Items of Interest June 24, 2006

MORTGAGE RATES SURGE TO FOUR-YEAR HIGH: The 30-year fixed-rate mortgage (FRM) averaged 6.71 percent, for the week, up from last week's 6.63 percent and 5.57 percent last year at this time, according to Freddie Mac. The 30-year FRM has not been higher since May 31, 2002, when it was 6.76 percent. The average for the 15-year FRM this week was 6.36 percent, up from 6.25 percent. A year ago, it was 5.16 percent, and the 15-year FRM has not been higher since May 17, 2002, when it averaged 6.37 percent. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) were 6.32 percent this week, up from 6.23 percent the prior week. A year ago, the five-year ARM averaged 5.05 percent, the highest that the 5-year ARM has been since Freddie Mac started tracking it on January 6, 2005. One-year Treasury-indexed ARMs were 5.75 percent this week, also up from last week's 5.66 percent and last year's 4.23 percent. The 1-year ARM has not been higher since August 3, 2001, when it averaged 5.77 percent. "Financial markets believe that the current rate of inflation is above the Fed's comfort zone, which will lead to more rate hikes in the near future," said Frank Nothaft, Freddie Mac vice president and chief economist. "A rate hike in June is thought to be a sure thing, and what was believed to be a vaguely possible hike in August is now considered to be highly likely; that change in market expectations caused mortgage rates to jump higher this week."

U.S. FORECLOSURES ARE GROWING: There were 27,064 of them nationwide during May, an increase of 16.6 percent compared with the year-earlier period, according to Foreclosure.com, says Realtor magazine. "The overpaying for homes by many buyers in the past couple of years fueled by the availability of low interest rates is really starting to play out in the real estate market," suggests Foreclosure.com President and CEO Brad Geisen. The total number of foreclosed homes available for sale in the United States climbed 1.9 percent from the previous month, totaling 89,327 in May. Foreclosure.com data also indicate that investors are moving quickly to purchase foreclosed properties, with more than 25,000 foreclosed homes being sold in April 2006.

NOT ONLY VENDORS AND HOMEOWNERS LOVE PONDS: The number of backyard ponds in the U.S. could reach six million this year, estimates Aquascape Designs, a pond manufacturer based in St. Charles, Ill., up from two million in 1996, according to the Wall Street Journal. But as more homeowners build backyard oases, more animals are treating those ponds as watering and feeding holes by dining on expensive plants and decorative fish. In Ben Lomand, Calif., one homeowner has found mountain-lion tracks around her pond, while another in Wisconsin has played host to a roving bear. Still, the pond business continues to grow. About 15 percent of homes in the country have a water feature, according to the U.S. Census Bureau. A pond can cost anywhere from a few hundred dollars for a small, do-it-yourself plastic model to $8,000 for a fully-installed 11-foot-by-16-foot pond with a waterfall. Bridges, decks, benches, aquatic plants and decorative fish can bring the total cost to more than $10,000. Sales of all water-gardening products doubled over the past decade, according to the National Gardening Association; it's now an $870-million-a-year industry. "Wildlife respond to a pond almost immediately," says Craig Tufts, director of citizen science programs for the National Wildlife Federation, based in Reston. And many pond owners, he adds, are "surprised at what's out there." Take Don Bryan, for example. He installed a pond in the backyard of his Wichita, Kan., home in March and woke up one morning to discover that something had eaten $200 worth of his aquatic plants. Soon afterward, he woke up at dawn and discovered the culprit bathing in the water: a muskrat. Following a remedy he found online, Bryan scattered cayenne pepper and a box of mothballs around the pond. The next morning, half of the mothballs were gone. The muskrat wasn't. "There's no muskrat love for me," he says.

HERE'S IMPORTANT INFO FOR THE RISK AVERSE: In a study of the safest places to live in the country, Farmers Insurance Group gave top billing to Provo and Orem, Utah. The insurance company compiled its Top 25 Most Secure U.S. Places to Live by considering crime statistics, risk of natural disasters, and job loss numbers in 213 U.S. metropolitan areas with populations of 200,000 or more, reports Realtor magazine. Some 45 miles south/southeast of Salt Lake City, Provo is home to Brigham Young University. Utah Valley State is in nearby Orem. The region has a population of 387,817 and, along with ninth-ranked Danbury, Conn., shares the lowest crime rate of the 213 areas studied. Dutchess County, N.Y., midway between New York City and Albany in the Hudson River Valley, ranks second overall. Crime is low and unemployment even lower in this affluent community of 287,752, mainly professional and technical workers. Third is Madison, the state capital of Wisconsin and home of the University of Wisconsin. A cultural center surrounded by dairy farms and cropland, Madison (pop. 437,110) is often cited as one of the nation's healthiest cities and among the best places to retire. Rounding out the top five are Lancaster, Pa., in the heart of the Pennsylvania Dutch region about 65 miles west of Philadelphia, and the state capital of New York, the Albany-Troy-Schenectady, N.Y. area.

