By Christopher Conkey

From The Wall Street Journal Online

The housing slump is slightly eroding a key driver of consumer spending, but stock-market gains are boosting the average household’s net worth, new Federal Reserve data show.

Homeowners had $10.9 trillion in equity stored up in their properties at the end of the third quarter, an amount that was essentially flat compared with the previous quarter and down from a nearly 3% rate of growth during the same period last year, the Fed said. Home equity — the difference between a home’s value and the amount owed on its mortgage — fell to 53.6% of the value of household real estate, down from 54% in the second quarter and 54.6% a year ago.

Steady home-price appreciation in recent years swelled the amount of equity built up in houses, and consumers tapped it to finance home improvements, college educations and other purchases. But the data from the Fed’s “flow of funds” report suggest the housing market’s slump has whittled away the growth of home equity.

So far, the impact on consumer spending has been modest. But many economists worry that further weakness in the housing market, particularly if it leads to an outright drop in house prices, could shrink home equity and lead consumers to pull back in the months ahead.

There are bright spots, though. The competitive labor market is boosting wages, and the stock market has produced big gains for many investors so far this year. After declining slightly in the second quarter, the value of household financial assets rose nearly 2% in the third quarter to $40.5 trillion, the Fed said. That combination helped lift household net worth, which was flat in the second quarter, by 1.5% in the third quarter to $54.06 trillion.

It looks like households are still in pretty good shape,” said Robert Mellman, senior economist at J.P. Morgan Chase & Co. “The fundamentals for consumer spending are really quite good.”

That may be true, but they also appear to be turning cautious. In a separate report yesterday, the Fed said consumer borrowing decreased by 0.6% in October, the largest monthly drop in 14 years. “In the grand scheme of things, households are stepping back a bit and being more conservative,” said Daniel Jester, an economist at Moody’s Economy.com.

Meanwhile, the Labor Department said the number of people filing initial claims for unemployment insurance fell by 34,000 last week to 324,000. Economists said the big weekly drop was because of seasonal factors surrounding the Thanksgiving holiday, which may have artificially boosted jobless claims last week. Over the past four weeks, claims have averaged 328,750, a level suggesting moderate growth in the job market. The Labor Department will release figures for November job growth today.

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By Scott Patterson

From The Wall Street Journal Online

Investors, painfully aware that the housing market is in the doldrums, may be surprised to learn that some of this year’s best stock performers have been real-estate companies.

Yes, home builders have been basement dwellers and some lenders look shaky. But real-estate investment trusts are up more than 30% year-to-date, and the real-estate mutual funds that invest in them are hitting home runs, according to fund-tracker Morningstar. REITs, as they are known, are tax-advantaged stocks that concentrate on the commercial side of the real-estate business and distribute the lion’s share of profits to shareholders through dividends. They deal in office parks, shopping malls and apartment buildings — rather than McMansions.

Commercial construction has been booming after a protracted slump earlier this decade. During the first half of the year, commercial building grew at a 15% annual rate, according to Commerce Department data. The sector contracted in 2001, 2002 and 2003, so likely isn’t as overdone as the residential side. Overbuilding would be a big problem for REITs because that would drive down rents, their primary source of income.

Low interest rates help, and the private-equity boom has added steam to some REIT players, luring investors who want to bet on the next fat deal. REIT mergers and acquisitions have hit a record $117 billion in 2006, according to the National Association of Real Estate Investment Trusts, soaring from $30 billion for the past two years combined.

But has the REIT run gotten overdone? One recent event raises the question: industry icon Sam Zell’s $20 billion sale of Equity Office Properties Trust, the REIT he took public in 1997, to Blackstone Group. If Mr. Zell is selling, perhaps that says something about the outlook for the sector as a whole.

REITs look pricey by other measures. Consider one metric of how much investors are paying for every dollar of the cash REITs produce — called price-to-adjusted funds from operations. It stands at 26, well above the group’s historic average of 15, according to Green Street Advisors, a real-estate research firm.

“REIT valuations are just so high relative to other assets that the sector as a whole is really susceptible to a shift in investor sentiment,” says Christopher Mayer, a real-estate professor at Columbia University and a board member of Oak Hill REIT Management, a hedge fund.

“Everything has to work right in the wonderful world of real estate that we live in,” says Sam Lieber, Alpine Mutual Funds president.

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By Benton Ives-Halperin

From The Wall Street Journal Online

Prospects for existing home sales may improve in the coming year, relative to this year’s sluggish pace, while new home sales are expected to continue their slide into 2007, according to the National Association of Realtors Monday.

Nonetheless, NAR said home prices will continue to appreciate this year, even as market activity slows dramatically. The national median existing-home price for all of 2006 is projected to rise 1.4% to $222,600, with another 1.0% gain next year to $224,700, according to NAR. The median new-home price should fall by 0.5% to $239,700 this year, followed by a slight 0.8% increase in 2007 to $241,700.

Based on NAR forecasts, existing-home sales are expected to be 6.47 million for all of 2006, which would be a decline of 8.6% from 2005. In 2007, the pace of sales is expected to rise steadily from the current low and reach an annual total of 6.40 million, which would be 1.0% lower than this year’s total.

“By the fourth quarter of 2007, existing-home sales will be 4.6% higher than the current quarter,” said David Lereah, NAR’s chief economist, in a statement accompanying the forecast.

New home sales, on the other hand, are projected to remain fairly depressed into next year. NAR expects new-home sales in 2006 to fall 17.7% to 1.06 million, before dropping an additional 9.4% in 2007 to 957,000.

NAR attributed much of the contraction in the market for new homes to builders pulling back on construction to support pricing for current inventories, while high construction costs in some areas are eating into profits.

Still, “most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards,” Mr. Lereah said. NAR said total housing starts for 2006 are likely to fall 12.3% to 1.82 million units, followed by another 15.1% plunge in 2007 to 1.54 million.

“This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains,” said Mr. Lereah.

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By Elizabeth Seay

From The Wall Street Journal Online

Mary Zelle, an active traveler, recently found there was one place she was having trouble getting around: her own bathroom.

At age 70, she was in good health, but after foot surgery, she found her balance was off. “I was always afraid of falling in the bathtub.” That got Ms. Zelle and her husband, John, thinking about their future in their house just outside Chattanooga, Tenn. “We don’t want to move unless we absolutely have to,” she says.

The Zelles are one of a growing number of families across the country who find themselves at a crossroads: They wish to remain in their homes as they age, but they recognize that their kitchens, bathrooms, hallways and bedrooms need to be safer and easier to navigate.

That need is giving rise to an army of experts who are eager to help people age in place. Many are home builders and remodelers, with titles like certified aging-in-place specialist. Others are interior designers, architects and occupational therapists. Even appliance and gadget makers, health-care providers and lenders are jumping in.

But who is the best person to help you with the task of continuing to live in your home — and do you really need a specialist?

The one issue that most experts agree on is that the sooner you plan for changes in your home, the better.

” ‘I’ll get to that when I fall and break my hip’ is not a great approach,” says Nancy Thompson, a spokeswoman for AARP, a membership group for older Americans.

Hiring a Contractor

A contractor is the person many homeowners automatically turn to when it comes to home improvement. But there are some contractors out there who are trained to deal with the specific needs of older homeowners.

The National Association of Home Builders says its certified aging-in-place specialists, or CAPS, help ensure that older adults get help from people familiar with their needs. Since the NAHB program started in 2002, more than 1,000 building contractors, as well as architects, occupational therapists and other professionals who seek to work with older adults, have been certified.

The certification involves three days of instruction. One day is devoted to design solutions for aging people. A second day is devoted to working with and marketing to older adults — including things like communicating clearly, using readable print in a contract, avoiding jargon, and responding to reasons why potential clients may be reluctant to make aging-in-place modifications. A third day — which is optional for those who have received some other NAHB certifications — covers how to run a remodeling business.

Though the instruction is brief, teachers and NAHB executives say the classes expose their students to critical knowledge. For one, CAPS contractors are familiar with common alterations, building codes, specifications — including how high to mount a bar for grabbing in the shower and how to figure out wheelchair clearance for a roll-under sink — and sources for specialized products, according to Jim Lapides, communications manager for the NAHB’s Remodelors Council.

Moreover, Mr. Lapides says, CAPS contractors think about appearances. “No concrete stairs with the edge painted bright yellow,” he says. Instead of putting a wheelchair ramp on a house, a contractor may add an attractive sidewalk that gradually rises to the level of the house.

Vince Butler, a CAPS instructor and owner of Butler Brothers Corp., a design-build remodeling company in Clifton, Va., says CAPS contractors also can make suggestions that homeowners may not have thought of. For instance, if clients are already renovating a bathroom, a contractor who’s thinking ahead can reinforce the spaces behind the walls so they can later put in “grab bars” to hold onto in the shower, or put electrical outlets in places where they won’t prevent a doorway from being widened later for wheelchair access. Or if designing an addition, they may want to create space for a future elevator shaft by stacking closets on top of each other.

“A lot of solutions are design solutions,” Mr. Butler says. “It’s not just stuff that is listed in a book…. It’s just as challenging as any other type of good design, and maybe even a little more difficult, because no client wants to make this look institutional.”

Most experts advise getting recommendations on contractors from friends; getting several bids on a job; asking for written agreements, with small down payments; and checking out contractors with the local Better Business Bureau.

Thinking Ahead

Larry Sanders, a CAPS client in Houston, says it can help to hire a contractor who knows how to design for the aging.

Mr. Sanders, 56, says he realized he needed help when the nurse attending his wheelchair-bound mother, 85-year-old Deloris Sanders, told him flat out: “You need to fix your momma’s bathroom.” The home-nurse service helped him find a CAPS contractor, Dan Bawden of Houston.

“We intended to do something, but it wasn’t like we knew what that something was going to be,” Mr. Sanders says. “These guys did. You could think all day and some of this stuff wouldn’t occur to you.”

His mother’s new bathroom has a giant shower that her aides can roll her wheelchair into and move around in, a big shower bench, hand grips, and a special showerhead on a hose. She can run her wheelchair under the sink and easily use a one-handled faucet. Mr. Sanders also appreciated touches such as bathroom-door hinges that allowed the doors to open wider without requiring a bigger doorway, as well as a front-door threshold that flattens when a wheelchair runs over it.

The cost: just over $20,000. He says the project came in at budget, with no surprises.

Plus, Mr. Sanders says, with input from his wife, Fran, the contractors put in new tiles that make the bathroom “the brightest, sunniest little room you’ve ever seen in your life,” he says. “It doesn’t look like a handicapped bathroom.” Down the road, he says, when they have to sell the house, “someone is going to walk in and say, ‘That’s a great shower.’ You could just frolic in it.”

For Ms. Zelle’s bathroom, the Zelles chose a local general contractor they had worked with before. This spring, they widened the doorway and put in a taller toilet. They also took out the bathtub so she didn’t have to step over its side, and replaced it with a shower stall that featured a built-in seat. The job cost around $4,000, Ms. Zelle says.

Next, she’s considering easier access to the front porch. There is just one step, she says, but “if I have to have any more surgery, I would like a ramp put on so I could walk up. One step can be quite a barrier.”

Other Resources

While experts on aging and accessibility agree that many homes will require alterations in coming years, some say remodeling that requires a contractor isn’t always needed. Their advice: First, check other sources of information.

“Aging in place is not just architectural design,” says Doug Usiak, executive director of the Western New York Independent Living Project family of agencies, which help people with disabilities. “And very few independent contractors look at the overall picture of the person’s functional abilities.”

One resource is an independent living center, a nonprofit organization that provides services to people with disabilities. About 600 of these centers can be found across the country, and many offer free assessments of a home’s architectural barriers, such as steps and narrow doorways. After people have a sense of what they want, they can find product resources, design consultants — or contractors — through the centers.

Occupational therapists, state agencies on aging and local offices for senior services also can help.

Occupational therapists are trained to look at many aspects of aging — physical, cognitive, sensory and social — and they tend to have a broad “knowledge of human capacity,” says Carolyn Baum, president of the American Occupational Therapy Association, or AOTA. And that allows them to tailor their recommendations to a client’s needs and offer hands-on training to help people make the most of changes in their home.

For instance, to help someone with weak vision to cook, therapists not only may suggest new lighting and touch or high-contrast controls for ovens but also can help train clients to prepare a meal differently, relying on nonvisual cues, according to the AOTA. Or for someone with less mobility, therapists might start by moving a washer/dryer to the kitchen from the basement, suggest using a reaching device and a wheeled laundry basket, and help the client come up with a new laundry routine.

A growing number of occupational therapists either work with remodelers or have undergone training through programs like CAPS itself, a new AOTA certification in environmental modifications, or courses at Washington University in St. Louis and other schools that help them to translate their knowledge into suggestions for modifying spaces.

“You should consult with a person who understands the aging process, the access issues, and can give you a written report, so you can sit down and make a decision,” Mr. Usiak says.

Modifications don’t have to be expensive to make a difference. In 1999, the Rehabilitation Engineering Research Center on Aging at the University at Buffalo in New York published a study in which a group of people age 60 and older received some basic assistive technology, such as magnifiers and reachers, and simple home modifications, such as getting rid of loose throw rugs and adding hand rails on stairs.

Within 18 months, this group racked up just one-third of the health-care costs of a group who didn’t receive these modifications. “If people used the assistive technology, they could maintain their functional status,” says Machiko Tomita, the data analyst for the study. “If they didn’t, they declined.”

The total cost of the modifications: $2,620 per person.

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By Ruth Simon

From The Wall Street Journal Online

High home prices have helped drive many first-time buyers out of the housing market. Now, with prices falling in many areas, there are some signs that buyers are beginning to drift back.

The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study released last month by the Realtors group, down from 40% in the three previous years.

First-time buyers play a key role in the housing market. They provide a source of new demand for homes, and they also make it possible for owners of entry-level properties to trade up, creating a ripple effect that affects higher-priced sectors of the market. Declining affordability has made it difficult for first-time buyers to buy homes in many parts of the country, an important factor in the recent housing downturn.

But as more sellers begin to cut their asking prices and rates on fixed-rate mortgages have moved lower, some real-estate agents are reporting renewed interest from people shopping for their first home. Sam Schneiderman, broker-owner of the Greater Boston Home Team, says he has seen “a real surge in first-time buyer activity” in the last two to three weeks as lower prices draw buyers who think the market may be close to bottoming out. Kevin Freadhoff, an agent with Realty Executives of Southern Arizona in Tucson, says in the past 60 days he is seeing first-time buyers “start to warm back up again. They are seeing that houses have become more affordable.”

In Madison, Wis., rising interest rates and home prices knocked many first-time buyers out of the market early in the year, says Phil Sveum, broker-owner of Coldwell Banker Sveum Realtors. But in the past month, Mr. Sveum has seen an increase in tenants looking to buy their first home. The recent drop in interest rates “has created some momentum for first-time buyers, not to write an offer today, but to start looking again and be serious about moving in January or February,” he says.

First-time buyers are particularly sensitive to rising housing costs, in part because they don’t have equity from an existing home they can tap as prices shoot higher. And lower incomes provide less of a cushion when monthly payments climb. In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent National Association of Realtors survey, up from 43% a year earlier.

But recent data have been encouraging for first-time buyers. The National Association of Realtors reported that the median price of an existing home fell 3.5% in October from a year earlier, the largest decline since the group began collecting these data in the late 1960s. The average rate on a 30-year fixed-rate mortgage now stands at 6.16%, the lowest level since October 2005, according to HSH Associates in Pompton Plains, N.J.

A growing number of first-time buyers in Florida’s Tampa Bay area are taking advantage of special deals from builders looking to unload newly constructed homes that are bloating their inventories, says Craig Beggins, president of Century 21 Beggins Enterprises.

Jason Colon, a bank analyst, bought a new three-bedroom, 2½-bath townhouse in Apollo Beach, Fla., last month after looking for his first home for roughly a year. Mr. Colon paid $163,000 for the property, which was originally priced at $242,000. The builder also picked up $5,000 of his closing costs. “It was crazy for me not to jump on it because it was brand-new and I’m buying the model unit, which has all the upgrades,” says Mr. Colon. Falling interest rates have made the purchase more affordable, he adds.

Yet affordability remains a problem for many would-be buyers. In the second quarter, buyers had to stretch more than ever before in 25 of the top 50 markets, according to Bank of America analyst Daniel Oppenheim. Even with the recent price declines, he estimates that it would take a further 7% fall in home prices, combined with a 4% annual increase in nominal incomes, to bring affordability back in line with average levels over the past decade by 2008 — if interest rates remain stable.

In recent years, many first-time buyers had been able to stretch their dollars by taking out adjustable-rate mortgages and so-called affordability mortgages, which allowed them to lower their monthly payments or buy a home with little, if any, down payment. But as short-term interest rates have climbed higher, the benefits of adjustables have declined.

At the same time, some first-time buyers have become more cautious. Sheila Doyle, an agent with Baird & Warner in Glenview, Ill., says that more of the first-time buyers she works with are getting their parents to help them with a down payment and fewer are financing 90% or 100% of the purchase price. “I don’t see them doing the crazy financing that was so frequent last year,” she says.

New guidelines for nontraditional mortgages, recently issued by federal banking regulators, could make it tougher for some first-time buyers to use these products. Some lenders are also beginning to tighten their standards as mortgage delinquencies rise.

Many would-be buyers are taking a wait-and-see approach. When home prices were soaring, many first-time buyers jumped to buy houses they could barely afford, believing they would be shut out of the market if they didn’t act quickly. Now, with prices falling in many areas, “there’s no immediate need to buy, and so they kick the tires more,” says Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va.

Arthur Orkisz, a speechwriter in the Washington, D.C., area, says he expects to hold off until at least next summer before buying his first home, “unless something so dramatic happens that it’s absolutely silly to pass it up.” Giveaways such as flat-screen TVs are “all nice and dandy, but at the end of the day anyone capable of doing the arithmetic realizes that’s a gimmick to get me in the door,” he says. “That’s not enough of an incentive” to buy.

Scott Steiner, managing broker of Help-U-Sell Lakeview Realty in Lake Elsinore, Calif., says he’s getting fewer calls and doing fewer showings for the properties he’s listing. But fliers describing the properties are being snapped up faster than ever before — a sign, he says, that many first-time buyers are taking their time and waiting for the market to stabilize before making a move.

In much of the country, renting remains a bargain compared with owning, according to an analysis prepared for The Wall Street Journal by Torto Wheaton Research, a unit of CB Richard Ellis Group Inc. In markets such as Las Vegas, San Diego and Washington, the monthly cost of renting the average apartment is roughly half what it would cost to own the median-price home in the third quarter. “Renting is only marginally less of a bargain” even with the latest decreases in home prices, says Torto Wheaton senior economist Gleb Nechayev.

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By Michael Corkery

From The Wall Street Journal Online

Most U.S. home builders are suffering declining profits and sluggish sales. But some companies are experiencing more serious hurt — including pressure from activist shareholders, increasingly nervous lenders, large layoffs and at least one sizable bankruptcy.

At WCI Communities Inc. of Bonita Springs, Fla., not only are orders for new homes expected to have dropped 80% in the third quarter from a year earlier, but one of its large shareholders is getting antsy. New York hedge fund Basswood Capital Management LLC, which owns a 5% stake, sent WCI’s chairman a letter dated Oct. 17, saying it had “grown increasingly concerned with the performance and strategy of the company.”

Basswood is frustrated that WCI, even though it has a valuable supply of land in coastal Florida, is more leveraged than many other builders. Basswood said WCI’s net debt-to-capitalization ratio was 62%, compared with an average ratio of 44.5% for its peers.

Basswood also wrote in its Oct. 17 letter that WCI stock is trading 16.5% below its March 2002 initial-public-offering price, while its peer group is up 88.9% over that same period. The stock closed yesterday at $16.12, up nine cents, in New York Stock Exchange composite trading at 4 p.m. Basswood is asking for a seat on WCI’s board, a request the firm says was previously ignored. WCI declined to comment on Basswood’s letter.

Limited Activism

For now, analysts believe this kind of shareholder activism may be limited. “The difference between WCI and the rest of the industry is that WCI is significantly” leveraged, says Credit Suisse analyst Ivy Zelman.

It’s not the first demand on a home builder from a large shareholder. In October 2005, Tontine Partners sent a letter to Beazer Homes USA Inc., asking the Atlanta-based builder to expand its stock repurchases. About a month later, Beazer said it was increasing its buyback to a total of 10 million shares from two million shares.

Lenders also are beginning to take a harder line with builders as the risks in the industry increase amid the slowdown. “We are hearing that a lot of banks are paying close attention to the terms of the loan agreements and are being more aggressive than usual because the apparent risk to loans is higher than a year ago,” says Todd Vencil, an analyst at BB&T Capital Markets, based in Richmond, Va.

Comstock Homebuilding Cos., Reston, Va., said it has received a letter “purporting” to be a notice of default from Bank of America Corp. on a loan to develop a condo project in Leesburg, Va. Comstock is disputing the notice, saying it has met all repayment requirements. The dispute appears to center on the builder’s claim that it has only drawn $43 million on a loan that originally made $46 million available for Comstock to use. Bank of America declined to comment.

Large publicly traded builders, which analysts believe have relatively healthy balance sheets despite their declining revenue, aren’t immune to layoffs. Last week, Pulte Homes Inc. of Bloomfield Hills, Mich., said it has reduced its work force by about 10%, or 1,400 full-time jobs, since Jan. 1. Centex Corp., based in Dallas, said it has cut its salaried work force by about 10% since April 1 to around 6,400 employees.

Meantime, D.R. Horton Inc. said on Oct. 17 that it had eliminated three chief operating officer positions, each focused on different areas of the country. Two of the former operating chiefs have become regional presidents. The third resigned from his position with Horton, based in Fort Worth, Texas.

Rapid Growth

Also last month, privately held New Jersey builder Kara Homes Inc. filed for Chapter 11 bankruptcy protection. Industry observers suspect the company, founded in 1999, may have grown too quickly and been caught off guard by the slowdown. According to bankruptcy filings, the company has $350 million in assets and $297 million in liabilities, including millions owed to a few banks. Kara didn’t return phone calls seeking comment.

Analysts predict future quarters of shrinking profits, but believe the large public builders aren’t in immediate danger of bankruptcy because they aren’t as highly leveraged as companies in the sector were during the last market downturn. They also have been increasingly using options to secure land, allowing them to walk away from parcels they are unable to develop.

“Bankruptcies will be the extreme exception, not the rule. Generally speaking, the large public builders are well-capitalized,” says Steven Friedman, who co-heads the home-building practice at Ernst & Young. “The likelihood of a material default is highly remote.”

These troubles could also become opportunities for large builders to buy out beleaguered companies and their land holdings, leading to more consolidation in the industry. But it could take more time before larger builders have enough cash to buy up the distressed companies. “When you are in a free fall, you cannot step up and use cash,” says Credit Suisse’s Ms. Zelman. “If anything, you are trying to bring more cash in the door.”

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By James R. Hagerty and Ruth Simon

From The Wall Street Journal Online

Home buyers have a new reason to be wary in this weakening housing market: Real-estate agents increasingly have lucrative incentives to push one home over another.

Slow sales have prompted builders and some individual sellers to offer unusually generous incentives to agents whose clients buy a home. Sellers normally pay the buyer’s agent 2% to 3% of the home’s price. Now many are offering thousands of dollars or other rewards, such as travel vouchers, on top of the normal commission.

Such incentives have long been used to sell some homes. But they have proliferated and become more generous recently as a glut of properties on the market makes it harder to sell homes. “These guys are desperate,” Ivy Zelman, a Cleveland-based housing analyst at Credit Suisse Group, says of home builders.

