Quarterly Economic Report - Job growth, mortgage rates pull the market in opposite directions

In its Economic and Market Watch Report, Metropolitan Region Information Systems (MRIS), which operates the Multiple Listing Service, clearly documents the changes that have transformed the area's real estate market from frenzied to balanced in the first quarter of 2006. Economists with the National Association of Realtors (NAR), which always paints the rosiest picture, provide upbeat analyses and forecasts that are nonetheless restrained and, perhaps, reassuring in the report.

Economist Ken Fears makes a strong, though hardly novel, case for low monthly mortgage payments having underpinned the boom of recent years. With 10 percent down, a $200,000 home would cost the purchaser $1,468 in monthly mortgage payments if the interest rate for the loan were 10 percent. If the rate falls to 5 percent, that payment would be only $955. "Affordability rises in this case, so people can buy a larger home or save the difference," Fears observes. "Over time, demand will rise and the price of the home will be bid up until the monthly payment on it is nearly the same as before the rate change. The new price is roughly $308,000, or a 50 percent increase in the home price for a 50 percent decline in rates."

This economist notes that in the wide area covered by MRIS, the average price has climbed by roughly 73.8 percent since 2000 and the average monthly payment has risen by approximately $545. "How will buyers continue to afford homes as prices rise?" Fears asks. "Luckily, the growing economy continues to create more jobs and grow incomes. NAR Research expects job growth to continue at a healthy clip, rising 1.6 percent in 2006 and 1.4 percent in 2007." More important, the trade group's economist says incomes are expected to increase 3.7 percent this year and 4 percent next year in contrast to 1.5 percent last year. "Rising employment will help to increase the pool of persons looking for housing, while rising incomes will help to offset the eroding power of rising mortgage rates."

Senior Research Forecaster Lawrence Yun adds immigration to the mix. He says strong demand and higher prices in Las Vegas, Phoenix and Washington can be attributed "in no small part" to strong immigrant populations." He cites a Philadelphia Federal Reserve Bank study showing that home prices in immigration-heavy neighborhoods rise much more slowly than in other neighborhoods in the local region. "That is, the 'there goes the neighborhood' reaction may be at work as established residents flee an area," he says. However, Yun says home prices in any metro region with a high number of immigrants in general rose at a significantly faster clip than those metro regions with little immigration. "More people translates into more housing demand," he declares.

Referring to 2.6 percent job growth in the first three months of this year in this region, Yun says higher mortgage rates have reduced affordability at the same time. "Home sales, as a result, are being pulled in different directions," Yun maintains. Although sales were 9 percent lower than the first quarter last year, home prices have continued to increase because, he says, "few are forced to sell in a job creating environment. " He forecasts the likelihood of the local economy catching the tide of growing strength in the national economy. "Home sales are expected to definitively turn positive once interest rates stabilized while jobs get added," Yun says. "The forecast is for 8 percent decline in home sales in 2006 followed by a 2 percent rise in 2006. Home prices will increase 5 percent in 2006 and then another 5 percent in 2007."

In his commentary, NAR Chief Economist David Lereah agrees, unsurprisingly. "There have been no bubbles bursting, as predicted by so many academics and Wall Street analysts during the past several years," he says, adding that the last time a bubble burst was in 1990-91 in Boston, where there was a sharp recession. Boston lost 15 percent of its labor force and the months' supply of homes soared to a remarkable 16. "Something had to give," Lereah continues. It was prices, which tumbled for the next four years. His assessment is that the health of expanding local economies differentiates D.C. and other regions from Boston.

"With job creation and income growth, households will continue to have the wherewithal to purchase property even in cooling local markets," the chief economist says. "That is a perfect recipe for a soft landing."

District of Columbia

The average price fell from $558,000 in the last three months of 2005 to $508,100 in the first three months of this year. At the same time, the number of apartments and single-family homes on the market climbed from 2,559 to 3,628, the number of homes sold dropped from 2,063 to 1,606, and the average number of days on the market rose from 29 to 45.

Zip codes with the highest prices were 20007 ($871,600), 20008 ($750,500), 20015 ($732,100) and 20016 ($798,100). The lowest prices were in zips 20019 ($232,300), 20020 ($253,800) and 20032 ($207,100). From first quarter to first quarter, the zip with the greatest price increase was 20020, which rose 28.8 percent. Zip 20019 was close behind at 21.5 percent, and the 20036 zip went up 20.85 percent. Posting the biggest reductions were 20006 (down 15.97 percent) and 20012 (14.4 percent).

A total of 219 properties was sold in zip 20009 during the first quarter, followed distantly by 20002 with its 174 sales. The next most active zip was 20011 with 145 homes sold. Volume declined almost across the board; the exceptions were in 20012, which soared 31.82 percent; 20002, up 37 percent; and 20032, up 10.3 percent. Sales declined by percentages as high as 39 percent (zip code 20001), 37.1 percent (20003) and 36.3 percent (20016).

With regard to days on the market, the longest was 77, for zip code 20006, where only two properties found buyers at an average price of $225,000. Zips with more than 60 days on the market were 20004, 20007, 20017, 20024, 20032 and 20037. In all zip codes but 20015, sold prices tended to be a point or two below asking prices. In 20037, the sold price was, however, 96.1 percent of the list price.

Montgomery County

Comparing the fourth quarter of 2005 and the first quarter of 2006, the average price tapered off from $515,400 to $507,400. The number of homes on the market swelled from 3,374 to 5,128 as the number of homes sold slipped from 3,691 to 2,776 and average days on the market went from 28 to 42.

The priciest zip codes were 20815 ($1,053,200); 20839 ($1,199,500); 20854 ($1,237,400); 20862 ($1 million); and 20868 ($1 million). The least costly zips, in the mid-$300,000s, were 20866, 20874, 20876, 20877, 20879, 20886 and 20906. The 240.6 percent price increase from the first quarter of last year in 20839 was the largest by far, but it derives from only two sales. (And they averaged 90.6 percent of the asking price.) In 20818, five sales led to a 36 percent rise. Prices generally went up since the 2005 first quarter, but they fell in 20816 (down 2.8 percent); 20817 (3 percent); 20855 (3.2 percent); 20860 (11.4 percent); 20876 (1.8 percent); and 20896 (3.3 percent).

More properties found buyers in zip code 20874 than in any other, but the total of 286 was 9.5 percent lower than the year before. Only two other zips had sales volume above 200; they were 20878, with 218, and 20906, with 207. Year-to-year increases in activity was highest in 20837 (up 40 percent), 20842 (50 percent) and 20886 (32.3 percent).

A single million-dollar home both in zips 20862 and 20868 took 131 and 152 days, respectively, to go under contract. (The one in 20862 finally sold at 83.3 percent of the asking price.) However, no other zip codes came close. In 20886, the days on the market averaged 86. It was 57 days in 20816; 95 in 20839 (on two sales); 56 in 20854; 86 in 20882; and 67 in 20896. Only in zips 20851, 20868, 20876 and 20912 did sold prices meet or exceed asking prices.

Arlington County

Prices went down on average from $579,300 in the fourth quarter last year to $559,500 in the first quarter, while the number of homes on the market surged from 831 to 1,261 and the number of homes sold fell from 704 to 616. Days on the market increased from 24 to 42 between the two quarters.

The county's most expensive zip was 22213 ($696,300), followed closely by 22205 ($685,400) and 22201 ($627,300). The least expensive was 22206 ($413,300), but 22209 was $426,800. Prices between first quarters rose by as much as 13.19 percent (13.2 percent) and fell by as much as 8.08 percent (22209) but mostly rose in the single digits. The only other decliner was zip code 22205 (down 4.6 percent).

Most of the county's sales occurred in 22204, which had 125 properties go under contract. Not far behind was 22201, with 109 and 28.2 percent growth compared with the same quarter of 2005. Other big gainers were 22206, up 24.3 percent to 87 units sold, and zip 22213, up 45.5 percent to 16. Sales activity in 22209 plunged 46.2 percent, to 42; the drop was 30.2 percent in 22202, to 30.

The only remarkable exception to average days on the market was in 22213, where the time was 19 days. In every zip code, sold prices were a couple of points lower than asking prices.

Out and About - Size sometimes matters

When it comes to real estate, the size of an apartment or home often matters more than most consumers realize. They walk inside and instantly sense like or dislike, yet most may well have difficulty articulating the source of their reaction. Some folks feel lost or overwhelmed in the wide open spaces, while others feel claustrophobic in the diminutive ones.

Other sources of a home buyer’s response tend to be equally emotional; for instance, one of the most common and influential sources will be where the individual grew up, evoking either negative or positive feelings. Nostalgic reminders often are the subconscious motivation that spurs a potential buyer to decide on the spot to make an offer to turn tail.

Décor also hugely affects buyers. If that wall covering reminds them of Grandma’s, it can inspire rejection or affection. A porch spread across the front of a house may well resonate with happy times spent nibbling iced fresh fruit on a summer’s evening. Conversely, it may suggest the torment of mosquitoes that were not denied their own banquet. That dresser in the bedroom may bring back memories of warring parents. Or it may evoke the wafted pleasure of Mom’s perfume. So, too, may the workbench, even bereft of hammer and saw, suggest the happiness of helping Dad craft a bookcase. At the same time, it could serve to revive the distaste of having to sand and sand again in the name of bonding.

Thus can size be a two-edged sword. In general, the nearly universal inadequacy of space in today’s condo conversions pleases no one, whatever his or her childhood experience. Even new buildings tend to stint on square footage, especially for bedrooms but all too often in living rooms, transforming practical furniture placement into an almost insurmountable challenge. The persons who buy such apartments undoubtedly act more out of financial necessity than of unmitigated joy.

From different perspectives, a condo in Logan, a single-family home in Cheverly, a detached rowhouse in Shaw and a single-family home in North Cleveland Park each shed light on the size phenomenon in distinctly different ways. Read on to see how and to learn about listings that other real estate agents are selling:

• In Logan Circle, an apartment in a two-year-old building that originally was designed for rentals. This supposedly one-bedroom condo with open kitchen and the usual granite and stainless accoutrements has a washer/dryer, high ceilings and big walk-in closet through which the owner walks to reach the dual-entry bath from that bedroom. The thing about the bedroom is that only a free-standing wall separates it from the living area, which is less than commodious. Reduced from $435,000, it is listed for $424,900 with a $330 monthly fee that covers no utilities. The unit has been on the market since the end of January – for some reason. Another apartment just like it is for sale just down the hall. Walk, and certainly don’t run.
  
• A bungalow that has unquestionably beguiling curb appeal on a double lot in Cheverly. With three bedrooms, one bath, attached garage, fireplace, hardwood floors, a full basement, first-rate new kitchen and mature plantings, this house suffers only from the small proportions of its rooms. Some might view the size as cozy rather than small and comfortable rather than confining. Another plus is the attic, for which the owner had commissioned plans for finishing, and those plans will be sold with the property, which is offered at $379,000. On a third of an acre, the house is well worth the price in a neighborhood where detached homes can run to the mid-$400s.
  
