Washington Post, October 29, 2005
By Kenneth R. Harney
Is there really any chance that Congress could take away the tax deduction for mortgage interest? How about the deductions for and state and local property and income taxes?
A presidentially appointed bipartisan commission is expected to urge precisely those changes Tuesday when it delivers its final report to the Bush administration. The mortgage interest deduction -- which allows write-offs on first and second loan amounts up to $1.1 million -- would be scrapped and replaced with a 15 percent credit on sharply limited mortgage amounts. Deductions for state and local property and income taxes would be eliminated altogether. The 15 percent credit would be for only mortgages up to a $300,000 to $350,000 ceiling. Interest on home equity loans no longer would be tax-deductible.
In exchange for these losses of tax benefits, the advisory panel would eliminate the alternative minimum tax, add $100,000 to the $500,000 tax-free exclusion on home sale profit, lower capital gains tax rates, cut the number of tax brackets and provide a variety of other simplifications to the federal tax code.
President Bush and the Treasury Department are expected to study the panel's recommendations and then include at least some of them in a budget proposal to Congress early in 2006.
But let's get real here: Nobody seriously believes that the president and Congress would do anything to reduce tax benefits for their largest and most potent constituency, right? Isn't the mortgage interest deduction sacrosanct, politically untouchable, carved in marble on Capitol Hill? Ditto for write-offs of local property taxes and income taxes?
Imagine the screams of pain from homeowners in high-cost, high-tax areas from the East Coast to California. Imagine a Million Realtor March on Washington. Imagine a House and Senate with no incumbents.
That is all certainly the conventional political wisdom and may indeed prove correct. Even the president told the advisory panel in January that he would oppose any tax changes that would hurt homeownership.
Case closed? Dead on arrival? Maybe, but not quite.
Though the final details of the reform panel's recommendations won't be known until Tuesday, its focus on cutting housing benefits casts fresh light on the sheer size, and asymmetrical distribution, of those subsidies. The panel members went after housing because housing tax expenditures present such a big target, especially in an era of double-digit appreciation, McMansions and monster mortgages. Forced to raise revenue to replace the $1.2 trillion 10-year cost of killing the alternative minimum tax, high-cost housing became an obvious place to look.
Consider these numbers if you want to understand where the reformers, Republicans and Democrats alike, are coming from:
- The mortgage interest deduction will cost the Treasury $72.6 billion this year alone, according to congressional estimates;
- The $250,000 and $500,000 tax-free exclusions of home sale profit for single sellers and joint filers will cost $23 billion this year;
- Property tax write-offs cost $20 billion, and tax subsidies for local and state housing bond programs add an additional $1 billion.
Who receives these tax breaks? When a congressional committee examined the distribution of homeowner benefits for 2004, it found that people earning $200,000 and more a year, just one-half of 1 percent of all homeowners filing for deductions, pocketed 22 percent of the total write-offs last year.
Homeowners with incomes between $50,000 and $75,000 -- 26.4 percent of all owners claiming deductions -- received just 16.1 percent of the total. Owners with incomes of $30,000 to $40,000 represented 10 percent of all mortgage deduction recipients but got just 3.1 percent of the total tax-savings pie.
Property tax write-offs showed a similar distribution. High-income households were 3.8 percent of all owners claiming property tax deductions in 2004 but received 15 percent of the total. Homeowners with $30,000 to $40,000 incomes were 9.4 percent of those claiming property tax write-offs but received 3.7 percent of the benefits.
In replacing the mortgage interest deduction with a 15 percent credit, the reformers can argue that far more homeowners, the vast numbers who do not itemize their deductions on federal tax filings, will be able to share the tax subsidy goody bag. By lowering the mortgage ceiling to around $300,000, the subsidies would not so heavily favor wealthy owners in high-cost states.
That, in turn, could be supportive of homeownership nationwide for middle-income citizens who either rent or don't itemize on their taxes. Who knows -- the homeownership rate might even go up.
That's the idea anyway. Can it become law? Not in an election year for sure. Could some of it find its way into law someday, as the country grapples with budget deficits, war expenses and disaster relief reconstruction? That's where the odds start looking slightly better.
31 October 2005
26 October 2005
DOJ/FTC Workshop: Real Estate Competition Called Fierce
Realtor.com, October 26, 2005
With more than 2.5 million real estate licensees and a wide range of brokerage models working in real estate today, competition has never been greater and consumers have never had wider choice in whom to work with in buying and selling homes, industry panelists said at a public workshop hosted by federal trade regulators Tuesday in Washington.
“I’m puzzled by accounts [in the media and among some lawmakers and regulators] that say there’s not a lot of competition in real estate,” Alex Perriello, president and CEO of Cendant Real Estate Franchise Group, told the workshop. “There are no significant barriers to entry or expansion,” and there are “myriad choices for buyers” on models and pricing, he said.
About 200 people from the brokerage community, government, and the media attended the workshop, which was hosted jointly by the U.S. Department of Justice's Antitrust Division and the Federal Trade Commission to look at competition in residential real estate. Some of the panelists focused on laws enacted recently by state legislatures setting minimum service requirements for real estate licensees.
About 10 states have enacted such laws in the last few years, with others considering similar measures. The measures, which the DOJ and the FTC have called anticompetitive in letters to lawmakers, have been supported by state associations of REALTORS®. The laws typically require licensees to present offers, assist their clients with contract negotiations, and be available to answer questions on clients’ behalf, among other things.
Industry critics said the laws make it difficult for some alternative brokerage models, such as limited service brokers—who post listings in the MLS for a flat fee but provide little other service—to compete.
However, no evidence of any anticompetitive effects was presented. Panelists at the workshop also touched on industry efforts to govern how brokers’ MLS data can be displayed on competitors’ Web sites.
That issue is the subject of a lawsuit filed in early September by the DOJ against the NATIONAL ASSOCIATION OF REALTORS®. The complaint says NAR’s Internet listing display rules put Internet-based brokers at a disadvantage to traditional brokers. In fact, the rules allow brokers to exercise a blanket opt-out right that prohibits their listings from appearing on any competitors’ sites, not just sites of Internet-based brokers. In exchange, brokers that opt out can’t post other brokers’ listings on their sites.
Cathy Whatley, NAR’s 2003 president, said brokerages operating all business models have the opportunity to participate in the MLS and have always and will always have access to the property listing information it contains.
“The MLS is a broker-to-broker information exchange” that facilitates cooperation and ultimately helps consumers see more listing data than they otherwise would, she said. For more than four years, she noted, NAR’s Internet data exchange policy has enabled MLS participants to advertise competitors’ listings on the Internet, even though such use by other competitors is subject to the broker’s right to opt out of having his listings advertised by others. That policy, known as IDX, isn’t the subject of the DOJ complaint.
Deborah Platt Majoras, FTC chair, opened the workshop. Other officials making remarks included Thomas Barnett, acting assistant attorney general for antitrust at the DOJ; FTC Commissioner Jon Leibowitz; and Susan Creighton, director of the FTC’s Bureau of Competition.
Lawrence Yun, NAR's senior economist, presented empirical evidence of the magnitude of competition in the real estate brokerage industry. "Consumers are bombarded with choices on television, radio, newspapers, and the Internet,” Yun said. “They are enticed by offers of flat fees, rebates, and other incentives. In fact, discount brokerages and many innovative business models are doing very well in today's real estate marketplace.
Chang-Tai Hsieh, associate professor of economics at the University of California at Berkeley, acknowledged the competitive pressures in real estate today from having such an enlarged field of practitioners vying for business and said commission rates appear to have fallen as a result. But consumers don’t appear to be fully benefiting, he said, in part because increased home prices have caused the total amount paid by consumers to increase.
Industry panelists included Aaron Farmer, owner of Texas Discount Realty in Austin, Texas; Thomas Kunz, president and CEO of Century 21 Real Estate; Colby Sambrotto, COO of ForSaleByOwner.com; Philip Henderson, an attorney with LendingTree LLC; Tom Early of the National Association of Exclusive Buyer Agents; Geoff Lewis, senior vice president and chief legal officer of RE/MAX International Inc.; and Steve DelBianco, executive director of NetChoice Coalition.