Although there are no national data on the practice, real-estate agents and builders agree that incentives have become much more widespread in recent months, especially in areas such as Florida, Nevada, Arizona and Washington, D.C., where inventories of unsold homes have soared. Builders and sellers also are offering lots of incentives to buyers, including free kitchen upgrades, help with closing costs and even new cars.

The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can’t make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents’ influence can be particularly strong with newcomers to an area who don’t know which builders are considered most reliable and which neighborhoods most appealing.

GoldStar Homes of Texas, based in the Dallas-Fort Worth area, recently has been offering a $2,000 bonus atop the usual commission on some of its new houses. The company resorts to these extra payments “if we need to move some homes,” says Paul Garrett, project manager for GoldStar.

Las Vegas builder American West is offering agents a $15,000 bonus to sell homes in its Glen Eagles development, provided they come in with a full-price offer within 30 days. The bonus drops to $10,000 for negotiated offers and those that take longer. “The goal is to try to push them to make a full-price offer,” says Jeff Canarelli, vice president of sales at the builder. It is up to the broker to decide whether to give the bonus back to the buyer, he says.

Other builders are offering the buyer’s agent jumbo commissions of 10% or more, and some sellers of previously occupied homes are also using bonuses to draw attention from agents. One extreme example is an eight-bedroom mansion, featuring an English-style pub, on six acres of land in Potomac, Md., offered for $4.4 million. The sellers are offering a $100,000 bonus plus a commission of 2.5% to any agent who can find a buyer. If the home sells for $4 million, the commission and bonus would come to $200,000.

The bonus “has certainly piqued interest when agents realize it’s there,” says Cindy Souza, an agent representing the sellers.

It’s less clear that consumers realize what’s going on.

Bob Poirier, an agent at VIP Realty Group in Naples, Fla., who calls himself “Boston Bob,” recently earned a 7% commission for finding the buyer for a condo that was listed by the brokerage firm where he works. He says he didn’t discuss that big commission with the buyers. “That’s just something nobody ever discusses with buyers,” Mr. Poirier says.

The best defense for buyers may be to insist that agents disclose the compensation being offered on any property under serious consideration. That way, consumers could negotiate ways to share anything that goes beyond a normal pay day for the agent — or at least take the incentives into account in assessing the agent’s advice. But few consumers raise such questions. Daniel Ruben Odio-Paez, a broker in the Washington, D.C., area who operates a real-estate search site, www.tbhse.com, says he believes “most buyers have no clue how their agent is being compensated.”

The National Association of Realtors, the dominant trade group for real-estate agents, doesn’t require its members to tell buyers in advance of a purchase how much the agents will be compensated. Federal rules require bonuses and sales commissions to be disclosed on the HUD-1 settlement statement, but buyers don’t see that document until the closing or shortly before. At that point, it would be awkward to start negotiating with an agent about the compensation. The federal rules, enforced by the Department of Housing and Urban Development, or HUD, don’t require agents to disclose trips or other noncash awards.

By contrast, federal securities regulations say brokers must disclose any bonuses or special payments they might receive for recommending a particular security. The National Association of Securities Dealers bars the offering and acceptance of noncash awards that are used to promote the sale of specific products.

Stephen Cook, a spokesman for the Realtors group, says buyers won’t buy homes they don’t like or can’t afford “merely because the agent is offered a nice commission.” He adds that a bonus or larger-than-usual commission “may cause a particular house to get shown more, which is the whole idea.” Laurie Janik, the Realtors’ general counsel, adds that the group’s code of ethics requires members to show customers properties that meet their needs, regardless of the compensation offered to agents.

Some agents argue for disclosure. “Ethically, if you are representing the buyer and taking the buyer to a place where you are getting an increased commission, the right thing to do is tell them,” says Danny O’Sullivan, a senior vice president with Long & Foster Real Estate Inc. in Fairfax, Va.

Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va., says he is most disturbed by bonuses offered on the condition that the buyer pays the full asking price. He argues that such provisions should be banned because they put the interests of agents at odds with those of their customers, who want the lowest possible price.

Tom Early, the owner of Buyer’s Real Estate Brokerage in Columbus, Ohio, suggests that consumers reach an agreement with the agent before starting to look at houses, establishing how much the agent will be paid and stipulating that the agent must represent the interests of the consumer. Any bonus above that specified compensation should go to the buyer, says Mr. Early, who is also president of the National Association of Exclusive Buyer Agents, a trade group for brokers that represent only buyers. “It’s their money,” he says.

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By Kate Goodloe and Ellen Gamerman

From The Wall Street Journal Online

Muhamed “Mo” Zejcirovic doesn’t exactly need heated floors in his kitchen, dining room, living room, family room and all three bathrooms, given that he lives in Laguna Hills, Calif. But he considers the $8,000 spent on radiant heating — including a heated bathroom mirror and three heated towel racks — “100% necessary.” He’s tired, the electrician says, of shuffling across his fancy marble floors in his ratty slippers because the stone was too cold for bare feet.

Earlier this fall, Mr. Zejcirovic was talking to a contractor who had installed towel warmers in a home nearby when a light bulb went off. Why stop at towels, he thought, when he could heat the rest of the home? Now, he says, the floors are a toasty 82 degrees. One casualty of the new fixtures: his slippers. “I threw them out,” he says. “My wife’s very happy about that.”

It started with floors and towel racks. Then driveways got the hot treatment. Now, everything from windows to recliners is starting to sizzle. New shower walls that look unremarkable on the outside are hiding special plastic tubing that can ratchet up the heat — even as the hot water’s already making the room steamy. Contractors say they’re installing heated kitchen countertops to keep hands warm while cutting vegetables. There are hot mattress pads with dual controls (he can sleep at 80 degrees, while she turns up the dial to 100), heated slippers and even heated door mats (they weigh 24 pounds but melt snow on contact).

New technologies are fueling the hothouse trend. Heated windows have a transparent film that conducts electricity, warming the glass to a balmy 100 degrees so families can comfortably gaze outside together on snowy nights. “Comfort brings you closer,” read ads by Thermique, the company that makes the windows, which can be linked to the home’s heating system.

Improvements in design mean heated driveways and floors can be installed by homeowners, with just a final hookup by an electrician. Watts Radiant, a manufacturer in Springfield, Mo., that sells radiant panels at Home Depot and Lowe’s, recently produced a 20-minute how-to video for customers. It shows a couple embedding electrical wires into a floor and programming controls that regulate the system’s heat output.

Dan Chiles, vice president for marketing at Watts Radiant, estimates 30% of the people who purchase his products are do-it-yourselfers. Once someone buys a radiant floor, they’re more likely to move on to other surfaces, he says: “All of a sudden, the imagination lets go.”

A decade ago, Dan Foley, an Alexandria, Va., mechanical contractor, says he figured out he could sell more heat in bathrooms by taking the radiant systems up the wall — literally. He took the water-based tubing systems he’d been using on the floors and extended them vertically behind shower walls. Even though customers bathe in 110-degree water, Mr. Foley says temperatures of walls in extensively tiled showers can stay near 50 degrees — “uncomfortably cold.” Mr. Foley, who specializes in custom homes from $5 million to $50 million, says he installs preheated showers about five times a year. The feature “kind of puts you in a cocoon,” he says.

The new hothouse builds on the popularity of radiantly heated flooring, which had been growing steadily for more than a decade, hitting $2.8 billion in sales in 2004, according to the Radiant Panel Association, a trade group. Last year, growth started to level off, a likely result, says the group, of a slowdown in new construction, where radiant heating is most often installed. Initially, the systems were water-based, but in recent years, electric systems suited for smaller spaces began to take hold, using increasingly durable cables that can now withstand 250 to 300 degrees — enabling them to be installed in asphalt driveways, which are poured at around 250 degrees.

Some of these products are a stretch for people. Tom Silva first came upon heated kitchen countertops while renovating his own kitchen in Reading, Mass. The general contractor for the TV series “This Old House” thought they would be especially nice for dinner parties, since most people wind up congregating in the kitchen (though he admits he’s melted a few sticks of butter by leaving them out on the 62-degree counters overnight). But when Mr. Silva, who also runs a construction company, brings up heated counters with his customers, some don’t see the point: “Not everybody takes me up on it.”

While some makers promise the technology can reduce heating bills by about 30%, many are simply pitching the toastiness factor. CosySoles makes microwaveable slippers that stay warm for up to 45 minutes, promising “freedom from frozen feet forever!” Jacuzzi in January will launch a line of drawer-style towel warmers that can fit under a sink or inside a cabinet, while Toto’s latest line of heated toilet seats can hit 97 degrees with the click of a remote control.

Martinson-Nicholls, an Ohio distributor of floor products, this year began manufacturing a line of heated floor mats. In the past two months, the company says it has received $300,000 in orders for the mats, which can weigh 24 pounds and cost $199. “We think people are going to get inventive with it,” says Dan Ruminski, company president, adding that they’re ideal for placing in front of an outside grill for winter cookouts.

When Jason Nielsen hears his neighbors crank up their snowblowers at 5 a.m. this winter, he’ll turn over in bed and keep sleeping. The real-estate agent from Emigration Canyon, Utah, says he was tired of putting on three layers every time it snowed and spending two predawn hours shoveling, so he and his wife spent $40,000 to install a heating system in 2,000 square feet of his driveway. Now they’re also trying to get their bathroom and kitchen floors heated before winter hits: “We thought, ‘Might as well.’”

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By Greg Ip

From The Wall Street Journal Online

In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.

A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher’s remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.

Mr. Fisher said from 2002 to early 2003, inflation, as measured by the price index of personal consumption expenditures (PCE) excluding food and energy, was running below 1%. That suggested that a serious shock to the economy could turn inflation to deflation, or generally falling prices. Deflation makes it much harder for the Fed to boost growth by engineering deeply negative real, that is inflation-adjusted, interest rates.

To reduce the risk of deflation, the Fed lowered its target for the Fed funds rate — charged on overnight loans between banks — to 1% in June 2003 and held it there until mid-2004. It has since raised it to 5.25%.

Mr. Fisher noted that subsequent revisions show PCE inflation was actually a half a percentage point higher than originally estimated. “In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been,” Mr. Fisher said.

“In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today…the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed’s] task of achieving…sustainable noninflationary growth.”

Mr. Fisher, who took office in April last year, said in an interview that his speech wasn’t meant to be a criticism of the decisions Mr. Greenspan and the FOMC made then. He said: “I wasn’t at the table at the time — it’s easy to look at things with 20-20 hindsight. The point is we need to continue to improve our ability to develop and work with better data.”

Jan Hatzius, chief U.S. economist at Goldman Sachs, called Mr. Fisher’s remarks “pretty striking,” while noting it is Mr. Fisher’s style to be opinionated. He added that while he agrees the Fed’s policy from 2002 to 2004 fueled speculative housing-bubble activity, it was still reasonable “knowing what you knew at the time. You take out some insurance against a really bad, low-probability outcome, and after the fact you regret having paid the insurance premium.”

Mr. Fisher said inflation, at about 2.5% now, is still higher than his “comfort zone,” but it is possible it “has peaked and is finally heading lower.”

Fed governor Susan Bies echoed that sentiment in a speech to Drake University in Des Moines, Iowa, saying, “inflation appears poised to decelerate in coming months… but the risks to that outlook seem tilted toward the upside.”

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By Kristen Gerencher

From MarketWatch

http://www.realestatejournal.com/

The housing market may be in a slump, but the industry’s long-term trends look promising as younger generations begin to buy and trade up. That was the consensus among a group of consultants, analysts and developers speaking at the recent annual meeting of the Urban Land Institute in Denver.

Rising affordability concerns in some home and rental markets remain a challenge, but the generations coming up behind the baby boomers are giving home builders a run for their money, experts said. With more immigration and people living alone, demographic shifts are pressing developers to reconsider what’s worked in the past.

Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.
But that doesn’t mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now.

“Generation X is in the heart of their entry-level home-buying years and are just now entering their peak trade-up years,” Chung said. “They haven’t yet stolen the thunder of the boomers when it comes to trade-up homes. It’s a big shift coming up for home builders and developers.”

Partly because many Gen-Xers are buying into the market after the run-up in housing prices began about a decade ago, they tend not to be as moved by deluxe kitchens, huge square footage and “prestige addresses” as their older counterparts are, he said.

“It’s the trade-off generation. It’s no longer sort of the live-large mindset,” Chung said. “They’re living under different economic realities than their predecessors. They carry 70% more debt than the baby boomers did at that point in their lives because of the cost of housing…. Almost all of that is housing debt.”

Many are forgoing master suites and separate wings for kids and adults and instead seeking smaller footprints with space designed for family usage rather than individual usage, Chung said.

The market has yet to catch up with their particular demands, he said. “What we’re seeing is a fundamental mismatch between what these buyers are wanting and what the market is offering. They’re settling for what’s available vs. finding what they really want.”

As for Generation Y, also know as the echo boomers who were born after 1980, it’s premature to draw conclusions, Gadi Kaufmann, chief executive of Robert Charles Lesser and Co., a real estate advisory firm, said during a ULI panel discussion on what young consumers want.

“Gen Y is going to be in student housing and rentals for the next six years,” he said. See how student housing has changed today.

More solo dwellers

Also affecting home builders and developers is the rise of nontraditional households, Kaufmann said.

The portion of people living without a spouse or roommate ballooned 23% since 1980, he said. Only 22% of households were made up of a single person living alone 26 years ago compared with 27% in 2005.

A 57% rise in single-parent households and a 26% decline in the percentage of married couples with kids — 23% last year compared with 31% in 1980 — has further changed the housing landscape, Kaufmann said.

There’s also more migration from expensive cities to less costly areas, as well as people moving away from their hometowns, he said.

Southern states and those bordering pricey ones, such as Arizona and Nevada, are the beneficiaries of home buyers who can’t afford or become disenchanted with higher-priced areas such as California and the Northeast, he said.

So-called second- and third-tier cities with populations of 300,000 to 1 million are attractive to the youth market and poised for growth, Kaufmann told the audience. “Some of the most exciting towns in America are those second-tier cities.”

Young people also tend not to mind close living, he said. As more people live alone and wait longer to marry and start families, many in their 20s and 30s are drawn to compact apartment and condo units in urban areas where they can interact with their neighbors.

The growth of the Hispanic population also portends shifts, though what kind remains unclear, Chung said. Latinos currently have a homeownership rate in the high 40% range compared with about 72% for whites. “If they move up in homeownership at a faster rate, that’s going to be very positive for the home market.”

Love affair continues

Whether the housing market has hit a bottom or not remains controversial.

Last week, the U.S. Commerce Department reported that the nation’s economy grew at a preliminary annual rate of 1.6% from July through September, its slowest pace since early 2003 due to cooling in the housing market.

In a survey done in October by Reach Advisors, 41% of 500 consumers looking to buy a house in the last 12 months or planning to look in the next year said their plans to move were affected by market conditions, compared with 27% of consumers who said so in July 2005, Chung told ULI attendees at a panel discussion on the risks and benefits of homeownership.

The portion anticipating a drop in home prices was 32% last month compared with 13% in July of last year, meaning that two-thirds still don’t expect price drops, he said. What’s more, 93% said owning a home remains a strong or acceptable long-term investment.

Though the housing market may be in the doldrums, Chung said he’s confident Americans’ love affair with homeownership will endure even after this recent extreme swing in demand. “From 2003 to 2005 it wasn’t just a love affair with your primary home. It was a torrid affair with real estate. It was your home plus your home on the side.”

Still, a balance of owners and renters is desirable because homeownership isn’t for everyone, Ron Terwilliger, chief executive of Trammell Crow Residential, a builder and manager of multifamily housing based in Atlanta, said during the same ULI panel discussion.

“You’re better off renting unless you’re going to be in a home for at least five years because of the costs of getting in and out,” he told attendees.

“The reason this cycle went up so high and flattened so quickly is more speculative buying than I’ve seen in my 35 years in the business,” Terwilliger said. “It’s unfortunate so many people bought intending to flip.”

It will take time to regain equilibrium, he said. “There’s a lot of pain going on in the investment community.”

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By June Fletcher and Ruth Simon

From The Wall Street Journal Online

A little over a year ago, buyers couldn’t wait to sign contracts to purchase homes. Now, many can’t wait to get out of them.

With real-estate prices falling around the country and even pro-industry trade groups predicting further declines over the next year, buyers are backing away from deals in droves. At a semiannual housing forecast conference last week in Washington, D.C., economists reported that contract-cancellation rates for big builders were running around 40% — about twice as high as last year’s levels. Anecdotally, real-estate professionals say they are seeing a similar dynamic in existing-home sales.

Some of the cancellations are by people who signed new-home contracts at one price months ago, haven’t yet closed, and are now stunned to see the builder drastically cutting prices on identical properties. Some are by speculators caught short by other investments they can’t unload. And some are by people trapped in a chain reaction: They can’t sell their old home — or the buyer has canceled the contract — so they are being forced to cancel the deal on a new house they are buying somewhere else.

“There are a whole lot of people running from contracts,” says Alexandria, Va., real-estate attorney Beau Brincefield. He is currently representing more than 50 buyers who are seeking to get out of contracts on single-family homes, townhouses and condos, compared with none a year ago.

Even though it may mean losing a deposit that could run tens of thousands of dollars — deposits typically range from 1% to 5% of the purchase price — many buyers are deciding that is less onerous than the alternative. With median new-home prices already 9.7% below last year’s levels, according to the U.S. Commerce Department, bailing out now may be less painful than committing to an expensive, and possibly depreciating, investment.

It’s a far cry from the home-flipping exuberance of the past few years, when rising home values fueled a buy-and-sell mentality among millions of homeowners, and trading up became a staple of reality TV and home-improvement shows.

New-home builders are taking a big hit from record numbers of contract cancellations, or “kickouts.” Fort Worth, Texas-based D.R. Horton Inc., the nation’s biggest developer, says its cancellation rate is currently 40%, compared with 29% a year ago. Meritage Homes Corp., in Scottsdale, Ariz., is reporting a 37% kickout rate, compared with 21% a year ago. And Standard Pacific Corp. says that 50% of its contracts fell through in the third quarter of this year, compared with 18% for the same period last year. The Irvine, Calif.-based developer built 11,400 homes across the country last year. Among its current projects: Glenmeadow, a gated community in Simi Valley, Calif., where three- and four-bedroom homes range from $1.1 million to $1.3 million.

Caught Between Two Mortgages

Cancellations by buyers of existing homes are up as well. Although no formal measures exist, historically they have been in the 2% range, according to the National Association of Realtors. In September, however, nearly half of the 454 agents responding to an online NAR survey said they had recently experienced cancellation rates higher than that.

Sean Shallis, senior real-estate strategist for the Shallis Team of Re/Max Villa Realtors in Jersey City, N.J., says that roughly 22% of his sales have fallen apart before closing this year because the buyers backed out, up from 10% last year. With the market cooling, buyers have decided they can buy a similar property for less. For others, adjustable-rate mortgages have gotten more expensive, making a home purchase too costly, Mr. Shallis says. To reduce the chances of cancellation, he is advising his clients to close their deals as quickly as possible after the offer is accepted, and to put fewer contingencies in the contract. “The longer your property is under contract, the longer the buyer has to talk and think about it and watch the market change.”

Mr. Shallis himself is among the would-be buyers with cold feet. Late last year, he agreed to pay $595,000 for a new two-bedroom condominium in Jersey City for his in-laws. He pulled the plug on the deal this summer after his father-in-law’s illness scotched the planned move. “My exit strategy was if they didn’t move into it, we could sell it or rent it,” Mr. Shallis says. But that plan made less sense after the price of similar properties dropped to as low as $529,000. At the same time, higher short-term interest rates made it unlikely that he would be able to cover his mortgage payments and other costs if he found a renter. Instead, Mr. Shallis walked away from the contract and lost his $30,000 deposit.

A sinking home appraisal quashed the deal for retirees Denis and Michael Budge. The couple put their two-bedroom house in Carson City, Nev., on the market a little more than a year ago at $495,000, so they could move to another home they had already bought in Waldport, Ore. After some nail-biting months with few showings and no offers, they finally landed a buyer, who signed a contract in June for $425,000.

Rising Interest Rates

But during the escrow period, as prices in their area continued to slide, the appraisal came in — at $395,000. The Budges were still willing to sell, even at that greatly reduced price, but the buyer backed out the day before the closing. (Through his agent, he declined to comment.) The Budges pocketed the $1,000 deposit, of course, but now they are stuck with two mortgages — a hardship on their fixed incomes. “We thought we were going to relax and enjoy our retirement,” says Ms. Budge. “Not any more.”

Kickouts were high nationwide in the late ’80s, and in California and New England in the early ’90s, spurred by massive job losses. But until now there’s never been a period where cancellations have spiked in the absence of a recession, according to Amy Crews Cutts, deputy chief economist at Freddie Mac. Ms. Cutts says the current jitters are largely a result of investors fleeing the housing market in the last few months, which “slammed [it] into reverse,” and consumers’ fears that the bubble had burst. Rising interest rates earlier this year also gave buyers who hadn’t yet closed on their homes cold feet. The result: a huge backlog of unsold homes, which could further depress prices.

But mortgage rates have fallen recently, and if they stay below 6.5%, Ms. Cutts expects that buyers will regain their confidence by late spring, causing cancellations to ease up. Vienna, Va., housing economist Thomas Lawler agrees, but says builders must continue to cut their production and sell off their inventory so supply and demand can get back in balance. “Builders need to take a bullet,” he says.

Buyer’s remorse does have legal consequences, but the laws vary from state to state and depend on how the purchase contract was written. Usually, a buyer who defaults will have to give up the “good faith” or “earnest money” deposit that was made when the contract was accepted. But typically there is also some wiggle room written into contracts that allows buyers to cancel without penalty — for instance, if they can’t get financing, if the home inspection uncovers defects that the seller won’t correct, or if the seller doesn’t make certain disclosures. Just changing your mind, however, isn’t a valid excuse to cancel. A court could find that a buyer who got cold feet is in breach of contract and liable for the seller’s expenses, plus damages — or could even force the sale.

Of course, it is better not to wind up in court. To keep deals from falling apart, builders are offering everything from free vacations and cars to help with closing costs and mortgage-rate buy-downs — and they are cutting prices, too. “They’re hungry,” says Gopal Ahluwalia, director of research at the National Association of Home Builders, the organization that sponsored last week’s forecast conference.

Upgrades Required

Most of these incentives are dangled to attract new customers. But as the market has cooled and kickout rates have risen, nervous builders have also been quietly sweetening the pot for buyers they have already snagged but whose contracts haven’t yet closed — just to keep them from bailing out of the deal. Some are even offering to drop the selling price after contracts have been signed.

Two years ago, Rosemary and Paul Owen, both federal employees, signed a $350,000 contract on a three-bedroom condo in Cape Canaveral, Fla., that was yet to be built. Since they knew it would take a long time for the building to be completed — and the housing market was rapidly rising — they took their time getting their old house in West Melbourne, Fla., ready for sale. By the time they were ready to sell their three-bedroom home this January, buyers weren’t biting. Though they lowered their asking price to $359,000 from $439,000, only 18 people looked at their home over a 10-month period, and no one made an offer.

So they went to the builder in Cape Canaveral to get out of the deal and to get back the $22,000 they had paid for a deposit and upgrades. He wouldn’t allow that, but he did offer to lower the price of the condo by $21,000 to $329,000 — the amount he was asking new buyers to pay for a unit that was identical to the one the Owens had purchased two years ago. He also extended the deadline for closing until the end of November. The Owens haven’t decided whether they will walk away from their deposit if they can’t sell their old home by then. “We don’t need two places,” says Ms. Owen.