• In the blocks east of Shaw and north of the Convention Center, a beautifully renovated detached rowhouse just two windows wide sits alone next to a lot that obviously held a dwelling to which it once was joined. Words such as "cute" and "adorable" spring to mind upon beholding the lonely little home, which was been lovingly renovated to contain two bedrooms and two baths. Details such as glass tiles, stainless steel railings, Hans Grohe fixtures, skylights and bamboo floors throughout provide enormous appeal. But this appealing place is low on expanse and perhaps is best considered a condo alternative. Nicely landscaped on its tiny lot, the house represents good value at $574,000.
  
• A very large 1938 yellow brick colonial remodeled by Hugh Jacobson on a nearly 11,000-SF lot with an in-ground pool, gorgeous landscaping by Thomas Church, unparalleled privacy and a detached garage in North Cleveland Park. Needing cosmetic upgrading in every room, this house was designed for entertaining. It has a 27’x16’ living room, a dining room almost as big, a kitchen the size of some ramblers, glassed-in sun room and, upstairs, four bedrooms, three baths, a deck and a master suite that boasts a full-size dressing room and an 11-foot ceiling. The lower level is expansive, including a 25’x15.5’ library with fireplace, cedar closet, assorted other closets and utility rooms, and two full baths, one with a steam shower. Even with all this, the asking price of $2.95 million is wholly unrealistic.
  
• In Dupont Circle, a two-bedroom, two-bath detached dwelling little bigger than a dollhouse. Although nicely renovated with glass tiles, exposed brick walls, nice patio and refinished old floors, this home lacks parking in a neighborhood in which it is vital. More important, the kitchen with its trendy, though impractical, concrete counters is downstairs in what was the basement; the dining and livings rooms are upstairs. But the table-space kitchen covers a vast space that undoubtedly requires marathon endurance to cover the distance between the stainless refrigerator and both stove and sink. The $749,000 listing price is asking a lot, but the place is already under contract.
  
• A six-bedroom, three-bath 1909 attached four-level home with detached two-car garage in Garfield. On the market for nearly a month, this home has a lovely back porch, high ceilings, well-proportioned rooms, good flow, a 1970s kitchen, and one bath on each of the two upper floors for the three bedrooms on each of those floors. Everything needs to be updated, the basement is more or less underground, and the garden is way above average. It is offered at $1.25 million, which is off the mark, all things considered.
  
• In Mount Pleasant, an adequate two-unit attached rowhouse building in 1979. The ceilings upstairs in the two-level unit will prompt you to duck, but the house is otherwise habitable. The kitchen has been moderately renovated, there is a skylight and the stacked washer/dryer has been literally jammed into an open space unattractively at the top of the stairs. As for the English basement, it is a one-bedroom legal rental unit that supposedly will fetch $1,500 a month. There is parking for one car and perhaps rental parking for a second one. The asking price of $685,000 is within reason.
  
• A three-level attached rowhouse at the extreme eastern border of Columbia Heights. With three bedrooms, three and a half baths, a two-sided fireplace between the living and dining rooms, new hardwood floors, this residence was totally renovated in 2004 with a fair sense of style. The lower level is full height but half below grade, and the two baths upstairs seem misplaced, though they do feature a whirlpool tub and European-type shower. Facing the grounds of the Old Soldiers Home, this house with only street parking is almost fairly priced at $549,900.
  
• In Foxhall Village, a delightful three-bedroom rowhouse. The main level boasts hardwood floors, a bright sun room, a recently updated kitchen with stainless steel, and a fireplace. The back porch overlooks a lovely bricked back yard and is perfect for entertaining. The nicely and colorfully finished lower level with full bath could rent for $1,000 a month. Close to Georgetown, this inviting home is listed reasonably at $759,000.
  
• A single-family home in Brookland with a lot of potential. Extremely well maintained by the same family for 40 years, this smallish three-bedroom, and two-bath residence needs some updating and a price reduction of at least $35,000. It is on a cul-de-sac and surrounded by other well preserved homes and individual gardens. Just a few blocks from the Brookland metro and 12th Street stores, this house is listed at $435,000.
  
• In Glover Park, a single-family Federal. The front yard has great curb appeal. The deep, colorful backyard too is inviting. And the location great. But everything else needs to change: The two bedrooms are overwhelmingly small; the bathrooms need serious updating; and the kitchen needs to go. It is listed at $589,985.
  
• A three-bedroom, two-and-a-half-bath single-family home with an unfortunately long flight of stairs in Chevy Chase, D.C. With sort of a fourth bedroom, a back porch that begs for a summer evening party with friends, candles and good food, hardwood floors, airy ambience and clean, open layout, this home has been on the market for more than a month at $845,000.
  
• In Brookland, a very sad efficiency apartment with only 372 square feet. The interior of the building is depressing at best and the unit itself requires an overhaul. Its western exposure and low $131 monthly fees are the only assets going for it. Originally listed at $159,000 and now $149,000 after three months, this unit has to be offered in the lower $100,000s if it is going to find a buyer.

Items of Interest - May 20, 2006

THE FED CHAIRMAN MAKES IT OFFICIAL: Confirming what home buyers suspected and real estate sales figures have indicated for months, Federal Reserve Chairman Ben S. Bernanke said that the U.S. housing market was showing clear signs of cooling off, reports the Washington Post. Bernanke said the slowdown is "moderate" and "orderly" and pointed to the overall strength of the economy. "We're seeing slowing in sales, slowing in starts. There also seem to be signs that prices are not rising as quickly as they have been for the past few years," Bernanke said in response to questions after a speech in Chicago, Bloomberg News reported. Former Fed chairman Alan Greenspan echoed Bernanke's analysis in a speech to the Bond Market Association in New York. "The boom is over. We can say that with some confidence," Greenspan said. But, he added, "there is no evidence that prices are going to collapse." Greenspan predicted that the U.S. market was more likely to follow the path set by housing markets in Australia and Britain, where "prices just flattened out."

HOUSING STARTS DIP MEANINGFULLY: They fell 7.4 percent in April to a seasonally adjusted annual rate of 1.849 million units, according to the Commerce Department. For the year to date, new-home construction was down 0.8 percent from the first four months of 2005. Single-family housing starts were down 5.6 percent in April, and multifamily housing construction dropped 15.1 percent for the month. Issuance of total building permits decreased 5.4 percent from March to April; single-family permit issuance was down 4.0 percent. The pace of multifamily permit issuance dipped 9.4 percent to 482,000 units for the month. "The declines in starts and permits for April reflect a natural pay-back for the weather-related surge in production earlier in the year, as well as builder adjustments to eroding demand and rising inventories," said Chief Economist David Seiders of the National Association of Home Builders (NAHB). "We continue to believe that the evolving slowdown represents an orderly adjustment toward more sustainable levels of housing production, following the record surge in 2005 that was fueled by extraordinary demand for single-family homes and condo units by investors/speculators." He said the NAHB forecast continues to show a 6.1 percent decline in total housing starts for 2006 as a whole, following an equivalent increase last year.

RENTERS ARE FACING A MARKET THAT REMAINS TIGHT: Apartment markets showed still further signs of tightening as the improvement in the supply-demand fundamentals continued, according to the National Multi Housing Council's (NMHC) April 2006 Quarterly Survey of Apartment Market Conditions. The survey's Market Tightness Index remained at 83, marking the fourth consecutive quarter in which the index was at least 80 (a level that had never been reached before in the seven-year history of the survey). It was also the 11th consecutive time the index has been above 50 - that is, the 11th consecutive quarter of improving demand (measured by lower vacancy rates, higher rents, or both). Fully 72 percent of respondents reported tighter conditions (the second highest on record), while only 5 percent reported looser conditions. An index reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.

POOR JERRY SEINFIELD: In 1989 or 1990, the latter being the year his sitcom began, the comedian purchased a two-bedroom apartments on Manhattan's Central Park West with views of that verdant expanse and of Midtown, reports the New York Times. Having moved a block north to a much larger place in the Beresford with his wife of six years, Jessica, and their children, he finally got around to selling the old place in the Bolivar for something over its $2.35 million asking price in March. All the news that's fit to print, eh?

PRICES FOR SINGLE-FAMILY HOMES ARE CHILLING: The growth in prices continued to cool in the first quarter, but many metropolitan areas are still showing double-digit annual gains, according to the latest survey by National Association of Realtors. At the same time, metro area condo price appreciation has generally chilled to normal levels. The association's first-quarter metro area single-family home price report, covering changes in 149 metropolitan statistical areas, shows 60 areas with double-digit annual increases and 16 metros experiencing price declines. The national median existing single-family home price was $217,900 in the first quarter, up 10.3 percent from a year earlier, when the median price was $197,600. In the fourth quarter of 2005, the annual rate of home-price appreciation was 13.6 percent. Commented David Lereah, NAR's chief economist: "With the supply of homes picking up very nicely in many areas of the country, pressure is coming off of home prices," he said. "By the time we report second quarter data, I expect most areas will be returning to normal rates of price growth in the single-digit range. Consumers generally can expect normal price appreciation for the foreseeable future, providing solid returns over time." Metro area condominium and cooperative prices, covering changes in 56 markets, show the national median existing condo price was $224,100 in the first quarter, up 5.2 percent from a year earlier. Twenty-seven metros showed double-digit annual gains in the median condo price, and five areas had declines.

SALES OF PREVIOUSLY OWNED HOMES ARE ON A DOWN TREND: Including single-family and condo existing homes, sales remained historically high in the first quarter but have experienced a down trend since hitting a record in the third quarter of last year. Even so, 26 states showed increases in sales activity from a year ago, according to the National Association of Realtors (NAR). The latest report on total existing-home sales shows that the seasonally adjusted annual rate was down 2.1 percent from the first quarter of 2005. Twenty-one states and the District of Columbia experienced decline. According to NAR Chief Economist David Lereah, "A steady rise in mortgage interest rates has slowed home sales in higher cost areas, yet job growth in some moderately priced markets is boosting sales in other areas. The net effect is a modest decline in home sales for the nation as a whole, but sales remain historically strong and are providing a solid underlying base for the overall economy."

FOR THESE HOMES, THE MARKET IS LIMITED: The second annual edition of Ultimate Homes, which compiles the 1,000 most expensive home sale listings nationwide, says that one offered by – who else? – Donald Trump is at the top of the heap, reports the Seattle Times in Realtors magazine. It's a 75,000-square-foot Palm Beach, Fla., property that the shrinking violet picked up for $41 million at a bankruptcy auction. After minor remodeling - Trump added 12 bedrooms to the original three - the so-called "House of Friendship" now lists for $125 million. In second place is a Bridgehampton, Mass., estate with a USGA-rated, 18-hole golf course, 14 gardens and fish-filled ponds, and an asking price of $75 million. Third, is a $70 million Manhattan penthouse atop the Pierre Hotel that has a $45,000 monthly maintenance fee generously including full use of hotel facilities." At this level, it's not about shelter anymore," says publisher Rick Goodwin. "It's about creating a property that reflects their success and their personality. Billionaires are looking to separate themselves from mere millionaires." And their personalities obviously are of questionable appeal.

