WILL HOUSING COSTS RISE OR FALL?

Perspective: Up, down, all around for real estate related costs, commissions, fees

Housing costs were a frequently discussed topic in 2006 as markets slowed from explosive highs and everyone from consumers to brokers to agents became acutely tuned to their own expenses. Here are some predictions from the Inman News team on what will happen to housing costs in 2007:

1. Home prices: Not up, not down -- flat is the operative word for home prices. 2006 was the year for adjustment, and adjust they did: they stopped rising as fast as the price of oil. Without easy money, without ridiculous hype and without speculators, 2007 will see further erosion of home prices.

2. Rents: Landlords are finally having their day, as home ownership loses some of its luster. Rental vacancies are tightening up and property owners can finally push up rents.

3. Real estate commissions: The Internet and a tight home listing inventory made for shrinking real estate commissions the last two years. Real estate agents were discounting each other to nab a scarce supply of listings. But that should end as listing inventory expands and the number of agents joining the industry shrinks. Plus, consumers will be willing to pay more to unload the houses that are sitting with very little traffic or action.

4. Mortgage rates: Interest rates have been up, down and all around. But when you smooth out the curves, they should stay about the same next year, say most experts. This alone will prevent a slowing housing market from becoming a bust.

5. Appraiser fees: The pressure is on as more and more online alternatives are created: Zillow, HomeGain and now Fidelity's CyberHomes.com, just to name a few. At some point, these automated home valuations will replace the cookie-cutter home appraiser. High-end and complex transactions will, of course, still require appraisers.

6. Title fees: Regulators have kept title insurance fees artificially high. With renewed sunshine on the title industry, title fees could finally feel the pressure and come down.

7. Open-house staging fees: Stagers will be in high demand, as homeowners must schlep more to sell their homes. Stagers will get more elaborate and so will their fees. More listings, more staging: supply and demand will kick in.

8. Construction supplies: Thanks to a slowing market, contractors' fees and their supply costs will finally come down as the home improvement industry slows and lenders tighten up on credit.

9. Number of Realtors: After 10 years of exploding numbers, the number of Realtors should stabilize with the slowing market and may even fall as the newbies find out that this market will have no mercy.

10. Publicly traded real estate firms: Don't bet your 401(k) on making a killing on publicly traded real estate. REITs (real estate investment trusts) are already pumped up, and the home builders are coming down to real estate reality.

Friday, December 29, 2006

By Inman News

***

BACK ON THE STUMP: TREE TRUNK DECOR

American craft furniture, a mid-20th-century movement that favored organic forms and natural materials, became popular with artsy-crafty types in the '60s, '70s and '80s but never caught on with many fans of modernist design.

In recent years, however, prices for vintage pieces have been steadily climbing. At an auction yesterday at Sotheby's, a custom-made redwood dining table created in 1988 by George Nakashima, one of the fathers of the movement, is expected to fetch between $300,000 and $500,000, shattering previous sales records for works by the designer.

Now a new generation of manufacturers and furniture makers are marketing lines influenced by the American craft sensibility.

Hudson Furniture in New York recently began selling a line of dining tables cut from thick slabs of aged walnut that start at $10,500. Among the top sellers at eco-conscious retailer Viva Terra: a hand-carved stool made from a single piece of sustainable monkey-pod wood that the company added this year; the stool retails for $195. And furniture designer Chista, which primarily sells directly to decorators and architects, introduced a line of coffee tables earlier this year that are made from slices of reclaimed teak. The tables, which look like tree stumps and have a polished ebony finish, start at $7,500.

The mass market lines are also getting competition from a noted name in American craft: Mira Nakashima, daughter of the late furniture maker, recently introduced her own collection. The line of about 15 redwood chairs and tables, heavily influenced by her father's hand-carved, free-form style, starts at about $1,100 for some chairs, up to about $75,000 for large dining tables. (Ms. Nakashima is also creative director of the original Nakashima studio in New Hope, Pa., where sales of new pieces made from her father's original designs have risen steadily in the past few years.)

The revival of American craft comes as the industry looks to shake off continued flattening sales. Household furniture and bedding sales were nearly flat in the second half of 2006, according to an industry report from analyst Jerry Epperson. The report projects sales to grow just 1.6% in 2007.

Retailers and decorators say the designs appeal to homeowners who want to soften the look of rooms that feature sparse, minimalist décor. "One or two pieces can really warm up modernist interiors," says Manhattan interior designer Jasmine Lam.

David Hovey's glass and steel home outside Chicago is dotted with American craft-style furnishings, from desks to end tables. Mr. Hovey, a 62-year-old architect and developer, says the designs "add a natural element that other contemporary styles don't always offer."

Not everyone appreciates the style, however. Los Angeles decorator and textile designer Barclay Butera says the furniture's rough edges and awkward dimensions can turn off some homeowners. "Some people still see it as a hippie decor," he says.

-- December 18, 2006

By Troy McMullen

The Wall Street Journal Online

TIPS ON HOW TO MAKE THE HOLIDAYS GREENER

Lots of people are looking for ways to make their holidays more meaningful by celebrating in a way that improves the environment -- or at least doesn't add to the piles of ripped-up wrapping paper, tossed-out cards and shriveled up pines that eventually end up on the curb. According to estimates from the California Integrated Waste Management Board, an extra million tons of waste are generated nationwide each week during the 10-week holiday season. But we're not all budding Martha Stewarts with the time, talent and energy to make our own green decorations.

