Southland Rents Soar
Rents in Los Angels and Orange counties in the last two quarters rose at their fastest rate in five years, making them the costliest of any major market in the West, according to data released by RealFacts, a California-based research firm. With high home prices and rising interest rates preventing households from buying homes, demand for rental units in L.A. is expected to continue to firm up, giving landlords the confidence to boost rents, analysts said. Also, the large-scale conversion of apartments into market-rate housing has reduced the supply of rental units. Rising rents nationwide are a key factor behind consumer inflation, which increased in June for the sixth consecutive month. Rent-based housing costs account for almost 40% of the core consumer price index, a measure that is closely watched by the Federal Reserve. Those rent-based costs jumped 0.4% in June after rising 0.6% in May, which was the most in nearly 16 years, the Labor Department reported. The biggest rent hikes were in California, according to a RealFacts survey of apartment complexes of 100 units or more in 15 Western states. The largest increases during this year’s second quarter were in San Jose, Calif., where the average monthly rent rose 9.1% to $1,414 compared to the same quarter of last year. (www.latimes.com)
Los Angeles Times (7/20/06); Annette Haddad
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Variable Loans Help to Put Off Mortgage Pain
As monthly payments on adjustable rate mortgages are starting to balloon, many Americans have found a way to put off the day of reckoning for another year or two, if not longer, by refinancing into their second or third adjustable-rate mortgage, loan data indicate and industry experts confirm. Although the number of borrowers refinancing this way remains relatively small — several hundred thousands according to an estimate by the credit ratings firm Fitch — mortgage industry officials and analysts expect the number to surge next year. This year, the first big wave of the mortgage boom is cresting as more than $400 billion worth of adjustable-rate mortgages, or about 5% of all outstanding mortgage debt, will readjust for the first time, according to Loan Performance, a research firm. Next year, another $1 trillion in loans will readjust. With an ARM adjustment from 4.5% to 6.5%, a typical borrower with a $200,000 ARM could see a 25% increase in monthly payments — from $1,013 to $1,254. “They get another two- or three-year hybrid with a low introductory rate to keep payments down,” said Frank Nothaft, chief economist at Freddie Mac. “They’re trying to put it off forever, which is O.K. as long as interest rates are low. But when they start to spike, then it’s going to be problematic.” For the time being, however, the mini-refinancing boom is easing fears that rising interest rates and higher monthly payments would drive some borrowers into foreclosure or force them to scale back sharply on other spending. As a result, consumer spending may hold up better than some economists had thought. (www.nytimes.como)
New York Times (7/23/06); Vikas Bajaj and Ron Nixon
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Zoning Quirk Radically Altering Neighborhood
Home owners on double lots in the closer-in Washington, D.C. suburbs are receiving unsolicited offers from developers who want to tear down their homes and build two larger properties on the land. In one of Fairfax County, Va.’s oldest neighborhoods, a corporation slipped a purchase contract under the door of the owner’s modest Cape Cod offering to buy it for $700,000 cash — with no contingencies, no inspection and an immediate closing, because it will be knocked down. In its place would rise two four-bedroom homes towering 3-1/2 stories on the 13,000-square-foot lot and selling for $1.4 million apiece. Houses in the neighborhoods are now assessed in the $400,000s. The exponential development on a third of an acre is made possible by a quirk in the county’s zoning. When the homes were built in the 1940s, they each straddled two narrow 5,000-square-foot lots, the minimum for a single-family home at the time and half of today minimum lot size. Thousands like them are scattered on zoning maps around the metro area, in older suburbs where land was priced inexpensively after the war for returning veterans. Two decisions by the county zoning administrator and board of zoning appeals have affirmed the developers’ right to build. As long as they meet county codes for setbacks from the road and from neighbors — 12 feet — two houses can be built just 30 or 40 feet wide where once there was one. (www.washingtonpost.com)
Washington Post (7/24/06); Lisa Rein
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Lusk Center Experts Say U.S. Cities Being Reshaped by Changes in Housing Market
In response to a limited supply of land and stringent entitlement requirements that have pushed up costs, developers in California are shifting towards high-density projects that over the next five to 10 years will recast urban cores with greater housing density and more affordable units, according to the University of Southern California Lusk Center for Real Estate. Economists at the center say that the state has become ground zero when it comes to developers’ ability to accommodate changing market conditions and lay the groundwork for movements nationwide. People in their 20s and 30s are already choosing to trade back yards for city balconies, the center says, in order to be close to their jobs and cultural centers. In the meantime, the center expects the cooling housing market and a sharp drop in mortgage refinance activity to lead to a downturn in consumer spending on discretionary items, including foreign vacations, luxury furnishings and entertainment. Apartment rents increased 7%-8% in 2005, and will continue to rise this year, reflecting the growing popularity of apartments, the Lusk Center says. Investors are shifting from buying and renting condominiums to investing in rental apartments as higher home prices are keeping potential buyers in the rental market. (www.rismedia.com)
RISMedia (7/19/06)
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Bargain Basements; To Lure Buyers, Builders Try All Sorts of Come-Ons
A salesman for Olson Co. has 12 units to sell in the Gateway Walk development in the Los Angeles suburb of Alhambra and they have been on the market since February. To attract buyers, he recently began throwing in kitchen upgrades that include stainless steel appliances and maple cabinets. A two-bedroom, two-bath townhouse is selling for $499,000, about $50,000 below what the company was getting for similar units last year, and to move it he is willing to pay roughly $1,800 worth of home owners fees for six months of include a free 42-inch plasma-screen TV. Facing their toughest year in more than a decade, home builders are offering free swimming pools, finished basements, trips to Hawaii and even luxury cars. Centex Corp. has been cutting prices as much as $100,000 in Northern California. “The new housing industry is taking a page from the automakers,” says R.L. Brown, a consultant for Phoenix Real Estate. “It’s a model clearance sale.” Incentives are most prevalent in cities such as Las Vegas, Miami, Phoenix and Sacramento, which have enjoyed sharp price appreciation in recent years. The most common is an interest rate buy-down during the early years of the loan. Shea Homes in Walnut, Calif., for instance, is offering a mortgage fixed at 3.99% for five years, about two percentage points below market rates. (www.businessweek.com)
Business Week (7/24/06); Christopher Palmeri
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Baby-Boomer Apartment Investors Sell Despite Trend in Rising Rents
In a survey conducted for the Wall Street Journal based on the analysis of 700 apartment transactions ranging from $1 million to $10 million, Marcus & Millichap found that its apartment-investor clients who have recently sold their assets plan to move 59% of their equity to other properties, investments and cash. Many of these investors, the majority of whom are 50 and older, bought their properties between 1990 and 2000. Many held onto their properties longer than they had originally expected because of the real-estate downturn of 1991 to 1993 and the slow recovery in the following years. In more recent years, apartment investors began to experience tremendous equity growth, with the median price of U.S. apartment units rising 87% to $112,000 from 2000 to 2006. The much larger tax liability and the hassle of fixing leaky faucets and responding to other tenant complaints have sent them looking for exit strategies and less-intensive investments. In addition to tenants’ service complaints, frequent apartment turnover requires repeated and expensive painting, cleaning and carpeting. (www.realestatejournal.com)
RealEstateJournal.com (7/20/06); Kemba J. Dunham, The Wall Street Journal Online
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