The DOJ and FTC are accepting public comments on real estate competition until Nov. 28. To learn how you can voice your opinions about how competitive the industry is and to obtain some prewritten key point to include in your letters, see the Tell Federal Regulators That Real Estate Is Competitive page at REALTOR.org. NAR would like to receive copies of any letters members submit. E-mail a copy to FTCDOJworkshop@realtors.org.To learn more about competitiveness of the real estate industry, go to the About Industry Competitiveness page at REALTOR.org.
With more than 2.5 million real estate licensees and a wide range of brokerage models working in real estate today, competition has never been greater and consumers have never had wider choice in whom to work with in buying and selling homes, industry panelists said at a public workshop hosted by federal trade regulators Tuesday in Washington.
“I’m puzzled by accounts [in the media and among some lawmakers and regulators] that say there’s not a lot of competition in real estate,” Alex Perriello, president and CEO of Cendant Real Estate Franchise Group, told the workshop. “There are no significant barriers to entry or expansion,” and there are “myriad choices for buyers” on models and pricing, he said.
About 200 people from the brokerage community, government, and the media attended the workshop, which was hosted jointly by the U.S. Department of Justice's Antitrust Division and the Federal Trade Commission to look at competition in residential real estate. Some of the panelists focused on laws enacted recently by state legislatures setting minimum service requirements for real estate licensees.
About 10 states have enacted such laws in the last few years, with others considering similar measures. The measures, which the DOJ and the FTC have called anticompetitive in letters to lawmakers, have been supported by state associations of REALTORS®. The laws typically require licensees to present offers, assist their clients with contract negotiations, and be available to answer questions on clients’ behalf, among other things.
Industry critics said the laws make it difficult for some alternative brokerage models, such as limited service brokers—who post listings in the MLS for a flat fee but provide little other service—to compete.
However, no evidence of any anticompetitive effects was presented. Panelists at the workshop also touched on industry efforts to govern how brokers’ MLS data can be displayed on competitors’ Web sites.
That issue is the subject of a lawsuit filed in early September by the DOJ against the NATIONAL ASSOCIATION OF REALTORS®. The complaint says NAR’s Internet listing display rules put Internet-based brokers at a disadvantage to traditional brokers. In fact, the rules allow brokers to exercise a blanket opt-out right that prohibits their listings from appearing on any competitors’ sites, not just sites of Internet-based brokers. In exchange, brokers that opt out can’t post other brokers’ listings on their sites.
Cathy Whatley, NAR’s 2003 president, said brokerages operating all business models have the opportunity to participate in the MLS and have always and will always have access to the property listing information it contains.
“The MLS is a broker-to-broker information exchange” that facilitates cooperation and ultimately helps consumers see more listing data than they otherwise would, she said. For more than four years, she noted, NAR’s Internet data exchange policy has enabled MLS participants to advertise competitors’ listings on the Internet, even though such use by other competitors is subject to the broker’s right to opt out of having his listings advertised by others. That policy, known as IDX, isn’t the subject of the DOJ complaint.
Deborah Platt Majoras, FTC chair, opened the workshop. Other officials making remarks included Thomas Barnett, acting assistant attorney general for antitrust at the DOJ; FTC Commissioner Jon Leibowitz; and Susan Creighton, director of the FTC’s Bureau of Competition.
Lawrence Yun, NAR's senior economist, presented empirical evidence of the magnitude of competition in the real estate brokerage industry. "Consumers are bombarded with choices on television, radio, newspapers, and the Internet,” Yun said. “They are enticed by offers of flat fees, rebates, and other incentives. In fact, discount brokerages and many innovative business models are doing very well in today's real estate marketplace.
Chang-Tai Hsieh, associate professor of economics at the University of California at Berkeley, acknowledged the competitive pressures in real estate today from having such an enlarged field of practitioners vying for business and said commission rates appear to have fallen as a result. But consumers don’t appear to be fully benefiting, he said, in part because increased home prices have caused the total amount paid by consumers to increase.
Industry panelists included Aaron Farmer, owner of Texas Discount Realty in Austin, Texas; Thomas Kunz, president and CEO of Century 21 Real Estate; Colby Sambrotto, COO of ForSaleByOwner.com; Philip Henderson, an attorney with LendingTree LLC; Tom Early of the National Association of Exclusive Buyer Agents; Geoff Lewis, senior vice president and chief legal officer of RE/MAX International Inc.; and Steve DelBianco, executive director of NetChoice Coalition.
The DOJ and FTC are accepting public comments on real estate competition until Nov. 28. To learn how you can voice your opinions about how competitive the industry is and to obtain some prewritten key point to include in your letters, see the Tell Federal Regulators That Real Estate Is Competitive page at REALTOR.org. NAR would like to receive copies of any letters members submit. E-mail a copy to FTCDOJworkshop@realtors.org.To learn more about competitiveness of the real estate industry, go to the About Industry Competitiveness page at REALTOR.org.
21 October 2005
Bursting the Bubble of Negative Predictions
The Washington Times, October 21, 2005
By M. Anthony Carr
Start up a discussion with almost anyone these days and soon it turns to real estate. Very soon after that it turns to the question: When's the bubble going to burst?
The challenge with talking about a bubble so much is that it can become a self-fulfilling prophecy for consumers.
There are plenty of naysayers about the real estate market and its unprecedented growth. Las Vegas-based ReviewJournal.com, for instance, is posting a report by Doug Fabian, president of Fabian Wealth Strategies (www.Fabian.com), and Josh Lewis, first vice president at Santa Ana, Calif.-based Stearns Lending.
The report, "Boom to Bust," lists the following issues about current homeownership as pointing to a possible bubble:
• More than 25 percent of all homes are now bought by people who don't plan to occupy the property.
• Households are allocating a greater percentage of income to housing than ever before.
• More houses are being purchased with no down payment. People are buying primarily because of the expectation of appreciation.
• The majority of today's loans involve some combination of adjustable-rate mortgages, interest-only or negative amortization.
The report says, "This layered risk will result in a major increase in foreclosures, which will bring the total housing market down in value."
Unfortunately, this report brings up nothing new. People have been buying real estate for decades in anticipation of appreciation. Also, during those years, households have been allocating a greater percentage of income to housing. Zero-percent down-payment mortgages have been around for just as long.
All of these factors have been true for the last 20 years.
Compare this list to the second quarter 2005 report issued by the U.S. Department of Housing and Urban Development on U.S. Housing Market Conditions. You'll see a different picture:
• The housing sector continued to be a major contributor to the U.S. economy during the second quarter of 2005.
• New records were set for single-family permits, new home sales, and existing home sales. • Interest rates remained at less than 6 percent, but the challenge to affordability for new home buyers grew.
• Compared to the most recent quarter, the median sales price of an existing home rose by 10.3 percent, and was 13.7 percent higher than a year earlier.
• Compared to the second quarter of 2004, permits for new homes were up 2.1 percent; construction starts were up 4.6 percent; and new housing completions increased by 4.7 percent.
• Sales of existing homes and new single-family units rose, by 4.6 percent and 10.2 percent respectively.
• Permits and new starts for multifamily units slowed after the first quarter of 2005, but remained stronger than in the second quarter of 2004.
So why all this good news on the housing front? Basically, the economy is growing. And that, my friends, is why you have to second guess the concept of a bubble in the real estate market.
We've become accustomed to the "bubble" idea because of 2001 drop in the stock market, following a period of unprecedented growth.
The difference is that the stock bubble was based on the founding of companies on investment in hopes of finding the next Internet-based fortune rather than the actual production of consumer products.
The inflation we are seeing in the housing market is because of economic growth, more jobs, population growth and the local jurisdictions not providing enough housing for this growth.
It's pretty simple. If you grow the economy, you must grow the housing base.
However, in the last five years, metropolitan regions have taken the slow-growth or limited-growth approach to providing housing instead of pushing for more affordable housing in high-density projects.
