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Renting an apartment can be stressful, especially if time and money are limited. It’s not uncommon for people to leap before they look just to relieve the pressure of apartment hunting. Selecting a place to live is important. If you’re unhappy with your home, it can have a significant negative impact on your life.
So, once you’ve determined the place is in your price range, take a pad and pen to make notes as you consider the following:
What’s the neighborhood like? If you’re new to the area, ask about the nearest grocery store, bank, video store, etc. Walk around to see what kind of activity is in the area. Ask about transportation routes and how safe the neighborhood is.
Who are the neighbors? You’re not asking the landlord to judge, you’re asking for facts. Do they have kids? Pets? Are they college students or elderly couples? This will help you decide if you’ll enjoy living there. This isn’t as much of a concern if you’re living in a mid or high rise. However, if you are renting an apartment in house, it may set off your allergies if the people below you have a dog.
How is the place heated and cooled? This is of particular concern if you are responsible for paying the utilities. Do you have control over heating and/or air conditioning levels? Also be sure to find out average monthly costs of water and hydro.
Are there enough windows and which direction(s) do they face? Light and temperature can dramatically affect how much you enjoy your home. If you find lack of light depressing, you may want to avoid basements or apartments with tiny windows. If there is a long wall facing north and you’re in a colder climate, find out how well it is insulated to protect yourself from northern winds.
How much closet space is there? You may not be a clotheshorse, but you still need a place to hang clothes and coats, put away shoes, linen and even the vacuum cleaner. Apartments in older houses tend to have few closets. Look to see how the current tenant (if there is one) manages.
How old is the wiring? Count how many outlets there are and if they have a grounding socket. Few outlets and/or two-pronged outlets often indicate older wiring, which can be a safety concern.
How present is the landlord? You want your landlord to be available when you need assistance, but it can be intrusive and uncomfortable to have him or her around all the time or coming by unannounced.
What are the policies and laws regarding pets? If a pet is already part of your family, make sure it is legal and acceptable to have pets. Otherwise, you may have to face a heartbreaking decision.
How big are the rooms? You can use a tape measure or pace off to get a good idea of the room dimensions. Also notice how much and what size of furniture the current tenants have. For example, if you have a queen-size bed, will it fit in the bedroom? Also note stairwells, hallways and doors. Maybe your couch will fit in the living room, but will you be able to get it in?
Is there parking? If you have a car you’ll want to know if parking is included in the rent, where it is and how safe it is.
Check for insects and rodents. Look in corners, behind furniture and along baseboards for any evidence of critters or repellent. If there are current tenants, they may be forthcoming with such information. And, if possible, visit the apartment at night and turn lights on in the bathroom and kitchen to look for any activity.
If the place is in need of repair or paint, find out what will be done before you move in. If the plaster is falling down and you have to repair it, you may find living there more expensive and annoying than you bargained for.
The key to successful apartment hunting is keeping your wits about you. Don’t just look at the surface of things and make assumptions. Review the notes you made as you viewed the apartment. Jot down your impressions as well. This will be your home. It is worth taking the time to plan ahead, ask questions and weigh pros and cons before signing on the dotted line.
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When people are looking to buy real estate the old adage is “Location, location, location.” When you are looking to rent an apartment or other types of real estate that is also a major criteria. In addition to location there are other things to consider when you plan on renting an apartment. The list is in no particular order of importance, or rather the order of importance is your personal choice.
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From The Wall Street Journal Online
The housing slump is slightly eroding a key driver of consumer spending, but stock-market gains are boosting the average household's net worth, new Federal Reserve data show.
Homeowners had $10.9 trillion in equity stored up in their properties at the end of the third quarter, an amount that was essentially flat compared with the previous quarter and down from a nearly 3% rate of growth during the same period last year, the Fed said. Home equity -- the difference between a home's value and the amount owed on its mortgage -- fell to 53.6% of the value of household real estate, down from 54% in the second quarter and 54.6% a year ago.
Steady home-price appreciation in recent years swelled the amount of equity built up in houses, and consumers tapped it to finance home improvements, college educations and other purchases. But the data from the Fed's "flow of funds" report suggest the housing market's slump has whittled away the growth of home equity.
So far, the impact on consumer spending has been modest. But many economists worry that further weakness in the housing market, particularly if it leads to an outright drop in house prices, could shrink home equity and lead consumers to pull back in the months ahead.
There are bright spots, though. The competitive labor market is boosting wages, and the stock market has produced big gains for many investors so far this year. After declining slightly in the second quarter, the value of household financial assets rose nearly 2% in the third quarter to $40.5 trillion, the Fed said. That combination helped lift household net worth, which was flat in the second quarter, by 1.5% in the third quarter to $54.06 trillion.
It looks like households are still in pretty good shape," said Robert Mellman, senior economist at J.P. Morgan Chase & Co. "The fundamentals for consumer spending are really quite good."
That may be true, but they also appear to be turning cautious. In a separate report yesterday, the Fed said consumer borrowing decreased by 0.6% in October, the largest monthly drop in 14 years. "In the grand scheme of things, households are stepping back a bit and being more conservative," said Daniel Jester, an economist at Moody's Economy.com.
Meanwhile, the Labor Department said the number of people filing initial claims for unemployment insurance fell by 34,000 last week to 324,000. Economists said the big weekly drop was because of seasonal factors surrounding the Thanksgiving holiday, which may have artificially boosted jobless claims last week. Over the past four weeks, claims have averaged 328,750, a level suggesting moderate growth in the job market. The Labor Department will release figures for November job growth today.
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From The Wall Street Journal Online
Investors, painfully aware that the housing market is in the doldrums, may be surprised to learn that some of this year's best stock performers have been real-estate companies.