Here are five ways to have a green Christmas that don't require skill with glitter or a glue gun:

Rethink how you wrap. Most commercial gift wrap makers don't use recycled paper. Worse, some types of gift wrap, like foils, can't be recycled after they're used. So how can you save some trees and still have a tempting present? Simply folding and reusing gift wrap is one option -- assuming your family doesn't just tear into their presents. But even the most carefully folded paper tends to look creased and crinkled after a few seasons. So try using gift bags, or wrapping the tops and bottoms of boxes separately so the recipient doesn't have to destroy the wrapping or bow to open it. Try using substitutes for store-bought wrapping paper, like old maps decorated with cast-off tape measures or colored string instead of ribbon or the funny pages (but only if your newspaper uses inks that don't rub off on your fingers). Vintage napkins and table runners from yard sales also work well, or a thrift-store shirt topped with an old bow tie.

Get out the shredder. Forget the Styrofoam peanuts; slivers of paper from your shredder make fine, fluffy packing material or filler for gift boxes. Shred pages from holiday catalogs or newspaper inserts -- or even old CDs, if your shredder can handle them -- to add a splash of color and shine.

Use live plants. The long-standing debate will probably never be resolved over whether fake trees or real ones -- recycled after the holidays into mulch -- are more ecologically correct. One way to circumvent the argument entirely is to buy a potted tree, and then plant it after the holidays. Nicole Hillis, a 27-year old government program analyst, uses a live potted tree each year that she and her apartment-mates adorn with homemade strings of popcorn and cranberries. "It sounds like we're hippies, but we're not," she says. "We're just looking for simple ways to reuse things." Another idea, suggested by Washington, D.C. environmental activist and online eco-store owner Reena Kazmann, is to make centerpieces out of a collection of small pots of plants like poinsettias or rosemary. When your guests leave, give each one of the pots as a gift.

Send recycled paper cards or e-cards. No one keeps track of how many of the two billion holiday cards sent each year are on recycled paper, says Barbara Miller, spokeswoman for the Greeting Card Association. But there seems to be a steady market for them: Chicago-based Recycled Paper Greetings has been selling them since 1971, while industry-leader Hallmark Cards Inc. has been seeing "consistent" sales of their recycled line, called Shoebox, for two decades. But since most cards aren't made from recycled stock and aren't recyclable, it makes sense to consider other alternatives. The easiest, at least for those family members who have email, is the e-card. Introduced about a decade ago, e-cards were first offered for free on greeting-card Web sites, and were wildly popular novelties. Soon, however, many companies started charging for them, and usage tapered off. About 20 paper cards are sent for each electronic card during the holidays, according to the Greeting Card Association, a ratio that's held steady for the past four years. Nevertheless, many Web sites, including Hallmark, still offer free e-cards, though the recipient will have to sit through an ad first. Some also let senders personalize cards with family photos or write messages of unlimited length.

Decorate with found objects. You don't need to be an artist to turn household items or collections into memorable decorations -- you just need a little imagination and some bits of ribbon. Seashells, your son's outgrown collection of tiny cars and trucks, and even kitchen cutlery can all be hung on a tree or worked into a wreath or garland. Eco-designer Danny Seo, author of Simply Green Giving (Harper Collins, 2006), is decorating his Christmas tree this year with his collection of antique teacups filled with candy and small toys. Using household objects decoratively is "cheaper and less aggravating" than fighting the crowds at the mall, he says. And because the results are quirky and unique, they also jump-start conversations at parties.

-- November 28, 2006

By June Fletcher

Wall Street Journal Online

YOUR MORTGAGE: PAY NOW, OR HOLD OFF TO INVEST?

Early next year my husband Gerry and I will reach two milestones in our finances: Our mortgage's outstanding balance will drop below $100,000 and, more significantly, more of our monthly payment will go toward principal than interest.

With the passing of both of these milestones, Gerry and I will be that much closer to paying off our 20-year fixed-rate mortgage, a process we're hastening by making additional principal payments of $195 a month. (Why the odd figure? I'll get to that later; the short story is that it is part of $395 a month in spare cash we debated over where to invest. ) Our goal is to have the loan paid off before our seven-year-old son Gerald enters college in 2017, leaving us with income available to meet any potential shortfall in our college savings.

Some people believe paying off a mortgage is a stupid move, and would advise us to forgo the mortgage prepayments and invest that $395 a month elsewhere. This school of thought holds that the wisest financial move you can make is to get mortgages with the lowest monthly payments possible -- refinancing as rates decline -- and never pay off the loans, a strategy that improves your cash-flow and lets you benefit from potential home-price appreciation.

Gerry and I don't agree -- we feel paying off our mortgage as soon as possible is essential to our goal of getting Gerald through college and then retiring. Let me walk you through our thought process. When we purchased Gerry's home from his dad in December 2000, we took out a 20-year mortgage for $122,000. Our timing was good: We nabbed a historically low fixed rate of 5%, with a monthly payment of $805 (not including property taxes and homeowners insurance). We'd been paying $1,200 a month for the mortgage on our first home, so we had a decision to make: What to do with the $395 a month in income the new, lower-rate mortgage freed up?

