and then they'll buy somewhere else. But that's the nature of the game."
 
High Winds, Then Premiums
September 26, 2006, NY Times
ORANGE BEACH, Ala. — Add this to the list of reasons real estate is cooling off in some of the hottest markets: soaring insurance costs.
Along the coast from Texas to Maine, owners of apartments and houses are being charged huge increases in premiums — in some cases more than 10 times what they paid last year.
The price rises are part of continuing fallout from Hurricane Katrina. Insurance companies paid more than $57 billion to cover damage from the hurricane and three others last year. And faced with predictions of severe storms for years to come, they are charging higher premiums to try to insulate themselves from future financial damage.
The price increases far exceed anything in the past, and consumer advocates accuse the insurers of price-gouging. But Robert P. Hartwig, chief economist for the Insurance Information Institute, an industry group, said, "The escalation in the cost of insurance is a reflection of increased risk'' from future storms.
The ripple effects are also being felt farther north, beyond the once-hot coastal markets in the South. Coverage costs have tripled in some cases on Cape Cod and have risen as much as 50 percent on Long Island.
Real estate experts say the rising premiums have contributed to the fall in housing prices, which are also under pressure from rising mortgage rates and the inevitable cooling of a too-hot market.
"In the South, the insurance issue is having a meaningful negative impact on sales,'' said David Lereah, chief economist for the National Association of Realtors. "It is less meaningful up the coast to the north, but insurance is definitely becoming a factor in sales there, too."
The shock of higher premiums is being felt by people like Walker and Shirley Totty, who have lived for 11 years in a 36-unit building here overlooking a white-sand beach on Alabama's small stretch of Gulf Coast.
Mr. Totty, a retired manager of an auto repair and tire store in Birmingham, said the insurance premium for his building had jumped more than 12-fold, to $429,182 annually this year, from $34,790 in 2005.
His share of the new bill — about $11,000, up from about $900 — has created such a hole in his budget that he is trying to sell his condominium and move inland.
"If I stay here, I'm going to run out of money," he said.
Not long ago, finding a buyer for an apartment on the Alabama coast, a popular area for second-home buyers, would have been easy. But Mr. Totty's property has been on the market at a price of $565,000 for three months and no one has even inquired about it.
"The market is full of fear because of the storms,'' said Larry Powell, a broker at Meyer Real Estate in Gulf Shores, Ala. "When you start seeing the cost of insurance in the range we're seeing it, you start thinking: Is it worth it? Can I afford to be here?''
Farther north, insurance coverage costs have not risen so sharply, but coastal homeowners are paying for heightened hurricane fears another way. On Cape Cod and Long Island, for example, owners have been forced to take on a much larger share of the risk of hurricane damage through higher deductibles.
Mike Chapman, sales chief in Boston for Hub International, a national insurance broker, said that premiums on many condos on Cape Cod had doubled or tripled. Deductibles, in some cases, jumped to $125,000 from $5,000.
On Long Island, Alex M. Seaman, another Hub International broker, said prices were up 20 percent to 50 percent. For one condo building, he said, the annual premium had risen to $175,000, from $120,000, and the deductible increased to $50,000, from $2,500.
The higher insurance rates are also scaring off real estate investors, who generally do not plan to live in the apartments they buy. Typically, their strategy has been to rent the apartment for most of the year to cover mortgage payments and other fees, perhaps use it for a few weeks of vacation, and then sell it for much more than they paid.
But the higher insurance costs have forced investors to redo their back-of-the-envelope math. And for many, the numbers are not adding up.
"People were buying condos with the idea of 'cash flowing' them — having them pay for themselves with rental income," said Kay Stephenson, a broker at Crump Insurance Services in Atlanta. "But now you have the cost of insurance and you have to increase the cost of the rental, and people are just not able to do it."
Here in Orange Beach, a resort community with a condominium-lined beach, and in its almost identical twin, Gulf Shores — both directly in the path of Hurricane Ivan in 2004 — it is impossible to tease out precisely the degree to which insurance costs have hurt sales. But they have clearly been a factor.
Condo sales are down 71 percent in Orange Beach during the first eight months of 2006 compared with the similar period last year, down 58 percent in Gulf Shores and down 84 percent in Fort Morgan, a smaller beach town just west of Gulf Shores. That compares with a 10.5 percent drop in condo sales around the country and about the same in the South as a whole, according to the National Association of Realtors.
In Florida, sales of individual homes have declined an average of 33 percent, and condominium sales are down 37 percent statewide. But in the cities of Daytona Beach and Naples, condo sales are down more than 50 percent from last year.
"Insurance is killing us,'' said Michael Dooley, president of the Florida Association of Realtors. The effect of higher premiums "has stepped up big time in the last few months."
Mr. Dooley, the managing broker of Illustrated Properties in Hobe Sound, Fla., north of West Palm Beach, said one customer for a $1 million home on a canal near the beach "walked away from the transaction and a $6,000 deposit when he found out what the insurance premium was going to be."
The policy on Mr. Dooley's own waterfront home is up for renewal in February and his agent has told him the annual premium will be $10,600, compared with $5,500 last year.
Given the long-term predictions of more and stronger hurricanes in coming decades — based on cyclical patterns of ocean currents and, to some extent, global warming — many insurance experts say they expect the new, higher rates to become the norm, rather than the exception, even if no major storms occur in the next year or two.
"I don't think the price is going to go come down quickly, no matter what happens," said Ed Kiessling, a senior executive at Frank Crystal & Company, a national insurance brokerage firm based in New York.
There are no real alternatives for homeowners. Policy makers in Washington have begun debating whether the federal government should share some of the burden of coverage for many kinds of disasters — not just hurricanes, but also tornadoes, wildfires and earthquakes — as it does now in terrorist attacks. But the industry is divided on whether to cede some of its risks and potential profits to the government, and Congress is far from voting on the issue, industry specialists say.
In Alabama and other areas in hurricane territory, some condo owners have discussed pooling their money to insure themselves, but have found that raising such a fund can be even more painful than paying high premiums to insurers.
While premiums on the houses of individuals have doubled or tripled, real estate and insurance people say the cost of coverage has risen much more steeply for condominium complexes, in part because their value routinely runs to the tens of millions of dollars and they represent a much higher concentration of risk for insurers than single-family homes do.
Daniel Craven, a lawyer who represents more than 100 condo owners' associations in Orange Beach and Gulf Shores, said that premium increases were steepest on homes and apartment buildings built with wood, because they typically suffer the greatest damage in a storm.
For concrete and steel buildings set on deep pilings, with lower floors used only for parking, insurance rates have generally doubled or tripled at the Alabama beaches.
The last time homeowners experienced so steep a jump in insurance prices was in 1992, when premiums tripled or quadrupled in Florida after Hurricane Andrew tore across the state south of Miami. To win the approval of regulators for such increases in Florida and a few other states, the insurers told regulators that they had taken steps to avoid similar price shocks in the future, according to J. Robert Hunter, who served as commissioner of insurance in Texas in 1993 and 1994 and is now director of insurance for the Consumer Federation of America.
"They're either gouging now or they used erroneous assumptions then,'' Mr. Hunter said.
At Fitch Ratings, which tracks the financial strength of companies, Jim Auden, a senior manager, said, "They're trying to price to make an adequate profit.''
In 2005, the property and casualty industry reported an overall profit of $43.2 billion. Home insurers, despite their heavy losses along the coasts, reported slightly better than break-even returns for the year because of investment gains and profits elsewhere in the country.
So far, there have been no major hurricanes this year, and Mr. Hunter said that if the season ended quietly, "You're going to see such obscene profits, it's going to be shocking.''
In the meantime, John Miller is giving up on coastal living. After 15 years in Florida, Mr. Miller, a building contractor, has bought a house in the Carolinas and plans to move as soon as he can sell his house in Hobe Sound, near the Intercoastal Waterway. He said he was moving because of an accumulation of problems, including having to cope with more frequent hurricanes.
But, he added, about 60 percent of the reason was insurance. "You get sick of all this," Mr. Miller said. --> --> --> --> --> -->

Rising Inventory of Unsold Homes
Is Likely to Put Pressure on Prices
 
September 12, 2006, WSJ
A continued rise in inventories of unsold homes in August is likely to put more downward pressure on home prices in parts of the U.S.
Inventories of homes in 18 large metropolitan areas across the country expanded by 4.7% in August from a month earlier, according to data compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The data are based on single-family homes and condos included in local multiple-listing services of homes for sale.
The biggest increases -- 16% in the Dallas area and 13% in Seattle -- came in markets that have been relatively strong recently. A sharp rise in inventories in those areas is likely to help restrain price increases. Other sizable increases came in Orlando, Fla. (8%), San Francisco (6.1%) and Miami (5.6%).
Of the 18 metro areas, only two showed lower inventories. Boston was down 1.5% and Washington, D.C., 1.6%. Prices have declined modestly in both areas over the past year. For instance, the median home price in the northern Virginia suburbs of Washington was $459,000 in August, down 8% from a year earlier, according to Metropolitan Regional Information Systems Inc., a data-tracking firm in Rockville, Md. Such price declines are likely causing some people who can't get the price they want to take their homes off the market and wait for a recovery.
Home sales have plunged over the past year in many areas where prices had soared over the preceding five years, notably in California, Florida, Arizona, Massachusetts and the Washington, D.C., area. Many potential buyers are waiting for prices to come down further. The persistent weakness in these markets has prompted many housing experts to say prices will have to decline more to revive sales.
Sellers gradually seem to be realizing that they will have to lower prices, says Patrick Lashinsky, a senior vice president at ZipRealty. "There's finally some realism getting into the picture."
Ivy Zelman, a housing analyst at Credit Suisse Group in Cleveland, estimates that prices of newly built homes in San Diego, Sacramento, Calif., Phoenix, northern Virginia and southwest Florida already are down as much as 10% to 15% from a year ago. That estimate includes "concessions" from builders, such as upgraded kitchens or help with closing costs, which are disguised price cuts. But Ms. Zelman still sees more price declines ahead. "We believe that the housing market is still in the early innings of a hard landing that will likely take several years to develop," she says.
Even the National Association of Realtors, normally very bullish on home prices, now predicts a drop in median prices for the nation as a whole. David Lereah, chief economist for the Realtors, forecasts that prices will decline modestly in the next few months. After that dip, he says, prices are likely to resume rising, but at a slower-than-normal rate.
 
 
Homeowners pay thousands to fix mistakes by code official

The Record, September 12, 2006

One woman had to take a wrecking ball to $30,000 worth of construction on a two-story garage and start building from scratch.
A family was banned from their new backyard pool until they spent $50,000 to reinforce, for the second time, the 30-foot cliff the pool was built on.
And a man was ordered to temporarily stop building his dream home and tweak already approved building plans at a cost of thousands of dollars.
In each case, Ridgefield construction official Robert K. Rogers missed building code violations that were apparent in the project blueprints, but were discovered only after the structures were built or near completion, according to borough and court records.
The string of mistakes cost Rogers his job last November, but property owners and taxpayers have continued to pay in the form of tens of thousands of dollars in added construction costs and lawsuits against the borough, records show. Three property owners sued the borough in the past two years for forcing them to fix projects that had received Rogers' stamp of approval. Building officials are also investigating at least one other project approved by Rogers that appears to violate codes.
"As these situations have cropped up, I'm not happy about it," said Mayor Anthony Suarez. "As soon as these issues first came up, we had discussions with Mr. Rogers and he went on his way and we went on ours."
Rogers, who has worked part time in nine North Jersey towns over the past two years and earned a combined $108,000 in 2005, acknowledged he made mistakes in Ridgefield. But he said they were "oversights, not favors" to contractors or property owners.
The most recent problem project, though, discovered in the last several weeks, has raised eyebrows because records show it was built by Borough Councilman and Building Department liaison John Quaregna, Rogers' boss at the time.
The 250-square-foot home addition built by Quaregna's Jay-Cue Construction Co. not only violates building codes, but is not on property tax rolls because Rogers classified it as a backyard "storage shed." The addition lacks permits for electrical work and is built too close to the property lines, building officials said.
There is a dispute over who made the structure a family room. The property owner, Craig Royer, says he paid Quaregna $8,300 for a room with cathedral ceilings and sliding glass doors that is connected to the dining room. Quaregna and Rogers both say it was only attached to the home's exterior, not the interior. They accuse Royer of knocking down a portion of the separating wall.
Regardless, building and borough officials say, Rogers should have sent the building proposal to the planning or zoning board for special approval. Quaregna said that his relationship to Rogers had nothing to do with its approval. He said he merely built what Rogers approved.
"Whether it was a shed or not, that's not for me to decide," Quaregna said.
The Borough Council discussed the project during a closed-door session last week. Some members said privately they worry the project will drag the borough into another legal battle.
Rogers' three approvals that have led to lawsuits are:
?  A two-story detached garage that was almost nine feet above the borough's 15-foot height limit. The borough ordered demolition of the garage on Walnut Street after it was four-fifths completed at a cost of $30,000.
"They give you permission and then they slap a stop-construction order on you and you have to eat it," said property owner Roseann Colacurto, who agreed to a $6,000 court settlement with the borough in May to defray the cost of rebuilding the garage.
?  A backyard pool built on top of improper backfill and retaining walls. Seventeen months after Rogers inspected and approved the $80,000 pool built atop a 30-foot cliff, a neighbor's complaint prompted the borough to inspect the Edgewater Avenue property again. The family was banned from their back yard. Theodoros "Ted" Papas withdrew a lawsuit against the borough last month, agreeing to spend $50,000 to correct the yard problems.
?  A single-family home with a basement that extended too far above ground and ceilings that exceeded height limits. Neighbors complained and, after an inspection, the borough ordered homeowner Edmund Riordan to halt construction of the Stewart Street house in December. Riordan withdrew his lawsuit against the borough in January and, in a compromise, agreed to pay "a few thousand dollars" to fix the violations.
Rogers said the building department was understaffed and he was overworked. He was contracted to work in Ridgefield only 30 hours per week, he said. He also worked part time in Hackensack, Little Ferry, Hasbrouck Heights and Hawthorne.
"I was running around like crazy [in Ridgefield]," Rogers said.
Both Suarez and Quaregna said they believe the problems stemmed from Rogers' heavy work schedule. Suarez said state law "allows people to stack these jobs in several towns."
Rogers said that when he inspected the 250-square-foot home addition, tools dangled from beams of the wooden frame, and the structure was not connected to the interior of the home.
"It was a shed when I approved it" in 2004, he said.
But homeowner Craig Royer -- who initially denied the addition was a room, but later admitted to The Record that it has a big-screen television and carpeted floors -- said it was always connected to the house. Both Royer and Quaregna showed The Record a copy of the contract, which did not describe any interior work to the room or show whether it was connected to the house. Quaregna's job estimate called it a "rear room," but it's identified as a "shed" on the final contract.
Building officials declined to publicly comment on the addition, but Construction Official Armand Marini sent Royer a letter last month requesting a survey with the dimensions of all structures on the property.
Building officials don't have drawings of the addition because Rogers issued the construction permit without requiring architectural drawings. The application submitted by Royer includes only a property survey with the shed drawn in pencil. Rogers said that is common practice for sheds.
Rogers, who lives in Montague, Sussex County, said he is in the process of resigning from all his jobs in Bergen County to take a full-time position as an electrical subcode official in Vernon. He said he is still working part time in Hackensack.
 
Builders assured fast payment
The Record, September 12, 2006

For building contractors, "the check will be in the mail" is no longer enough.
A new law requires property owners and developers to pay construction contractors and subcontractors within 30 days of the time they submit an invoice for the work done.
The law gives a developer or property owner 20 days from the date an invoice is submitted to determine whether the work is acceptable. If it is, payment is due within 10 more days, according to the law.
Contractors who aren't paid in a timely fashion can demand a binding arbitration hearing to enforce their claim. If they win, the new law awards them the amount they are owed plus interest – set at one percentage point above the prime rate. They can also seek compensation for the expense of pursuing the claim.
The law, which was signed by Governor Corzine on Sept. 1, has divided the construction community and the political parties. Two big builders' associations took opposing positions. And Democrats in the Legislature backed the law, while most Republicans opposed it.
Corzine signed the law at a Labor Day observance. "When project funds flow promptly, bottlenecks are eliminated, projects run smoothly and everyone from subcontractors to laborers gets paid on time," the governor said.
Yet a few weeks earlier, his transportation commissioner, Kris Kolluri, testified against the bill. Kolluri said he was concerned that the rigidity may cause the loss of federal funding.
Though the bill was changed to exempt federally-funded projects in that situation, Senate Republicans said Kolluri's unease made them uncomfortable with the measure, according to Sen. Leonard Lance, R-Hunterdon.
The law took effect immediately, but does not apply to contracts entered into before Sept. 1.
Prior to the changes, the so-called "prompt payment law" did not apply to property owners and developers. It was mainly a tool to compel prime contractors to pay their subcontractors in a timely fashion.
Sen. Steve Sweeney, D-Gloucester, who sponsored the bill, said he wrote it in part to help small contractors who don't have the cash to pay bills and salaries while awaiting a delayed invoice payment.
"A lot of the little guys go out of business because of it," said Sweeney, who is also a business agent for an ironworkers union.
The law covers private and public work because government agencies are among the most tardy payers, he said.
Jack Koscis, CEO of the Building Contractors Association of New Jersey, said his membership of commercial and industrial contractors -- many of whom do government work -- strongly supported the law.
"This is a fairness issue," he said. "And most people that don't want to pay their bills don't see it that way."
He said some of his members, especially those who do public contracts, had to wait 90 or even 120 days to be paid.
But Patrick O'Keefe, CEO of the New Jersey Builders Association, whose members predominantly build residential units, said the issue is more complex. There are legitimate reasons why a builder might delay payment to a contractor, he said.
For instance, he said, if the municipal housing inspector takes time to inspect and sign off on work, the builder will delay the payment to contractors. A developer won't want to pay for work until it's approved, but the law will require payment anyway, he said.
"We thought the legislation imposed rigidities on a rather fluid system of construction," he said. "Those rigidities don't reflect the reality of day-to-day business."
The state's two biggest trade groups, New Jersey Business and Industry Association and New Jersey State Chamber of Commerce, said they did not take a position on the bill because their members did not feel strongly about it.
Michael Egenton, vice president at the Chamber of Commerce, said it appeared there is enough flexibility in the bill to make it acceptable "if there is communications and dialogue" between customers and contractors.
 
Bankers and Regulators Clash
Over Surge in Real-Estate Loans
 
September 11, 2006
BAITING HOLLOW, N.Y. -- Federal regulators are trying to hit the brakes on commercial real-estate lending. That annoys Bradley Rock, the chief executive officer of Smithtown Bancorp Inc.
Wheeling his black Lexus sedan toward the clubhouse of the Fox Hill Golf & Country Club, Mr. Rock gazed at the lush fairways of the 175-acre property, appraised at more than $15 million. The owners of the club owe $2.7 million to his bank. "You could sell the property for massively more than the debt," Mr. Rock said. "It's impossible for the bank to lose money."
Like thousands of community banks across the U.S., Smithtown, of Hauppauge, Long Island, has feasted on commercial real-estate loans. About 80% of Smithtown's $800 million loan portfolio is concentrated in that category, which Mr. Rock calls "the last safe, profitable niche" for community bankers trying to compete against giant banks. The banks consider these loans -- the $1 million to $10 million loan to a home builder or strip-mall owner -- to be their sweet spot.
To bank regulators, the rapid growth in commercial real-estate loans -- up 16% in 2005 alone to $1.3 trillion -- is alarming. In January, four regulatory agencies, including the Federal Reserve, proposed a clampdown. In a draft of new "guidance," they said banks exceeding certain levels of lending in construction and commercial real estate should step up risk monitoring or add capital, or both.
The proposed guidance wasn't a hard rule and didn't impose limits on lending, but the bankers went bonkers. The Independent Community Bankers of America, the American Bankers Association and more than 1,000 banks wrote protest letters. The community bankers, citing the government's own reports, said commercial real-estate loan performance is healthy and growth is driven by employment and population growth. Bankers argued that their lending practices had become far more sophisticated since the last real-estate bust in the early 1990s, while the regulatory guidance had all the finesse of a meat cleaver.
A hearing on the issue before a House subcommittee is set for Thursday. Regulators probably will issue final guidelines sometime after that, and the implications could be significant. If regulators are too lax, there could be a raft of bad loans. If they are too tough, they could prompt a credit crunch, with small business owners unable to get loans. That could cast a chill on the entire U.S. economy.
Commercial real-estate loans "can be the sweet spot -- or the tar pit" for banks, says Susan Bies, a governor of the Federal Reserve. It supervises bank holding companies and about 900 state banks, including the Bank of Smithtown, a wholly owned subsidiary of Smithtown Bancorp.
The regulators conjure up memories of the late 1980s and early 1990s, when aggressive lending led to overbuilding, vacant properties, price collapses and huge losses for taxpayers. From 1987 through 1994, more than 1,100 banks and nearly 1,000 savings-and-loan institutions failed or required financial assistance, according to the Federal Deposit Insurance Corp.
"It is hard to overstate the impact of that crisis on our economy," John Dugan, the comptroller of the currency, said in a speech to New York bankers in April. Mr. Dugan's agency, part of the U.S. Treasury, supervises more than 2,500 nationally chartered banks.
Cracking Down
Though the guidance isn't finalized yet -- and, even when completed, won't include hard-and-fast lending caps -- examiners already are cracking down, say bankers. TransAtlantic Bank, of Miami, has cut back commercial real-estate loans in reaction to the regulators' proposals, while expanding unsecured loans to doctors, lawyers and other business customers. Chief Executive Miriam Lopez says the unsecured loans are actually riskier; the bank has more than doubled its credit department to handle the change in strategy.
"Talk about unintended consequences," says Mr. Rock, who as vice chairman of the American Bankers Association is helping lead the charge against regulators.
The 54-year-old banker grew up in Hauppauge, 50 miles east of Manhattan, where he was a high-school football star. He worked as a lawyer before becoming chief executive at Smithtown in 1990.
He has produced strong results: soaring loan and deposit growth, rising profits and minimal bad loans. The bank says investors who bought its Nasdaq-listed stock in 1995 have enjoyed a more than 20-fold return on their investment.
The Smithtown formula involves gathering deposits, currently about $835 million, at 13 branches on Long Island. The bank then lends out the money at interest rates that are more than four percentage points higher, on average, than what it pays on deposits. Demand is robust in Long Island's mostly white-collar economy, which has enjoyed strong job growth in health care and education, according to Moody's Economy.com Inc., although it says high costs could crimp that growth.
The bank mostly steers clear of consumer lending, such as auto loans and credit cards. Residential real estate is just 14% of the loan portfolio. Mr. Rock says Smithtown can't compete with the big banks that blanket the greater New York market.
"Citibank, Chase, Bank of America, they spend enormous amounts of money on the mass market," Mr. Rock says. "You need to be on television every night" with advertising, he says. "There's no way we can afford to do that."
Instead, Smithtown has a small lending team of five people who specialize in making real-estate loans to businesses. One banker focuses on loans to homebuilders. Mr. Rock's 24-year-old son recently joined the bank and is cutting his teeth on mortgages for small commercial buildings. The bank also lends to owners of multitenant office buildings and family restaurants.
In recent years, Mr. Rock has moved into the five boroughs of New York City, lending to smaller developers who might, for example, need a $5 million loan to convert an industrial building in Brooklyn's trendy Williamsburg section into condominiums or rental apartments.
He has an army of loyal borrowers, such as Vincent Di Canio, a Smithtown developer who has received dozens of real-estate loans from the Smithtown bank over the past 25 years. Mr. Di Canio says he goes to the big banks only when he needs more than $10 million. He is worried the regulators' guidance will cause Bank of Smithtown to cut back lending. "It would be detrimental to me and all midsized entrepreneurs," he says.
Mr. Rock acknowledges that real-estate busts occur and can be devastating. In his first years as CEO, in the early 1990s, his own bank had several loans go sour. Often, the bank hadn't paid attention to the income stream on the borrower's property, he says.
He slows his car to an intersection in Melville, just off the Long Island Expressway, and gestures at rows of 250,000-square-foot office buildings that were built in the 1980s, sometimes with financing from big banks. By the early 1990s, a number of the Melville buildings lay vacant and were sold at a loss.
"Here's your 1980s real-estate bust," Mr. Rock proclaims. "The biggest amounts came from the biggest banks putting mortgages on the biggest buildings."
Mr. Rock believes most smaller banks such as his aren't engaging in the sort of indiscriminate lending that caused trouble 15 years ago. Nowadays, he says, he ensures that a developer's income from property is enough to pay down the mortgage, and he leaves an ample margin of safety in his loan portfolio in case real-estate prices turn south.
Mr. Dugan, who took over as comptroller in August 2005, is less sanguine. A former Washington lawyer with many financial institutions as clients, Mr. Dugan was heavily involved in the savings-and-loan cleanup as a U.S. Treasury official from 1989 to 1993. He declined to be interviewed, but his speeches leave no question about his concerns.
At a conference last October of credit experts from the Office of the Comptroller of the Currency in Atlanta, Mr. Dugan noted that about a third of national banks had commercial real-estate loans amounting to 300% or more of their bank capital. In its simplest definition, capital is equal to a bank's assets minus liabilities. Under U.S. regulations, banks are required to hold a certain amount of capital, measured in various ways, as a financial cushion. Mr. Dugan urged his credit staffers to continue "carefully monitoring banks where these concentrations could become, or already are, significant."
Warning Letters
Within weeks, the office's regulators in the field were sending out letters to banks, warning about concentrations.
Community bankers say the letters made them shudder. "I was very upset," says Everett Crawford, chief executive of First National Bank of Artesia, N.M. If he has to cut back such lending, "it will diminish the franchise," says Mr. Crawford, who worries the 103-year-old institution may have no choice but to sell itself.
By all accounts, banks have a much better handle on their loan portfolios these days than two decades ago. Nonetheless, regulators fear standards still aren't strict enough sometimes.
The letter Mr. Crawford received was from Kay Kowitt, a deputy comptroller of the currency. She didn't single out his bank but dwelt on several emerging problems among the 400 banks supervised by the western district of the agency. Noting that "competition in virtually all markets is intense," the letter fretted about "liberal terms for speculative land loans" and said some borrowers had only a thin margin between the cash flow from their property and their loan repayments. It also questioned whether some banks are getting fully independent property appraisals.
Regulators also believe new forces in the market are pushing up real-estate prices. One new factor: Unlike small banks, the biggest banks often are selling their commercial loans to be packaged into securities and sold to global investors. That market is making it easier for banks to come up with money for loans, which in turn boosts demand for commercial property.
In April, Mr. Dugan sounded the alarm bells again, this time before the New York Bankers Association. In the late 1980s and 1990s, he said, failed banks had three times the real-estate concentrations of banks that survived. With Mr. Rock looking on, Mr. Dugan also defended the guidance proposed by his agency and three others. It would single out for scrutiny banks that have lent more than 100% of their capital in construction or more than 300% of their capital in commercial real estate generally.
Smithtown's portfolio is way over the guidelines because its commercial real-estate loans amount to 750% of, or 7.5 times, its capital. Mr. Rock believes it is simplistic to lump all commercial real estate into "a single bucket." His portfolio, he argues, should instead be viewed as "75 buckets" of diverse loans with different maturities and risks. Mr. Rock says he welcomes examinations, but he thinks examiners should dig down and assess the risks of individual loans and various types of loans.
In a June 20 meeting that Mr. Rock and officials from the American Bankers Association held with regulators, Mr. Rock complained that field examiners are using the measures in the guidelines to "beat up" banks with heavy concentrations of commercial real-estate loans. "Susan, here's the essence of the disconnect," he says he told Gov. Bies of the Fed. "You call it guidance, but examiners are in my bank, criticizing me for having too many commercial real-estate loans."
Gov. Bies, in an interview, says she hasn't received concrete evidence of overzealous activity by bank examiners, but she says the Fed will start a training program for its staff once the guidance becomes final. Regulators say their metrics are a valuable screening device to flag potential problems. Bankers say the definition of a commercial real-estate loan is too broad.
On a recent afternoon, Mr. Rock drove around Suffolk County, his prime lending area, and stopped outside a medical office building. He has extended a $350,000 line of credit to the doctors backed by the property, which he said is valued at two to three times that amount. He drove past one of Mr. Di Canio's housing developments, with 34 single-family units under construction, and said his lenders minimize risk by doling out money little by little as the work progresses.
Then Mr. Rock drove a few miles out to the Fox Hill golf club. If the property ever got developed into houses on half-acre lots, he said, it could be worth $40 million or more. "This is just my idea of an absolutely great loan," Mr. Rock said. "But the regulators are saying I have a 'concentration.' So if another one comes along like this, I'm supposed to turn it down."
 
