Items of Interest - February 25, 2006

EMPLOYMENT IN THE AREA SURGED IN 2005: With 81,600 new jobs, the region had its strongest calendar year since 2005, according to the Washington Post. And that explains the robust housing market: There is a persistent gap between demand (swelling payrolls) and supply (available apartments and single-family homes). The increase for the year was 2.8 percent. Not surprisingly, the construction sector rose 4.4 percent, but the government sector went up only 1.5 percent, a figure that is as low as it is because of the federal government’s growing dependence on outsourcing.

ANSWERS TO QUESTIONS YOU NEVER THOUGHT TO ASK: The $282 million toaster market rose 12 percent in the year ending last November, according to market-research group NPD Houseworld, reports the Wall Street Journal. But the business is dominated by established brands that are increasingly going upscale, and budget companies that churn out massive quantities. At middle price points, the occasional minor innovation has gone unrewarded: Models with gimmicks such as windows on the side or Hello Kitty casing haven't been big sellers, says NPD Houseworld President Peter Greene. "It's hard to get shelf space without meeting a new need," he says. (There’s a need for Hello Kitty?) The manufacturers are pushing the appliances as a way to prepare alternatives to frozen breakfast sandwiches or fast food. Aroma Housewares introduced a toaster oven with a coffee-maker on the side and a griddle on top in 2002, and between 2003 and 2005, sales quadrupled to 200,000. The Back to Basics Egg and Muffin Toaster has not only two toasting slots, but also an egg-poaching tray, a steam tray for hard boiling and a warming tray for precooked meats; 400,000 were sold between October and December last year. Kenwood, a division of De'Longhi, also markets a toaster that looks - and sounds - like an FM radio. All retail for around $40, but not one of them butters the bread. Thankfully.

THIS DEVELOPMENT MAY WARM YOUR HEART: Enrollments in real estate licensing classes may have started to slow, says the Baltimore Sun in Realtor magazine. "Previously in January and February we would have been full - maxed out in all our locations," says Colin McGowan, director and owner of the Frederick Academy of Real Estate, which operates in 16 states. "We're not seeing those kinds of numbers. It's maybe 20 percent less at each location. It's almost reflective of the market itself."

IF IT SEEMS TO GOOD TO BE TRUE, IT MAY OR MAY NOT BE SO: Gary Eldred, author of The Beginner’s Guide to Real Estate Investing, is cautioning buyers that foreclosures may not be all they are cracked up to be. For one thing, he says in Realty Times, a foreclosure rate of now under 1 percent of all loans means there aren’t that many properties available; banks have stopped playing hardball with borrowers. Second, sales prices are higher than you may think: In states where real estate prices have risen the most, including Arizona, California and Virginia, foreclosed properties sell for within 5 percent of full market value, according to data provider First American Real Estate Solutions. Then there’s the fierce competition: The number of people interested in buying foreclosures has quadrupled, raising the ante and making it more likely that the property will be priced out of sight. And finally, fixing up a foreclosed property can cost a bundle. "At first blush, a deal can look really good," says Dartmouth business school professor John H. Vogel, "but by the time you figure out why it's selling at such a discount, you often realize the price was very rational."

THIS FINANCING IS BOTH CREATIVE AND LEGAL: If you are self-employed, an independent contractor or a small-business owner with no employees, you can create a self-employed 401(k) and move other qualified retirement accounts to your new 401(k) plan, the Wall Street Journal says. Then, you can borrow up to 50 percent of your 401(k) plan account balance, or $50,000, whichever is less. As long as you pay back the loan, the money is tax-free and penalty-free. Also, you can use the money for any purpose. You must pay back the loan in equal monthly installments over a five-year period, but if you use the money to buy a principal residence, the loan term may be extended to 10 years, according to Investsafe.com, which is operated by Lamaute Capital, an investment brokerage firm in Alexandria, Va.

THESE RICH ARE RAKING IT IN . . . AND SHOVELING IT OUT: Grammy winner Lenny Kravitz has sold his Sunset Island home off Miami Beach’s western shore for $14.5 million, a public property transfer shows, according to the Wall Street Journal in Realty Times. He purchased the waterfront house in 2001 for $8.9 million. The 15,000-square-foot home has an 1,800-square-foot master suite. The property was purchased by Stephen Muss, who last year sold the landmark Fontainebleau Resort on Miami Beach. And billionaire Kirk Kerkorian, whose investment company recently took a seat on General Motors’ board, is selling his Beverly Hills, Calif., property for $25 million. The 88-year-old Kerkorian assembled the property in the 1980s and 1990s, paying $5.7 million for the primary portion. It has 8,400 square feet in the main house and includes two pools, a putting green and two guest houses. Meantime, actress Angela Lansbury has signed a contract to buy a two-bedroom apartment with a balcony at the Windsor Park, a former hotel in midtown Manhattan, says the New York Times. The building has 103 apartments, 70 of which have been sold, and the penthouses are still available at a cost of $13 million and $16.25 million. “Nanny McPhee” declined comment on her new digs.