Our son Gerald was a year old at the time, so saving for college was on my mind. By investing the entire $395 sum in a tax-deferred college-savings account, such as a 529 college-savings plan, we'd be able to sock away $155,822 by the time Gerald graduates high school (assuming we invested in mutual funds with a conservative annual investment return of 6%). That's more than enough to cover the $134,916 this College Board calculator estimates a four-year public university will cost in 2017.

Gerry liked the idea of saving for college, but he was pondering another substantial expense: home remodeling. Our worn-down home was in need of some substantial renovations, starting with the kitchen and a bathroom. We'd planned on tapping a home-equity line of credit to fund these projects, and that $395 a month would help us pay off the debt more quickly. In 2004 our kitchen remodel cost $45,000, and we paid for it with our 10-year, $100,000 home-equity line of credit. At 4.5%, our monthly payments on the remodel were $466.37. As this Bankrate.com home-equity calculator shows, that additional $395 a month would have reduced our payments by five years, saving $5,786 in interest.

What about retirement? By saving that $395 a month in a tax-deferred IRA, we'd save an additional $169,542 for retirement, according to WSJ.com's 401(k) planning tool. Logic ruled that we'd get the biggest benefit from funneling the cash into a retirement-savings account, but Gerry and I decided against that because we'd done our retirement planning and felt we were on target with our savings goals. (Whether we rue that decision as we near retirement age remains to be seen.)

Finally, Gerry thought, why not just keep making our old monthly mortgage payment? By tacking an extra $395 principal payment onto our $805 monthly mortgage nut, we'd shave six years off our 20-year loan term and save $16,535 in interest. Once the mortgage is paid off, another $1,200 a month, or $14,400 a year, would be available to help pay Gerald's college costs.

The more we talked about it, the more Gerry wanted to prepay the mortgage. That six-figure mortgage payment has loomed large over my husband since the night before he closed on his first home in 1992. That night he lay awake, terrified by the $134,000 debt he was about to shoulder. A mortgage that size was mind-boggling -- up until that year he'd never borrowed from a lender in his life, and he hadn't even owned a credit card until his real-estate agent suggested he get one to start building a credit history.

What made him most upset was the way mortgages are structured, with the bulk of the monthly payment going to pay interest at the beginning of the loan term. Fast-forward eight years, when we refinanced our mortgage to buy the new home. That's when Gerry realized that of the $94,391 he'd paid out on his old mortgage over those years, just $12,035 had gone to paying down principal. His reaction? It was ugly.

Neither one of us liked the idea of our refinanced loan taking us back to the starting line in terms of paying principal and interest. Prepaying the loan would help get us closer to where our total principal payments were with the old mortgage.

Still, I knew if we put off thinking about college costs, years might slip away before we got serious about saving. And getting a head start on saving would mean we'd need to save less than if we waited a few years, thanks to the power of compounding interest.

In the end, we decided to split the difference: We'd take half of that $395 a month and save for college, and use the other half to prepay our mortgage. By paying an additional $195 a month (we chose the odd number because it took our $805 monthly mortgage payment to an easy-to-remember $1,000). By doing so we'll shave 47 payments off the term of our 20-year fixed-rate mortgage, saving $11,939 in interest. And in 2014, if things go as planned, Gerald and his high-school pals can join us at our mortgage-burning party.

Prepaying our mortgage works for us, and I see paying off your mortgage while you're still in the work force as a key to having a financially secure retirement: Should you get into a financial bind, you could either sell your home and downsize to a less-expensive one, or (if you qualify) take out a reverse mortgage that lets you tap your home's equity.

That said, there are a number of situations in which making prepayments isn't a good idea. Generally speaking, if you're planning on selling your home within five years, don't bother prepaying -- you won't save enough in interest costs to make it worthwhile.

If you're saddled with a lot of high-interest credit card debt and are prepaying your mortgage, you're paying off the wrong lender: Use all of your disposable cash to pay off the credit cards, then go shopping for a card with a better rate.

If you've been slacking on saving for retirement -- or haven't started saving at all -- forget about prepayments. Figure out how much you'll need to save for retirement here and then use your spare cash to get there by saving through a tax-advantaged retirement account, such as a 401(k) or Roth IRA. Ideally you should aim to save 10% of your gross annual income -- though my print colleague Jonathan Clements would argue that daunting figure is still too low.

Finally, if you're already in retirement and still paying off your mortgage -- with no end in sight -- don't even think about prepaying. Instead consider this radical idea: refinance to a 30-year fixed loan. You might be able to obtain a lower mortgage rate, which would boost your cash flow. And because you pay most of your interest upfront, you may pay less in taxes thanks to the mortgage-interest tax deduction.

-- December 15, 2006

By Terri Cullen From

The Wall Street Journal Online

CONGRESS CREATES NEW TAX BREAK FOR MORTGAGE INSURANCE

Families with income of less than $100,000 can claim deduction

Households with annual income of $100,000 or less can get a tax break on their mortgage insurance when purchasing a home in 2007 using less than the traditional 20 percent down payment.