What's old is new
September 14, 2006, The Record

The mantra used to be: "If we build it, they will come.''
These days, commercial real estate developers are banking on the idea that "if we rebuild it, they will come back."
With New Jersey's environmental laws making it difficult to build on what undeveloped land is left in the state, the industry is increasingly looking to refurbish old warehouses, stores and apartment buildings in urban areas.
"There are lots of opportunities for rebuilding,'' said Michael McGuinness, executive director of the New Jersey chapter of the National Association of Industrial and Office Properties. "As developers have matured in their careers, they've come to see the need for updating warehouses and office buildings. And the state has matured, too. We're running out of land.''
Saying redevelopment is "a matter of industry survival'' and a "wonderful opportunity,'' McGuinness joined NJ-NAIOP members at a Newark conference center Wednesday to discuss the ins and outs of the conversion and "mixed-use'' property market.
The trend lately, the pros said, is to update structures in areas where transportation, sewer lines and other key infrastructure are well-established.
For instance, the Hudson Tea House, a former Lipton facility in Hoboken, was converted into condos. (Governor Corzine maintains a residence there.)
Other projects discussed Wednesday include the upcoming redevelopment of Epstein's department store in Morristown and the recent refurbishing of a long-vacant residential art deco skyscraper in Newark.
But make no mistake, some noted: Revamping existing structures has been around for some time in many cities. In Paterson, for instance, old mills have been given new life as residences and office space.
Still, indications are that the trend is on the rise, partly because so many people want to live, shop and even work in the same neighborhood.
Spotting opportunities, discussion panelists said, takes legwork and homework, especially in knowing what local communities would embrace.
"It's really about good planning,'' said Thomas Mulvey, division president of Toll Brothers City Living.
"You have to go take a very close look and sit in the space as it exists before you can understand the ultimate objective.''
When local land use laws presented an obstacle to his company converting the large Hudson Tea building into residences, for example, the company cut one building into two to create distinct properties that could be redeveloped according to the letter of the law, Mulvey said.
"You have to know what's allowed and what the planners in a municipality are thinking,'' he said.
Mulvey's company also is converting the former Maxwell House coffee factory in Hoboken into luxury condos.
Discussion moderator Wilson "Chuck'' Woodridge, senior project executive with Princeton-based Hillier Architecture, stressed the importance of local land-use laws and affordable housing commitments.
Attorney Steven Santola, in-house counsel for Woodmont Properties, said builders can be required to include one affordable housing unit for every eight in a project.
"It tends to dump the responsibility on the developer,'' said Santola, whose company is redeveloping Epstein's in Morristown to include upscale residential and retail space. "People don't realize the impacts yet, but it's a loser'' for the developer.
Still, the efforts can pay off. Some Hudson Tea units, for example, are listed at about $1.4 million.
Panelist Arthur Stern, chief executive of Cogswell Realty Group LLC, said his company's conversion of the art deco building on Raymond Boulevard in Newark is much more modest. Rent ranges from $1,300 to $1,800. An on-site bowling alley, basketball court and health club are among the development's luxury offerings.
"For the most part, Newark empties out at night,'' said Stern, whose company also plans to put residential lofts in the former Hahnes department store building on Broad Street.
"We had to look at giving residents something to do at night, in addition to easy access to Manhattan and affordability.''
Foreclosure Figures Suggest
Homeowners in for Rocky Ride

September 14, 2006, WSJ
By any measure, things are getting tougher for American homeowners.
Online foreclosure-data service RealtyTrac of Irvine, Calif., said yesterday 115,292 properties nationwide entered some stage of foreclosure last month, a rise of 24% from July and nearly a 53% increase from a year earlier.
Also yesterday, Foreclosure.com of Boca Raton, Fla., which also tracks foreclosures nationwide, said new residential foreclosures fell by 6.7% in August from July to 26,255 nationwide. The company's figures, however, show that foreclosures are up 7.3% compared to August 2005.
The divergent results can be explained by the way each company counts foreclosed properties. RealtyTrac data includes properties in the early stages of a foreclosure proceeding, even before the bank actually owns those properties. About 60% of these get remedied or the properties are sold before they get to the auction stage, said Rick Sharga, vice president of marketing for RealtyTrac.
A spokesman for Foreclosure.com said it only reports properties officially foreclosed and in the hands of the banks.
The trend is supported by data collected by the Mortgage Bankers Association, which reports the number of U.S. households late on mortgage payments fell slightly in the second quarter, but that a modest rise in delinquency and foreclosures is expected going forward.
The delinquency rate for residential mortgages was 4.39% in the April-June period, down from 4.41% in the previous three months, the MBA said in a survey that included 42.5 million loans. Home mortgages in foreclosure made up 0.99% of total mortgages at the end of the quarter, up from 0.98% three months earlier.
The MBA expects further cooling in the economy and the housing market, which in turn could lead to "modest increases in delinquency and foreclosure rates in the quarters ahead," said Douglas Duncan, MBA's chief economist and senior vice president of research and business development.
RealtyTrac Chief Executive James J. Saccacio noted that billions of dollars of adjustable-rate mortgages that have benefited from a stable fixed rate of interest over the past two years are due to shift to higher floating rates in coming months.
"With home-price appreciation continuing to decelerate," he said, August's "increase could be the beginning of an upward shift in the foreclosures market."
Foreclosure.com President and CEO Brad Geisen said while the company has continued to see fluctuations in month-to-month data, "as we near the end of the third quarter, most housing and economic indicators point to a sustained period of increased new foreclosure activity across the country."
Foreclosure.com noted that the West was becoming "an emerging foreclosure hot spot," with new foreclosures in Arizona up 155% in August from July. Foreclosures in California were up 32% and New Mexico saw a 10% increase.
 
Invasion of the Roof Snatchers
Homeowners Maximize Space By Going for Flat-Top Look; Style-Conscious Towns Recoil
September 14, 2006, WSJ
When it comes to flat roofs, beauty is clearly in the eye of the homeowner.
Eager to squeeze in more square-footage -- and increase property values -- while adhering to community height restrictions, a growing number of builders and homeowners are building homes with flat roofs. But these box-like structures and their party-friendly roof decks are sparking a backlash among neighbors who think the houses are homely, detracting from neighborhood character and blocking views and sunlight. Now, a number of communities are slapping new rules on builders that require sloping roofs.
 
A flat-roofed home in Bethany Beach, Del., where new regulations aim to discourage the controversial style.
Communities everywhere from Delaware to Washington are addressing roof pitch. The waterfront town of Bethany Beach, Del., several months ago passed a minimum-roof-pitch requirement after a spate of new, box-like homes dwarfed the town's older cottages. St. Augustine, Fla., last fall banned flat roofs for homes on some smaller lots over concerns about style and rooftop parties, and the city of Kirkland, Wash., near Seattle, is holding a series of community meetings with homeowners and developers on house-to-lot ratios, which address, in part, concerns about the increase in flat-roofed homes.
Many popular home styles, of course, such as Prairie and Pueblo, have flat or low-pitched roofs. And in some parts of the country, such as Santa Fe, N.M., some ordinances even aim to keep roofs flat. Still, in many suburban American communities, the majority of homes have sloping roofs. But now, some Realtors, builders and local officials say, flat tops are increasingly infiltrating neighborhoods that traditionally featured sloping-roofed cottages and bungalows.
The trend is being driven in part by people seeking the best return on their investment amid soaring property values in recent years. It also demonstrates how zoning restrictions communities passed in recent years have backfired. In response to runaway development, many municipalities tried to prevent oversized homes on small lots. But in some cases, the unintended result was flat-roofed, boxy homes seen as out of character with surrounding styles. By using a flat roof, builders can sometimes squeeze in a second or third floor, adding square footage while staying under neighborhood height restrictions.
Kirkland, a city of about 50,000 people near the headquarters of Microsoft Corp., several years ago limited square footage on smaller lots, but officials say that move -- coupled with height restrictions -- may have encouraged flat roofs and boxy homes as people sought more space on the upper floor. "We may have gotten that wrong," says Kirkland Mayor Jim Lauinger. "When you have people taking away a peaked roof and putting on a flat roof to get additional volume, you've really altered what the neighborhood used to look like."
 
 
Flat-roofed homes can offer roof decks and extra living space, but some neighbors oppose the design.
Steve Rabuchin, a Kirkland resident, learned that first-hand when a 5,000-square-foot, flat-top home went up recently on the lot below his 2,700-square-foot hill-side property. Because workers on the house chopped down trees, the Rabuchins now have a view of Lake Washington -- but with a broad expanse of flat, black roof in the foreground. "They maxed out everything they possibly could and ended up with a box," he says.
Yet builders say the flat-roof style allows them to get the best return in areas where land is pricey. John Lux, a Kirkland-area developer, built five homes with flat roofs this year, compared with one in the previous two years, squeezing in two stories and a partially exposed basement by using the flat-roof style. "The city is wanting to see smaller homes on these lots, but it just doesn't make sense financially," he says.
 
Lux Homes L.L.C. 
Flat roofs can also have drawbacks for owners. They generally don't stand up well to heavy rain and snow, and can require more frequent maintenance than roofs with a traditional pitch, contractors say. Flat roofs can also be more expensive to build, requiring more structural support. Yet Realtors say that flat-roofed homes can have a "wow" factor from inside, offering higher ceilings and the possibility of roof decks.
But some Realtors say that out-of-place flat-roofed homes could be tougher to sell. "Most people don't want a place that sticks out like a sore thumb," says Chuck Riley, a Realtor in the Washington, D.C., area.
Most homes going up with flatter roofs are in older neighborhoods, where the lots are so expensive that developers build as big as they can to make the investment worthwhile. Some big home builders are espousing the design: Pulte Homes Inc., based in Bloomfield Hills, Mich., recently put flat roofs on a town-home development in Baltimore as a way to offer roof decks and add more living space. The Maryland division president says the company is planning more homes in the same style.
Flattening the roof isn't the only way builders are staying under height restrictions in certain neighborhoods. Builders will also grade the land higher at the base of the house, so the first story is partially underground and they can build higher, says Vince Butler, chairman of the Remodelers Council of the National Association of Home Builders. "When folks are trying to get the most space in their house they end up going up or down."
 
Lux Homes L.L.C. 
Builders also report that people on small lots increasingly are putting in big basements and protruding dormers -- portions of a home that often don't count against square footage restrictions. In some areas where regulations are strict and land is in short supply, it's not uncommon for builders to lift an entire house up on hydraulic jacks and put in a partially exposed first story underneath. This adds another story without going over height limits; it also makes for easier approval by architectural review boards because the addition is partially underground, says Paul Winans, a California remodeler and chairman of the National Association of the Remodeling Industry.
Flat roofs can spur some strong emotions. In St. Augustine, Fla., residents in a series of meetings debated the merit of boxy homes before local officials passed an ordinance requiring that roofs on smaller lots have a minimum pitch. "When you plunk down one of these square boxes, it stands out -- it's an affront to the historic nature of the town," says John Marples, a resident who spoke at one of the hearings.
But residents Thomas and Elizabeth Dreisbach are chafing under the new restrictions. They own a 1,300-square-foot home on one of the city's smaller lots. They would like to enlarge their house by adding a flat or slightly pitched roof to get a deck, more space and increase the home's value. Now, they will have to request a variance. Otherwise, they'll try to put a large roof deck on top of a sloping one, which Mr. Dreisbach says won't look as nice. "These restrictions are just causing architecture to be uglier and are taking money out of people's pockets," he says.
 
Trouble in Paradise
Minorities Report Bias In Second-Home Areas; A Message on the Door
 
September 15, 2006, WSJ
After falling in love with the red-rock scenery during a trip to Arizona a little over a year ago, Philip Edington, a physician from Stockton, Calif., and his wife, Kristina, decided to buy a vacation property there. The couple found a two-acre parcel of land near the mouth of Oak Creek Canyon in Sedona and told their broker to put in an offer for the $450,000 asking price. The bid was accepted shortly after, Dr. Edington says.
On closing day, however, they were told the deal was off. The seller, who had never met the Edingtons, had learned that they were African-Americans and refused to sell to them, according to a complaint the couple later filed with the Civil Rights Division of the Arizona Attorney General's office. Instead, he took the property off the market, the complaint says.
 
Dr. Philip Edington and his wife, Kris, at home in Stockton, Calif.
The subsequent case, filed in Maricopa County Superior Court in Phoenix by the attorney general's office, was recently settled out of court, with the Edingtons receiving a $120,000 settlement and the seller admitting no guilt. "I'm not naïve enough to think racism doesn't exist," says Dr. Edington. "But I was stunned at how blatant this was."
Discrimination apparently doesn't go on vacation. As part of the past decade's real-estate boom, minority home-ownership has grown. About 52% of minorities owned their own homes in 2005, up from 48.8% in 2001. Affluent minorities have also been scooping up vacation homes, nearly doubling their share of the second-home market in recent years: African-Americans, Latinos and Asians accounted for 11% of vacation-home purchases between 2003 and 2005, up from 6% in 2002 or earlier, according to the National Association of Realtors.
But as second-home purchases by minorities have risen, so have the number of real-estate-related discrimination complaints in those markets, say housing watchdog groups and lawyers. Cases include everything from steering minority buyers away from affluent areas to the use of racial slurs. Such discrimination isn't new, of course, and it's unclear whether the growth in bias complaints outpaces the growth in minority second-home purchases. And vacation-home cases constitute a small portion of overall race-based housing discrimination matters, with the vast majority still coming from low- and middle-income neighborhoods.
Still, some housing experts say they're struck by the number of complaints in many popular vacation-home markets. In Las Vegas, there were 48 bias complaints filed last year with the local chapter of the NAACP regarding second-home transactions, nearly double the number in 2002. In Palm Beach County, Fla., there were 144 race-based housing complaints made to the local chapter of the nonprofit National Fair Housing Alliance in 2005, a 30% increase over the previous year, with many of them being filed by first-time second-home buyers. Bias claims are also up in Naples, Fla., and San Diego County, according to data from the U.S. Department of Housing and Urban Development.
"The irony here is that as minorities gain wealth, they're seeing the same roadblocks of racism," says Avery Friedman, a veteran housing attorney in Cleveland.
That's consistent with what's happening in affluent areas across the country. In the past year, the Department of Justice has received dozens of claims against real-estate brokers in upscale sections in and around New York, Chicago and Boston, among other areas, charging them with illegally steering minority clients away from nonminority neighborhoods. Some agencies cited in the complaints were also accused of refusing to show home-buyers properties at all. The complaints grew out of a three-year investigation by the National Fair Housing Alliance, funded in part by HUD, that included about 70 real-estate firms around the country, according to NFHA president Shanna Smith.
"It's become more prominent, now that you've got more minorities buying second or third properties," says Washington, D.C., civil-rights attorney John Relman, who has represented fair-housing cases in state and federal courts across the country for the past two decades. He's taken on three cases involving race discrimination in the second-home market this year, up from one last year. A current case involves an interracial couple who wanted to purchase a one-acre plot of land in a gated community just outside Athens, Ga., for a weekend home, but were turned down.
The problems aren't universal. Fair-housing groups report almost no complaints in wealthy vacation areas such as Nantucket, Mass., New York's Hamptons and Jackson Hole, Wyo. And the reports come even as the far broader picture for minorities appears to be improving. General homeownership rates for minorities stand at record levels, and the number of housing-discrimination claims for all federally protected classes (disability, religion, sex, race, family status, national origin and color) declined more than 4% in 2005 from the previous year, to 26,092. The percentage of discrimination claims based solely on race declined as well, according to the NFHA. African-Americans filed the most racial complaints, followed by Hispanics.
For former venture capitalist Steven Ferguson, 51 years old, an avid golfer who has played at some of the country's best-known courses, including Augusta National in Georgia, the trouble didn't begin when he was shopping for a weekend home. It started after he moved in.
When a friend told him about Southern Highlands, an exclusive golf and residential community a few miles from the Strip in Las Vegas, Mr. Ferguson, an African-American who now runs a small consulting firm in Los Angeles, says he jumped at the chance to buy a weekend home there. He signed a contract in 2002 on an $800,000 home overlooking the ninth fairway. The cost of the first-year's membership at the golf club, a 220-acre course that has hosted PGA tournaments, was included in the sale -- about $92,000, not including grounds fees. "I planned to spend most of my weekends on that course," says Mr. Ferguson. "But as my presence became more visible at the club and in the community, it became clear I was not wanted."
 
Steven Ferguson at his former Southern Highlands home last year.
Several months after moving into Southern Highlands, according to a lawsuit Mr. Ferguson filed last year in U.S. District Court in Las Vegas, he began to be subjected to a "pattern and practice of racial discrimination." The suit was filed against the property developer, Christopher Homes LLC; Southern Highlands Golf Club; and the Southern Highlands Homeowner's Association. Mr. Ferguson, who says he was the only black resident of the community and the golf club when he moved there, said in his suit that members made racial jokes, guards of the gated community turned away visitors, and club employees denied him services routinely afforded other members, such as helping with a broken golf cart or delivering beverages to the course.
Daughter's Visit
It was a phone call he received from his daughter in late 2002 that prompted legal action, Mr. Ferguson says. According to the suit, his daughter, who had come to Las Vegas with a friend from Los Angeles to spend the weekend, arrived at her father's house to find a poster tacked to the front door with a photograph of a dead black man hung from a tree, accompanied by a threatening note laced with racial epithets. Mr. Ferguson immediately phoned security at Southern Highlands and advised his daughter to leave.
Attorneys for the club, developer, and homeowner's association deny the charges in the lawsuit. Sean Anderson, an attorney representing the Southern Highlands Homeowners Association, says it "makes every effort to protect" residents and that claims of discrimination and other alleged criminal activity are turned over to local authorities to investigate. Mark Ferrario, an attorney for the golf club, disputes Mr. Ferguson claims, calling them "completely baseless." The suit doesn't cite damages, and a trial date for the case hasn't been set. Mr. Ferguson has since sold the home.
The surge in minority second-home ownership coincides with a rise in economic fortunes for some groups. The percentage of black households with incomes of more than $100,000 in 2005 was 7.8%, up from 5.3% a decade ago, according to Census statistics; 8.8% of Hispanic households and 27.3% of Asian households had incomes of $100,000 last year, compared with 5.4% and 26%, respectively, in 1995. According to a study by the Spectrem Group of Chicago, Asian Americans in 2004 accounted for 5% of affluent U.S. households, defined as those with investible assets of more than $500,000, up from less than 1% in 2002.
Julie Ho, a real-estate broker in Campbell, Calif., about 50 miles south of San Francisco, and a former president of the Chinese-American Real Estate Association, says Asian-American buyers have rapidly expanded their presence in Northern California -- including Sacramento, Stockton and Bakersfield. Many of the sales are for investment properties, Ms. Ho says.
The burgeoning Hispanic population in the U.S. is shifting the real-estate landscape in many areas, say experts, with realty groups in areas densely populated with Latinos -- such as Texas and parts of Southern California -- openly targeting Hispanic vacation-home buyers with such things as Spanish-language marketing materials and Web sites. Minorities made up 36% of the second-home buyers in the Houston area in 2005, according to a recent survey by the Houston Association of Realtors.
But racial discrimination at the high end of the housing market often goes unreported, advocates say. That Dr. Edington and Mr. Ferguson decided to go to court at all is the exception, not the rule. "Many wealthy minorities have worked hard to be seen as an equal," says Vince Larkins, president of the Fair Housing Center of the Greater Palm Beaches in Florida. "The last thing they often want is to be stigmatized by a high-profile lawsuit involving their race."
Says Dr. Edington: "For so long, we heard that it's the color of a person's money that counts. But that's obviously still not the case."

Snippy Things Folks Say About Your Home
Are Now Also Online
 
September 6, 2006; WSJ
 
For years, amateur critics have reviewed books, music and chain saws on the Internet. Soon they may be posting online critiques of your bathroom.
Operators of two real-estate Web sites, ZipRealty Inc. and Reply Inc., in August began encouraging customers to write reviews of homes available for sale. Early submissions suggest it might be better not to know what strangers really think about your house.
After a visit to a four-bedroom house offered for about $1.5 million in Lafayette, Calif., a ZipRealty customer writing under the pen name YuppieHomeBuyer remarked: "The house was OK, but the bathrooms should be cleaner. There were some broken tiles and loose panels. I wonder if water comes into the house or the basement during the rains."
At a condo on offer for $389,000 in Cambridge, Mass., another anonymous Zip reviewer spotted "rot" in the bathroom, said the bathtub should be replaced and commented that the "green paint isn't nearly as charming in person as in photos." If all that wasn't bad enough, the reviewer added: "Neighborhood questionable. Two kids had a loud, screaming fight outside the door during showing. Loud cars drive up and down the street with thumping music."
 
A ZipRealty.com customer reported a "swamp" in the backyard (above) of this San Clemente, Calif., home. The listing agent says it's an ornamental-fish pond.
These rude reviews threaten to undercut the gushing language in marketing materials prepared by real-estate agents. Even worse for real-estate agents, the reviews are popping up just when a glut of homes on the market in many areas is allowing buyers to take their time, dwell on defects and demand price cuts. Some agents and homeowners already are howling that the reviews are hatchet jobs, perhaps motivated by spite or a desire to discourage competing bids for property the reviewers want to buy.
Operators of the sites say the reviews -- some of which are full of praise -- will provide valuable insights for home shoppers. Companies like Zip and Reply hope this free, user-generated material will lure more shoppers to their sites. Redfin Corp., an Internet real-estate broker based in Seattle, plans later this year to start encouraging both buyers and sellers of property to add online comments on the Redfin site.
Stirring Up Controversy
Big brokerage chains like Re/Max and Coldwell Banker don't seek consumer reviews, which could hurt the interests of sellers. Zip and Redfin are maverick brokers that mainly serve buyers and don't mind stirring up a bit of controversy to draw more customers. Reply, which collects fees for connecting consumers with real-estate agents, also wants to generate more traffic on its site.
The phenomenon has also reached rental properties. Apartment Ratings Inc., for one, says it has about 425,000 apartment ratings and reviews from around the country on its site. Internet company Yahoo Inc. is encouraging users to rate apartment complexes, as well as real-estate agents.
On Yelp Inc.'s site, a renter complained about an apartment building in San Francisco's Mission district that she says was infested with "rats the size of a small dog." Another Yelp reviewer claimed she "risked getting splinters" from a broken wooden toilet seat in her apartment in San Francisco's Nob Hill neighborhood.
Ron Hornbaker is president of PropSmart Inc., a Kansas City, Mo., firm that operates a Web site featuring information on real-estate listings. The company's site has allowed users to post home reviews since last December, though he is skeptical about their potential as home-shopping aids. He says people trying to sell a home could post nasty and inaccurate reviews of competing houses nearby. "It's kind of scary to think of all the bad things that could happen" with these reviews, he says.
If some people post misleading reviews, others will step in to correct them, predicts Patrick Lashinsky, a senior vice president at Zip. Homeowners also might reply to criticism and provide more information, he says.
Mr. Lashinsky says people at a screening service read each review before it is posted on the Zip site. Any reviews that might violate laws, such as those against racial discrimination, are blocked, as are those containing "inappropriate" content, including vulgarity, phone numbers or advertisements, he says. But Zip doesn't verify whether reviewers' descriptions of the homes are accurate. Zip's lawyers believe that providing a forum where consumers can post opinions about homes doesn't violate any laws or regulations, Mr. Lashinsky says.
Mary Lou Thomas, however, doesn't see these reviews as helpful. Ms. Thomas is trying to sell the house in Pasadena, Md., where she raised three children, partly because she can no longer do the yard work. She was furious when told of a review on Zip's site describing the floors in one part of the house as "kind of bouncy, like you would feel if you walked in a mobile home." Ms. Thomas says there is nothing wrong with the floors and that they wouldn't bounce "unless someone weighs 500 to 800 pounds."
As for the home in Lafayette, Calif., Ann Ward, the real-estate broker managing the sale, says the bathrooms are "absolutely beautiful." She says that a viewing for a Zip customer was arranged on very short notice, which may have left little time for cleaning up.
Steve Rankin, the agent for the condo in Cambridge where a Zip customer reported "rot" in the bathroom, concedes that there is "a little gushiness to the tiles." Replacing them, he says, would cost just $1,500. He adds that squabbles and loud music can erupt anywhere. "People fight in the most posh neighborhoods of all," Mr. Rankin says. "Just ask O.J. Simpson."
Even Harsher
Another Zip reviewer was even harsher in a review of a three-bedroom house in San Clemente, Calif., listed at $769,000: "This very small home has great interior upgrades, but the entire backyard is taken up by an unsightly swamp.... Can you say, West Nile Virus?" The listing agent, Sherry Klapp, says the water in the backyard is a pond for ornamental fish, not a swamp, and was "professionally done."
After viewing a three-bedroom row house offered for $108,000 in Baltimore, a Zip reviewer described the décor as "strange" and said the third bedroom is "about as wide as a coffin." To reach this bedroom, the reviewer says, "you have to walk through the bathroom! And the lock for this room is on the bedroom side. Whoever moves in must be a very friendly family with little need for privacy."
Paul DeLoach of ERA DeLoach & Associates Realty, Pasadena, Md., who is the seller's broker, says the description of the layout is correct but adds: "I've seen much stranger situations."
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Some Housing Pessimism From Real Estate Brokers
NY Times, September 8, 2006
 
Concerns about the housing market deepened yesterday as the nation's leading real estate brokers' group issued a more pessimistic outlook for the year, and two major builders cut their earnings estimates by hundreds of millions of dollars.
The news added to a growing unease about the economy and helped drive shares on Wall Street lower for the second straight day.
The latest report to predict a decline in the housing sector was notable for its source. The assessment from the National Association of Realtors, which has until recently been generally upbeat about the health of housing, was the group's least optimistic yet.
"The boom is cooling now," said David Lereah, the chief economist for the association, who added that falling home sales have been "a bit worse than we had anticipated."
The group said that it now expected sales to fall further than it has said in the past — about 7.5 percent this year compared with an earlier projection of a 5 percent decline. It also said it expected prices nationwide to drop during the next few months, instead of appreciating modestly. If that happens, it would be the first time since 1993 that median home prices have fallen in any given month.
The revised realtors' forecast came on the heels of announcements from KB Home and Beazer, two of the nation's largest home builders, that profits this year would be lower than initially predicted.
A third builder, Hovnanian Enterprises, said yesterday that its third-quarter profits fell by more than a third. It left its guidance for the year unchanged.
The Realtors' association said it expected both home prices and sales would slide in the coming months as the upper hand in the housing market shifts from the seller to the buyer. But that shift has yet to occur fully, with buyers and sellers staring each other down while unsold houses pile up.
"The seller is a lot more stubborn than any of us had anticipated," Mr. Lereah said. "Sellers for the last five years have been in control. It's very hard for them to give up control and revise their expectations downward."
But once sellers begin to drop their asking prices, housing industry officials hope that home sales will start to rise again.
The rising number of homes on the market and aggressive discounting by home builders are putting pressure on sellers to lower their prices, said Ronald J. Peltier, president and chief executive of HomeServices of America, a subsidiary of Berkshire Hathaway that owns real estate brokerage firms around the country.
"It's going to take the rest of this year at a minimum for that inventory to be liquidated," he said. "This period of correction is going to take a little while, but it's healthy for the market."
The Realtors' association predicted that, at most, prices will decline for two or three months before picking back up again. For the year, home prices are still expected to appreciate, on average. Not since the Depression have home prices fallen over the course of a full year.
There are already signs that prices may soon start to decline nationwide. In a report issued last month, the Realtors' association said home prices in July barely inched up. The median selling price for existing homes, which rose at double-digit rates for much of the previous two years, rose only 0.9 percent compared with a year earlier. And that rise was entirely dependent on a 3 percent median price gain in the South, the only region in the country where prices did not fall.
John Lonski, chief economist for Moody's Investor Service, said, "That's got to be one of the biggest difficulties facing the sellers of real estate: the uncertainty of the durability of real estate prices into the foreseeable future."
As KB and Beazer cut their earnings guidance, they cited a growing supply of unsold homes.
"A higher percentage of home closings are being deferred or canceled," Beazer said in a statement yesterday, "immediately prior to closing in many cases, due to worsening buyer sentiment and the inability of buyers to sell their existing homes."
Beazer said yesterday that it expected earnings for the year of $8 to $8.50 a share, compared with its previous outlook of $9.25 to $9.75.
KB lowered its earnings guidance for the year to $8 to $8.50 a share, down from an earlier estimate of $10 a share. That is the second time this year the builder has lowered its guidance. Other major builders like Toll Brothers and D. R. Horton have also cut their earnings forecasts.
Wall Street's reaction was mixed. Shares of KB closed just 1 cent higher, at $40.40 a share, and Beazer dropped nearly 3 percent, to $37.33.
But in a sign that investors were expecting much worse, news of Hovnanian's profit decline helped lift shares more than 6 percent, to $27.09.
Slowing home sales actually helped give share prices in other sectors a lift in recent weeks. As it became clear that housing was entering a period of contraction — in line with the Federal Reserve's expectation of an orderly economic cooling — investors put more money into equities, betting that the Fed would not resume raising interest rates.
From Aug. 1 until the beginning of this week, the Standard & Poor's 500-stock index had risen more than 3 percent. But over the last two days, it has erased about half those gains.
Housing's decline, said Jeffrey Kleintop, a top investment strategist for PNC, "has encouraged the stock market in the last month or two to run up." He added: "The market is saying, 'Yeah, we feel pretty confident about a soft landing here.' "
Yesterday's housing news raised questions about just how soft that landing would be. "As an economy, we're more sensitive to housing than we've ever been," Mr. Kleintop said, adding that as home values have increased with the housing boom, so has individual net worth. "Having that suddenly go away and pull into a recession really creates a big question mark."
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Study: Mortgages cost more for blacks, Hispanics
Saturday, September 9, 2006

ASSOCIATED PRESS

WASHINGTON -- Black and Hispanic home buyers pay more for their mortgages than do whites, according to a Federal Reserve report released Friday.
The Fed's analysis of 2005 home lending data found that 54.7 percent of black borrowers paid a higher-than-typical interest rate on home mortgages. That was up sharply from 32.4 percent in 2004.
For Hispanics, 46.1 percent paid more than typical for their mortgages last year -- more than double the 20.3 percent reported in 2004.
In contrast, only 17.2 percent of whites paid higher interest on their home mortgages last year. However, that was up considerably from 2004's 8.7 percent.
For all borrowers, there was a "significant increase" in the incidents of higher priced mortgages from 24.6 percent in 2005 compared with 11.5 percent in 2004.
Several factors were cited for this overall increase. Mortgage rates in general were rising and rates for popular adjustable-rate mortgages in particular moved higher.
In addition, some borrowers stretching to purchase a home opted for creative financing, like higher-priced piggyback loans. The use of piggyback loans shot up more than 57 percent in 2005 from the prior year, the Fed said.
"Indeed, the increase in the number of higher-priced piggyback loans in 2005 accounted for more than half of the increase in the number of all higher-priced loans," the report said.
The report also said that black borrowers applying for mortgages were more likely to be turned down than Hispanics and whites.
The report does not provide interest rates charged to the different racial groups.
It also doesn't include information such as the borrower's credit history, which is an important factor in pricing a home mortgage.
Given that, economists and other experts said people should be cautious about drawing any conclusions from the Fed information about discriminatory lending.
Jay Brinkmann, a financial economist at the Mortgage Bankers Association, said the price of a mortgage is based on risk. The rise of high-priced loans in 2005 -- the last year of a five-year housing boom -- may be related to "borrowers in general having a somewhat higher risk profile on average," he said. "In a sense, the best credit customers stepped in early" in the housing market boom, he said.
The Fed's report is based on information from 8,848 financial institutions, which covers about 80 percent of home lending nationwide.
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Home prices show sharp slowdown in 2Q
SEP. 5 11:47 A.M. ET U.S. home prices continued to rise in the second quarter but showed the biggest slowdown in three decades, federal regulators reported Tuesday.
The figures released by the Office of Federal Housing Enterprise Oversight, the agency that oversees the big mortgage-finance companies Fannie Mae and Freddie Mac, provided the latest indication that the housing market is cooling substantially.
Average home prices rose 1.17 percent in the April-June period, compared with 3.65 percent in the second quarter of 2005 -- the biggest decline in price growth since OFHEO started keeping track of home prices in 1975, the new report showed.