Yes, home builders have been basement dwellers and some lenders look shaky. But real-estate investment trusts are up more than 30% year-to-date, and the real-estate mutual funds that invest in them are hitting home runs, according to fund-tracker Morningstar. REITs, as they are known, are tax-advantaged stocks that concentrate on the commercial side of the real-estate business and distribute the lion's share of profits to shareholders through dividends. They deal in office parks, shopping malls and apartment buildings -- rather than McMansions.
Commercial construction has been booming after a protracted slump earlier this decade. During the first half of the year, commercial building grew at a 15% annual rate, according to Commerce Department data. The sector contracted in 2001, 2002 and 2003, so likely isn't as overdone as the residential side. Overbuilding would be a big problem for REITs because that would drive down rents, their primary source of income.
Low interest rates help, and the private-equity boom has added steam to some REIT players, luring investors who want to bet on the next fat deal. REIT mergers and acquisitions have hit a record $117 billion in 2006, according to the National Association of Real Estate Investment Trusts, soaring from $30 billion for the past two years combined.
But has the REIT run gotten overdone? One recent event raises the question: industry icon Sam Zell's $20 billion sale of Equity Office Properties Trust, the REIT he took public in 1997, to Blackstone Group. If Mr. Zell is selling, perhaps that says something about the outlook for the sector as a whole.
REITs look pricey by other measures. Consider one metric of how much investors are paying for every dollar of the cash REITs produce -- called price-to-adjusted funds from operations. It stands at 26, well above the group's historic average of 15, according to Green Street Advisors, a real-estate research firm.
"REIT valuations are just so high relative to other assets that the sector as a whole is really susceptible to a shift in investor sentiment," says Christopher Mayer, a real-estate professor at Columbia University and a board member of Oak Hill REIT Management, a hedge fund.
"Everything has to work right in the wonderful world of real estate that we live in," says Sam Lieber, Alpine Mutual Funds president.
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From The Wall Street Journal Online
Mary Zelle, an active traveler, recently found there was one place she was having trouble getting around: her own bathroom.
At age 70, she was in good health, but after foot surgery, she found her balance was off. "I was always afraid of falling in the bathtub." That got Ms. Zelle and her husband, John, thinking about their future in their house just outside Chattanooga, Tenn. "We don't want to move unless we absolutely have to," she says.
The Zelles are one of a growing number of families across the country who find themselves at a crossroads: They wish to remain in their homes as they age, but they recognize that their kitchens, bathrooms, hallways and bedrooms need to be safer and easier to navigate.
That need is giving rise to an army of experts who are eager to help people age in place. Many are home builders and remodelers, with titles like certified aging-in-place specialist. Others are interior designers, architects and occupational therapists. Even appliance and gadget makers, health-care providers and lenders are jumping in.
But who is the best person to help you with the task of continuing to live in your home -- and do you really need a specialist?
The one issue that most experts agree on is that the sooner you plan for changes in your home, the better.
" 'I'll get to that when I fall and break my hip' is not a great approach," says Nancy Thompson, a spokeswoman for AARP, a membership group for older Americans.
Hiring a Contractor
A contractor is the person many homeowners automatically turn to when it comes to home improvement. But there are some contractors out there who are trained to deal with the specific needs of older homeowners.
The National Association of Home Builders says its certified aging-in-place specialists, or CAPS, help ensure that older adults get help from people familiar with their needs. Since the NAHB program started in 2002, more than 1,000 building contractors, as well as architects, occupational therapists and other professionals who seek to work with older adults, have been certified.
The certification involves three days of instruction. One day is devoted to design solutions for aging people. A second day is devoted to working with and marketing to older adults -- including things like communicating clearly, using readable print in a contract, avoiding jargon, and responding to reasons why potential clients may be reluctant to make aging-in-place modifications. A third day -- which is optional for those who have received some other NAHB certifications -- covers how to run a remodeling business.
Though the instruction is brief, teachers and NAHB executives say the classes expose their students to critical knowledge. For one, CAPS contractors are familiar with common alterations, building codes, specifications -- including how high to mount a bar for grabbing in the shower and how to figure out wheelchair clearance for a roll-under sink -- and sources for specialized products, according to Jim Lapides, communications manager for the NAHB's Remodelors Council.
Moreover, Mr. Lapides says, CAPS contractors think about appearances. "No concrete stairs with the edge painted bright yellow," he says. Instead of putting a wheelchair ramp on a house, a contractor may add an attractive sidewalk that gradually rises to the level of the house.
Vince Butler, a CAPS instructor and owner of Butler Brothers Corp., a design-build remodeling company in Clifton, Va., says CAPS contractors also can make suggestions that homeowners may not have thought of. For instance, if clients are already renovating a bathroom, a contractor who's thinking ahead can reinforce the spaces behind the walls so they can later put in "grab bars" to hold onto in the shower, or put electrical outlets in places where they won't prevent a doorway from being widened later for wheelchair access. Or if designing an addition, they may want to create space for a future elevator shaft by stacking closets on top of each other.
"A lot of solutions are design solutions," Mr. Butler says. "It's not just stuff that is listed in a book.... It's just as challenging as any other type of good design, and maybe even a little more difficult, because no client wants to make this look institutional."
Most experts advise getting recommendations on contractors from friends; getting several bids on a job; asking for written agreements, with small down payments; and checking out contractors with the local Better Business Bureau.
Thinking Ahead
Larry Sanders, a CAPS client in Houston, says it can help to hire a contractor who knows how to design for the aging.
Mr. Sanders, 56, says he realized he needed help when the nurse attending his wheelchair-bound mother, 85-year-old Deloris Sanders, told him flat out: "You need to fix your momma's bathroom." The home-nurse service helped him find a CAPS contractor, Dan Bawden of Houston.
"We intended to do something, but it wasn't like we knew what that something was going to be," Mr. Sanders says. "These guys did. You could think all day and some of this stuff wouldn't occur to you."