That's because a new tax deduction effective Jan. 1 will allow them to write off the full cost of their private or government mortgage insurance on their federal tax return.

With rising interest rates and slowing home-price appreciation, insured loans are often the best deal for borrowers, according to the Mortgage Insurance Companies of America, a trade association representing the private mortgage insurance industry.

Mortgage insurance helps loan originators and investors make funds available to home buyers for low-down-payment mortgages by protecting lenders from a portion of the financial risk of default.

"Making the cost of mortgage insurance tax deductible helps those who need it most: low- and moderate-income Americans, primarily first-time home buyers, who are financially responsible but simply don't have the means to amass a 20 percent down payment," said MICA president Steve Smith in a statement.

On average, the new deduction is expected to save those eligible to claim it an average of $300 to $350 a year, said MICA spokesman Jeff Lubar.

The deduction applies to private and government mortgage insurance programs, such as VA and FHA-backed loans, Lubar said. Legislation creating the deduction was supported by consumer, business, taxpayer and civil rights groups, including the National Urban League, the National Taxpayers Union, the American Homeowners Grassroots Alliance, and the Cuban American National Council.

Manny Mirabal, president of the National Puerto Rican Coalition, said about one in three families benefiting from the deduction will be minorities.

Mirabel said that with the rate of Hispanic home ownership lagging 20 percent below the national average of 68 percent, "this legislation (will) enable more hardworking Hispanic families and consumers to become homeowners."

Monday, December 11, 2006

***

Inman News

O CHRISTMAS TREE, HOW COSTLY ARE YOUR BRANCHES

It's getting a little more expensive to put on a holiday light show in the front yard.

The high price of copper is driving up the cost of some lights by as much as 25%. Rising energy costs means it takes more dollars to keep those lights switched on. Higher fuel prices are also making it more costly to ship items, especially large decorations such as those popular life-size blinking Santas. Artificial Christmas trees and tree stands are more costly, too, as the costs of plastic and steel have risen. The higher costs are leading some retailers to cut corners: Some, for example, are skimping on the number of branches they include in their fake trees.

Big-box retailers -- such as Home Depot Inc. and Wal-Mart Stores Inc. -- have managed to keep prices down. Their high-volume orders can garner discounts, and those retailers also ordered early enough to avoid midyear copper-price increases. But independent retailers and decorating services have been hit hard.

The Christmas Light People, a lighting-design firm based in Tewksbury, Mass., that serves the Northeast, recently increased light prices by 20%-25%, adding close to $100 on a typical job. Holiday Lighting Specialists, a maker of Christmas displays in Tonkawa, Okla., that ships around the country, has seen material costs rise three times since January, forcing the company to raise prices on lights and displays by about 10%. TWI Inc., Wichita, Kan., which runs the lighting-design business LightWorks and the national online retailer LightTheNight.com, has also bumped up prices some 10% on imported products. Bennie Alegria, a holiday decorator in the Orlando, Fla., area whose average job runs about $3,000, says he's seen a 10% increase in shipping costs alone on big light displays, such as a popular life-size Santa in a golf cart. He has passed the increase on to clients this year.

All this comes as electricity rates are rising across the country. A 15% increase went into effect in Baltimore this summer, for example. Utah residents will see a 7.6% increase next week.

The expense of decorating is hitting yards around the country. Each year Tony Blore, a homeowner in Bellingham, Wash., adds another large figure to his home's holiday light show. The show already involves 35,000 lights and garners letters of appreciation from neighborhood families. This year, he eyed an animated Santa climbing a ladder and a nearly four-foot diameter blinking ball by LightTheNight.com. But he opted for only the Santa, which cost around $430.

"The prices are just getting quite expensive," he says. "Maybe next year I'll be able to buy more."

While consumers could just head to the big-box stores to avoid the higher prices, some homeowners say they prefer the work of smaller shops and decorators because of their personal service and because they stock more specialty items. Smaller outlets, for example, may offer commercial-grade light strands -- with thicker wire and more connections -- as well as more durable displays not found elsewhere.

Holiday retailers are the latest companies to feel the impact of high material costs. Soaring metal prices in recent years have affected everything from the cookware to the auto-parts industries. High copper prices -- up nearly 50% in the past year -- have even encouraged thieves to steal air conditioning units and pipes to sell at scrap yards. Indeed, some in the holiday decorating industry say they may try to recoup some of their costs by selling lights to scrap dealers after the holidays and then replacing them next year, rather than going through the effort -- and cost -- of organizing and storing them.

Higher prices of steel in recent years are even causing an uptick in the price of some Christmas tree stands. The Web site of Grinnen's Last Stand, made by a couple in Pennsylvania, reads "Sorry to do this. The cost of the stand has gone up to $40 because of very high steel cost." Two years ago, the stand sold for $35, says creator Jim Grinnen.

The prices of plastics used to make the needles and trunks of artificial trees have also gone up. They jumped last year after hurricanes in the Gulf of Mexico disrupted supply, and have remained higher than in recent years due to the cost of oil needed for their production. Prices of polyvinyl chloride, or PVC, often used in tree trunks, were about 10 cents a pound higher in July than two years prior, according Chemical Data LP, a consulting firm in Houston, Texas. Prices of polyethylene, another plastic that is often used for fake needles, were up 21 cents a pound in July compared with two years ago, the company said.