Meanwhile, builders’ willingness to lard up their incentives is putting added pressure on sellers of existing homes to do the same. Many are finding it necessary to add thousands of dollars in upgrades to compete with what builders are giving away. Jim Parker, an exclusive buyer’s agent in Atlanta, says that in the last quarter, three out of the five buyers he’s been working with have bailed out of a contract, while no one canceled during the same period a year ago. “Before, if something was not perfect, they’d buy it anyway. Now they won’t,” Mr. Parker says. Buyers are also demanding more upgrades. “They’re asking for everything, right down to the flat-screen television,” he says. “They’re comparing houses to a brand-new house, and they expect the house to be updated with new paint and carpeting.”

Since most people who are buying are also selling — seven out of 10 households already own homes — some are finding themselves of two minds when it comes to kickouts. Glenn Nudell, a shipping executive, recently got $115,000 in concessions, including help with closing costs and fix-up money, when he bought a 12-year-old five-bedroom home in Skillman, N.J., for almost $1.1 million. If the seller hadn’t agreed, he says, “I’d have backed away.” But then he had to sell his eight-year-old, four-bedroom home in Princeton, N.J. He made sure it was as polished as a builder’s model, with new wood floors and carpeting, new cabinets and even a newly finished basement — but he couldn’t sell it until he had knocked $70,000 off of his original $630,000 asking price. Is he concerned that the buyer of his house might back away from the deal before it closes next month? “Of course,” he says.

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By June Fletcher and Ruth Simon

From The Wall Street Journal Online

A little over a year ago, buyers couldn’t wait to sign contracts to purchase homes. Now, many can’t wait to get out of them.

With real-estate prices falling around the country and even pro-industry trade groups predicting further declines over the next year, buyers are backing away from deals in droves. At a semiannual housing forecast conference last week in Washington, D.C., economists reported that contract-cancellation rates for big builders were running around 40% — about twice as high as last year’s levels. Anecdotally, real-estate professionals say they are seeing a similar dynamic in existing-home sales.

Some of the cancellations are by people who signed new-home contracts at one price months ago, haven’t yet closed, and are now stunned to see the builder drastically cutting prices on identical properties. Some are by speculators caught short by other investments they can’t unload. And some are by people trapped in a chain reaction: They can’t sell their old home — or the buyer has canceled the contract — so they are being forced to cancel the deal on a new house they are buying somewhere else.

“There are a whole lot of people running from contracts,” says Alexandria, Va., real-estate attorney Beau Brincefield. He is currently representing more than 50 buyers who are seeking to get out of contracts on single-family homes, townhouses and condos, compared with none a year ago.

Even though it may mean losing a deposit that could run tens of thousands of dollars — deposits typically range from 1% to 5% of the purchase price — many buyers are deciding that is less onerous than the alternative. With median new-home prices already 9.7% below last year’s levels, according to the U.S. Commerce Department, bailing out now may be less painful than committing to an expensive, and possibly depreciating, investment.

It’s a far cry from the home-flipping exuberance of the past few years, when rising home values fueled a buy-and-sell mentality among millions of homeowners, and trading up became a staple of reality TV and home-improvement shows.

New-home builders are taking a big hit from record numbers of contract cancellations, or “kickouts.” Fort Worth, Texas-based D.R. Horton Inc., the nation’s biggest developer, says its cancellation rate is currently 40%, compared with 29% a year ago. Meritage Homes Corp., in Scottsdale, Ariz., is reporting a 37% kickout rate, compared with 21% a year ago. And Standard Pacific Corp. says that 50% of its contracts fell through in the third quarter of this year, compared with 18% for the same period last year. The Irvine, Calif.-based developer built 11,400 homes across the country last year. Among its current projects: Glenmeadow, a gated community in Simi Valley, Calif., where three- and four-bedroom homes range from $1.1 million to $1.3 million.

Caught Between Two Mortgages

Cancellations by buyers of existing homes are up as well. Although no formal measures exist, historically they have been in the 2% range, according to the National Association of Realtors. In September, however, nearly half of the 454 agents responding to an online NAR survey said they had recently experienced cancellation rates higher than that.

Sean Shallis, senior real-estate strategist for the Shallis Team of Re/Max Villa Realtors in Jersey City, N.J., says that roughly 22% of his sales have fallen apart before closing this year because the buyers backed out, up from 10% last year. With the market cooling, buyers have decided they can buy a similar property for less. For others, adjustable-rate mortgages have gotten more expensive, making a home purchase too costly, Mr. Shallis says. To reduce the chances of cancellation, he is advising his clients to close their deals as quickly as possible after the offer is accepted, and to put fewer contingencies in the contract. “The longer your property is under contract, the longer the buyer has to talk and think about it and watch the market change.”

Mr. Shallis himself is among the would-be buyers with cold feet. Late last year, he agreed to pay $595,000 for a new two-bedroom condominium in Jersey City for his in-laws. He pulled the plug on the deal this summer after his father-in-law’s illness scotched the planned move. “My exit strategy was if they didn’t move into it, we could sell it or rent it,” Mr. Shallis says. But that plan made less sense after the price of similar properties dropped to as low as $529,000. At the same time, higher short-term interest rates made it unlikely that he would be able to cover his mortgage payments and other costs if he found a renter. Instead, Mr. Shallis walked away from the contract and lost his $30,000 deposit.

A sinking home appraisal quashed the deal for retirees Denis and Michael Budge. The couple put their two-bedroom house in Carson City, Nev., on the market a little more than a year ago at $495,000, so they could move to another home they had already bought in Waldport, Ore. After some nail-biting months with few showings and no offers, they finally landed a buyer, who signed a contract in June for $425,000.

Rising Interest Rates

But during the escrow period, as prices in their area continued to slide, the appraisal came in — at $395,000. The Budges were still willing to sell, even at that greatly reduced price, but the buyer backed out the day before the closing. (Through his agent, he declined to comment.) The Budges pocketed the $1,000 deposit, of course, but now they are stuck with two mortgages — a hardship on their fixed incomes. “We thought we were going to relax and enjoy our retirement,” says Ms. Budge. “Not any more.”

Kickouts were high nationwide in the late ’80s, and in California and New England in the early ’90s, spurred by massive job losses. But until now there’s never been a period where cancellations have spiked in the absence of a recession, according to Amy Crews Cutts, deputy chief economist at Freddie Mac. Ms. Cutts says the current jitters are largely a result of investors fleeing the housing market in the last few months, which “slammed [it] into reverse,” and consumers’ fears that the bubble had burst. Rising interest rates earlier this year also gave buyers who hadn’t yet closed on their homes cold feet. The result: a huge backlog of unsold homes, which could further depress prices.

But mortgage rates have fallen recently, and if they stay below 6.5%, Ms. Cutts expects that buyers will regain their confidence by late spring, causing cancellations to ease up. Vienna, Va., housing economist Thomas Lawler agrees, but says builders must continue to cut their production and sell off their inventory so supply and demand can get back in balance. “Builders need to take a bullet,” he says.

Buyer’s remorse does have legal consequences, but the laws vary from state to state and depend on how the purchase contract was written. Usually, a buyer who defaults will have to give up the “good faith” or “earnest money” deposit that was made when the contract was accepted. But typically there is also some wiggle room written into contracts that allows buyers to cancel without penalty — for instance, if they can’t get financing, if the home inspection uncovers defects that the seller won’t correct, or if the seller doesn’t make certain disclosures. Just changing your mind, however, isn’t a valid excuse to cancel. A court could find that a buyer who got cold feet is in breach of contract and liable for the seller’s expenses, plus damages — or could even force the sale.

Of course, it is better not to wind up in court. To keep deals from falling apart, builders are offering everything from free vacations and cars to help with closing costs and mortgage-rate buy-downs — and they are cutting prices, too. “They’re hungry,” says Gopal Ahluwalia, director of research at the National Association of Home Builders, the organization that sponsored last week’s forecast conference.

Upgrades Required

Most of these incentives are dangled to attract new customers. But as the market has cooled and kickout rates have risen, nervous builders have also been quietly sweetening the pot for buyers they have already snagged but whose contracts haven’t yet closed — just to keep them from bailing out of the deal. Some are even offering to drop the selling price after contracts have been signed.

Two years ago, Rosemary and Paul Owen, both federal employees, signed a $350,000 contract on a three-bedroom condo in Cape Canaveral, Fla., that was yet to be built. Since they knew it would take a long time for the building to be completed — and the housing market was rapidly rising — they took their time getting their old house in West Melbourne, Fla., ready for sale. By the time they were ready to sell their three-bedroom home this January, buyers weren’t biting. Though they lowered their asking price to $359,000 from $439,000, only 18 people looked at their home over a 10-month period, and no one made an offer.

So they went to the builder in Cape Canaveral to get out of the deal and to get back the $22,000 they had paid for a deposit and upgrades. He wouldn’t allow that, but he did offer to lower the price of the condo by $21,000 to $329,000 — the amount he was asking new buyers to pay for a unit that was identical to the one the Owens had purchased two years ago. He also extended the deadline for closing until the end of November. The Owens haven’t decided whether they will walk away from their deposit if they can’t sell their old home by then. “We don’t need two places,” says Ms. Owen.

Meanwhile, builders’ willingness to lard up their incentives is putting added pressure on sellers of existing homes to do the same. Many are finding it necessary to add thousands of dollars in upgrades to compete with what builders are giving away. Jim Parker, an exclusive buyer’s agent in Atlanta, says that in the last quarter, three out of the five buyers he’s been working with have bailed out of a contract, while no one canceled during the same period a year ago. “Before, if something was not perfect, they’d buy it anyway. Now they won’t,” Mr. Parker says. Buyers are also demanding more upgrades. “They’re asking for everything, right down to the flat-screen television,” he says. “They’re comparing houses to a brand-new house, and they expect the house to be updated with new paint and carpeting.”

Since most people who are buying are also selling — seven out of 10 households already own homes — some are finding themselves of two minds when it comes to kickouts. Glenn Nudell, a shipping executive, recently got $115,000 in concessions, including help with closing costs and fix-up money, when he bought a 12-year-old five-bedroom home in Skillman, N.J., for almost $1.1 million. If the seller hadn’t agreed, he says, “I’d have backed away.” But then he had to sell his eight-year-old, four-bedroom home in Princeton, N.J. He made sure it was as polished as a builder’s model, with new wood floors and carpeting, new cabinets and even a newly finished basement — but he couldn’t sell it until he had knocked $70,000 off of his original $630,000 asking price. Is he concerned that the buyer of his house might back away from the deal before it closes next month? “Of course,” he says.

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By Kristen Gerencher

From MarketWatch

http://www.realestatejournal.com/

The housing market may be in a slump, but the industry’s long-term trends look promising as younger generations begin to buy and trade up. That was the consensus among a group of consultants, analysts and developers speaking at the recent annual meeting of the Urban Land Institute in Denver.

Rising affordability concerns in some home and rental markets remain a challenge, but the generations coming up behind the baby boomers are giving home builders a run for their money, experts said. With more immigration and people living alone, demographic shifts are pressing developers to reconsider what’s worked in the past.

Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.

But that doesn’t mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now.

“Generation X is in the heart of their entry-level home-buying years and are just now entering their peak trade-up years,” Chung said. “They haven’t yet stolen the thunder of the boomers when it comes to trade-up homes. It’s a big shift coming up for home builders and developers.”

Partly because many Gen-Xers are buying into the market after the run-up in housing prices began about a decade ago, they tend not to be as moved by deluxe kitchens, huge square footage and “prestige addresses” as their older counterparts are, he said.

“It’s the trade-off generation. It’s no longer sort of the live-large mindset,” Chung said. “They’re living under different economic realities than their predecessors. They carry 70% more debt than the baby boomers did at that point in their lives because of the cost of housing…. Almost all of that is housing debt.”

Many are forgoing master suites and separate wings for kids and adults and instead seeking smaller footprints with space designed for family usage rather than individual usage, Chung said.

The market has yet to catch up with their particular demands, he said. “What we’re seeing is a fundamental mismatch between what these buyers are wanting and what the market is offering. They’re settling for what’s available vs. finding what they really want.”

As for Generation Y, also know as the echo boomers who were born after 1980, it’s premature to draw conclusions, Gadi Kaufmann, chief executive of Robert Charles Lesser and Co., a real estate advisory firm, said during a ULI panel discussion on what young consumers want.

“Gen Y is going to be in student housing and rentals for the next six years,” he said. See how student housing has changed today.

More solo dwellers

Also affecting home builders and developers is the rise of nontraditional households, Kaufmann said.

The portion of people living without a spouse or roommate ballooned 23% since 1980, he said. Only 22% of households were made up of a single person living alone 26 years ago compared with 27% in 2005.

A 57% rise in single-parent households and a 26% decline in the percentage of married couples with kids — 23% last year compared with 31% in 1980 — has further changed the housing landscape, Kaufmann said.

There’s also more migration from expensive cities to less costly areas, as well as people moving away from their hometowns, he said.

Southern states and those bordering pricey ones, such as Arizona and Nevada, are the beneficiaries of home buyers who can’t afford or become disenchanted with higher-priced areas such as California and the Northeast, he said.

So-called second- and third-tier cities with populations of 300,000 to 1 million are attractive to the youth market and poised for growth, Kaufmann told the audience. “Some of the most exciting towns in America are those second-tier cities.”

Young people also tend not to mind close living, he said. As more people live alone and wait longer to marry and start families, many in their 20s and 30s are drawn to compact apartment and condo units in urban areas where they can interact with their neighbors.

The growth of the Hispanic population also portends shifts, though what kind remains unclear, Chung said. Latinos currently have a homeownership rate in the high 40% range compared with about 72% for whites. “If they move up in homeownership at a faster rate, that’s going to be very positive for the home market.”

Love affair continues

Whether the housing market has hit a bottom or not remains controversial.

Last week, the U.S. Commerce Department reported that the nation’s economy grew at a preliminary annual rate of 1.6% from July through September, its slowest pace since early 2003 due to cooling in the housing market.

In a survey done in October by Reach Advisors, 41% of 500 consumers looking to buy a house in the last 12 months or planning to look in the next year said their plans to move were affected by market conditions, compared with 27% of consumers who said so in July 2005, Chung told ULI attendees at a panel discussion on the risks and benefits of homeownership.

The portion anticipating a drop in home prices was 32% last month compared with 13% in July of last year, meaning that two-thirds still don’t expect price drops, he said. What’s more, 93% said owning a home remains a strong or acceptable long-term investment.

Though the housing market may be in the doldrums, Chung said he’s confident Americans’ love affair with homeownership will endure even after this recent extreme swing in demand. “From 2003 to 2005 it wasn’t just a love affair with your primary home. It was a torrid affair with real estate. It was your home plus your home on the side.”

Still, a balance of owners and renters is desirable because homeownership isn’t for everyone, Ron Terwilliger, chief executive of Trammell Crow Residential, a builder and manager of multifamily housing based in Atlanta, said during the same ULI panel discussion.

“You’re better off renting unless you’re going to be in a home for at least five years because of the costs of getting in and out,” he told attendees.

“The reason this cycle went up so high and flattened so quickly is more speculative buying than I’ve seen in my 35 years in the business,” Terwilliger said. “It’s unfortunate so many people bought intending to flip.”

It will take time to regain equilibrium, he said. “There’s a lot of pain going on in the investment community.”

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By Greg Ip

From The Wall Street Journal Online

In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.

A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher’s remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.

Mr. Fisher said from 2002 to early 2003, inflation, as measured by the price index of personal consumption expenditures (PCE) excluding food and energy, was running below 1%. That suggested that a serious shock to the economy could turn inflation to deflation, or generally falling prices. Deflation makes it much harder for the Fed to boost growth by engineering deeply negative real, that is inflation-adjusted, interest rates.

To reduce the risk of deflation, the Fed lowered its target for the Fed funds rate — charged on overnight loans between banks — to 1% in June 2003 and held it there until mid-2004. It has since raised it to 5.25%.

Mr. Fisher noted that subsequent revisions show PCE inflation was actually a half a percentage point higher than originally estimated. “In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been,” Mr. Fisher said.

“In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today…the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed’s] task of achieving…sustainable noninflationary growth.”

Mr. Fisher, who took office in April last year, said in an interview that his speech wasn’t meant to be a criticism of the decisions Mr. Greenspan and the FOMC made then. He said: “I wasn’t at the table at the time — it’s easy to look at things with 20-20 hindsight. The point is we need to continue to improve our ability to develop and work with better data.”

Jan Hatzius, chief U.S. economist at Goldman Sachs, called Mr. Fisher’s remarks “pretty striking,” while noting it is Mr. Fisher’s style to be opinionated. He added that while he agrees the Fed’s policy from 2002 to 2004 fueled speculative housing-bubble activity, it was still reasonable “knowing what you knew at the time. You take out some insurance against a really bad, low-probability outcome, and after the fact you regret having paid the insurance premium.”

Mr. Fisher said inflation, at about 2.5% now, is still higher than his “comfort zone,” but it is possible it “has peaked and is finally heading lower.”

Fed governor Susan Bies echoed that sentiment in a speech to Drake University in Des Moines, Iowa, saying, “inflation appears poised to decelerate in coming months… but the risks to that outlook seem tilted toward the upside.”

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By Kate Goodloe and Ellen Gamerman

From The Wall Street Journal Online

Muhamed “Mo” Zejcirovic doesn’t exactly need heated floors in his kitchen, dining room, living room, family room and all three bathrooms, given that he lives in Laguna Hills, Calif. But he considers the $8,000 spent on radiant heating — including a heated bathroom mirror and three heated towel racks — “100% necessary.” He’s tired, the electrician says, of shuffling across his fancy marble floors in his ratty slippers because the stone was too cold for bare feet.

Earlier this fall, Mr. Zejcirovic was talking to a contractor who had installed towel warmers in a home nearby when a light bulb went off. Why stop at towels, he thought, when he could heat the rest of the home? Now, he says, the floors are a toasty 82 degrees. One casualty of the new fixtures: his slippers. “I threw them out,” he says. “My wife’s very happy about that.”

It started with floors and towel racks. Then driveways got the hot treatment. Now, everything from windows to recliners is starting to sizzle. New shower walls that look unremarkable on the outside are hiding special plastic tubing that can ratchet up the heat — even as the hot water’s already making the room steamy. Contractors say they’re installing heated kitchen countertops to keep hands warm while cutting vegetables. There are hot mattress pads with dual controls (he can sleep at 80 degrees, while she turns up the dial to 100), heated slippers and even heated door mats (they weigh 24 pounds but melt snow on contact).

New technologies are fueling the hothouse trend. Heated windows have a transparent film that conducts electricity, warming the glass to a balmy 100 degrees so families can comfortably gaze outside together on snowy nights. “Comfort brings you closer,” read ads by Thermique, the company that makes the windows, which can be linked to the home’s heating system.

Improvements in design mean heated driveways and floors can be installed by homeowners, with just a final hookup by an electrician. Watts Radiant, a manufacturer in Springfield, Mo., that sells radiant panels at Home Depot and Lowe’s, recently produced a 20-minute how-to video for customers. It shows a couple embedding electrical wires into a floor and programming controls that regulate the system’s heat output.

Dan Chiles, vice president for marketing at Watts Radiant, estimates 30% of the people who purchase his products are do-it-yourselfers. Once someone buys a radiant floor, they’re more likely to move on to other surfaces, he says: “All of a sudden, the imagination lets go.”

A decade ago, Dan Foley, an Alexandria, Va., mechanical contractor, says he figured out he could sell more heat in bathrooms by taking the radiant systems up the wall — literally. He took the water-based tubing systems he’d been using on the floors and extended them vertically behind shower walls. Even though customers bathe in 110-degree water, Mr. Foley says temperatures of walls in extensively tiled showers can stay near 50 degrees — “uncomfortably cold.” Mr. Foley, who specializes in custom homes from $5 million to $50 million, says he installs preheated showers about five times a year. The feature “kind of puts you in a cocoon,” he says.

The new hothouse builds on the popularity of radiantly heated flooring, which had been growing steadily for more than a decade, hitting $2.8 billion in sales in 2004, according to the Radiant Panel Association, a trade group. Last year, growth started to level off, a likely result, says the group, of a slowdown in new construction, where radiant heating is most often installed. Initially, the systems were water-based, but in recent years, electric systems suited for smaller spaces began to take hold, using increasingly durable cables that can now withstand 250 to 300 degrees — enabling them to be installed in asphalt driveways, which are poured at around 250 degrees.

Some of these products are a stretch for people. Tom Silva first came upon heated kitchen countertops while renovating his own kitchen in Reading, Mass. The general contractor for the TV series “This Old House” thought they would be especially nice for dinner parties, since most people wind up congregating in the kitchen (though he admits he’s melted a few sticks of butter by leaving them out on the 62-degree counters overnight). But when Mr. Silva, who also runs a construction company, brings up heated counters with his customers, some don’t see the point: “Not everybody takes me up on it.”

While some makers promise the technology can reduce heating bills by about 30%, many are simply pitching the toastiness factor. CosySoles makes microwaveable slippers that stay warm for up to 45 minutes, promising “freedom from frozen feet forever!” Jacuzzi in January will launch a line of drawer-style towel warmers that can fit under a sink or inside a cabinet, while Toto’s latest line of heated toilet seats can hit 97 degrees with the click of a remote control.

Martinson-Nicholls, an Ohio distributor of floor products, this year began manufacturing a line of heated floor mats. In the past two months, the company says it has received $300,000 in orders for the mats, which can weigh 24 pounds and cost $199. “We think people are going to get inventive with it,” says Dan Ruminski, company president, adding that they’re ideal for placing in front of an outside grill for winter cookouts.

When Jason Nielsen hears his neighbors crank up their snowblowers at 5 a.m. this winter, he’ll turn over in bed and keep sleeping. The real-estate agent from Emigration Canyon, Utah, says he was tired of putting on three layers every time it snowed and spending two predawn hours shoveling, so he and his wife spent $40,000 to install a heating system in 2,000 square feet of his driveway. Now they’re also trying to get their bathroom and kitchen floors heated before winter hits: “We thought, ‘Might as well.’”

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By James R. Hagerty and Ruth Simon

From The Wall Street Journal Online

Home buyers have a new reason to be wary in this weakening housing market: Real-estate agents increasingly have lucrative incentives to push one home over another.

Slow sales have prompted builders and some individual sellers to offer unusually generous incentives to agents whose clients buy a home. Sellers normally pay the buyer’s agent 2% to 3% of the home’s price. Now many are offering thousands of dollars or other rewards, such as travel vouchers, on top of the normal commission.

Such incentives have long been used to sell some homes. But they have proliferated and become more generous recently as a glut of properties on the market makes it harder to sell homes. “These guys are desperate,” Ivy Zelman, a Cleveland-based housing analyst at Credit Suisse Group, says of home builders.

Although there are no national data on the practice, real-estate agents and builders agree that incentives have become much more widespread in recent months, especially in areas such as Florida, Nevada, Arizona and Washington, D.C., where inventories of unsold homes have soared. Builders and sellers also are offering lots of incentives to buyers, including free kitchen upgrades, help with closing costs and even new cars.

The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can’t make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents’ influence can be particularly strong with newcomers to an area who don’t know which builders are considered most reliable and which neighborhoods most appealing.

GoldStar Homes of Texas, based in the Dallas-Fort Worth area, recently has been offering a $2,000 bonus atop the usual commission on some of its new houses. The company resorts to these extra payments “if we need to move some homes,” says Paul Garrett, project manager for GoldStar.