REAL ESTATE BEAT OTHER INVESTMENTS LAST YEAR: Investors who put their money into real estate were huge winners, earning an unprecedented 34 percent on their dollars, reports the Boston Globe in Realtor magazine. The performance of real estate surpassed the stock market worldwide, government and corporate bonds, according to a new study by the Massachusetts Institute of Technology’s Center for Real Estate. "Real estate as an asset class has great potential for the investment industry because there's so much of it out there," says David Geltner, director of MIT's 21-year-old Center for Real Estate.

LOFTY HOPES ARE EMERGING IN SOME SUBURBS: Amid ranch houses and McMansions, developers are putting up buildings that look like they're out of downtown Manhattan or Chicago, observes the Wall Street Journal. Unlike urban lofts, which started out as last-resort housing for arty types, these condos can be some of the priciest housing in suburbia. While many city lofts are known for creaky freight elevators and exposed ventilation ducts, their country cousins come with floating faucets, bidets and designer kitchens. There are dozens of McLofts already built across the country, and more are on the way. In Reston, Va., builders are finishing up Midtown Town Center, where apartments priced up to $1.4 million will come with old-style wide plank floors and just a few interior walls, but they'll also have Italian cabinets, quartz countertops and a Morton's of Chicago within strolling distance. In Scottsdale, Ariz., Third Avenue Lofts looks like a plain red-brick warehouse with narrow metal awnings and balconies that suggest fire escapes, while inside the building has a gym and pool, and units that come in one of 30 different floor plans. Developers say they're targeting the 78 million boomers who are poised to enter retirement and may be ready to trade down from a big home and a yard. They are also going after younger buyers who aren't yet in the market for a single-family home. Although early city lofts were usually carved out of disused warehouse space, attracting adventurers who were priced out of neighborhoods with better housing stock, the latest lofts are often sold as condominiums, which these days cost more than single-family homes.

FROM THE DEPARTMENT OF INCREDIBLY BAD TASTE: When a home you're selling looks dated or dull, add some excitement to the interior with a little bling, suggests the Dallas Morning News in Realtor magazine without a trace of irony. Mark Moussa, owner of Dallas-based home accessories manufacturer Arteriors Home, suggests says these simple, yet supposedly stylish, additions will liven up any room: Hang a polished brass or nickel chandelier dressed in beads and gemstones to expand the space and add a point of interest; grow the space with translucent color by adding a glass table lamp; add character and affordable art by hanging a mirror; and decorate with images of the sun, moon, stars or even angels to bring an ethereal calm to the space. Huh?

A JOB OPPORTUNITY FOR THE COMPULSIVELY INCLINED: Suburban homeowners are so full of angst, guilt, despair and frustration over their bulging garages that they spent $800 million on garage organizing products last year, double the amount spent in 2000, according to the market research firm Packaged Facts, says the New York Times. Alleviating that garage guilt could easily cost $12,000 per job. The amount of money spent on garage makeovers is expected to rise by 10 percent a year for the rest of the decade, making garage organizing one of the fastest growing segments of the home improvement market. The National Association of Professional Organizers estimates that more than 500 organizing businesses specialize in garages, twice as many as in 2000. So, there’s no chance an enterprising person couldn’t clean up here, not remotely. Get it?

REMODELING HOPES DIMMED IN THE LAST QUARTER: Dropping into the negative range – below 50 – was the National Association of Home Builders' (NAHB) Remodeling Market Index (RMI), which seeks to gauge remodeler perceptions of market demand for current and future residential projects. The current market conditions dropped to 46.6 from 50.9, and the future expectations index moved to 47.5 from 51.8. Owner-occupied units fell to 48.9 from 56.2, while the renter-occupied component grew to 40.4 from 37.9. In the futures expectation index, owner-occupied units moved from 55.4 to 50.4, and renter-occupied units increased to 37.8 from 31.0. "The market could not sustain the record pace of home sales and housing production recorded in 2005, but we feel that 2006 will be a solid year in the housing sector with ongoing growth in the remodeling industry" said NAHB Chief Economist Dave Seiders. "Homeowner equity will continue to support the industry, and last quarter's rise in the rental components of the RMI bodes well for this year." In 2005, 71 percent of remodelers faced high material costs compared with 36 percent in 2001. Nearly eight in ten expect material costs to be a significant problem in 2006. The availability of skilled labor ranked number two, as 67 percent of remodelers faced this problem in 2005 and the same number believe it will continue in 2006.