As a result, some retailers have nudged up prices. Prices of Frontgate artificial trees -- which run from $150 to $1,300 in the catalogue -- are up about 5% since last year. And tree retailer Balsam Hill's products can run as high as $2,300 (for a 12-foot faux Vermont White Spruce with 3,600 lights). Balsam Hill Chief Executive Thomas Harman says light costs contribute to the tree's price, and now constitute as much as 25% of the tree's cost, compared with a high of 15% on trees made earlier in the year.

To keep tree prices down, some retailers are shaving off lights and branches. Web site ChristmasLightsEtc.com this year stocked more affordable options, such as the new Douglas -- a 6.5 foot tall tree with 1,048 branches, or "tips," and 500 lights. It sells for $204. A higher-end tree, the 6.5 feet tall Winchester has 800 lights, 1,435 tips, and retails for $285. Michael Streb, the company's director of sales and marketing, said he wouldn't sell anything with much fewer lights or branches because consumers may end up seeing bare spots.

"You have to hit a price point, but you don't want returns," he said.

Also for the first time this year, the site has implemented a "good, better, best" pricing strategy for lights so consumers can buy more basic products if they are more concerned about price than commercial quality. For example, strands of 50 clear mini lights can go for $3.95, $6 and $7 depending on wire thickness, spacing and how tightly bulbs are fastened. He says the site also tries to keep more in stock, as a way to compete with mass merchandisers who might be more likely to sell out.

But despite any cost increases, many customers still want a professional to dress up their home. Peter Latsey, a real-estate investor outside Boston, spent around $2,000 to have the Christmas Light People put lights on some trees and the roofline of his 5,000 square-foot contemporary colonial home. He didn't mind that the rising cost of lights contributed at least an additional $100 to the job.

"You might mistake this home for an airport," says the 52-year-old father of two. "It's me getting caught up in Christmas."

-- December 08, 2006

By Sara Schaefer Munoz

From The Wall Street Journal Online

FORECAST: HOUSING DECLINE TO CONTINUE IN 2007

Median existing-home price expected to rise slightly

Existing-home sales are expected to reach the third-highest total on record this year, the National Association of Realtors announced today in its latest forecast.

Existing-home sales are projected at 6.47 million this year, a decline of 8.6 percent compared to 2005, and are expected to fall 1 percent to 6.4 million in 2007.

New-home sales for this year, meanwhile, are expected to fall 17.7 percent to 1.06 million, which is the fourth-highest total on record. The association also expects new-home sales to decline another 9.4 percent in 2007 to 957,000.

The association's chief economist expects total housing starts to drop 12.3 percent this year to 1.82 million units, with another 15.1 percent drop in 2007 to 1.54 million.

"Much of the contraction in the new housing market results from cuts in builder construction to support pricing for current inventories. In addition, high construction costs in many areas are minimizing potential profits," according to the Realtor group's announcement.

David Lereah, NAR's chief economist, said in a statement that there are mixed conditions for housing in different regions of the country. "Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year. Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards," Lereah stated.

He also stated that there is a "window of opportunity" for buyers, as sellers are becoming more flexible and there has been "an unexpected drop in mortgage interest rates. These conditions will persist in many areas until early spring, when inventory supplies are likely to become more balanced."

Lereah predicts that existing-home sales will be 4.6 higher in fourth-quarter 2007 compared to the fourth quarter of this year.

The 30-year fixed-rate mortgage is forecast to gradually increase to 6.7 percent by fourth-quarter 2007. Last week, Freddie Mac reported that the 30-year fixed rate dropped to 6.11 percent.

The national median existing-home price for all of 2006 is projected to rise 1.4 percent to $222,600, with another 1 percent gain next year to $224,700. The median new-home price is expected to slide 0.5 percent to $239,700 this year, then rise 0.8 percent in 2007 to $241,700.

Lereah stated that prices are now "temporarily a little below a year ago when we were in a strong seller's market," Lereah said. "This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains."

The unemployment rate is expected to be 4.8 percent in 2007, up from the estimated average of 4.6 percent this year. Inflation, as measured by the Consumer Price Index, is forecast to be 3.4 percent for 2006 and 2.3 percent in 2007, while growth in the U.S. gross domestic product is expected to be 3.3 percent for all of this year and 2.3 percent in 2007. Inflation-adjusted disposable personal income is projected to grow 2.6 percent for 2006 and 3.5 percent next year, the Realtor group reported.

Monday, December 11, 2006

Inman News

SCAMMERS TARGET HOMEOWNERS AS FORECLOSURES INCREASE

As the number of foreclosures rises, homeowners unable to make their mortgage payments are facing another growing threat: "foreclosure rescue" scams.

State and federal authorities say they are investigating an increasing number of homeowner complaints about fraud and deception by companies that engage in lending to financially distressed borrowers seeking to avoid foreclosure. Several states have recently passed or are contemplating new laws to provide more protection against dishonest businesses trying to take advantage of already vulnerable homeowners.