His mother's new bathroom has a giant shower that her aides can roll her wheelchair into and move around in, a big shower bench, hand grips, and a special showerhead on a hose. She can run her wheelchair under the sink and easily use a one-handled faucet. Mr. Sanders also appreciated touches such as bathroom-door hinges that allowed the doors to open wider without requiring a bigger doorway, as well as a front-door threshold that flattens when a wheelchair runs over it.
The cost: just over $20,000. He says the project came in at budget, with no surprises.
Plus, Mr. Sanders says, with input from his wife, Fran, the contractors put in new tiles that make the bathroom "the brightest, sunniest little room you've ever seen in your life," he says. "It doesn't look like a handicapped bathroom." Down the road, he says, when they have to sell the house, "someone is going to walk in and say, 'That's a great shower.' You could just frolic in it."
For Ms. Zelle's bathroom, the Zelles chose a local general contractor they had worked with before. This spring, they widened the doorway and put in a taller toilet. They also took out the bathtub so she didn't have to step over its side, and replaced it with a shower stall that featured a built-in seat. The job cost around $4,000, Ms. Zelle says.
Next, she's considering easier access to the front porch. There is just one step, she says, but "if I have to have any more surgery, I would like a ramp put on so I could walk up. One step can be quite a barrier."
Other Resources
While experts on aging and accessibility agree that many homes will require alterations in coming years, some say remodeling that requires a contractor isn't always needed. Their advice: First, check other sources of information.
"Aging in place is not just architectural design," says Doug Usiak, executive director of the Western New York Independent Living Project family of agencies, which help people with disabilities. "And very few independent contractors look at the overall picture of the person's functional abilities."
One resource is an independent living center, a nonprofit organization that provides services to people with disabilities. About 600 of these centers can be found across the country, and many offer free assessments of a home's architectural barriers, such as steps and narrow doorways. After people have a sense of what they want, they can find product resources, design consultants -- or contractors -- through the centers.
Occupational therapists, state agencies on aging and local offices for senior services also can help.
Occupational therapists are trained to look at many aspects of aging -- physical, cognitive, sensory and social -- and they tend to have a broad "knowledge of human capacity," says Carolyn Baum, president of the American Occupational Therapy Association, or AOTA. And that allows them to tailor their recommendations to a client's needs and offer hands-on training to help people make the most of changes in their home.
For instance, to help someone with weak vision to cook, therapists not only may suggest new lighting and touch or high-contrast controls for ovens but also can help train clients to prepare a meal differently, relying on nonvisual cues, according to the AOTA. Or for someone with less mobility, therapists might start by moving a washer/dryer to the kitchen from the basement, suggest using a reaching device and a wheeled laundry basket, and help the client come up with a new laundry routine.
A growing number of occupational therapists either work with remodelers or have undergone training through programs like CAPS itself, a new AOTA certification in environmental modifications, or courses at Washington University in St. Louis and other schools that help them to translate their knowledge into suggestions for modifying spaces.
"You should consult with a person who understands the aging process, the access issues, and can give you a written report, so you can sit down and make a decision," Mr. Usiak says.
Modifications don't have to be expensive to make a difference. In 1999, the Rehabilitation Engineering Research Center on Aging at the University at Buffalo in New York published a study in which a group of people age 60 and older received some basic assistive technology, such as magnifiers and reachers, and simple home modifications, such as getting rid of loose throw rugs and adding hand rails on stairs.
Within 18 months, this group racked up just one-third of the health-care costs of a group who didn't receive these modifications. "If people used the assistive technology, they could maintain their functional status," says Machiko Tomita, the data analyst for the study. "If they didn't, they declined."
The total cost of the modifications: $2,620 per person.
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From The Wall Street Journal Online
High home prices have helped drive many first-time buyers out of the housing market. Now, with prices falling in many areas, there are some signs that buyers are beginning to drift back.
The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study released last month by the Realtors group, down from 40% in the three previous years.
First-time buyers play a key role in the housing market. They provide a source of new demand for homes, and they also make it possible for owners of entry-level properties to trade up, creating a ripple effect that affects higher-priced sectors of the market. Declining affordability has made it difficult for first-time buyers to buy homes in many parts of the country, an important factor in the recent housing downturn.
But as more sellers begin to cut their asking prices and rates on fixed-rate mortgages have moved lower, some real-estate agents are reporting renewed interest from people shopping for their first home. Sam Schneiderman, broker-owner of the Greater Boston Home Team, says he has seen "a real surge in first-time buyer activity" in the last two to three weeks as lower prices draw buyers who think the market may be close to bottoming out. Kevin Freadhoff, an agent with Realty Executives of Southern Arizona in Tucson, says in the past 60 days he is seeing first-time buyers "start to warm back up again. They are seeing that houses have become more affordable."
In Madison, Wis., rising interest rates and home prices knocked many first-time buyers out of the market early in the year, says Phil Sveum, broker-owner of Coldwell Banker Sveum Realtors. But in the past month, Mr. Sveum has seen an increase in tenants looking to buy their first home. The recent drop in interest rates "has created some momentum for first-time buyers, not to write an offer today, but to start looking again and be serious about moving in January or February," he says.
First-time buyers are particularly sensitive to rising housing costs, in part because they don't have equity from an existing home they can tap as prices shoot higher. And lower incomes provide less of a cushion when monthly payments climb. In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent National Association of Realtors survey, up from 43% a year earlier.
But recent data have been encouraging for first-time buyers. The National Association of Realtors reported that the median price of an existing home fell 3.5% in October from a year earlier, the largest decline since the group began collecting these data in the late 1960s. The average rate on a 30-year fixed-rate mortgage now stands at 6.16%, the lowest level since October 2005, according to HSH Associates in Pompton Plains, N.J.
A growing number of first-time buyers in Florida's Tampa Bay area are taking advantage of special deals from builders looking to unload newly constructed homes that are bloating their inventories, says Craig Beggins, president of Century 21 Beggins Enterprises.