The agency cited higher interest rates and rising inventories of homes for sale as possible factors in the slowdown in price growth.
"These data are a strong indication that the housing market is cooling in a very significant way," OFHEO Director James B. Lockhart said in a statement. "Indeed, the deceleration appears in almost every region of the country."
Data issued last month provided proof that the housing boom is over. The Commerce Department reported that sales of new homes dropped in July by 4.3 percent, the largest amount since February, while the inventory of unsold homes climbed to a record high. And sales of previously owned homes fell 4.1 percent in July to a 2 1/2-year low, according to the National Association of Realtors.
Sales of both new and existing homes set records for five consecutive years as the housing industry enjoyed a boom powered by the lowest mortgage rates in four decades. But rates have been steadily rising this year as the Federal Reserve tightens credit conditions as a way to slow the economy and keep inflation under control.
Analysts expect home sales to drop by some 10 percent this year.
Still, the OFHEO report noted, house prices grew faster from the second quarter of 2005 to the same period this year -- by 10.06 percent -- than did prices of other goods and services, which rose 4.41 percent.
The second-quarter figure is derived from an average of home prices in April, May and June. Prices in that April-June period were up 1.17 percent from the first quarter of the year -- the smallest rate of quarterly price growth since a 1.12 percent gain in the fourth quarter of 1999, OFHEO said.
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Nightmare Mortgages
They promise the American Dream: A home of your own -- with ultra-low rates and payments anyone can afford. Now, the trap has sprung
For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce documentation, much less a downpayment.

Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket.
The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home -- or so they thought. The option ARM's low payments are only temporary. And the less a borrower chooses to pay now, the more is tacked onto the balance.

The bill is coming due. Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules -- often to the astonishment of people who thought the low installments were fixed for at least five years. And because home prices have leveled off, borrowers can't count on rising equity to bail them out. What's more, steep penalties prevent them from refinancing. The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk.

There was plenty more going on behind the scenes they didn't know about, either: that their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan's interest rates and up-front fees might not have been set by their bank but rather by a hedge fund; and that they'll soon be confronted with the choice of coughing up higher payments or coughing up their home. The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."

Because banks don't have to report how many option ARMs they underwrite, few choose to do so. But the best available estimates show that option ARMs have soared in popularity. They accounted for as little as 0.5% of all mortgages written in 2003, but that shot up to at least 12.3% through the first five months of this year, according to FirstAmerican LoanPerformance, an industry tracker. And while they made up at least 40% of mortgages in Salinas, Calif., and 26% in Naples, Fla., they're not just found in overheated coastal markets: Through Mar. 31 of this year, at least 51% of mortgages in West Virginia and 26% in Wyoming were option ARMs. Stock and bond analysts estimate that as many as 1.3 million borrowers took out as much as $389 billion in option ARMs in 2004 and 2005. And it's not letting up. Despite the housing slump, option ARMs totaling $77.2 billion were written in the second quarter of this year, according to investment bank Keefe, Bruyette & Woods Inc.

The First Wave
After prolonging the boom, these exotic mortgages could worsen the bust. They also betray such a lack of due diligence on the part of lenders and borrowers that it raises questions of what other problems may be lurking. And most of the pain will be borne by ordinary people, not the lenders, brokers, or financiers who created the problem.

Gordon Burger is among the first wave of option ARM casualties. The 42-year-old police officer from a suburb of Sacramento, Calif., is stuck in a new mortgage that's making him poorer by the month. Burger, a solid earner with clean credit, has bought and sold several houses in the past. In February he got a flyer from a broker advertising an interest rate of 2.2%. It was an unbeatable opportunity, he thought. If he refinanced the mortgage on his $500,000 home into an option ARM, he could save $14,000 in interest payments over three years. Burger quickly pulled the trigger, switching out of his 5.1% fixed-rate loan. "The payment schedule looked like what we talked about, so I just started signing away," says Burger. He didn't read the fine print.

After two months Burger noticed that the minimum payment of $1,697 was actually adding $1,000 to his balance every month. "I'm not making any ground on this house; it's a loss every month," he says. He says he was told by his lender, Minneapolis-based Homecoming Financial, a unit of Residential Capital, the nation's fifth-largest mortgage shop, that he'd have to pay more than $10,000 in prepayment penalties to refinance out of the loan. If he's unhappy, he should take it up with his broker, the bank said. "They know they're selling crap, and they're doing it in a way that's very deceiving," he says. "Unfortunately, I got sucked into it." In a written statement, Residential said it couldn't comment on Burger's loan but that "each mortgage is designed to meet the specific financial needs of a consumer."

The loans certainly meet the needs of banks. Option ARMs offer several payment choices each month. Among Burger's alternatives were one for $2,524, about what a standard fixed-rate mortgage would be on the new amount, and the $1,697 he pays. Why would his bank make the minimum so low? Thanks to a perfectly legal accounting practice, no matter how little Burger pays each month, the bank gets to record the full amount.

Option ARMs were created in 1981 and for years were marketed to well-heeled home buyers who wanted the option of making low payments most months and then paying off a big chunk all at once. For them, option ARMs offered flexibility.

So how did these unusual loans get into the hands of so many ordinary folks? The sequence of events was orderly and even rational, at least within a flawed system. In the early years of the housing boom, falling interest rates made safe fixed-rate loans attractive to borrowers. As home prices soared, banks pushed adjustable-rate loans with lower initial payments. When those got too pricey, banks hawked loans that required only interest payments for the first few years. And then they flogged option ARMs -- not as financial-planning tools for the wealthy but as affordability tools for the masses. Banks tapped an army of unregulated mortgage brokers to do what needed to be done to keep the money flowing, even if it meant putting dangerous loans in the hands of people who couldn't handle or didn't understand the risk. And Wall Street greased the skids by taking on much of the new risk banks were creating.

Now the signs of excess are crystal clear. Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization. And once balances grow to a certain amount, the loans automatically reset at far higher payments. Most of these borrowers aren't paying down their loans; they're underpaying them up.

Yet the banking system has insulated itself reasonably well from the thousands of personal catastrophes to come. For one thing, banks can sell some of their option ARMs off to Wall Street, where they're packaged with other, better loans and re-sold in chunks to investors. Some $182 billion of the option ARMs written in 2004 and 2005 and an additional $83 billion this year have been sold, repackaged, rated by debt-rating agencies, and marketed to investors as mortgage-backed securities, says Bear, Stearns & Co. (BSC )Banks also sell an unknown amount of them directly to hedge funds and other big investors with appetites for risk.

The rest of the option ARMs remain on lenders' books, where for now they're generating huge phantom profits for some lenders. That's because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment -- the so-called fully amortized amount -- even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

For many industries, so-called accrual accounting, which lets companies book sales when they contract for them rather than when they receive the cash, makes sense. The revenues will eventually come. But accrual accounting doesn't apply well to option ARMs, since it's more difficult to know if unpaid interest will ever cross a banker's desk. "This is basically an IOU that may never get paid," says Robert Lacoursiere, an analyst at Banc of America Securities. James Grant of Grant's Interest Rate Observer recently wrote that negative-amortization accounting is "frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity." The Financial Accounting Standards Board, which is responsible for keeping GAAP up to date, stands by its standard but told BusinessWeek in a written statement that it is "concerned that the disclosures associated with these types of loans [are] not providing enough transparency relative to their associated risks."

Camouflaged Losses
Risks or not, the accounting treatment is boosting reported profits sharply. At Santa Monica (Calif.)-based FirstFed Financial Corp. (FED ), "deferred interest" -- what an outsider might call phantom income -- made up 67% of second-quarter pretax profits. FirstFed did not respond to requests for comment. At Oakland (Calif.)-based Golden West Financial Corp. (GDW ), which has been selling option ARMs for two decades, deferred interest made up about 59.6% of the bank's earnings in the first half of 2006. "It's not the loan that's the problem," says Herbert M. Sandler, CEO of World Savings Bank, parent of Golden West. "The problem is with the quality of the underwriting."

In the middle of one of the hottest U.S. markets, Coral Gables (Fla.)-based BankUnited Financial Corp. (BKUNA ) posted a $14.8 million loss for the quarter ended June, 2005. Yet it reported record profits of $23.8 million for the quarter ended in June of this year -- $20.9 million of which was earned in deferred interest. Some 92% of its new loans were option ARMs. Humberto L. Lopez, chief financial officer, insists the bank underwrites carefully. "The option ARMs have gotten a bit of a raised eyebrow because we generate and book noncash earnings. But...it's our money, and we do feel comfortable we'll get it back."

Even the loans that blow up can be hidden with fancy bookkeeping. David Hendler of New York-based CreditSights, a bond research shop, predicts that banks in coming quarters will increasingly move weak loans into so-called held-for-sale accounts. There the loans will sit, sequestered from the rest of the portfolio, until they're sold to collection agencies or to investors. In the latter case, a transaction on an ailing loan registers on the books as a trading loss, gets mixed up with other trading activities and -- presto! -- it vanishes from shareholders' sight. "There are a lot of ways to camouflage the actual experience," says Hendler.

There's no way to camouflage what Harold, a former computer technician who asked BusinessWeek not to publish his last name, is about to face. He's disabled and has one source of income: the $1,600 per month he receives in Social Security disability payments. In September, 2005, Harold refinanced out of a fixed-rate mortgage and into an option ARM for his $150,000 home in Chicago. The minimum monthly payment for the first year is $899, which he can afford. The interest-only payment is $1,329, which he can't. The fully amortized payment is $1,454, which his lender, Washington Mutual (WM ), gets to count on its books. WaMu, no fly-by-night operation, said it couldn't comment on Harold's case, citing confidentiality issues. A spokesman says the bank "accounts for its option ARM product in accordance with generally accepted accounting principles." WaMu has about $12 billion in loans negatively amortizing right now, up from $2.5 billion in 2005, estimates CreditSights' Hendler. In a written statement, WaMu said "borrowers who request an adjustable loan with payment options should understand those options and potential adjustments throughout the life of the loan. We make detailed disclosures to customers that are designed to develop a more informed consumer of mortgage products and ensure that our customers are comfortable with the loan products they select."

Hard Sell
To get the deals done, banks have turned increasingly to unregulated mortgage brokers, who now account for 80% of all mortgage originations, double what it was 10 years ago, according to the National Association of Mortgage Brokers. In 2004 banks began offering fatter sales commissions on option ARMs to encourage brokers to push them, says Gail McKenzie, assistant U.S. attorney in Atlanta, who is investigating mortgage brokers for improper practices.

The problem, of course, is that many brokers care more about commissions than customers. They use aggressive sales tactics, harping on the minimum payment on an option ARM and neglecting to mention the future implications. Some even imply verbally that temporary teaser rates of 1% to 2% are permanent, even though the fine print says otherwise. It's easy to confuse borrowers with option ARM numbers. A recent Federal Reserve study showed that one in four homeowners is mystified by basic adjustable-rate loans. Add multiple payment options into the mix, and the mortgage game can be utterly baffling.

Billy and Carolyn Shaw are among the growing ranks of borrowers who have taken out loans they say they didn't understand. The retired couple from the Salinas (Calif.) area needed to tap about $50,000 in equity from their $385,000 home to cover mounting expenses. Billy, 66, a retired mechanic, has diabetes. Carolyn, 61, has been caring for her grandchildren, 10-year-old twins, since her daughter's death in 2000. The Shaws have a fixed income of $3,000 a month that will fall by about $1,000 in November after Billy's disability benefits run out. Their new loan's minimum payment of about $1,413 is manageable so far, but the fully amortized amount of about $3,329 is out of the question. In a little over a year, they've added some $8,500 to their loan balance and now face a big reset if they continue to pay only the minimum. "We didn't totally understand what was taking place," says Carolyn. "You have to pay attention. We didn't, and we're really stuck here." The Shaws' lender, Golden West, says it routinely calls customers to ask them if they are happy and understand their mortgage loan.

Then there's the illegal stuff. Mortgage fraud is one of the fastest-growing white-collar crimes in the nation, costing $1 billion in 2005, double the year before. A slower housing market could foster more wrongdoing. "With a tighter market, you are going to find there is more incentive to manipulate," says Tim Irvin of Irvin Investigations & Research Services in Spring, Texas. "Brokers are having a harder time getting business, so they're getting creative."

Concerns like these haven't curbed Wall Street's hunger for option ARMS. "At a price, you can originate or sell anything," says Thomas F. Marano, global head of mortgage and asset-backed securities at Bear Stearns. Hedge funds have been particularly active, buying risky loans directly from banks and cutting out the bundlers in the middle. Kathleen C. Engel, an associate professor of law at Cleveland-Marshall College of Law at Cleveland State University, says Wall Street and hedge fund money has helped to finance widespread lending abuses, particularly among the most vulnerable borrowers.

Pros Go Unscathed
Why are hedge funds willing to buy risky loans directly? Because they can demand terms that help insulate them from losses. And banks, knowing what the hedge funds want in advance, simply take it out of the hides of borrowers, many of whom qualify for lower rates based on their credit histories. "Even if the loan goes bad, [the hedge funds are] still making money hand over fist," says Engel.

Eventually, some of it will go sour. But the Wall Street pros who buy option ARMs are in the business of managing risk, and no one expects widespread losses. They've taken on billons in iffy option ARMs, but the loans are no shakier than the billions in emerging market debt or derivatives they buy and sell all the time. Blowups are factored into the investing decision.

Banks that hold lots of option ARMs on their books will surely be hit by loan defaults in coming years. "It's certainly reasonable to expect to see some excesses wrung out," says Brad A. Morrice, president and CEO of New Century Financial Corp. But even here the damage will likely be limited. Banks use insurance and other financial instruments to protect their portfolios, and they hold real assets -- homes -- as collateral. Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions, a researcher and unit of title insurer First American, forecasts total defaults of $300 billion across all types of loans, not just option ARMs, over the next five years -- less than 1% of total homeowner equity. (In comparison, JPMorgan Chase & Co. alone has a mortgage portfolio of $182.8 billion.) Cagan estimates that banks will end up losing only $100 billion of it all told.

Most of the pain will be born by ordinary people. And it's already happening. More than a fifth of option ARM loans in 2004 and 2005 are upside down -- meaning borrowers' homes are worth less than their debt. If home prices fall 10%, that number would double. "The number of houses for sale is tripling in some markets, so people are not going to get out of their debt," says the Ford Foundation's McCarthy. "A lot are going to walk."

Jennifer and Eric Hinz of Somerset, Wis., are feeling the squeeze. They refinanced out of a 5.25% fixed-rate, 30-year loan in June, 2005, and into an option ARM with a 1% teaser rate from Indymac Bank. The $1,483 payment for their original mortgage dropped to as low as $747 with the new option ARM. They say they had no idea when they signed up, however, that the low payment adds $600 in deferred interest to their balance every month. Worse, they thought the 1% would last three years, but they're already paying 7.68%. "What reasonable human being would ever knowingly give up a 5.25% fixed-rate for what we're getting now?" says Eric, 36, who works in commercial construction. Refinancing is out because they can't afford the $15,000 or so in fees. "I'm paying more, and the interest is just going up and up and up," says Jennifer, 34, a stay-at-home mom. "I feel like we got totally screwed." They say their mortgage broker has stopped returning their phone calls. Indymac declined to comment on the loan's specifics.

Stories like these can be found across the socioeconomic spectrum, says Allen J. Fishbein, director of Housing & Credit Policy for the Consumer Federation of America. In a May focus group, the CFA found that option ARM customers at all income levels said the loans were the only way they could afford their homes. While many recognized that their mortgages could increase, "they professed complete surprise that they could increase as much as they could," says Fishbein. That lack of diligence will cost them over time.

Not that all option ARM holders go in blindly. While the loans are marketed aggressively, plenty of holders know exactly what they're getting into. Jon and Meghan Bachman of Portland, Ore., consider them wealth-building tools. "We want to own a bunch of houses," says Meghan. "We're hoping for early retirement."

So far they have stayed out of the fire. The couple, who are in their 30s, bought their first home, a 100-year-old farm house in Portland, Ore., in October, 2005, with a no-money-down loan for $200,000 from GreenPoint Mortgage, a unit of NorthFork Bancorporation Inc. By May, the value of the house had soared to $275,000. Rather than sit tight as their grandparents might have, the Bachmans, with an annual household income of $70,000, took out a home equity loan to put a $30,000 downpayment on an investment property in an up-and-coming neighborhood nearby. They pay a minimum of just $825 on their new $191,000 mortgage, and rent the house out for $100 more than that. Sooner or later, the payment will rise. Then they'll have to raise the rent to stay in the black. If the still-strong Portland housing market tanks, they could find themselves in deep trouble. It's a risk they say they're willing to take.

Public policy has yet to catch up with the new complexities of the lending industry. Comptroller of the Currency John C. Dugan, the banking industry's main regulator, wants banks to clean up their act. A source inside the federal Office of the Comptroller says Dugan intends to raise lending standards, as he did last year on credit cards, where super-low minimum payments made it improbable that cardholders would ever pay down debts. New guidelines are expected this fall.

Fair-housing pundits suggest that mortgage lenders follow the lead of the securities industry and require that mortgage borrowers be not only eligible for a product but also suitable -- meaning the loan won't impose hardship. Says Consumer Federation of America's Fishbein: Buyers have to have a "reasonable prospect of being able to handle the payments, not at the initial rate, but [assuming] the worst-case scenario."

So far, banks have shown little desire to raise their standards. In February, Golden West announced it would raise its minimum option ARM payment to 2.6% of the loan. In March, Golden West's Sandler wrote a nine-page letter to the Office of Thrift Supervision decrying the lax lending standards he was seeing. "Foolish lenders who eventually stumble under the weight of their missteps will bring down innocent borrowers with them and leave the rest of us to clean up the mess," he wrote. But on May 7, Golden West announced it was selling out to Charlotte (N.C.)-based Wachovia Corp. (WB ). By June it had dropped its option ARM rate back down to 1.50%. Sandler says the rates were changed according to the bank's interest rate outlook.

Analyst Frederick Cannon of Keefe Bruyette & Woods says most banks don't apologize for their option ARM businesses. "Almost without exception everyone says [the option ARM] is a great loan, it's plenty regulated, and don't bug us," he says. In an April letter to regulators, Cindy Manzettie, chief credit officer for Fifth Third Bank in Cincinnati, said it's not the "lender's responsibility to help the consumer determine the appropriate payment option each month.... Paternalistic regulations that underestimate the intelligence of the American public do not work."
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AUCTION
 NOTICE: Three hundred forty properties will go on the auction block next month in what could be the largest real estate auction in New Jersey history, organizers say. The trustee overseeing the liquidation of bankrupt NJ Affordable Homes will begin the three-day auction at the Meadowlands Convention Center in Secaucus on Sept. 29. The company's portfolio includes single-family and multifamily homes and a handful of retail and
 commercial properties, said Jeff Hubbard, an executive managing director at Sheldon Good & Co., which is conducting the auction in a joint venture with DJM Realty. Also, vacant lots are available, including some with approvals for subdivisions. The properties, located throughout the state, are in varying conditions, he said. Bidders can schedule inspections of the properties before the auction. "All the properties are guaranteed to be sold no matter what the price is," Hubbard said. "The highest bidders buy the property."  Woodbridge-based NJ Affordable Homes and its founder, Wayne Puff, were named last year in a Securities and Exchange Commission lawsuit, which accused the company of bilking more than 400 investors out of at least $40 million in a Ponzi scheme. The SEC alleges that the company misled investors about the risk, and guaranteed annual returns between 15 percent and 20 percent. The company told investors it uses the cash to buy homes, renovate them and sell
 them. "Investors were induced to give substantial sums and, in some instances, their life savings," said bankruptcy trustee Charles M. Forman, an attorney with Forman Holt & Eliades in Rochelle Park. "The economic realities of the scheme was that it was not
 possible to make those kind of returns without at the same time inducing other investors to make substantial investments."  Hubbard said he expects the auction to attract a "cross section of bidders" including homeowners, investors and developers. To qualify
 to participate in the auction, bidders must get a bid package from Sheldon Good and arrive at the auction with a deposit in the form of a cashiers check.  For more information, log on to sheldongood.com or call 800-516-0014 (as reported in the Record, August 30)

1. Realtors Official Forecasts Decline In Home Prices
WSJ, September 2, 2006

The chief economist of the National Association of Realtors predicts that U.S. home prices will generally decline during the next few months.  The unusually bleak assessment from David Lereah, the trade group's top economist, came as the Realtors reported that their index of pending home sales dropped 7% in July. The decline shows that home shoppers continue to take their time, hoping prices will fall amid a glut of houses on the market in many parts of the country.  "I'm hoping for prices to drop," Mr. Lereah said in an interview. The Realtors normally stress the tendency of home prices to rise over the long term. But Mr. Lereah said lower prices are needed in some parts of the U.S. to lure buyers back into the market. During the past year, sales have plunged in California, southern Florida and the Washington, D.C., area, all places where prices more than doubled in the first half of this decade.  Sales have stalled partly because "the sellers are not bringing prices down fast enough," Mr. Lereah said. "They've been very stubborn." A drop of 5% to 10% in California and southern Florida "probably would be enough to bring sales back," he said.
For July, the Realtors reported that the national median home price was up 0.9% from a year earlier. But Mr. Lereah said he expects the national median to decline modestly in the next few months. That would mark the first decline since 1993. "The quicker we can get negative prices, the quicker we can get sales coming back," Mr. Lereah said.  Thomas Lawler, a housing economist in Vienna, Va., said the national median home price in this year's fourth quarter is likely to be down 3% to 4% from a year earlier.  In recent months, median prices in some areas -- including San Diego, Boston, the Virginia suburbs of Washington and parts of Florida -- already have fallen from year-earlier levels.  The pending-sales index, which equates the average pending-sales rate of 2001 to 100, registered 105.6 in July. The latest reading was down 7% from June and 16% from July 2005. The index, based on signed contracts for home sales that haven't yet been completed, has fallen nearly 18% since hitting a peak of 128.2 in August 2005.
By region, the July index was down 20% from a year earlier in the West and Midwest, 16% in the Northeast and 11% in the South.  On Wednesday, the Mortgage Bankers Association reported that its seasonally adjusted index of applications for home-purchase mortgages declined 1.6% in the week ended Aug. 25. That index -- a measure of demand for homes -- is down about 20% from a year ago.
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2. Mortgage Market Begins to See Cracks
As Subprime-Loan Problems Emerge
August 30, 2006, WSJ