JOHNSON IS LOOKING FOR MAGIC IN BALTIMORE: A fund led by former basketball player Ervin "Magic" Johnson is investing in the $34.6 million mixed-use project planned for the Mount Vernon section of Baltimore, according to the Baltimore Sun in Realtor magazine. The project - a joint venture of Johnson's Canyon-Johnson Urban Funds and developers Struever Bros. Eccles & Rouse - will feature 88 condominiums, 15,000 square feet of ground-floor retail, and a parking garage. Renovations of a trio of 19th-century buildings at the end of the block on N. Charles Street are also included in the plans. The residential units will be priced from $285,000 to $400,000, which Canyon-Johnson Urban Funds managing partner Bobby Turner calls "affordable market-rate housing." According to Turner, the development fund targets "communities that are embracing revitalization . . . that are pro-growth." Ground for the first phase of the Mount Vernon project will be broken at the end of February, and construction should be completed by mid-2007.

OXLEY TAKES AIM AT TITLE COMPANIES: The head of the House Financial Services Committee has written a letter to the comptroller general requesting that the Government Accountability Office (GAO) investigate the title insurance industry, notes Inman News. In the missive, Michael Oxley, chair of the House Financial Services Committee, said, "The Financial Services Committee is concerned about recent investigations by state regulators revealing that title companies have made payment for referrals to developers, mortgage lenders, and real estate agents in violation of the Real Estate Settlement Procedures Act (RESPA)." The congressman asked that the GAO analyze the title insurance market to determine what factors have an impact on the price of the product, including the associated claims, title search, overhead and marketing costs. He also sought a determination of the number of title insurers, their market share, how the product is marketed and sold, the extent to which title insurance is a nationwide business, and the extent to which consumers benefit from a competitive title insurance marketplace. Oxley asked further that the GAO examine the relationships among title insurers, real estate agents, lenders and home builders for anti-competitive practices and investigate potential barriers to entry into the market.

MORTGAGE ACTIVITY IS MIXED FOR WEEK THAT ENDED FEB. 17: The volume of loan applications went up 0.8 percent on a seasonally adjusted basis from one week earlier, the Mortgage Bankers Association reports. On an unadjusted basis, the increase was 3.4 percent compared with the previous week but activity fell 20 percent compared with the same week one year earlier. Seasonally-adjusted, purchase applications rose 4.3 percent from the previous week, and refinancings decreased by 4.0 percent from one week earlier. The refinance share of mortgage activity dropped to 38.2 percent of total applications from 41.2 percent the previous week, and the adjustable-rate mortgage (ARM) share slipped to 29.1 percent from 29.6 percent.

MONTGOMERY’S MORTGAGE MEASURE PROMPTS A PULLOUT: A subsidiary of Lehman Brothers plans to withdraw from the mortgage business in the county because of what it describes as flaws in a new county ordinance designed to crack down on predatory lending, says the Washington Post. In a memo, Aurora Loan Services said it would not accept loan applications for properties in the county starting Feb. 24 because the ordinance "appears to place significant potential liabilities upon mortgage lenders." The legislation, which passed in November and takes effect March 7, increases fines against abusive lenders to $500,000 from $5,000 for each violation and expands the practices that constitute discriminatory lending. "The ordinance is vague, and it would be impossible to determine whether a mortgage loan was made in compliance with the ordinance," said Kerrie Cohen, a spokeswoman for Lehman Brothers. The measure targets subprime lending, typically mortgage loans with high interest rates, fees or other costly features designed to compensate lenders for dealing with high-risk borrowers. Critics of the measure have said the county's legislation will backfire on consumers by prompting lenders to exit Montgomery County or cut back on product offerings. American Financial Services Association, a District-based trade group that represents mortgage lenders, filed a lawsuit in a Maryland circuit court challenging the county's authority to govern lending practices. The group has requested a preliminary injunction to block the measure and is waiting for the court to schedule a hearing on the matter. Commented County Council member Tom Perez (D-Silver Spring), the lead sponsor of the measure: "I can't help but be amused by entities that don't want to do business in Potomac and Bethesda and Silver Spring. This is a white-hot housing market and lending market, and I'm 100 percent confident that will continue to be the case." Perez said the legislation does not ask lenders to do anything more than what the federal government requires. But because federal and state oversight of abusive discriminatory lending has been lax, he added, "you have to make sure local government has tools to help fight discrimination.”

HOP ON THIS TREND IF YOU’RE TIRED OF STAINLESS: Those mischievous fashionistas at Jenn-Air have come up with a new finish for appliances – the company’s fall 2006 line of “oiled bronze” dishwashers and refrigerators, notes the New York Times. Disdaining stainless steel as so “very, very mainstream” (as faithful readers of this newsletter have been warned), Rusty Zay, vice president and general manager, says the hand-finished items offer a warmer, richer look and, with respect to copper, more complex hues. Early adopters will, of course, pay a price: $950 for dishwashers and $2,800 for refrigerators.