Jason Colon, a bank analyst, bought a new three-bedroom, 2½-bath townhouse in Apollo Beach, Fla., last month after looking for his first home for roughly a year. Mr. Colon paid $163,000 for the property, which was originally priced at $242,000. The builder also picked up $5,000 of his closing costs. "It was crazy for me not to jump on it because it was brand-new and I'm buying the model unit, which has all the upgrades," says Mr. Colon. Falling interest rates have made the purchase more affordable, he adds.
Yet affordability remains a problem for many would-be buyers. In the second quarter, buyers had to stretch more than ever before in 25 of the top 50 markets, according to Bank of America analyst Daniel Oppenheim. Even with the recent price declines, he estimates that it would take a further 7% fall in home prices, combined with a 4% annual increase in nominal incomes, to bring affordability back in line with average levels over the past decade by 2008 -- if interest rates remain stable.
In recent years, many first-time buyers had been able to stretch their dollars by taking out adjustable-rate mortgages and so-called affordability mortgages, which allowed them to lower their monthly payments or buy a home with little, if any, down payment. But as short-term interest rates have climbed higher, the benefits of adjustables have declined.
At the same time, some first-time buyers have become more cautious. Sheila Doyle, an agent with Baird & Warner in Glenview, Ill., says that more of the first-time buyers she works with are getting their parents to help them with a down payment and fewer are financing 90% or 100% of the purchase price. "I don't see them doing the crazy financing that was so frequent last year," she says.
New guidelines for nontraditional mortgages, recently issued by federal banking regulators, could make it tougher for some first-time buyers to use these products. Some lenders are also beginning to tighten their standards as mortgage delinquencies rise.
Many would-be buyers are taking a wait-and-see approach. When home prices were soaring, many first-time buyers jumped to buy houses they could barely afford, believing they would be shut out of the market if they didn't act quickly. Now, with prices falling in many areas, "there's no immediate need to buy, and so they kick the tires more," says Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va.
Arthur Orkisz, a speechwriter in the Washington, D.C., area, says he expects to hold off until at least next summer before buying his first home, "unless something so dramatic happens that it's absolutely silly to pass it up." Giveaways such as flat-screen TVs are "all nice and dandy, but at the end of the day anyone capable of doing the arithmetic realizes that's a gimmick to get me in the door," he says. "That's not enough of an incentive" to buy.
Scott Steiner, managing broker of Help-U-Sell Lakeview Realty in Lake Elsinore, Calif., says he's getting fewer calls and doing fewer showings for the properties he's listing. But fliers describing the properties are being snapped up faster than ever before -- a sign, he says, that many first-time buyers are taking their time and waiting for the market to stabilize before making a move.
In much of the country, renting remains a bargain compared with owning, according to an analysis prepared for The Wall Street Journal by Torto Wheaton Research, a unit of CB Richard Ellis Group Inc. In markets such as Las Vegas, San Diego and Washington, the monthly cost of renting the average apartment is roughly half what it would cost to own the median-price home in the third quarter. "Renting is only marginally less of a bargain" even with the latest decreases in home prices, says Torto Wheaton senior economist Gleb Nechayev.
From The Wall Street Journal Online
A little over a year ago, buyers couldn't wait to sign contracts to purchase homes. Now, many can't wait to get out of them.
With real-estate prices falling around the country and even pro-industry trade groups predicting further declines over the next year, buyers are backing away from deals in droves. At a semiannual housing forecast conference last week in Washington, D.C., economists reported that contract-cancellation rates for big builders were running around 40% -- about twice as high as last year's levels. Anecdotally, real-estate professionals say they are seeing a similar dynamic in existing-home sales.
Some of the cancellations are by people who signed new-home contracts at one price months ago, haven't yet closed, and are now stunned to see the builder drastically cutting prices on identical properties. Some are by speculators caught short by other investments they can't unload. And some are by people trapped in a chain reaction: They can't sell their old home -- or the buyer has canceled the contract -- so they are being forced to cancel the deal on a new house they are buying somewhere else.
"There are a whole lot of people running from contracts," says Alexandria, Va., real-estate attorney Beau Brincefield. He is currently representing more than 50 buyers who are seeking to get out of contracts on single-family homes, townhouses and condos, compared with none a year ago.
Even though it may mean losing a deposit that could run tens of thousands of dollars -- deposits typically range from 1% to 5% of the purchase price -- many buyers are deciding that is less onerous than the alternative. With median new-home prices already 9.7% below last year's levels, according to the U.S. Commerce Department, bailing out now may be less painful than committing to an expensive, and possibly depreciating, investment.
It's a far cry from the home-flipping exuberance of the past few years, when rising home values fueled a buy-and-sell mentality among millions of homeowners, and trading up became a staple of reality TV and home-improvement shows.
New-home builders are taking a big hit from record numbers of contract cancellations, or "kickouts." Fort Worth, Texas-based D.R. Horton Inc., the nation's biggest developer, says its cancellation rate is currently 40%, compared with 29% a year ago. Meritage Homes Corp., in Scottsdale, Ariz., is reporting a 37% kickout rate, compared with 21% a year ago. And Standard Pacific Corp. says that 50% of its contracts fell through in the third quarter of this year, compared with 18% for the same period last year. The Irvine, Calif.-based developer built 11,400 homes across the country last year. Among its current projects: Glenmeadow, a gated community in Simi Valley, Calif., where three- and four-bedroom homes range from $1.1 million to $1.3 million.
Caught Between Two Mortgages
Cancellations by buyers of existing homes are up as well. Although no formal measures exist, historically they have been in the 2% range, according to the National Association of Realtors. In September, however, nearly half of the 454 agents responding to an online NAR survey said they had recently experienced cancellation rates higher than that.