Las Vegas builder American West is offering agents a $15,000 bonus to sell homes in its Glen Eagles development, provided they come in with a full-price offer within 30 days. The bonus drops to $10,000 for negotiated offers and those that take longer. “The goal is to try to push them to make a full-price offer,” says Jeff Canarelli, vice president of sales at the builder. It is up to the broker to decide whether to give the bonus back to the buyer, he says.

Other builders are offering the buyer’s agent jumbo commissions of 10% or more, and some sellers of previously occupied homes are also using bonuses to draw attention from agents. One extreme example is an eight-bedroom mansion, featuring an English-style pub, on six acres of land in Potomac, Md., offered for $4.4 million. The sellers are offering a $100,000 bonus plus a commission of 2.5% to any agent who can find a buyer. If the home sells for $4 million, the commission and bonus would come to $200,000.

The bonus “has certainly piqued interest when agents realize it’s there,” says Cindy Souza, an agent representing the sellers.

It’s less clear that consumers realize what’s going on.

Bob Poirier, an agent at VIP Realty Group in Naples, Fla., who calls himself “Boston Bob,” recently earned a 7% commission for finding the buyer for a condo that was listed by the brokerage firm where he works. He says he didn’t discuss that big commission with the buyers. “That’s just something nobody ever discusses with buyers,” Mr. Poirier says.

The best defense for buyers may be to insist that agents disclose the compensation being offered on any property under serious consideration. That way, consumers could negotiate ways to share anything that goes beyond a normal pay day for the agent — or at least take the incentives into account in assessing the agent’s advice. But few consumers raise such questions. Daniel Ruben Odio-Paez, a broker in the Washington, D.C., area who operates a real-estate search site, www.tbhse.com, says he believes “most buyers have no clue how their agent is being compensated.”

The National Association of Realtors, the dominant trade group for real-estate agents, doesn’t require its members to tell buyers in advance of a purchase how much the agents will be compensated. Federal rules require bonuses and sales commissions to be disclosed on the HUD-1 settlement statement, but buyers don’t see that document until the closing or shortly before. At that point, it would be awkward to start negotiating with an agent about the compensation. The federal rules, enforced by the Department of Housing and Urban Development, or HUD, don’t require agents to disclose trips or other noncash awards.

By contrast, federal securities regulations say brokers must disclose any bonuses or special payments they might receive for recommending a particular security. The National Association of Securities Dealers bars the offering and acceptance of noncash awards that are used to promote the sale of specific products.

Stephen Cook, a spokesman for the Realtors group, says buyers won’t buy homes they don’t like or can’t afford “merely because the agent is offered a nice commission.” He adds that a bonus or larger-than-usual commission “may cause a particular house to get shown more, which is the whole idea.” Laurie Janik, the Realtors’ general counsel, adds that the group’s code of ethics requires members to show customers properties that meet their needs, regardless of the compensation offered to agents.

Some agents argue for disclosure. “Ethically, if you are representing the buyer and taking the buyer to a place where you are getting an increased commission, the right thing to do is tell them,” says Danny O’Sullivan, a senior vice president with Long & Foster Real Estate Inc. in Fairfax, Va.

Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va., says he is most disturbed by bonuses offered on the condition that the buyer pays the full asking price. He argues that such provisions should be banned because they put the interests of agents at odds with those of their customers, who want the lowest possible price.

Tom Early, the owner of Buyer’s Real Estate Brokerage in Columbus, Ohio, suggests that consumers reach an agreement with the agent before starting to look at houses, establishing how much the agent will be paid and stipulating that the agent must represent the interests of the consumer. Any bonus above that specified compensation should go to the buyer, says Mr. Early, who is also president of the National Association of Exclusive Buyer Agents, a trade group for brokers that represent only buyers. “It’s their money,” he says.

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By Michael Corkery

From The Wall Street Journal Online

Most U.S. home builders are suffering declining profits and sluggish sales. But some companies are experiencing more serious hurt — including pressure from activist shareholders, increasingly nervous lenders, large layoffs and at least one sizable bankruptcy.

At WCI Communities Inc. of Bonita Springs, Fla., not only are orders for new homes expected to have dropped 80% in the third quarter from a year earlier, but one of its large shareholders is getting antsy. New York hedge fund Basswood Capital Management LLC, which owns a 5% stake, sent WCI’s chairman a letter dated Oct. 17, saying it had “grown increasingly concerned with the performance and strategy of the company.”

Basswood is frustrated that WCI, even though it has a valuable supply of land in coastal Florida, is more leveraged than many other builders. Basswood said WCI’s net debt-to-capitalization ratio was 62%, compared with an average ratio of 44.5% for its peers.

Basswood also wrote in its Oct. 17 letter that WCI stock is trading 16.5% below its March 2002 initial-public-offering price, while its peer group is up 88.9% over that same period. The stock closed yesterday at $16.12, up nine cents, in New York Stock Exchange composite trading at 4 p.m. Basswood is asking for a seat on WCI’s board, a request the firm says was previously ignored. WCI declined to comment on Basswood’s letter.

Limited Activism

For now, analysts believe this kind of shareholder activism may be limited. “The difference between WCI and the rest of the industry is that WCI is significantly” leveraged, says Credit Suisse analyst Ivy Zelman.

It’s not the first demand on a home builder from a large shareholder. In October 2005, Tontine Partners sent a letter to Beazer Homes USA Inc., asking the Atlanta-based builder to expand its stock repurchases. About a month later, Beazer said it was increasing its buyback to a total of 10 million shares from two million shares.

Lenders also are beginning to take a harder line with builders as the risks in the industry increase amid the slowdown. “We are hearing that a lot of banks are paying close attention to the terms of the loan agreements and are being more aggressive than usual because the apparent risk to loans is higher than a year ago,” says Todd Vencil, an analyst at BB&T Capital Markets, based in Richmond, Va.

Comstock Homebuilding Cos., Reston, Va., said it has received a letter “purporting” to be a notice of default from Bank of America Corp. on a loan to develop a condo project in Leesburg, Va. Comstock is disputing the notice, saying it has met all repayment requirements. The dispute appears to center on the builder’s claim that it has only drawn $43 million on a loan that originally made $46 million available for Comstock to use. Bank of America declined to comment.

Large publicly traded builders, which analysts believe have relatively healthy balance sheets despite their declining revenue, aren’t immune to layoffs. Last week, Pulte Homes Inc. of Bloomfield Hills, Mich., said it has reduced its work force by about 10%, or 1,400 full-time jobs, since Jan. 1. Centex Corp., based in Dallas, said it has cut its salaried work force by about 10% since April 1 to around 6,400 employees.

Meantime, D.R. Horton Inc. said on Oct. 17 that it had eliminated three chief operating officer positions, each focused on different areas of the country. Two of the former operating chiefs have become regional presidents. The third resigned from his position with Horton, based in Fort Worth, Texas.

Rapid Growth

Also last month, privately held New Jersey builder Kara Homes Inc. filed for Chapter 11 bankruptcy protection. Industry observers suspect the company, founded in 1999, may have grown too quickly and been caught off guard by the slowdown. According to bankruptcy filings, the company has $350 million in assets and $297 million in liabilities, including millions owed to a few banks. Kara didn’t return phone calls seeking comment.

Analysts predict future quarters of shrinking profits, but believe the large public builders aren’t in immediate danger of bankruptcy because they aren’t as highly leveraged as companies in the sector were during the last market downturn. They also have been increasingly using options to secure land, allowing them to walk away from parcels they are unable to develop.

“Bankruptcies will be the extreme exception, not the rule. Generally speaking, the large public builders are well-capitalized,” says Steven Friedman, who co-heads the home-building practice at Ernst & Young. “The likelihood of a material default is highly remote.”

These troubles could also become opportunities for large builders to buy out beleaguered companies and their land holdings, leading to more consolidation in the industry. But it could take more time before larger builders have enough cash to buy up the distressed companies. “When you are in a free fall, you cannot step up and use cash,” says Credit Suisse’s Ms. Zelman. “If anything, you are trying to bring more cash in the door.”

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By James R. Hagerty

From The Wall Street Journal Online

Moving to an area with lower housing costs often doesn’t pay off for low-income Americans, according to a study to be released today by the Center for Housing Policy, a nonprofit research group based in Washington.

The study, which looks at families with low to moderate incomes in 28 metropolitan areas, found that transportation costs in places with cheaper housing are often so high that they wipe out the savings from lower rent or mortgage payments. Such places tend to be farther from employers or short on public transportation, which makes commuting costlier.

The study found that housing and transportation costs combined eat up an average of 57% of annual income for “working” families, which the study defines as those with incomes of $20,000 to $50,000 a year. The combined costs ranged from 54% of income in Pittsburgh to 63% in San Francisco; in 25 of the 28 metro areas, the combined total was within three percentage points of the 57% average.

The findings contradict the common notion that many people would be better off financially if they moved from areas with high housing costs, such as California, to states like Texas or Georgia, where housing is much cheaper.

The median house price in San Diego, at $613,000, is four times that of Dallas. But the study found that working families in San Diego spend 59% of their income on housing and transportation, only slightly more than the 57% they spend in Dallas. Families in Dallas spent just 26% of their income on housing, compared with 31% in San Diego, but the Dallas families spent more on transport.

The study also found that moving to an inexpensive outer suburb, but continuing to work near a city center, often backfires. Typically, a move that adds more than about 12 miles to a one-way commute will result in a rise in transport costs that outweighs the savings on housing, the researchers found.

The data on housing and transport costs for working families come from the 2000 U.S. Census. Since then, both housing and transport costs have jumped, but Barbara J. Lipman, research director at the Center for Housing Policy, said the results are still valid. Housing and transport costs have grown by roughly similar amounts.

The center is an arm of the National Housing Conference, a nonprofit group that favors more spending on affordable-housing programs for low- and moderate-income people. The conference is funded by groups including the MacArthur Foundation and mortgage-finance companies Fannie Mae and Freddie Mac.

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By Michael Corkery

From The Wall Street Journal Online

Home-builder stocks are bucking a trend — one that has the rest of the housing industry in a tizzy.

The Dow Jones Wilshire U.S. Home Construction Index of home-builder stocks has increased about 15% since July 18 — even as each passing week shows the nation’s housing statistics heading down. While the index is still down for the year, that recent rise has outpaced broader market indexes and set off a debate among investors about whether the slowdown might end sooner for the home builders than many expect.

Some bulls believe builder stocks hit a bottom toward the end of July, around the time that the Federal Reserve signaled it was considering a pause in its two-year campaign of interest-rate increases. Since the housing sector is so sensitive to mortgage rates, the signal mattered to home builders. The question now is whether the Fed’s pause — and a recent drop in long-term interest rates — will be enough to bolster a sector so exposed to a housing slowdown that seems to be getting worse.

According to the National Association of Realtors, sales of existing homes were down 12.6% in August from a year earlier, and the median price of homes sold dropped 1.7% over that period — the first year-to-year price decline in 11 years. Sales of new homes were down 17.4% in August from a year ago, according to the Census Bureau.

Some stocks seem unfazed by the headlines. For instance, shares of Lennar Corp., which reported on Sept. 8 that it was reducing third-quarter earnings estimates because of the continued housing slump, have risen roughly 6% since then. In 4 p.m. trading Friday on the New York Stock Exchange, Lennar’s shares were down 52 cents to $45.12, giving the company a market value of $7.26 billion.

“If the sector stops going down with bad news, it may imply that it has found a bottom,” says John Buckingham, chief executive of Al Frank Asset Management, which has $800 million under management and whose investment newsletter, the Prudent Speculator, has recommended more builder shares in recent months. But Mr. Buckingham says his funds haven’t added to their home-building stake recently.

These are volatile stocks and bears believe the recent gains could easily be reversed as the housing market continues to slide. Banc of America Securities analyst Daniel Oppenheim last week downgraded Pulte Homes Inc. to “sell” from “neutral” and D.R. Horton, to “neutral” from “buy,” citing the recent appreciation of their stocks.

But some bulls aren’t dissuaded. Citigroup analyst Stephen Kim declared in a report last month that it is “a buyer’s market” for the stocks. Josh Spencer, an analyst who covers the home-building sector at T. Rowe Price in Baltimore, says builder stocks are too inexpensive to pass up.

Even after their rally, many builders trade slightly above their book value, which is a company’s assets minus its liabilities, and is often regarded as a rough estimate of how a business would be valued if liquidated. The big players like Pulte, Lennar, Horton and Toll Brothers also trade at less than six times earnings, based on the four most recent quarters of results.

“All historical metrics tell you [to] buy the stocks here,” says Mr. Spencer, who says his firm has increased its home-builder holdings in recent months.

Besides being cheap, the bulls argue home-builder inventories may have peaked in some markets. And the pull back in interest rates could help renew demand.

Citigroup’s Mr. Kim, whose firm has investment-banking relationships with several home builders, says the stocks could get a boost when the companies report fourth-quarter earnings because cancellations on orders for new homes could decrease and the year-over-year comparisons will be easier. By the first quarter of next year, he believes cancellation rates will be lower and order trends will be better than the first quarter of 2006.

Yet trying to time a rebound in this sector is an extraordinarily risky game, because the fundamentals of the overall market still look so weak, even to the builders. Many builders aren’t giving earnings guidance for next year because the outlook is so murky. Moreover, builders are still using incentives to lure in buyers, which eat into their profit margins. A report by Moody’s Economy.com said house prices could keep falling until 2008 or 2009 in some areas. Private-equity groups — investment pools that look for companies they can buy on the cheap, fix up and resell — have been looking at the battered sector, but are expected to hold off taking any companies private until the housing market bottoms and begins to stabilize.

“We are in uncharted waters and you just don’t know if there is reef ahead,” says Edgar Wachenheim III, chairman of Greenhaven Associates, a Purchase, N.Y., investment firm, with $3.5 billion in assets under management, who sold off his builder stocks a year ago and is staying away from the sector. “I don’t know how any reasonable person can know where the stocks are going to go.”

Another dark cloud over the sector is the threat that builders’ land holdings will lose value as land prices decline. That could mean that some land may be worth less than they paid for it. The bulls counter that the land issue is overstated because builders are increasingly using options, which allows them to walk away from land deals and minimize their losses.

Some problems may lie ahead when builders construct more houses on land they bought more recently at higher prices. As of the end of last year, 28% of land owned by home builders was negotiated in 2004 and 2005, 46% in 2003, when land prices started to take off, and 26% in earlier years, according to a report by analyst Ivy Zelman of Credit Suisse, which does business with several home builders.

Last week, Ms. Zelman downgraded Horton to “neutral” from “outperform” after estimating that 48% of its owned land is at prices negotiated in 2004 and 2005. Meantime, she upgraded MDC Holdings Inc. from “neutral” to “outperform,” citing its relatively short supply of land.

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By Michael Corkery and Janet Morrissey

From The Wall Street Journal Online

Wall Street seemed to shrug off the latest grim results from a pair of home builders yesterday, as shares in the sector rose while signs indicate that the housing slump is far from over.

D.R. Horton Inc., Fort Worth, Texas, one of the nation’s largest builders by market value, said yesterday that orders for new homes fell 25% in its fourth quarter ended Sept. 30, while M/I Homes Inc. of Columbus, Ohio, posted a 51% decline in orders in its calendar third quarter.

The two companies join an increasing number of builders posting sharp double-digit pullbacks. Last month, KB Home reported a 43% order decline in its fiscal third quarter, while Beazer Homes USA Inc. said it had a 49% drop in net sales in the two months ended Aug. 31 compared with the same period a year earlier.

“The current selling conditions in the home-building industry continue to be challenging, with higher than normal cancellation rates and increased use of sales incentives in many of our markets,” D.R. Horton Chairman Donald Horton said in a statement. D.R. Horton’s shares rose 92 cents, or 3.9%, to $24.76, while M/I Homes added 26 cents to $36.61.

In another development yesterday, Los Angeles-based KB Home said a preliminary internal review found that the company had likely incorrectly dated certain stock-option grants and that it may need to record additional compensation expenses to rectify accounting, but the exact amount hadn’t been determined. The Wall Street Journal reported in August that several past stock-option grants to KB Home Chief Executive Bruce Karatz were dated at unusually low points in the company’s stock price. Four grants to Mr. Karatz between 1998 and 2001 were propitiously timed. One was dated at the stock’s lowest closing of the year, another at a quarterly low, and the remaining two at monthly lows, the Journal found. KB Home said the Securities and Exchange Commission also is conducting a review of the company’s stock-option grants.

All of this comes as many home builders are slashing quarterly earnings estimates and declining to give guidance for next year because the outlook is so uncertain.

Yet the Dow Jones Wilshire U.S. Home Construction Index, while still down for the year, was up 2.8% yesterday. It has climbed roughly 21% since July 18; many analysts say they believe stocks in the sector hit a bottom at the end of July. Around that time, many home builders’ stocks were trading near their book value — assets minus liabilities, often seen as a rough approximation of a company’s value if liquidated. That makes the stocks enticing to investors, even though the housing market is still showing signs of weakness.

Many economists and analysts foresee a long stretch of sagging home sales ahead. But an increasing number of bulls see glimmers of improving housing fundamentals. Yesterday, J.P. Morgan analyst Michael Rehaut upgraded three stocks, writing that “key leading fundamentals are either beginning to stabilize or are on the cusp of recovering over the next few quarters.” Mr. Rehaut upgraded Horton and Standard Pacific Corp. to “overweight” from “neutral,” and upgraded Toll Brothers Inc. to neutral from underweight.

Mr. Rehaut said inventories of unsold homes in sluggish markets, such as Washington, D.C., San Diego and Sacramento, Calif., have “declined 4-5% from their peaks.” In other markets, the supply of homes on the market isn’t increasing as quickly as it had earlier in the year. This matters to home builders because in many markets, supply has outpaced demand, forcing some builders to offer generous incentives to lure buyers. Mr. Rehaut said he was changing his “cautious near-term” stance on the sector to a more “bullish posture.”

In a report earlier this week, UBS analyst Margaret Whelan said that, “anecdotally, sales among high-end buyers are firming in Arizona, Nevada and Washington,” which could help fuel a recovery of luxury builder Toll Brothers.

Shares of Toll Brothers climbed $1.48, or 5.1%, to $30.29 yesterday. Standard Pacific rose $1.25, or 4.9%, to $26.62. But JMP Securities analyst Alex Barron says the recent home-builder rally may be premature. “I just believe there’s more bad news to come that’s even worse than what we’ve seen so far,” he said.

Also yesterday, KB Home said it had delayed filing its fiscal third-quarter 10-Q report because it hadn’t completed an internal review of stock-option grants. The builder added in an SEC filing that the “unavailability of third-quarter financial statements may result in a default under the indentures governing our senior and senior subordinated notes and our credit agreements.” KB Home said in the filing that it was asking the banks for an extension to deliver the third-quarter statements. Analysts expect the extension will be granted.

In its SEC filing, KB Home stated preliminary third-quarter results, indicating net income fell 32% from a year earlier to $155 million, or $1.93 a share. KB Home shares gained 96 cents, or 2.1%, to $45.75.

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By Lingling Wei

From The Wall Street Journal Online

Homeowners in the Midwest — the nation’s industrial heartland — are starting to see a housing bust without ever experiencing a housing boom as more job losses trigger mortgage delinquencies and foreclosures.

For months, the biggest worries over the slowing housing market in the U.S. have mainly focused on parts of the country that have seen exceptional price increases from 2000 to 2005, places with growing populations and strong economies such as California, Florida and Nevada. But recent data from the federal government and private-sector researchers point to areas in the Midwest that are witnessing a more dramatic slowdown in home prices and, in some cases, higher borrower defaults than the rest of the country.

Home prices in the region have hardly budged over the past few years because of its weaker economy as compared with other regions. Michigan, for example, has lost nearly 300,000 jobs since 2000, and its jobless rate has been consistently higher than the national average.

A recent report by the Office of Federal Housing Enterprise Oversight looked at housing prices in 275 metropolitan areas across the country. Six of the seven metropolitan areas that showed housing-price declines for the 12 months ended June 30 were in Indiana and Michigan. The study also stated that housing prices in states like Indiana, Ohio and Michigan were fairly flat over the past year but actually declined in the second quarter.

The decline in price appreciation threatens to pinch Midwest homeowners in an already difficult economic position. “In a rising unemployment situation, as experienced by some Midwest states,” says Damien Weldon, director of collateral-risk analytics at First American LoanPerformance, “a lack of significant home-price appreciation can limit homeowners’ ability to tap into their home’s equity by refinancing their mortgages or taking out a home equity line of credit.”

He adds, “The safety cushion a large amount of home equity provides simply doesn’t exist for many people in that region.”

An analysis conducted by First American LoanPerformance, a research firm in San Francisco, based on the latest information available, found that the percentage of loans in foreclosure in the Midwest states of Michigan, Ohio, Illinois and Wisconsin reached 0.93% in June, while foreclosures across the country averaged 0.5% — still historically low. Michigan, hurt by job losses in the automobile industry, booked a 26.8% jump in foreclosure rates — to 0.69% in June from a year earlier, the largest year-on-year increase within the Midwest. Meanwhile, the percentage of loans delinquent for more than 90 days in the hard-hit area was 15% higher than the national average.

The risk of default and foreclosure is even greater for borrowers with weak credit scores and high debt burden. The First American LoanPerformance analysis showed that in the four Midwest states, the foreclosure rate for nonprime mortgages ran at 4.85% in June, compared with 2.49% nationally. Ohio had the highest nonprime default rate in the region at 7.29%, and the other three states averaged 3.79%.

Rising foreclosures as a result of job losses are likely to depress local markets even more. According to a residential real-estate risk-scoring system maintained by analysts at Credit Suisse, which ranks the likelihood of home-price declines within a year, the most troubled metropolitan areas are mainly in Michigan — cities including Detroit, Saginaw, Holland, Ann Arbor, Monroe and Jackson — and New England areas such as Boston. The least troubled metropolitan areas are in the Northwest.

Some cities in California are also more likely to see home-price declines because of the significant run-up in home prices during the boom, but the analysts point out that the Bay area, namely San Francisco and Oakland, is actually experiencing less risk of a price decline because of rising income growth and fewer job losses in that area. Nationwide, Credit Suisse analysts believe that barring an economic disruption, the current housing-market slowdown will become “an orderly soft landing.”

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By Greg Ip

From The Wall Street Journal Online

What started out as a pause in rate increases last month began to look more like a full halt yesterday.

The Federal Reserve left its short-term interest rate target at 5.25% for a second consecutive meeting. It also warned that it remains concerned about inflation, and thus if it changes rates soon, it is more likely to raise them than lower them.

The statement accompanying yesterday’s decision suggested that, since pausing in its two-year string of rate increases last month, the Fed has become more confident that standing pat is justified. In explaining yesterday’s decision, it cited the quickening decline in housing activity and easing inflation pressure from energy.

Investors, however, increasingly expect the Fed not just to remain on hold, but to cut rates at least once by next June and again by December 2007. Ten-year Treasury bond yields have fallen, ending yesterday at 4.73%, down from 5.25% in late June. Those expectations may not match the Fed’s, at least for now. Indeed, its statement did little to hint a rate cut would be on the table in the near term and financial markets pulled back slightly in their anticipation of one.

Stocks, meanwhile, which have been rallying because of falling oil prices and on hopes the Fed is finished raising rates and the economy escapes recession, extended their winning streak. The Dow Jones Industrial Average rose 72.28 points yesterday to 11613.19, just 110 points short of its January 2000 record.

In its statement, the Fed said growth is moderating, “partly reflecting a cooling of the housing market.” By discarding last month’s characterization of housing as “gradually cooling,” the Fed acknowledged the slide in home construction, sales and, in some regions, prices has picked up speed.