The problem centers on foreclosure-rescue companies, which target homeowners behind on their mortgage payments through newspaper ads or fliers claiming services such as "fast cash," "equity funding" and "no credit check." According to some recent cases filed by consumers and regulators, the companies mislead borrowers into believing they can save their homes from foreclosure in exchange for a transfer of the title for a year or two. The companies promise borrowers they can stay in their homes by paying rent for that period, giving them time to catch up financially until they can buy back their property. Often unknown to the borrowers, however, the companies may have sold their homes to a third party, stripping out the home equity and leaving the borrowers on the verge of eviction.

"More and more, we're seeing some real sharks, pretending to be the homeowner's best friend, but what they are after is the equity in the house," says Arizona Attorney General Terry Goddard.

Foreclosure fraud has existed for a long time. But in recent years, experts and law-enforcement officials say, the schemes have grown increasingly complex, with scam artists often eyeing the chunks of equity that homeowners across the country amassed during the rapid housing-price appreciation from 2000 to 2005.

The scams are getting a boost as the housing boom fades and the numbers of past-due mortgage loans and foreclosures climb. Foreclosures historically have hit mainly homeowners with weak credit ratings. But now, a wider range of borrowers are struggling to pay off high-priced loans that lenders churned out during the boom. Online foreclosure-data service RealtyTrac says more than one million borrowers have seen their properties put in foreclosure so far this year, up 27% from the same period last year.

Statistics on the exact number of foreclosure-fraud cases filed are hard to come by as they are usually lumped together with mortgage fraud, which includes fraud against both lenders and borrowers. The Federal Bureau of Investigation estimates that mortgage fraud led to over $1 billion in losses in 2005, up from $429 million a year earlier. "We're increasing our focus on mortgage fraud," says Bill Stern, a supervisory special agent and mortgage-fraud coordinator at the FBI.

Alejandro and Martha Balderas tried for months to refinance their Chicago home and take it out of foreclosure after medical bills kept the couple from keeping up with their mortgage payments. They thought they had found their white knight when Platinum Investment Group LLC, a mortgage and real-estate investment company, promised the couple a loan against their house so they could pay off their mortgage and stay in their home, according to a complaint filed against Platinum in Circuit Court of Cook County, Illinois, by the state attorney general's office.

The Balderases, in their early 40s, signed on in April 2005 -- only to find out soon afterward that they had signed over their home to Platinum, which then sold it. Unable to keep paying "rent" to the company, they are now threatened with eviction, Ms. Balderas says. "It's a nightmare and we're reliving it every day," she says.

The Illinois attorney general charged that Platinum duped homeowners into transactions that caused them to lose substantial equity in their homes and face eviction. Platinum has denied the allegations. A lawyer representing Platinum didn't respond to requests for comment.

A total of 10 states have legislation in place to deter foreclosure-rescue fraud, including California, Georgia, Missouri, Minnesota, Maryland, Colorado, Rhode Island, New York, Ohio and Illinois, according to Creola Johnson, an associate law professor at Ohio State University.

A common feature among those laws is that they give homeowners the right to cancel the "rescue" transaction days before the closing. In addition, for instance, under the legislation passed in Illinois this year, if a company acquires any financial interest in a property in foreclosure and simultaneously leases the property back to the homeowner and gives the owner the option to buy it back at a later date, the acquirer, in certain cases, must pay the homeowner at least 82% of the property's fair-market value at the closing of the purchase.

The goal of the payout requirements under the Illinois law, which goes into effect Jan. 1, is to ensure that distressed homeowners receive a substantial and fair amount of home equity when entering into leaseback transactions, while giving legitimate foreclosure purchasers a reasonable chance to profit.

Another common type of consumer complaint involves so-called foreclosure consultants, who, for an upfront fee, promise borrowers to negotiate with their lenders to postpone or avoid foreclosures. Illinois and several other states forbid foreclosure consultants from charging an upfront fee before performing the agreed-upon services.

Still, homeowners who find themselves duped into foreclosure scams often have a hard time recovering their losses, consumer lawyers say. For example, state law may not protect consumers if their houses are sold to third parties who claim they were unaware of any alleged fraud, according to a National Consumer Law Center report on foreclosure fraud.

-- November 29, 2006

By Lingling Wei

From The Wall Street Journal Online

PENDING REAL ESTATE SALES INDEX DROPS IN OCTOBER

Housing market 'appears to be stabilizing,' says NAR economist

A National Association of Realtors gauge of pending-home sales dropped 1.7 percent in October compared to September and fell 13.2 percent compared to October 2005, the association announced today.

The Pending Home Sales Index, based on contracts signed in October, had a reading of 107.2. An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined and the first of five consecutive record years for existing-home sales.

In preparing the index, the Realtor group examines a large national sample -- typically representing about 20 percent of transactions for existing-home sales. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.

The index had reached a cyclical low of 105.6 in July, and the decline from year-ago levels is narrowing, the association reported.

David Lereah, NAR's chief economist, said in a statement that a fairly steady pace of home sales can be expected for the next two months. "It's important to focus on where the housing market is now -- it appears to be stabilizing, and comparisons with an unsustainable boom mask the fact that home sales remain historically high -- they'll stay that way through 2007," he stated. "In addition, a temporary correction in prices distracts from the fact that it is primarily the number of home sales that affects the economy, and the number for this year will be the third highest on record."