Sean Shallis, senior real-estate strategist for the Shallis Team of Re/Max Villa Realtors in Jersey City, N.J., says that roughly 22% of his sales have fallen apart before closing this year because the buyers backed out, up from 10% last year. With the market cooling, buyers have decided they can buy a similar property for less. For others, adjustable-rate mortgages have gotten more expensive, making a home purchase too costly, Mr. Shallis says. To reduce the chances of cancellation, he is advising his clients to close their deals as quickly as possible after the offer is accepted, and to put fewer contingencies in the contract. "The longer your property is under contract, the longer the buyer has to talk and think about it and watch the market change."
Mr. Shallis himself is among the would-be buyers with cold feet. Late last year, he agreed to pay $595,000 for a new two-bedroom condominium in Jersey City for his in-laws. He pulled the plug on the deal this summer after his father-in-law's illness scotched the planned move. "My exit strategy was if they didn't move into it, we could sell it or rent it," Mr. Shallis says. But that plan made less sense after the price of similar properties dropped to as low as $529,000. At the same time, higher short-term interest rates made it unlikely that he would be able to cover his mortgage payments and other costs if he found a renter. Instead, Mr. Shallis walked away from the contract and lost his $30,000 deposit.
A sinking home appraisal quashed the deal for retirees Denis and Michael Budge. The couple put their two-bedroom house in Carson City, Nev., on the market a little more than a year ago at $495,000, so they could move to another home they had already bought in Waldport, Ore. After some nail-biting months with few showings and no offers, they finally landed a buyer, who signed a contract in June for $425,000.
Rising Interest Rates
But during the escrow period, as prices in their area continued to slide, the appraisal came in -- at $395,000. The Budges were still willing to sell, even at that greatly reduced price, but the buyer backed out the day before the closing. (Through his agent, he declined to comment.) The Budges pocketed the $1,000 deposit, of course, but now they are stuck with two mortgages -- a hardship on their fixed incomes. "We thought we were going to relax and enjoy our retirement," says Ms. Budge. "Not any more."
Kickouts were high nationwide in the late '80s, and in California and New England in the early '90s, spurred by massive job losses. But until now there's never been a period where cancellations have spiked in the absence of a recession, according to Amy Crews Cutts, deputy chief economist at Freddie Mac. Ms. Cutts says the current jitters are largely a result of investors fleeing the housing market in the last few months, which "slammed [it] into reverse," and consumers' fears that the bubble had burst. Rising interest rates earlier this year also gave buyers who hadn't yet closed on their homes cold feet. The result: a huge backlog of unsold homes, which could further depress prices.
But mortgage rates have fallen recently, and if they stay below 6.5%, Ms. Cutts expects that buyers will regain their confidence by late spring, causing cancellations to ease up. Vienna, Va., housing economist Thomas Lawler agrees, but says builders must continue to cut their production and sell off their inventory so supply and demand can get back in balance. "Builders need to take a bullet," he says.
Buyer's remorse does have legal consequences, but the laws vary from state to state and depend on how the purchase contract was written. Usually, a buyer who defaults will have to give up the "good faith" or "earnest money" deposit that was made when the contract was accepted. But typically there is also some wiggle room written into contracts that allows buyers to cancel without penalty -- for instance, if they can't get financing, if the home inspection uncovers defects that the seller won't correct, or if the seller doesn't make certain disclosures. Just changing your mind, however, isn't a valid excuse to cancel. A court could find that a buyer who got cold feet is in breach of contract and liable for the seller's expenses, plus damages -- or could even force the sale.
Of course, it is better not to wind up in court. To keep deals from falling apart, builders are offering everything from free vacations and cars to help with closing costs and mortgage-rate buy-downs -- and they are cutting prices, too. "They're hungry," says Gopal Ahluwalia, director of research at the National Association of Home Builders, the organization that sponsored last week's forecast conference.
Upgrades Required
Most of these incentives are dangled to attract new customers. But as the market has cooled and kickout rates have risen, nervous builders have also been quietly sweetening the pot for buyers they have already snagged but whose contracts haven't yet closed -- just to keep them from bailing out of the deal. Some are even offering to drop the selling price after contracts have been signed.
Two years ago, Rosemary and Paul Owen, both federal employees, signed a $350,000 contract on a three-bedroom condo in Cape Canaveral, Fla., that was yet to be built. Since they knew it would take a long time for the building to be completed -- and the housing market was rapidly rising -- they took their time getting their old house in West Melbourne, Fla., ready for sale. By the time they were ready to sell their three-bedroom home this January, buyers weren't biting. Though they lowered their asking price to $359,000 from $439,000, only 18 people looked at their home over a 10-month period, and no one made an offer.
So they went to the builder in Cape Canaveral to get out of the deal and to get back the $22,000 they had paid for a deposit and upgrades. He wouldn't allow that, but he did offer to lower the price of the condo by $21,000 to $329,000 -- the amount he was asking new buyers to pay for a unit that was identical to the one the Owens had purchased two years ago. He also extended the deadline for closing until the end of November. The Owens haven't decided whether they will walk away from their deposit if they can't sell their old home by then. "We don't need two places," says Ms. Owen.
Meanwhile, builders' willingness to lard up their incentives is putting added pressure on sellers of existing homes to do the same. Many are finding it necessary to add thousands of dollars in upgrades to compete with what builders are giving away. Jim Parker, an exclusive buyer's agent in Atlanta, says that in the last quarter, three out of the five buyers he's been working with have bailed out of a contract, while no one canceled during the same period a year ago. "Before, if something was not perfect, they'd buy it anyway. Now they won't," Mr. Parker says. Buyers are also demanding more upgrades. "They're asking for everything, right down to the flat-screen television," he says. "They're comparing houses to a brand-new house, and they expect the house to be updated with new paint and carpeting."