It said that while the “core” measure of inflation, which excludes food and energy, remains “elevated,” it was likely to moderate in part because of “reduced impetus from energy prices.”

Oil and gasoline prices have fallen sharply in recent months. Oil futures on the New York Mercantile Exchange fell $1.20 yesterday, or nearly 2%, to settle at $60.46 a barrel — their lowest level in six months and down 22% from the nominal high reached July 14. In theory, such a decline has mixed implications for the Fed. Lower energy prices reduce inflationary pressure, which would call for the Fed to lower rates. They also boost consumer purchasing power, which can improve growth prospects and would call for an increase in rates. The Fed statement suggests it considers the former effect as more important.

While economists differed on what the Fed’s next action is likely to be, they agreed that the small changes in its statement signaled greater comfort with leaving rates where they are, despite its stated bias toward raising rates.

“We see these wording changes (and absence of other potential changes) as a step in the direction of a neutral balance of risks,” Peter Hooper, chief economist at Deutsche Bank Securities, wrote in a note to clients. He predicted the Fed would drop its bias to higher rates either at its next meeting, on Oct. 24-25, or in December, and would cut rates by March.

The Fed’s statement conveys “more of a sense of comfort of being on hold,” agreed Bruce Kasman, head of economic research at J.P. Morgan Chase. He noted that inflation remains the Fed’s paramount concern. He also expects another rate increase by March.

Ten of the 11 voting members of the Federal Open Market Committee agreed to yesterday’s decision not the change the federal-funds rate, which is charged on overnight loans between banks. The Fed had increased that rate at 17 consecutive meetings before pausing last month. As in August, Federal Reserve Bank of Richmond President Jeffrey Lacker dissented, preferring a quarter-point increase. It was the first time in eight years an FOMC member dissented at two consecutive meetings in favor of higher rates, said David Resler of Nomura Securities. The last time, he said, the Fed’s next move was to lower rates.

The Fed remains focused on inflation risks in large part because core inflation is above the 1% to 2% “comfort zone” of many Fed officials, including Chairman Ben Bernanke. In the 12 months through August, core inflation was 2.8%, up from 2.7% in the 12 months through July. Using a lesser-known price index that the Fed prefers, core inflation was 2.4% in the 12 months through July.

Fed officials expect core inflation to move back below 2% over the next two to three years as energy prices stop boosting the prices of other goods and services and the economy cools. If that forecast doesn’t unfold, it could pose a threat to the Fed’s credibility that would require higher interest rates.

The Fed’s continuing concern about inflation seems at odds with investor expectations of rate cuts. Thomas Joseph Marta, fixed income strategist at RBC Capital Markets, says that while the Fed and his own firm’s economists are optimistic the housing slump won’t significantly hurt the rest of the economy, market participants are far more pessimistic. “I’ve heard traders say, ‘Look, the Fed’s wrong,’” he said. “Traders are reacting viscerally to housing. Housing is something you see when you’re driving home from the train station; it’s very obvious, very visible.”

Mr. Marta added, “In terms of inflation, I keep whispering in the traders’ ears, ‘Look, core [prices], hourly wages, unit labor costs, they’re all at dangerous levels.’ They don’t care.”

Still, some economists say the bond market will be proven right. Paul Ashworth, senior U.S. economist at Capital Economics of London, said if housing construction’s share of economic output falls to the same level it hit in the early 1990s, after the last housing boom, “you’ll get a substantial drag on growth.” He expects growth to slow to 1.5% next year from a projected 3.3% this year, and the Fed cutting its rate target to 3.5% by mid-2008.

Another reason for the disconnect could be anticipation of easier credit conditions globally. The U.S. bond market is increasingly linked to its foreign counterparts, and there have been signs of slowing growth in Germany, Japan and China in recent weeks.

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By Rafael Gerena-Morales

From The Wall Street Journal Online

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.

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.

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If you would like to buy a house/home we are your source of thousands of available listings of real estate. As a native Licensed New Jersey Real Estate Broker we have many agents in our realty who are very familiar with the needs of New Jersey Real Estate buyers. If you are interested in selling your house, or any other NJ real estate, we are here to help you sell. Our experience real estate office staff will walk you through the whole house selling process. Get in touch with us and we will show you how we can help your sell your home in New Jersey. We are the realtors NJ!

By Andrea Coombes

From MarketWatch

http://www.realestatejournal.com/

If you’re a home buyer, you want to pay a fair price for the house. If you’re a seller, you want to get the most you can. Both of you rely on an appraiser to get the home’s value right.

Appraisals are a key part of just about any residential real-estate deal, but the world of appraisals is not without its scandals. Phony appraisals are often a problem in mortgage-fraud cases, where a group of scammers will pose as legitimate real-estate professionals, hiking up a property’s price to turn a quick profit.

There’s also the issue of inflated appraisals, where appraisers push up a home’s value, often to appease lenders, mortgage brokers and real estate agents. That’s a potential problem for buyers who may then end up owning a home worth less than they thought.

On top of those appraisal pitfalls, a slowing housing market makes even the legitimate appraiser’s job harder. An easing market “is definitely more challenging for the appraiser,” said Alan Hummel, past president of the Appraisal Institute, a membership association which provides education and certification programs.

In part, that’s because appraisers compare sales data on neighboring houses to assess a home’s worth. “As sales have slowed down, the availability of data is less than what we had before,” Hummel said.

“A year ago I may have had 15 sales in one subdivision that I could compare to the property I’m appraising, and it was fairly easy to see where the trend is. This year it may only be three sales in that subdivision. It’s more difficult for me to analyze less data,” he said.

Another way appraisers measure value is by looking at how much it would cost to build that particular house, subtracting any physical depreciation. For those seeking an appraiser’s services in this market, make sure the appraiser understands both the comparable sales approach as well as the cost method, Hummel said.

“As the market slows down, you need to make sure you hire an experienced, educated appraiser that understands this other methodology called the cost approach,” Hummel said.

Of course, usually the lender hires the appraiser. But, whether you’re a buyer or seller, you can scan the appraisal for these red flags:

Does the stated home value seem reasonable, given what you know about the neighborhood?

“The first red flag is, does this value seem reasonable,” said Don Kelly, a spokesman for the Appraisal Institute. “If it seems high, that could be a problem.”

Still, keep the local market in mind, Hummel warned. A first-time homeowner, new to the market, is probably not used to seeing a slowing market. “To be told that the property you bought two years ago is now worth something less, obviously they look at the appraiser and say you must be nuts,” he said. Don’t forget that “real estate is a commodity that…goes through cycles.”

When the appraiser cites comparable home sales, is he focusing on nearby houses?

“The homeowner looks and says, ‘Wait. These comparable sales are six, eight, 10 miles away,” Kelly said. “You want to find out why. There might be a reason but that’s a red flag.”

Also, Hummel said, make sure the homes used in the comparison are in the same school district. If not, find out why not.

Does the appraisers’ description of the house match what you know?

Does the square footage match your estimates? “Is the room count wrong? That’s a red flag,” Kelly said. The appraisal said “this house has four bedrooms, but it’s only got three, or they say it’s got three baths and it’s only got two.”

Will the lender give you a copy of the appraisal?

You’re entitled to a copy of the appraisal. If “the lender doesn’t want to give you a copy of the appraisal, that would be a red flag,” Kelly said.

Is the appraiser licensed and/or certified?

Make sure the appraiser is holding a current license or certification, Kelly said.

What to do now

If you own a home that you think was appraised incorrectly, your next step depends on your situation, Hummel said.

First, “don’t make the assumption that the previous appraisal was bad. There may have been changes in the market,” he said. “Get a qualified appraiser [to find out] what is today’s value.”

Then, “if that first appraisal was so far off that it was fraudulent…you can complain to the lender, because they got a bad appraiser,” he said. You can also complain to the State’s appraisal agency, as well as the Better Business Bureau and the Appraisal Institute if the appraiser is a member. And, the FBI investigates mortgage fraud now.

If the appraisal was inflated slightly, and you’re planning to stay in the house another, say, five or more years, “maybe the answer is you don’t do anything about it,” Kelly said, essentially waiting for the home’s value to catch up to the appraisal.

Another possible option: Refinance. “Maybe I take my lumps here. Pay some cash, get this thing back on track. Maybe you see that you’ve got an adjustable-rate mortgage coming due next year. You say, ‘Well, we’re going to have to do some adjusting here, but maybe I can work with the lender to make up the difference or do a deal on whatever the negotiated package for financing is. Maybe you can keep your payments so you can make them and live this thing out,” Kelly said.

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ERA Othello Realty can help you buy or sell your home. 732-364-2015. We offer relocation packages for corporate accounts, government accounts or for individuals. Whether you are moving from out of state to New Jersey, or you are within NJ and are moving north, south or lateral. We are your NJ Relocation specialists and we look forward to being challenged by your needs. From finding a house to selling your house, from moving companies to utility changes, and from school assistance to job assistance we are here for you every step of the way. We are the realtors NJ!

By Janet Morrissey

From The Wall Street Journal Online

It was a tough week for the biggest U.S. home builders, as one company after another slashed earnings guidance to deal with a faster-than-expected downturn in the housing market.

Lennar Corp., based in Miami, was the latest bearer of bad news when it warned Friday that earnings in its fiscal third quarter, which ended Aug. 31, would be much lower than analysts on Wall Street were anticipating.

“The U.S. housing market has continued to deteriorate,” said Stuart Miller, Lennar’s chief executive. He blamed increased use of sales incentives and certain land adjustments for the shortfall, and cut fiscal-third-quarter guidance to a range of $1.25 to $1.35, down from Thomson Financial’s consensus estimate of $1.81.

However, Lennar fared better than many of its rivals when it came to orders. It reported only a 5% decline in orders, which is significantly better than its peers. Los Angeles-based KB Home, for example, said on Thursday that orders for new homes fell 43% in its fiscal third quarter, ended Aug. 31, and the company cut earnings guidance to a range of $1.85 to $1.95 a share, down from Thomson’s estimate of $2.31.

Beazer Homes USA Inc. said on Thursday that orders fell 49% and cancellations surged to 50% in the first two months of its fiscal fourth quarter.

As a result, the Atlanta builder reduced its 2006 earnings guidance to a range of $8 to $8.50 a share, down from previous estimates in the range of $9.25 to $9.75 a share.

Meanwhile, St. Joe Co., based in Jacksonville, Fla., announced late Thursday it planned to leave its home-building business altogether. The company said it would continue to entitle and develop its massive land holdings in Florida, but would no longer build homes. Instead, it would sell lots to home builders. The decision came after the company had seen orders fall 50% in the first quarter and 55% in the second quarter.

So, does the small order decline at Lennar mean the company is faring better financially? Not necessarily.

Raymond James analyst Rick Murray sees the small order decline as a warning sign that Lennar has been far more aggressive at offering incentives and slashing prices than its rivals. He said this will likely take a toll on Lennar’s gross profit margins, which he estimates fell 6.10 percentage points to 18.9% in the quarter from 25% a year earlier.

Morgan Stanley analyst Rob Stevenson said the difference in orders between Lennar and other builders reflect different strategies. He’d prefer to see builders be frugal about incentives — even if it means giving up sales.

“If you’re just throwing as much product out there regardless of the price, that’s a dangerous slope for these guys,” he said. That’s because once prices fall on a widespread basis, home buyers will sit on the sidelines waiting for prices to trough. This will delay sales, and make it tougher for home builders to bring pricing back up to previous levels.

Mr. Stevenson hasn’t seen any builder get overly aggressive yet, “but that is the fear at the back of your mind.”

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By Sara Schaefer Munoz and Paul Glader
From The Wall Street Journal Online

While Joe Fick and his wife Rachel Vreeman were sleeping in their rental house in Indianapolis one night in July, thieves sneaked up and made off with an estimated $100 of stolen goods. But the target wasn’t jewelry or electronics. It was the copper components of the house’s central air conditioner.

“They unscrewed the top and pulled out the guts and left the shell there,” says Mr. Fick, a campus minister.

The high price of copper is hitting home — literally. The metal’s skyrocketing scrap value is inspiring criminals to hit houses, making off with copper coils in air-conditioning units, copper wires, even the copper pipes used for plumbing, leaving some perplexed residents without running water.

In the past several months, police departments across the country have reported a surge in the number of copper-related thefts at homes, businesses and elsewhere. Police have reported everything from copper vases swiped from gravesites to more serious thefts, such as the copper wire stolen recently from a power substation in Oklahoma City that utility officials say caused a six-hour power outage for 4,000 customers.

Sometimes thieves steal less than $100 worth of the metal but cause many times more in damages. Police in Detroit, for example, are reporting thousands of dollars in repair costs for street lights that have been stripped of copper components.

Driven by increased world demand for commodities, prices of steel, copper, aluminum and other metals are at historic highs. The price of copper has more than doubled in the past year, closing yesterday at $3.65 a pound on the Comex division of the New York Mercantile Exchange. The price of copper scrap — which is processed and sold to metal-making firms — has also doubled, with high-grade scrap now fetching around $3 or more per pound at scrapyards, and lower-grade scrap less, depending on quality, according to scrap-metal dealers.

Copper isn’t the only metal sought by thieves. Products made from aluminum and steel are also being targeted — everything from beer kegs to aluminum luggage carts. But thefts of copper — which commands a higher price — are especially onerous for homeowners and builders, as the metal is used throughout modern homes, including the inner coil of central air-conditioning units, electrical systems, gutters and water pipes.

Residential air-conditioning units in particular are becoming popular with thieves. The copper insides of a condensing unit — the portion of a central-air system that sits outside — can fetch $50 to $150 at a scrapyard, while replacing an entire unit that’s been plundered can cost $2,000 or more. That’s what happened with the unit that was gutted at Mr. Fick and Ms. Vreeman’s rental home. The thieves probably “didn’t even get the market value for it,” says the house’s owner, John Beeler. “I would have preferred if they had just knocked on my door and asked for $100.”

Thieves often target units sitting unwatched at new construction sites or empty homes, but more brazen ones will strike even when residents are home. Noreen Alexander, a 62-year-old retired social worker, was in her Detroit home one hot morning this summer when she heard a strange noise out back. About 10 minutes later, her nephew noticed that the outdoor unit of her central air conditioner was gone. “I never believed anyone would steal an air conditioner that size, period,” Ms. Alexander says. “Was I mad! I was hotter than the weather.”

Police say the culprits are usually petty criminals looking for some quick money. Those who are arrested are charged with burglary or larceny, depending on the circumstances of the theft, and face fines, probation or several years in jail. People can be reimbursed through homeowner’s insurance but often must pay a deductible. “The guy who used to collect beer cans for redemption values says, ‘Why should I do that? I can get 10 times for that for a fraction of the work’ ” by stealing air conditioners, says Nathan Frankel, a scrapyard owner in Fontana, Calif.

Another target for thieves is copper piping, which often runs exposed beneath many older homes. Jared Barker, a 27-year-old corrections officer, was renovating his home in Huntington, W.Va., and left it unattended one night last month. He returned to find the kitchen tap not working. After checking below the house, he found that about a thousand dollars worth of copper pipe was gone. He was amazed that thieves would make off with the pipes in the roughly 10 hours he was away. “It takes a lot of guts to crawl underneath somebody’s house and cut their pipes out,” he says.

Police elsewhere in the country are reporting similar crimes. In Little Rock, Ark., one historic residence in the city’s downtown was hit by copper thieves three separate times. In the most recent incident, thieves removed $1,000 worth of copper pipe, leaving the resident without water, according to police reports. Criminals in the city have also posed as servicemen, removing copper plumbing and air conditioners in the middle of the day, says Lt. Terry Hastings of the Little Rock police. He says the city has seen 39 commercial and residential air-conditioner thefts since mid-August, up from almost none in the same period last year.

In response to the rash of thefts, cities are starting to crack down. Montgomery, Ala., recently passed an ordinance requiring scrapyards to report the copper they take in to the police department, and police in Detroit are making sure local scrapyards are licensed and are collecting identification information from people who sell them the metal.

Chuck Carr, a spokesman for the Institute for Scrap Recycling Industries in Washington, an association of metal-recycling companies with about 3,000 scrap-yards throughout the U.S., says his organization is bewildered by the sudden surge in theft. The organization has a scrap-theft alert system, which alerts scrap dealers by email when large lots of metal are reported stolen. The group also has a grant to launch a minor advertising campaign to educate people the public on metal theft as part of National Crime Prevention Month.

“No legitimate scrap dealer wants to intentionally take stolen material,” says Mr. Carr. “Not only is it the wrong thing to do; it’s bad for business on so many levels.”

All the activity is keeping air-conditioning contractors busy. Larry Taylor, president of AirRite Air Conditioning Co. in Fort Worth, Texas, says his company has received a service call nearly every day for the past 40 days from a home or business owner whose air conditioning has been damaged or stolen. Brenda Hawk, office manager for Camair Inc. in Orlando, Fla., says the company has gotten about four times as many telephone calls this summer compared with last year regarding stolen or gutted equipment.

One was from Krystian Zygowiec, who put his Orlando home on the market early in the summer and left for Michigan with his wife. About two weeks ago, a neighbor who was mowing the lawn noticed the air-conditioning unit on the side of the house had been reduced to just a few pieces. Because Mr. Zygowiec didn’t want to bring prospective buyers to see a non-air-conditioned house, he had to cancel several open houses. “In this troubled housing market, every day is valuable,” he says. “It was pretty much the worst time they could have stolen it.”

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Newark NJ Real Estate, Spring Lake NJ Real Estate, Marlboro NJ Real Estate, Jackson NJ Real Estate are all popular destinations.  Spring Lake NJ is the premium shore location with it’s exclusive homes for sale.  Newark NJ is a popular city location for it’s proximity to NYC and it’s large business population.  Marlboro NJ is known for it’s excellent school district, it’s exclusive homes for sale, the vicinity to NYC and it’s a beautiful area.  Jackson NJ is a very popular residential area in Central New Jersey with many different classes of homes.  If you are interested in real estate in any area of New Jersey, please let ERA Othello Realty help you. We are the realtors NJ!

By Damian Paletta

From The Wall Street Journal Online

Offering further evidence that the housing market has softened in much of the country, average U.S. home prices grew just 1.17% in the second quarter from three months earlier, the Office of Federal Housing Enterprise Oversight said Tuesday.

“These data are a strong indication that the housing market is cooling in a very significant way,” OFHEO Director James Lockhart said in a press statement. “Indeed, the deceleration appears in almost every region of the country.”
The 1.17% quarterly increase contrasted with a 3.65% quarterly increase one year ago, the sharpest slowdown since the government began releasing these statistics in 1975. The 1.17% quarterly appreciation is also the lowest quarter-to-quarter growth since the fourth quarter of 1999, when it stood at 1.12%, OFHEO said.

Overall, home prices were 10% higher in the second quarter of 2006 than they were in the second quarter of 2005. This is down from the 14% year-to-year increase reported for the year earlier period. OFHEO attributed the slowdown to rising interest rates, a drop in speculative activity, and a larger inventory of homes.

“The very high appreciation rates we’ve seen in recent years spurred increased construction,” said OFHEO chief economist Patrick Lawler in a press release. “That, coupled with slower sales, has led to higher inventories and these inventories will continue to constrain future appreciation rates.”

Recent government data had forecast a slumping market. In June, OFHEO reported that for the first time since late 2002, average home prices fell in two states during the first quarter.

While all states showed price increases over the last year, home prices fell in five states from the first quarter of 2006 to the second quarter. These states are Maine, Massachusetts, Indiana, Ohio, and Michigan.

In Massachusetts, which usually ranks among the top 10 in home price appreciation, the market has sagged so much that it now ranks 48 out of the 50 states and the District of Columbia. Thirteen of the 16 Metropolitan Statistical Areas in Michigan saw the average price of a home decrease.

The five states with the highest price growth for the second quarter of 2006 were Arizona, up 24% from the second quarter of 2005, Florida, up 21%, Idaho, up 20%, Oregon, up 19%, and Hawaii, up 18%.

The five Metropolitan Statistical Areas showing the greatest price growth since the second quarter of 2005 were Bend, Ore., up 37%, Boise City-Nampa, Idaho, up 29%, Lakeland, Fla., up 27%, Flagstaff, Ariz., up 27%, and Orlando-Kissimmee, Fla., up 26%.

The five Metropolitan Statistical Areas with the lowest appreciation over the year were Ann Arbor, Mich., where prices fell 1%, Anderson, Ind., down 1%., Kokomo, Ind., down 0.8%., Detroit-Livonia-Dearborn, Mich., down 0.6%, and Greeley, Colo., down 0.4%.

The numbers were released as part of the agency’s quarterly House Price Index, considered the best gauge of housing prices because it compares prices of the same houses sold or refinanced over time. The agency oversees the safety and soundness of mortgage giants Fannie Mae and Freddie Mac.

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ERA Othello Realty
can help you buy or sell your home.  732-364-2015.  We offer relocation
packages for corporate accounts, government accounts or for
individuals.  Whether you are moving from out of state to New Jersey, or you are within NJ and are moving north, south or lateral. We are your NJ Relocation specialists and we look forward to being challenged by your needs.  From finding a house to selling your house, from moving companies to utility changes, and from school assistance to job assistance we are here for you every step of the way. We are the realtors NJ!

By Henny Sender
From The Wall Street Journal Online

The housing market is deteriorating, but many private-equity firms and hedge funds still see real estate as a game worth playing.

They’ve taken over retailers such as Toys “R” Us, Sears Holdings and Kmart, hoping to cash in on real-estate holdings the market undervalued. And some investors are now looking to other sectors for companies sitting on potentially valuable real estate.
For some proprietary-trading desks at investment banks and hedge funds, one of the better guides to that game is a report from Citigroup’s Citigroup Global Markets that came out within the past few weeks highlighting stocks that have substantial real-estate value relative to the total value of their enterprise (meaning the market value of stock plus debt)

Many of the companies on the list are restaurant chains, including Bob Evans Farms, Denny’s and Lone Star Steakhouse & Saloon. Also high on the list, produced by Citi senior analyst Jonathan Litt, are health-care companies including Tenet Healthcare, Capital Senior Living and Genesis HealthCare.

Mr. Litt has a good track record. Of the 103 companies he singled out in a similar list last year, 14 were acquired or part of mergers. Those acquired companies generated an average return of 30.2% between the time he pointed them out and the time they were taken over. Among them was one of the biggest takeover targets ever — HCA Inc. The overall list outperformed the S&P 500, he says.

More deals from the latest list have been popping up. The last week of July, Buffets agreed to buy Ryan’s Restaurant Group, one of Mr. Litt’s top picks, for $876 million, a 49.3% premium to the closing price the previous day.

“We bought shares the day after we saw the [latest] report,” says a senior trader at the bank of a Citi competitor. In mid-August, Lone Star Funds announced it was buying the unrelated Lone Star Steakhouse, another Litt pick.

But there’s no free lunch. At the very top of his latest list is Pep Boys-Manny, Moe & Jack, a struggling car-parts dealer. Pep Boys management has tried to auction the company to private investors, but couldn’t close a deal. The list, Mr. Litt says, is only a starting point for investors.

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If you would like to buy a house/home we are your source of thousands of available listings of real estate. As
a native Licensed New Jersey Real Estate Broker we have many agents in
our realty who are very familiar with the needs of New Jersey Real
Estate buyers.  If you are interested in selling your house, or any other NJ real estate,
we are here to help you sell.  Our experience real estate office staff
will walk you through the whole house selling process. Get in touch
with us and we will show you how we can help your sell your home in New Jersey.  We are the realtors NJ!