When the economy slows in any given jurisdiction, you'll see trouble in your real estate market.
For instance, the Washington area, home to the hottest employment growth in the country, is projected to create more than 82,000 jobs in 2005, according to the Center for Regional Analysis at George Mason University (www.cra-gmu.org). However, the center points out that local builders are only allowed to put up about 35,000 houses per year.
If you're bringing more than 50,000 new jobs into an area every year, but only build 30,000 houses, is that a bubble or a true reflection of the supply and demand of housing? You be the judge.
By M. Anthony Carr
Start up a discussion with almost anyone these days and soon it turns to real estate. Very soon after that it turns to the question: When's the bubble going to burst?
The challenge with talking about a bubble so much is that it can become a self-fulfilling prophecy for consumers.
There are plenty of naysayers about the real estate market and its unprecedented growth. Las Vegas-based ReviewJournal.com, for instance, is posting a report by Doug Fabian, president of Fabian Wealth Strategies (www.Fabian.com), and Josh Lewis, first vice president at Santa Ana, Calif.-based Stearns Lending.
The report, "Boom to Bust," lists the following issues about current homeownership as pointing to a possible bubble:
• More than 25 percent of all homes are now bought by people who don't plan to occupy the property.
• Households are allocating a greater percentage of income to housing than ever before.
• More houses are being purchased with no down payment. People are buying primarily because of the expectation of appreciation.
• The majority of today's loans involve some combination of adjustable-rate mortgages, interest-only or negative amortization.
The report says, "This layered risk will result in a major increase in foreclosures, which will bring the total housing market down in value."
Unfortunately, this report brings up nothing new. People have been buying real estate for decades in anticipation of appreciation. Also, during those years, households have been allocating a greater percentage of income to housing. Zero-percent down-payment mortgages have been around for just as long.
All of these factors have been true for the last 20 years.
Compare this list to the second quarter 2005 report issued by the U.S. Department of Housing and Urban Development on U.S. Housing Market Conditions. You'll see a different picture:
• The housing sector continued to be a major contributor to the U.S. economy during the second quarter of 2005.
• New records were set for single-family permits, new home sales, and existing home sales. • Interest rates remained at less than 6 percent, but the challenge to affordability for new home buyers grew.
• Compared to the most recent quarter, the median sales price of an existing home rose by 10.3 percent, and was 13.7 percent higher than a year earlier.
• Compared to the second quarter of 2004, permits for new homes were up 2.1 percent; construction starts were up 4.6 percent; and new housing completions increased by 4.7 percent.
• Sales of existing homes and new single-family units rose, by 4.6 percent and 10.2 percent respectively.
• Permits and new starts for multifamily units slowed after the first quarter of 2005, but remained stronger than in the second quarter of 2004.
So why all this good news on the housing front? Basically, the economy is growing. And that, my friends, is why you have to second guess the concept of a bubble in the real estate market.
We've become accustomed to the "bubble" idea because of 2001 drop in the stock market, following a period of unprecedented growth.
The difference is that the stock bubble was based on the founding of companies on investment in hopes of finding the next Internet-based fortune rather than the actual production of consumer products.
The inflation we are seeing in the housing market is because of economic growth, more jobs, population growth and the local jurisdictions not providing enough housing for this growth.
It's pretty simple. If you grow the economy, you must grow the housing base.
However, in the last five years, metropolitan regions have taken the slow-growth or limited-growth approach to providing housing instead of pushing for more affordable housing in high-density projects.
When the economy slows in any given jurisdiction, you'll see trouble in your real estate market.
For instance, the Washington area, home to the hottest employment growth in the country, is projected to create more than 82,000 jobs in 2005, according to the Center for Regional Analysis at George Mason University (www.cra-gmu.org). However, the center points out that local builders are only allowed to put up about 35,000 houses per year.
If you're bringing more than 50,000 new jobs into an area every year, but only build 30,000 houses, is that a bubble or a true reflection of the supply and demand of housing? You be the judge.
14 October 2005
The Mortgage Gap [NYT Editorial]
The Mortgage Gap [Editorial]
New York Times, October 11, 2005
We have come a long way since the days when banks wrote off entire minority communities, denying loans and mortgages to creditworthy people because of their race or where they lived. But perhaps not far enough. A recent Federal Reserve study shows that black Americans are three times as likely as whites to be signed up for high-cost "subprime" mortgages that often force borrowers into default.
Lenders typically argue that critics are confusing risk with race and point out that the scores on which they base mortgage rates are computed automatically, based on standardized consumer credit information. It is hard to judge these arguments because so much credit information is kept private. Lenders typically refuse to release data on individual credit scores or disclose their own risk analysis.
But it seems likely at this point that uninformed borrowers are being herded into higher-cost mortgages more frequently than necessary. That is probably due at least in part to the complexity of the current lending system. Mortgages are now sold mainly through mortgage brokers, who are virtually unregulated. This system has spread access to mortgages to communities that were once shut out. But brokers themselves have no legal responsibility to give borrowers the best rate - or even a fair rate, for that matter.
Sellers of mortgages often earn their money by marking up mortgage rates and adding fees and penalties, some of which can be onerous. That poses a particular danger for unsophisticated borrowers. Even well-educated consumers have difficulty finding out how their individual mortgage rates are calculated and what the various fees are.
The disparity between lending costs for black and white homeowners is a serious matter, given the unhappy history of redlining. The federal government should find out once and for all where the racial disparities come from, even if it means forcing the lending lobby to release more kinds of data. Banks and other lenders should voluntarily rein in brokers who direct clients to unjustly expensive loans. Financial institutions should also make the mortgage process more transparent. That would be a bonus not just for minorities, but for everyone.
We have come a long way since the days when banks wrote off entire minority communities, denying loans and mortgages to creditworthy people because of their race or where they lived. But perhaps not far enough. A recent Federal Reserve study shows that black Americans are three times as likely as whites to be signed up for high-cost "subprime" mortgages that often force borrowers into default.
Lenders typically argue that critics are confusing risk with race and point out that the scores on which they base mortgage rates are computed automatically, based on standardized consumer credit information. It is hard to judge these arguments because so much credit information is kept private. Lenders typically refuse to release data on individual credit scores or disclose their own risk analysis.
But it seems likely at this point that uninformed borrowers are being herded into higher-cost mortgages more frequently than necessary. That is probably due at least in part to the complexity of the current lending system. Mortgages are now sold mainly through mortgage brokers, who are virtually unregulated. This system has spread access to mortgages to communities that were once shut out. But brokers themselves have no legal responsibility to give borrowers the best rate - or even a fair rate, for that matter.
Sellers of mortgages often earn their money by marking up mortgage rates and adding fees and penalties, some of which can be onerous. That poses a particular danger for unsophisticated borrowers. Even well-educated consumers have difficulty finding out how their individual mortgage rates are calculated and what the various fees are.
The disparity between lending costs for black and white homeowners is a serious matter, given the unhappy history of redlining. The federal government should find out once and for all where the racial disparities come from, even if it means forcing the lending lobby to release more kinds of data. Banks and other lenders should voluntarily rein in brokers who direct clients to unjustly expensive loans. Financial institutions should also make the mortgage process more transparent. That would be a bonus not just for minorities, but for everyone.
America may be at Peak of 'Materialistic' Cycle
America may be at Peak of 'Materialistic' Cycle - Supersized homes, SUVs afflict a nation
Inman News, Friday, October 14, 2005
By Arrol Gellner
We Americans are a people with profoundly changeable opinions. Our lifestyle ideals, for instance, seesaw from extravagance to asceticism in bursts of 30 years or so. This peculiar national trait affects our architecture as it does everything else, repeatedly taking us from overblown ostentation to reactionary modesty and back again.
The Victorian era, with its seemingly insatiable appetite for visual bombast, gave us an architecture of vast, splendid, yet manifestly impractical, houses. By the dawn of the 20th century, a backlash against these pompous dwellings had ushered in the Arts and Crafts movement, with its renewed appreciation for simplicity and hand craftsmanship.