KB HOMES CAVES IN: In an effort to settle a class-action lawsuit, KB Homes has agreed to drop the clause from its home warranty that requires buyers to agree to binding arbitration to settle grievances, according to an Associated Press story in Realtor magazine. Plaintiffs claimed that the Los Angeles-based home builder was in the wrong by selling home warranties that required binding arbitration as an alternative to litigation in warranty disputes. The settlement filed in the Laredo, Texas, district court calls for KB Homes to agree to modify the existing warranties of tens of thousands of home owners, who will be notified by mail, the Laredo Morning Times reported. The option of arbitration will remain available to home owners. The settlement makes KB Homes the only builder in the nation barred from requiring binding arbitration, said Janet Ahmad, president of HomeOwners for Better Building, which supported the class action suit.

MOST MORTGAGE RATES EASE FOR FIRST TIME IN 5 WEEKS: The 30-year fixed-rate mortgage (FRM) averaged 6.26 percent for the week, down from last week’s 6.28 percent but higher than the 5.69 percent average of a year ago, according to Freddie Mac. The 15-year FRM this week was 5.89 percent versus 5.91 percent last week and 5.22 percent last year. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.96 percent, up slightly from last week’s 5.95 percent. A year ago, the five-year ARM was 5.05 percent. One-year Treasury-indexed ARMs were 5.32 percent, compared with 5.36 percent last week and 4.16 percent last year. “Tame core inflation figures and market confidence that the Fed will continue to keep inflation low kept mortgage rates in check this week,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Over the long term, we expect mortgage rates will bounce back and forth a bit, remaining near current levels. Based on applications for home purchases in November and December, we also expect that home sales will slow to a more traditional pace in January and February.”

IT MAY BE AFFORDABLE, BUT IT’S STILL INDIANAPOLIS: It was the nation’s most affordable major housing market for a second consecutive quarter at year-end 2005, according to the National Association of Home Builders’/Wells Fargo Housing Opportunity Index (HOI). The bad news is that higher interest rates and rising home prices caused nationwide housing affordability to slip for a fourth consecutive quarter to its lowest level on HOI record. The latest HOI shows that only 41 percent of new and existing homes that were sold during the final quarter of 2005 were affordable to families earning the national median income, down from 43.2 percent of homes sold in the third quarter and 52 percent of homes sold in the final quarter of 2004. “Between the third and fourth quarters of last year, the national weighted interest rate on fixed and adjustable-rate mortgages that we use in calculating the HOI rose from 5.84 percent to 6.21 percent, and this certainly increased the threshold for families seeking homeownership,” said Chief Economist David Seiders of the National Association of Home Builders (NAHB). “Meanwhile, nationwide home prices were on a strong upward trajectory through 2005.” NAHB predicts that the average rate on a 30-year, fixed-rate mortgage will inch up gradually to about 6.6 percent late in 2006 and average about 6.5 percent for the year as a whole. In the nation’s most affordable major housing market of Indianapolis, 88.7 percent of new and existing homes that were sold in the fourth quarter were affordable to households earning the area’s median income of $64,000. At the bottom of the affordability scale was Los Angeles-Long Beach-Glendale, Calif., where just 2.3 percent of homes sold in the fourth quarter were affordable to families earning the area’s median household income of $54,500. The median price of all homes sold in that area was an even $500,000.

TOLL BROTHERS HAD A VERY GOOD QUARTER: Luxury home builder Toll Brothers reports that its first quarter net income rose 49 percent to $163.9 million, revenues rose 35 percent to $1.34 billion, backlog rose 22 percent to $5.95 billion, and signed contracts of $1.14 billion declined 21 percent compared the previous first quarter. The earnings, revenue and backlog totals were first quarter records, while contracts were the second highest first quarter total in the company’s history. Said Robert I. Toll, chairman and chief executive officer: “In 2005, demand for new homes in many markets was propelled to unsustainable levels by speculative buying. We are now on the other side of that slope. Speculative demand has ceased and speculators are now putting their homes back on the market. The result has been more supply than demand in some regions. Markets such as metro Washington, D.C., which are sound economically and showing healthy job growth, will need to work through their excess supply before the imbalance once again tips in our favor.”

DRESS UP YOUR HOME: At the 30th annual American Craft Council Baltimore Show this weekend, you can choose from the work of more than 700 artists participating in the nation’s largest juried indoor fine craft show. You’ll find jewelry, clothing and accessories, baskets and quilts, plus sculptural and functional objects in clay, fiber, glass, metal and wood. Besides the artists themselves, the show offers lectures, demonstrations and tours. Admission to the Baltimore Convention Center for the show is $12 or $18 for a two-day pass. More info: 410-649-7000 or 800-836-3470.