First the housing bubble deflates. Then come the credit problems.  As homes sales have fallen and borrowing costs have edged higher, the mortgage business has slowed down. The big question is whether credit-quality deteriorates. While customers have been able to pay off loans in high numbers for years, the markets are seeing the first glimmerings of problems among customers with poor credit.  That's to be expected. But there are signs that problems will emerge among higher-quality borrowers over the next several months.  Almost as if they are following a script, the mortgage companies that cater to those with poor credit -- so-called subprime customers -- see trouble first, and they're already warning about emerging credit troubles.  Last week, H&R Block, the big tax preparer, alerted Wall Street that its Option One Mortgage unit, which focuses on the subprime market, would have to set aside about $60 million, or 19 cents a share, because borrowers were falling behind on their payments.  Customers of Countrywide Financial, which has products across the credit-quality spectrum, are paying loans off more slowly, as are those at subprime companies Impac Mortgage and Accredited Home Lenders. Mortgage companies, such as regional bank Fremont General, have begun putting money aside to account for loans going bad.  So far, late payments and defaults are relatively low. But the housing downturn is just in its early stages. In one of the first signs of concern in the market for credit-worthy customers, First Horizon National said yesterday that mortgage volume was falling so rapidly that it would miss earnings estimates for the current quarter. Less than 5% of First Horizon's loans are to customers with poor credit.
Marty Mosby, the bank's chief financial officer, says he's not worried about credit problems, which have been low as a percentage of loans. "We don't see any trends that say it's going to swing very dramatically," he says.  Here's what's been happening: Mortgage originators make loans and then sell them to investment banks, which mash them together with other loans and slice them up like sopressata for sale to institutional investors.  The worry has been that in the rush to gain customers during the housing boom, mortgage-makers lowered their lending standards. During the boom times, investment banks overlooked these concerns because they had no problem finding buyers for their mortgage and debt products.
Now, with the mortgage market slowing and the secondary market for mortgage-related securities faring modestly worse than in the past, investment banks are scrutinizing the loans that come into their sausage factories more carefully.
The investment banks have been sending mortgages back to the lenders if they find slip-ups, such as inaccurate paperwork or poor performance. The most common trigger is a so-called early payment default, where the mortgage holder has missed the deadline for the first payment.  Lenders complain that the investment banks are taking advantage of a contractual loophole to push the mortgages back. Customers often miss first payments, they say, for reasons that have nothing to do with credit worthiness. Sometimes it's just an indication of an administrative delay.  But that's probably wishful thinking.
If the problems spread beyond customers with poor credit, they'll infect the world of exotic mortgages for supposedly credit-worthy customers first. Along with the companies that offered mortgages to customers who didn't produce much documentation of their income and assets, the more vulnerable will be banks that sold huge numbers of option adjustable-rate mortgages.  Option ARMs give borrowers choices to minimize their mortgage payments, including the ability to make a minimum payment that is lower than the interest due that month. When a customer chooses that option, the mortgage balance goes up. After a certain period, often just a year, the rate can move up sharply.  Skeptics have wondered whether customers understood the full costs of these loans and whether lenders correctly estimated how likely it was they'd be paid back.  In an indication that there was reason to worry, Washington Mutual, one of the country's biggest mortgage lenders and a big option ARM player, slipped in a rather stunning confession in its annual filing with the Securities and Exchange Commission.  In the filing, WaMu confessed it had bungled the underwriting for option ARMs, improperly measuring some of its customer's debt-to-income ratios for 2004 and most of 2005. As short-term interest rates rose in those years, the company disclosed, the interest rate at which lenders qualified for loans "was not adjusted upward, which resulted in loans being made to borrowers who were qualified based on debt-to-income ratios calculated using an interest rate below" the prevailing interest rate.  In other words, the applicants looked more credit-worthy than they really were. Talk about violating Rule No. 1 in lending.  Of $43 billion of such loans, WaMu discloses, the unpaid balance for borrowers who were qualified at below the market rates totaled $30 billion.  The bank says it fixed the problem in October. It disclosed the problem in its annual filing this spring, but outside American Banker, few in the media or Wall Street picked it up.  A WaMu spokesman emails that the company expects that "the credit performance of these loans will not differ materially from the expected performance of option ARMs [customers] qualified" at the correct interest rates. WaMu, which says it has more than 20 years experience writing option ARMs through all economic cycles, says that the customers' credit scores and the ratio of the size of the loan to the value of the property were high and that these measures are more important gauges of loan quality.
Option ARMs have been among the most scrutinized exotic mortgage products over the past year. That such an error could creep into WaMu's lending should worry investors not only about the bank's balance sheet but the industry's lending standards as a whole.  Option ARMs didn't go to subprime customers. That's precisely why the coming mortgage problems may not be isolated to customers with poor credit.
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3. Housing Boom's Dark Side
Underinsurance Lurks as a Nasty Surprise
 
August 26, 2006, WSJ
It's the downside of the housing boom: Many homeowners are now significantly underinsured.  Americans have been pouring money into their homes in recent years, adding everything from marble bathrooms to fancy backyard barbecues: Last year alone, spending on improvements like these hit an estimated $155 billion, up 27% from two years earlier. At the same time, the global boom in commodities prices -- lumber, copper piping and other necessities -- as well as rising labor costs has pushed up replacement costs by 7% a year since 2001.  As a result, people who haven't updated their insurance policies in a few years may now be underestimating what it would cost to rebuild their homes, particularly in high-priced markets.  According to a survey to be released soon by Marshall & Swift/Boeckh LLC, a firm that supplies building-cost data to insurers, 58% of houses are undervalued for insurance purposes. Of those, the average homeowner has enough insurance to rebuild only about 80% of his or her house, according to the survey.  Meantime, many insurers have been quietly cutting back what their policies cover. Allstate Corp. recently stopped covering earthquake damage in most states. Several insurers, including State Farm Insurance Cos. and Farmers Insurance Group, a unit of Zurich Financial Services, have stopped covering wind damage in some coastal areas that have been threatened by hurricanes.
One of the biggest shifts by insurers in recent years has been the virtual disappearance of "guaranteed replacement cost" coverage, which promised to rebuild a home exactly the way it was, no matter the cost. Now, most standard policies provide only "extended replacement cost," which offers up to 20% or so more than the face value of the policy if extraordinary events push up rebuilding costs.  Insurance experts say many homeowners haven't grasped this shift, and may be woefully underinsured as a result.  Home insurance exists to help owners repair or rebuild a home, and replace furniture, clothing and other personal property, in the wake of a fire, burglary or other calamity covered by the policy. Some risks, such as flooding or acts of war, are routinely excluded. (Policies also include liability coverage to protect against lawsuits resulting from incidents around a home, such as your dog biting the cable guy).  For insurance purposes, the value of a house is based mostly on the rebuilding costs in a particular area, not on its market value. The policy isn't meant to include the value of the land underneath, which is why some homes, especially in desirable neighborhoods where land is pricey, need less insurance than the amount they would fetch in a resale.  Homeowners need to pay close attention to what's in their policies, because insurers are regularly fiddling with the coverage. Insurers notify policyholders about coverage changes in the annual policy-renewal statement, but many homeowners don't bother to read it, focusing only on the premium.  "Take the new policy, and the old one, and put them side by side -- and if you have questions, contact the company," says Don Griffin of the Property and Casualty Insurers Association of America. It's also a good idea to have a face-to-face meeting at least once a year with your insurance agent or broker, at renewal time.  Some consumer advocates have blamed insurers themselves for homeowners being underinsured, saying their agents lowballed replacement costs in order to keep premiums competitive. Over the past few years, spurred in part by lawsuits, insurers have taken steps to improve their estimates, industry officials say.
That is what Ross Quigley of Mount Lemmon, Ariz., says happened to him. In 2003 a mountain cabin he owns in this vacation community near Tucson was destroyed by wildfire, along with hundreds of other homes. The retired real-estate broker had a $160,000 policy, but he learned that rebuilding the 1912 structure was going to cost $500,000 because of its unusual features and remote location. Mr. Quigley says his insurer had "told me not to worry, because I had 'replacement value,' " a provision in the policy that stipulates he would receive the value of his home without subtracting for depreciation. "But that was so misleading," he says.
He sued the insurer, alleging the company had acted in bad faith by seriously underestimating the amount of insurance he needed. The matter was settled out of court late last year.
Homeowners with unique, historical or custom-built houses might not be able to find adequate coverage from mass-market insurers, which typically pay to rebuild using only standard materials and construction techniques. These owners might have to turn to a specialty insurer, such as Chubb Corp., American International Group Inc. and Allianz AG's Fireman's Fund Insurance Co.  Here are three key questions for an insurer during a checkup:  Do I have enough insurance to be able to rebuild my home as it is, and replace my personal possessions?
Your agent should be able to tell you, but for $7.95 you can check by using a replacement-cost calculator provided by Marshall & Swift/Boeckh at www.accucoverage.com. It uses information you report about your house, and the construction-cost data that the insurance industry uses. Detailed estimates can be obtained from local building contractors, or by paying a professional appraiser.
Coverage for the contents of the home is pegged, usually at about 50%, to the insured value of the house. When calculating your needs for personal property, take an inventory of your possessions, or make a video.
Don't forget to include art, jewelry or unique collections that might require special riders or a separate policy -- a frequent oversight. Most homeowner policies generally cover jewelry only up to $2,000, and antiques are only covered for their value as furniture.  How much am I covered for liability for damage or bodily injury to others?  A standard homeowner policy includes coverage from $100,000 to $300,000. Umbrella liability policies provide coverage in excess of home and automobile policy limits, in increments of $1 million, at prices beginning at about $200 a year. Affluent homeowners vulnerable to litigation because of their deep pockets may want to consider the additional coverage.  Am I adequately covered for the cost of additional living expenses if my home is damaged and I have to live somewhere else during repairs?
This part of the policy reimburses you for hotel bills, restaurant meals, etc. Most policies provide about 20% of the insured value of the house for living expenses. Higher limits are available from some insurers.
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4. Lou's on first, but never lived in Wayne
September 1, 2006, The Record
Did Paterson native Lou Costello build the white stucco Spanish-style villa that's for sale on Hamburg Turnpike in Wayne?
The real estate agent who listed the house at $870,000 thought so, and advertised it that way.  But the comedian's daughter said: No way.  "I can tell you assuredly and with 100 percent certainty that my father never lived in Wayne or built a house there," said Christine Costello, reached at her home in Los Angeles.  The listing for the house, still up on the Coldwell Banker Web site Thursday evening, says it was "originally built in 1925 by Lou Costello in replica of his own Hollywood mansion."  One problem with this version of events: Costello was born in Paterson in 1906, making him only 19 in 1925. He almost certainly did not have the money for a fancy house in those days. He did not team up with Bud Abbott (another Jersey guy, from Asbury Park) until the 1930s, and they did not hit the big time until the late 1930s.  How the name of Lou Costello came to be attached to the house is a bit of a mystery. Robert Lindsay, the listing agent with Coldwell Banker, said the story came from the house's owners, who said the previous owner had a plaque that mentioned Costello. (Neither of these owners could be reached by The Record, and the plaque – if it existed at all – is apparently lost to history.)
Lindsay, a 51-year-old Abbott and Costello fan, said his understanding was that Costello had built the house for his mother. But, when he was told that Christine Costello said that that was not true, he said: "If I had to do it over, I probably would have done more research."  He said Thursday that he would remove the Costello reference from the Internet listing.
In any case, he said, the house is under contract, commanding the full asking price to a buyer who plans to turn it into an office building. Costello's name was not an attraction for the buyer, and Lindsay said he never thought it would be a key selling point -- just an unusual feature that was worth mentioning in the listing.  "To me, it wasn't really a materially important thing," Lindsay said. "We weren't marketing it as the Lou Costello house. ... The generations of people who remember Abbott and Costello routines are starting to dwindle."  State Real Estate Commission spokesman Marshall McKnight said he could not comment on this case, but e-mailed language from the New Jersey real estate advertising rules, which bar "false, misleading or deceptive claims."
Christine Costello said that after her parents married, they lived in the basement apartment of her grandparents' home on Market Street in Paterson. The family later moved to another house in Paterson when Lou Costello was working in burlesque, his daughter said.  The Costellos moved to California in 1939, she said. Abbott and Costello appeared on Kate Smith's radio show, then broke into the movies in 1940 with "One Night in the Tropics."  They went on to make a string of films, including "Abbott and Costello meet Frankenstein," and had a TV show in the early days of television.  In the early 1940s, Lou Costello brought his parents to Hollywood and bought them a house there, said Christine Costello, co-author of the biography "Lou's on First" -- a reference to the famous Abbott and Costello baseball routine, "Who's on First?"   But he always kept his emotional ties to Paterson. He would sign off radio shows by saying, "Good night to all my friends in Paterson, New Jersey."
Lou Costello died of a heart attack at age 52, in 1959. Fans and friends celebrated his 100th birthday in March at John F. Kennedy High School in Paterson.  The 3,100-square-foot Wayne house is at 595 Hamburg Turnpike, on half an acre sandwiched between two office buildings and across from the North Jersey Country Club.  It has four bedrooms, four baths and both a front and back staircase.  Outside, it has a circular driveway and a fountain. The property is zoned for business use, the listing said.  According to property records, it was sold for $200,000 in 1999 and $570,000 in 2003.
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5. The Last Stand of the 6-Percenters?
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Glenn Kelman of Redfin, an online brokerage in Seattle that competes by offering buyers a rebate on its fees.
WHEN David and Annette Wolf decided that their family was outgrowing its Seattle area home, they also decided that they did not need much help finding a new one.  They combed Internet listings of homes for sale until they spotted a four-bedroom house on a cul-de-sac with a three-car garage and 2.5 acres.But the seller's agent refused to show it to them. Why would she turn away an eager buyer? Not because of the Wolfs' race, creed or color. Instead, Mr. Wolf, a software engineering manager at the online directory InfoSpace, said he and his wife were shunned once the agent learned they used an online broker called Redfin.  Mr. Wolf said they turned to Redfin because it gives two-thirds of its sales commission (which is usually 3 percent of the sale price) to its customers. "I didn't want to pay 3 percent for the opening of a door," he said. But customers like Mr. Wolf — affluent and comfortable with the Internet — are a frightening prospect for real estate agents who, as a group, reap at least $60 billion a year in commission income.  Redfin and other innovators, including ZipRealty and BuySideInc.com, are using technology to reduce costs and to save time for their brokers. Agents don't find and recommend homes — customers do that on their own, using Internet listings — and that enables agents to charge less for the services they do provide, chiefly handling the paperwork and negotiations.  The Internet has radically changed the way consumers buy books and airline tickets, trade stock and learn news. But the real estate industry has resisted change — and protected its commission structure — by controlling the information on its Multiple Listing Service database of properties for sale.  "You can find out more on the Internet about an eBay Beanie Baby than you can about a $1 million house," said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington State and California.
The M.L.S. is the only place that contains nearly all the homes for sale in a community. Only brokers can post there, but agents can also display selected information about a listing on their own Web sites and on Realtor.com, a site that works with the National Association of Realtors. Traditional agents still firmly control the M.L.S., which allows all participating brokers, including Redfin, to view almost every home for sale in a particular area, even those being offered through competitors' agencies. But the typical 6 percent commission, paid out of the seller's proceeds and split between the seller's and buyer's agents, is under attack because, as economists note, it does not serve consumers well. Economists who have studied the current system say that it also does little for most agents — except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo. Rivals on the Internet say they do this by refusing to cooperate with buyers using Web-based brokers and by denying M.L.S. information to some online firms.  THEY have not, as yet, fought back by reducing their commissions. And Paul B. Goodrich, the managing director of the Madrona Venture Group in Seattle, an investor in Redfin, says he thinks that they are unlikely ever to do so. "It will be hard for the real estate industry to change the way it compensates its agents," he said. "If Coldwell Banker announced it was paying 1 percent commission to its agents, there would be a mass exodus."  As it turned out, the Wolfs' offer was the highest of five bids made for the house they wanted, and they were able to buy it despite the balky broker. (They toured the house with a friend who is an agent.) They also received a $16,300 commission rebate from Redfin and became firm believers in online real estate brokers.
But as the couple's story shows, people who want to use Web-based brokers often have to fight to do so. Many are, and there are growing signs that they are succeeding. BuySideInc.com, an online buyer's broker in Chicago that offers a 75 percent commission rebate, said that at one point 12 percent of its customers reported that traditional agents had refused to show houses to them. The rate is now down to about 6 percent, perhaps because of responses like this: One client who was denied a showing made an offer anyway that was contingent on getting a tour — a move intended to alert the seller to the refusing agent's actions.  "I'd like to have been the fly on the wall for the conversation between that seller and his agent," said Joseph J. Fox, chief executive of BuySide and a founder of one of the earliest online stock brokerage firms, WebStreet. "The amazing thing," he added, "is that the selling agent still got paid and made $15,000 to $20,000."
In many cities, real estate agents have tried to restrict access to M.L.S. information or to limit its use on the database. Some have asked state legislatures to pass laws forcing brokers to offer certain levels of service, a move that Mr. Kelman sees as intended to squeeze out discount brokers. "It's a thousand tiny shackles on innovation," he said.  The Justice Department and the Federal Trade Commission have fought these tactics in Texas, Kentucky, Tennessee and Oklahoma, among other states, and the department is suing the National Association of Realtors, the powerful trade group of agents and brokers, over what it calls anticompetitive rules. Skip to next paragraph
Joseph Fox, chief executive of BuySideInc.com in Chicago, which serves homebuyers, says he strives to work with traditional agents.  "Where it comes to our attention that significantly anticompetitive state laws or regulations are under consideration, we approach state officials to advocate that they take into account the benefits to consumers of a more competitive approach," said J. Bruce McDonald, deputy assistant attorney general for the antitrust division of the Justice Department.  The battle by the traditional agents reveals how vulnerable the broker's 6 percent commission has become. Agents are quick to point out that the average commission may be closer to 5 percent — a 17 percent decline over 10 years, they say — but no one knows for sure because no one collects data on that.  In many cities, of course, even a one-point drop in commissions has been more than offset by soaring sale prices in recent years. In 1994, for example, a home in San Francisco that sold for nearly $500,000 earned a total of almost $30,000 for the agents commanding a 6 percent fee. Even if the commission slipped to 5 percent when the same house sold this year for more than $1.5 million, the higher price earned its agents a $75,000 commission.
Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.
"It's a case where nobody wins," Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. "Consumers pay a lot of money, and even the people who do the price fixing don't win," he said. "So it is a colossal waste."  Traditional agents spend very little time brokering a deal, Mr. Hsieh added. Most of their time is consumed looking for new clients, which is of no benefit to consumers. An agent working for a salary, he said, would be freed of the need to prospect and would thus be more inclined to focus on negotiating.  Others agree. Steven D. Levitt, an economics professor at the University of Chicago, found that commissions did not align the interests of agents with those of their customers, a conclusion he recounted in his book "Freakonomics." The agent has little incentive to get a few thousand dollars more for a homeowner, he wrote, because it will not much improve the commission. It is far more important for an agent working on commission to get the deal done and move on, he added. A salaried agent is less likely to pressure a customer to make a deal, especially if the agent's bonus depends on customer satisfaction, as at Redfin. Agents at that company, like Allie Howard in Seattle, are quick to point this out. "I don't have to sell anything to the client," she said. Traditional agents portray their service as more personal and thus more valuable, but such agents, unlike Ms. Howard, are not paid unless a deal is completed.  Redfin opened in 2004 as an online real estate listings site for Seattle, and now has 35 employees, including 12 agents in Washington State and California. Its first innovation was to layer maps with historical prices for each area as well as information on property taxes and which homes had a view, for example.
In February, it introduced a Web site that automates the bidding process — and the commission rebates. The sale of a $500,000 house, for example, typically yields a 3 percent commission of $15,000 for the buyer's agent. A Redfin customer would get $10,000 back. "At that point we became a true pariah to the industry," said Rob McGarty, Redfin's director of West Coast operations. Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com. A prospective buyer finds a house on the Redfin site, which populates its maps with homes found on the local M.L.S. A request to see the house can be made with the click of a mouse. Buyers also enter details of their offers — the price they want to pay, the size of the deposit they are willing to put up and, for example, whether they will pay for the termite inspection. Then they click on "Submit." A Redfin agent checks everything with the customer before passing along the offer to the seller.   "It took eight minutes," said Perry Webster of Des Moines, a suburb of Seattle, who bought a new four-bedroom house through Redfin. "But it didn't really matter that it was online. We just liked the business model." He asked, "Is it really worth $10,000 to ride in a real estate agent's Lexus?"  Redfin can also work the seller's side of a real estate transaction. It uses a disruptive method there, too: it lists homes in the M.L.S. for a flat fee of $2,000. The customer is responsible for showing and advertising the home; Redfin handles paperwork and negotiations. But one part of the old system is steadfastly adhered to: buyer's agents are offered their full share of the usual commission.  Like many Redfin customers who were interviewed, Mr. Webster and his wife, Robin Meyers, told of encountering hostile selling agents who said their offers would not be competitive if they used Redfin. But other agents' antagonism only seems to make Redfin customers more loyal.
Matt Bell, general manager of sales at RealNetworks in Seattle, said that "when the listing agent wouldn't show me the house, that's when I knew Redfin was on to something." He added: "If agents don't like it, then it must be better for consumers."  A dozen Redfin customers described similar experiences during the last few months. The selling agents, at least those who returned calls, denied that they had refused to work with Redfin. "That's an absolute absurdity," said Leslie Hancock, an associate broker at Windermere Real Estate, the dominant agency in the Seattle region. "I don't represent buyers on my own listings. I don't care if it's a Redfin agent or a Windermere agent. I'm not going to turn anyone away."
INITIALLY, many people used Redfin to submit lowball offers, so that the company was not taken seriously by other agents. But those "goofy offers" have disappeared, Mr. Kelman said. His agency, he said, has closed 89 transactions and returned $900,000 in customer rebates.
Traditional agents have criticized Mr. Kelman for appearing, as did representatives of the Justice Department and the F.T.C., before a House subcommittee that was looking into real estate law. At the hearing, Representative Maxine Waters, Democrat of California, wasn't buying his complaints that agents would not show homes to his clients, and seemed doubtful that it was a serious matter. "You want us to stop people from bullying you?" she asked.
Some agents say the biggest problem with Redfin is that it complains too much. "Someone may be trying to manufacture controversy, even going so far as to bait other real estate practitioners, invite 'war stories' on their blog and whine to Congress and to newspaper reporters that they're being treated unfairly," said Marlow Harris, a Seattle agent with Coldwell Banker Bain Associates who also runs the real estate blog 360digest.com.  Still, Redfin agents — like their customers — say they meet real resistance from traditional brokers. Ms. Howard, for example, said that in her first days at Redfin, several agents for sellers said they were too busy to show a house to her clients. "That was my boot camp," she said.
When that happens, Redfin agents contact the sellers and let them know that their agent will not show the house. When they cannot find a phone number, they send a registered letter. When sellers have moved, they track them down through the relocation service that moved them.
That is hardball, but the online agents have learned to be tough. "If we didn't do that, the word would get out that Redfin can be blocked," Ms. Howard said. When Redfin said it would try to make peace with rival agents by sending them gift cards for coffee, some of them told Redfin that such a move could violate a Department of Housing and Urban Development regulation having to do with transactions between agents. Redfin scuttled the plan.
Mr. Fox, the chief executive of BuySide, a start-up that operates in five states, says his company is working harder to get along with existing agents. "You have to play by their rules until the value to the customer drives the change," he said.
Redfin's financial backers, who so far have invested $8 million in the company, say they see parallels in the past introductions of automatic teller machines, big-box stores and discount stock brokerage firms — all innovations that faced industry resistance until consumers embraced them and forced change.
"You can only move as fast as the consumer; you can't move faster," said Marc A. Singer, general partner at BEV Capital, a venture capital firm in Stamford, Conn., that specializes in consumer businesses and is a Redfin investor. Redfin, he said, is becoming smarter in each market it enters. "You learn to cookie-cutter that fight," he said.
AMID its battles, a funny thing happened to Redfin. It realized it was not primarily a tech company, but a real estate broker. It moved to stylish offices in Pioneer Square in Seattle because many customers wanted to meet agents the old-fashioned way: in person. Redfin posts pictures of agents on the Web so that customers realize, as Mr. Kelman says, "they won't be talking to a person in Mumbai, India."
Redfin said it planned to use the power of the Internet to personalize listings — if local M.L.S.'s allow it. Sellers, for example, could post online brochures that describe the history of their houses, any improvements made or what makes the homes special to them. Buyers, meanwhile, would automatically get help in searches through software that analyzes their past queries.
(Some local M.L.S.'s are particularly eager to fight one Redfin innovation: a display of how long homes have been listed on the market, a possible tip-off to buyers of an eager seller.)
"If you give people freedom, you can't take it away," Mr. Kelman said. "A consumer force has been unleashed."
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Your Home
6. If Copper Pipes Are Too Costly ...
Published: September 3, 2006
THE price of copper has nearly quadrupled over the last four years, and plumbers and do-it-yourselfers are taking a fresh look at alternatives to copper tubing and fittings. And what some are turning to is a flexible synthetic material called PEX.
Skip to next paragraph Andy Engel, a home improvement contractor in Roxbury, Conn., said that PEX is a "clumsy acronym'' for cross-linked polyethylene, a flexible plastic tubing that has been used primarily for radiant heating since the 1960's.  In recent years, the use of PEX for potable water — the piping that delivers drinking water to home faucets — has increased by about 40 percent each year.
Copper still accounts for about 80 percent of the market for plumbing systems; other metals and plastics accounting for the remainder. But the recent increases in copper prices, along with growing confidence in PEX, is making it more popular.
"The scuttlebutt among plumbers is that PEX is every bit as reliable as copper, yet costs less and is faster to install.'' Mr. Engel wrote in the June/July issue of Fine Homebuilding magazine.  While copper plumbing has proved to be quite reliable over the last 75 years or so, it does require some skill when using a torch to solder the fittings used to connect two pieces of copper. And because the copper tubing used in most plumbing applications is rigid, soldered joints are necessary whenever the tubing changes direction.  But with PEX, installation is easier. "You don't need a torch," Mr. Engel said, because PEX connections are made using compression fittings that can be installed with an adjustable wrench or, in some cases, with crimped connections made with a special crimping tool.  And while PEX fittings are typically more expensive than copper fittings, you generally need fewer fittings with PEX.
Greg Lowitz, the president of Builders Websource, a Redwood City, Calif., company that provides advice and resources to the construction industry, said that because PEX is flexible, it can change direction with no need of fittings. It is relatively easy to install a supply line directly from the water source to an appliance using just one connection at each end.
Mr. Lowitz said that the best way to install PEX is to use a manifold, a distribution fixture similar to the circuit-breaker panel. The manifold connects to the main water supply and the main hot water line and then supplies individual runs of tubing to various appliances and fixtures.  The manifold eliminates the "branch line'' system of conventional plumbing in which the lines to individual fixtures branch off a larger supply line. The manifold system makes it possible to shut off individual supply lines and to add new lines without having to tap into existing lines, Mr. Lowitz said, and it can even save energy by routing hot water directly from the manifold to the fixture. Mr. Engel, the contractor, said that it is also possible to connect individual PEX lines to an existing copper system by using a fitting that accepts a copper pipe on one end and a PEX line at the other. And while some PEX manufacturers will sell only to licensed plumbers, he said, do-it-yourselfers can find PEX tubing and fittings at large home-improvement centers and on the Internet. "PEX is definitely a do-it-yourself option,'' Mr. Engel said. "If you can make a straight cut and tighten up a nut, you can work with PEX.''
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7. Homes With a View
 
PERSPECTIVES A view of Manhattan from the 26th floor of the Shore Club Condominiums at Newport in Jersey City, sold for $895,000.
 