This chaste aesthetic survived into the economic giddiness of the Roaring Twenties. Then, fueled by a superheated economy, architecture once again entered a period of unsurpassed opulence that abruptly ended with the wake-up call of the Great Depression.
The unmatched prosperity of the post-World War II years once again had Americans indulging in conspicuous consumption. We drove gas-guzzling behemoths with toothy chromium grilles that our British cousins dubbed "The American Dollar Grin." We lived in stretched-out ranch houses with purposely prominent double garages and competed with the Joneses to see whose driveway held the latest tail-finned wonder.
The 1960s brought an escalating Cold War in Europe, as well as an all-too-real war in Vietnam. The decade also gave Americans their first real inkling of the world's impending troubles: mushrooming population, environmental pollution and diminishing resources. It was enough of a reality check to bring us down to earth from the heady materialism of the Eisenhower years.
Needless to say, America is once again at the peak – at least, one hopes it's the peak – of one of these materialistic cycles. As we preside over the dawn of the 21st century, the typical new house has bloated to more than twice the size of an average home of 1950, despite the fact that families have gotten smaller. In the last two decades alone, the average floor area of new homes has increased some 40 percent.
Along the same lines, it's become routine to see featherweight housewives wrestling gigantic 7-foot-high SUVs on half-mile grocery runs. Alas, it doesn't end there, either. Recently, in a shopping mall in a middle-class suburb of Portland, I came across three different boutiques selling clothing, diet supplements and confections – for dogs.
Perhaps there is a point when too much really is too much. We've all seen that bumper sticker beloved by the terminally empty-headed: "He Who Dies With the Most Toys Wins." Yet few intelligent Americans would argue that having a huge house and a couple of Escalades, much less a larder stocked with dog pastries, has actually made their lives any happier. Some might even own up to the contrary. Yet we seem unable to perceive the siren song of materialism for the commercial sham that it is.
Frank Lloyd Wright once observed: "Many wealthy people are little more than janitors of their possessions." Today, it's not just the wealthy who are so afflicted. Rich and poor, old and young, left and right, we Americans seem poised to become a nation of janitors.
Inman News, Friday, October 14, 2005
By Arrol Gellner
We Americans are a people with profoundly changeable opinions. Our lifestyle ideals, for instance, seesaw from extravagance to asceticism in bursts of 30 years or so. This peculiar national trait affects our architecture as it does everything else, repeatedly taking us from overblown ostentation to reactionary modesty and back again.
The Victorian era, with its seemingly insatiable appetite for visual bombast, gave us an architecture of vast, splendid, yet manifestly impractical, houses. By the dawn of the 20th century, a backlash against these pompous dwellings had ushered in the Arts and Crafts movement, with its renewed appreciation for simplicity and hand craftsmanship.
This chaste aesthetic survived into the economic giddiness of the Roaring Twenties. Then, fueled by a superheated economy, architecture once again entered a period of unsurpassed opulence that abruptly ended with the wake-up call of the Great Depression.
The unmatched prosperity of the post-World War II years once again had Americans indulging in conspicuous consumption. We drove gas-guzzling behemoths with toothy chromium grilles that our British cousins dubbed "The American Dollar Grin." We lived in stretched-out ranch houses with purposely prominent double garages and competed with the Joneses to see whose driveway held the latest tail-finned wonder.
The 1960s brought an escalating Cold War in Europe, as well as an all-too-real war in Vietnam. The decade also gave Americans their first real inkling of the world's impending troubles: mushrooming population, environmental pollution and diminishing resources. It was enough of a reality check to bring us down to earth from the heady materialism of the Eisenhower years.
Needless to say, America is once again at the peak – at least, one hopes it's the peak – of one of these materialistic cycles. As we preside over the dawn of the 21st century, the typical new house has bloated to more than twice the size of an average home of 1950, despite the fact that families have gotten smaller. In the last two decades alone, the average floor area of new homes has increased some 40 percent.
Along the same lines, it's become routine to see featherweight housewives wrestling gigantic 7-foot-high SUVs on half-mile grocery runs. Alas, it doesn't end there, either. Recently, in a shopping mall in a middle-class suburb of Portland, I came across three different boutiques selling clothing, diet supplements and confections – for dogs.
Perhaps there is a point when too much really is too much. We've all seen that bumper sticker beloved by the terminally empty-headed: "He Who Dies With the Most Toys Wins." Yet few intelligent Americans would argue that having a huge house and a couple of Escalades, much less a larder stocked with dog pastries, has actually made their lives any happier. Some might even own up to the contrary. Yet we seem unable to perceive the siren song of materialism for the commercial sham that it is.
Frank Lloyd Wright once observed: "Many wealthy people are little more than janitors of their possessions." Today, it's not just the wealthy who are so afflicted. Rich and poor, old and young, left and right, we Americans seem poised to become a nation of janitors.
07 October 2005
A Push Toward Clear Closing Costs
Washington Post, October 8, 2005
By Kenneth R. Harney
It is by far the most common consumer complaint to the federal government involving the home-buying process: uncertainty about the bottom-line costs of obtaining and closing the mortgage.
Unlike with other major purchases, most home buyers cannot be absolutely sure what fees they will be expected to pay at settlement to their lender, title company and other service providers connected with the transaction. Though buyers routinely receive "good-faith estimates" of their expenses, there's a gaping hole in the law that allows those costs to balloon -- sometimes dramatically -- between the time of the estimate and settlement. Federal law does not require any service provider to make good on the estimates.
For example, if an unscrupulous lender tacks on $600 in junk fees at settlement that were never mentioned upfront in the good-faith estimates, that's your financial problem to deal with, not the lender's. If the title charges were understated by half and total $2,400 on the settlement sheet, not the estimated $1,200, that extra cost is on you, not the title company.
But that game of real estate gotcha may be on the way out. Major mortgage lending and brokerage groups themselves are either recommending or actively considering reforms that would "harden" buyers' good-faith estimates into guarantees.
The National Association of Mortgage Brokers, the principal lobby for the country's 60,000-plus loan brokers, now favors mandatory "redisclosure" by lenders and brokers whenever a buyer's closing fees are 10 percent higher than the original good-faith estimate. It also favors giving consumers the right to sue the lender or broker if fees exceed 10 percent of the original estimate and no redisclosure is made before settlement.
The National Association of Independent Mortgage Bankers goes one step further. It supports ironclad, upfront guarantees on all charges that are under the direct control of the lender. These include appraisals, underwriting, application fees, underwriting fees, processing, credit reports, flood zone certifications and tax service fees, among others. The same group also wants similar guarantees on all loan origination charges and points once the mortgage rate is locked. It also demands that title insurance costs -- often the source of the biggest surprises at settlement -- be guaranteed to the home purchaser once the title company confirms a specific charge to the lender or broker.
Still another influential group, the Consumer Mortgage Coalition, which represents some of the largest banks and mortgage companies in the country, supports mandatory guarantees on lender settlement costs. It has drafted a plan that would spell out and guarantee all lender fees, lender title insurance, and taxes and other expenses upfront, at the time of the rate quote. The offer to the consumer would disclose exactly which charges are not guaranteed and beyond the lender's control, such as homeowner's insurance, optional owner's title insurance, flood insurance, daily interest charges and escrows.
All of the recent flurry of proposals has been stimulated by the Department of Housing and Urban Development's ongoing campaign to persuade the key participants in the home purchase and lending process to come up with and support pro-consumer reforms on settlement-cost uncertainties. So far, the mortgage industry's emerging emphasis on guaranteeing -- or at least hardening -- the good-faith estimates appears to be the most promising direction for change.
But heads-up consumers don't have to wait for any of these proposals to become widespread. A small but growing number of lenders already offer fixed-price package deals. These provide you a rate quote along with an absolute guarantee on most, if not all, associated fees. Shop around for such deals because not all lenders advertise them, and some national lenders are trying them out in select locations only.