Since most people who are buying are also selling -- seven out of 10 households already own homes -- some are finding themselves of two minds when it comes to kickouts. Glenn Nudell, a shipping executive, recently got $115,000 in concessions, including help with closing costs and fix-up money, when he bought a 12-year-old five-bedroom home in Skillman, N.J., for almost $1.1 million. If the seller hadn't agreed, he says, "I'd have backed away." But then he had to sell his eight-year-old, four-bedroom home in Princeton, N.J. He made sure it was as polished as a builder's model, with new wood floors and carpeting, new cabinets and even a newly finished basement -- but he couldn't sell it until he had knocked $70,000 off of his original $630,000 asking price. Is he concerned that the buyer of his house might back away from the deal before it closes next month? "Of course," he says.
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From MarketWatch
http://www.realestatejournal.com/
The housing market may be in a slump, but the industry's long-term trends look promising as younger generations begin to buy and trade up. That was the consensus among a group of consultants, analysts and developers speaking at the recent annual meeting of the Urban Land Institute in Denver.
Rising affordability concerns in some home and rental markets remain a challenge, but the generations coming up behind the baby boomers are giving home builders a run for their money, experts said. With more immigration and people living alone, demographic shifts are pressing developers to reconsider what's worked in the past.
Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.
But that doesn't mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now.
"Generation X is in the heart of their entry-level home-buying years and are just now entering their peak trade-up years," Chung said. "They haven't yet stolen the thunder of the boomers when it comes to trade-up homes. It's a big shift coming up for home builders and developers."
Partly because many Gen-Xers are buying into the market after the run-up in housing prices began about a decade ago, they tend not to be as moved by deluxe kitchens, huge square footage and "prestige addresses" as their older counterparts are, he said.
"It's the trade-off generation. It's no longer sort of the live-large mindset," Chung said. "They're living under different economic realities than their predecessors. They carry 70% more debt than the baby boomers did at that point in their lives because of the cost of housing.... Almost all of that is housing debt."
Many are forgoing master suites and separate wings for kids and adults and instead seeking smaller footprints with space designed for family usage rather than individual usage, Chung said.
The market has yet to catch up with their particular demands, he said. "What we're seeing is a fundamental mismatch between what these buyers are wanting and what the market is offering. They're settling for what's available vs. finding what they really want."
As for Generation Y, also know as the echo boomers who were born after 1980, it's premature to draw conclusions, Gadi Kaufmann, chief executive of Robert Charles Lesser and Co., a real estate advisory firm, said during a ULI panel discussion on what young consumers want.
"Gen Y is going to be in student housing and rentals for the next six years," he said. See how student housing has changed today.
More solo dwellers
Also affecting home builders and developers is the rise of nontraditional households, Kaufmann said.
The portion of people living without a spouse or roommate ballooned 23% since 1980, he said. Only 22% of households were made up of a single person living alone 26 years ago compared with 27% in 2005.
A 57% rise in single-parent households and a 26% decline in the percentage of married couples with kids -- 23% last year compared with 31% in 1980 -- has further changed the housing landscape, Kaufmann said.
There's also more migration from expensive cities to less costly areas, as well as people moving away from their hometowns, he said.
Southern states and those bordering pricey ones, such as Arizona and Nevada, are the beneficiaries of home buyers who can't afford or become disenchanted with higher-priced areas such as California and the Northeast, he said.
So-called second- and third-tier cities with populations of 300,000 to 1 million are attractive to the youth market and poised for growth, Kaufmann told the audience. "Some of the most exciting towns in America are those second-tier cities."
Young people also tend not to mind close living, he said. As more people live alone and wait longer to marry and start families, many in their 20s and 30s are drawn to compact apartment and condo units in urban areas where they can interact with their neighbors.
The growth of the Hispanic population also portends shifts, though what kind remains unclear, Chung said. Latinos currently have a homeownership rate in the high 40% range compared with about 72% for whites. "If they move up in homeownership at a faster rate, that's going to be very positive for the home market."
Love affair continues
Whether the housing market has hit a bottom or not remains controversial.
Last week, the U.S. Commerce Department reported that the nation's economy grew at a preliminary annual rate of 1.6% from July through September, its slowest pace since early 2003 due to cooling in the housing market.
In a survey done in October by Reach Advisors, 41% of 500 consumers looking to buy a house in the last 12 months or planning to look in the next year said their plans to move were affected by market conditions, compared with 27% of consumers who said so in July 2005, Chung told ULI attendees at a panel discussion on the risks and benefits of homeownership.
The portion anticipating a drop in home prices was 32% last month compared with 13% in July of last year, meaning that two-thirds still don't expect price drops, he said. What's more, 93% said owning a home remains a strong or acceptable long-term investment.
Though the housing market may be in the doldrums, Chung said he's confident Americans' love affair with homeownership will endure even after this recent extreme swing in demand. "From 2003 to 2005 it wasn't just a love affair with your primary home. It was a torrid affair with real estate. It was your home plus your home on the side."
Still, a balance of owners and renters is desirable because homeownership isn't for everyone, Ron Terwilliger, chief executive of Trammell Crow Residential, a builder and manager of multifamily housing based in Atlanta, said during the same ULI panel discussion.
"You're better off renting unless you're going to be in a home for at least five years because of the costs of getting in and out," he told attendees.
"The reason this cycle went up so high and flattened so quickly is more speculative buying than I've seen in my 35 years in the business," Terwilliger said. "It's unfortunate so many people bought intending to flip."
It will take time to regain equilibrium, he said. "There's a lot of pain going on in the investment community."
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From The Wall Street Journal Online
In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.
A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher's remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.
Mr. Fisher said from 2002 to early 2003, inflation, as measured by the price index of personal consumption expenditures (PCE) excluding food and energy, was running below 1%. That suggested that a serious shock to the economy could turn inflation to deflation, or generally falling prices. Deflation makes it much harder for the Fed to boost growth by engineering deeply negative real, that is inflation-adjusted, interest rates.To reduce the risk of deflation, the Fed lowered its target for the Fed funds rate -- charged on overnight loans between banks -- to 1% in June 2003 and held it there until mid-2004. It has since raised it to 5.25%.