BUILDER CONFIDENCE SLIDES INTO NEGATIVE TERRITORY: Rising mortgage rates, deepening affordability issues and the retreat of investors/speculators from the marketplace are prompting single-family home builders to further adjust their perspectives on the new-home market, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for May. The HMI declined six points from an upwardly revised reading in the previous month to hit 45 for the latest report, its lowest mark since mid-1995. Any number over 50 indicates that more builders view sales conditions as good than poor. "Based on historical experience, particularly the 1994-1995 episode, the pattern of movement in the HMI is not inconsistent with the orderly cooling-down process we're projecting for home sales and single-family housing starts in 2006," said NAHB Chief Economist David Seiders. "We expect new-home sales to be off by 12 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and reconstruction in the wake of last year's record-breaking hurricane season, should be down by about 7 percent from the 2005 record."

DON'T TRY THIS AT HOME: Calling these developments "exciting," the Wall Street Journal notes that siding manufacturers are coaxing customers with new formulations and textures, expensive synthetics that replace real wood or stone, and details like mildew resistance. Among the latest options: imported faux-brick veneers that cost twice as much as real brick and premium vinyl in colors such Peach Dip. Several debuts came in January, at the annual International Builders' Show. CedarBoards, from CertainTeed in Valley Forge, Pa., is made from vinyl grained to look like cedar; a rigid foam backing adds energy efficiency and dent-resistance. (It costs about $2 per square foot uninstalled, about twice as much as traditional vinyl.) Eldorado Brick, irregularly shaped cement-brick veneers from Eldorado Stone in San Marcos, Calif., are hand-finished to look smudged and old, for $4-6 a square foot. Cement-based Cultured Stone ($4.50 to $5.50 per square foot) from Owens Corning in Toledo, Ohio, is molded from real rocks, and then colored with pigments to appeal to designer tastes - even if those hues aren't naturally found in a quarry. One new color, Pheasant, blends khaki, olive, gold and plum. "We fool around with mother nature," says company spokesman Bob Heath.

THE BUSHES HAVE MUCH INVESTED IN REAL ESTATE: President Bush and the First Lady had assets totaling $7.2 million to $20.9 million last year, their disclosure forms show, notes the New York Times. Most of their wealth was in real estate and a diversified trust, with a combined value of up to $10 million, the 18-page statement showed. The 1,583-acre Bush ranch near Crawford, Tex., was estimated at $1 million to $5 million, the same range as last year.

FORECLOSURES DECLINE IN THE U.S.: The number of properties entering the foreclosure process dropped 10 percent in April from the previous month but was up 33 percent from the same month a year ago, according to an industry report in Inman News. A total of 91,168 properties nationwide entered some stage of foreclosure last month, according to RealtyTrac's April foreclosure market report. The report shows an April national foreclosure rate of one foreclosure filing for every 1,268 U.S. households. "Foreclosure filings have decreased 23 percent over the past two months after shooting up 40 percent in the first two months of the year," said James J. Saccacio, chief executive officer of RealtyTrac. "While the national foreclosure rate is still higher than it was in any month last year, this two-month downward trend indicates that housing markets in most areas of the country have remained strong enough to hold foreclosures in check despite rising interest rates and slowing home-price appreciation." Colorado posted the nation's highest foreclosure rate for the second month in a row even though the state's foreclosure activity decreased 31 percent from the previous month. A total of 3,706 Colorado properties entered some stage of foreclosure in April, a foreclosure rate of one foreclosure filing for every 494 households and an increase of 43 percent from April 2005.

VIRGINIA PROPERTY OWNERS CAN ENJOY EASEMENT BENEFITS: Those who place their land in conservation easements are eligible to deduct the value of the easement from their federal income taxes, says the Washington Post. They also qualify for a reduction in local property taxes and a transferable income tax credit, worth 50 percent of the value of the easement, which can be taken over six years. Because the owner may continue using the land, the easement's value is not the same as the property's market value. Instead, it is determined through a complicated appraisal of the lost use resulting from the easement restrictions. It could be a fraction - say 25 percent or 50 percent - of the land's market value. A property with a market value of $10 million, for example, could yield an easement worth $3 million. The owner, in turn, would qualify for a tax credit valued at $1.5 million. If the owner doesn't earn enough income over six years to claim a $1.5 million tax credit, he or she may sell the credit to someone who can.

CATALOG HOUSES LURE PRESERVATIONISTS: A small cadre of historians and passionate amateurs are on a mission to identify and protect homes made by Sears, Roebuck and Co., says the Wall Street Journal. About 70,000-100,000 of them were sold through catalogs in 1908-1940. Distressed that the houses are falling victim to the recent boom in teardowns and renovations, their fans are scouring neighborhoods across the country, snapping pictures and sometimes braving snakes and poison ivy to poke around basements and attics for the telltale stamps that mark the lumber in most of the catalog homes. Precut houses ordered from a Sears catalog were shipped by boxcar in 30,000 pieces - including shingles, nails and paint - and assembled by a local carpenter or by the buyers themselves. Styles ranged from the $6,000 elaborate Magnolia to the three-room, no-bath Goldenrod, sold in 1925 for $445. (Outhouses sold separately.) One of the larger Sears models, constructed in Takoma Park, Md., sold last year for about $900,000, according to a local real-estate agent. The mail-order houses, many of which had big porches and were made from high-quality materials like early-growth cypress, were less expensive than architect-designed houses at the time and were often all working-class people could afford. Because they were typically a family's first home - and because they were often a do-it-yourself project for buyers - the houses, enthusiasts say, are emblematic of the American dream. Identifying a Sears isn't like spotting a steel-paneled Lustron, the ranch houses built to ease the housing shortage after World War II. The hundreds of styles Sears offered varied widely, and many of the homes have been altered over the years. Further complicating matters, a handful of other companies such as the Aladdin Co., of Bay City, Mich., and Gordon-Van Tine Co., of Davenport, Iowa, produced mail-order homes closely resembling Sears models. One way to tell a Sears house: a stamp of a letter and a three-digit number on beams, which were marked to facilitate assembly. Measuring the space between studs, or support posts, can be another clue. The studs of older non-Sears houses in the Washington, D.C. area are often 22 to 24 inches apart, compared with about 15 inches in Sears models. Ruler anyone?

MASTERCRAFT INTERIORS APPARENTLY MISSED THE BOAT: The furniture store based in Beltsville that specialized in 18th- and 19th-century reproductions has filed for Chapter 11 bankruptcy protection in the face of declining sales and changing consumer tastes, reports the Washington Post. According to documents filed in federal bankruptcy court, the company has $10.6 million in assets. Liabilities total $25.5 million. Revenue fell by $5.2 million to $45.3 million last year. The company was founded in 1977 by Douglas Gomez and his brother Dan at a time when chain retailers such as Crate & Barrel and Pottery Barn had yet to dominate the market. Merchandise Manager Carolyn Gomez said that shoppers' tastes have shifted away in recent years from Mastercraft's traditional styles. She said Mastercraft will be liquidated but gave no timeline. "It's one day at a time," she conceded.

ASIAN AMERICANS ARE FAST BUYING REAL ESTATE: Asian Americans have seen the fastest growth in home-ownership attainment since 2000 of any population and their income and credit profile suggests that this growth will continue into the future, according to a new study, says Inman News. Released by the Asian Real Estate Association of America (AREAA) and the UCLA Asian American Studies Center, the research focused on the top 25 metropolitan areas with the largest Asian American populations, including Washington, D.C. In 2004, more than half of the Asian population lived in just three states: California (34 percent), New York (15 percent), and Hawaii (5 percent), the study found. In 2004, Asian Pacific Islanders' home ownership increased significantly to 60 percent but still lagged behind the home-ownership rates of the national (69 percent) and non-Hispanic White (76 percent) populations. In 2002, home-ownership rates for Asian and Pacific Islander (API) naturalized-citizen householders (70.3 percent) were higher than their native-born API householder counterparts (56.5 percent). In 2002, among the naturalized-citizen householders born in Asia, 81 percent of those who entered in 1974 or earlier were homeowners, compared with 66 percent for those who entered in 1975 or later.

MORTGAGE APPLICATIONS RISE FOR THE WEEK: Loan application volume for the week ended May 12 increased by 4.6 percent on a seasonally adjusted basis from one week earlier, according to the Mortgage Bankers Association. On an unadjusted basis, the growth was 4.8 percent but volume was down 14.7 percent compared with the same week one year earlier. Seasonally-adjusted, applications to purchase property went up by 2.4 percent from the previous week and refinancings, by 8.4 percent. The refinance share of mortgage activity rose to 35.0 percent of total applications from 33.8 percent the previous week, and the adjustable-rate mortgage (ARM) hit 29.9 percent from 28.5 percent.

REAL ESTATE BROKERS AND CONSUMERS SOMETIMES DISAGREE: The largest source of legal troubles involves claims of misrepresentation, accounting for about two-thirds of all litigation, says Laurie Janik, general counsel for the National Association of Realtors (NAR). A misrepresentation must involve a material fact, not just an opinion, she explains. There are three types of misrepresentation: fraudulent, negligent and innocent. While state laws vary, brokers generally have less liability when they unknowingly misrepresent something about a property they are working to sell for their clients. In Wisconsin and Washington, D.C., though, brokers can be held for innocent misrepresentation, Janik says, observing that failure to disclose facts about the condition of a property is a close cousin to misrepresentation. "When in doubt, disclose," she advises. Real estate agency laws, antitrust laws, the federal Fair Housing Act and the Real Estate Settlement Procedures Act are also a potential source for lawsuits. Janik adds that most lawsuits against brokers are brought by buyers. Real estate brokers prevail in about two-thirds of the cases brought against them that go to trial, according to Janik, saying that successful lawsuits against brokers relating to Fair Housing Act violations, breach of fiduciary duties and antitrust violations typically rack up the largest damage amounts.

GO FOR THE GREEN: From Saturday, May 20 for the next year, check out the National Building Museum's exhibit called "The Green House: New Directions in Sustainable Architecture and Design," which demonstrates how to incorporate environmentally responsible principles into home building. "It's an advocacy show," coordinating curator Reed Haslach told the Washington Post." For example, one room displays dozens of green materials such as recycled wallpaper, bamboo floors, glass and concrete countertops. "This is a show that says doing something small is a perfectly good thing to do," added lead curator Donald Albrecht. Visit nbm.org and buildinggreen.com for more information.