September 3, 2006
WHEN he was 10 years old and growing up in a cold-water flat in Jersey City, William Sinclair decided to buy the Empire State Building. Every day, he looked at it, lusted after it and became more determined to have it.  Skip to next paragraph
Marko Georgiev for The New York Times A view of Manhattan from the 11th floor at 700 Grove in Hoboken, listed at $779,900. "I want to be on top of the world," he told himself, "and that's it." More than 65 years later, Mr. Sinclair, who is retired after running his own electronics manufacturing company, has finally grabbed hold of his glistening dream. He is not actually buying the skyline showpiece — but he is buying a superb skyline view. He will be able to look right across the Hudson River at the Empire State Building, day and night, from the living room of his condominium on the 26th floor at the top of the Hudson Tea Building in Hoboken.
The cost for Mr. Sinclair's nonpareil panorama is $1.6 million.
"This is way better than what they got in Manhattan," he cackled while talking about his new place, currently being renovated, as the Tea Building is converted from rentals to condominiums. "All they got to look at over there is Jersey. And compared to what they pay, this is an incredible steal."
That kind of thinking comes into play at every price point among home buyers seeking a view of the Manhattan skyline, say developers who are busy creating literally thousands of units with a view.  In Jersey City, Hoboken and "Gold Coast" towns like Edgewater, Weehawken and West New York, buildings with a vista, or at least a glimpse, are proliferating as if there were no tomorrow.  In one sense, there is not. When the western riverbank is built out, "that's it," as Mr. Sinclair would say — at least until developers turn their attention to the towns atop the Palisades.  At river level, many developers are even now compelled to focus on second-best sites, those that don't offer views of icons like the Empire State, the Chrysler Building or the Statue of Liberty, and don't include the George Washington Bridge or Verrazano-Narrows Bridge sparkling through the night, and might show off just a sliver of river and a more anonymous edifice or two. This is good news for buyers who do care about cost, some developers are quick to point out.  "Maybe one view is a Picasso," said Benjamin D. Jogodnik, who oversees project development in Hoboken and Jersey City for Toll Brothers, "but if you don't have the resources to own a Picasso, or don't care to, it's now possible to get a perfectly good view for a price in the low $500,000's."
On a hard-hat tour of 700 Grove, his company's 12-story building going up 10 blocks inland of the South Hoboken ferry terminal and PATH station, Mr. Jogodnik showed off several unfinished 11th-floor units, including a one-bedroom place priced at $519,990 with a dynamic view of downtown Jersey City and a modest view of downtown Manhattan.
Even on the same floor, prices vary widely, depending on space and the viewable vistas: a 1,400-square-foot, two-bedroom, two-bath unit with a glorious panoramic view stretching from Midtown to the Statue of Liberty is priced at $779,900. A 1,200-square-foot, two-bedroom, two-bath unit with a view across a landscaped courtyard and the streets of Hoboken to downtown Manhattan is priced at $659,990.
One floor below, the same designs cost $25,000 and $20,000 less, respectively. So far, developers report the market for moderately priced units with views is much softer than that for high-priced units. Two-thirds of the apartments at the relatively moderately priced 700 Grove are sold after a year of marketing, while at Toll Brothers' higher-priced Hudson Tea Building, all but a smattering of the converted units sold out rapidly.  At Maxwell Place, envisioned as the "crown jewel" of Hoboken condos, according to Mr. Jogodnik, the first of two buildings is now under construction by Toll in concert with Pinnacle Custom; its ultraelegant units with interiors by Michael Graves and the best available views of Manhattan, priced at $1 million and up, were 100 percent sold out while the shovels were still shiny.  Harrison T. LeFrak, managing director of the LeFrak Organization, which began building rental towers at its Newport development in Jersey City a quarter-century ago, suggested that the concept of moderately priced views is somewhat new in the Gold Coast marketplace.
As more and more buildings rise, and obscure one another's sightlines to the city, things are evolving, Mr. LeFrak observed.  At Newport, LeFrak Organization is building the first of two 28-story towers for the Shore Club Condominiums project. The building is rising at the corner of River Drive and Newport Parkway, due east of the Holland Tunnel entrance, one block in from the river. Skip to next paragraph
The view from the eighth floor at the Hudson Tea Building in Hoboken, listed at $1.4 million.   Right now, all floors above the fifth have straight-on views eastward to Lower Manhattan and north toward the George Washington Bridge. But numerous other Newport buildings present obstacles looking south. All 220 apartments in the tower have been sold at prices ranging from $420,000 to $1.3 million, and about 90 of the units in the second tower, to be built just north of the first, have been sold too. The buildings, quadrilaterals whose sides are not parallel, will both feature large terraces of 60 square feet or more in each apartment, so that even those units without great window views, and those in the far back of the structure, capture a satisfying slice of the skyline.
Two years from now, however, the picture will change. LeFrak will begin building the Aqua, a 330-foot-high 31-story rental property, between the Shore Club and the river. Also, the builder announced last spring that it will build the Ellipse — a glass and steel elliptical tower with 325 apartments, to stand 460 feet tall, on a pier at the end of 14th Street, one block north of the second Shore Club building. LeFrak has eight other buildings north of the Shore Club in its plans.
The best strategy in a changing marketplace? Harry Kantor of the KOR Companies, which built the 19-story Montgomery Greene condo complex in Jersey City, said the right answer is always to buy high — the highest floor and the highest price you can afford. "This is waterfront property — a diminishing commodity, increasingly rare," Mr. Kantor said. "Those things that are rarest tend to appreciate more rapidly. From an investment and value point of view, there's no question that you should go as high as you can. "On the other hand, observes Christopher Winslow, who directs marketing for the Tarragon Corporation, many people simply cannot swallow spending an extra five figures to get a few more degrees of perspective.  At Hudson Park, Tarragon's nearly complete high-rise in Edgewater, the price differential is about $10,000 per floor. A two-bedroom, three-bath unit on the ninth floor would be priced at $500,000 to $600,000, he said; on the 15th floor, the same unit would cost $60,000 more.
All units in the glass-and-steel building are priced at roughly what a comparable apartment in New York City would sell for, he said.  "In terms of the view of Manhattan, the higher you go, the more foreground you clear," said Mr. Winslow, whose company posts video that pans across the panorama of actual views at onehudsonpark.com, its Web site. "Up high, you lose a little river, but get more city. Lower down, the river appears wider." In the end, Mr. Winslow asserted, it comes down to personal taste. "What's your lifestyle? Where do you need to be? That's how you choose a view."
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In the Region | New Jersey
8. Offering Prizes to New-Home Buyers
 
PROMOTING 'PEACE OF MIND' at Towne Lake in Sayreville, the builder will buy back any home within three years.  
NYTimes  August 27, 2006
BUYERS are said to have the upper hand these days in the market for residential real estate, and this is reflected in the elaborate presents and price breaks that consumers are being offered to purchase homes in new developments. Skip to next paragraph At the Devonshire in Monroe, buyers are being guaranteed a 30-year mortgage with a rate of only 6 percent.
At the Ocean Acres at Barnegat development, where hundreds of single-family homes are being built near Barnegat Bay, several buyers await delivery of new Toyota Yaris hatchbacks, which will arrive in their garages early next year at the time of their closings, courtesy of the developer, Walters Homes.
Last month, in the Poconos, the Teicher Organization was giving away new Mazda Miata convertibles to those who signed contracts on the weekend when sales opened for its new Mystic Pines Townhomes development at the Pinecrest Lake Golf and Country Club.  At the Devonshire, a new development of 68 estate-style homes in Monroe, buyers are being guaranteed a 30-year mortgage with a rate of only 6 percent, with the rate locked in until closing — plus a minimum of $20,000 in cash and six months without mortgage payments.  That interest rate compares with a average rate of 6.6 percent for a 30-year mortgage in New Jersey as of Aug. 18. On a $600,000 loan, the lower interest rate would bring down the monthly mortgage payment by about $235 a month.
The program at Devonshire is promoted by the developer, Matzel & Mumford, as providing "peace of mind" for buyers in the development, which has four- and five-bedroom homes priced from $694,900. The below-market-interest-rate incentive is scheduled to expire at the end of the month.
But other companies continue to come up with new ideas to entice potential homeowners to set aside their anxiety about climbing mortgage interest rates and buy now.
The Kaplan Companies of Highland Park, for one, appears to be going to unusual lengths to persuade prospective buyers that they have nothing to lose by making a purchase. For the next 60 home buyers at its current New Jersey projects — Towne Lake and Harbour Pointe at La Mer, both in Sayreville; the Heights of Hampton; the Woodfield at Mount Olive; the Villages at Cinnaminson Harbour; and the Ambiance at Hackensack — the company is offering a plan intended to provide full protection against the vagaries of the housing market over the next three years. "We will buy back any home we sell — at the price paid — at any time in the next three years, should the market price of that home fall," said Jason Kaplan, president of the Kaplan Companies.  Kaplan also promises to pay closing costs for home buyers who want to refinance their mortgages during the next three years.
For potential buyers who may be having difficulty selling a home they currently own, Kaplan is offering to buy the house. And for those who are renters and need to break a lease, it is offering to pay the cost of doing so.  Finally, the company is holding out a safety net to buyers who lose their jobs within the next three years. In the event of that disaster, Kaplan will pay the mortgage for up to one full year.  As always with eyebrow-raising offers, certain conditions apply. For example, there is the matter of setting a price for a customer's current house. "We will buy at market price, based on comps" — sales prices for comparable homes in the same neighborhood — "factoring in a real estate broker's commission," Mr. Kaplan said.  But given that the market slowed markedly last spring, producing an eight-month backlog of homes for sale around the state, Kaplan's offer removes the significant burden of having to wait to sell in order to buy, Mr. Kaplan said.
"It's a soft market for sellers, but a strong market for buyers right now," Mr. Kaplan said. "We really wanted to get the attention of buyers."  "I just bought my own house" in Short Hills, Mr. Kaplan said, "and I was able to negotiate the price, while I know that a year ago I would have been just another one of those bidding on it, which was crazy."
Mr. Kaplan said the biggest concern of people looking at Kaplan's various communities of single-family homes and town homes right now seems to be: If I buy now, will the value of the home hold up? "We are confident that the homes we build are priced right, and that nothing drastic is happening with the market," he said. "We are basically just putting our name and wallet behind it." Kaplan, like other large home building companies in New Jersey, has houses for sale in many places and price ranges — and Mr. Kaplan said the market situation appears similar across the board.  "Any product, any price, any geographical area of New Jersey," he said, "if stuff is overpriced, people are just not buying. If it is priced right, then it will move." Starting prices for Kaplan's condominiums at the Villages at Cinnaminson Harbour, along the Delaware River in Burlington County, are set in the low $200,000's, mid-$200,000's and low $300,000's, for three different designs.  The units at the Harbour Pointe at La Mer, which all have two bedrooms and two baths, are priced from the mid-$300,000's. Condos at the Ambiance at Hackensack are priced from the low $400,000's.  Single-family homes and larger town homes at the Heights of Hampton, Woodfield at Mount Olive and Towne Lake have prices starting in the $500,000's, Mr. Kaplan said.

New-Home Sales Decline by 4.3%
Higher Inventory Suggests
Downturn Is Deepening;
Mixed Durable-Goods Data
WSJ
August 25, 2006
Sales of newly built homes tumbled last month, but a firm reading on orders for big-ticket factory goods suggests the economy will continue to grow moderately despite head winds from a slumping housing market and high energy prices.
The Commerce Department said sales of new homes in July fell 4.3% from June to a rate of 1.07 million units, a pace that is 21.6% slower than a year ago. The inventory of unsold homes on the market rose to a supply of 6.5 months, up from 4.2 months a year earlier, while the median price fell to $230,000 in July and is essentially flat compared with a year ago.
Those numbers suggest the downturn in the housing market is deepening and will continue to weigh on the economy. But a separate report from the Commerce Department on the manufacturing sector suggests businesses and consumers are still spending enough to produce modest economic growth.
Sign of a Pickup
Orders for durable goods excluding transportation in July rose 0.5% from June following even bigger gains the previous two months. In a sign that business spending is picking up after a mild second quarter, orders for nondefense capital goods excluding aircraft increased 1.5% last month after posting similar increases the two previous months. Overall, orders for durable goods fell 2.4% last month due to a drop in the volatile transportation sector, which includes car and aircraft manufacturers.
Economists closely monitor orders for durable goods -- items such as lawn mowers, desktop computers and cars that are intended to last three years or longer -- to get a sense of what business and consumer spending will be like a couple months down the road.
With the weakening housing market and high gasoline prices making consumers more cautious, many economists expect businesses that have enjoyed big profits recently to pick up some of the slack. Roger Kubarych, senior economic adviser for HVB America in New York, said that yesterday's report confirms that the economy is undergoing a "profound shift away from a disproportionate emphasis on housing and personal consumption expenditures toward greater business investment and exports."
Passing the Baton
"We're trying to pass the baton here," said Josh Feinman, chief economist at Deutsche Asset Management. He noted that both shipments and new orders for durable goods in June were revised higher, making it likely that the economy grew at an inflation-adjusted annual rate of closer to 3% in the second quarter, rather than the initially reported 2.5% growth rate. For the rest of the year, Mr. Feinman estimates the economy will grow at a slightly slower pace than the second quarter. The Commerce Department will release its revised figure on second-quarter growth on Wednesday.
Separately, the Labor Department said the number of people filing initial unemployment claims last week was nearly unchanged from a week earlier, suggesting that the labor market will continue to produce mild job creation, but low unemployment.
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The New House on the Block
As Rates, Inventories Rise, Developers Try Auctions; A $500,000 Savings
WSJ
August 25, 2006
Brian Michaud just picked up a little something for 40% off -- a brand-new, two-bedroom condominium in Fish Creek, Wis., with a private elevator and harbor views. His method: He bought it at auction. Though the condo was new, its developer decided he wanted to sell quickly, so he put it on the block last month.
Mr. Michaud had been watching the condo since construction started, but figured last year's $1.25 million asking price was beyond his budget. But when it went on the block, Mr. Michaud and his brother snapped it up for $740,000 -- less, even, than comparable units without water views have sold for nearby. "It was a great deal," he says.
As the U.S. housing market slows, private homeowners have begun experimenting with various sales strategies, including putting the prized family home up for auction. But another group of sellers is also heading to the auction house: builders and developers trying to unload newly built homes. Unlike typical homeowners, whose emotional and financial stakes in their homes might keep them from slashing prices, developers tend to lack sentimental attachments and may have more room to negotiate financially. So in many cases, buyers can get a decent price on new properties at auction, with discounts of 20% and even more.
Auction companies say new-home sales represent a growing part of their business. In Denver, auctioneer Janelle Karas has gotten so many inquiries from builders and developers worried about mounting inventories that she recently changed her business model to specialize in them. In Gadsden, Ala., auctioneer Craig King says he handled 12 auctions of new homes in 2005, and this year he's on pace for about twice that number. Walt Driggers, who runs an auction house in Ocala, Fla., says many of the developers who are now coming to him started the building process more than two years ago when real-estate prices were climbing. This weekend his parent company, Tranzon, will auction a four-bedroom lakeside townhouse in White Pigeon, Mich.; next month, it will try to sell a 5,000-square-foot brick mansion in Lorton, Va.
 
This six-bedroom home in Plantation Acres, Fla. is on two lots offered separately or together.
Nationwide figures on new-home auctions aren't available; neither the National Association of Home Builders nor the National Auctioneers Association break out such numbers. But overall residential auction sales are up, according to the NAA. The association's most recent statistics showed that the category grew 4.4% in the first half of 2006, compared with 4% for the same period in 2005. The group projects home auctions will account for $255.4 billion in revenue in 2006, compared to $240.2 billion last year.
The home-builders association says interest in new home auctions is up as builders experience an increase in contract cancellations -- 30% this summer, compared with 15% last summer. Builder confidence, as measured by the trade group's monthly survey of its members, is at a 15-year low. Alabama auctioneer Mr. King adds that builders and developers are struggling to pay overhead, taxes and interest on their loans. "They're looking for ways to stop the bleeding," he says.
The increase in new-home auctions comes amid a softening in the overall housing market. Inventories of unsold new homes are now at a 6.5-month supply, an 11-year high. Overall, new home sales were down 21.6%, housing starts fell 13.3% and building permits dropped 20.8% in July from the previous year, according to government statistics.
'Bing, Bang, I'm Done'
Terrence Wall, who developed the Wisconsin condominium that Mr. Michaud recently purchased, says potential buyers stopped calling when interest rates went up last year. He sold one of the six units for $1.05 million, but then he got competition from three other projects that went on the market in the little resort town. Though the auction didn't raise as much as he'd hoped, he was pleased with the process. Unlike the brokers he'd hired to market the condos, who'd had few open houses, the auctioneers staffed an open house for two weeks in July before the sale. They had 252 showings, with potential buyers coming from 27 states. The proceedings were held in a conference center, where bidders were treated to a buffet of salmon, cheese and deviled eggs. Fifty people registered, 17 made bids, and in a half hour, it was over.
 
The interior of the Plantation Acres house, which will hit the auction block on Sept. 20.
"It was 'bing, bang,' I'm done," Mr. Wall says. "I walked away knowing I got the top possible price."
Unlike private homeowners, who may overvalue their homes and are often reluctant to reduce their asking price at auction, small builders and developers tend to be more sophisticated and motivated, auctioneers say, with a clear-eyed understanding of the value of their properties. And because builders make as much as 40% gross profit on the homes they sell, they also have more wiggle room when it comes to reducing the price. "A home seller is in a retail position," says Destin, Fla., auctioneer Ben Anderson. "A builder is in a wholesale position."
Auction economics made sense for David Marks. The developer has already sold the first 133 units of his Vista Hills condominium project in Austin, Texas, the conventional way -- spending $150,000 in marketing and advertising costs over 21 months, and selling the units for $170,000 to $300,000. But with sales slowing, he's eager to close out the project. So much so, in fact, that he's using an "absolute" auction -- meaning, he'll take the highest bid offered, without a reserve price -- to sell the remaining two-bedroom units, which have granite countertops, stainless-steel appliances and crown moldings. He realizes he could take a big loss on the Sept. 30 sale -- he'll have to pay the auctioneer $50,000 -- but says he's made enough profit on the previous condos to cushion him. "Six units aren't enough to justify a sales staff," he says.
 
This four-bedroom, 5,000-square-foot home in Lorton, Va., has a reading room in the master bedroom suite.
This isn't the first time that large numbers of new homes have gone under the gavel. In the late '80s and early '90s, builders large and small were buying land and building houses on speculation. When the market turned, many of these properties wound up in foreclosure, along with thousands of privately owned homes. As a result, banks created separate departments known as REOs, for "real estate owned," to handle the onslaught of sales.
But that's much less likely to occur in the current market, industry observers say, in large part because big developers, who build 68% of all houses in the country, are waiting for signed deals before they break ground. Companies such as Pulte Homes Inc. in Bloomfield Hills, Mich.; Centex Corp. in Dallas; and Toll Brothers Inc. in Horsham, Pa., all say that they haven't auctioned their homes and don't plan to anytime soon. "We build only when someone signs a contract," says Joseph Sicree, a spokesman for Toll Brothers.
Lagoon Views
To register for an auction, a buyer must put down a deposit, usually 8% to 10% of the home's estimated value. As with any transaction, caveat emptor: New homes sold at auction are often in out-of-the-way places, with few comparable recent sales. Although sellers must disclose defects, brokers caution buyers to check to make sure the property isn't encumbered by liens, has had proper permitting and inspections, and that all new home warranties apply. And the hammer price isn't necessarily the final price: Some auctioneers take a "buyer's premium" of 5% to 12%.
"Just because it's an auction doesn't necessarily mean you'll get a deal," says Wayne Jones, a Mississippi insurance executive who has bought homes at auction. Recently, after spending six months looking for a vacation home in the Gulf Shores area of Alabama, he spied an ad for the auction of a new 3,100-square foot home with tile floors, gray granite countertops and a view of a lagoon.
He thought the builder's $1.29 million asking price was high; after other sales in the area, he figured the home might sell for closer to $1 million. The auction set no minimum bid price, so Mr. Jones registered for the May sale. Thirty people had signed up, so he was surprised when, after the auctioneer started his patter, only one other person bid, then quickly dropped out. After only a few minutes, Mr. Jones got the property for $812,000 -- $20,000 above the opening bid. "I wasn't expecting to win it, but I think it was a good buy," he says.
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August 27, 2006
National Perspectives
Why Some Towns Place Roadblocks on Cul-de-Sacs
NY Times
NORTHFIELD, Minn.
ON a crystalline day in early August, grumbling yellow bulldozers and excavators dug into a broad swath of black earth just east of the city limits here, within earshot of both the farm operation the acreage had been part of and the suburban landscape into which it will be absorbed.
Tucked inside the fifth addition to the subdivision Rosewood is Larkspur Court, the type of cul-de-sac that has long been an iconic feature of American suburbs.
But here and in other areas across the country, this staple of suburban development is drawing criticism from a growing number of planners and government officials, who say it should become an endangered species.
Highly popular after World War II, the cul-de-sac is essentially a dead-end residential street, often but not always ending with a large circular patch of pavement allowing vehicles to turn around. The form was initially embraced as something that promoted security, neighborliness and efficient transportation.
Homeowners found that the cul-de-sac limited traffic, creating a sense of privacy, while encouraging ties among neighbors, who could hardly avoid one another. Developers liked the cul-de-sac because it made it possible to build on land unsuited to a grid street pattern and because home buyers were willing to pay a premium to live on one.
Now the cul-de-sac is excoriated in certain quarters, especially by New Urbanists, as a detriment to security, community and efficient transportation.
Michael Lykoudis, dean of the School of Architecture at the University of Notre Dame, grew up on a cul-de-sac in West Lafayette, Ind., but finds himself among the critics. He notes that suburban neighborhoods are difficult, if not impossible, for pedestrians to navigate, making cars virtual necessities. "The president says we are addicted to oil, but in fact it's not a voluntary addiction," he said.
And while people within a cul-de-sac may know one another well, they are less likely to know people who live on other streets. "What was lost is a sense of community," he said.
In Northfield, a city of 17,000 about 45 miles south of Minneapolis, cul-de-sacs are more than out of fashion. "This city has tended toward not liking them," said Dan Olson, the city planner.
The City Council passed an ordinance several years ago saying that cul-de-sacs can "only be used to the extent that the topography, wetlands or other physical features necessitate their use."
"They really don't provide connectivity and ease of access to other areas of the city," Mr. Olson said.
In 1998, when the preliminary plan for Rosewood's fifth addition was approved, the subdivision included three cul-de-sacs, Mr. Olson said. The developer agreed to make two of them through streets but insisted that the remaining one was vital to the project. The single cul-de-sac provoked vigorous debate in the planning commission before the revised plan was finally approved in April, with two dissenting votes.
In her blog, Tracy Davis, one of the commissioners who voted no, wrote a few days later that the city was essentially sanctioning "cul-de-sac starter castles and monotonous 'burb developments."
Don Mitchell, professor of geography at the Maxwell School of Citizenship and Public Affairs at Syracuse University, grew up on a cul-de-sac in Moraga, Calif., and has seen both sides of the debate. "It's a quiet street that all us kids could play on without too much fear of traffic," he said. "And there was pretty good surveillance by our parents when we were out in the street."
But those advantages can also be disadvantages. "They're quite insular," he said. "They tend to almost induce a circle-the-wagons sort of atmosphere, so anybody becomes a stranger who's on the street. They don't often act like public streets. We always knew when there was someone who wasn't a regular on our street, and yet they had every right to be there."
Originating in England, where they have also come under criticism lately, the cul-de-sac has evolved since it was introduced in the United States in the late 1920's.
Eugenie L. Birch, chairwoman of the department of city and regional planning at the University of Pennsylvania's School of Design, noted that in Radburn, N.J., site of some of the earliest American cul-de-sacs, the street pattern had been used to create more public space.
"The houses were designed so the backs of the houses would be on the cul-de-sac," she said. "In other words, the cul-de-sac was a service street." The fronts of the houses looked out on either pedestrian walkways or large interior parks.
But even that created a problem in the 1920's, before the clothes dryer became a standard appliance in the home, Dr. Birch said. Residents debated whether their clotheslines should be in the backs of their houses and therefore on the cul-de-sacs or away from the street and in the fronts of their houses.
"I become suspicious when people just say no, no, no, you can't have them, because there are lots of ways one can be imaginative about them," Dr. Birch said. "Unfortunately, most of our land development has not been particularly imaginative about them."
Although planners may be turning away from cul-de-sacs, people who actually live on them are willing to fight for them.
Just a 25-mile drive north from Northfield, the cul-de-sac is quite welcome in the Twin Cities suburb of Eagan. By 2005, the number had grown to more than 650 in the community of 69,000 residents, from about 100 in the late 1970's when the population was about 17,000.
But in 2004, residents of Wellington Way were dismayed when they learned that their flat-ended cul-de-sac would become a through street as the adjacent Diamond T Ranch, a horse ranch, is developed into a residential subdivision called Steeplechase of Eagan. They petitioned the city to keep their cul-de-sac, but the Dakota County Plat Commission insisted that the cul-de-sac, which had been planned for a through street as far back as 1985, be extended.
Residents argued that when they bought their homes nothing indicated that the street would ever be anything but a dead end. Eagan officials sided with the residents, and the plan, which was also disputed because of wetlands use and density, went back and forth between the city and the county for a year before the city finally relented.
Since then, Eagan has posted signs on about 40 cul-de-sacs saying "Future Through Street."
"They have been very highly regarded in Eagan, and there has never been any issue about getting rid of them or taking them out of our design standards," said Thomas L. Hedges, city administrator in Eagan and a cul-de-sac resident.
Brent D. Ryan, associate professor of urban planning at the University of Illinois at Chicago and co-director of the City Design Center, grew up on a cul-de-sac in Branford, Conn.
He noted that by about 1960, cul-de-sacs became the favored street pattern, and in many places the street grid was discouraged or forbidden.
"Now we're creating new sets of standards that either permit or require gridded street systems again," he said.
"The thing you can say most about cul-de-sacs," he added, "is what goes around comes around."
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When the Truth Goes Begging
NY Times, August 27, 2006
 
