Is Easy Money Going Down the Drain?

Investment pros are watching the Federal Reserve closely these days to see how far the central bankers will go in draining away some of the easy money that has made investors’ lives comfortable for the past several years. If they keep mopping up the excess liquid cash they had helped pour into the markets when deflation loomed as a possibility during the bear market of 2000-2002, the days of  speculation in such investments as once-hot Florida condos could be coming to a swift end. “My brother-in-law is no longer flipping condos in Miami, wrote Bank of America market strategist Joseph Quinlan in a report to clients. “His credit line has been shut down by the banks. My neighbor’s plans for a new kitchen are on hold — turns out he made a wrong leveraged bet on commodities.” At the same time, higher interest rates are forcing people to cut back on the use of new mortgages to finance spending and investment, says Jason Trennert, chief investment strategist at New York research and brokerage firm Strategy & Investment. However, not everyone is convinced that all of the money for speculative investment is about to disappear; Chairman Ben Bernanke has indicated that the Fed is looking for a way to pause its current tightening regimen. (www.post-gazette.como)
Pittsburgh Post-Gazette; (6/5/06); E. S. Browning and Justin Lahart, Wall Street Journal

[Return to top]

By the Tank: Gas Prices Change How Agents Sell and Where Buyers Look

Higher gasoline prices and traffic congestion in the Washington, D.C. housing market are having an impact on where people are looking to buy and making Realtors® and purchasers more judicious about jumping into their cars to visit open houses, previewing properties on the Internet instead, according to David Howell, executive vice president of McEnearney Associates. Expensive gasoline could also affect the area’s real estate values, according to Stephen Fuller, director of the Center for Regional Analysis at George Mason University, pushing down prices in more remote neighborhoods and having a beneficial impact in closer-in locations that also have good amenities and schools. Higher energy prices combined with higher interest rates are also helping push some would-be buyers out of the market who are finding it’s all they can do to juggle the expenses they already have without taking on a mortgage. Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies, said he doesn’t believe that gas prices will reverse a century-old pattern of suburbanization, “but it may slow as people become more aware of the cost of transportation as part of their housing cost. People will think twice before they go farther out.” (www.washingtonpost.com)
Washington Post (6/10/06); Kirstin Downey

[Return to top]

Real-Estate Slowdown Causes Condo Conversion Aversion

As double-digit housing-price appreciation cools in many markets, rental apartments that once looked ripe for conversion into more lucrative condominiums don’t look as attractive as they did six months ago and are returning to the rental market. The reversions are only a small percentage of the units that were converted into condos in recent years, but a trend is emerging as developers stuck with slow-selling condo units struggle to recoup part of their investment and as tenants complain about being caught in the middle when their building swings from apartments to condos and back again. In condo conversion-crazed south Florida, eight converted complexes with 2,156 units have reverted to rentals in Broward and Palm Beach counties, according to Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach. That compares with about 62,904 conversions to condos in the area since 2004. He expects the trend to spill over into San Diego, Washington, D.C., Las Vegas and Phoenix — all areas that experienced among the sharpest increases in home prices over the past few years. (www.realestatejournal.com)
RealEstateJournal.com (6/8/06); Kemba J. Dunham, Wall Street Journal Online

[Return to top]

Helping Cities Lure More ‘Ruppies’

Kyle Ezell, author of a guide, “Retire Downtown: The Lifestyle Destination for Active Retirees and Empty Nesters,” thinks that more Americans would live downtown if they knew how and has founded a consulting firm, Get Urban America, to help people overcome their fear of the unknown when it comes to residing in downtown neighborhoods. “Most downtown developers concentrate on their granite countertops and stainless-steel appliances,” he said. “I come with an urban-living symposium.” With the release of his book, Ezell will be hosting a series of parties around the country this fall to promote the “ruppie” (retired urban people) lifestyle. “Ruppies are different from yuppies, because they aren’t fixated on material things,” he said. “They want to help, to be part of the community and be creative and keep revitalized.” At these social gatherings, “people who have been scared to death of urban environments can talk to people who are into it already,” he said. “The ruppies are going to tell their stories here, how their lives have changed.” (www.chicagotribune.com)
Chicago Tribune (6/8/06); Mary Umberger

[Return to top]

Now Mortgages Worry Regulators

Within weeks, regulators led by the Federal Reserve and the Comptroller of the Currency are expected to issue new guidelines for mortgage lenders that could reduce the number of interest-only and payment-option loans being offered. In some parts of the country, the share of buyers using those loans has soared from the single digits two years ago to more than 50% in 2005, and there has been concern that too few borrowers understand the risks and know how these loans work. Some mortgage securities industry experts estimate that up to 70% of payment-option borrowers go with a minimum payment that is even lower than an interest-only payment, causing negative amortization. Borrowers are often allowed to increase their original loan balance by 10%-25% before they are required to start paying down their principal with significantly higher monthly payments. A study by the Consumer Federation of America finds that lenders are not strictly reserving these loans for high-income, high-credit-score applicants, which could be a source of problems in an economic squeeze. (www.washingtonpost.com)
Washington Post (6/10/06); Kenneth R. Harney

[Return to top]

Remodeling? Don’t Forget the Ceiling

According to Remodeling magazine’s 2005 “Cost vs. Value” study, 60% of home owners with unfinished basements say they are likely to finish the room in the next five years, which can add significant value to their house, and the most ignored aspect of remodeling that area is the ceiling. NAHB reports that 98% of homes feature plain white gypsum drywall ceilings, but there is a widening range of decorative ceiling products on the market and they are relatively easy for do-it-yourselfers to install. One option comes from Armstrong Building Products, which is a member of the National Council of the Housing Industry. The company’s ceiling tile systems come in either Raised Panel or new Single Raised Panel ceilings. The line features 24-inch square panels that can be removed for easy access to concealed utilities. They are fire-retardant and add a seamless, unified decorative element to suspended ceilings. For the finishing touch, Armstrong also offers its WoodHaven line of wood-like ceiling planks and Tin Look, a line of ceiling tiles replicating the look of real tin. (www.hometownannapolis.com)
Annapolis Capital (6/9/06); Home Improvement Time

[Return to top]