Mr. Fisher noted that subsequent revisions show PCE inflation was actually a half a percentage point higher than originally estimated. "In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been," Mr. Fisher said.
"In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today...the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving...sustainable noninflationary growth."
Mr. Fisher, who took office in April last year, said in an interview that his speech wasn't meant to be a criticism of the decisions Mr. Greenspan and the FOMC made then. He said: "I wasn't at the table at the time -- it's easy to look at things with 20-20 hindsight. The point is we need to continue to improve our ability to develop and work with better data."
Jan Hatzius, chief U.S. economist at Goldman Sachs, called Mr. Fisher's remarks "pretty striking," while noting it is Mr. Fisher's style to be opinionated. He added that while he agrees the Fed's policy from 2002 to 2004 fueled speculative housing-bubble activity, it was still reasonable "knowing what you knew at the time. You take out some insurance against a really bad, low-probability outcome, and after the fact you regret having paid the insurance premium."
Mr. Fisher said inflation, at about 2.5% now, is still higher than his "comfort zone," but it is possible it "has peaked and is finally heading lower."
Fed governor Susan Bies echoed that sentiment in a speech to Drake University in Des Moines, Iowa, saying, "inflation appears poised to decelerate in coming months... but the risks to that outlook seem tilted toward the upside."
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From The Wall Street Journal Online
Muhamed "Mo" Zejcirovic doesn't exactly need heated floors in his kitchen, dining room, living room, family room and all three bathrooms, given that he lives in Laguna Hills, Calif. But he considers the $8,000 spent on radiant heating -- including a heated bathroom mirror and three heated towel racks -- "100% necessary." He's tired, the electrician says, of shuffling across his fancy marble floors in his ratty slippers because the stone was too cold for bare feet.
Earlier this fall, Mr. Zejcirovic was talking to a contractor who had installed towel warmers in a home nearby when a light bulb went off. Why stop at towels, he thought, when he could heat the rest of the home? Now, he says, the floors are a toasty 82 degrees. One casualty of the new fixtures: his slippers. "I threw them out," he says. "My wife's very happy about that."
It started with floors and towel racks. Then driveways got the hot treatment. Now, everything from windows to recliners is starting to sizzle. New shower walls that look unremarkable on the outside are hiding special plastic tubing that can ratchet up the heat -- even as the hot water's already making the room steamy. Contractors say they're installing heated kitchen countertops to keep hands warm while cutting vegetables. There are hot mattress pads with dual controls (he can sleep at 80 degrees, while she turns up the dial to 100), heated slippers and even heated door mats (they weigh 24 pounds but melt snow on contact).
New technologies are fueling the hothouse trend. Heated windows have a transparent film that conducts electricity, warming the glass to a balmy 100 degrees so families can comfortably gaze outside together on snowy nights. "Comfort brings you closer," read ads by Thermique, the company that makes the windows, which can be linked to the home's heating system.
Improvements in design mean heated driveways and floors can be installed by homeowners, with just a final hookup by an electrician. Watts Radiant, a manufacturer in Springfield, Mo., that sells radiant panels at Home Depot and Lowe's, recently produced a 20-minute how-to video for customers. It shows a couple embedding electrical wires into a floor and programming controls that regulate the system's heat output.
Dan Chiles, vice president for marketing at Watts Radiant, estimates 30% of the people who purchase his products are do-it-yourselfers. Once someone buys a radiant floor, they're more likely to move on to other surfaces, he says: "All of a sudden, the imagination lets go."
A decade ago, Dan Foley, an Alexandria, Va., mechanical contractor, says he figured out he could sell more heat in bathrooms by taking the radiant systems up the wall -- literally. He took the water-based tubing systems he'd been using on the floors and extended them vertically behind shower walls. Even though customers bathe in 110-degree water, Mr. Foley says temperatures of walls in extensively tiled showers can stay near 50 degrees -- "uncomfortably cold." Mr. Foley, who specializes in custom homes from $5 million to $50 million, says he installs preheated showers about five times a year. The feature "kind of puts you in a cocoon," he says.
The new hothouse builds on the popularity of radiantly heated flooring, which had been growing steadily for more than a decade, hitting $2.8 billion in sales in 2004, according to the Radiant Panel Association, a trade group. Last year, growth started to level off, a likely result, says the group, of a slowdown in new construction, where radiant heating is most often installed. Initially, the systems were water-based, but in recent years, electric systems suited for smaller spaces began to take hold, using increasingly durable cables that can now withstand 250 to 300 degrees -- enabling them to be installed in asphalt driveways, which are poured at around 250 degrees.
Some of these products are a stretch for people. Tom Silva first came upon heated kitchen countertops while renovating his own kitchen in Reading, Mass. The general contractor for the TV series "This Old House" thought they would be especially nice for dinner parties, since most people wind up congregating in the kitchen (though he admits he's melted a few sticks of butter by leaving them out on the 62-degree counters overnight). But when Mr. Silva, who also runs a construction company, brings up heated counters with his customers, some don't see the point: "Not everybody takes me up on it."
While some makers promise the technology can reduce heating bills by about 30%, many are simply pitching the toastiness factor. CosySoles makes microwaveable slippers that stay warm for up to 45 minutes, promising "freedom from frozen feet forever!" Jacuzzi in January will launch a line of drawer-style towel warmers that can fit under a sink or inside a cabinet, while Toto's latest line of heated toilet seats can hit 97 degrees with the click of a remote control.
Martinson-Nicholls, an Ohio distributor of floor products, this year began manufacturing a line of heated floor mats. In the past two months, the company says it has received $300,000 in orders for the mats, which can weigh 24 pounds and cost $199. "We think people are going to get inventive with it," says Dan Ruminski, company president, adding that they're ideal for placing in front of an outside grill for winter cookouts.