FOR those who have a hard time documenting enough of their earning history to qualify for conventional loans, a popular option has become the so-called "stated income" mortgage.
Such mortgages are often sought by self-employed people or contract workers who typically do not receive W-2's and thus lack the kinds of income documentation that underwriters rely on to process most conventional loans. The loans cost roughly one-half a percentage point to three-quarters of a percentage point more.
As you might guess, stated-income mortgages are also popular among borrowers who are committing fraud, knowingly or not. According to a recent study of 100 stated-income mortgages by the Mortgage Asset Research Institute Inc., an industry consulting company in Reston, Va., 90 percent of those who apply for stated-income loans exaggerate their income by 5 percent or more. Nearly 60 percent exaggerate their income by more than 50 percent.
"It's stunning — not just the high percentage of those who misstate their income, but the high percentage who grossly overstate it," said Nick Larson, an assistant vice president of the institute.
Stated-income loans are, Mr. Larson said, one of the primary ways people obtain loans for which they could otherwise not qualify.
In most of the abuse cases, he said, this involves a calculated effort among criminals who take out a big loan as part of a fraud scheme. For instance, a criminal could work with a seller and a crooked appraiser to inflate the price of a house. The criminal could then obtain a big stated-income loan, pay the seller an agreed-to amount, take a cut of the selling price for himself and then simply abandon the loan, letting the property go into foreclosure.
But stated-income loans also sometimes involve borrowers who know that if they told the truth about their finances, they could not get a mortgage. That, too, is fraudulent, of course, since buyers entering into mortgage settlement contracts must sign statements testifying to the accuracy of their financial information. It is also risky, mortgage professionals said, since not telling the truth could ruin a borrower's credit in the long term.
Sometimes, brokers will push borrowers into stated-income loans so they can get their commissions, industry executives said, even though it is clear the borrowers cannot afford the mortgage payments. And the borrowers are not always aware of the risks they are taking in these situations.
"If you don't agree with the numbers on the closing documents, you shouldn't be signing them," Mr. Larson said. "If they say they fudged the income a little bit and it's 50 percent more, that's more than just rounding."
In the second half of last year, about 12 percent of all new loans were obtained with reduced or no financial documentation, according to the Mortgage Bankers Association.
Some mortgage brokers simply will not offer such loans. Marc Savitt, the vice president of the National Association of Mortgage Brokers, is one.
Mr. Savitt, who owns the Mortgage Center, a brokerage in Martinsburg, W.Va., said many state laws require brokers to verify a borrower's ability to repay loans. "If I can't verify their financial information," he said, "how do I know they can repay?"
Mr. Savitt said that in certain circumstances he would consider a stated-income mortgage, like the one he arranged about 15 years ago for a client who was a part-owner of 84 different weight-loss businesses. "We saw 84 different tax returns, because each business was a separate corporation, so we knew his ability to repay," Mr. Savitt said.
Otherwise, he said, stated-income mortgages are not for sale. "There's not really a nice way to say it," he said. "We have a nickname for them in the industry. They're called 'liar loans.' "
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August 27, 2006
Offering Prizes to New-Home Buyers
NY Times
BUYERS are said to have the upper hand these days in the market for residential real estate, and this is reflected in the elaborate presents and price breaks that consumers are being offered to purchase homes in new developments.
At the Ocean Acres at Barnegat development, where hundreds of single-family homes are being built near Barnegat Bay, several buyers await delivery of new Toyota Yaris hatchbacks, which will arrive in their garages early next year at the time of their closings, courtesy of the developer, Walters Homes.
Last month, in the Poconos, the Teicher Organization was giving away new Mazda Miata convertibles to those who signed contracts on the weekend when sales opened for its new Mystic Pines Townhomes development at the Pinecrest Lake Golf and Country Club.
At the Devonshire, a new development of 68 estate-style homes in Monroe, buyers are being guaranteed a 30-year mortgage with a rate of only 6 percent, with the rate locked in until closing — plus a minimum of $20,000 in cash and six months without mortgage payments.
That interest rate compares with a average rate of 6.6 percent for a 30-year mortgage in New Jersey as of Aug. 18. On a $600,000 loan, the lower interest rate would bring down the monthly mortgage payment by about $235 a month.
The program at Devonshire is promoted by the developer, Matzel & Mumford, as providing "peace of mind" for buyers in the development, which has four- and five-bedroom homes priced from $694,900. The below-market-interest-rate incentive is scheduled to expire at the end of the month.
But other companies continue to come up with new ideas to entice potential homeowners to set aside their anxiety about climbing mortgage interest rates and buy now.
The Kaplan Companies of Highland Park, for one, appears to be going to unusual lengths to persuade prospective buyers that they have nothing to lose by making a purchase. For the next 60 home buyers at its current New Jersey projects — Towne Lake and Harbour Pointe at La Mer, both in Sayreville; the Heights of Hampton; the Woodfield at Mount Olive; the Villages at Cinnaminson Harbour; and the Ambiance at Hackensack — the company is offering a plan intended to provide full protection against the vagaries of the housing market over the next three years.
"We will buy back any home we sell — at the price paid — at any time in the next three years, should the market price of that home fall," said Jason Kaplan, president of the Kaplan Companies.
Kaplan also promises to pay closing costs for home buyers who want to refinance their mortgages during the next three years.
For potential buyers who may be having difficulty selling a home they currently own, Kaplan is offering to buy the house. And for those who are renters and need to break a lease, it is offering to pay the cost of doing so.
Finally, the company is holding out a safety net to buyers who lose their jobs within the next three years. In the event of that disaster, Kaplan will pay the mortgage for up to one full year.
As always with eyebrow-raising offers, certain conditions apply. For example, there is the matter of setting a price for a customer's current house. "We will buy at market price, based on comps" — sales prices for comparable homes in the same neighborhood — "factoring in a real estate broker's commission," Mr. Kaplan said.
But given that the market slowed markedly last spring, producing an eight-month backlog of homes for sale around the state, Kaplan's offer removes the significant burden of having to wait to sell in order to buy, Mr. Kaplan said.
"It's a soft market for sellers, but a strong market for buyers right now," Mr. Kaplan said. "We really wanted to get the attention of buyers."
"I just bought my own house" in Short Hills, Mr. Kaplan said, "and I was able to negotiate the price, while I know that a year ago I would have been just another one of those bidding on it, which was crazy."
Mr. Kaplan said the biggest concern of people looking at Kaplan's various communities of single-family homes and town homes right now seems to be: If I buy now, will the value of the home hold up?
"We are confident that the homes we build are priced right, and that nothing drastic is happening with the market," he said. "We are basically just putting our name and wallet behind it."
Kaplan, like other large home building companies in New Jersey, has houses for sale in many places and price ranges — and Mr. Kaplan said the market situation appears similar across the board.
"Any product, any price, any geographical area of New Jersey," he said, "if stuff is overpriced, people are just not buying. If it is priced right, then it will move."
Starting prices for Kaplan's condominiums at the Villages at Cinnaminson Harbour, along the Delaware River in Burlington County, are set in the low $200,000's, mid-$200,000's and low $300,000's, for three different designs.
The units at the Harbour Pointe at La Mer, which all have two bedrooms and two baths, are priced from the mid-$300,000's. Condos at the Ambiance at Hackensack are priced from the low $400,000's.
Single-family homes and larger town homes at the Heights of Hampton, Woodfield at Mount Olive and Towne Lake have prices starting in the $500,000's, Mr. Kaplan said.
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August 27, 2006
Read Between All Those For-Sale Signs
NY Times
REAL bubbles pop. They are fully formed one moment and gone the next. Financial bubbles rarely meet with such a definitive end, which has always been the biggest problem with the metaphor. They let out their air in unpredictable bursts, and it's usually impossible to figure out whether they have finished deflating or are just starting to.
Still, the latest housing numbers seem like they could be a turning point. A real estate crash might not be the most likely outcome, but it certainly seems legitimate to think about what one would look like.
The number of building permits being issued is falling at a rate usually seen only in recessions. In July, 11 percent fewer existing homes were sold than were sold a year earlier; 22 percent fewer new houses were sold. After the new-house data was released last week, Capital Economics, a consulting firm, wrote an e-mail message to its clients that began, "New day, same depressing housing market story."
The fate of the housing market will influence whether the economy will merely slow over the next year, as the Federal Reserve forecasts, or fall into a recession for the first time since early 2001. Lehman Brothers, the investment bank, said Friday that "for-sale" signs had replaced gas-price signs as the most important indicator of potential trouble.
The collapse of most bubbles does not have a single obvious starting point, like a bad corporate earnings report or an interest-rate rise. Instead, the psychology of buyers and sellers shifts, slowly at first and then sometimes in a cascade.
"It's always mystified people about why these things turn," said Robert J. Shiller, a Yale economist and author of "Irrational Exuberance," a history of speculation. "People want something concrete."
There seem to be three major paths that housing could follow over the next year: a soft landing, the start of a long slump, or a crash. A soft landing is the one predicted — and preferred — by most economists on Wall Street and at the Fed. A long slump is what many past real estate booms turned into. A crash is the outcome that a small group of analysts say is the only possible ending for the biggest housing boom of all.
Their prediction looks better than it did a few weeks ago, but even they aren't sure whether this is the beginning of the end or another false turning point. "The funny thing about bubbles," Mr. Shiller said, "is that you never know when they're over."
For a crash to happen, prices would have to decline significantly in some once-hot markets. So far, as sales have slowed and the number of houses on the market has soared, many owners have chosen to sit tight. If they were instead to decide that selling later would be even worse than selling now, this could change quickly.
The doomsayers' strongest argument may be that too few families can afford prices in some metropolitan areas. In Las Vegas, Los Angeles and Miami, prices have almost doubled since 2003, and they have risen about 50 percent in New York and San Francisco, the National Association of Realtors says.
Jumps of this magnitude have little precedent. To afford homes, some buyers, especially in California, have resorted to aggressive mortgages, like those that allow artificially low payments in the early years. In effect, families seem to be buying houses they cannot afford, in the hope that their incomes or property values will rise significantly. "Prices just shot up too much," said Robert T. McGee, chief economist at U.S. Trust, an investment firm based in New York. The firm has forecast a soft landing for housing, he said, but "as time goes by that starts to look like wishful thinking."
If prices do decline, some of the first victims would be families in a financial bind that are unable to rescue themselves by refinancing their mortgage. Foreclosures would then rise, damaging banks and increasing the number of homes for sale.
Even homeowners not in danger of losing their home — an overwhelming majority, certainly — might respond to falling prices by cutting spending, particularly if they had been counting on their home's value to serve as a retirement account. That could force job cuts in a wide range of industries.
Already, the housing slowdown has begun damaging the job market. Builders, mortgage lenders and real estate agencies have stopped adding to payrolls. Defined broadly, the real estate sector has accounted for 44 percent of jobs created since 2000 and employs more than one in 10 American workers, according to Moody's Economy.com.
Perhaps the biggest reason to be skeptical about a real estate crash is that the country has not really suffered through one before. Not since the Depression has the combined value of residential real estate fallen over the course of a full year. Homes seem to be much less vulnerable to crashes than other assets, because people rarely sell them in a panic.
But earlier booms have been followed by modest price declines in some cities that turned into long periods in which increases trailed inflation. After peaking in much of California and the Northeast in the late 1980's, house values fell during the recession of 1990-91 and then drifted for years, often rising more slowly than the price of milk.
In inflation-adjusted terms, prices in the New York and Washington areas did not return to their late-80's peak until 2002. In Boston, it didn't happen until 2000, and in San Francisco, 1999.
It isn't hard to imagine a similar chain of events over the next decade. Based on futures contracts traded on the Chicago Mercantile Exchange, investors expect the median house price in Los Angeles, New York and some other regions to fall about 5 percent in the next year, which would be similar to the decline that started the 90's slump.
From there, prices might start rising again, but at a slow enough pace that incomes would eventually catch up. Families that now need an exotic mortgage to buy a house in Los Angeles could eventually afford one the old-fashioned way.
Interest rates could play a role in a long slump, too. They have been falling for much of the last decade, helping push house prices higher by allowing buyers to afford bigger mortgages. Most economists expect rates to remain lower than they were a generation ago but not to return to the extremely low levels of a few years ago, making big swings in house prices, in either direction, unlikely.
Christopher J. Mayer, director of the Paul Milstein Center for Real Estate at Columbia University, argues that the recent drop in sales does not suggest that a larger bust is coming. "So far we have only seen people asking pie-in-the-sky asking prices and not getting them," said Mr. Mayer, who expects housing to continue slowing but not enough to create a recession.
He believes that the boom in house prices was largely a result of the appeal of "superstar cities" like New York and San Francisco that are unlikely to lose their allure. In the much of the rest of the country, prices are not unusually high, considering the relatively low interest rates.
Moreover, few borrowers are falling behind on their mortgage payments, and the economy looks fairly healthy outside of housing. So if prices start falling, new buyers may jump into the market and prevent any extended slump. "The fundamentals of real estate are solid, still," said James Gillespie, chief executive of Coldwell Banker, the real estate company.
Which is it, then — a brief pause, or a big correction?
"Either argument is very compelling. I can debate myself on it," said Mark Zandi, chief economist at Moody's Economy.com. "That's why there's a great deal of uncertainty."
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August 26, 2006
In Housing as in Most Things: What's Up the Most, Falls the Most
NY Times
IF you raise prices enough, people will stop buying.
That may not impress economists as a new thought, but it accurately describes the current United States home market, where home buyers are suddenly more reluctant to put down their money, and the supply of homes for sale has reached record levels.
The housing boom that now appears to have ended was most pronounced in a handful of areas largely concentrated on the East and West Coasts, while people in the Midwest wondered what all the excitement was about. Now it is the areas that did the best that are seeing the most buyer resistance.
In three states, the rate of home sales in the second quarter of this year fell by more than a quarter from a year earlier. All are in warm-weather areas, all were viewed as likely to gain population as baby boomers retired and all enjoyed rapid price rises in the first half of the current decade, in part because of speculation by investors seeking quick profits. They are California, Florida and Arizona.
While those states had the largest decline in sales rates, the six other states along with the District of Columbia that led the country in sales price increases early in the decade are now also experiencing sales declines more rapid than those in the nation as a whole. They include Hawaii and Nevada, two other areas that had intrigued investors, as well as the region that benefited from the growth of the federal government in this decade: Maryland, Virginia and the District of Columbia.
At the other end of the list are the 10 states with the smallest home price gains from 2000 to 2005. In six of them the pace of sales has risen this year, notwithstanding the national trend, and another three have had declines that are smaller than the national average.
The best of those 10 is Texas, where the pace of sales in the second quarter of 2006 was up 11 percent from a year earlier, and at a record high. Texas has benefited from a trend that may have hurt home sales in most areas: rising oil prices.
The state where higher oil prices are perhaps the worst news is Michigan, home of an automobile industry that bet on the continued growth of sales of sport utility vehicles. Home prices did not rise much there early in the decade, but now the pace of sales is falling at a double-digit rate, worse than in the rest of the country.
Put another way, the pace of home sales in Michigan is almost exactly where it was in late 1997, while the national sales rate is still 46 percent above the figure then. In Texas, the gain over that period is 83 percent. Over that same period, the price of a barrel of crude oil has soared to $72 from $18.
During the first part of this decade, it was the so-called blue states, the ones that elect Democrats, that were more likely to see big home price increases. If those that rose the most then are now to suffer the most, it will be the blue states that do the worst in the housing downturn.
Among the states where home prices rose more than the national average from 2000 to 2005, John Kerry won 155 electoral votes in 2004, compared with just 55 for President Bush. But among states where home prices rose less than the national average, Mr. Bush gained 231 electoral votes to just 97 for Mr. Kerry.
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Builders deal with decline
Friday, August 25, 2006

The Record
Builder Charles Panahi is constructing only five luxury homes right now. Last year at this time, he was building 11.
"I'm slowing down because I'm watching the market," said Panahi, who owns Diamond Engineers and Developers Inc. in Closter.
"I believe customers still are there. Once interest rates and gas prices are stabilized, you'll see more customers."
Panahi -- like many builders and Realtors – sees the signs of a weakening market in North Jersey and beyond.
Sales for new homes nationally dropped by 22 percent in July compared with the same month in 2005, the Commerce Department said Thursday. The pace of new home sales fell a staggering 43 percent in the Northeast.
Patrick O'Keefe, chief executive officer of the New Jersey Builders Association, said builders are hesitant to lower prices but are adding upgrades to entice buyers.
He knows of at least one case in which a builder is offering to pay a couple of mortgage payments for a buyer.
O'Keefe said builders in New Jersey have been quick to react to the slowing market. The state issued 19,216 residential building permits in New Jersey during the first seven months of this year, 15 percent fewer than the same period last year, he said.
"While we would prefer sales activity would remain robust, it is encouraging that at least New Jersey's builders aren't getting ahead of the market," O'Keefe said.
The median U.S. new home price in July was $230,000, up just 0.3 percent from July 2005, the smallest 12-month rise since the period ending December 2003.
The price stagnation comes at a time when an increasing number of homes are on the market.
The inventory of unsold houses hit a record in July of 568,000 homes, compared with 464,000 homes 12 months earlier. The number of unsold homes rose to a 6.5 months supply in July, the highest level since November 1995, according to Commerce Department data. The department did not release data for individual states.
Ron Durante, who owns Rocket Building Supply in Waldwick, said higher construction materials costs have cut into builders' margins.
"Builders are hoping the market demand comes back up rather than cutting prices," Durante said.
"I've heard a few people having such high cost bases that they can't afford to cut much without a loss."
Jeff Zilahy, an agent with Liberty Realty in Hoboken, says the numerous condo buildings sprouting up along the Gold Coast are adding to the supply of available dwellings and making it difficult to find enough buyers.
And Realtors are competing for fewer deals, he said.
This fall, he'll be starting a new job as a public school math teacher but will continue to sell homes part-time.
He left teaching in 2004, near the peak of the housing boom, to become a Realtor.
"I got into real estate to make money," Zilahy said.
"Now, ironically, I'm going back to teaching."
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Squeezing the suburbs
Sunday, August 27, 2006

The Record
North Jersey is on the cusp of a condominium and town-house building boom that some feel will slowly change the suburban character of the area into an even denser collection of bedroom communities.
It also has spurred concern among some planning experts who say the projects may stall as the real estate market continues to slow from its record pace.
Developments totaling at least 14,000 units of high-density housing have either been proposed, are before local boards, or have recently been approved in Bergen, Passaic, Morris and Hudson counties, according to a review of building data by The Record.
Construction is slated across the region, from massive developments such as the 2,580-unit EnCap Meadowlands Golf Village in Rutherford and Lyndhurst to smaller projects like a 68-unit apartment complex in Butler.
The reason for the focus on high-density housing is simple: Land is difficult to find in North Jersey and density drives real estate profits.
By the numbers

--------------------------------------------------------------------------------

New multifamily units authorized from 2000 to June 2006, compared with 1990-1999.
Bergen: 7,316 +71 percent
Passaic: 1,592 +12.5 percent
Morris: 4,956 +124 percent
Hudson: 15,231 +185 percent
This decade's boom has been fueled by low mortgage rates, steady population growth, increased investment in real estate and government incentives for builders to use former industrial tracts, say real estate agents, developers and economists.
"There is a lot of competition to live here," said John Knifton, a senior vice president of Somerset Development, which is building the 737-unit Wesmont Station in Wood-Ridge. "There are high barriers. ... It's not made for just anyone," he said of homeownership in the region.
But will there be enough demand by the time these developments are built?
"It's a legitimate fear," said James Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University. "These were conceived during boom years, but by the time they get around to building, it's a whole new economic situation."
Residential development is on course to outpace Bergen County's population growth in the next 10 years, according to a recent study by the county's Office of Planning and Economic Development.
At its current pace, housing in Bergen will climb toward 400,000 units from today's 350,000 by 2015 while the population slowly increases to the low 900,000s from 891,000. It would create the largest housing surplus the county has seen and its first since the late 1980s and early 1990s when the real estate market collapsed, said Farouk Ahmad, director of the county planning office.
The real estate market is slowing considerably. In the second quarter of this year, New Jersey had the nation's 10th biggest drop in the sale of existing homes.
Helping fuel the slowdown is the rise in interest rates. The average 30-year mortgage rate hit a four-year high of 6.8 percent in late July, compared with 5.7 percent a year ago, according to Freddie Mac, the Federal Home Loan Mortgage Corp.
In addition, New Jersey has not been adding the same number of high-paying jobs as it did in the 1990s, Hughes said. "We're not getting the same amount of people who can afford new, high-end housing," he said.
Ahmad has been warning developers that they should build their projects in phases or they might end up with a lot of empty condos and town houses.
"If all of them go into development and we have them in a year or year and a half, we'll have a big problem," Ahmad said. "All of these developments are built at high cost. Land is high. Interest rates are going up. Construction cost has gone up for the last few years because of Katrina and [hurricanes] in Florida."
Ahmad said that if developers build a couple of hundred units every six months and test the market, population increases would be more in sync with new housing.
That's not the case everywhere. More than 170 condos in the 206-unit The Watermark on Hudson in North Bergen have been sold even though the 12-story tower on River Road is at least a year from completion.
"Clearly the market changes, but we've had a great first quarter of this year," said Craig Klingensmith, an executive with WCI Communities, builders of Watermark. "We're attracting a lot of empty nesters, the type of people who have a 5,000-square-foot house in Upper Saddle River and are looking for a luxury condominium."
Building up, not out
Indeed, economists say the baby boom generation will provide a wave of empty nesters who condo developers hope will sustain their industry.
A lot also depends on the New York City housing market. If home prices stay at their astronomical level, the theory is that more renters will flee to New Jersey to own a home.
Home construction in Bergen County this decade has already surpassed all residential building in the 1990s, 12,805 units through 2005 to 11,304 for all of the '90s. Passaic County may soon eclipse last decade's total: 4,016 so far to 4,820 in the 1990s.
Hudson County has already surpassed its 1990s total and Morris County is keeping pace with its 1990s building boom.
The trend of building up instead of out has sharply curtailed the number of new single-family homes -- the staple of suburban New Jersey. Only 47 percent of homes built this decade in Bergen County were single-family compared with 62 percent in the 1990s.
New housing can revive downtrodden communities, spur the local economy and gentrify neighborhoods. But upscale housing also can bring in more national retailers, which can harm locally owned businesses.
Another result is an increased demand for police, fire and other municipal services and, in most cases, an influx of children into the local school system.
The tax base of a town may expand significantly, but property taxes also are likely to increase.
For instance, Edgewater has been the site for more new high-density housing since the early 1990s than any other community in North Jersey. From 1999 to 2005, there have been 1,091 multifamily units developed in the 0.85-square-mile borough, according to building permit data.
During that same period, the average property tax increased to $5,601 from $3,793. The 48 percent increase was the 13th-largest among Bergen County's 70 municipalities.
"We had been told for years that more housing would increase our ratables and that has not happened," said Edgewater Councilwoman Beatrice Robbio, who has worked on the borough's most recent master plan, which limits residential zoning. "The only way to deal with taxes is to radically curb development. But we suffer intimidation by high-rise here."
Infrastructure help
To counter some of the tax burdens developments bring, towns usually get builders to help with infrastructure costs. Although these generally include road and utility improvements, they have gone further when large developers want to build in town.
For instance, the developers of Wesmont Station in Wood-Ridge have agreed to build a science lab at the high school, an eight-acre community athletic facility, with a soccer field, track, baseball fields and a 1,000-seat grandstand.
The Lakewood company will also contribute $15 million toward a new 419-student middle school for Grades 5-8.
Town officials say it's more than justified considering Wesmont is expected to increase Wood-Ridge's population by a third with 2,500 new residents, including an estimated 432 children who could enter district schools.
Although the infrastructure improvements are worth millions, it will fall to local taxpayers to provide the additional teachers and staff to accommodate the expected growth.
In 2005, the average cost to educate a child in a New Jersey public school was $12,567, the vast majority of which came from local property taxes.
"School-age children are always the big one," said Joseph Seneca, a planning and economics professor at Rutgers University. "The [infrastructure] costs get passed on to the consumer. The long-term costs usually get passed on to the taxpayers."
That's what makes age-restricted communities like the 755-unit Wanaque Reserve or the 814-unit Four Seasons in West Paterson, both under construction, desirable to local governments.
"They don't affect the school system and there's no traffic at rush hour," Seneca said. "That's the ultimate ratable."
Regardless of when people drive, transportation improvements often have to be made with such an influx of people.
But state Department of Transportation Commissioner Kris Kolluri said increasing lanes on highways typically increases traffic and attracts even more development. He said the focus should be on mass transit such as a new $7.2 billion train tunnel connecting New Jersey to Manhattan under the Hudson River. It also would give Bergen and Passaic counties a direct Manhattan connection, eliminating a transfer at Secaucus Junction.
"This is not a highway-driven solution," Kolluri said. "We have to look at mass transit as a big part of the solution. We have to look at the existing infrastructure and make sure it's in a good state of repair before addressing capacity issues."
Recent state law also is determining where developments can be built.
Passaic County is seeing the majority of housing applications coming in cities such as Paterson and Passaic, while the Highlands Act has halted some major developments in up-county towns. In July, the West Milford Planning Board unanimously rejected a proposal to build a 100-unit condominium complex called Valley Ridge in the heart of the protected area.
"Historically, a third of development applications have come from West Milford and the other northern towns, but it has decreased drastically," said Neil Muller, the county's planning director. "We mostly see applications for cell towers and that kind of stuff, not housing."
Reclaimed sites
There is one place where developers can find plenty of land in this region: contaminated industrial sites known as brownfields.
The state Economic Development Authority has funded 1,111 projects, including two of the more massive developments in Bergen County.
Wesmont Station has received $1.75 million in loans for engineering and remediation costs.
The EnCap Meadowlands Golf Village has received $150 million in loans to cap 785 acres of landfills in Lyndhurst and Rutherford.
"The real estate market has just driven these types of projects," said Ken Kloo, a state Department of Environmental Protection official who oversees brownfield redevelopments. "It's as much a real estate issue as environmental remediation. We have developers who seek this out."
But not all of them are welcomed.
In May, a Rutherford advisory committee made up of 16 residents voted overwhelmingly against a plan to build 3,400 condos on a vacant industrial site along Route 17.
The vote came after a series of hearings in which hundreds of residents rallied against the mammoth proposal by Rutherford-based Lincoln Equities Group LLC. The company has not made any new plans for the site, but can still submit a formal application before the borough planning or zoning boards.
The committee said the project would increase Rutherford's housing stock by 50 percent and flood the school with hundreds of additional children.
But another major concern was that it would create a "disconnected urban-styled community" that would have little in common with the suburban character of the town.
"We're a town of mostly single-family homes and this was so much denser than the rest of Rutherford," said Glenn Elliot, a former mayor who was on the committee. "It was a pretty unanimous feeling that it didn't fit at all, except for the developers. They thought it fit."
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(note the following three articles are similar and were reporting on the same news)
 
Sales of Existing Homes Fall 4.1%
South Feels Less of a Pinch As Slump Slams Rest of U.S.; Inventory Climbs to Record
By CHRISTOPHER CONKEY
August 24, 2006; Page A2
As the downturn in the housing market deepens, the South is weathering the situation better than other regions.
While sales of existing homes clocked double-digit declines in the West, Midwest and Northeast in July compared with a year earlier, sales in the South were down a more modest 7% on the year and 1.2% from June.
The median sales price of previously owned homes in the South last month actually increased from June and was 3.2% higher than a year earlier. The other three regions, however, experienced median-price declines over the past year, according to the National Association of Realtors. The median is the amount where half of homes sell for more and half sell for less.
Nationwide, the median sales price for existing homes was $230,000 last month, up 0.9% from last year.
Existing-home sales last month fell 4.1% from June to an annual pace of 6.33 million units, a rate 11.2% lower than a year earlier. By region, in contrast to the South, the pace of sales compared with year-earlier results fell 18% in the West, 12.5% in the Northeast and 10.1% in the Midwest.
The inventory of unsold homes nationwide rose 3.2% to a record 3.85 million, a 7.3-month supply at the July sales rate.
Aside from better price appreciation and higher rates of existing-home sales, the South has fared better than the other three regions in the current downturn when it comes to sales of new homes, building permits and new residential construction.
Part of the explanation, economists say, is that prices in many housing markets in the South, with the exception of Florida, never took off as others did in the West and Northeast, and therefore they don't have as far to fall.
Another factor is population growth. Census Bureau figures show the population in the South increased nearly 7% between 2000 and 2005, while the populations of the Midwest and Northeast rose by about 2% in the same period.
In Charlotte, N.C., both factors are combining with solid economic growth to boost the area's housing market. "We have not seen price appreciation like other cities," said Phillip Neuhart, an economic analyst with Wachovia Corp. in Charlotte. "People can come here and buy a more affordable home."
David Lereah, the NAR's chief economist, said several big markets in Texas are "all relatively healthy" and Richmond, Va., is "pretty hot," but he expects year-over-year prices in the South to join other regions in negative territory in the months ahead.
Meanwhile, the Mortgage Bankers Association said its index of mortgage applications was essentially flat last week and is 25% lower than a year earlier. Applications for refinancings, however, rose 1.3% last week as homeowners moved to take advantage of a downshift in interest rates.
 
 
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August 24, 2006
New Signs of Cooling in Housing
By JEREMY W. PETERS, NY Times
The housing market is deteriorating by the month.
In the latest and strongest indication that the home buying and selling frenzy is over, the National Association of Realtors reported yesterday that sales of previously owned homes fell to the lowest level in July in more than two years, prices flattened and sellers waited longer and longer to find buyers for their homes. The supply of unsold houses on the market hit a record high.
Economists said the data showed the housing market was following the traditional path of a slowdown: a drop in sales followed by a decline or a plateau in prices. But they remained divided over just how severe and long-lasting the coming slump was likely to be.
"It does feel a little scary right now," said Celia Chen, director of housing economics at Moody's Economy.com. "I think these markets will correct. The price gains that they have seen have exceeded what can be supported by the economic and demographic fundamentals.''
Existing-home sales in July declined 4.1 percent from the previous month to a seasonally adjusted annual rate of 6.3 million, the slowest selling pace since early 2004, when sales were running at a rate as low as 6 million.
"We had a hot market, and now it's going to be back to normal," said Edward Leamer, an economist at the University of California, Los Angeles. "Sales volumes will continue to decline, although they'll bottom out sometime in the next year."
The median selling price for existing homes, which rose at double-digit rates for much of the previous two years, was up only slightly last month. And had home prices not continued to rise in the South, where they gained slightly more than 3 percent compared with a year earlier, the national rate would have fallen.
For the second consecutive month, the median price of an existing home in July rose 0.9 percent from a year earlier, to $230,000.
"Certainly, the housing market is undergoing a measurable adjustment," Lawrence Yun, senior economist with the Realtor association, said. "It's a continuing cooling trend."
The number of unsold homes on the market reached a record for the second consecutive month. There are now enough homes available that it would take 7.3 months to sell them all if the current selling rate held.
The bloated inventory levels, Mr. Yun said, indicate "a very sudden change which I have never seen before."
The slowdown means that housing, the sector of the economy that has helped carry the country through a period of rapid expansion, now could act as a drag on growth.
Most economists, including the Federal Reserve chairman, Ben S. Bernanke, still expect the slowdown to be orderly. But with homebuilders reporting a sharp pullback in interest in new homes, existing-home sales in many local markets now look set to weaken at least a while longer.
July's data showed that prices fell in most areas of the country. Only in the South are prices still rising: the median home there sold for 3.2 percent more last month than a year earlier. If prices there had not been so strong, the national median home price in July would have declined on a year-over-year basis. That has not happened since April 1995.
"That's a good indication of an unexpected decline in demand," said Michael Carney, a professor of finance and real estate at California State Polytechnic University, Pomona.
The sales and price declines were most pronounced on the East and West Coasts, where the housing market had overheated the most. In the Northeast, where median existing-home prices rose last year by 10.7 percent, prices fell 2.1 percent in July from the same month in 2005.
Sales in the Northeast fell 5.4 percent from the previous month.
In the West, which is dominated by California, prices fell 0.3 percent in July. Last year, they rose 17.7 percent. Sales in the region declined 6.4 percent last month.
While prices are sliding, most economists are still predicting that they will not fall very far.
"The trend here is one of stabilizing prices after the sharp gains seen for many years," Joshua Shapiro, chief United States economist with MFR, wrote in a research note yesterday. "While certainly a change in trend, so far the official data are not corroborating some of the more alarmist stories being bandied about recently."
Investors saw yesterday's housing data as a reason to pull down shares of major real estate companies and homebuilders. KB Homes, the builder, and Realogy, the country's biggest residential real estate broker, which was recently spun off from Cendant, lost the most of any stocks in the Standard & Poor's 500-stock index yesterday. Shares of KB fell 6 percent, and shares of Realogy fell 5 percent.
Realogy told investors that its earnings for the year would be lower than previously expected. Earlier this week, Toll Brothers, the largest luxury-home builder in the country, also said it would earn less money this year.
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Housing downturn sharper than expected
Thursday, August 24, 2006, The Record

By JEANNINE AVERSA
ASSOCIATED PRESS

WASHINGTON -- House hunters shied away from buying in July, driving down sales of previously owned homes to a 2½-year low. The inventory of unsold homes climbed to a record high.
The figures released Wednesday provided fresh evidence of how much the once-sizzling housing market has cooled.
Prospective home buyers have turned cautious about making such a big-ticket purchase as mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing, analysts said.
Existing-home sales dropped 4.1 percent in July from the previous month to a seasonally adjusted annual rate of 6.33 million units, the National Association of Realtors reported. That was the lowest level since January 2004.
The latest snapshot of housing activity was weaker than analysts anticipated; they were forecasting a sales pace of 6.55 million.
On Wall Street, the housing report rattled investors and pushed stocks lower. The Dow Jones industrials lost 41.94 points to close at 11,297.90.
Although sale prices for homes are no longer bounding ahead, some prospective buyers are still waiting for better deals, just one more factor in the weak showing, economists said.
"Many potential home buyers have been on the sidelines, some kicking the tires but mostly waiting for sellers to compromise on prices and terms," said David Lereah, the association's chief economist.
The median nationwide price of a home sold last month was $230,000, up just 0.9 percent from the same month last year. The median price is the middle point, where half sell for more and half sell for less.
Meanwhile, the inventory of unsold homes in July rose to a record high of 3.86 million. At the current sales pace, it would take 7.3 months to exhaust that inventory. That is the longest period to exhaust the supply of homes since the spring of 1993.
By region, sales tumbled 6.4 percent in the West in July from the previous month. Sales fell 5.9 percent in the Midwest and 5.4 percent in the Northeast. In the South, sales dipped 1.2 percent.
Wednesday's report shows that the bloom is off the rose.
For five years running, home sales had hit record highs as low mortgage rates lured buyers. But the housing sector has lost steam this year as mortgage rates have gone up and would-be buyers have grown cautious amid high energy prices and a slowing economy.
Against that backdrop, the Federal Reserve this month decided to halt a rate-raising campaign that had pushed interest rates steadily higher over the last two-plus years to fend off inflation.
The Fed's goal is to raise rates sufficiently to thwart inflation but not enough to hurt the economy.
One of the things that Federal Reserve Board Chairman Ben Bernanke and his colleagues are watching closely is the housing slowdown. If home prices and sales were to crash, that could spell big trouble for the overall economy. Thus far, Bernanke has said the market's slowdown has been fairly orderly and smooth.
Wednesday's figures made some economists worry about the potential for a sharper slowdown in housing. Lereah said he still expects a "soft landing" for the housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again -- as some analysts have said is a possibility.
The cooling of the housing market has important implications for the overall economy.
Consumers who watched their homes rise rapidly in value over the last several years felt wealthy and more inclined to spend. They also borrowed against their homes -- treating them like ATMs -- to support their spending ways.
But with home values nationwide not going up as much now as the double-digit gains seen in the past several years, consumers have tightened their belts. That has contributed to a slowing in overall economic activity.
"Once upon a time, there was a housing market that allowed homeowners to print money. Those days are gone," said Joel Naroff of Naroff Economic Advisors.
 