Besides these, however, you can harden your good-faith estimates on your own and avoid costly eleventh-hour settlement-fee shocks. As you shop for a mortgage, ask whether the broker or lender is willing to guarantee all estimates of its own fees and charges. Ask if the broker or lender will stipulate to that in writing. If the answer is no, you may want to ask yourself: What sort of company is unwilling to guarantee its own charges -- fees that it should know with certainty upfront?
Then ask for guarantees of all title-related charges -- either from the title company you choose on your own or from the lender, if the lender recommends the title company you use. Again, if a company won't stand behind its own estimates, do you really want to do business with it on the biggest purchase of your life?
By Kenneth R. Harney
It is by far the most common consumer complaint to the federal government involving the home-buying process: uncertainty about the bottom-line costs of obtaining and closing the mortgage.
Unlike with other major purchases, most home buyers cannot be absolutely sure what fees they will be expected to pay at settlement to their lender, title company and other service providers connected with the transaction. Though buyers routinely receive "good-faith estimates" of their expenses, there's a gaping hole in the law that allows those costs to balloon -- sometimes dramatically -- between the time of the estimate and settlement. Federal law does not require any service provider to make good on the estimates.
For example, if an unscrupulous lender tacks on $600 in junk fees at settlement that were never mentioned upfront in the good-faith estimates, that's your financial problem to deal with, not the lender's. If the title charges were understated by half and total $2,400 on the settlement sheet, not the estimated $1,200, that extra cost is on you, not the title company.
But that game of real estate gotcha may be on the way out. Major mortgage lending and brokerage groups themselves are either recommending or actively considering reforms that would "harden" buyers' good-faith estimates into guarantees.
The National Association of Mortgage Brokers, the principal lobby for the country's 60,000-plus loan brokers, now favors mandatory "redisclosure" by lenders and brokers whenever a buyer's closing fees are 10 percent higher than the original good-faith estimate. It also favors giving consumers the right to sue the lender or broker if fees exceed 10 percent of the original estimate and no redisclosure is made before settlement.
The National Association of Independent Mortgage Bankers goes one step further. It supports ironclad, upfront guarantees on all charges that are under the direct control of the lender. These include appraisals, underwriting, application fees, underwriting fees, processing, credit reports, flood zone certifications and tax service fees, among others. The same group also wants similar guarantees on all loan origination charges and points once the mortgage rate is locked. It also demands that title insurance costs -- often the source of the biggest surprises at settlement -- be guaranteed to the home purchaser once the title company confirms a specific charge to the lender or broker.
Still another influential group, the Consumer Mortgage Coalition, which represents some of the largest banks and mortgage companies in the country, supports mandatory guarantees on lender settlement costs. It has drafted a plan that would spell out and guarantee all lender fees, lender title insurance, and taxes and other expenses upfront, at the time of the rate quote. The offer to the consumer would disclose exactly which charges are not guaranteed and beyond the lender's control, such as homeowner's insurance, optional owner's title insurance, flood insurance, daily interest charges and escrows.
All of the recent flurry of proposals has been stimulated by the Department of Housing and Urban Development's ongoing campaign to persuade the key participants in the home purchase and lending process to come up with and support pro-consumer reforms on settlement-cost uncertainties. So far, the mortgage industry's emerging emphasis on guaranteeing -- or at least hardening -- the good-faith estimates appears to be the most promising direction for change.
But heads-up consumers don't have to wait for any of these proposals to become widespread. A small but growing number of lenders already offer fixed-price package deals. These provide you a rate quote along with an absolute guarantee on most, if not all, associated fees. Shop around for such deals because not all lenders advertise them, and some national lenders are trying them out in select locations only.
Besides these, however, you can harden your good-faith estimates on your own and avoid costly eleventh-hour settlement-fee shocks. As you shop for a mortgage, ask whether the broker or lender is willing to guarantee all estimates of its own fees and charges. Ask if the broker or lender will stipulate to that in writing. If the answer is no, you may want to ask yourself: What sort of company is unwilling to guarantee its own charges -- fees that it should know with certainty upfront?
Then ask for guarantees of all title-related charges -- either from the title company you choose on your own or from the lender, if the lender recommends the title company you use. Again, if a company won't stand behind its own estimates, do you really want to do business with it on the biggest purchase of your life?
Who Wins in a Real Estate Market Downturn?
While I would argue that we are NOT experiencing any downturn here in NoVA and DC, in some parts of the country, Realtors with whom I'm in contact assert the precise opposite. Here's one perspective on "Who Wins in a Real Estate Market Downturn?"
Many lose, but some win when housing market slows
Inman News, Friday, October 07, 2005
If the housing market turns south, a lot of people will lose: homeowners, investors and real estate professionals, to name a few. But a lot of people would benefit from a slower real estate market. Inman News has compiled a list of beneficiaries:
1. Foreclosure and pre-foreclosure investors:Marla Webb, a senior advisor to the Foreclosure Economic Advisory Council, a non-profit group affiliated with the for-profit Foreclosures.com, said experienced foreclosure investors and investment groups who are wise to long-term real estate cycles can profit in a downturn.
"The folks who do best are those who are already engaged in foreclosure investing – people who are building a portfolio. It's not those who like to buy and flip," she said. "Much of the hot markets have been heated up by people who don't have a real understanding of long-term management aspects of real estate. People who are speculators jump in and out."
Real estate speculators can boost a booming market higher and, similarly, drive a slumping market further down, Webb said. Rising foreclosure rates may scare some short-term speculators away while attracting the more seasoned investors, she added.
"Investment in real estate, like in many other commodities, tends to provide momentum in the direction it started to go. I call it the 'greased rails syndrome.' I think investors are greasing the rails in the direction of less of a seller's market." As investors who rode the boom bail out, they may precipitate a faster downturn, she said.
While foreclosure statistics don't yet indicate a significant turn in the U.S. real estate market, Webb said there are signs of cooling. And higher interest rates and higher energy costs could be a factor in a real estate downturn.
2. Borrowers who took out conservative mortgages and didn't get in over their heads: Prudence wins in a slow housing market. While those buyers who took a risk with exotic products like interest-only, no-money-down loans could get hit hard, the ones who borrowed under more traditional terms and stayed within their buying power should have no worries.
Likewise, lenders that kept tight underwriting standards during boom times shouldn't have to worry too much about excessive defaults or foreclosures coming their way.
3. Tax lien investors: These investors would benefit if there's a rise in delinquencies, said Howard C. Liggett, executive director of the National Tax Lien Association, which represents lien investors. Investors buy liens on the property taxes, which are auctioned off by local governments, and profit from the interest that is set by the state. In some cases, investors can receive up to 18 percent return on investment, according to NTLA.
The property tax lien market has prospered during boom years, with 32 states auctioning off $5 billion to $7 billion of unpaid cash bills per year, Liggett said. This segment also is expected to do well in a housing slump.
4. The prognosticators: While most economists and academics have shunned the notion of a housing bubble, some have been talking about it and predicting it's downturn for years. Among them: Yale University Economist Robert Shiller, author of "Irrational Exuberance" and cofounder of real estate analytics firm Fiserv Case Shiller Weiss; Dean Baker, co-director of the Center for Economic and Policy Research; and economists working on the Anderson Forecast produced by the University of California, Los Angeles.
"Each month that goes by with higher and higher levels of spending on homes, and higher and higher prices of existing homes, we are building a larger and larger mountain of adjustment to come," according to an analysis by Edward Leamer, director of the UCLA Anderson Forecast, said in a June forecast. "The next recession is highly likely to get started in the housing market, which has been made very fragile by very high levels of appreciation in some markets and by high levels of residential investment nationwide."
5. Wait-and-see buyers: They shopped around for a home at the top of the market, but backed off because there were too many multiple-offer situations and the asking prices were too high. As long as interest rates for mortgages remain low, these wait-and-see buyers will benefit from a slowing market, which shifts the balance back from the seller's corner. Plus, real estate agents will be fawning over them and treating them much better than during boom days when buyers were a dime a dozen.