When Jason Nielsen hears his neighbors crank up their snowblowers at 5 a.m. this winter, he'll turn over in bed and keep sleeping. The real-estate agent from Emigration Canyon, Utah, says he was tired of putting on three layers every time it snowed and spending two predawn hours shoveling, so he and his wife spent $40,000 to install a heating system in 2,000 square feet of his driveway. Now they're also trying to get their bathroom and kitchen floors heated before winter hits: "We thought, 'Might as well.'"
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From The Wall Street Journal Online
Home buyers have a new reason to be wary in this weakening housing market: Real-estate agents increasingly have lucrative incentives to push one home over another.
Slow sales have prompted builders and some individual sellers to offer unusually generous incentives to agents whose clients buy a home. Sellers normally pay the buyer's agent 2% to 3% of the home's price. Now many are offering thousands of dollars or other rewards, such as travel vouchers, on top of the normal commission.
Such incentives have long been used to sell some homes. But they have proliferated and become more generous recently as a glut of properties on the market makes it harder to sell homes. "These guys are desperate," Ivy Zelman, a Cleveland-based housing analyst at Credit Suisse Group, says of home builders.
Although there are no national data on the practice, real-estate agents and builders agree that incentives have become much more widespread in recent months, especially in areas such as Florida, Nevada, Arizona and Washington, D.C., where inventories of unsold homes have soared. Builders and sellers also are offering lots of incentives to buyers, including free kitchen upgrades, help with closing costs and even new cars.
The problem with agent incentives is that consumers may not know their agents have a potential conflict of interest when they show and discuss certain properties. Of course, agents can't make buyers want to buy an unsuitable home, and most buyers have strong ideas of their own. But agents can have a big influence on which homes consumers see. And agents' influence can be particularly strong with newcomers to an area who don't know which builders are considered most reliable and which neighborhoods most appealing.
GoldStar Homes of Texas, based in the Dallas-Fort Worth area, recently has been offering a $2,000 bonus atop the usual commission on some of its new houses. The company resorts to these extra payments "if we need to move some homes," says Paul Garrett, project manager for GoldStar.
Las Vegas builder American West is offering agents a $15,000 bonus to sell homes in its Glen Eagles development, provided they come in with a full-price offer within 30 days. The bonus drops to $10,000 for negotiated offers and those that take longer. "The goal is to try to push them to make a full-price offer," says Jeff Canarelli, vice president of sales at the builder. It is up to the broker to decide whether to give the bonus back to the buyer, he says.
Other builders are offering the buyer's agent jumbo commissions of 10% or more, and some sellers of previously occupied homes are also using bonuses to draw attention from agents. One extreme example is an eight-bedroom mansion, featuring an English-style pub, on six acres of land in Potomac, Md., offered for $4.4 million. The sellers are offering a $100,000 bonus plus a commission of 2.5% to any agent who can find a buyer. If the home sells for $4 million, the commission and bonus would come to $200,000.
The bonus "has certainly piqued interest when agents realize it's there," says Cindy Souza, an agent representing the sellers.
It's less clear that consumers realize what's going on.
Bob Poirier, an agent at VIP Realty Group in Naples, Fla., who calls himself "Boston Bob," recently earned a 7% commission for finding the buyer for a condo that was listed by the brokerage firm where he works. He says he didn't discuss that big commission with the buyers. "That's just something nobody ever discusses with buyers," Mr. Poirier says.
The best defense for buyers may be to insist that agents disclose the compensation being offered on any property under serious consideration. That way, consumers could negotiate ways to share anything that goes beyond a normal pay day for the agent -- or at least take the incentives into account in assessing the agent's advice. But few consumers raise such questions. Daniel Ruben Odio-Paez, a broker in the Washington, D.C., area who operates a real-estate search site, www.tbhse.com, says he believes "most buyers have no clue how their agent is being compensated."
The National Association of Realtors, the dominant trade group for real-estate agents, doesn't require its members to tell buyers in advance of a purchase how much the agents will be compensated. Federal rules require bonuses and sales commissions to be disclosed on the HUD-1 settlement statement, but buyers don't see that document until the closing or shortly before. At that point, it would be awkward to start negotiating with an agent about the compensation. The federal rules, enforced by the Department of Housing and Urban Development, or HUD, don't require agents to disclose trips or other noncash awards.
By contrast, federal securities regulations say brokers must disclose any bonuses or special payments they might receive for recommending a particular security. The National Association of Securities Dealers bars the offering and acceptance of noncash awards that are used to promote the sale of specific products.
Stephen Cook, a spokesman for the Realtors group, says buyers won't buy homes they don't like or can't afford "merely because the agent is offered a nice commission." He adds that a bonus or larger-than-usual commission "may cause a particular house to get shown more, which is the whole idea." Laurie Janik, the Realtors' general counsel, adds that the group's code of ethics requires members to show customers properties that meet their needs, regardless of the compensation offered to agents.
Some agents argue for disclosure. "Ethically, if you are representing the buyer and taking the buyer to a place where you are getting an increased commission, the right thing to do is tell them," says Danny O'Sullivan, a senior vice president with Long & Foster Real Estate Inc. in Fairfax, Va.
Frank Borges LLosa, owner of FranklyRealty.com, a brokerage in Arlington, Va., says he is most disturbed by bonuses offered on the condition that the buyer pays the full asking price. He argues that such provisions should be banned because they put the interests of agents at odds with those of their customers, who want the lowest possible price.
Tom Early, the owner of Buyer's Real Estate Brokerage in Columbus, Ohio, suggests that consumers reach an agreement with the agent before starting to look at houses, establishing how much the agent will be paid and stipulating that the agent must represent the interests of the consumer. Any bonus above that specified compensation should go to the buyer, says Mr. Early, who is also president of the National Association of Exclusive Buyer Agents, a trade group for brokers that represent only buyers. "It's their money," he says.
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