By: Eric Yablonsky

Why pay a Realtor® a commission to sell your home? After all, more than 10f homeowners attempt to handle the sale of a home themselves, a statistic that has held pretty steady over the years regardless of market conditions. Before making a decision about whether to go it alone, it is important to have a realistic idea of what is involved in the biggest financial transaction most of us are likely to make. Why work with a Realtor®? Here are six reasons to consider:

Reason #1 - Realtors® know your market. Realtors® are in a position to know whats happening in the real estate market, not just in your state and your community, but in your neighborhood. As trained professionals who may have seen hundreds of homes similar to yours and know their features and selling prices, a professional is well qualified to set a price that can bring the maximum number of offers for your home.

Reason #2 - Realtors® sweat the details. Accurate pricing, qualifying potential buyers, positioning advertising for maximum exposure, evaluating potential offers, negotiation and closing the sale are some of the basic skills needed to successfully sell your home. Then there are environmental, government and disclosure requirements that must be followed.

Reason #3 - Realtors® know marketing. Marketing that attracts offers, not just lookers. A coordinated marketing campaign using the right combination of print advertising, direct mail and the Internet ensures your home receives maximum exposure. And an experienced Realtor® can advise you on cost-effective strategies for ensuring your home looks its best to potential buyers.

Reason #4 - Realtors® are pros at bringing buyers and sellers together. A Realtor® may already have a buyer for your home! Successful Realtors® are continually replenishing their rosters of potential buyers, as well as networking with other real estate professionals who may have the perfect buyer for your home.

Reason #5 - Realtors® reduce stress. Are you prepared to show your home in the middle of the day? Every weekend? Realtors® have the time to show your home whenever it is convenient for a potential buyer. Its their job. And they are available to respond quickly and courteously to inquiries by phone call, email and fax. Think of a Realtor® as your personal home sales assistant.

Reason # 6 - Realtors® are experienced negotiators. Realtors® can help avoid costly errors during the negotiation phase of a transaction. As experienced negotiators, they can help maintain objectivity during what can often be an emotional time for sellers and buyers. And the ability to deal successfully with any issues that crop up often calls for just the right combination of firmness and diplomacy.

Whether you are a seller or a buyer, perhaps the biggest benefit real estate professionals have to offer to you is their experience. They have made assisting buyers and sellers their business, so that you can get on with the business, and pleasure, of realizing your dream!

Eric Yablonsky is the president of ERA Othello Realty in Lakewood, NJ and a licensed real estate broker.

Please call us at 732-364-2015 and see what ERA Othello Realty can do for you and your real estate needs. We specialize in handling all aspects of real estate transactions throughout the New Jersey.  Whether you wish to buy a home or sell a home we will be there every step of the way.  From searching for your dream house, finding the home, negotiating the price, assisting with financing, inspection and at the closing ERA Othello Realty can help you buy your home. We list homes for sale in Freehold NJ, Jersey Shore real estate and many other New Jersey properties for sale. We are the realtors NJ!

By: Eric Yablonsky

Many real estate watchers can remember when buying a condominium was most would-be homeowners second choice. These properties were considered a half-way measure for people wishing to break out of renting but not quite able to obtain a house. Now, condos are not only seen as a smart step between the two stages, but are an increasingly sought-after option in their own right.

Its not just that condos are an attractive intermediate move, though this is an important recent reality of homeownership. Since 2002, condo values have been appreciating faster than those of single-family homes, making them a good start for first-time homebuyers who would like to build equity for a house purchase a few years down the road.

Condo sales are growing, too, reaching record numbers and also outpacing single-family homes in 2002. Condos are now viewed as a great middle ground for people at opposite ends of the homeowning spectrum: first-time homebuyers appreciate the still-competitive prices of condos as compared to single-family homes, and retirees like the convenience of condo living (with affordability certainly an attraction for the seniors and simplicity an appeal to busy young professionals, too).

A condo can keep benefiting its buyer even after they move (if they even ever want to): some owners keep their condo as a rental investment when they switch to another kind of home. Still, as with any living arrangement, you want to make sure the situation is right for you.

One big consideration is the ways in which a condos conveniences come with certain trade-offs. As in a conventional apartment complex, most maintenance work and many other homeowner hassles will be taken care of for you, but not without expense. All residents must join an association which requires dues and makes certain decisions in concert that homeowners would otherwise make themselves.

You will want to carefully check out what restrictions apply are pets allowed? Home offices? Can you paint and garden as you wish? Youll want to find out if the fees are within your budget, and how they might go up (for instance, to pay for any big repairs if there isnt already a responsible reserve fund). And you will want to be sure youre comfortable with the communal decision-making process in general.

You also owe it to yourself to make sure that any current boom has reached the condo complex youre interested in, with a good sales history and a promising future and to figure out your financing prospects. Lenders give lower rates to buyers in developments with fewer renters and more owner-occupants (absentee ownership can affect both quality of life and property value).

These last two points are certainly ones in which the expertise of your local real estate professional can come in handy (and with its ERA Mortgage brand, ERA Othello Realty, is one company that has them both covered). With the right research, a condo can become not a compromise you can live with, but the place where youd most like to live.

Author: Eric Yablonsky is the president of ERA Othello Realty in Lakewood, NJ and a licensed real estate broker.

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they can handle all your real estate buying and selling needs.  For
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October 2005:
The Marlboro schools (K-8) enrolled 92 more students this year in K-8 than last. Net migration into the schools was 342 (246 into grade one, 72% of intake), but K/8 replacement was an offset of -250. (The entering K of 426 is 250 smaller than last year’s graduating grade 8 of 676.) SE/POP also grew, by 53.

The district has grown 611 (K-8) in the past five years, while 1,232 new housing units were permitted and over 2,256 existing homes sold (2002-2005). SE/POP increased 83 with the opening of MELC. The state Dept of Health’s Center for Health Statistics, in a December 2005 report on births, advised NJ births fell 5.1% between 1990 and 2003.

October 2004:
The district has grown 1,732 over last decade, 1994-2004 (+41.9%).
Growth this year over last was 57, the net of:

Grade 1 walk-in of 207;
Entering K 296 smaller than last year’s graduating gr. 8 (428-724);
Net other migration (gr. 2-8) of 170;
SE/POP decrease of 24
= 170 + 207 = 377 - 296 = +81 - 24 = 57

District enrolled 5,941 in Oct 2003, has 5,998 students this fall.

March 27, 2004
Enrollment projections

Until 2000 NJ school districts were permitted to use either percent-of-population or standard cohort projections in their long range plans (New Jersey Administrative Code 6:22-4.1). After the Educational Funding Construction law was passed in July 2000 (PL 2000, ch. 72), educational facilities code was rewritten and percent-of-population was dropped as an enrollment projector. Under NJAC 6A:26 NJ districts use cohort projections for enrollment estimates. The NJ Dept of Education worksheet, required with referendum filings since 2000, is online Under code, projections are to be no more than one-year old, ie, in 2003 should be based on the 2002 or 2003 school year opening (October) enrollment figures.

Projections are updated every fall, to incorporate the latest year of community change (housing sales, starts and net migration) in estimates of upcoming enrollments. A projection is for five years forward, as the children born in the latest calendar year are the Kindergarten class five years from now (born in 2003 will generally enroll in K in 2008).
Projections done for Marlboro in 1999 did not include planning, then, for the MELC and a quadrupling of the POP enrollment.

Property of the Marlboro Township Board of Education

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By Emily Meehan

From The Wall Street Journal Online

Wish you were more grounded? Here’s a solution: Buy a house.

For people in their 20s, owning real estate is a way to take on more responsibility, get a sense of stability in at least one area of life and maybe even build up some equity, too. But it involves a heavy commitment — to a mortgage, to a place, to holding a steady job — all of which can limit lifestyle and career choices. What about that six-month trip around the world, going back to school or joining the Peace Corps? Once a deed is signed, it may not be that easy to skip town on a month’s notice.

Jamie Schab, a 26-year-old interior design assistant, bought a townhouse in Sunnyvale, Calif., with her fiancé last May. Together they saved $120,000 for a down payment on the new $592,000 property. “It’s made me more responsible,” she says, “and I feel equal to my co-workers now because I’m not just renting and doing whatever … I have to go home, clean, cook, and make sure the house doesn’t fall apart.” Ms. Schab feels comfortable with the commitment and has been budgeting for emergency repairs, property taxes and homeowners insurance. She doesn’t plan on changing jobs but says if she does switch to a less lucrative career, her fiancé’s income from his job as an office engineer for a contracting company would make up the difference. She thinks it helps that the property is new so bursting pipes and leaky roofs aren’t likely for quite a while.

People in their 20s are more inclined to buy real estate now than they were 20 years ago, according to annual statistics from the U.S. Census bureau. In 2005, almost 26% of household heads under 25 years old owned their home, up from 17% in 1985. Homeownership rates for 25 to 29 year olds also increased over the past two decades, though not as sharply.

But don’t we have a propensity to change jobs and cities in our twenties? How about college and graduate school? Military deployments? In this phase, it may be hard to count on an income beyond the most immediate job, which could change. Is it worth taking the risk of committing to a mortgage payment budgeted around unpredictable conditions?

“I wouldn’t have done it any other way,” says Jaya Manske, 23. Ms. Manske, a school teacher, bought her first home in Albuquerque, N.M., her first year out of college for $130,000. She was recently laid off and took a lower-paying job at a private school. “I couldn’t move out of state — even though the prospects in any other state would have been much better — because I owned a home here,” she says.

Ms. Manske talked with her boyfriend, whom she lives with, about the possibility of moving out of state and renting the property. “It seemed daunting and expensive,” she says. Her parents had loaned her the $5,000 down payment for the house, and she was making just enough to cover the mortgage and expenses at her former job. Now she’s getting a little help from her boyfriend. If the roof leaks, she says she might have to put the repair cost on her credit card.

The house is in her name and she says she’d prefer to be self-sufficient. “Certain things need to get pared down a bit … going out to eat, going on vacation or camping for the weekend. There isn’t really room for anything like that right now,” she says. “It’s much more dedicated to bills and only bills.”

But in her view the economic benefits of building equity trump these concerns. “Each time I pay my own mortgage, I feel like I’m paying myself back for later on rather than paying into someone else’s — a landlord’s — business,” she says.

For others, financial equity and flexibility are mutually exclusive.

Josh Brehm, 29, just bought a duplex in Wausau, Wisc., for $73,000 with his girlfriend. “When I was 23 or 24, I would have loved to buy a place,” he says, “but my whole bag was ‘What if I’m not here next year? What if I have to move … do this, do that?’ I’ve traveled quite a bit over the years … that’s one of the reasons I put this off for so long.”

Mr. Brehm saved money through his twenties working in a management position and now works as a part-time supervisor at UPS and attends college. He says the income capacity of his duplex gives him and his partner the flexibility to move and rent out the whole building, perhaps leaving friends or family members to look after it. For now, they live downstairs and rent out the upstairs unit, which generates enough income to cover monthly payments on the mortgage.

But becoming a landlord is a big responsibility and it’s not always easy to secure tenants. If moving is a likely possibility, the cost of hiring a property-management company should be factored in before making a purchase. And if renting out a house is out of the question, young people should consider how long they’d be willing to wait before getting a good offer to sell.

Phyllis Attebury, a real estate broker who lives in Carmel Valley, Calif., and works with clients on the San Francisco peninsula, says the market is slowing down a little and that buyers should be prepared to keep a house for at least five years to weather market downturns. “In the long haul, real estate has been a saving grace for many. But for a single person who’s here, there, and everywhere they should probably just think about renting for a couple of years,” she says.

Michael Esquivel, 23, a budget analyst who lives in New City, N.Y., is considering buying a house with two of his oldest friends. “But we’re young, and any of us could change jobs easily or move out and the other two would be stuck paying the mortgage, which would be horrible,” he says. On his own, Mr. Esquivel says he could only afford a shack and would prefer to live at his parent’s house and save money to buy a nice house later on.

I’m a renter myself, and I often wonder if owning a home that I could paint orange and cerulean and landscape with agave cacti and olive trees would instill such a serene sense of propriety that I’d be willing to give up being footloose and cosmopolitan. Or maybe I’d be better off renting indefinitely, and spending any extra money on dinners out and trips to Oaxaca and Paris.

It’s a tough call between empire and freedom.

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By Jim Carlton

From The Wall Street Journal Online

Weyerhaeuser Co.’s home-building unit said it is pulling back from the housing market in several parts of the country, in the latest sign of how corporations are shifting strategies to respond to the national housing slowdown.

Weyerhaeuser made the announcement in a conference call with analysts yesterday, when the forest-products titan released its second-quarter earnings. While profit for the Federal Way, Wash., company declined 25% from the same quarter a year earlier, amid a fall in lumber prices and other factors, it was substantially higher than analysts predicted because of strengthening paper prices.

But company officials sounded a cautionary note on one important growth area: its expansion during the past few years into home building. Now accounting for almost 15% of the company’s total revenue, the Weyerhaeuser Real Estate Co. unit ranks as a major U.S. home builder, with brands that include Pardee Homes, Winchester Homes, Trendmaker Homes, Quadrant Homes and Maracay Homes.

Officials of the unit said that their home-building activity remained strong in the second quarter in the Houston and Seattle markets, but that new-home sales have slowed in the once sizzling markets of Southern California, Las Vegas, Phoenix and suburban Washington, D.C. As a result, Weyerhaeuser’s overall cancellation rate for new homes in the second quarter shot up to 26% from 12% at the same time a year earlier, pushing its total homes completed but unsold to 176 at the end of June from 109 at the same time last year, Dan Fulton, chief executive of the unit, told analysts.

Mr. Fulton said Weyerhaeuser is reacting to the slowdown by limiting its housing starts and deferring land-purchase commitments, where it can. He added that Weyerhaeuser remains confident in the long-term prospects for housing and will stay positioned “to take advantage of buying opportunities in support of our long-term vision for business expansion.”

For the second quarter, Weyerhaeuser reported net income of $314 million, or $1.26 a share, on revenue of $5.69 billion, compared with a year-earlier profit of $420 million, or $1.71 a share, on revenue of $5.71 billion. Both quarters included various charges and gains.

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By: Eric Yablonsky

Of the many concerns to weigh when buying a new house, a major one is whether to buy a new one in name only: both state-of-the-art properties and distinguished older homes have their attractions and possible drawbacks.

In making this decision, its important to literally leave your preconceptions at the door of any home youre considering. Quality construction can appear in any era, and you just have to be knowledgeable about the strengths and problems to look for in each individual house.

Surely newer homes assure a certain measure of structural integrity, energy-efficient features, and safer electrical wiring and heating systems. They can have less wear and tear, more modern conveniences built in, an aesthetic more suited to todays tastes, and often better handicap accessibility.

On the other hand, older homes can have a proven history of safety and stability, styles appealing to those looking for more old-fashioned elegance and charm, and a track record of repairs that leaves no surprises.

There are some pros and cons in which old and new houses are evenly matched. Newer homes, as part of newer economic growth, can be found in more promising areas just setting out on a boom of development (and thus presenting substantial investment advantages), while older homes can be found in more established, comfortable, and picturesque locations which have their own premium value to many types of subsequent buyers. Older homes can come with the headaches of aging structures and systems, while newer ones can be hastily made, with their own set of consequences. Old homes can harbor the health concerns of obsolete materials (like lead paint and asbestos), while new homes can include ones more recently recognized (like arsenic in outdoor wood and formaldehyde in carpets).

But either can still be your dream home, and this overriding point is tied more to the intangible interests that lead you to shop for homes in the first place than it is to scientific specifics. For any house youll want to get a professional inspection done, but in the end you have to follow your heart.

Old homes and new ones have upsides and downsides of equal weight, so tip the balance with your own preferences and abilities personal taste, financial resources, handy-person skills, available time and long-term goals. Which is the winner of Old vs. New? If you decide carefully, either one can be the winning choice for you.

Author: Eric Yablonsky is the president of ERA Othello Realty in Lakewood, NJ and a licensed real estate broker.

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By: Eric Yablonsky

Energy costs are on everyones mind, and alternatives are a hot property though many homebuyers arent sure how to find and evaluate them. There are a number of technologies to choose from which can help make your next house the home of the future.

Alternative energy gives new meaning to the real estate mantra of location, location, location what works in sunny California may be different from what works on the windy plains. But just as there are many styles of homes for buyers diverse tastes, there are varied options in energy systems with more than one sometimes working hand-in-hand for the same house.

Wind power an ancient energy source now seen in high-tech windmill farms with tall propeller-like turbines has come down in the cost for generating electricity by over 80 percent since 1981. Geothermal energy home heating powered by underground steam warmed up by the temperature of the earth itself is a source getting more attention in the American West.

Relocating homeowners can choose to move to areas where wind generation is lowering electricity costs, while geothermal energy has applications for both large-scale power plants and individual homes. There has also been progress in residential settings with fuel cells, power systems that convert natural gas fuel to electricity through a chemical reaction with hydrogen, producing just water as a byproduct.

Perhaps the most familiar and popular source of renewable alternative energy remains the sun itself. Photovoltaic (PV) systems, which convert sunlight to electricity, have shown great energy-bill savings and homeowner satisfaction. These systems, which have been likened to a car that makes its own gas, are now available in the form of roof tiles that can integrate attractively with regular roofing.

Households that use roof tiles have found some 80 percent of their electricity needs supplied by them The homes can remain on the conventional power grid for the rest; at sunnier times when the home produces more energy than it can use, it goes back into the grid and credits the homeowners account, literally turning back their electric meter. Across the country rebates from utility companies and tax credits from government are available for such setups. Its a way of contributing not only to the global community by using up less nonrenewable energy, but also to your own neighbors by freeing up conventional power.

Solar tiles are growing in popularity with home-development builders, and are seen as paying for themselves in savings and simplicity of maintenance. The savings increase considerably in combination with energy-efficient appliances. For example, in Sylmar, Californias Village Green complex, this mix is a standard feature and the average resident has been shown to pay one-tenth in monthly utility bills what other town residents pay.

Your local real estate professional can help advise you on what energy alternatives are most available and may work best in your area. A little shopping around may shed light on options that make yesterdays technological dreams todays homeowner dream-come-true.

Author: Eric Yablonsky is the president of ERA Othello Realty in Lakewood, NJ and a licensed real estate broker.

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By Lew Sichelman
From Marketwatch

Question: I recently sold a home for $89,000. The bank’s representative falsified the contract to show a sales price of $100,000, then financed $85,000 with the remaining $15,000 in a promissory note that I am to carry. The note has been filed with the county clerk, but I am not carrying the third lien on this property. It was all falsified. Where do I go to report this company? I am in Texas. Kathy.

Answer: Sounds like you’re caught up in a classic mortgage swindle in which the value of the property, backed by a faulty appraisal, is inflated beyond what the seller is asking. Then the buyer pockets the difference between what you are actually paid and the fake sales price. In most cases like this, the supposed buyer never even makes the mortgage payment and the lender loses the entire $100,000.

With all the focus that’s being put on mortgage fraud these days, the bank should have had systems in place to spot this kind of scam and stop it before it hands anyone any money. Consequently, it’s hard to feel sorry for the lender. Nevertheless, you should report the situation to someone in the bank’s quality-control section. If that doesn’t work, find out if the bank has a fraud department. And if you have no luck there, write a letter directly to the president or chairman of the board.

Also report the incident to your state and local authorities. That would be the police locally and lending industry regulators at the state level.

Question: Here’s a question about a family member stealing practically an entire inheritance from other family members. Uncle Steve left his estate to nine members of his and his deceased wife’s families. However, a sneaky niece stepped in and told the family members that Uncle Steve meant for the 200-plus-acre farm to be left to her alone. He had already left a tidy sum of stock for her ($600,000). She was the executor of the will and convinced the lawyer that Uncle Steve told her it was to be this way. Then she went to the family members, including her own children and their wives, and got releases from all of them at no cost, except for a cousin, who she paid $15,000 for her share. The niece has now closed my uncle’s estate after charging obscene amounts for acting as executor, among other roles, leaving the estate pretty bare bones. But she ended up with $1.7 million for her work. Now the other eight heirs want to know what happened and what can be done. Linda.

Answer: Not knowing all the details here, I can only speculate that the crafty niece seems to have snookered the lot of you. Wills, like rules, are made to be broken, and from your telling of the story, anyway, that seems to be what happened. I’d sit down with a seasoned estate attorney and discuss your options.

Sorry, I know that’s a pretty standard nonresponse, but I really can’t add any more than that. You have a complicated legal issue here and I’m not an attorney.

Feedback

Several folks have written to say that I missed another option in my response about the intricacies of gifting money to someone who wants to buy a lot, in this case, the reader’s son.

I said up to $12,000 a year can be given as a gift without incurring any gift taxes. But I failed to mention that if both parent and son are married, each parent can gift $12,000 each to the son and his wife for a total of $48,000 — “instantly,” in the words of Clint Logan, “without gift taxes.”

Also, Gary Mason correctly point out that only cash transactions of $10,000 or more are reported to the Internal Revenue Service by financial institutions, not checks, as I also said. In some cases, says Mason, who has been a banker and an attorney, even cash amounts of less than $10,000 are reported to Uncle Sam.

More feedback

Jay Jewson, a broker in Wabasha, Minn., says I’m way behind the times with my suggestion to put up only a few hundred dollars of earnest money. “A few hundred dollars of earnest money won’t get a house bought in most of the country,” he wrote.

In Jewson’s opinion, deposits should be a minimum of $500 on sales up to $100,000; $1,000 with contracts between $100,00 and $200,000, and five or ten grand on offers above $200,000. “Earnest money makes purchase agreements binding and legal,” he said. “It also shows the seriousness of the offer.”

Still more feedback

Also, several readers wrote to say my suggestion to walk away from your deposit money if something is amiss at the settlement table was bad advice, plain and simple.

“Pull that in a high-priced area like California and you would lose a lot,” said Rg Lutz, managing director of a real estate investment firm in Redondo Beach near Los Angeles. Instead of leaving his money behind, Lutz suggests that as a less expensive alternative, switch to a loan with no prepayment penalty and refinance right away.

“Think twice about simply saying real estate would be better if people walked away,” he also chastised. “Real estate would be better if people did due diligence” by making sure they receive a Good Faith Estimate within three days of applying for a mortgage, then comparing that to the loan documents and threaten to sue if the items that don’t match up aren’t corrected on the spot.

Lutz also said true novices would be well served by hiring a real estate lawyer to look over the loan documents and disclosures to ensure correctness and clarity.
http://www.realestatejournal.com/

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By Michael Corkery
From The Wall Street Journal Online

Nearly 10 months after Hurricane Katrina, KB Home is the first large publicly traded home builder to start construction in New Orleans.

After a ceremonial start today on seven homes, the company plans to build hundreds of houses in greater New Orleans in the next couple of years despite an uncertain profit outlook, a shortage of building supplies and other obstacles.

City officials welcome the homes, priced between an estimated $140,000 and $450,000, but they say New Orleans still needs more affordable housing.

The first houses are being built on relatively high ground, on the edge of downtown, which was spared major flooding. The company, based in Los Angeles, says it has also received approval from local planning officials to build homes on roughly 776 lots on undeveloped land in Jefferson Parish, in an area southwest of Orleans Parish. KB is teaming with Shaw Group, an engineering and construction company based in Baton Rouge, La., in a joint venture to build the homes.

“I am thrilled with the progress we’ve made,” says KB Home Chief Executive Bruce Karatz. “Whether we look back a year from now and say if this is a good business is something we will have to judge a year from now.”

There’s little doubt that New Orleans needs new housing badly, but many issues are unresolved. Ivan Miestchovich, director of the Real Estate Market Data Center at the University of New Orleans, says the local housing market is going to start to “turn some corners” in the coming months.