6. Auction companies: Historically, auctioneers have done well in booming markets, and even better in slower ones, said Tony Isbell, president and CEO of RealtyBid International, an online auction company based in Gadsden, Ala. "Auctioneers as a whole had a record year last year in real estate, and it's anticipated that (the sector) will really explode as things slow down," he said.
Auctions typically take less time than traditional selling methods, Isbell said, and especially during slower markets. The two main benefits of selling by auction are that sellers maintain more control over the terms of the process, and the process is expedited, he said.
7. Lead generation companies: Companies offering up home buyer leads to real estate brokers and agents may see a surge in customers as more agents eye prospective buyers as clients. The listing agents who relied solely on listing properties for business during boom days will be looking for new ways to build up a network of buyer clients since listings will be scarce during a slowdown.
8. REO companies: These companies will benefit because slower markets tend to churn out more real estate foreclosures. Banks that end up holding title to a bunch of property will likely hand it over to an REO outfit that can sell it off quickly so they don't have to waste any time holding ownership of the property.
9. Wall Street: During the housing boom, many investors turned to real estate while the stock market slumped after the dot-com bust. If home-price appreciation rates slow or stagnate, many investors will pull out of Main Street and head back to Wall Street.
10. Scam artists: They benefited from the boom and they'll benefit from the big chill too, but will switch their focus. Instead of offering people broad advice on how to get rich quick in real estate investment, they'll be offering to save troubled borrowers from foreclosure using dicey tactics that many times result in the borrower losing his or her home.
Many lose, but some win when housing market slows
Inman News, Friday, October 07, 2005
If the housing market turns south, a lot of people will lose: homeowners, investors and real estate professionals, to name a few. But a lot of people would benefit from a slower real estate market. Inman News has compiled a list of beneficiaries:
1. Foreclosure and pre-foreclosure investors:Marla Webb, a senior advisor to the Foreclosure Economic Advisory Council, a non-profit group affiliated with the for-profit Foreclosures.com, said experienced foreclosure investors and investment groups who are wise to long-term real estate cycles can profit in a downturn.
"The folks who do best are those who are already engaged in foreclosure investing – people who are building a portfolio. It's not those who like to buy and flip," she said. "Much of the hot markets have been heated up by people who don't have a real understanding of long-term management aspects of real estate. People who are speculators jump in and out."
Real estate speculators can boost a booming market higher and, similarly, drive a slumping market further down, Webb said. Rising foreclosure rates may scare some short-term speculators away while attracting the more seasoned investors, she added.
"Investment in real estate, like in many other commodities, tends to provide momentum in the direction it started to go. I call it the 'greased rails syndrome.' I think investors are greasing the rails in the direction of less of a seller's market." As investors who rode the boom bail out, they may precipitate a faster downturn, she said.
While foreclosure statistics don't yet indicate a significant turn in the U.S. real estate market, Webb said there are signs of cooling. And higher interest rates and higher energy costs could be a factor in a real estate downturn.
2. Borrowers who took out conservative mortgages and didn't get in over their heads: Prudence wins in a slow housing market. While those buyers who took a risk with exotic products like interest-only, no-money-down loans could get hit hard, the ones who borrowed under more traditional terms and stayed within their buying power should have no worries.
Likewise, lenders that kept tight underwriting standards during boom times shouldn't have to worry too much about excessive defaults or foreclosures coming their way.
3. Tax lien investors: These investors would benefit if there's a rise in delinquencies, said Howard C. Liggett, executive director of the National Tax Lien Association, which represents lien investors. Investors buy liens on the property taxes, which are auctioned off by local governments, and profit from the interest that is set by the state. In some cases, investors can receive up to 18 percent return on investment, according to NTLA.
The property tax lien market has prospered during boom years, with 32 states auctioning off $5 billion to $7 billion of unpaid cash bills per year, Liggett said. This segment also is expected to do well in a housing slump.
4. The prognosticators: While most economists and academics have shunned the notion of a housing bubble, some have been talking about it and predicting it's downturn for years. Among them: Yale University Economist Robert Shiller, author of "Irrational Exuberance" and cofounder of real estate analytics firm Fiserv Case Shiller Weiss; Dean Baker, co-director of the Center for Economic and Policy Research; and economists working on the Anderson Forecast produced by the University of California, Los Angeles.
"Each month that goes by with higher and higher levels of spending on homes, and higher and higher prices of existing homes, we are building a larger and larger mountain of adjustment to come," according to an analysis by Edward Leamer, director of the UCLA Anderson Forecast, said in a June forecast. "The next recession is highly likely to get started in the housing market, which has been made very fragile by very high levels of appreciation in some markets and by high levels of residential investment nationwide."
5. Wait-and-see buyers: They shopped around for a home at the top of the market, but backed off because there were too many multiple-offer situations and the asking prices were too high. As long as interest rates for mortgages remain low, these wait-and-see buyers will benefit from a slowing market, which shifts the balance back from the seller's corner. Plus, real estate agents will be fawning over them and treating them much better than during boom days when buyers were a dime a dozen.
6. Auction companies: Historically, auctioneers have done well in booming markets, and even better in slower ones, said Tony Isbell, president and CEO of RealtyBid International, an online auction company based in Gadsden, Ala. "Auctioneers as a whole had a record year last year in real estate, and it's anticipated that (the sector) will really explode as things slow down," he said.
Auctions typically take less time than traditional selling methods, Isbell said, and especially during slower markets. The two main benefits of selling by auction are that sellers maintain more control over the terms of the process, and the process is expedited, he said.
7. Lead generation companies: Companies offering up home buyer leads to real estate brokers and agents may see a surge in customers as more agents eye prospective buyers as clients. The listing agents who relied solely on listing properties for business during boom days will be looking for new ways to build up a network of buyer clients since listings will be scarce during a slowdown.
8. REO companies: These companies will benefit because slower markets tend to churn out more real estate foreclosures. Banks that end up holding title to a bunch of property will likely hand it over to an REO outfit that can sell it off quickly so they don't have to waste any time holding ownership of the property.
9. Wall Street: During the housing boom, many investors turned to real estate while the stock market slumped after the dot-com bust. If home-price appreciation rates slow or stagnate, many investors will pull out of Main Street and head back to Wall Street.
10. Scam artists: They benefited from the boom and they'll benefit from the big chill too, but will switch their focus. Instead of offering people broad advice on how to get rich quick in real estate investment, they'll be offering to save troubled borrowers from foreclosure using dicey tactics that many times result in the borrower losing his or her home.
06 October 2005
Supply Hits High In Condo Craze
Supply Hits High In Condo Craze - 47,000 Units Are in the Works, and Demand Is Up
Washington Post, October 6, 2005; p. D01
By Kirstin Downey
Developers eager to capitalize on the local condo frenzy of the past several years are planning some 47,000 units in dozens of projects that will hit the market in the Washington area in the next three years, according to a new report -- about five times as many units as were sold last year.
Demand is up, even compared with a year ago, when eager buyers routinely waited in early-morning lines for a shot at a contract, according to the report from Delta Associates, an Alexandria real estate research firm that tracks the condo construction market here. But supply is up even more sharply, as developers bet that the momentum will continue.
"You don't see people throwing money at listings anymore, like in 2001, 2002 and 2003. . . . There are hundreds, if not thousands, coming on line in Logan Circle in the next year or so, and hundreds more on Massachusetts Avenue. That's a lot of condos. It'll be interesting to see if the market can absorb them," said Mark Gude, a real estate agent with Continental Properties Ltd. in the District.
It's not just a D.C. phenomenon -- there are thousands of new and converted units in the suburbs, too. Developers had more than three times as many condos for sale around the region at the end of September compared with a year earlier: 18,872 units now versus 5,630 then, according to Delta Associates.
But so far, demand appears to be increasing, as well. About 10,157 newly developed condos were sold in the first three quarters of the year, which puts 2005 sales on pace to far outstrip those of 2004, when 9,108 units were sold in the entire year, according to Delta Associates.
But, given the increase in supply, condo prices are expected to moderate after several years in which many properties appreciated 20 percent or more annually.