Regionally, the index dropped 0.6 percent in the Midwest in October to 95.8 and was 15.4 percent below a year ago. The index in the South declined 1.7 percent to 122.9 and was 9.3 percent below October 2005. In the Northeast, the index eased 2.1 percent in October to 88 and was 13.5 percent lower than a year earlier. The index in the West fell 2.7 percent to 109.5 and was 17.4 percent below October 2005.

Monday, December 04, 2006

***

By Inman News

RATE OF HOME-PRICE INCREASES FALLS TO SLOWEST PACE IN EIGHT YEARS

U.S. home prices grew at an annual rate of 3.5% in the third quarter, the slowest rate of price appreciation seen in eight years, the Office of Federal Housing Enterprise Oversight reported Thursday.

Including the third quarter, home prices are up 7.7% in the past year, the slowest in three years. A year ago, prices were rising at a 13.4% pace.

By comparison, home prices rose at an annual rate of 5.1% during the second quarter, with the year-over-year increase through June pegged at 10.3%.

Prices had risen by 57% in the previous five years.

"The slowdown is not unexpected," said James Lockhart, director of OFHEO, in a release. "There are still some areas where appreciation rates remain very high, but now they are the exception rather than the norm." Read the full government report.

Still, home prices were still growing much faster than inflation, which fell at an annual rate of 0.2% during the third quarter.

"It is nice to see ... that there are plenty of pockets of strength out there to offset the places where prices are cooling/falling, since it's only the negative areas that get the media attention," wrote Stephen Stanley, chief economist for RBS Greenwich Capital, in an email.

The OFHEO index is considered the best gauge of home values, because it doesn't depend on the mix of houses sold as do reports on the median prices for new and existing homes. It compares apples with apples by tracking mortgages written for the same houses over time.

A separate index based only on home sales rather than also including mortgages for refinancing showed home prices rose 6% in the past year.

Prices fell 0.6% in Michigan over the past year, the first annual decline in any state in more than six years.

And prices fell from the second quarter to the third quarter in five states: New York, Rhode Island, Michigan, New Hampshire and Massachusetts.

Idaho showed the fastest year-over-year growth at 17.5%. Prices were also growing at rates of more than 15% in Utah, Oregon, Arizona, Washington and Florida.

The Rocky Mountain region was the hottest regional market in the third quarter, with prices rising at a 6.8% annual rate. Prices rose just 0.3% annualized in New England.

Prices fell on a quarter-to-quarter basis in 15 cities in California, including San Francisco, San Diego, Oakland and Sacramento. For the state as a whole, price gains slowed from 10.2% in the past year to annualized growth of about 2.5% in the third quarter.

Ten cities recorded price gains of more than 20% in the past year. Up more than 30%, Bend, Ore., showed the largest price gains, with Boise, Idaho; Gulfport, Miss.; Miami, Fla.; and Wenatchee, Wash., rounding out the top five.

The biggest year-over-year declines were seen in Anderson, Ind.; Ann Arbor, Mich.; Springfield, Ohio; Holland, Mich.; and Greeley, Colo. In all, 18 cities recorded price declines over the past year.

In just the third quarter, 67 of 275 cities suffered falling prices.

Among the top 15 cities in population, three saw prices falling in the third quarter: Detroit, Boston and San Francisco. Among large cities, the largest price gains in the quarter were seen in Miami and Seattle, each up about 15.5% annualized.

-- December 04, 2006

By Rex Nutting

From MarketWatch

NEAT FREAK THROWS IN THE TOWEL,

TRIES TO HIRE HOUSECLEANERS

I fired the housekeepers.

For years I've complained about the difficulty of keeping up with house cleaning, weary of trying to find time for dusting shelves and scrubbing toilets amid long work commutes and a whirlwind of weekend activities. My mom would call on weekends to chat and find me in the middle of rushing from one household chore to the next. "You need to hire a cleaning service!" she'd say in that worried/exasperated tone she saves just for me.

For a long time I laughed it off: Where I grew up people didn't hire maids, they were the maids. (In fact, my first job at age eight was dusting the home of an elderly neighbor once a week for $5 a pop.) My husband comes from a similar background and felt hiring a maid might seem a little pretentious -- after all, no one in our neighborhood seems to employ one.

Some of my friends now use house cleaners, but I still felt uncomfortable with the idea of having a stranger clean my house. There's something revealing in the mess a family makes of its home. What, for example, does the Superfund site that is my home office say about my work habits? Our dog Butch can't eat a bowl of food without first upending its contents all over the kitchen floor -- what does that say about how we trained him?

Home office aside, I'm a bit of a neat freak, so I wondered whether a cleaning service would do as thorough a job as I would. Or whether they'd do it better. And in an odd way I felt paying someone to clean my home was surrendering to defeat in my effort to successfully juggle family and a full-time job -- outsourcing housecleaning would be admitting that I really can't do it all.

I don't do all the cleaning myself: My husband Gerry is also a neat freak and does his fair share around the house: doing the laundry, unloading the dishwasher, taking out the garbage. (His obsession with vacuuming the rugs even worries me a bit.) Our son Gerald also helps out, making his own bed and putting his toys away. Still, I feel like our house is always in need of a good cleaning.