 
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Underinsurance Lurks as a Nasty Surprise
WSJ
August 26, 2006
It's the downside of the housing boom: Many homeowners are now significantly underinsured.
Americans have been pouring money into their homes in recent years, adding everything from marble bathrooms to fancy backyard barbecues: Last year alone, spending on improvements like these hit an estimated $155 billion, up 27% from two years earlier. At the same time, the global boom in commodities prices -- lumber, copper piping and other necessities -- as well as rising labor costs has pushed up replacement costs by 7% a year since 2001.
As a result, people who haven't updated their insurance policies in a few years may now be underestimating what it would cost to rebuild their homes, particularly in high-priced markets.
According to a survey to be released soon by Marshall & Swift/Boeckh LLC, a firm that supplies building-cost data to insurers, 58% of houses are undervalued for insurance purposes. Of those, the average homeowner has enough insurance to rebuild only about 80% of his or her house, according to the survey.
Meantime, many insurers have been quietly cutting back what their policies cover. Allstate Corp. recently stopped covering earthquake damage in most states. Several insurers, including State Farm Insurance Cos. and Farmers Insurance Group, a unit of Zurich Financial Services, have stopped covering wind damage in some coastal areas that have been threatened by hurricanes.
One of the biggest shifts by insurers in recent years has been the virtual disappearance of "guaranteed replacement cost" coverage, which promised to rebuild a home exactly the way it was, no matter the cost. Now, most standard policies provide only "extended replacement cost," which offers up to 20% or so more than the face value of the policy if extraordinary events push up rebuilding costs.
Insurance experts say many homeowners haven't grasped this shift, and may be woefully underinsured as a result.
Home insurance exists to help owners repair or rebuild a home, and replace furniture, clothing and other personal property, in the wake of a fire, burglary or other calamity covered by the policy. Some risks, such as flooding or acts of war, are routinely excluded. (Policies also include liability coverage to protect against lawsuits resulting from incidents around a home, such as your dog biting the cable guy).
For insurance purposes, the value of a house is based mostly on the rebuilding costs in a particular area, not on its market value. The policy isn't meant to include the value of the land underneath, which is why some homes, especially in desirable neighborhoods where land is pricey, need less insurance than the amount they would fetch in a resale."Take the new policy, and the old one, and put them side by side -- and if you have questions, contact the company," says Don Griffin of the Property and Casualty Insurers Association of America. It's also a good idea to have a face-to-face meeting at least once a year with your insurance agent or broker, at renewal time.
Some consumer advocates have blamed insurers themselves for homeowners being underinsured, saying their agents lowballed replacement costs in order to keep premiums competitive. Over the past few years, spurred in part by lawsuits, insurers have taken steps to improve their estimates, industry officials say.
That is what Ross Quigley of Mount Lemmon, Ariz., says happened to him. In 2003 a mountain cabin he owns in this vacation community near Tucson was destroyed by wildfire, along with hundreds of other homes. The retired real-estate broker had a $160,000 policy, but he learned that rebuilding the 1912 structure was going to cost $500,000 because of its unusual features and remote location. Mr. Quigley says his insurer had "told me not to worry, because I had 'replacement value,' " a provision in the policy that stipulates he would receive the value of his home without subtracting for depreciation. "But that was so misleading," he says.
He sued the insurer, alleging the company had acted in bad faith by seriously underestimating the amount of insurance he needed. The matter was settled out of court late last year.
Homeowners with unique, historical or custom-built houses might not be able to find adequate coverage from mass-market insurers, which typically pay to rebuild using only standard materials and construction techniques. These owners might have to turn to a specialty insurer, such as Chubb Corp., American International Group Inc. and Allianz AG's Fireman's Fund Insurance Co.
Here are three key questions for an insurer during a checkup:
Do I have enough insurance to be able to rebuild my home as it is, and replace my personal possessions?
Your agent should be able to tell you, but for $7.95 you can check by using a replacement-cost calculator provided by Marshall & Swift/Boeckh at www.accucoverage.com. It uses information you report about your house, and the construction-cost data that the insurance industry uses. Detailed estimates can be obtained from local building contractors, or by paying a professional appraiser.
Coverage for the contents of the home is pegged, usually at about 50%, to the insured value of the house. When calculating your needs for personal property, take an inventory of your possessions, or make a video.
Don't forget to include art, jewelry or unique collections that might require special riders or a separate policy -- a frequent oversight. Most homeowner policies generally cover jewelry only up to $2,000, and antiques are only covered for their value as furniture.
How much am I covered for liability for damage or bodily injury to others?
A standard homeowner policy includes coverage from $100,000 to $300,000. Umbrella liability policies provide coverage in excess of home and automobile policy limits, in increments of $1 million, at prices beginning at about $200 a year. Affluent homeowners vulnerable to litigation because of their deep pockets may want to consider the additional coverage.
Am I adequately covered for the cost of additional living expenses if my home is damaged and I have to live somewhere else during repairs?
This part of the policy reimburses you for hotel bills, restaurant meals, etc. Most policies provide about 20% of the insured value of the house for living expenses. Higher limits are available from some insurers.
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www.aceltisgroup.com Are you ready to make it happen?