"It's gone from being a straight-up, red-hot market, trees growing to the sky, to a marketplace that is now competitive," said economist Gregory H. Leisch, Delta's chief executive.
Nationally, the manic pace in condominium sales in markets such as South Florida, Las Vegas and California has made analysts question whether the sector has become overpriced and unbalanced.
In the Washington area, many industry observers are questioning whether this region, too, may face a glut. One possibility, however, is that there may be more pent-up demand for projects than developers have been able to satisfy.
Many of the new projects in the Washington area have unusual features -- introducing urban, high-rise living to new suburban downtowns in Reston, Rockville and Shirlington, for example -- that may draw more older buyers into the condo market.
Other properties, largely rentals that are being converted into condominiums, will offer people previously priced out of the housing market the opportunity to buy.
For buyers, it means more choice than in the recent past. Daniel Kaufman, 38, a lawyer at the Federal Trade Commission, is a New York City native who was looking for something more innovative than the traditional D.C. condo but had trouble finding it. Today, he will move into a $450,000 unit in a new building at 2020 12th St. NW, a loft-style project.
"It's great," Kaufman said. "There are lots of new exciting developments going up, and people are moving into neighborhoods they weren't moving into before."
One reason there are more condos for sale is that many rental properties are being converted to condos. Virginia is one of the hottest condo-conversion markets in the country. Fifteen apartment complexes about 89 percent of the total apartment-sales volume -- were sold for conversion to condos there in the past year, according to Real Capital Analytics, a real estate information firm.
Regionwide, 24 rental complexes were sold in the past year for conversion, according to Real Capital.
Among the condo conversions in the region are Summit Square, an Oakton apartment complex, being marketed now as the Four Winds at Oakton, and Vaughan Place at McLean Gardens, a rental-to-condo conversion in the District that will go on the market soon. About 48 percent of the condos that have sold this year have been rental-to-condo conversions, according to Delta Associates, and about 33 percent of the total units for sale are conversions.
The trend has been alarming for renters who have been displaced, especially low-income people who had been living in relatively inexpensive apartment complexes. Some local officials fear a further erosion of the region's already-diminishing pool of affordable housing.
But many of the conversions involve upscale, top-priced rental projects heavy on attractive amenities, where upper-income renters can buy a unit if they wish or easily move elsewhere, in a rental market that has become looser in recent years. In addition, low interest rates and easy credit terms that permit people to buy homes with small down payments allow renters to own more easily, if they choose.
The biggest risk may be to developers and lenders. Nationally, the rate of condo conversions has more than tripled in the past two years, according a Fitch Ratings report in June. Condo-conversion companies are paying apartment-building owners top dollar for such properties -- considerably more than the value of the properties as rentals -- and are borrowing to do so. Fitch analysts said that many markets are "overheated," making it harder for the companies to make the easy profits of past years, and the firm predicts that 10 percent of condo-conversion loans will default.
Washington Post, October 6, 2005; p. D01
By Kirstin Downey
Developers eager to capitalize on the local condo frenzy of the past several years are planning some 47,000 units in dozens of projects that will hit the market in the Washington area in the next three years, according to a new report -- about five times as many units as were sold last year.
Demand is up, even compared with a year ago, when eager buyers routinely waited in early-morning lines for a shot at a contract, according to the report from Delta Associates, an Alexandria real estate research firm that tracks the condo construction market here. But supply is up even more sharply, as developers bet that the momentum will continue.
"You don't see people throwing money at listings anymore, like in 2001, 2002 and 2003. . . . There are hundreds, if not thousands, coming on line in Logan Circle in the next year or so, and hundreds more on Massachusetts Avenue. That's a lot of condos. It'll be interesting to see if the market can absorb them," said Mark Gude, a real estate agent with Continental Properties Ltd. in the District.
It's not just a D.C. phenomenon -- there are thousands of new and converted units in the suburbs, too. Developers had more than three times as many condos for sale around the region at the end of September compared with a year earlier: 18,872 units now versus 5,630 then, according to Delta Associates.
But so far, demand appears to be increasing, as well. About 10,157 newly developed condos were sold in the first three quarters of the year, which puts 2005 sales on pace to far outstrip those of 2004, when 9,108 units were sold in the entire year, according to Delta Associates.
But, given the increase in supply, condo prices are expected to moderate after several years in which many properties appreciated 20 percent or more annually.
"It's gone from being a straight-up, red-hot market, trees growing to the sky, to a marketplace that is now competitive," said economist Gregory H. Leisch, Delta's chief executive.
Nationally, the manic pace in condominium sales in markets such as South Florida, Las Vegas and California has made analysts question whether the sector has become overpriced and unbalanced.
In the Washington area, many industry observers are questioning whether this region, too, may face a glut. One possibility, however, is that there may be more pent-up demand for projects than developers have been able to satisfy.
Many of the new projects in the Washington area have unusual features -- introducing urban, high-rise living to new suburban downtowns in Reston, Rockville and Shirlington, for example -- that may draw more older buyers into the condo market.
Other properties, largely rentals that are being converted into condominiums, will offer people previously priced out of the housing market the opportunity to buy.
For buyers, it means more choice than in the recent past. Daniel Kaufman, 38, a lawyer at the Federal Trade Commission, is a New York City native who was looking for something more innovative than the traditional D.C. condo but had trouble finding it. Today, he will move into a $450,000 unit in a new building at 2020 12th St. NW, a loft-style project.
"It's great," Kaufman said. "There are lots of new exciting developments going up, and people are moving into neighborhoods they weren't moving into before."
One reason there are more condos for sale is that many rental properties are being converted to condos. Virginia is one of the hottest condo-conversion markets in the country. Fifteen apartment complexes about 89 percent of the total apartment-sales volume -- were sold for conversion to condos there in the past year, according to Real Capital Analytics, a real estate information firm.
Regionwide, 24 rental complexes were sold in the past year for conversion, according to Real Capital.
Among the condo conversions in the region are Summit Square, an Oakton apartment complex, being marketed now as the Four Winds at Oakton, and Vaughan Place at McLean Gardens, a rental-to-condo conversion in the District that will go on the market soon. About 48 percent of the condos that have sold this year have been rental-to-condo conversions, according to Delta Associates, and about 33 percent of the total units for sale are conversions.
The trend has been alarming for renters who have been displaced, especially low-income people who had been living in relatively inexpensive apartment complexes. Some local officials fear a further erosion of the region's already-diminishing pool of affordable housing.
But many of the conversions involve upscale, top-priced rental projects heavy on attractive amenities, where upper-income renters can buy a unit if they wish or easily move elsewhere, in a rental market that has become looser in recent years. In addition, low interest rates and easy credit terms that permit people to buy homes with small down payments allow renters to own more easily, if they choose.
The biggest risk may be to developers and lenders. Nationally, the rate of condo conversions has more than tripled in the past two years, according a Fitch Ratings report in June. Condo-conversion companies are paying apartment-building owners top dollar for such properties -- considerably more than the value of the properties as rentals -- and are borrowing to do so. Fitch analysts said that many markets are "overheated," making it harder for the companies to make the easy profits of past years, and the firm predicts that 10 percent of condo-conversion loans will default.
01 October 2005
A Career in Real Estate Takes Planning and Work!
Source: Washington Times, September 30, 2005
By M. Anthony Carr
It is about that time of year when people start reviewing their professional lives to determine if they want to continue down the same vocational path. That thought process leads a lot of people to sign up for real estate classes.
Many real estate agents I've talked to say they made the decision to get into real estate after having purchased a home and seeing a seemingly easy job performed by someone with as much intelligence as they have and then walking away, it seemed, with a big wad of cash.
Now that they have started selling, they realize that while the job of an agent is not difficult, it does require very hard work.
The challenge of agency involves working days on end without any pay; having to fund most of your own business expenses; burning up a lot of gas and spending time with people who eventually don't buy anything; and questioning why you got in this business in the first place when the time between deals -- paychecks -- is weeks and months at a time.
The average agent in the U.S. in 2003 made about $45,640, according to the U.S. Bureau of Labor Statistics, and the agent's broker brought in about $74,100.
