Could Rising Gas Prices Kill the Suburbs?
Once Americans start to realize that high-cost gas is here to stay, more home owners, including young families, will want to live in central cities and there will be a push for more public transportation, predicts Stuart Gabriel, director of the Lusk Center, a real estate think tank at the University of Southern California. In the Los Angeles area, Gabriel says that KB is leading the way to a new type of neighborhood that will give the city European-type higher density. The first of KB Urban’s high-density, mixed-use projects will be a 2-million-square-foot complex of luxury hotels and private residences built in partnership with hotelier Marriott International and AEG, a sports-and-entertainment company that owns L.A.’s Staples Center. “If you and I come back to Los Angeles 15 years from now, we are not going to see (the current) persistent pattern of building single-family detached homes farther and farther into the desert,” Gabriel says. Instead, he expects “a denser city center, denser inner-ring suburbs…a city that is more vertical.” Assuming a full-time job, $3 gas, 26 miles per gallon and 50 cents a mile for maintenance and no parking fees, a 50-mile roundtrip commute costs more than $646 a month, or more than $7,750 annually, according to the City of Bellevue, Wash.’s Commute Cost Calculator. A 10-mile roundtrip commute reduces that to about $1,550 annually, or by $517 monthly. That savings can pay for an additional $80,000 on a mortgage loan, according to David Kasprisin, district sales manager for National City Mortgage Co. in Chicago, whose rule of thumb is that each $250 you can free up equals roughly $40,000 more you can borrow at the current 6.5%. (www.realestate.msn.com)
MSN Real Estate (8/18/06); Marilyn Lewis
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Insurers Urge Action on Risky Mortgages
Mortgage insurance companies have begun pleading with federal banking agencies to act quickly to restrict interest-only mortgages and “option” mortgages that allow borrowers to decide how much to repay each month. Over the past five years, millions of Americans have bought or refinanced homes using these loans because the monthly payments are lower than with traditional fixed-rate loans. They currently account for about one-third of all new home loans, according to data from First American LoanPerformance, and in high-cost Washington, D.C. they account for half. The insurers say they are worried about widespread foreclosures if some of these new borrowers default on their loans when they are reset and the payment is adjusted upward to repay the full interest and principal owed. The Mortgage Bankers Association has warned that setting new rules on these nontraditional loans might stifle product innovation. Guaranty Bank said new rules might have “an adverse effect on the availability of credit to home owners.” About 70% of the buyers who take out an option adjustable-rate mortgage, which allows the buyer to avoid paying even the full interest on the loan, end up paying the lowest permissible amount each month, according to the Federal Deposit Insurance Corp. (www.washingtonpost.com)
Washington Post (8/21/06); Kirstin Downey
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Top Cities Where Mortgage Rates Will Hit Consumers the Hardest
Based on a study of subprime adjustable rate mortgages in 130 American cities, the watchdog group ACORN said that rising interest rates will have their biggest impact on markets in the South and Midwest. According to a report from ACORN, ARMs made up three-fourths of all subprime home loans in 2005, up from half in 1999, and 60% of subprime loans are set to have their interest rates changed by the end of the year. Buyers with subprime loans are already paying higher interest rates, are more likely to have lower incomes and don’t have as many resources to cope with an adjustment to a higher mortgage interest rate. The top 10 areas most at risk for “rate adjustment shock” are: Detroit and Flint, Mich.; Memphis, Tenn.; Jackson, Miss.; McAllen, El Paso, Laredo and Brownsville, Texas; Springfield, Ill.; and Birmingham, Ala. (www.realestatejournal.com)
RealEstateJounral.com/Wall Street Journal (8/18/06); Amy Hoak, from Marketwatch
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After Five Years of Growth, Home Prices Drop
As part of a national trend in which regional markets that led the country during the housing boom are seeing prices flatten or decline as the number of unsold homes on the market climbs, median prices of homes in several parts of the Washington, D.C. area have declined when compared with the same time last year. In Loudon County, Va., for example, the median prices of homes sold in June dropped 1.2% last month compared with a year earlier, according to Metropolitan Regional Information Systems Inc., the area’s multiple listing service. Although the declines are small and not universal, they are significant because they mark the first time in half a decade that home prices have fallen in a 12-month span. Economists are split over whether the declines foreshadow bigger price reductions in the months ahead. “Could it be a 5% drop in prices? Could it be 10%? Whatever it is, it will be short-lived, because demand is right there on the sidelines,” said David Lereah, chief economist of the National Association of Realtors®. Peter Morici, an economist at the University of Maryland, said prices could drop 10% by the end of the year, and perhaps 20% “by the time it’s all over.” (www.washingtonpost.com)
Washington Post (7/26/06); Tomoeh Murakami Tse
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Residential Affluenza: How Remodeling Has Become the Obsessive Labor of the Ultra-Rich
Home improvement dollars are disproportionately pouring into housing for the very rich partly because of the fact that bigger houses require bigger remodels, but probably also because of obsessive remodelers without financial constraints who have become strangely preoccupied by the process of designing or remodeling their homes. According to the U.S. Census, the amount of money spent in home owner construction projects of the wealthiest individuals has always outstripped those with less money. In 1993, the highest income group spent about 55% more than the second-highest income group. But in the past few years, that gap has widened, with the highest income category spending more than 325% more than the second-highest income group. According to Jim Lapides, a spokesman for the NAHB Remodelors™ Council, the remodeling boom is at an all-time high, with $215 billion spent nationally in 2005 and $238 projected for 2006. Recently, the remodeling cycle has also accelerated, with kitchens and bathrooms undergoing renovations 30% faster than a decade ago. Now, affluent home owners often design their homes with the idea of planned obsolescence — choosing neutral colors and finishes on more permanent materials like walls and floors, but using bright, unusual materials for things like countertops that they plan to change every couple of years. (www.sfgate.com)
San Francisco Gate (8/18/06); Carol Lloyd
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Buyers Yearn for the Big Picture on TV
Changes are occurring within the walls of big new homes that will affect how people watch television. Some trends will make it easier to fit in a screen as big as 103 inches, while others will make it trickier to find the right spot for even the sought-after 50-inch screen. Although in many cases it is just another name for the basement, about 10% of homes are being built with media rooms, according to NAHB, and these might easily have space for a big screen in a home theater. Sprawling master bedrooms are also increasingly conducive for big-screen TV, according to Gopal Ahluwalia, NAHB’s staff vice president for research, who says the average dimension of the room has now grown to 15 feet by 20. However, with the kitchen opening up into the family room, whole rooms are disappearing and in 10 years, Ahluwalia predicts, the living room will be gone, including interior walls where a TV might have been hung. A room needs to have an expanse of wall almost four and a half feet wide to accommodate a 60-inch diagonal screen. And a viewer should sit no closer than 1.5 times the diagonal of a 1080p high-definition TV, the highest resolution available. (The rule of thumb is 2.5 times for TVs with lower resolution.) In the case of a 60-inch TV, that is about 8 feet from the screen. (www.nytimes.com)
New York Times (8/4/06); Damon Darlin
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