ONCE AGAIN, INDIANAPOLIS IS THE PLACE TO BUY AFFORDABLY: It was the nation's most affordable major housing market for a third consecutive quarter in the beginning of 2006, according to the National Association of Home Builders'/Wells Fargo Housing Opportunity Index (HOI). As slightly lower home prices and higher household income helped offset an upward movement in mortgage rates to keep the index almost flat, nationwide housing affordability remained virtually unchanged from the end of 2005. The HOI rose marginally from its lowest level on record, 41.0 at year-end 2005, to 41.3 in the first quarter of 2006. "Compared to the fourth quarter of last year, the median price of all new and existing homes that were sold during the first quarter of 2006 declined 1.5 percent, while the national median income, as calculated by the federal government on an annual basis, was adjusted upward from $58,000 to $59,600," said NAHB Chief Economist David Seiders. "These factors kept housing affordability from sliding further despite the fact that the national weighted interest rate on fixed and adjustable-rate mortgages rose 18 basis points in the period, from 6.21 percent to 6.39 percent." In the nation's most affordable major housing market of Indianapolis, just over 90 percent of homes sold in the first quarter were affordable to families earning the area's median household income of $65,100. The median sales price of all homes sold in Indianapolis during that time was $113,000 - down from $120,000 at year-end 2005. Also near the top of the list for affordable major metros was Youngstown-Warren-Boardman, Ohio-Pa., followed by Detroit-Livonia-Dearborn, Mich.; Rochester, N.Y.; and Buffalo-Niagara Falls, N.Y., in that order. Los Angeles-Long Beach-Glendale, Calif. maintained its standing at the very bottom of the affordability chart in the first quarter, with just 1.9 percent of new and existing homes sold in the area being affordable to families earning the median household income of $56,200.

SOME GROWTH IN REMODELING IS REPORTED: Activity grew moderately in the first quarter of 2006, according to the National Association of Home Builders' (NAHB) Remodeling Market Index (RMI). The current market conditions index increased from 46.6 to 48.1 and future expectations moved from 47.5 to 48.9. The RMI for owner-occupied units grew from 48.9 in the fourth quarter of 2005 to 53.8, while renter-occupied units fell from 40.4 to 36.7 during the same period. In the futures expectation index, owner-occupied units moved from 50.4 to 53.2 and the renter-occupied component decreased from 37.8 to 30.4 for the first quarter of 2006. The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority remodelers view market conditions as expanding. "Though the frenzy in home buying is slowing down, the remodeling spending associated with purchasing a home usually lags behind," said NAHB Chief Economist Dave Seiders. "The run-up in home sales during the past five years will fuel remodeling growth for in the next several years, and the long-term growth looks to be solid as well."

MORTGAGE RATES KEEP ON RISING: The 30-year fixed-rate mortgage (FRM) averaged 6.60 percent for the week, up from last week's 6.58 percent and 5.71 percent a year ago, according to Freddie Mac. The 30-year FRM has not been higher since the June 20, 2002, when it was 6.63 percent. The average for the 15-year FRM this week was 6.20 percent, up from 6.17 percent last year and 5.27 percent a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.23 percent this week, up from 6.22 percent. A year ago, that rate was 5.07 percent. One-year Treasury-indexed ARMs were unchanged this week at 5.62 percent. Last year, the average was 4.26 percent. "While financial markets try to decipher the spate of recently released economic reports, mortgage rates drifted slightly higher," said Frank Nothaft, Freddie Mac vice president and chief economist. "The current debate is between rising inflation and slower consumer spending. Until the market finds out which influence will be the strongest, mortgage rates should continue to fluctuate as they have the last couple weeks."

IF YOU THINK PRICES ARE HIGH HERE, READ THIS: San Francisco Bay Area home sales sank for the 13th straight month in April as prices slowly reached a new peak, a real estate information service reported, according to Inman News. A total of 8,358 new and resale houses and condos were sold in the nine-county region last month, down 25.1 percent from 11,158 for April last year. Last month's total fell 14.2 percent from 9,745 for March 2006, according to DataQuick Information Systems. Last month was the slowest April since 2001, when 7,193 homes were sold. April's year-over-year decline in sales was the steepest since November 2001, when sales dropped 27.2 percent from one year earlier. The median price paid for a Bay Area home rose to a record $628,000 last month. That was up 1 percent from March's $622,000 and up 7.2 percent from $586,000 for April a year ago. Last month's year-over-year increase was the lowest since August 2003, when the $447,000 median was also up 7.2 percent. The typical monthly mortgage payment to which Bay Area buyers committed themselves to paying was $3,048 in April. That was up from $2,958 in March and up from $2,659 for April a year ago. Adjusted for inflation, mortgage payments are 20 percent higher than they were at the peak of the prior cycle 16 years ago. Indicators of market distress are still largely absent, according to DataQuick. The use of adjustable-rate mortgages has decreased the last four months, and foreclosure rates are coming up from last year's low point but are still below normal levels. Down-payment sizes are stable and there have been no significant shifts in market mix, DataQuick reported.

Items of Interest - May 13, 2006

NAR ECONOMIST REMAINS UPBEAT: The housing market is settling but should experience its third-best year in 2006, with job creation and a growing economy offsetting some of the effects of rising interest rates, according to the National Association of Realtors (NAR). Says David Lereah, NAR's chief economist: "Coming off a prolonged period of record sales, housing is taking something of a breather this year. Even so, interest rates remain historically low, we've added about 2 million jobs over the last 12 months and the economy continues to grow - that will sustain healthy levels of home sales in 2006, but they'll stay below the peaks experienced during the last two years." Lereah predicts the 30-year fixed-rate mortgage will rise to 7.0 percent this summer and hold at that level during the second half of the year. Existing-home sales are likely to fall 6.4 percent from a record 7.08 million last year, he says, adding that new-home sales are projected to drop 11.6 percent from last year's record. Housing starts should decline 3.7 percent to 1.99 million this year compared with 2.07 million in 2005, according to Lereah, who says the national median existing-home price for all housing types is expected to rise 5.7 percent this year to $232,200 and the median new-home price, 2.2 percent to $242,500.

HIGH GAS PRICES AFFECT SOME CITIES MORE THAN OTHERS: An independent research organization called SustainLane.com has released a list of 50 cities ranked by how well prepared they are to handle rising gasoline prices, according to Inman News. The outfit looked for metros that have strong public transportation systems, readily obtainable and locally produced food, and available wireless networks for telecommuting. New York City was considered the best-equipped city; Oklahoma City the worst. Washington, D.C. just missed out on being in the top fifth of urban areas: It ranked eleventh on the list. To find the lowest prices in the area, visit the following Web site and enter your zip code: autos.msn.com/everyday/gasstations.aspx?zip=&src-Netx. It's updated nightly.

WOULD YOU LIKE A BED WITH THAT OUTDOOR ROOM: Having persuaded consumers to spend billions on outdoor "rooms," moving everything from living-room entertainment centers to full-blown kitchens into their backyards, some companies are betting Americans will go even further, notes the Wall Street Journal. This spring, they're pushing mattresses, daybeds and even night stands for outside slumber - or, at the very least, a nap. Home Depot has its first outdoor daybed - a $900 aluminum platform with a mosquito net and woven PVC that promises to repel water and mildew - on the cover of its spring Outdoor Living catalog. Lowe's has a $99 swing that folds out into a bed. Tuuci, primarily an umbrella manufacturer, just rolled out a canopied daybed with a retractable sunroof and "Roman drawn privacy panels" (read: fancy curtains). And Janus et Cie's Daydream line of beds has optional headboards and even wind chimes to help you drift off to sleep. These beds can cost several times more than traditional outdoor seating. At Berks, a high-end outdoor retailer, daybeds cost between $3,000 and $8,000, and chaises range from $249 and $2,499. The extras can add up, too: Those wind chimes from Janus et Cie cost $193. The daybed push follows years of huge growth in spending on outdoor living spaces. In 2003, consumers bought $4.6 billion of outdoor tables, seating and umbrellas, up 130 percent from $2 billion in 1994, according to the American Home Furnishings Alliance. Last year, wholesale shipments of domestically manufactured outdoor furniture to retailers hit $2.5 billion. But while outdoor kitchens appeal to people who want to entertain friends, getting people to sleep outdoors is a tougher sell. There's nature to contend with: rain, wind, critters. And since they're designed for harsher conditions than your boudoir, many of these beds sacrifice some comfort for durability. Nappers on Armani/Casa's Oceano daybed, for example, lie on a single layer of waterproof woven nylon straps, not unlike the plastic strips on folding chairs. And then there's security: "If you fall asleep outside, you might wake up with your wallet gone," says Lyle Ecoff, who owns Berks. Of course, after spending so much money on one of those beds, the wallet may well be empty.

AND SPEAKING OF OUTDOOR ROOMS: You can get rid of ants inside by, among other things, planting mint around the outside of your house, according to a Knight-Ridder piece in the Washington Post. And make mint juleps from the herb too! Other remedies include spraying home-made solutions of peppermint, cinnamon, lavender, citrus or Citronella oils on windows and thresholds, spreading diatomaceous earth in vulnerable areas and pouring boiling water on anthills.

NEW-HOME BUILDERS ARE ENCOUNTERING MORE CANCELLATIONS: As the housing market cools, builders are reporting that more people are walking away from contracts and from tens of thousands of dollars in deposits, says the Washington Post. Wall Street analysts say the Washington market is among those seeing the highest percentages of buyers abandoning ship - more than double last year's rate, according to one research firm, and perhaps as high as one in three new-home buyers in some places. And nationally, some big builders are beginning to report cancellation rates upward of 25 percent. Hanley Wood Market Intelligence, a home-building research firm, this week said that its latest survey of builders showed that the cancellation rate for the Washington area in March more than doubled from a year earlier, jumping to 12.7 percent from 5.1 percent. "But 10 to 15 percent of people deciding to cancel is not going to be unusual most of the time," said Jonathan Dienhart, Hanley Wood's director of research. "It's just that in the last couple years when we had unusually high demand, where people could just buy a property and flip it, there were fewer cancellations. It's not a cakewalk anymore." The survey shows the cancellation rate locally to be highest in Fairfax County, at 30.9 percent, compared with 0.8 percent a year ago. Half of condominium buyers there canceled compared with no cancellations a year ago. When the statistics are looked at by a single county or type of housing for one month, however, the number of transactions is small. People who are buying for investments rather than residences are the most likely to bail out, experts said. Gopal Ahluwalia, director of research for the National Association of Home Builders, said his group's surveys show cancellation rates increasing nationwide, but not as much as others have estimated. His April survey of builders found that 5 percent reported a "substantially" higher cancellation rate in March than a year earlier and 14 percent a "somewhat higher" rate. Seven percent said they were seeing fewer cancellations. Twenty percent of those surveyed reported cancellation rates of more than 6 percent. Credit Suisse First Boston stock analyst Ivy Zelman this week said big builders nationally are reporting cancellation percentage rates in the mid- to high 20s compared with the mid- to high teens of a year ago. Executives from Pulte Homes, for example, said in an April 27 conference call with analysts that cancellations reached 27 percent in the most recent quarter versus 18 percent a year ago. Zelman expressed confidence in the Washington market in the long term because of its job growth and limited availability of land but said: "It will take some time to blow out this inventory. . . . People have got to lower their prices." Other analysts have also said the Washington market is in stronger shape than most urban centers because of low unemployment; strong job creation; and house prices that are low compared with California, New York and Boston. "It is true that the resale market has softened and that the number of listings jumped to nearly triple what it was last year," said Kenneth Wenhold, director of Metrostudy's Virginia-Maryland division. "However, last year was an unusual situation, with very few units listed for sale, resulting in bidding wars on properties. Now sales are still strong, but buyers have more choices." He said, "Metrostudy's most recent first quarter 2006 research indicates that the new housing market is still performing very well and is almost as healthy as spring of 2005."