He says the end of the school year could prompt families with one spouse living in New Orleans and the other spouse in another city to decide whether to relocate or remain in the Crescent City.

Another wave of activity could come after the end of the summer, when the state says it will start cutting checks to cover uninsured damages borne by New Orleans residents. That money could motivate residents to rebuild locally, or take the funds to another city.

So far, Mr. Miestchovich says, one of the hottest markets is on the north side of Lake Pontchartrain, in St. Tammany Parish, where $150,000 to $200,000 houses — built mostly by small local builders — are selling briskly. Some new homes, priced for less than $100,000, “are selling before the first nail is hammered,” Mr. Miestchovich says.

New Orleans City Council President Oliver Thomas Jr. says the biggest need is for homes priced between $90,000 and $150,000. “When you get above that, it’s hard to service people who live in this city,” he says.

The KB development within the Orleans Parish limits will total about 73 homes — including 15 designated affordable units, to be priced as low as $140,000.

Other large home builders haven’t rushed into the New Orleans market for several reasons. Even before Katrina, the market never offered the kind of sales volume that many large builders desire. The hurricane created other obstacles, such as high home-insurance costs and difficulty finding qualified workers and supplies.

To compensate for the labor and material shortages, Steve Davis, KB’s Gulf Coast region president, says KB has built several roof trusses in Mississippi for shipment to New Orleans.

Mr. Karatz says part of KB’s motivation is to help New Orleans recover, but adds, “We are structuring it as a business and for it to stand on its own feet.”

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By Alex Frangos
From The Wall Street Journal Online

The World Trade Center Memorial faces simplification of its design, including moving carved-in-stone names of Sept. 11 victims to ground level, possibly eliminating or scaling back waterfalls and reducing the size of a museum.

Those were among the recommendations made yesterday to New York Gov. George Pataki and New York Mayor Michael Bloomberg in a closed-door meeting, according to people close to the situation. A formal report on the redesign will be released next week. Real-estate developer Frank Sciame presented the plans after Gov. Pataki asked him last month to create a budget that would bring the bulk of the project’s cost to $500 million. A construction estimate in May put the total cost of the memorial, including infrastructure and other elements, at $1 billion.

Mr. Sciame also recommended — and Gov. Pataki agreed — that the Port Authority of New York and New Jersey, which owns the site, build the memorial. That task lies with the World Trade Center Memorial Foundation, a publicly chartered, privately run group that also is in charge of fund raising.

The original memorial design by architect Michael Arad called for two square openings that covered the footprints of the Twin Towers. Waterfalls would fall from the edge of the openings into underground chambers, where victims’ names would be etched in granite. Mr. Arad couldn’t be reached for comment.

People who have been briefed on Mr. Sciame’s report say it simplifies the project by doing away with separate entrances for the memorial, an adjacent museum and a visitor center. The museum would be reduced in size, but still would be underground. There would be a much smaller amount of space underground dedicated to the memorial. The waterfalls could be eliminated or greatly reduced. Scale mock-ups of the waterfalls showed they would be difficult to operate in the wind and cold.

People familiar with the project said Gov. Pataki favored Mr. Sciame’s recommendation to bring the etched victims’ names to ground level — an idea preferred by several groups representing family members of victims killed in the 2001 attacks. Placing the names underground — and providing space where visitors could reflect on the attacks — was a centerpiece of Mr. Arad’s vision.

Moving the names would eliminate the need for large underground chambers and would fundamentally change the visitors’ experience. Instead of descending into the underground chambers, visitors would look at the names amid an open-air, tree-lined park. Nine million people are expected to visit the memorial the year after its planned opening, which, despite the redesign, is scheduled for Sept. 11, 2009.

Visitor access to the underground slurry wall, which protects the site from the nearby Hudson River and survived the collapse of the Twin Towers, would be limited to a smaller area than before.

Before the Port Authority of New York and New Jersey could take responsibility for building the memorial, the transportation agency — controlled by the two states’ governors — would have to agree to take on the cost of underground infrastructure shared by the memorial and a neighboring rail station, shopping mall and office buildings. The May report estimated the cost of infrastructure — including ramps, air-conditioning plants and sidewalks — at $300 million. Mr. Sciame’s analysis put the cost between $150 million and $200 million, according to those familiar with his report.

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If you would like to buy a house/home we are your source of thousands of available listings of real estate. As a native Licensed New Jersey Real Estate Broker we have many agents in our realty who are very familiar with the needs of New Jersey Real Estate buyers. If you are interested in selling your house, or any other NJ real estate, we are here to help you sell. Our experience real estate office staff will walk you through the whole house selling process. Get in touch with us and we will show you how we can help your sell your home in New Jersey.

By Christina S.N. Lewis
From The Wall Street Journal Online

After years of focusing on marble countertops and stainless steel, designers and manufacturers are pressing a new look: the jumbled kitchen.

An estimated six million Americans will renovate their kitchens this year, according to the National Kitchen & Bath Association. To try to win some of that business, the industry is toying with new designs, from ultra-minimalist “hidden” kitchens to colorful themes. But another strategy that’s getting more attention lately combines multiple materials, styles and dimensions — like three kinds of countertop stone, or cabinets in glass, metal and wood.

A similar aesthetic emerged in other parts of the house 20 years ago, when homeowners traded bedroom and living-room sets for stand-alone pieces. Now, many companies are promoting the idea for the kitchen. The Los Angeles showroom for minimalist design company Boffi just installed an L-shaped island in oak and stainless steel, with Corian cabinets and melamine drawers. German kitchen manufacturer SieMatic recently introduced a new collection of wood cabinetry, designed by Chicago-based Mick De Giulio, that is built to work with multiple thicknesses of countertops and varying accent materials like stainless steel and stone. Wm Ohs, a Denver cabinetry company with 28 showrooms nationwide, added stainless-steel and glass-accent doors for the first time in April — a departure from its traditional all-wood look.

Nickel and Limestone

When Lori Naccarato’s designer proposed the idea, she wasn’t convinced. “I’m the kind of person who needs everything to match,” she says. But after seeing all of the components in a showroom, she agreed. Her new $150,000 kitchen has five different materials incorporated into the counters — including French limestone near the oven, a handmade nickel sheet in the pantry and red granite on the island — two sinks made out of stone and stainless steel, and a Turkish travertine floor in two patterns, herringbone and puzzle. Ms. Naccarato, a 34-year-old homemaker in Hinsdale, Ill., calls it “more homey” than the all-white kitchen in her old house.

“At one point, everything had to be perfectly matched,” says Ed Pell, market-research manager for the National Kitchen & Bath Association in Hackettstown, N.J. “Now people want diversity. They like to see things broken up.”

The campaign is making some headway. Two years ago, Wilsonart in Temple, Texas, launched a marketing campaign stating that “mixing materials is the new black.” Annual sales of its collection of colorful mix-and-match laminates, which are used in counters and backsplashes and promoted for their compatibility with other materials, were up 30% last year, compared to 3% for the company’s laminates overall. At DuPont, the Wilmington, Del., maker of countertop materials like Corian and Zodiaq, 10% of customers are combining two different surfaces in the kitchen, up from practically zero seven years ago.

“People are still asking for stainless, but they’re asking for less of it,” says Robert Schwartz, owner of design firm St. Charles of New York. The company has specialized in stainless-steel kitchens, but one recent display, built for last month’s Kips Bay Decorator Show House in New York, included a red porcelain island, brass ceiling, white compressed-glass countertops, crystal hardware, mosaic floor and cabinets in walnut and stainless steel.

Designers have experimented with mixing over the past decade for mostly functional reasons, by inlaying a cutting board directly into the counter or adding a few glass cabinet doors that would let homeowners show off their plates. They’re building on the idea as kitchens become more of a place for entertaining and living — and as they look for ways to differentiate their products from off-the-shelf kitchens sold at companies like Ikea.

The pitch comes as sales have slowed for the estimated $80 billion kitchen-remodeling industry, and as some trends show signs of aging. The number of home-kitchen renovations fell 1.8% last year, according to the National Kitchen & Bath Association. Stainless steel, once a luxury feature, now appears in 25% of all kitchens, says market-research firm NPD Group in Port Washington, N.Y. And as prices for granite have dropped because of cheap imports from Brazil, sales at the high end have shifted to engineered stones that come in many colors and expensive materials like concrete and zinc, says Mr. Pell.

The kitchens could bear a high cost. Brokers say that an unusually eclectic design could knock off 10% from a home’s asking price. “The cleaner look tends to please more buyers,” says Bonnie Adams, a residential broker in La Jolla, Calif. Using multiple materials can also increase labor costs as much as 10%, contractors say. “It does make a job more difficult,” says Michael Graziano, owner of Aladdin Remodelers in Massapequa Park, N.Y.

The juggling can compound a classic renovation problem: construction delays. Myron Martin’s kitchen overhaul was originally estimated to take four weeks. It’s now in its third month. One problem is engineering issues in fitting a prep sink, made from copper and mother of pearl, into a black walnut and granite island. “Everything takes longer than you would think,” says the 63-year-old lighting-company executive from Atlanta.

Cleaning Rules

The work may not end there. Darlene Landsittel’s newly eclectic kitchen came with a list of cleaning instructions for each material, compiled by her designer. Though she has a regular housecleaner, Ms. Landsittel placed the kitchen off-limits for fear something will get damaged. “It’s my project right now,” says the 63-year-old caterer in Chicago, who polishes the nickel counter every six weeks, seals the Calcutta marble once a month and uses only soap and water on the bamboo island.

Don Silvers, a kitchen designer and former professional chef in Los Angeles, sticks to more traditional looks. Mr. Silvers, who once ripped out a mismatched kitchen for a frustrated client, says combination countertops can be prone to splitting or unevenness over time. “They create spaces that look wonderful,” he says. “Too bad you can’t cook in them.”

Some homeowners may find that the melting-pot approach doesn’t come with easy accessories, as Carol Flier did after a $140,000 renovation last August. In the month before Thanksgiving, the dance teacher in Newton, Mass., scoured a dozen shops within 20 miles, hunting for dishes that would match the three types of stone in four colors. She finally went with French country-style serving pieces. But Ms. Flier has no regrets about leaving behind her old kitchen, in white and stainless steel. “That, apparently, is out,” she says.

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A Third Of Us Real Estate Still Appreciating

Despite contrary reports in the mass media, a third of the 50 US States real estate markets are still appreciating at healthy levels, according to an in depth study conducted by Real Estate Add, an information driven website, which provides detailed information on real estate markets in all 50 states.

Seventeen of the nations states are still appreciating strongly, including seven states located in the southern portion of the country. The southern states are experiencing the largest migration of new residents in history.

The southeast is bolstered by warmer climates than the northern part of the country, causing an onslaught of new residents as US weather patterns change. Many businesses have moved or are planning on moving to the southeast.

Tennessee, Kentucky, South Carolina, North Carolina, and Alabama are still growing in population with new residents and are maintaining strongly appreciating local real estate markets.

Nashville, Tennessee is the nations home of country music, and Nashville has seen a rise in appreciation over the past three years unprecedented in its history. Nashville housing prices are forecast to appreciate nearly another 7% by the end of 2006.

But Memphis will appreciate a whopping 7.7% by years end, according to the websites economists.

South Carolina, however, may have one of the longest lasting and strongest appreciating housing markets in the nation. Many new businesses have been drawn to South Carolina through tax incentives, and many retirees are buying more affordable housing in South Carolina.

The Mississippi and Louisiana housing markets were dealt a severe blow by Hurricane Katrina nearly a year ago. But both states real estate markets have turned into strong buyers markets, where the shortages of housing have fueled a building boom, mainly confined to areas outside of the disaster zones.

The shortage of construction workers in both states, a lack of building supplies, and problems with insurance payoffs have contributed to a rebuilding slowdown.

In the nations northern tier of states North Dakota real estate is still appreciating, mainly because of its low cost of living and growing job markets in a handful of communities.

Idaho, Montana, Utah and Alaska are also still experiencing positive home appreciation. Alaska hasnt seen a booming market like it is in Anchorage since the oil pipeline boom days of the 1970’s.

Boise, Idaho, selected by numerous publications as one of the best places to live in America, is also continuing to experience a housing market that has been appreciating for more than three years, and doesnt show any signs of slowing down any time soon.

Utah is another western state that is under going unprecedented growth and appreciation. But of all the states in the nation that have experienced booms and busts in major urban real estate markets that could have slowed down already, Washington is still experiencing appreciation.

In Seattle its still a sellers market, despite rising interest rates and increasing inventories of homes and condos on the market. Across the Cascade mountain range in eastern Washington, Spokane has under gone a market of rising appreciation unlike anything it has experienced for 15 years. Spokane housing will appreciate another 7.9% in 2006 on average.

Many states real estate markets have slowed down after 13 years of low interest rates. It may be difficult to determine just how strong many local real estate markets are. Real Estate Add surveys local markets on a regular basis for changes with information supplied by title companies, closing attorneys, lenders and real estate agents.

About the Author:
Mike Colpitts is the publisher of Real Estate Add, an information driven website, which provides appreciation forecasts and unbiased real estate information on local real estate markets in all 50 States. Visit http://www.RealEstateAdd.com

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By Lauren Baier Kim

Forced out of suburbs like Westchester and Nassau Counties in New York and Bergen County in New Jersey because of high housing prices, workers employed in Manhattan are buying homes farther and farther away from the city, The New York Times reports. Among areas seeing increased buyer interest are southern New Jersey, Philadelphia suburbs and areas north and west of Westchester, the paper says. For instance, commuters who once may have settled in Westchester County, the paper says, are now moving further out to Dutchess County in New York, the article says. The savings in housing costs are fairly considerable — at the end of 2005, the median price for a single-family house in Westchester was $640,000, whereas it was only $242,500 in Dutchess. The New York Times says there’s no statistical evidence that commuters are spreading into southern areas of New Jersey, but one local developer has built six new housing developments in Burlington County alone, the paper says.
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By Robin Goldwyn Blumenthal
From Barron’s

It would seem to have it all: four bedrooms, a guest house, a pool and a rock waterfall. But the vacation home in Naples, Fla., hasn’t been drawing much interest from buyers, so the seller recently threw in that most modern of amenities: the $1 million price cut. That’s brought the asking price down a full 25%. “If you want to sell, you’ve got to go back to ‘04 prices,” says Chip Harris of Coldwell Banker Previews International, which is handling the property.

The market for second homes could use a second wind. After a long string of double-digit annual price increases, a number of second-home meccas across the country are suddenly suffering from plunging sales volume and burgeoning inventories of unsold homes. Result: Naples-style discounting is starting to spread. It hit the town of Pocasset, on Massachusetts’ Cape Cod, just as retired executive Jack Reen was trying to sell his four-acre, six-bedroom beachfront home. He cut the price several times, for a total of 42% off the listing price, before striking a deal at $3.95 million. Reen takes a philosophical view of the experience, noting that the original price was set at the top of the market. “Calling the tops and bottoms is impossible,” he says.

Though the official figures on sales prices have yet to reflect the current round of cuts, interviews with real- estate pros and others strongly suggest that the averages are deteriorating in a number of key markets. Just look at green and hilly Litchfield, Conn., about a two-hour drive from New York City. It was a magnet for Wall Streeters during the past five years, and prices climbed accordingly. But in the past 10 months, prices in the lower end of Litchfield’s market — homes of $300,000 to $600,000 — are down 12%-14%, and volume is falling at the next level up, says Stephen Drezen of the local Portfolio Properties Group.

It’s all a big change from the seemingly endless rises in prices. For more than a decade, baby boomers have been flocking to the second-homes market and lifting prices, just as they’d earlier lifted the market for primary residences. The market barreled ahead during the past few years, and the demographics — 75 million boomers — still bode well for long-term growth. But first, the market has some correcting to tend to.

While pundits debate when the bubble might burst in the primary-housing market, the air already is whooshing out of parts of the second-homes market. Naples, on the sun-drenched edge of the Gulf of Mexico in Southwest Florida, is perhaps the most striking example.

Vacationers long have been attracted to Naples’ proximity to water, the Everglades and shopping at the likes of Saks Fifth Avenue. Last year alone, buyers bid up the area’s median price by 30%, to $482,400. Charles Ashby, president of Naples’ VIP Realtors, recalls that one of his sales associates was able to go down to a local bar and sell 26 units in a nearby Fort Myers high-rise the first night contracts were being accepted.

Today, about the most visible activity in that area is the 400 or so daily additions on the multiple listing service — and price reductions by the dozens. In the 35 years that Ashby has been in the business, this is the first downturn he’s seen, even counting recessions. “The mule died,” he says.

With mortgage rates rising and home-price appreciation slowing or vanishing, buyers in Naples have pulled back in a big way. The area’s sales of homes costing less than $1 million declined 45% in unit volume in the first four months of this year. More expensive homes fared somewhat better, falling 34%. But pressures at the higher end clearly are mounting. All along the pricey Gulf shore, builders still are tearing down old ranch houses and replacing them with two-story mansions, pushing the market toward a classic glut.

The Naples experience is being repeated, to one degree or another, in a variety of other vacation hot spots — from Palm Desert, Calif., to Phoenix, Ariz., to Ocean City, N.J. Phoenix in recent years has been overrun by property flippers from California, says Mike Messenger, president of Russ Lyon Realty in Scottsdale. But unit sales now are down by 40%-42%, and the city’s inventory of unsold homes has shot up more than five-fold, to 39,000.

Likewise, the number of homes for sale on the Multiple Listings Service for the Falmouth area of Cape Cod is up about 65% from a year ago, says Lynette Helms of the local Real Estate Associates. With numbers like that, more price cuts can’t be far behind. In fact, the Cape Cod town of Barnstable is among the first of the second-home meccas to show a decline in median prices in the figures tallied by the National Association of Realtors. The price was down 1% in the first quarter, to $385,000.
It’s true that the total second-homes market nationwide has managed to keep posting gains over the past two years. Some 3.34 million second homes were sold in 2005, up 16% from 2004, according to the realty trade group. The median price of a vacation home was up 7.4%, to $204,100, and prices have continued to rise in many markets.

But the Realtors’ chief economist, David Lereah, expects the volume of second-home sales to decline at least somewhat this year. And there’s every reason to think that some markets could be hit hard.

For starters, many second homes have been sold not to serious vacationers but to speculative investors hoping to cash on the national real-estate craze. How else to explain why six out of 10 second-home owners surveyed by the Realtors group own two or more homes in addition to their main residences?

The danger is that if enough of those investors decide the market has peaked, they could trigger a selling frenzy throughout the second-homes market. That, in turn, could add to the pressures in the main housing market. After all, second homes now account for a full 40% of all homes sold in America.

Statistics compiled for Barron’s by The Local Market Monitor, a Wellesley, Mass.-based consulting firm, show just how big a role can be played by investors. In Myrtle Beach, S.C., long a favorite vacation and retirement destination, investors owned a full 58% of properties in 2004, the last year with available data. Though Florida communities accounted for eight of the top 10 investor-owned hot spots, Wilmington, N.C., clocked in at 38%, Las Vegas at 26%, and Honolulu at 23%. The normal level is closer to 14%. (See table nearby.)

Says Ingo Winzer, president of The Local Market Monitor: “This makes me very worried because it implies that the price increases have been driven more by speculators than by people who are going to hold onto these properties, and indicates to me that there’s a speculative boom.”

The price runups of the past several years are reason enough for concern. A report from Cleveland-based National City, a top banking and mortgage concern, points to serious overvaluation in a number of second-home hot spots in Florida, California and elsewhere.

Tucson, Prescott and Phoenix in Arizona are estimated to be as much as 52% overvalued based on income levels, population densities and historical prices. Also high on the list: Bend, Ore., and New Jersey’s Ocean City and Atlantic City, where homes are deemed overvalued by 50% and 60%, respectively.

Behind all this is a fervor eerily reminiscent of the late 1990s on Wall Street. Some 65% of second-home owners surveyed by the National Association of Realtors said they considered their second homes better investments than stocks, and 29% said they planned to buy additional properties within two years. An eye-popping 64% of investors with four or more properties planned to buy another property within two years.

But those high rollers could lose their nerve quickly if prices continue to weaken.

“People don’t believe in the laws of supply and demand anymore,” says Alan Skrainka, chief market strategist at Edward Jones. “We’re not saying it’s a bubble, but we’re saying prices are overstated and will likely correct 20% to 25% over four or five years.”

He rejects a notion advanced by housing bulls that shore communities in Florida and California will be protected because of the limited supply of coastline. “Japanese real estate and land prices went down for 15 years and Japan is an island,” Skrainka says.

Southern Florida has shaped up as the epicenter of the looming glut. In Palm Beach County, inventories of unsold homes have more than tripled in the past three years, to more than 25,000. Some brokers in South Florida are reporting a quadrupling of inventories over the past year. In what some see as a sign of the times, Coldwell Banker Residential Real Estate recently closed four of its 31 offices in the Palm Beach region; the company calls it an anticipated consolidation.

There’s little doubt, however, that the market is starting to run out of buyers.

“The homeowner that absolutely has to sell will take a hit,” says Paul Boomsma, executive vice president of Chicago-based Luxury Portfolio Fine Property, a unit of Leading Real Estate Cos. of the World. The problems are worsened, he points out, by the continued acceleration of development in overheated areas.

Investors hoping to sell luxury condos that they bought over the past couple of years could be in for some special trouble. A recent report by San Francisco-based JMP Securities analyzing the Florida condo market estimated that 25%-40% of the of condo units now for sale in Florida belong to such investors. “Flippers are already listing units for sale in buildings that are near completion this year but are not closed yet,” hurting an already weak market, the report says.

Florida condo sales are down 20%-50% year over year in most markets, JMP says. And the report cites estimates of 50,000 new condo units announced for Miami-Dade County alone, adding to the 50,000 either under construction or ready to begin. That compares with the 10,000 total that have been built in the area in the past 10 years.

Some northern parts of Florida are also taking a beating. On a recent drive around Amelia Island, off the coast of Jacksonville, David Hehman of EscapeHomes.com, a resort and second-home marketplace, counted 50 properties for sale on the water or side streets along a three mile stretch.

Beyond Florida, some second markets are holding up well and others clearly aren’t.

“It’s a very spotty market in all of the U.S.,” says Robert Toll, CEO of luxury homebuilder Toll Brothers. In some of the markets where Toll builds golf-course and lake communities, like Palm Springs, Calif., Delaware and southwest Florida, demand has softened. The company, however, has had to offer incentives in only two resort communities out of the 15 it owns. “If you’ve got the right stuff, people still clamor for it,” says the CEO.

Mike Messenger, the Scottsdale, Ariz., broker, sounds considerably more glum. He says this is the first time in 16 years that the lower end of the market — always the driver for the area — has weakened. The culprits? Mainly the flippers; Messenger figures investors account for 35% to 40% of the market.

Las Vegas is causing concern, too. It’s “a classic example of an overheated market where there’s too much proposed and the reality of the absorption isn’t such that it could work in the near term,” says David Wasserman, head of Wasserman Real Estate Capital, a developer. But Wasserman, who has luxury condominium projects under development in West Palm Beach, Pasadena, Calif., and Boston, figures that soaring construction prices should help to weed out some of the overzealous builders.

Already, several condo projects in Las Vegas have had to be canceled because they failed to presell enough units to get attractive financing, says Hehman of EscapeHomes.com.

On the East Coast, signs of a glut have been turning up all along the coastline of New Jersey. In an effort to move inventory, brokers in the upscale summer resort of Stone Harbor have been sending out postcards to vacation renters, proclaiming a three-bedroom condo to be “the perfect investment opportunity” at just $739,000. That’s about what many of the would-be buyers might have paid for their first homes.