One Saturday afternoon in July, as I tackled some serious mold buildup on our shower door, I finally decided to throw in the towel -- literally. I'd let things go for too long, as cleaning the bathrooms was taking a frustratingly long time. The bathroom is the household chore I dread most, and a regular cleaning by a housekeeper would free me of it, not to mention saving me time and guilt: As I toiled with the shower door, Gerald kept stopping by to remind me I'd promised to take him bike riding.

Gerry and I talked it over and decided to hire someone to clean every other week. We could easily keep up with straightening the house during the week, but it was the "spring cleaning" chores -- wiping down cabinets, cleaning out the refrigerator, and so forth -- that needed attention.

Our first decision: choose a house-cleaning service or hire an independent contractor.

A cleaning service in our area costs about the same as hiring an individual contractor. We'd be charged between $82 and $87 a visit; friends of ours pay their housekeeper about $80. That $87 is not a flat fee. Cleaning services typically charge based on many factors, including the size of your home, number of bathrooms, and whether you have pets.

But there's a much-steeper cost my friends must pay when hiring someone to work in their home: nanny taxes. By law if you pay a housekeeper or anyone employed to work in your home more than $1,500 a year, you must pay Social Security, Medicare, state and federal unemployment taxes and federal and state income taxes. Breedlove and Associates, an Austin, Texas, company that handles paperwork-filing services for clients with household workers, has a calculator that can help you figure out how much you'll pay. To pay these taxes, you'll need to file IRS Form SS-4 to get an employer identification number. You'll also need to file IRS Schedule H and provide your nanny with a W-2 form each year. (For details, see IRS Publication 926, "Household Employer's Tax Guide.")

Sure, there are companies (including Breedlove) that will do the work for you -- fees range from $36 to $55 a month. But outsourcing that on top of the cleaning would boost our costs from $160 a month for two visits from a cleaning service to $270 a month to hire an employee to work twice a month and hire a service to handle all of the paperwork.

Another option: pay a house cleaner under the table. When I wrote about my friends' Jim and Judy's plan to hire a nanny back in July, a number of readers responded that it was hard to find and keep good help unless they agreed to not pay taxes and report the income of their household workers. Some had hired illegal immigrants, while others said that if they paid the taxes they couldn't offer a competitive salary compared to families who paid their nannies off the books. While I can understand their motives, that course of action just isn't for us. (Sue Shellenbarger also offers some good reasons for paying the nanny tax).

The extra costs didn't seem worth the tradeoff, so we decided to hire a cleaning service. By going with a service we'd also avoid having to do such things as checking individual references -- the services we interviewed said they performed thorough background checks. Finally, as a newcomer to the idea of having a housekeeper, I liked the idea of dealing with a company rather than with the individual doing the cleaning: That would make things easier if we were ever unhappy with the service provided or worse, suspected the cleaner of theft.

I interviewed two companies, one a national chain and the other a local service, and found they both offered similar services and restrictions. Friends of our recommended the national chain, so I called two of its references and liked what I heard: "A good, thorough cleaning job." "Polite, friendly workers." The service was also bonded and insured, which would protect us if someone got hurt working in our home.

So we chose the national chain. I scheduled the first visit on a day I'd be home so I could watch the cleaners in action. I was impressed by how methodically the two workers took to the task at hand -- they each started in a different room and swept, straightened and scrubbed until that room was finished. It was so unlike the disorganized way I clean my home, moving from room to room and sometimes forgetting the original task in the process. (While straightening up Gerald's room, I'd pick up a wet towel and head for the bathroom to hang it up, only to notice the messy vanity and start cleaning it, abandoning Gerald's room in the process.) I realized my way of cleaning was wasting a lot of time.

After about an hour and a half the young ladies were finished and asked that I inspect their work. The rooms were immaculate and bathrooms gleamed. Worth every penny of that $87, I thought.

But as the weeks went by I began to notice the workers were getting sloppy in their cleaning -- one week they missed our half-bath entirely. I jotted down my concerns and contacted the service manager, who dutifully sent the workers out the next day to address the problems. Soon, though, the cycle would start again and the workers would start to slack off. The streaks on the countertops and floors would irk me and I'd end up pulling out my cleaning supplies and going over their work myself. Last month, I decided I'd had enough and called to cancel the service. The manager tried hard to keep my business, but by then I'd decided that the $87 a visit came with an additional cost -- the aggravation of having to continually complain about shoddy work, and the hassle of redoing that work myself.

Friends of mine who have their own housekeepers tell me my experience isn't common -- one in particular raves that his housekeeper does such a thorough job that "you could eat off my toilet." (Yuck.) But feeling burned by my first experience has me wary of trying a different service. For now, it's back to the drudgery of cleaning the house ourselves.

But the dust bunnies haven't won. From watching the house cleaners I've become much more efficient in how I clean, and I've encouraged Gerry and Gerald to adopt the same "clean as you go" habits that prevent dishes, clothes and toys from cluttering up the house. We're devoting less time to housekeeping each weekend, and saving $160 a month in the process.

-- November 27, 2006

By Terri Cullen

The Wall Street Journal Online