IF BLACK-EYED SUSANS ARE YOUR BANE, TRY THIS: And who isn't plagued with their spread into unwanted areas? If you are so cursed, Washington Post columnist Joel Lerner suggests that you pull them up by hand – your hand – mow weekly, and apply Weed-B-Gon.

SOMEONE HAD A BRAINSTORM THAT STIRRED THINGS UP: Cookware manufacturers are increasingly collaborating with designers not usually seen in the kitchen, says the Wall Street Journal. It has not proved to be an inspired idea. For example, Royal VKB worked with Dutch designer Jan Hoekstra, creator of stationery and store displays. Their Cookware line ($250 for three pots and a saucepan) landed in stores in January, featuring lids with spouts for straining liquid. In February, T-Fal brought out a series with Bakelite handles by London-based Marc Newson, who is often associated with futuristic-looking chairs. And Sambonet USA introduced Spot in April, for $120-320. The pieces, designed by Milan-based architect and product consultant Rodolfo Dordoni, resemble truncated wine buckets. The sets are just hitting U.S. shelves as cookware-industry sales are strengthening to pre-9/11 levels, after a slump in 2002. Cookware sales rose 3.4 percent in 2005, to $695 million, according to market-research firm the NPD Group. T-Fal's pieces by Newson are about four times more expensive than the company's other offerings. Well, of course! If you can design a chair or stationery, why shouldn't you be able come with a winning idea for a pot that will fry off the shelf? Yeah, yeah, that's the ticket. Shockingly, some retailers have seen a cool reception to the new lines. Euro Kitchen in Laguna Beach, Calif., has not sold any T-Fal pans since their debut, and the Terence Conran Shop in New York hasn't had any buyers for the Royal VKB series.

IMMIGRANTS UNDERPIN THE CONSTRUCTION WORKFORCE: No surprise, but the National Association of Home Builders estimates that 20 percent of the construction workforce - about 2.4 million people - is foreign-born, reports the Chicago Tribune in Realtor magazine. While it's impossible to know how many are undocumented, some estimates put the number at 50 percent or more. According to estimates by the Pew Hispanic Center, a non-partisan research organization based in Washington, roughly 1.4 million undocumented aliens are at work in the various construction trades, accounting for about 12 percent of the industry's workforce. Nationally, immigrants make up one-third of all construction laborers and 22 percent of all carpenters, the two most prevalent construction-trade occupations. Immigrants also make up a significant portion of the country's drywall installers (40 percent); roofers (33 percent); painters and masons (32 percent); and carpet, floor, and tile installers and finishers (29 percent). "These are not bottom-rung jobs, and we still have trouble filling them with people from any country," says Michael Fink of the Leewood Real Estate Group in Trenton, N.J. "But in my experience, native-born Americans are not willing to gain the skills necessary to get them."

NO-COST MORTGAGES ARE ON THE HORIZON: At least one major lender has a totally no-cost loan on its radar screen, notes Realty Times. Said Bank of America's Floyd Robinson: "I truly believe that's where the market's going." Robinson, who is president of consumer real estate and insurance services at Bank of America, said the myriad of closing costs and fees now attached to home loans serve only to confuse borrowers. He maintained that the bank's no-fee loans would have the same annual percentage rates at those with fees so borrowers could readily see there would be no hidden charges. Robinson added that the bank is considering offering to refinance its customers' mortgages without charge. "All they'll have to do is call the servicing department and it's done," he said at the National Association of Real Estate Editor's annual conference. Last May, the bank introduced its Mortgage Rewards program, which re-engineered the lending process and promised to knock about $2,000 off the cost to close a $200,000 loan. The savings is higher or lower, depending on the amount of the mortgage, the location of the property and other borrower choices. With Mortgage Rewards, Bank of America waives the origination, application, lender closing, appraisal, flood determination, tax service, credit report and courier fees. Borrowers also receive a $200 credit on their closing statements plus a one-year insurance policy that "cancels" up to six principal and interest payments if the borrower loses his or her job involuntarily and wipes out the balance altogether if the event of accidental death. For the bank, it's all about building a relationship that will pay off in other ways. Sounds like win-win.

TO DECLARE A HOME OFFICE OR NOT: The home office deduction is one of the most misunderstood tax loopholes, observes Realty Times. There are three rules to get this deduction: 1. You must have a business; 2. You must have a space in your home that is used exclusively for the business; 3. You must regularly do some kind of business activity in that space. You don't need to have a separate entrance or see clients in your home office, but you need to do some sort of regular business activity (phone calls, emails, filing) in the space. You can have another office and still take the deduction for your home office. This space can be a spare room or even the corner of a dining area. If you receive a Form 1099 as an independent contractor, you have a business. If you have a part-time activity in which you make money (or in which you plan to someday make money), you have a business. If you're spending your time working, even if it's part-time, you have a business. So says the publication. The home office deduction is calculated as a percentage of the business square footage of your home applied to the total square footage. In other words, if your home office is 200 square feet and your home is 2000 square feet in total, then 10 percent (200 divided by 2000) of your home expenses are deductible against your business income.

LOAN APPLICATIONS SLIP FOR THE WEEK ENDED MAY 5: Volume declined by 5.8 percent on a seasonally adjusted basis from one week earlier, reports the Mortgage Bankers Association. On an unadjusted basis, the decrease was 5.2 percent compared with the previous week and was 27.1 percent compared with the same week one year earlier. Seasonally-adjusted, purchase applications went down by 3.9 percent from the previous week, and refinancings fell by 8.8 percent. The refinance share of mortgage activity decreased to 33.8 percent of total applications from 35.2 percent the previous week, which is the lowest share since June 25, 2004. The adjustable-rate mortgage (ARM) share increased to 28.5 percent of total applications from 28.3 percent the previous week.

PACK YOUR BAGS IF YOU BELIEVE THIS: It might be said that the best cities have affordable housing, low crime, high-quality health care and lots of cultural amenities, according to a story in Realtor magazine. Taking into account these and other factors, Kiplinger Personal Finance magazine worked with Bert Sperling, co-author of Cities Ranked & Rated, and somehow concluded that Nashville was tops because of its affordable homes, mild climate and a "phenomenal" entertainment scene that goes far beyond country. Following in order were Minneapolis-St. Paul, Albuquerque, Atlanta, Austin, Kansas City, Asheville, Ithaca, Pittsburgh and Iowa City.

THE HOUSING SLOWDOWN MAY BE SPEEDIER THAN KNOWN: There are signs a housing slowdown that has gripped certain high-growth markets during the past few quarters is now spreading nationwide, says the Wall Street Journal. Preliminary reports from builders Hovnanian Enterprises and Toll Brothers, whose quarters ended April 30, indicate demand is falling faster and more sharply than previously thought and that the pullback is no longer confined to hot markets that had seen sharp home price run-ups in the past few years. Hovnanian's orders fell 20 percent in its fiscal second quarter and Toll's declined 32 percent. On top of this, builders such as Centex and Hovnanian have started taking writedowns in connection with land options. In general, when builders take writedowns to walk away from land options, it is a sign that either land values are falling or demand in that market has dried up. In past cycles, declining land values often were a sign that a market was falling fast. Until now, home-building executives said the pullback in demand was largely confined to markets where sales had been overheated and home prices had skyrocketed during the past few years such as Washington, D.C., parts of California, Phoenix and parts of Florida. They blamed speculative buyers for much of the pullback, saying investors had exited the market, causing less overall demand and more inventory. Majestic Research analyst John Tomlinson found sales fell year over year in every market during February and March, with the average decline being 25 percent. Washington, D.C., Los Angeles/Long Beach, Tucson, Ariz., Sacramento, San Francisco and Phoenix saw the biggest declines, with sales falling 22 percent, 50 percent, 50 percent, 46 percent, 30 percent, and 37 percent, respectively. However, even markets that hadn't been weak previously - such as Philadelphia, Dallas, and Las Vegas - softened in the quarter, with sales falling 30 percent, 15 percent, and 13 percent, respectively, he said. So far, builders' efforts to offer more incentives and discounts have "failed to move the needle" in driving sales, Tomlinson said. As a result, he said some may need to resort to bigger price discounts. "That's the million-dollar question," he said. Despite the softening trends nationwide, Fitch Ratings analyst Bob Curran said he still believes the housing sector is heading for a soft landing - not a crash - and that the current housing slowdown is temporary and will likely rebound by late 2006 or early 2007. He said economic data for job growth and consumer confidence has been positive. "It would be highly unusual for housing to go into a multiyear tailspin when the general economy is holding up," he said.

HIGHER RECORDATION/TRANSFER TAX APPROVED FOR D.C.: Council members agreed to increase the deed recordation and transfer tax for residential and commercial properties from 1.1 percent to 1.45 percent, with residential properties valued at $400,000 or less exempt from the increase, says the Washington Post. With congressional approval, the increase from 1.1 percent for all sales – paid by seller and purchaser for a total of 2.2 percent currently – takes effect Oct. 1. On a $500,000 transaction, the increase of the total 0.7 percent will amount to $3,500. The Council allocated $7 million from the tax, which has been a key revenue source during the recent boom in the real estate market, to pay for 100 more police officers. The additional new revenue also went to fund affordable housing initiatives recommended by the city's housing task force.

HOUSING COSTS GIVE D.C. A DUBIOUS DISTINCTION: A new report that adjusts the poverty line to reflect housing costs says New York, California and Washington, D.C. have the highest percentage of residents living in poverty, surpassing traditionally impoverished regions like the Deep South, according to the New York Times. The report took into account the high rents and utility rates in major cities such as Los Angeles, New York and San Francisco and adjusted the national poverty line, about $19,000 for a family of four, accordingly. The results showed all three regions with significantly higher poverty rates than the Census Bureau reported in the fall. Washington, ranked fifth poorest by the government, vaulted into the top spot, according to the report, with 21 percent of residents in poverty. New York, 12th by government standards, was second in the study, with 16.3 percent below the poverty line, while California went from 15th to third, at 15.7 percent. Nationwide, 12.7 percent of Americans, or 37 million, lived below the poverty line in 2004, according to the Census Bureau.

IT'S FUN AND IT'S FREE: It's the 26th annual Old Town Fine Arts & Crafts Fair at Alexandria's market square this weekend. The event featuring the work of more than 70 artists runs 1-6 p.m. on Saturday and 10 a.m.-5 p.m. on Sunday. More info at 703-836-2176.