“The market is definitely in a correcting phase,” says Timothy Richards of Ocean City, N.J., who recently retired as a realty broker and began a second career as a developer. He says buyers are waiting to see what happens with mortgage rates. “Whenever financial markets are in transition, we go into a holding pattern,” he adds.

Real-estate pros in the Hamptons area of Long Island are keeping their fingers crossed. John Halsted of Allan Schneider Associates says he has seen some “price adjustments” — usually around 3% to 5% downward, and usually in the mid-range of the market, of homes priced at $1.5 million to $4 million. He contends that there’s still high demand at the super-high end. That belief will be put to the test by one of his firm’s current listings, a $75 million spread in Bridgehampton with its own golf course.

Some would-be buyers appear to be sitting out this edgy period in the market and renting homes instead. That’s one reason why the rental market in the Hamptons is considered very strong right now. The Halsted firm recently set its own record for a summer rental: $350,000 for a house in Sag Harbor.

Other home buyers, meanwhile, are seeking a measure of stability by venturing away from the traditional hot markets. But plenty of once-tranquil towns already have been discovered. “You’re finding that smaller towns that 10 years ago were thought of as off the beaten track now have the rich and famous buying,” says John McIlwain, a senior fellow for housing at the Urban Land Institute. He points to Rockland, Maine. “Twenty years ago you wouldn’t go there at night because you would have gotten beaten up,” he says. “Now, it’s in international travel guides.”

The tough conditions in the second-home market are no small matter for the people who own the homes. And the so-called mass affluent — folks with investable assets of $100,000 to $1 million — will probably take the brunt of any price declines. Spectrem Group, a Chicago-based consulting firm, says this group has more than one-third of its assets tied up in real estate. In general, these home owners are more vulnerable than the ultra-wealthy, both because they can ill afford to wait out a prolonged downturn and their losses can hurt if they’re forced to sell into a glut.

All the same, many experts are cheering the current shifts in the markets. They call it an essential correction, a step that must be taken before the second-home market resumes its ascent. “In general this is a very good thing, because it got too far on the speculative side,” says broker Ashby in Naples. “It needs to correct. If it didn’t, it would burst.”

Adds Mike McMurray, a broker with VIP on the Florida islands of Sanibel and Captiva. “It’s not that the property is bad, but it’s like Google. The value is there, but it may have gotten ahead of itself.”

There’s certainly hope for the long term. The baby- boom generation continues to amass both inherited and earned wealth. And many a boomer will buy a second home with an eye to eventually retiring to it. With any luck, they will see some nice financial returns. “Vacation homes have turned out to be one of the best housing investments, particularly on the coasts,” says McIlwain.

The trouble is, home owners may have to wait quite some time before that happens again.

http://www.realestatejournal.com/

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By Christine Haughney
From The Wall Street Journal Online

At a party in Fort Lauderdale last month, guests in clingy cocktail dresses grooved on stage with singer Wyclef Jean and even tried to pull off his black-and-baby-pink striped tie.

A week later, in Las Vegas, party-goers attended a reception hosted by actress Pamela Anderson, who was surrounded by a small army of models dressed in black bikinis, white hard hats, tool belts and yellow “Do Not Cross” construction tape.

Last Tuesday night, a half dozen invited guests attended an exclusive Manhattan screening of “The Devil Wears Prada” with the movie’s star, actress Meryl Streep, among others, before attending a dinner and charity auction of clothing worn in the movie.

The latest dispatches from the Hollywood glamour circuit? No, it’s real-estate developers wooing real-estate brokers and potential buyers of high-end condominiums.

The growing glut of expensive condos is pushing high-performing real-estate brokers and deep-pocketed potential buyers onto the “A” list. By supplying them with coveted party invitations and celebrity access, developers hope to reduce the backlog of high-priced luxury condominiums before rival developers can flood the slowing sales market with even more new properties. Developers are going all-out — with celebrities, showgirls, circus performers and fireworks displays worthy of the Fourth of July. Sales incentives ranging from alligator-leather-covered notepads in Manhattan to $10,000 diamond-encrusted cuff links in Fort Lauderdale are dangled before guests.

“Sometimes it does feel larger than life,” says Debra Kavaler, a sales director at New York’s Corcoran Sunshine Marketing Group and a guest at many of these parties. “Sometimes the world just stops in front of you at these parties and you think, ‘This is something I plan on telling my kids about.’ ”

In Fort Lauderdale, Las Vegas and Manhattan, an estimated 167,600 luxury units are due to hit the market in coming months. In Las Vegas, where 62,600 new condo units are planned, there’s greater pressure because projects often are larger and developers can’t get construction financing to build without selling a certain number of units in advance. Three condo projects already have been canceled and a half dozen are being re-evaluated in light of slowing sales.

Getting brokers to attend parties is also challenging in a city of star-studded casino stage shows. Last year the Icon Las Vegas condo development — a joint venture of East Coast real-estate tycoons Stephen M. Ross and Jorge Perez — hosted a party on the planned condominium site that featured white tigers, fire-eaters and chocolate fountains. It wasn’t enough. That project died, too.

“No matter how elaborate the party — if behind the scenes they haven’t nailed down their construction costs — the odds of it going forward are very low,” says attendee Bruce Hiatt, a broker and owner of Luxury Realty Group Inc., in Las Vegas.

Getting Jaded

Brokers who have been through the vicissitudes of the real-estate cycle say they’ve never been catered to quite like this before. But they are already getting a bit jaded.

“Unless [the parties] are really unique, people won’t go to them. You have to have something remarkable,” says Seth Semilof, a Miami lifestyle magazine publisher, former broker and regular at spectacular condo parties. He finds that the success of the parties depends heavily on the nuances of each market. “New York people wear suits and ties. In Miami, it’s beautiful girls in bikinis,” he says.

Mr. Semilof says that while most of the parties he attends feature models, lobster and champagne, his most memorable experience at any party involved meeting Donald Trump. The developer posed with him for a photograph, high-fived him and joked that he was “hired.”

“He gave me his business card and said, ‘Look, you have an open line of communication.’ ”

In all three markets, party budgets are going wild. Some event planners working for South Florida developers say their clients have tripled their spending as condo sales have begun to slow in recent months.

Developers say the parties are a bargain considering the prices of the condos, and they generate far better returns than dropping the prices of units does. For a May 11 Manhattan bash near Union Square, developer Gary Barnett spent about $30,000 to promote 39 lofts that start at $2.2 million apiece. In March, he spent $500,000 on a concert attended by 800 brokers and featuring the singer Seal. Several weeks later, he sponsored the “Thank You for Smoking” movie premiere and dinner for 500. Two brokers received a year’s use of a chauffeur-driven $108,000 Maserati Quattroporte. Others got shopping trips to Paris for selling the most condominiums in the 550-unit Orion project just west of Times Square.

Senada Adzem says that spending $250,000 on the four-hour party in Fort Lauderdale featuring Mr. Jean has helped her sell five out of 30 condo-hotel units for about $1,200 a square foot in Fort Lauderdale’s new Trump International Hotel.

Mojitos and Ceviche

Her party started with champagne Mojito cocktails and ceviche and sushi served on white China embossed with the Trump logo. Male brokers who sell more than three apartments were promised 1.5-carat diamond cuff links. The incentives for female brokers were diamond encrusted dove-shaped pins.

“I wanted to raise some eyebrows,” says Ms. Adzem, marketing director for New York firm Bayrock Group, which is co-developing the project with Donald Trump.

As a guest at the Las Vegas party including Ms. Anderson, Mr. Hiatt was escorted by models in black evening gowns to a three-story penthouse. In the penthouse, he spotted “American Idol” host Ryan Seacrest and actor Mickey Rourke with one of his Chihuahuas. Mr. Hiatt explained that star sighting often was more important in Las Vegas than receiving a gift bag of the sort often given out in South Florida or New York. “Vegas is less about the bling and the Maseratis and more about the fun,” he says.

In the three weeks following, the Tower negotiated 15 sales contracts for apartments priced at roughly $750,000 apiece. Mr. Hiatt, whose firm previously had sold a half-dozen apartments in Panorama’s larger four-tower complex, adds the party also better educated him about the complex’s latest units. “We did have a business reason to go,” he says. “I was really anxious to see that penthouse.”

Dual Roles

But the parties’ purposes aren’t always immediately clear. The Las Vegas bash doubled as a sales celebration for the Panorama Tower and a fundraiser of $500,000 for People for the Ethical Treatment of Animals, one of Ms. Anderson’s causes. Paul Scaringe, vice president of sales for Panorama Towers, says that Ms. Anderson attended the event because she had purchased an apartment in the complex and because the event benefited her cause. A spokeswoman for Ms. Anderson said that she is out of the country and not available to comment. Developers say that the celebrities weren’t paid to attend the event.

The May 23 “Devil Wears Prada” screening cost Starwood Hotels & Resorts Worldwide Inc. about $20,000 to promote 16 condominium hotel units it is selling at Manhattan’s St. Regis Hotel. Fernanda Forman, Starwood’s director of marketing for the St. Regis and Luxury Collection, stresses that these fêtes for brokers energize sales. “Can they make or break a project? No. Can they sell out a project faster? Yes,” she says.

In some cases, celebrities who attend these events don’t seem to know that their presence is helping to sell condos. In Manhattan on May 11, brokers sampled sushi with “X-Men” star Hugh Jackman along with 300 other Hollywood executives and starlets at the Union Square exhibit of photographs taken by “X-Men” director Brett Ratner. Mr. Jackman said that he had come to support his friend and director of the series latest installment “The Last Stand” that was released Friday. Mr. Jackman, who says he himself is looking for an apartment to buy, grinned when told that the evening also was intended to entertain real-estate brokers. “Look at me — how naive I am,” the actor told a reporter. “Maybe the developer will give me a 10% discount.”

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By Rachel Emma Silverman

From The Wall Street Journal Online

The soaring real-estate prices of the past few years are helping to feed the popularity of a complex tax-savings technique called a “private annuity trust.”

The strategy is being promoted as a way for investors to defer hefty capital-gains taxes on the sale of highly appreciated assets — especially real estate — and save on estate taxes, while also generating a stream of income.

The trusts are being widely marketed not just by tax lawyers and accountants, but also by investment advisers and insurance agents — who may also stand to gain big fees by managing trust investments — and real-estate brokers, who hope that the strategy might help clinch property sales and attract listings.

In a private annuity trust, you essentially exchange appreciated assets for fixed annuity payments, which spreads out your capital-gains taxes over many years. The transactions are being pitched to everyone from owners of a primary or secondary residence that has risen dramatically in value to owners of numerous investment properties. The trusts are just one of a number of strategies that people are using in an attempt to trim taxes amid the fevered real-estate market of recent years.

The growing popularity of private annuity trusts, however, has sparked heated debate among tax advisers, with skeptics saying that some arrangements might be too aggressive under allowable tax rules and might not generate all the tax benefits some promoters claim. Some tax lawyers have published articles or created Web sites criticizing the trusts, with titles such as “Private Annuity Trusts: The Numbers Don’t Support the Hype.”

Moreover, the Internal Revenue Service has been scrutinizing a growing number of private annuity trust transactions, and though it has not banned the practice, the agency says it has seen numerous cases that it feels do not pass muster.

Proponents of private annuity trusts, for their part, say the transaction, when done correctly, is a perfectly acceptable tax-savings technique that can defer capital-gains taxes for years and minimize estate taxes. “If you evaluate it and set it up right and then operate it appropriately, a private annuity trust can be a great tool to use for estate transfer, asset preservation and tax deferral,” says Curt Wyatt, a Palm Desert, Calif., trust adviser, who manages nearly $800 million in private annuity trust assets, business generated over the past three years.

Wendy Phillips, a Landers, Calif., real-estate investor, set up a private annuity trust after attending a seminar on capital-gains strategies at an apartment-owners’ trade show. Ms. Phillips faced capital-gains taxes of some $900,000 on the sale of several rental properties near Palm Springs, and wanted to avoid paying those taxes upfront. “It seemed like a lot out of our pockets at one time,” says Ms. Phillips, who will turn 62 years old this month. She and her husband chose to defer the private annuity payments until they reach age 70, which means they can delay the tax hit for several years.

The National Association of Financial and Estate Planning, or NAFEP, a big provider of private annuity trusts, says that business has doubled every year since 2003 and is continuing to grow this year. The strategy is “becoming more mainstream and more people and attorneys are becoming more comfortable with it,” says Roy Barker, director of operations at NAFEP, which is based in Salt Lake City.

Private annuity trusts can cost anywhere from about $3,000 to well over $10,000 to set up, plus additional administration and investment fees that can run upwards of 1% of trust assets. Because of these costs, Mr. Barker says the strategy makes the most sense for people who have at least $200,000 of capital gains to defer, as well as people who might be subject to the estate tax. (The current federal estate-tax exemption is $2 million per person or $4 million per married couple.)

Private annuity trusts are complicated, involving lots of convoluted steps and tax rules. In a typical arrangement, you sell appreciated assets — residential or commercial real estate, artwork, securities, even closely held businesses — to a trust, in exchange for a series of fixed annuity payments that last for the rest of your life. The trust then goes ahead and sells the appreciated asset to an end buyer. The cash proceeds are invested by the trust, and are used to fund your annuity payments.

By selling the property in exchange for an annuity, you avoid paying the upfront capital gains that you would have owed if you had simply sold the asset outright. Instead, you are taxed on the annuity payments when they come out of the trust, which spreads out the taxes over a longer period of time. What’s more, you can defer receiving the annuity payments for years, thereby further postponing your tax payments.

The strategy also has estate-planning benefits. When you die, the annuity payments stop and whatever is left over in the trust is considered out of your estate and isn’t subject to estate taxes. The annuity payments you receive during your lifetime are considered part of your estate unless you spend down the money.

Be aware, however, that the strategy is on the IRS’s radar screen. The agency doesn’t like arrangements in which sellers continue to control trust assets or properties that were purportedly sold. The IRS is also concerned that, before the trust is even set up, a buyer has already contractually agreed to take the property. In that case, the government could ultimately view the trust as an improper shelter, set up chiefly to avoid immediate capital-gains taxes rather than providing real economic substance.

The annuity is termed a “private annuity” because it is a special payment contract between you and the trust, as opposed to a commercial annuity issued by an insurance company. The amount of the annuity payments stays fixed over your lifetime and is determined by a formula that’s set by the IRS, based on factors that include your age, the property’s sale price and an IRS-determined interest rate. The older you are — or the longer you defer the annuity — the bigger the payments will be.

Jeff Reed, a Lake Forest, Calif., investment adviser, says he regularly gives seminars to hundreds of real-estate investors and brokers about private annuity trusts and other tax-efficient ways to sell property. Private annuity trusts, in his experience, “are one of the fastest-growing exit strategies.” The National Private Annuity Trust, another private annuity company, says the number of trusts it manages has more than doubled from last year, while the National Association for Private Annuity Trusts, or NAPAT, based in Irvine, Calif., says that it has also grown more than 100% a year over the past three years. “It has just exploded,” says NAPAT president Kevin McBarron.

One reason for the boom: sellers wishing to cash out of real estate in hot markets, such as Southern California, while locking in big profits. Even though federal long-term capital-gains taxes are at a low 15% rate for most assets, many sellers are reluctant to pay a tax upfront when they can instead defer it for years. In addition to private annuity trusts, firms are marketing a host of other strategies to defer taxes on real-estate sales, including 1031 exchanges and a new installment-payment technique called a structured sale.

Critics — and even some promoters — say that the private annuity trust strategy has downsides and isn’t for everyone. “Contrary to the claims of promoters, it is a very risky transaction and in any event it will likely cause you to pay more tax than had you not done the transaction in the first place,” says Atlanta tax lawyer Kevin McGrath, who recently wrote an article critical of the tactic in the tax journal “Tax Notes.”

For one, a private annuity trust doesn’t eliminate capital-gains taxes; it just defers them. On each annuity payment, you’ll owe taxes on both capital gains as well as ordinary income, which is taxed at a higher rate. And if you outlive your life expectancy, all of the annuity payments beyond that point will be taxed at ordinary income rates, according to tax rules. Also, the trust itself has to pay taxes on its earnings over the years, depending on how the assets inside it are invested.

Another caveat: Because these trusts are irrevocable, once you sell your property, you don’t have any direct control over how the proceeds are invested. Instead, a separate trustee manages the assets. You also can’t simply invade the trust to get more money beyond the annuity payments.

If you get pitched a private annuity trust, it’s smart to have an independent lawyer and tax adviser carefully study the transaction to make sure that it passes legal muster, and to model projections on whether the arrangement works for you, depending on your age and income needs.

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Homeowners Love Cul-de-Sacs, Planners Say They’re Perils

By Amir Efrati
From The Wall Street Journal Online

One of the most popular features of suburbia is under attack.

For many families, cul-de-sac living represents the epitome of suburban bliss: a traffic-free play zone for children, a ready roster of neighbors with extra gas for the lawnmower and a communal gathering space for sharing gin and tonics. But thanks to a growing chorus of critics, ranging from city planners and traffic engineers to snowplow drivers, hundreds of local governments from San Luis Obispo, Calif., to Charlotte, N.C., have passed zoning ordinances to limit cul-de-sacs or even ban them in the future.

In Oregon, about 90% of the state’s 241 cities have changed their laws to limit cul-de-sacs, while 40 small municipalities outside Philadelphia have adopted restrictions or bans. Even when they’re not trying to stamp them out, some towns are keeping a close eye on how cul-de-sacs are being built. Earlier this year, the city of Pekin, Ill., established new rules to make cul-de-sacs more maneuverable for service vehicles like fire trucks and school buses.

While homes on cul-de-sacs are still being built in large numbers and continue to fetch premiums from buyers who prefer them, the opposition has only been growing. The most common complaint: traffic. Because most of the roads in a neighborhood of cul-de-sacs are dead ends, some traffic experts say the only way to navigate around the neighborhood is to take peripheral roads that are already cluttered with traffic. And because most cul-de-sacs aren’t connected by sidewalks, the only way for people who live there to run errands is to get in their cars and join the traffic.

In Charlotte, where the suburbs have emerged as a leading cul-de-sac battleground, a recent study by transportation planners found that almost all of the city’s heavily congested intersections were located near residential developments from the 1960s, ’70s and ’80s, which are filled with cul-de-sac neighborhoods. The biggest traffic problems aren’t in the old central cities these days, says Orlando, Fla.-based traffic engineer Walter Kulash, “but rather in the suburban periphery.”

Land-use planners trace the origin of the American version of the cul-de-sac, which means “bottom of the bag” in French, to a development in Radburn, N.J., in 1929. Land planner Ed Tombari of the National Association of Home Builders says the design became popular during the housing boom after World War II, when many families turned away from the congested grids of central cities to live on quiet cul-de-sacs with lawns and winding roads more reminiscent of the countryside. To ensure privacy, developers limited the number of roads leading in.

According to the Census Bureau, the population of American suburbs grew 12% from 1980 to 2000, while the total population in center cities grew by just 1%. Likewise, from 1997 to 2003, the total percentage of American housing units located in the suburbs rose to 62 million, an increase of about 9%. The influx of homes in the suburbs, and the traffic they bring, has become the chief concern of planners across the nation, many of whom are struggling to mitigate the impact of car culture.

To some of them, cul-de-sacs have come to represent a failed experiment that has produced more isolation and more traffic by forcing people into their cars. David Schrank, a transportation researcher with the Texas Transportation Institute at Texas A&M University, says the old “peak hour” of traffic in many suburbs has been replaced by a longer “peak period.” As new developments spring up, he says, “sometimes the transport network isn’t in place to support them.”

In some growing suburbs, “cul-de-sac” is becoming a dirty word. At a meeting in April with the planning commission in Northfield, Minn., a suburb of Minneapolis that has adopted rules preventing the use of cul-de-sacs, developer Lynn Giovannelli of Miles Development says she was “blindsided” by a chorus of objections about a single cul-de-sac she was including in plans for part of a new subdivision called Rosewood. “The land parcel was a funky shape, and I told them the only way to do anything with it is to do a cul-de-sac,” she says. One commissioner told her to put in a park instead. “Preposterous,” she says. “I was rolling my eyes.”

While the plan was ultimately approved, it wasn’t unanimous. “We might be prejudiced,” says Jim Herreid, one of two commissioners who voted against the plan. “But we just don’t like cul-de-sacs because they restrict the ability to get around town easily.”

For all the criticism aimed at them, cul-de-sacs do seem to have one last defender: the free market. Real-estate brokers say that despite the recent opposition by policy makers, homes on cul-de-sacs still tend to sell faster than other homes — and often command a comfortable premium. Ralph Spargo, the vice president of product development for Standard Pacific Homes in Irvine, Calif., says his company charges as much as 5% more for a home located on one. (For a house that sells for the April 2006 national median price of $223,000, that works out to about $11,000).

Rochelle Johnson, a 38-year-old real-estate agent from Lakeville, Minn., who grew up on a cul-de-sac, says she doesn’t worry about the “isolation” — she welcomes it. From her home on a cul-de-sac in a development called Wyldwood Oaks, Mrs. Johnson says the minimal amount of traffic gives her the peace of mind to allow her two children to play soccer in the street. “I don’t know why somebody wouldn’t want to live on a cul-de-sac,” she says.

While suburban planners aren’t trying to retrofit existing cul-de-sacs, they are making a concerted effort to make sure that new developments don’t repeat some of their perceived faults. In cities like Boulder, Colo., and San Antonio, where suburban-style development is still taking place within city limits, new regulations have narrowed street widths in some new developments to make them easier to cross by foot. In a host of cities in Oregon, including Portland, lawmakers have shortened the acceptable length of street blocks to about 500 feet, down from 800 to 1,000. And in Rock Hill, S.C., which changed its rules in March, developers who build cul-de-sacs are required to cut pedestrian paths through their bulb-like tips to connect them to other sidewalks and allow people to walk through neighborhoods unimpeded.

By reducing cul-de-sac construction, developers say, local governments are depriving them of one of the most popular — and lucrative — housing types at a time when the housing market is slowing down in many regions. In Ames, Iowa, developer Chuck Winkleblack of Hunziker & Associates says new regulations on cul-de-sacs there have reduced choices for buyers. In the 1980s, when his company built a neighborhood called Northridge, there were 23 cul-de-sacs in the 410-home community. By contrast, Northridge Heights, a project set to be completed in 2009, calls for 350 single-family homes and 150 townhouses and apartments with only two cul-de-sacs. “I had to beg and plead to get those in,” says Mr. Winkleblack.

Trade-Offs

Although the campaign against cul-de-sacs continues, lawmakers are making some concessions. As a trade-off for limiting them, cities like Nashville, Tenn., are letting developers put more homes, including townhouses and apartments, on less land. And in some places, measures being planned to increase traffic flow have been beaten back. In late 2004, when residents of two upscale subdivisions in York County, S.C. — Eppington and Knight’s Bridge, with homes in the $500,000 to $600,000 range — got wind of a plan to connect them, by roads, to a proposed development called The Reserve, which had lower-priced homes, residents of the wealthy areas pressured the county council to nix the proposal.

In the meantime, Beth Bowlds, a speech pathologist and mother of three living on a cul-de-sac in McKay’s Mill — a subdivision in the Nashville suburb of Franklin — says she understands the traffic issues cul-de-sacs can create and why the local planners have taken steps to limit them. Yet when she and her husband were shopping for a home two years ago, she was immediately drawn to the cul-de-sac anyhow. “It’s nice having your little corner that’s not as public.”

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