1. National Association of Realtors Report: Existing-Home Sales Ease In May WASHINGTON (June 27, 2006) – Sales of existing homes experienced a minor decline in May with home prices rising near normal rates, according to the National Association of Realtors®. Total existing-home sales – including single-family, townhomes, condominiums and co-ops – eased 1.2 percent to a seasonally adjusted annual rate1 of 6.67 million units in May from a pace of 6.75 million in April, and were 6.6 percent below the 7.14 million-unit level in May 2005. David Lereah, NAR's chief economist, said conditions are mixed around the country. "There's now a clear pattern of slower home-sales activity in many higher cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas which have experienced job growth," he said. "Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability." According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.60 percent in May, up from 6.51 percent in April; the rate was 5.72 percent in May 2005. The national median existing-home price2 for all housing types was $230,000 in May, up 6.0 percent from May 2005 when the median was $217,000. The median is a typical market price where half of the homes sold for more and half sold for less. "Overall price appreciation has returned to normal levels as the supply of homes on the market has risen to a balanced range," Lereah said. Total housing inventory levels rose 5.5 percent at the end of May to 3.60 million existing homes available for sale, which represents a 6.5-month supply at the current sales pace. NAR President Thomas M. Stevens from Vienna, Va., said it's important to keep the current market in perspective. "We didn't break the 6-million sales barrier until 2003, so the current level of home sales is still pretty healthy by historic standards," said Stevens, senior vice president of NRT Inc. "Housing is continuing to support the overall economy by providing a sound foundation for other sectors to grow – the normalization that is taking place in the housing market is good for the long-term health of the industry." Existing condominium and cooperative housing sales rose 1.9 percent to a seasonally adjusted annual rate of 852,000 units in May from a pace of 836,000 in April, but were 6.6 percent below the 912,000-unit pace in May 2005. The median existing condo price3 was $229,300 in May, up 1.9 percent from a year earlier. Single-family home sales slipped 1.5 percent to a seasonally adjusted annual rate of 5.82 million in May from 5.91 million in April, and were 6.6 percent below the 6.23 million-unit level in May 2005. The median existing single-family home price was $229,700 in May, up 6.4 percent from a year ago. Regionally, existing-home sales in the West rose 0.7 percent to an annual pace of 1.41 million in May, but were 13.5 percent lower than May 2005. The median price in the West was $345,000, up 4.5 percent from a year ago. Existing-home sales in the South increased 0.4 percent to a pace of 2.62 million in May, and were 3.7 percent below May 2005. The median existing-home price in the South was $190,000, up 5.6 percent from a year earlier. In the Midwest, existing-home sales declined 3.8 percent in May to a level of 1.51 million, and were 5.6 percent lower than a year ago. The median price in the Midwest was $174,000, up 1.2 percent from May 2005. Existing-home sales in the Northeast dropped 4.2 percent to an annual sales rate of 1.13 million units in May, and were 5.0 percent below a year ago. The median price in the Northeast was $287,000, up 7.1percent from May 2005. 2. Rising Monthly Payments Are Greater Barrier to Homeownership Than Down Payments WASHINGTON, National Assoc. of Realtors (June 27, 2006) – One out of three Americans worries that rising monthly payments – especially property taxes and energy costs – will force them to sell their home and buy a less expensive one, according to the fourth annual National Housing Opportunity Pulse, a survey released today by the National Association of Realtors®. The survey also found that, by a 2-to-1 margin, Americans believe that high monthly payments rather than high down payments are the greatest obstacle to buying a home. Rising property taxes are the leading concern associated with owning a home (34 percent), followed by increasing electrical, fuel and other energy costs (28 percent). Only 14 percent said rising mortgage interest rates would keep them from becoming homeowners. "It's clear America is facing a crisis in housing opportunities with nearly two-thirds of families concerned about being able to find a home they both like and can afford," said Thomas M. Stevens, 2006 NAR president from Vienna, Va., and senior vice president of NRT Inc. "Many families are struggling to meet the high cost of homeownership, and increasingly those costs are property taxes and energy utilities." In 2003, the average monthly mortgage principal and interest payment was $840. In 2005, families were paying 23.8 percent more or $1,040 monthly. In the past year alone, the average monthly mortgage principal and interest payment has gone up 11.5 percent – from $1,015 in April 2005 to $1,132 in April 2006. The Energy Information Administration estimates that in February 2006 the price of electricity was 12 percent higher than February 2005; natural gas was up 28 percent; and home heating oil was up 25 percent. State and local property taxes for the 2004 fiscal year averaged $1,121 per person, up 13.8 percent from fiscal year 2003 when the average was $985, and 15.7 percent higher than the $969 average for the 2002 fiscal year, according to the Census Bureau. The survey found that more than 42 percent of Americans cite the lack of affordable housing in their community as one of their top three concerns, following high energy costs (82 percent) and the lack of affordable health care (53 percent). Nearly a third worry that the cost of housing is so unaffordable that they will never be able to buy a home and more than 58 percent are concerned that the cost of a home is becoming so unaffordable that it is hurting their local economy. Anywhere between one-fifth and one-third report not seeing as much of friends and family and not being as involved in their neighborhood as they would like. They also report missing out on promotions, having less productivity and cutting back on vacations because they have to work too much to pay for their home or they don't have the money because of high home costs. The lack of affordable housing is also affecting renters. More than two-thirds (68 percent) of Americans believe having enough money to pay rent every month is difficult for families in their community, up 7 percent from last year. Support for affordable housing is high. Eight in 10 would be willing to support more affordable homes being made available for people in their community and a record 68 percent would be more likely to vote for a candidate that worked to make housing more affordable in their area, up six percent in two years. "People care about affordable housing, and a candidate's position on this issue makes a significant difference to voters," said Stevens. "Americans are increasingly looking to their community leaders to seek ways to take a more active role in addressing affordability issues in their communities." Most Americans are also increasingly concerned that their children or other family members will not be able to afford housing in their communities (57 percent) and that they and family members will be forced to live in less desirable areas because homes in more desirable areas are not affordable (46 percent). "Realtors® play an important role in building communities," Stevens said. "We understand the housing concerns in our neighborhoods and can therefore be leaders in promoting programs, resources and business opportunities to expand housing availability and help make every family's dream of homeownership a reality." The annual survey is conducted by NAR's Housing Opportunity Program. The Housing Opportunity Program was created in 2002 with the mission of providing Realtors® with the tools and information they need to promote housing opportunities in their community, in both the rental and homeownership sectors of the market. The program encourages local Realtor® associations to create housing opportunity initiatives aimed directly at helping consumers gain access to housing. At this point, nearly 300 state and local associations have such programs in place. 3. Commercial Real Estate Bright Spot in National Economy WASHINGTON (June 13, 2006) – Healthy demand for space is driving commercial real estate markets with solid fundamentals and strong investment activity, according to the latest COMMERCIAL REAL ESTATE OUTLOOK of the National Association of Realtors®. David Lereah, NAR's chief economist, said fundamentals are improving with tightening vacancies. "Rent growth in commercial space is gaining traction, although there is some softness in part of the retail sector," he said. "Commercial real estate remains a bright spot in the economy, but there are concerns over energy costs, rising interest rates and slower-than-expected job growth which could dampen future demand." Lereah said investment considerations remain positive. "With tightening vacancies and a slowdown in speculative construction, the office market will offer respectable returns for investors," he said. "Strong international trade is supporting warehouse and distribution space, especially near port facilities. In addition, demand for rental apartments and hotel rooms is on the rise." The NAR forecast for five major commercial sectors includes analysis of quarterly data for various tracked metro areas. The sectors include the office, industrial, retail, multifamily and hospitality markets. Metro data were provided by Torto Wheaton Research and Real Capital Analytics. Office Market Rising oil prices and slower job growth have dampened expectations for the office market, but vacancy rates are still likely to drop to an average of 12.7 percent in the fourth quarter from 13.6 percent during the same period in 2005. Office rents are forecast to rise 4.4 percent this year. Areas with the lowest office vacancies currently include Ventura County, Calif.; New York City; Orange County, Calif.; Fort Lauderdale, Fla.; Riverside, Calif.; and Washington, D.C., all with vacancy rates of 8.8 percent or less. Net absorption of office space in 56 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, should be 64.1 million square feet in 2006, down from 89.5 million last year. High construction costs are putting a lid on speculative development. Large institutional investors and pension funds returned to the office market during the first quarter, more than doubling what they spent on office buildings in all of 2005; total investment in the first quarter was $20.5 billion. Over the last year, the top markets for office investment were Manhattan, Chicago, Los Angeles, San Francisco, Northern Virginia and Washington, D.C. Industrial Market Industrial vacancy rates are forecast to decline to an average of 9.5 percent during the second half of the year from 9.9 percent in the final quarter of 2005, with new construction increasing along with space absorption. Trade with China continues to fuel demand for warehouse and distribution space. Although market fundamentals appear to be healthy, industrial rents are likely to increase only 1.9 percent in 2006. The areas with the lowest industrial vacancies are West Palm Beach, Fla.; Los Angeles; Fort Lauderdale; Las Vegas; Miami; and Orange County, Calif., all with vacancy rates of 5.4 percent or less. Net absorption of industrial space in 54 markets tracked is expected to be 211.0 million square feet this year, down from 290.5 million in 2005. Most of the demand is coming from users and tenants involved with the distribution of goods, but rising industrial production could bolster demand for manufacturing space, which has been lagging in recent years. Private investment also is occurring in the industrial sector, with transactions totaling $10.5 billion in the first quarter. The top industrial investment markets are Los Angeles; Chicago; Dallas; San Diego; San Jose, Calif.; and Northern New Jersey. Some older properties in urban areas are being converted to other commercial uses. Retail Market With absorption matching new supply, retail vacancy rates are projected to be fairly stable for the balance of the year, at an average of 7.6 percent in the fourth quarter, but higher than the 7.2 percent recorded in the fourth quarter of 2005. Higher energy costs and slowing home price appreciation will hold back consumer spending, impacting the retail sector. Overbuilding and fallout from mergers and acquisitions have impacted certain markets, including regional shopping centers. Average rent is seen to grow 0.7 percent in 2006. Retail markets with the lowest vacancies include Las Vegas; Miami; Orange County, Calif.; San Francisco; San Jose; and San Diego, all with vacancies of 3.9 percent or less. Net absorption of retail space in 54 tracked markets should be 14.1 million square feet in 2006, down from 30.2 million last year. Investment in retail space is cooling with just $7.4 billion spent in the first quarter, dominated by private investors; strip centers accounted for almost three-fourths of retail investment activity. The top markets for retail investment include Los Angeles, Chicago, Houston, Dallas, Phoenix, and Northern Virginia. Multifamily Market The apartment rental market – multifamily housing – is expecting vacancy rates in the fourth quarter to average 5.7 percent compared with 6.2 percent during the same period in 2005. Average rent is forecast to rise 4.1 percent this year compared with 2.9 percent in 2005. Conversion of apartments into condos is waning, but a slight softening in the housing market is boosting rental demand. Concerns about sustainable job growth and job security are playing a role by keeping some people in the rental marketplace. Total investment in multifamily property was $24.0 billion during the first quarter, up 30 percent from the first quarter of 2005; seven out of ten transactions were garden-style apartment complexes. Condo converters accounted for less than 15 percent of transactions, taking a little over 30,000 units from the rental market. The top markets for apartment investment over the last year were Manhattan, Phoenix, Los Angeles, Tampa, Orlando and Atlanta. The areas with the lowest apartment vacancies currently include Fort Lauderdale, Northern New Jersey, Washington, West Palm Beach, Miami and Tampa, all with vacancy rates of 2.5 percent or less. Multifamily net absorption is likely to be 256,500 units in 59 tracked metro areas this year, compared with 351,000 absorbed in 2005. Hospitality Market With rising construction activity, hotel occupancies are forecast at 63.4 percent in 2006 compared with 64.5 percent last year, and revenue per available room (RevPAR) is projected to grow to $72.37 in 2006, up 7.5 percent from $70.47 last year. An additional 17,500 hotel rooms should be added to the inventory in 52 markets tracked in 2006, up from only 5,600 last year. Markets with the highest RevPAR include New York City, Washington, Honolulu, West Palm Beach, San Francisco and Miami, with RevPAR in excess of $103, in contrast with the national average of $80 expected for the first quarter, which is the highest ever. Hospitality markets with the highest level of construction include Houston, Orlando, Fort Worth, Washington, Atlanta and San Diego. Overall transaction activity during the first quarter totaled 660 hotels with a combined value of $23 billion; 2006 is expected to be a record for the number of properties changing hands. 4. Young Realtors Serve Generation X And Y Consumers By Bringing Special Skills To Buyers And Sellers WASHINGTON (June 2, 2006) – More homebuyers than ever are 30 years old or younger, and a record number of Realtors under 30 – nearly 150,000 – are connecting with the Generation X and Y markets. Thirty of these young Realtors are being recognized in the June issue of REALTOR Magazine's "30 under 30" – Realtors who have made their mark in the industry and their communities while still in their 20s. "As new generations enter the housing market, the real estate industry must adapt to meet changing needs and ways of doing business," said Thomas M. Stevens, 2006 National Association of Realtors president from Vienna, Va., and senior vice president of NRT Inc. "Many of our younger members add value to their clients' real estate transactions through their generational sensitivities and diverse skill sets. They don't know a real estate industry without the Internet, technology is second-nature to them, and they speak their clients' language, often both literally and figuratively." According to data from the U.S. Census, more immigrants are becoming homeowners than ever before, and seven of this year's Realtors under 30 are either immigrants themselves or children of immigrants. José Rivera Sinclair, from Northfield, N.J., is a native of Honduras, and Latino homebuyers compose 80 percent of his business. Penny Liu moved to California from Taiwan as a child and works with U.S. buyers purchasing property in Shanghai, Beijing, and Nanjing. Tempe, Ariz.'s Steven Haddad, the youngest professional on the list at age 20, speaks fluent Arabic – his father emigrated from Jordan. Another trend affecting real estate is the growing influence of the Internet as a resource in the home search. According to the 2005 NAR Profile of Home Buyers and Sellers, 42 percent of buyers who used the Internet to search for a home were 34 or younger. Realtors of this generation have embraced new technologies – 28 of the "30 under 30" operate Web sites for their business – and many of them go beyond this basic technology. David Scher from Boston used the skills he developed in his previous career in information technology to customize an MLS listing feed to 20 different sites for his customers. Jessica Horton from Griffin, Ga., wasn't satisfied with video home tours – she markets properties with video tours of entire communities. "Younger home buyers and sellers are already having a big impact on real estate markets across the country," said Stevens. "Our Realtor members, whether they grew up watching I Love Lucy or IMing their friends, are honored to be bringing the American dream of homeownership to the next generation and beyond." 5. Sales of New Homes Show Unexpectedly Strong Rise By THE ASSOCIATED PRESS, June 27, 2006 WASHINGTON, June 26 (AP) — Sales of new homes rose in May, surprising economists who had forecast that housing would slow because of rising mortgage rates. The Commerce Department reported Monday that sales of new single-family homes increased 4.6 percent in May, to a seasonally adjusted annual rate of 1.234 million units. But the median price of homes sold declined — to $235,300, a drop of 4.3 percent from the April sales price. Analysts are still looking for sales of both new and existing homes to fall about 10 percent this year as rising mortgage rates crimp demand. The lowest mortgage rates in four decades helped propel sales to five consecutive annual records. The 4.6 percent increase pushed the sales rate to the highest level since December. It came after increases of 5.9 percent in April and 7.3 percent in March. The previous months' increases were helped by unusually mild weather. For May, sales were up in all parts of the country except the Northeast, where they declined 7.9 percent, to an annual rate of 58,000 units. Sales were up 6 percent in the South, to an annual rate of 669,000. Sales rose 5.3 percent in the West, to an annual rate of 317,000 units, and increased 2.7 percent in the Midwest, to an annual rate of 190,000 units. The increase in sales in May reduced the number of unsold new homes at the end of the month to 556,000, compared with the record of 560,000 at the end of April. It would take 5.5 months to exhaust the current inventory of homes at the May sales pace. Economists say the huge backlog of unsold homes will put further downward pressure on prices in coming months. In keeping with the economic data, the Lennar Corporation, one of the nation's largest home builders, said Monday that its second-quarter profit surged 33 percent on sharply higher sales. But the company, which is based in Miami, cut its full-year earnings outlook on an anticipated slowdown of orders. Lennar's second-quarter earnings rose to $324.7 million, or $2 a share, from $243.5 million, or $1.48 a share, in the year-earlier period. Analysts polled by Thomson Financial had expected earnings of $1.85 a share on sales of $3.87 billion. Quarterly revenue rose 56 percent, to $4.58 billion from $2.93 billion in the year-earlier period as home sales climbed 53 percent. 6. Inflation fears driving rise in mortgage rates ASSOCIATED PRESS, Friday, June 23, 2006 WASHINGTON -- Mortgage rates rose this week, with 30-year mortgages climbing to the highest level in more than four years on investor fears about inflation. Mortgage company Freddie Mac reported Thursday that rates on 30-year fixed-rate mortgages hit a nationwide average of 6.71 percent, up from 6.63 percent last week. It was the highest level for 30-year mortgages since they averaged 6.76 the week of May 31, 2002. The Federal Reserve meets next week and financial markets now view it as a virtual certainty that the central bank will boost rates for a 17th consecutive time. "Financial markets believe that the current rate of inflation is above the Fed's comfort zone," said Frank Nothaft, Freddie Mac's chief economist. Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, increased this week to 6.36 percent, from 6.25 percent last week. Rates on one-year adjustable rate mortgages were 5.75 percent, up from 5.66 percent last week and the highest level since one-year ARMs averaged 5.77 percent the week of Aug. 3, 2001. Rates on five-year adjustable-rate mortgages reached 6.32 percent, from 6.23 percent last week. The mortgage rates do not include add-on fees known as "points." The 30-year and 15-year mortgages each carried a nationwide average fee of 0.5 points; the five-year ARM had an average fee of 0.6 points. The one-year ARM had an average fee of 0.8 points. A year ago, 30-year mortgages averaged 5.57 percent, 15-year mortgages stood at 5.16 percent, one-year ARMs were at 4.23 percent and five-year ARMs averaged 5.05 percent. 7. The City the Boom Passed By NY Times, June 25, 2006 TIRED of high real estate prices? Consider the alternative. "I got that one for six," said Jack Lewis, a real estate investor, pointing to a trim Victorian with steep gables and a front porch. He means $6,000. "Around the corner, there's another one I got for three." In the last decade, while houses in much of the country have appreciated at dizzying rates, Canton's prices have gone the other way; the median price in the metro area dropped 11.3 percent from 2004 to 2005, according to the National Association of Realtors. Houses under $20,000 are common, and even at those prices, they don't always find buyers. The explanation is as simple as supply and demand — one stable, the other not. Canton had 110,000 residents in 1950. Now the population stands at about 80,000, according to the mayor, Janet Weir Creighton. Factories have closed, and few new jobs have come along. With workers leaving the city, at least 2,000 houses — mostly Victorians from the boom years of the early 20th century — stand empty. And that makes it hard for sellers to find buyers. It's even hard to find a broker. "It costs you money to sell a home that cheap," said Dennis Drennan, a local ReMax broker, who explained that the commission on a $20,000 house may not cover marketing expenses. In many neighborhoods, "it's practically impossible to retail a house," said Mr. Lewis, referring to what in any other part of the country would be considered an ordinary real estate transaction, a purchase by someone who plans to use the house as a home. Instead, many houses sell not to owner-occupants, but to investors looking to flip the properties, or turn them into rentals. "You become a reluctant landlord," he said. Even obtaining a reliable appraisal of a house is difficult, Mr. Lewis said, because there are so few "comparables" — arm's-length sales of similar houses. In some sections of Canton, most transactions involve a repossession, a sheriff's sale or a purchase by a professional real estate investor, Mr. Lewis and others said. Not surprisingly, Canton homeowners are troubled. "Does it make me feel good that you can buy any house in the neighborhood for $80,000?" asked Tom Hammond, a senior business analyst for Diebold, a manufacturer of A.T.M.'s and voting machines, who lives in a pleasant section of northwest Canton. "Of course not. "If I had been acting in my financial self-interest, I would have left Canton long ago," said Mr. Hammond, who then listed many things he likes about the city, including an accessible downtown and lovely parks. Mr. Hammond decided to become part of the solution. He and his wife, Karen, have bought three houses close to their own house to shore up the neighborhood. One house down the block, he said, stood vacant for 10 years. When it finally came on the market, he said, "it was in horrendous condition," with vines growing through the ceilings. Mr. Hammond paid $24,000 for the house and is putting another $20,000 into bringing it up to code (working on weekends with his son and son-in-law). He hopes to sell it for around $70,000, but there are no guarantees. "We won't gain much, after taxes," he said. At the same time, Mr. Hammond is pushing the city to limit the number of houses that are rented out. Right now, about 40 percent of the houses in the city are rental units, compared with about 27 percent in the rest of surrounding Stark County. Many of the renters are transients who don't have much incentive to maintain the properties, Mr. Hammond said. If the number of rental units is curtailed, he predicted, rents will go up, and sale prices will follow. His ally in the fight is Donald Cirelli, a dispatcher for the city's Water Department. At a recent City Council meeting, the two men pressed the members to stop issuing the permits that owners need before they can rent out their houses. The council has not acted on the measure. The mayor said her priorities include attracting jobs to Canton and rebuilding the city's schools, a process that is visibly under way. At the same time, since taking office she has pushed to have more abandoned houses demolished. "We're tired of the dilapidated houses that are sitting there; we need to get them down," she said. But Mike Rukavina, a real estate investor who was born and raised in Canton, prefers renovation to demolition. The lots that result from teardowns, he said, are often too narrow to build on, under current codes. "That means you end up with a weed-strewn lot, which the city doesn't have the resources to maintain," said Mr. Rukavina, a former marine and police officer. "And since you can't build another house, it's a net loss of people to the city." Mr. Rukavina, who operates out of an office in Canton's northeast section, said that he used to buy about two dozen houses in the city each year, but that he had moved most of his investing to the suburbs, where demand is stronger. Some investors have found ways to thrive in the depressed market. Keith Michael, who is 37, said he had completed deals on about 130 houses in Canton in the last six years. Sometimes, he renovates houses and rents them out; other times, he simply flips the properties without so much as taking title. On Greenfield Avenue, in the city's southwest section, Mr. Michael and his partner, Michael McClain, were busy renovating an old Victorian, a job that included replacing an antiquated electrical system. Many rooms lacked a single outlet. Mr. Michael and Mr. McClain expect to rent out the house while giving the tenant the option to buy. Mr. Michael said that the rent-to-buy agreements, which are common in Canton, require the tenant to maintain the property. That, he said, eliminates many of the headaches of being a landlord. "We deliver the houses up to code, and then it's up to them," he said. "But if it's a really big thing, like a roof, we may step in." Rent-to-buy tenants are optimists by nature. Dan Brislen rents a house on Greenfield Avenue for $550 a month, with an option to buy it for $72,500. He was about to buy the house last year when he lost his job as a forklift operator. If Mr. Brislen finds another job, he said, he hopes to buy the house before his option expires in 2007. Mr. Michael, meanwhile, conceded that he had never had a single tenant exercise the option. "In Canton," he said, "99 percent of them aren't able to cash out." Mr. Lewis, the investor, said, "The financial habits that get renters into trouble in the first place tend to get them into trouble again." In 2003, Mr. Lewis became a franchisee of HomeVestors, a national company that specializes in buying houses from people who need to sell quickly. Between April and July of that year, he signed contracts to buy nine houses in Canton; his goal was to fix them up and sell them for a profit. It didn't work out that way. Mr. Lewis complains that the company failed to offer him proper advice, rubber-stamping his decisions to buy houses that, in fact, were overpriced. "In this market, if you're not properly supported, you run out of money before you can figure out what to do," Mr. Lewis said. John P. Hayes, the chief executive of HomeVestors, disputed Mr. Lewis's charges. "There are plenty of franchisees in Ohio who don't share his opinion," he said. No longer a franchisee, Mr. Lewis said, he buys houses and either rents them out or sells his interests to investors. The purchaser may simply flip the house again. That's what happened with the house that he contracted to buy for $6,000. Mr. Lewis said he sold his contract to Mr. Michael for $9,000; Mr. Michael said he sold his contract to another investor for $12,000. Both said they don't know what happened after that. But the house still has plywood over the windows, and one thing is clear: neither the house, nor Canton, benefited from the serial transactions. "I don't get attached to bricks and mortar," Mr. Lewis said. "I made my $3,000." Mr. Michael did, too, and has moved on to other properties, including one as far away as Florida, where he hopes to apply lessons he learned in Canton. "You know that saying about New York?" Mr. Michael said. "Well, in real estate, it's Canton. If you can make it here, you can make it anywhere." 8. The Lure of Overseas Real Estate NYT, June 24, 2006 The real estate market is still booming — overseas. So reports Worth, which gives three reasons Americans are increasingly making investments outside the United States. First, worried about the apparent declining prices at home, they are looking to diversify, John Ferry writes. Second, the growing number of real estate investment trusts, securities that trade like stocks and are backed by pools of investment property, has made purchasing foreign real estate, albeit indirectly, substantially easier. There are at least 20 countries that have passed legislation allowing the creation of REIT's in the last few years, and even more are considering the possibility, Stephen Blank, senior resident fellow at the Urban Land Institute, told Worth. According to the article, the first French REIT's appeared in 2003. Last December, Mr. Ferry writes, Britain approved draft legislation that would allow the establishment of a REIT market, so British-listed REIT's should be available in 2007. German REIT's are expected to make a debut within the next year. Third, there are the returns. Since 2001, global REIT's have outperformed equities "by a factor of five." OVER THERE For everyone who is thinking of living overseas, "it should come as no surprise that Baghdad has been rated the world's most dangerous city for expatriates, as well as the one with the poorest quality of life," HR Magazine reports. Mercer Human Resource Consulting rated 215 cities. "Ranked against New York as the base city with a rating of 100, Baghdad's score was a scant five," the magazine writes. "By comparison, the top-ranked city of Luxembourg had a score of 122.5." Helsinki, Bern, Geneva and Zurich followed at 120. "The overall quality-of-life score for the embattled Iraqi city was only 14.5 compared with 106.5 for Geneva and Zurich," which were rated highest. Vienna received a score of 106, as did Vancouver, the only Canadian city to be mentioned. GUIDANCE? Looking to eliminate the gyrations that hit their stock price four times a year, more companies have stopped giving quarterly earnings guidance, CFO reports. Some background might help. It used to be fairly typical for a publicly held company to provide Wall Street with an estimate of how much it expects to make — presented in terms of earnings per share — in the coming quarter. But the practice is fading in part because of Wall Street's reaction to whether the company met, exceeded or fell below the projection. It is not uncommon for a stock to lose 5 percent or more of its market capitalization in a matter of hours for failing to meet an estimate. In March, just 52 percent of companies said that they were providing earnings estimates to Wall Street, according to a survey by the National Investor Relations Institute, down from 61 percent a year earlier. Best Buy and Motorola are the latest to announce that they will no longer provide quarterly forecasts. They have decided to give only annual projections. "A recent study by McKinsey & Company shows that firms offering quarterly earnings guidance enjoy no valuation premium compared with companies that do not," Joseph McCafferty writes, adding that there seems to be no penalty assessed by Wall Street when a company discontinues such guidance. Some 16 percent of all companies — including Google — provide no guidance at all. Google closed yesterday at $404.86, up $4.91, trading at more than 60 times earnings. FINAL TAKE. In a handful of professions — for example, airline piloting — employees are forbidden to work after drinking. Maybe there's a need to expand the list. Some 15 percent of employees say that they have worked under the influence of alcohol, and some of that drinking has occurred during office hours, according to Health magazine. Some 15 percent of bartenders and waiters say they drink "heavily at work — the highest in any industry." Some 7 percent of executives and managers say they do, too. Apparently the three-martini lunch is not a thing of the past. 9. A Housing Slowdown Can Put the Brakes on a Job Sector, But Open Other Opportunities June 26, 2006, WSJ Mortgage brokers, prepare your résumés. And while you are at it, highlight any experience you've had in health care. The reason: Housing, the biggest generator of jobs in the current expansion, is running out of steam. As a result, tens of thousands of Americans, from bankers to hardware-store clerks, are likely to find themselves out of work over the next couple of years. For those who can transfer their skills to other industries that are still growing, such as health care, it won't be the end of the world. "It's not going to be a big show-stopper, because there are other areas of the economy that are picking up," says Brian Bethune, U.S. economist at consulting firm Global Insight. Few sectors can claim to have as much sway over the economy as housing. Housing-related employment has accounted for about 23% of the 4.9 million jobs created since the nation's job market began to grow in late 2003, according to Moody's Economy.com. That includes architects, contractors, real-estate agents, brokers and bankers, as well as the host of others who provide the industry with materials and services. "There's never been a housing boom like this one in terms of the reach, in terms of the range of industries affected," says Ethan Harris, chief U.S. economist at Lehman Brothers in New York. "This is clearly unprecedented." Signs of weakness in housing-related employment are already appearing. Last week, KB Home, of Los Angeles, one of the nation's largest home builders, said it had laid off about 7% of its 6,600 workers. Earlier, ACC Capital Holdings Corp., the parent of mortgage lender Ameriquest Mortgage Co., announced plans to lay off 3,800 workers. And Washington Mutual said it would be cutting 2,500 jobs related to its home-loan business. "There's no question that the downturn in the mortgage business has caused a lot of banks to cut jobs," says John Challenger, chief executive of Chicago outplacement firm Challenger, Gray & Christmas Inc. Now, the boom is coming to an end. Total single-family-home sales were running at an annualized rate of 7.1 million in April, down more than 6% from the June 2005 peak. Backlogs of unsold homes are rising, and price increases are slowing. Economists expect the slowdown to affect more than just housing-related jobs: As stagnating house prices and higher interest rates limit Americans' ability to use their homes as a source of cash, they are likely to spend less money on consumer goods, meaning less work for all kinds of folks, from assembly-line workers to shop assistants. From a macroeconomic perspective, the housing slowdown, and the attendant slowing of job growth, could be just what the economy needs. If, as some economists predict, the monthly average rate of growth in U.S. non-farm payrolls falls and stays a bit below 130,000 -- from about 175,000 in the first quarter -- that would help keep wages in check, relieving the inflationary pressures that have worried Federal Reserve officials and, as a result, spooked financial markets. "That's exactly what the Fed would like to see," says Mark Zandi, chief economist at Economy.com. No single sector of the economy has the potential to make up for all the jobs likely to be lost in a housing slowdown. Still, some can provide a cushion. All across the economy, companies are running up against the limits of what they can get out of their current workers -- a situation economists say will drive more hiring. "As long as the economy is expanding, you have to add inputs from somewhere, and labor is the easiest input to add," says David Greenlaw, an economist at Morgan Stanley in New York. Industries that have picked up the pace of hiring in recent months include health care, finance (excluding housing-related finance), education and nonresidential construction. Manufacturing, too, is benefiting from increased capital investment in the U.S. and abroad: The sector has added 134,000 production jobs since September. Not all of the new jobs will be a good fit for people forced out of housing-related work. Immigrants who specialize in low-skill tasks could be among the hardest hit. "The low-skilled or unskilled worker is going to be displaced," says Global Insight's Mr. Bethune. Still, some skills are transferable. Carpenters and electricians, for example, can find jobs on commercial and public projects like office buildings and schools. People who can find ways to improve companies' productivity -- say, by making loan applications easier to fill out -- are always in demand, says Andrew Wilkinson, a managing director in Los Angeles for KForce Professional Staffing. He recently found jobs for a number of business analysts laid off by Ameriquest. Their new employer: Kaiser Permanente, the U.S.'s largest health plan. "Those are the types of folks that our customers generally struggle to find anywhere," he says. "We put them into health care, we put them into biotech and we put them into other financial-services companies." 10. Ocean City and NJ Shore RE Report compiled by Ben Jones: 'Oversupply Seems To Be A Problem' In Ocean City The Philadelphia Inquirer has this update. "Observers of the Shore market say, as higher interest rates are beginning to dampen sales, and condo construction, mostly involving investors, adds to a growing surplus of properties. 'Whenever interest rates rise, the second-home market is the first one to take the hit,' said (mortgage broker) Fred Glick." "'"It's the condo and lower end of the Shore market that's taking a hit,' said broker Paul Leiser. 'These are the buyers who depend on lower interest rates to balance two mortgages, and with rising interest rates, they can't do it. We've sold fewer units, but our dollar volume in the first quarter was higher than it was in the first quarter of 2005, Leiser said. It's the million-dollar-house purchases that push up the medians.'" "In Ocean City, the scene of numerous teardowns and massive development since the mid-1990s, there were more than 1,700 listings on the Ocean City MLS. 'They're saying that Ocean City is overbuilt by two years,' broker Jerome DiPentino said. 'That may be conservative.'" "Jay Lamont, who has studied and owned real estate in Ocean City for about 40 years, said, 'I have never seen anything even close to this debacle. Many legitimate and qualified buyers are waiting for fall, for the lender REO [real-estate-owned] listings and foreclosure sales on failed developer loans.'" "Weekly sales reported to the Ocean City MLS are 80 percent to 90 percent lower than they were in spring 2005, with seven or eight sales a week, he said." "What's going on? 'The short-term investors at the Shore were in the condo market primarily, and they're the ones pulling out,' said (economist) Mark Zandi. 'They don't buy multimillion-dollar homes.'" "Oversupply also seems to be a problem elsewhere in Cape May County. (Broker) Paul Schlimme in Cherry Hill, said that between Jan. 1 and May 31 there were 189 listings on the Avalon MLS, with about nine houses selling per month. 'That means there is a 21-month supply in Avalon, and it is getting worse,' Schlimme said." "The Wildwoods, too, were a draw for investors, who razed motels and filled empty tracts with condos. But with for-sale signs sprouting and interest apparently tailing off, that boom could be over, local market experts say." "In Ocean City, Lamont said, 'open houses are held each weekend, sometimes as many as eight per block on Asbury Avenue, with almost no legitimate buyer traffic showing up even to use the bathrooms.'" 11. Florida Housing Markets 'Flooded' The Sun Sentinel reports on Florida condos. "David Dweck couldn't believe it. The founder of the Boca Real Estate Investment Club scanned the MLS last week and found 2,700 condominiums for sale just in Palm Beach County retirement communities. That represents roughly 9 percent of the county's total listings. 'That's a staggering number,' Dweck said." "Some of the building facades haven't been updated in years and aren't appealing to existing residents or buyers, he said. 'That market will continue to correct downward,' Dweck said. 'I don't expect it to pick up at least for another year.'" From Florida Today. "A new report on housing construction permits reflects the slowdown in Brevard County's real estate market. There were 415 permits issued countywide in May for single-family homes, condos and apartment units, down from 577 in April and 617 in May 2005." "Joe DiPrima, (who) builds mainly in Viera, said most of his company's current construction projects are from contracts that were signed last year. 'I think we definitely have seen a slowdown in activity,' DiPrima said. 'We anticipate that it will take some time for the inventory out there to be absorbed.'" "He said the flurry of housing construction in Brevard in recent years has flooded the market, and local housing prices in general have fallen somewhat since last summer, when the market peaked." "The median sales price in Brevard for existing single-family homes, a market that reflects trends in new-home prices, was $224,800 in April, up 4 percent from April 2005, but down from the peak price of $248,700 in August 2005." "The number of local single-family home sales in Brevard fell by 32 percent in April, compared with a year earlier, according to data from the Florida Association of Realtors." "DiPrima said said the local market for condominiums seems weaker. In April, the median sales price of a local condo was $175,000, down 17 percent from a year earlier." "Also, the number of local condo sales fell by 81 percent in April, compared with a year earlier. 'The condo market here took off after the single-family-home market,' DiPrima added. 'The number of condominiums on the market is higher than it's ever been.'" 12. Turning a Home Into Cash Flow June 25, 2006, NY Times WHAT if you could take a home equity loan that you didn't have to repay while you lived in your house? The proposition sounds a little too good to be true. But such a product does exist, although technically it's not a home equity loan and it's only for older homeowners. It's called a "reverse mortgage," and retirees have been turning to it in increasing numbers in recent years as a way to gain financial breathing room without having to sell their homes and move away. Good as these loans may sound, financial counselors say they can leave families vulnerable. "It can be a great financial solution for many seniors and their families," said Catherine Williams, a vice president of Money Management International, a nonprofit credit-counseling agency in Houston. "But there are a lot of factors to consider that families sometimes don't think about." With reverse mortgages, Ms. Williams said, families can end up depleting what is often their most prized inheritable asset. And because sudden disability can prod parents to take out such mortgages hastily, there is not always time to consider the issues fully. Here are the basics: As long as the house is your primary residence and you are at least 62, banks will give you a big portion of its value under the condition that if you move out or die, you or your estate pays back the loan plus interest, set at closing. The amount you receive depends on your place of residence, current interest rates, the value of the house, your age and the amount still owed on the first mortgage. A $240,000 house, fully paid off by a 62-year-old in Minneapolis, qualifies for a lump-sum payment of $104,000 under the Federal Housing Administration's Home Equity Conversion Mortgage program, the dominant reverse mortgage product. There are two other payment options: $650 a month while the owner lives in the house, or a line of credit. (Insurance covers the lender, should an owner live long enough to draw more than the mortgage value.) Because payouts for the housing agency's reverse mortgages are based only on the first $360,000 in home value, higher-priced homes do not fetch much more. Under the same loan program, a $700,000 house in Westport, Conn., would rate a lump sum of $159,000, monthly payments of $994 or a credit line. Payout options can get more complex depending on which of the three products you choose. The intricacies are covered on Web sites like nrmla.org (operated by the National Reverse Mortgage Lenders Association) and aarp.org/money/revmort/. Indeed, the complexity of the product is why consumers cannot take out a reverse mortgage without first certifying that they have received advice from a financial counselor approved by the federal Department of Housing and Urban Development. The counseling sessions cover a range of issues. The loan payout is tax-free, for example, unless you invest the money elsewhere, Ms. Williams said. And the loans carry fairly high closing costs, so if you were to move out within a few years of the loan, the payout would most likely not be worth the initial expense. But despite the counseling, industry executives say, horror stories have left a core group of customers leery of reverse mortgages. In the 1980's and 1990's, financial institutions sometimes took a percentage of the home's equity with reverse mortgages. Some homeowners who moved out thus ended up owing the amount of the payouts and the entire appreciated value of the home. No one considering a reverse mortgage today need fear such terms, said Peter H. Bell of the National Reverse Mortgage Lenders Association. "Nobody in the marketplace is offering anything of that sort right now," he said. 13. Turrets: A Point of Interest New York Times, June 23, 2006 A man's home is his castle" goes the adage, which finds perhaps its most literal representation in the fanciful cottage of Wemmick, a London clerk in Charles Dickens's novel "Great Expectations." Although Wemmick's home is tiny, he has modified it to resemble a Gothic fortress of sorts, complete with a plank drawbridge, a moat and a "turret bedroom." While there is no evidence of a run on Dickens novels in area bookstores, much less a conscious emulation of Wemmick, turrets have been popping up with increasing frequency on upscale suburban homes around New York City. "If someone is building a six- to eight-thousand-square-foot house or bigger, you expect them, along with the pool and the tennis court, " said Robert A. Wieboldt, executive vice president of the Long Island Builders Institute, a trade group. The current style of turret — broadly defined as a tower rising from the ground and attached to a corner or wall, or a small tower projecting from the edge of a roof — often has a particularly castlelike aspect in places like the north shore of Nassau County. "There's probably nothing better than a turret to suggest baronial, manorial stature," Mr. Wieboldt said. "It's the manor house as a statement of corporate or professional success." The variety in recent turret design is on vivid display in the Briarcliff Manor area of Westchester. On Sleepy Hollow Road, five types can be seen on three homes. The smallest turret of the bunch is a shingled six-and-a-half-foot square lookout with glass windows, capped with a pointed copper roof and a weather vane. Its owners, Eric and Hillary Messer, said their associations with the little tower were more Hamptons beach house than medieval English fortress. "The proliferation of turrets we're seeing is primarily whimsical," said Mr. Messer, the owner of Sunrise Building and Remodeling, which has done work throughout Westchester and southern Connecticut for 20 years. "What's changed over time is that they've gotten smaller and moved inland." Mr. Messer added that he installed his own turret for the same reason many of his clients request them: to break up a long roofline and let more light into a dark area. The most imposing turreted home on the road is a stuccoed 6,200-square-foot structure being built in the style of a French chateau. It bristles with no fewer than three turrets of varying sizes and shapes. The home is the dream house of Maria Boccasini and her husband, Alfredo, who owns a hair salon in White Plains. They currently live just a few feet in front of it, in a two-bedroom Cape Cod that will be torn down after the larger house is completed around the end of the summer. Ms. Boccasini, seated at her dining room table on a recent afternoon with her new home looming surreally in a nearby window, flipped through lushly photographed books like "Houses of the Gentry." Peering at a photograph of the soaring turrets of a Loire Valley chateau once owned by Catherine de Médicis, she spoke of the practical challenges of bringing the French Renaissance to Westchester. "The framers called my turrets the Towers of Terror," Ms. Boccasini said, explaining that building them proved so difficult that the blueprints had to be reconfigured. Each of the home's three turrets has a different form and function. The largest is a 45-foot-high octagon at the back wall of the house topped with a tiled, pointed roof above the master bedroom. The inside of the turret will be lined with a painting on canvas, perhaps a pastoral scene. A second turret, a two-story half-cylinder with a conical roof, is built into the home's left flank. It will have wine racks in a basement level, perhaps a buffet in the first-floor dining room, and a half-circle bench in the second-story guest room, which will be decorated with toile and known as the Marie Antoinette Room. The smallest turret is a 17-foot-high half-octagon that will serve as a Christmas tree nook off what Ms. Boccasini calls the Great Room. "I named the rooms," Ms. Boccasini said. "My husband said, 'This is not your castle,' and I said: 'This is my castle, and I'm queen of it. And even if it were small, it would be my castle, because it has all our personal touches in it.' " But she acknowledged having received complaints about the scale of the house. Also on Sleepy Hollow Road is the turretless home of an architect named Michael Molinelli, who has watched the sprouting of suburban towers with a discriminating eye. Too often, he said, turrets appear to be appended to houses without proper attention to proportion. "I think turrets are a fun thing," he said. "But we in America have this concept that if one is fun, then three is three times as much fun." Three years ago, Mr. Molinelli designed a tapered stone turret for the early 20th-century Tudor-style home in Greenwich, Conn., belonging to his brother, Bruce, and his family. Afterward, "everyone on the block had turret envy," the architect recalled. Some even built their own turrets. Joanne Carroll, publisher of the trade magazine Connecticut Builder, said the popularity of turrets is partly a reaction to the boxiness of so-called McMansions. "Builders have gone to great lengths to find talented architects to create homes where rooflines are broken by the interjection of other elements," she said. One home in no danger of lacking prominent vertical elements is the Boccasinis' in Briarcliff Manor. As Mr. Boccasini surveyed his tri-turreted chateau the other day, he confessed to his wife that he longed for more. "When we get done, maybe we'll put in an extension and maybe another couple of towers," he said. And a cabana the couple hope to build, along with a pool, could be a tower, too, he added. Ms. Boccasini's eyes went wide. "That would be so cute if our cabana was a turret!" she said. "That would be the cutest cabana ever." 14. Unlocking Your Inner Architect New Home-Design Software Saves Money, but Some Users Neglect Details, Like Plumbing June 29, 2006; WSJ A slew of sophisticated software for home design has recently hit the market, allowing homeowners embarking on a remodeling project to plot everything from shingle styles to window placement and even see how shadows fall across the porch at different times of the day. If used properly, the do-it-yourself products can save thousands of dollars in architects' fees on a major project. But the growing popularity of the products is making them a point of tension between builders and their clients. Homeowners can spend hours on a design, only to be told they've taken out a key beam or put in a toilet where there are no pipes. Homeowners "can draw to their heart's content, but that doesn't mean it's legal or it's buildable," says Ben White, vice president of Benvenuti & Stein Inc., a design and construction firm in Evanston, Ill. Jessa New spent about five hours drawing up a plan for two children's bedrooms and a bathroom in a second-story addition to her 1925 Craftsman bungalow in Oberlin, Ohio. Then she presented them to her builder -- and learned with dismay that the bathroom she envisioned was too far from the main plumbing lines and its placement would interfere with a staircase. Better Homes and Gardens Home Designer Pro lets users see how various exterior and roof materials look. "Being able to visualize it in a computer program is very different from when it translates into physical space," she says. Her builder, Peter Lehrer of Artistic Renovations LLC in nearby Seven Hills, says he quickly drew up three new plans. (They ultimately put a master bedroom upstairs.) When people draw up their own designs, it helps them focus on what they want, he says, but sometimes "locks them in" to a single idea. The complications come as companies have been rolling out new lines of design-it-yourself software, in part a response to unprecedented spending on home remodeling, maintenance and repairs: $215 billion in 2005, up from $199 billion in 2004, according to the Census Bureau. Even as the housing market cools, people are still putting money into their homes, especially kitchens and bathrooms. In contrast to computer-assisted design programs of the early 1990s, which were cumbersome and often crude, the latest programs feature realistic graphics, automatic processes for complex steps like adding cabinets, and thousands of materials, textures and even landscaping plants to choose from. In the past year, Chief Architect Inc., one of the two software companies that dominate the home-design-software market, rolled out three new programs under its Better Homes and Gardens brand. One $495 program includes more than 1,500 sample plans and thousands of doors, windows, lighting and other furnishings that users can drop into virtual rooms. The company, which is based in Coeur d'Alene, Idaho, also launched a scaled-down $149 version, and in March, it rolled out a $19.95 program called Picture Painter that lets users upload photos of a house to see how they look with different paint colors and materials. Punch Software LLC, the other big market participant, released a new version of its Architectural Series 4000 software that offers more than 2,000 paint choices, hundreds of furniture options, a swimming-pool designer, and accurate depictions of various lights, including the way sunlight enters the home at various times of the day. The $199 program is also compatible with the U.S. Geological Survey's Web site, allowing users to trace the topography of their lots. Another program, Google SketchUp, was made available for free in April at http://sketchup.google.com1. It allows users to create house models and pull items like windows, columns and appliances directly from a virtual "warehouse" and drop them into a scene. When finished, users can share their designs in the online repository 3D Warehouse or add them to Google Earth, the satellite mapping program, to see how they fit in with the neighborhood. Google SketchUp shows textures and shadows. The Internet now features more free, interactive tools than ever, as makers of appliances and fixtures beef up their presence online. At E.W. Scripps Co.'s HGTVKitchenDesign.com2 and HGTVBathDesign.com3, both launched this spring, a 3-D design tool allows the user to drag and drop products like Viking ranges into virtual rooms. Many paint sites are also getting more interactive: PPG Industries Inc.'s Pittsburgh Paints last year created voiceofcolor.com4, allowing visitors to try out different colors in model rooms. Interest in home-design software grew in 2005, even as sales of other, non-game software was flat, according to data from NPD Group, a Port Washington, N.Y.-based research firm. Americans spent $24 million on home-design software in 2005, up 1.2% from 2004, NPD says. For homeowners dreaming up a project, builders say it's important to be aware of the software's limits. Some house-building programs emphasize "professional" results and plans that are "accurately scaled" on their packaging. But most builders say the finished product often requires tweaks or clarifications. For instance, some less expensive programs may not be able to create the house's frame, adjust wall thickness or customize rooflines. And the programs usually don't take into account the frequently arcane rules of state building codes. (In California, there are detailed rules about how close a window can be to a shower.) New Punch Software programs shows lighting effects. Homeowners sometimes dream up layouts that don't take into account support walls, plumbing or central air systems, says Michael Quail, who owns a construction firm in Lyons, Ill. It's a particular problem in older houses, because their internal walls are often load-bearing, while newer homes' walls can be moved more easily. Plus, he says, once clients have invested several dozen hours in mastering a program and coming up with a plan, they can be resistant to change. "These people think we can just put a toilet anywhere," he says. Homeowners, meanwhile, may face disappointments when they start building. Todd Storbeck, a 44-year-old publishing specialist from a suburb of Kansas City, Kan., said he enjoyed designing his $150,000 dream addition last year with a Better Homes and Gardens software program, getting kitchen ideas from the program and crafting everything from room layouts to cabinet color. New Punch Software programs shows decorating details. But a problem arose when he decided to remove a support post in the garage after construction had started. Mr. Storbeck made the change in his software plan but then felt taken advantage of when he was charged an extra $9,000 -- a price the builder says was necessary to make the second floor structurally sound. Mr. Storbeck paid the fee but later fired the builder. His contractor, Ronald Sobanek of Home Improvement Services LLC in nearby Prairie Village, says a professional architect or designer would have helped his client understand the difficulties of such a change. Mr. Sobanek says he plans to steer clear of clients using their own design programs from now on. "What we ended up with was an unhappy customer," he says. "I just wouldn't do it again." Still, many architects praise the software for improving communication. When Bruce Spenner, a homeowner in Boise, Idaho, was planning his 1,200-square-foot addition, his wife sometimes had trouble visualizing the plans. So he put his ideas into a Punch software program and gave her a 3-D tour -- just to make sure "there were no surprises when it was built," he says. The designer he worked with, Michael Snow of Strite Design + Remodel, said Mr. Spenner's plans were helpful. "When you are working with people who are really into the process, it makes it a richer experience."