UNSURPRISING NEWS FROM REALTOR GROUP: A new survey of second-home owners by the National Association of Realtors shows that baby boomers continue to dominate the market. It also finds that a growing number of second homes - more than one-in-ten - are owned by minorities. A majority of respondents own multiple properties in addition to their primary residence. "Middle-aged, middle-income households are the driving factor in the second-home market, with favorable demographics providing a solid fundamental demand in this sector for the next decade," commented NAR Chief Economist David Lereah. "Boomers believe in diversifying their assets, and most second-home owners see their purchase as being a better investment than stocks. A surprising majority of survey respondents hold multiple properties, and they are interested in purchasing additional homes." About six in ten respondents own two or more homes in addition to their primary residence. The typical vacation-home owner is 59 years old, earned $120,600 last year and purchased a property that is 220 miles from the primary residence, but 34 percent were less than 100 miles and another 34 percent were 500 miles or more. Half of vacation homes are within the same state as the owner's primary residence. Eighty-three percent of owners are married couples. Three-fourths of vacation-home owners purchased for personal use, although one-third also wanted to diversify investments, and 18 percent intended that the home would become a primary residence in retirement. Only 13 percent of vacation owners listed rental income as a reason to buy. The typical owner spends 39 nights per year at their property, and three-quarters do not rent out. Of those who do rent their vacation home, the median number is 12 nights per year. Six out of ten investment properties are within metropolitan areas. Half are single-family homes, 21 percent are a duplex or apartment in a two-to-four unit structure; 13 percent, condos in a building with five or more units; 8 percent, a townhouse or row house; 3 percent, a mobile or manufactured home; and 2 percent, a cabin or cottage; and 4 percent were other.

MORTGAGE RATES ARE MIXED: The 30-year fixed-rate mortgage (FRM) averaged 6.58 percent for the week, down from last week's 6.59 percent and up from 5.77 percent last year at the same time, according to Freddie Mac. The 15-year FRM this week was 6.17 percent, down from 6.22 percent last week. A year ago, it averaged 5.33 percent. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) were 6.22 percent this week compared with last week's 6.21 percent and last year's 5.21 percent. One-year Treasury-indexed ARMs averaged 5.62 percent this week, down from 5.67 percent last week and up from 4.23 percent last year. "Less-than-expected job growth in April helped mortgage rates to level off this week. Even ARM rates were little affected by the Federal Reserve's increase in the federal funds rate," said Frank Nothaft, Freddie Mac vice president and chief economist. "However, next week's release of the April Consumer and Producer Price Indexes may lift mortgage rates higher if the figures show acceleration in inflation."

Out and About - The pleasures of Petworth

The Petworth subdivision in Northwest resulted from the combination of large rural tracts at the end of the 19th century, becoming one of the city's largest and earliest suburban subdivisions, according to DC North, from which most of this history (okay, virtually all of it) is shamelessly plagiarized. Generally bounded by North Capitol, Rock Creek Church and Kennedy streets as well as Georgia Avenue, the neighborhood's fortunes have waxed and waned over the years and the area has gained high popularity only relatively late in the recent real estate boom.


In October 1886, a real estate syndicate paid $260 per acre for the 183-acre country estate of Marshall Brown. A separate syndicate, though with some of the same members, then purchased the adjacent Petworth estate. Half of Petworth was purchased in early 1887, the other half in June 1888, both from heirs of Washington's famous Tayloe family. In all, Petworth's 204 acres sold for about $1,100 per acre. (It was Col. John Tayloe, the city's wealthiest resident in its early days, who built the Octagon as his own home, as well as the building which eventually housed the original Willard Hotel.)

Petworth's streets were laid out as an extension of L'Enfant's plan for the original City of Washington (south of Florida Avenue), and the developers took the unusual step of adding diagonal state streets (Illinois, Kansas and the extension of New Hampshire). Also, they designed Petworth to boast one of the few places outside of the Old City with large traffic circles (Grant and Sherman) where the diagonal avenues cross.

Despite improvements made to the area, sales and development were slow. The 1893-1894 tax assessment shows that no lots were sold and only three houses were erected. The developers sold much of Petworth to Horace S. Cummings in the mid-1890s for a reported $2,500 per acre. It was around 1900 that development occurred mostly at the southern edge of the Petworth subdivision and consisted mainly of detached houses. Slowly, developers began to build duplexes and rowhouses as demand for housing increased.
A housing shortage in the early 1920s sent them into overdrive, building high-density housing throughout the district. Petworth was rapidly built-up with long chains of rowhouses and apartment houses and stores along Georgia Avenue. Dozens of developers were active in Petworth in the 1910s and 1920s, but chief among them was Morris Cafritz, who built hundreds of rowhouses in Petworth in the mid-1920s. In the years since then, there have been profound demographic changes.

But no matter who populates the subdivision, Petworth stands out as an enclave with streets that often are wider than usual in the District, strips and squares of green that are more numerous than usual, and renewed development activity that is turning many properties that have grown tired with neglect into what sometimes are showplaces that attract diverse purchasers. Gentrification and its issues aside, the charms of Petworth and the folks who still reside there are undeniable.

A look at a number of Petworth rowhouses last week provided ample evidence of the neighborhood's desirability and the value that can be found there compared with other parts of the Northwest that are viewed as hotter. Consider, for example, the three-bedroom, two-and-a-half-bath semi-detached home that has been well renovated to include a kitchen with island, stainless and granite, plus a new deck, new engineered hardwood floors downstairs, carpeting upstairs and a fully finished basement that is equipped as an in-law suite, albeit with ceilings lower than legal height for rental. With its price just reduced $10,000 to $489,000, this 1923 property lacking central air conditioning deserves to find a buyer.

At the other extreme is a semi-detached rowhouse in search of a new owner who wants to live in a sadly rundown dwelling while taking on major renovations. Someone died after a long life while owning the house, and doubtless the depressing environment hastened her departure from the world. Still, the place is a block from the Petworth Metro station, has parking for two cars and possesses the opportunity to restore while modernizing. The price implies less of an investment than a do-it-yourself opportunity. Asking $395,000 for this three-bedroom, one-bath 1910 residence is asking a lot, especially with the added feature of a leaky oil tank above ground.

A few of the other viewed Petworth properties that other agents are listing:

• A corners-cut renovation of a three-and-a-half-bedroom, two-bath 1923 attached rowhouse with two-car parking, new roof, a kitchen that pretends to glamour, and baths with questionable taste in tile. The bedrooms and bath include the in-law suite, which has low ceilings, leaving just one bath for both upstairs floors. Rooms are small, and there is carpeting upstairs. Reduced from $499,900 when originally listed last November to $449,000 last month, this house is nonetheless priced within the range of reason.
  
• Another renovation that needs to be rethought. With three bedrooms and two and a half baths, this semi-detached rowhouse has a feature impossible to ignore: New ceilings that resemble a forest of stalactites. Because of them, seeing the rest of the place seemed pointless so you'll get no further description. The house went on the market three months ago at $550,000 and had its price cut to $519,999 a few weeks ago, since when it has languished for good reason.
  
• An inoffensively renovated attached rowhouse that has four bedrooms and three baths, including the lower level. The modestly finished kitchen does have granite and stainless, and the place does offer central air conditioning, a detached garage and hardwood floors that are mismatched in more than one place. After being on the market since the beginning of December, the owner reduced the price from $570,000 last month and, more recently, way down to $558,000. That'll do the trick, oh yeah.

Of course, Petworth is not immune to the changing market. Developers – wouldn't "speculators" be a more accurate term- snapped up properties at their top prices last year, poured bucks into renovating them and had visions of big checks dancing in their heads. Now, they can count themselves lucky if they walk away with any profits at all and, therefore, tend to cling to prices that buyers these days are perfectly willing to reject. The phenomenon occurs citywide, so Petworth is naturally no exception. Even so, prices there are significantly lower than in neighborhoods that have more convenient transportation and more panache. For some buyers, moving away from yesterday's trend and creating their own may well mean more for their money.


In addition to Petworth properties, here are some others that the members of the Service You Can Trust team have seen in the past week:

• In Arlington's Ballston neighborhood, a doll house about to be listed at approximately $590,000. This brick colonial has three bedrooms and two baths. Nicely maintained, the dwelling has an inviting back porch and has been generally updated over the last 5-10 years. But it is on a thoroughfare, and its small bedrooms, however quaint, are liabilities.
  
• An expansive Dupont Circle 1,043-SF condo with two bedrooms, two baths, high ceilings, red pine floors, handsome modern kitchen, fireplace, in-unit washer/dryer and excellent flow. The closet space is ample, too. The problem with this apartment is its first-floor location, so the price was reduced just this week from $615,000 to $585,000, where it ought to sell pretty quickly.
  
• In Logan Circle, a three-bedroom, two-bath corner condo that shows beautifully in a 2004 building. Open and airy, the unit has maple floors, gas fireplace, the usual first-rate kitchen with an island, nice closet space and garage parking. It is offered competitively at $725,000, but it is not clear whether today's buyers will pay that much.
  
• Another doll house in North Arlington's Ballston, but with great curb appeal. Its inviting porch, beautifully landscaped garden and wooden porch swing are the best things it has going for it. Listed at $599,800 and not even a week on the market, this two-bedroom, two-bath home is overpriced, largely because there is no upstairs, just an unfinished attic space. Moreover, the basement is large but needs a lot of updating. Although the house has a friendly retro appeal, it is tiny, tiny, tiny.
  
• In Chevy Chase, D.C., a luscious 1932 side-hall brick colonial with a sweeping backyard, formal living room with tray ceiling, elegant dining room, inviting two-level deck, spacious center-island white kitchen open to an added family room that has cathedral ceilings, three bedrooms and two updated baths upstairs, appealing rec room in the lower level, two heating and cooling zones, and an attached two-car garage. The attic has been transformed into a playfully designed bedroom or office with slanted ceilings. This newly listed house is a winner at $1.245 million.
  
• A Mount Pleasant rowhouse with a welcoming front entrance and discouraging rear exposure, which faces a hulking school and its yard. The nice square kitchen is improved but not designed to be impressive, and the rest of the 1910 dwelling without central air conditioning also is modestly appealing – two bedrooms plus den and a single bath upstairs, skylight, decent living and dining rooms, high ceilings, heart of pine floors and original mantels. The price of $629,000 is correct.
  
• In the eastern reaches of Capitol Hill, a two-bedroom, two-bath condo. At $399,900 and 40-plus days on the market, the best thing this unit has going for it is its parking space and its low $176 per month condo fee. The unit feels more like a rental apartment than it does a condo, in need, as it is, of updating. It could use an extra 300 square feet to call it home.
  
• A bi-level Dupont Circle, two-bedroom, one-bath condo accessed only via a lonely alley. This apartment was purchased last year to renovate and flip. Buyers are unlikely to flip over the awkward cramped space, which will be difficult to furnish. There are not a lot in the way of closets or, in the kitchen, drawers, of which there are zero in that second-rate renovation. The asking price of $429,900 is not out of the question, but it's a lot for the knowledgeable buyer to offer gladly. The monthly fee of $394 covers all utilities in the pet friendly 1985 condominium.
  
• Just blocks from Eastern Market, a well-done condo conversion. The two-bedroom, one-bath unit boasts stainless steel and granite, cherry hardwood floors, washer and dryer in the unit, a deck off the master bedroom and a shared brick patio with the other three units in the building. The condo fee is a reasonable $244 per month, and the apartment is listed at $479,500. It is still on the market after more than a month.
  