The funny thing about averages in this field, however, is that the rule of 80/20 definitely holds. While you might have a market selling $15 billion, about 20 percent of the agents sell 80 percent of it. Meanwhile, more and more people want to get their hands on the money, so more people are getting into the business every day and that means the pie is getting cut into smaller pieces.
As you seek out your new career in real estate sales, you'll invariably come across want ads in your local paper that read something like this:
"Real Estate Sales. Your destiny has come knocking! Entrepreneurial challenge, creative passion, economic oppty. Outrageous splits and training that create super earners. New approach. Technology-driven advantage. Ongoing mentoring. Free software."
This is a real ad I saw in New Jersey.
The subtext should read something like this:
"Work as long or little as you want. Go ahead and quit your day job, leaving behind health insurance, the matching 401(k) plan, paid vacations and sick leave. Earn commission-only income while working long hours, including nights and weekends, with fickle clients and people who are also using another agent without telling you. Create your own fliers, marketing materials and promotional stuff. You only get paid if you come in first place. The income is unlimited, meaning there's no maximum you can make -- but there's no minimum either."
Inevitably, the training consists of pointing you in the right direction, then letting you do all the work. For "New approach," and "Technology-driven advantage," read "we have a new Web site."
"Ongoing mentoring" likely will be provided by a really busy, successful, but tired agent, or a new agent who's had a few deals under his belt.
Yes, my comments are tongue-in-cheek, but I'll bet agents who read this are nodding their heads in agreement.
The best thing about a career in real estate is the flexibility. The worst thing about it is -- you guessed it -- flexibility. To be a six-figure agent requires hard work, business planning, consistent prospecting and learning how to close the deal. If you have these skills or are willing to learn them, then a career in real estate may be right for you.
By M. Anthony Carr
It is about that time of year when people start reviewing their professional lives to determine if they want to continue down the same vocational path. That thought process leads a lot of people to sign up for real estate classes.
Many real estate agents I've talked to say they made the decision to get into real estate after having purchased a home and seeing a seemingly easy job performed by someone with as much intelligence as they have and then walking away, it seemed, with a big wad of cash.
Now that they have started selling, they realize that while the job of an agent is not difficult, it does require very hard work.
The challenge of agency involves working days on end without any pay; having to fund most of your own business expenses; burning up a lot of gas and spending time with people who eventually don't buy anything; and questioning why you got in this business in the first place when the time between deals -- paychecks -- is weeks and months at a time.
The average agent in the U.S. in 2003 made about $45,640, according to the U.S. Bureau of Labor Statistics, and the agent's broker brought in about $74,100.
The funny thing about averages in this field, however, is that the rule of 80/20 definitely holds. While you might have a market selling $15 billion, about 20 percent of the agents sell 80 percent of it. Meanwhile, more and more people want to get their hands on the money, so more people are getting into the business every day and that means the pie is getting cut into smaller pieces.
As you seek out your new career in real estate sales, you'll invariably come across want ads in your local paper that read something like this:
"Real Estate Sales. Your destiny has come knocking! Entrepreneurial challenge, creative passion, economic oppty. Outrageous splits and training that create super earners. New approach. Technology-driven advantage. Ongoing mentoring. Free software."
This is a real ad I saw in New Jersey.
The subtext should read something like this:
"Work as long or little as you want. Go ahead and quit your day job, leaving behind health insurance, the matching 401(k) plan, paid vacations and sick leave. Earn commission-only income while working long hours, including nights and weekends, with fickle clients and people who are also using another agent without telling you. Create your own fliers, marketing materials and promotional stuff. You only get paid if you come in first place. The income is unlimited, meaning there's no maximum you can make -- but there's no minimum either."
Inevitably, the training consists of pointing you in the right direction, then letting you do all the work. For "New approach," and "Technology-driven advantage," read "we have a new Web site."
"Ongoing mentoring" likely will be provided by a really busy, successful, but tired agent, or a new agent who's had a few deals under his belt.
Yes, my comments are tongue-in-cheek, but I'll bet agents who read this are nodding their heads in agreement.
The best thing about a career in real estate is the flexibility. The worst thing about it is -- you guessed it -- flexibility. To be a six-figure agent requires hard work, business planning, consistent prospecting and learning how to close the deal. If you have these skills or are willing to learn them, then a career in real estate may be right for you.
Cendant Retort to WSJ: Real Estate Is Open and Competitive
Source: REALTOR® Magazine Online
(September 30, 2005) -- Responding to an editorial in The Wall Street Journal that suggested real estate practitioners suppress competition in local markets, Richard A. Smith, chairman and CEO of Cendant Corp.'s Real Estate Services Division, wrote a letter to the editor about just how competitive the industry is.
In the original editorial "Justice v. REALTORS®" on Sept. 14, the Journal's editorialists wrote in reference to a lawsuit filed by the U.S. Department of Justice against the NATIONAL ASSOCIATION OF REALTORS® for its Internet listings policy:
"Justice is certainly correct that the REALTORS® have used their political clout to suppress competition in local real-estate markets. One charming legal barrier in about a dozen states—called 'minimum service requirements'—prohibits such discount realty firms as realestate.com from offering homesellers a flat fee of typically $500 to post their houses on local sale listings. In today's booming market, with the median-priced home now selling at $220,000, the Internet-based firms can save "do-it-yourself" consumers about $10,000 on average in exorbitant REALTOR® fees. Another REALTOR® favorite are state laws that prohibit discount agents from providing rebates to homebuyers of typically $1,000 or more on their fees."
Smith's response to the editorial, which was published Thursday in The Wall Street Journal, countered that the "government should not get involved in dictating to REALTORS® and homeowners" how marketing plans should be implemented.
"The industry is already extremely open to competition," Smith writes. "It establishes a fair price for its services and then markets its products to the competition, sharing 50 percent or more of its fee to attract buyers. And it voluntarily makes its inventory available to competitors, empowering them to avoid the costs and infrastructure to produce their own inventory.
"In the end, the homeowner decides whether the price/value proposition meets his or her needs. Sales associates are almost always independent contractors, and all commission fees are negotiable. A highly efficient marketplace determines what is acceptable. Real estate commissions have been declining for over 10 years, and the national average is 5.1 percent."
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(September 30, 2005) -- Responding to an editorial in The Wall Street Journal that suggested real estate practitioners suppress competition in local markets, Richard A. Smith, chairman and CEO of Cendant Corp.'s Real Estate Services Division, wrote a letter to the editor about just how competitive the industry is.
In the original editorial "Justice v. REALTORS®" on Sept. 14, the Journal's editorialists wrote in reference to a lawsuit filed by the U.S. Department of Justice against the NATIONAL ASSOCIATION OF REALTORS® for its Internet listings policy:
"Justice is certainly correct that the REALTORS® have used their political clout to suppress competition in local real-estate markets. One charming legal barrier in about a dozen states—called 'minimum service requirements'—prohibits such discount realty firms as realestate.com from offering homesellers a flat fee of typically $500 to post their houses on local sale listings. In today's booming market, with the median-priced home now selling at $220,000, the Internet-based firms can save "do-it-yourself" consumers about $10,000 on average in exorbitant REALTOR® fees. Another REALTOR® favorite are state laws that prohibit discount agents from providing rebates to homebuyers of typically $1,000 or more on their fees."
Smith's response to the editorial, which was published Thursday in The Wall Street Journal, countered that the "government should not get involved in dictating to REALTORS® and homeowners" how marketing plans should be implemented.
"The industry is already extremely open to competition," Smith writes. "It establishes a fair price for its services and then markets its products to the competition, sharing 50 percent or more of its fee to attract buyers. And it voluntarily makes its inventory available to competitors, empowering them to avoid the costs and infrastructure to produce their own inventory.
"In the end, the homeowner decides whether the price/value proposition meets his or her needs. Sales associates are almost always independent contractors, and all commission fees are negotiable. A highly efficient marketplace determines what is acceptable. Real estate commissions have been declining for over 10 years, and the national average is 5.1 percent."
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