• An extraordinarily stylish renovated attached rowhouse a bit north and east of what is normally considered the U Street Corridor. Closer to Columbia Heights, this exercise in architectural innovation has transformed a rundown 1890 rowhouse into something called "functional minimalism." The top floor of the impossibly narrow dwelling is a master suite featuring an aluminum ladder to the roof deck, and a mod bath with cement-topped vanity. The sleek second floor of necessity has a Murphy bed in the guest room. Other features encompass a dramatic open kitchen that has been inventively designed, a three-story glass wall that is best used to filter light through the shade, blocking close-up views of other undeveloped properties, and not much in the way of entertainment space. If this were a graduate student's final project, the grade would be A-plus. But $799,000 is far too much money for this 1,150-SF property in an out-of-the-way location, no matter how successful the execution.
  
• In Dupont Circle, a true basement apartment that at least provides both sufficient space and an exceptionally convenient location. The open kitchen in this long, narrow condo is a bit cheesy but clean, and the bath is unremarkable. But there are a wood-burning fireplace, central air conditioning, hardwood floors in a herringbone pattern, breakfast bar and crimson walls to distract the new owner from a lack of much light. The monthly fee in this pet friendly building is $394, and the price of $339,000 is about right.

Items of Interest - May 6, 2006

SO YOU WANNA BE A STAR: "Offbeat America," a series on Home & Garden Television (HGTV) that celebrates unusual homes, is looking for homes to feature that are architecturally extraordinary or furnished/decorated in a fun and funky way. The show will be shooting homes in Indiana in June and homes throughout the country through the end of the summer. Recent episodes have featured a Pennsylvania home covered in mirrors that appears to disappear as it reflects the surrounding landscape; a homeowner in Green Bay, Wis., who loves racing slot cars so much that he designed his home to look like a giant racetrack; and a Mojave Desert resident who engineered his aluminum home to spin like a top. The Offbeat series airs Sundays at 6 p.m. on HGTV. For more information or to submit a home for consideration, contact Gregg Stucker at 303/712-3172 or send digital photos of your home and a description to gstucker@highnoonentertainment.com.

A DROP IN SALES IS FORECAST: David Seiders, chief economist for the National Association of Home Builders (NAHB), says he expects new-home sales to drop 12 percent this year compared with a record 1.28 million units in 2005, according to Inman News. New-home sales in the first quarter of this year were down 10 percent from fourth-quarter 2005, and Seiders said he expects sales to ease further in the coming months before leveling off in 2007. He spoke at a National Association of Home Builders Construction Forecast Conference. "After topping out in the third quarter of last year, it is pretty clear that the housing sector is in a period of transition. Sales and starts are trending lower toward more sustainable levels," Seiders said. "Hopefully, most of this decline will be due to investors and speculators stepping out of the market. What we don't want to see is investors dumping homes on the market." In the view of Michael Moran, chief economist at Daiwa Securities America, "The housing sector is going through an adjustment, not a collapse." Added Jim Glassman, managing director and senior policy strategist with JP Morgan Chase: "Real estate is pricing itself back to reality, and in the long-run it is reasonable to expect starts in the 1.8 million to 2 million range." Home-price appreciation is expected to fall from an average 12 percent in 2005 to about 4 percent in 2007, Seiders said, and mortgage rates are expected to rise to 6.7 percent later this year. The rental market should regain some ground while the condo markets cools, he continued. According to Bernard Markstein, NAHB's director of forecasting, the forces driving housing demand vary significantly by region. Home prices, population growth, household formation and growth in employment opportunities are among the drivers, he said, and other factors include immigration and migration, energy prices, large-scale natural disasters such as Hurricane Katrina, and an area's appeal as a second-home location. Mark Zandi, chief economist for Moody's Economy.com, weighed in with a prediction that "nationally, house prices and supply will go flat in 2006, 2007 and 2008," implying that there will be some price declines in key markets and that markets are going to "correct, not crash." Markets where Zandi anticipates significant corrections – more than a 10 percent peak-to-trough decline – are in the Northeast, the Mid-Atlantic, Florida, California, parts of Arizona, and Las Vegas. "Any fundamental rise in interest rates will bite hard," Zandi said. "The rise will lock out two key groups that are important to local and regional markets: first-time home buyers and investors." He said home prices in much of the Washington region will likely drop 10 percent or more because prices have far outpaced affordability for first-time buyers and investors, according to the Washington Post. Condominiums will be hardest hit, Zandi declared, saying that there are no hard data to pin down how far prices might fall or how the prices of single-family houses would be affected, compared with condos. In an interview later, he said that the growing inventory of condo units that are for sale or being built here suggests that the slide would be worse for that sector. "I could say roughly that prices would fall about zero to 5 percent for single-family homes and about 15 to 20 percent for condos," he said. He's been wrong before, often, though no one can say that he is now.

THEY'RE YOUNG, RICH . . . AND RISK-AVERSE: Maybe it is time to update that F. Scott Fitzgerald quotation about the rich being different from you and me, suggests the New York Times. It turns out that the young rich are especially different - at least when it comes to the way they invest. Northern Trust surveyed 1,014 wealthy households - those with more than $1 million in investable assets - headed by someone 35 or younger and found they had doubts about the American equities markets. "One-fifth of the young investor's portfolio lies in cash, compared to only 13 percent for all high-net-worth portfolios," Marshall Eckblad reports in Financial Planning. "Wary of more domestic volatility and scandal, the wealthy young allocate only 29 percent of their funds to U.S. equities, compared to 41 percent of the whole." They are also more partial to real estate: While only 6 percent of all respondents said they planned to put most of their new money into real estate in 2006, 21 percent of those under age 35 viewed real estate as their first choice.

OH PLEASE, MR. TRUMP, YOU'RE TIRED: Love seats by the Donald, curved couches that are hard to place in square rooms and neutrals that actually are colors are some of the design directions creating buzz this week at the International Home Furnishings Market, reports the Wall Street Journal. The massive twice-a-year trade show is the largest wholesale home-furniture show in the world, and with 90 percent of U.S. home-furnishings retailers attending, it sets the stage for what stores will sell this fall. Because new-home buyers are thought to drive more than half of the market, "there is an underlying, unspoken fear of what is to come," says Michael Kaplan, owner of a third-generation, custom-furnishings business in Philadelphia. Thus, attempts to reinvent the wheel. The clean lines and minimal detail of midcentury modern continue to be popular, but now makers are adding curves to give these designs a more feminine look. Manufacturers are introducing sofas shaped like a giant letter C or even an O. While the shape is attention-getting and can be comfortable to sit in, these sofas pose a decorating challenge: They won't fit flat against a wall. On the color front, dull is hot. In addition to the new neutrals - many of which seem like renamed colors - another hue is getting a push: brown. "This is the most brown I've seen ever at this show," says Gary Stewart, a designer from Louisville, Ky. Meantime, the craze for furniture that carries celebrity names continues to attract new players - even Donald Trump plans to jump in - although the trend seems to be losing some steam with consumers. Trump is near a deal with a department-store chain to sell furniture named after the real-estate developer, says Trump Organization spokeswoman Cathy Glosser. The line will include tables, chairs and love seats (especially love seats?) as well as office furniture, she says, declining to name the chain that will sell them or the company that will make them. Let's hope this is the last of it.

A KEY MARKET INDICATOR TAKES A TUMBLE: Pending U.S. home sales have slowed as interest rates continue to rise, the National Association of Realtors (NAR) has had to acknowledge. The Pending Home Sales Index, based on contracts signed in March, eased 1.2 percent from February. It is 6 percent below March 2005. The index is derived from pending sales of existing homes. Commented David Lereah, NAR's chief economist: "Home sales rebounded from the slide that started last fall, but the pending sales data is showing a dampening effect from rising mortgage interest rates that have been trending up since January. This means a modest slowing can be expected in the sales pace in the months ahead, although the market will hold at historically strong levels."

DO YOU HAVE A HAMMER: In the last 12 months, American homeowners spent about $155 billion on remodeling, an increase of more than 4 percent over the previous 12-month period, despite rising interest rates, says Kermit Baker, senior research fellow at the Joint Center for Housing Studies at Harvard, according to the New York Times. Yet Baker and other experts say there is little research into the returns that American homeowners get on that investment. The most widely quoted figures come from a construction trade magazine, Remodeling, publishes the Cost vs. Value Report. Noted in Realty Digest previously, the report found that a minor kitchen remodeling would cost $14,913 and return 98.5 percent of that investment when the house was sold. Adding a midrange master bedroom suite, with a walk-in closet and dressing area as well as a bathroom, would cost $73,370, with only 82.4 percent of that being recouped. A modest bathroom redo, costing $10,499, could earn back 102.2 percent of the investment, Remodeling said. But researchers at the Harvard center "threw up their hands" after trying to determine the return on investment of remodeling projects, said Baker. "How a bathroom renovation affects value depends on a lot of things that are hard to quantify," he observed. "To do it well, you need neighborhood level estimates, but that would be very difficult." For instance, the magazine estimates that it would cost $22,977, with an 86.4 percent return, at best to add a bathroom. But agents may say that a house with one bathroom in a neighborhood where two bathrooms is the norm is at a disadvantage when the house goes on the market. Baker added that the homeowner might then see a good return on the investment by making the house competitive, though a third bathroom might get little return. What the Remodeling magazine data show is just how few projects yield a positive rate of return. Of the 22 projects it analyzed, only two - an upper-range siding replacement and the modest bathroom remodeling - would make money. That suggests that remodeling projects ought to be regarded not as a creator of value, but as a consumer product, like a car or purse, that appeals to taste and style.

THERE IS MORE THAN ONE WAY TO SPELL S-T-A-T-U-S: Coinciding with the invasion of foreign appliance manufacturers - everything from the Chinese company Haier at the low end to the German companies Miele and Bosch at the top end - high-end German companies are shaking up the American market for kitchens and appliances, reports the New York Times. Homeowners who once preferred Formica counters, linoleum floors and white appliances are increasingly opting for the Euro look: straight lines, expensive wood veneers, granite countertops and sparkling stainless steel. And thanks to the spread of these über-kitchens and their high-end American counterparts such as the cabinet maker Wood-Mode, European appliances also have been marching steadily into the American home. Companies such as Bosch-Siemens and Miele are thriving. "The United States and North America belong to our high-growth regions," said Theodor Siepert, a spokesman for Miele. "We even have innovations like a 30-inch oven developed especially for the American Thanksgiving turkey." The stakes are rising: Americans are expected to spend $79 billion to remodel kitchens this year, a 16 percent leap from last year, according to Lyle Landon, publisher of Kitchen and Bath Business. Consumers pay more for such styling and cachet, of course, sometimes a lot more. Some Miele dishwasher models, for instance, sell for up to $1,900. The manufacturers stand out in the crowded market by connecting with earlier German design movements. "Design is not for design's sake," said Vanessa Trost, the spokeswoman for Gaggenau, an appliance unit of Siemens. "We are in the Bauhaus tradition: every element of design has to fulfill a function."

PANSIES AND PETUNIAS AND POPPIES, OH MY: Pick 'em out at Flower Mart 2006 at the Washington National Cathedral, where the All Hallows Guild will celebrate its 90th anniversary with a show themed "Flowers from around the World," even carnivorous plants – yum. The free event runs Friday, May 5 and Saturday from 10 a.m. to 5 p.m. More info: 202-537-3185.

TITLE INSURERS FACE SCATHING CRITICISM: Homeowners title insurance and "affiliated business" joint ventures among title agents, realtors and lenders have come in for withering criticism at a House financial services subcommittee hearing, according to Kenneth Harney in Realty Times. State and federal regulators, consumer groups and even a title agent from Minnesota charged that widespread illegal kickbacks, sham and "shell" companies have led to excessive title fees for millions of home purchasers. Representatives of the title and affiliated settlement industries disputed the claim that fees are too high, but generally applauded state and federal regulators' efforts to crack down on illegal kickback schemes. Federal law prohibits realty settlement kickbacks or provision of "anything of value" in exchange for referrals of consumer business. A consumer group representative, J. Robert Hunter of the Consumer Federation of America, broadened the focus of the hearing to the huge revenues paid by home purchasers and refinancers compared with the claims paid out by title insurers. Hunter, a former Federal Insurance Administrator, said consumers spent $17 billion on title premiums last year - twice what they paid in 2000 and four times what they spent in 1995. Claims paid out by insurers were about 5 percent - compared with 86 percent of premiums for HMOs and 60 percent for auto insurance. Equally significant, said Hunter, is the fact that 80 to 92 percent of the premiums paid for title insurance go to middlemen - title and settlement agents, escrow agents and lawyers - who in turn often split their fees with affiliated realty and mortgage partners.

PERMITS FOR NEW HOUSING ARE LOWER HERE THIS YEAR: Local governments issued them for 8,154 units in the region for the first quarter versus 8,455 during the same period last year, according to the Washington Post. Issuance has been declining since 2003. Permits for single-family homes declined 14 percent, to 5,464, while those for condos and apartments in buildings with five or more units jumped 32 percent, to 2683.

HERE'S A DO-IT-YOURSELF PROJECT TO AVOID LIKE THE PLAGUE: One Emily Pilloton has come up with something called the Human Nest chair, which is upholstered in scraps of fabric that she scavenges from discards, sometimes found on the street, says the New York Times. Inviting! Layered with well over 1,000 scraps of recycled textiles, the $1,800 conical chair is not meant solely to help its owners take refuge from the world. In addition to providing a place to rest, the Human Nest is a wry commentary on the worrisome issue of environmental sustainability. Pilloton says she was struck one day by the ways in which birds repurpose detritus - twigs, leaves, discarded coffee cups - as the building blocks of their nests. She was intrigued not only by the environmental soundness of this strategy, but also by how nests are constantly updated with fresh materials even after eggs have been laid. "I wanted to make a sort of framework that a user could contribute to and make their own," said Pilloton, who lives in Chicago. "That way you sort of age with it, and it becomes this modern heirloom." In her dreams. It took this birdbrain six months to layer 40 yards' worth of fabric strips onto the chair's bamboo frame. "I tied them into the very center of the bowl, so they came out like flower petals," she said. Once every inch of the frame was covered, she stuffed even more fabric into the chair's center, to act as cushioning. Over time, however, that makeshift cushion tends to lose some of its softness. When that happens, Pilloton suggests that the owner cut up old T-shirts into three-inch-wide strips and stuff them into the chair. What fun! If you want such chair, the Digest's little chickadees will get no help finding her Web site from this quarter. Is she on crack?

MARTHA, MARTHA, MARTHA: Martha Stewart's partnership with KB Home attracted 3,400 interested consumers during its opening weekend and sold out its first 100-home phase in Cary, N.C., within a week, reports the Atlanta Journal Constitution in Realtor magazine. First-time home buyers Rob and Amy Joyce were among the buyers of the Katonah model in the mid-$200,000s. "Her designing style is impeccable. You just can't argue with that," says Rob Joyce, who designs home theater systems for a living. KB Home plans other communities in Atlanta; Charlotte, N.C.; Houston; Daytona Beach, Fla.; and Las Vegas, Nev. Closets in the Martha Stewart homes are spacious, especially in the larger models. Kitchens and pantries offer glass-front doors and high-showcase cubbies for collectibles or china. There are no jail cells in these homes. Other designer-home builder duos are hoping on the bandwagon. Estridge Homes in Indianapolis has partnered with former supermodel Kathy Ireland. Can't wait.

JUST SIGN ON THE BOTTOM LINE IF YOU DARE: With rates on home-equity lines of credit at a five-year high, demand is slowing, so lenders are aiming to keep their business growing with new promotions, rate cuts and other offers, says the Wall Street Journal. Wells Fargo launched a new program last month that cuts the rate on home-equity loans and lines of credit by between 0.375 and 0.5 of a percentage point for customers who also have a Wells Fargo checking account. Bank of America is sending out "customer reward" certificates that give borrowers up to half a percentage point off their rate if they take out a home-equity line of credit. PNC Financial Services Group is offering $25 PNC Bank Visa gift cards - and, in some cases, two free airline tickets - to borrowers who take out a new home-equity loan or line of credit. Many lenders are also pushing fixed-rate home-equity options. Last week, Regions Financial introduced a fixed-rate home-equity loan with a term of up to 15 years. Before that, the Birmingham, Ala., bank's fixed-rate loans required borrowers to make a balloon payment at the end of five years. Yet if housing values fall, some home-equity borrowers could wind up owing more than their house is worth. And homeowners with credit lines are vulnerable to rising interest rates, which can make their monthly payments higher. SunTrust says that about a quarter of its borrowers are now opting for a fixed-rate home-equity loan, up from 10 percent a year ago. At Wachovia Corp., 40 percent of customers are choosing fixed-rate home-equity loans, compared with 30 percent last year. Meanwhile, lenders such as J.P. Morgan Chase & Co. and Bank of America are touting newly popular features that let borrowers lock in a fixed rate on some or all of their line of credit. This fixed-rate option "is the largest weapon in our arsenal" when it comes to retaining customers, says Brad Conner, president of Chase Home Equity.

MORTGAGE APPLICATIONS ARE ON THE RISE: The Mortgage Bankers Association says that, for the week ended April 2, volume increased by 8.8 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the growth was 9.6 percent compared with the previous week, but applications dropped 15.6 percent in contrast to the year before. Seasonally adjusted, purchase volume went up by 11.3 percent from the previous week, and refinancings gained 5.1 percent. The refinance share of mortgage activity decreased to 35.2 percent of total applications from 36.7 percent the previous week, which is the lowest share since June 25, 2004, and the adjustable-rate mortgage (ARM) share edged up to 28.3 percent from 28.2 percent.


CASH OUT IS GROWING IN POPULARITY: In the first quarter of 2006, 88 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac's quarterly refinance review. This percentage is up from the fourth quarter of 2005, when the share of refinanced loans that took cash out was a revised 81 percent, and the ratio is the highest since the third quarter of 1990. Said Frank Nothaft, Freddie Mac vice president and chief economist: "Almost no one is refinancing to reduce their interest rate in today's environment. In fact, the first quarter of 2006 is the first time in 20 quarters in which the new mortgage rate was higher than the old one for more than half of refinancing borrowers. One reason why homeowners may be willing to increase the mortgage rate on their first-lien mortgage is because interest rates on most home equity lines of credit have been pushed up again as the Fed increased short-term interest rates in January and March, which in turn pushed up the prime rate." Nothaft added that the $244 billion in cash taken out of home equity will fall to an estimated $170 billion from the refinancing of first-lien, prime, conventional mortgages in 2006. Freddie Mac expects the refinance share of mortgage applications to fall to around 36 percent and home prices to grow at an average rate in the single-digits nationally in 2006, slowing from the 13 percent rate seen in 2005. Deputy Chief Economist Amy Crews Cutts noted that the first quarter of 2006 was the first time in five years that more than half of borrowers increased their mortgage rates when they refinanced, saying, "The difference is small enough that the average borrower's mortgage payment barely changed, but it is a significant turn from the trend of significantly lower payments that we came to enjoy since the start of 2001."

D.C. COUNCIL PONDERS END TO RENT CEILINGS: The legislative body takes a final vote next month on a measure approved unanimously to overhaul the rent control system, reports the Washington Post. The bill would tightly limit yearly rent increases and cap at the rate of inflation increases for seniors and disabled individuals. For vacant apartments, increases would be held to no more than 30 percent. For renters, the top rise would be 2 percent plus inflation.

UP INCH MORTGAGE RATES ONCE AGAIN TO A FOUR-YEAR PEAK: The 30-year fixed-rate mortgage (FRM) averaged 6.59 percent for the week, up from last week's of 6.58 percent and last year's 5.75 percent. The 30-year FRM has not been higher since the week of June 20, 2002, when it averaged 6.63 percent. The 15-year FRM this week was 6.22 percent, also up a bit from 6.21 percent last week and much more than 5.31 percent a year ago. The 15-year FRM has not been higher since May 24, 2002, when it averaged 6.28 percent. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) were unchanged at 6.21 percent this week and up from 5.16 percent the same week of 2005. One-year Treasury-indexed ARMs were 5.67 percent this week, down very slightly from last week's 5.68 percent. At this time last year, the one-year ARM averaged 4.22 percent. Said Frank Nothaft, Freddie Mac vice president and chief economist: "We expect that mortgage rates will continue to trend upward over the coming year, but that upward trend will be modest at best. Meanwhile, with gradually rising rates, refinance activity can be expected to shift. Fewer families will be refinancing, but of those who are, a larger percentage will be drawing some equity out of their homes, many to pay off previously existing home equity loans and lines of credit as those loans become more expensive."

TAKE IT FROM NEAL ZIMMERMAN: When relocating his home office, the architect and author of "Home Workspace Idea Book," stayed away from bulky commercial office furniture, notes the Wall Street Journal. Instead, Zimmerman had wall-to-wall counter space built in, with cabinets below for files and shelves above for regularly used items like pens. He moved extra paper and old files to the basement to cut down on clutter. Zimmerman tamed the jungle of electric wires from his fax, phone and printer by cutting a rectangular slot at the back of the counters and letting them hang down and drape along a lipped shelf on the wall below, six inches above the floor. He tried out his office chair for 30 days, disclosing that many catalog companies will let you return chairs after a tryout. To reduce glare on his computer monitor, Zimmerman installed a dimmer on the overhead light, uses nonflickering xenon tubes above his work space, and places his monitor perpendicular to the room's window.

WHAT DO BUYERS WANT ANYWAY: If looking at single-family homes, they generally prefer sophisticated landscaping that incorporates large leafy, evergreen and colored plants, according to results of recent research from Michigan State University, says Residential Specialist magazine. Design sophistication was the most important attribute, accounting for 40-45 percent of the value added to the home in each state. Plant size and plant sophistication followed in importance. The 2005 study included 1,323 volunteer participants, whose response suggested that attractive landscaping adds 5-11 percent to a home's base value.