TO QUOTE GRANDMA, 'YOU SHOULD LIVE SO LONG': The 40-year mortgage is making a comeback, observes the New York Times. A $300,000 loan at 6.5 percent amortized over 30 years, costs about $1.896 a month; on a 40-year loan, the payment would be $1,756. But since rates on 40-year mortgages run higher than shorter loans, the more realistic monthly expense for $300,000 would be $1,810. Washington Mutual says the 40-year mortgages have become popular enough for the bank to spin off related products such as the option of locking in a fixed rate for two, three or five years, with the remaining years moving to an adjustable rate. "These loans have really come back in the last six, seven months," said Keith Gumbiner of HSH Associates, a financial industry research and publishing firm. "And for certain borrowers, they can help improve affordability." Caveat emptor.

RIFE DISCRIMINATION BY LENDERS IS ALLEGED: "Pervasive discriminatory and predatory practices by mortgage brokers" emerged in six markets that the National Community Reinvestment Coalition tested with funding assistance from the Department of Housing and Urban Development from February 2004 to early June 2006. The Washington Post says the six markets were Baltimore, Washington, Chicago, Los Angeles, St. Louis and Atlanta. In each area, African American and Hispanic couples or individuals visited the same mortgage brokerage firms as white shoppers, all purporting to apply for home loans of similar amounts. Each applicant was assigned specific income, credit and employment profiles to present to loan officers, with African American and Hispanic applicants showing slightly higher incomes, better credit scores and longer employment backgrounds than their paired white colleagues making separate applications at the same brokerage firms. According to the study sponsors, brokers discussed loan fees with 74 percent of the white shoppers but only 31 percent of the minority shoppers. White applicants were presented twice the number of loan options - different rates, fees and structures, while the African American and Hispanic shoppers were often steered toward high-cost subprime mortgages. Brokers discussed fixed-rate first mortgages with 90 percent of the white applicants but just 56 percent of the minority applicants. Seven percent of white applicants were told that they could get a better mortgage deal elsewhere, but not one African American or Hispanic shopper with superior credit profiles was told the same. Only 9 percent of whites were pressed for details on possible credit problems, late payments, outstanding debts or prior foreclosures compared with nearly 40 percent of all minority applicants. Brokers spent more time discussing loan options with white applicants - an average 39 minutes - than they did with African American or Hispanic applicants, who got an average 27 minutes. In an interview, David Berenbaum, executive vice president of the National Community Reinvestment Coalition, called the investigation results "deeply disturbing." When minority applicants simply walked into a brokerage office, he said, sometimes "there appeared to be a working assumption" that they were not as good credit risks as whites, no matter what their actual profile.

IF YOU'RE LOOKING TO RENT A NYC PIED-A-TERRE, LOOK NO MORE: It's a 25-foot-wide, five-story limestone dwelling with 10,000 square feet, five floors, 17 rooms, 11 bathrooms, an elevator and a not insignificant monthly rent, reports the Real Deal publication. The rent: $90,000. A month. Yes, $90,000, with all those zeros.

MICROSOFT GOES TO THE HEAD OF THE CLASS: Seattle is America's brainiest city, according to an analysis of educational data culled from U.S. Census data by BizJournals.com. Seattle is followed by San Francisco and Austin, among large cities. More than 40 percent of adults in these cities have bachelor's degrees, and the betting here is that the most with computers can be found in Starbucks territory. Rounding out the top 10 most academically accomplished big cities are, respectively, Colorado Springs, Minneapolis, Charlotte, San Diego, D.C., Portland, Ore., and Albuquerque. Arlington, Va., is tops among medium-sized locales, with 60 percent of its adults having bachelor's degrees, two and a half times the national average. Topping the rankings of small communities is Ann Arbor, Mich., the home of the University of Michigan. Who wouldda thunk it? The study found that Miami has the fewest degrees of any large community. Just 16 percent of Miami's adults have earned bachelor's degrees, 31 percentage points behind Seattle's rate. Whether possession of a college degree is a measure of anything is, of course, debatable.

BUILDERS OF SINGLE-FAMILY HOMES ARE GLUM: Rising mortgage rates, deepening affordability issues and the retreat of investors/speculators from the marketplace have prompted single-family home builders to further adjust their perspectives on the new-home market, according to the National Association of Home Builders in the June Housing Market Index (HMI) it compiled with Wells Fargo. It tried to sneak in the information that the HMI declined four points from an upwardly revised reading in the previous month to hit 42 in the latest survey, sinking to its lowest mark since April 1995. "Based on historical experience, particularly the 1994-95 episode, the pronounced pattern of movement in the HMI is not inconsistent with the reasonably orderly cooling-down process we're projecting for home sales and single-family housing starts in 2006," waffled NAHB Chief Economist David Seiders. "We now expect new-home sales to be off by 13 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and some continuing reconstruction in the wake of last year's hurricanes, should be down by about 9 percent from the 2005 record." Derived from a monthly survey that NAHB has been conducting for close to 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor. All three component indexes declined in June, falling to their lowest levels since early 1995. The lowest was the index gauging traffic of prospective buyers, which dropped four points, to 29.

HOUSING STARTS RISE, BUT PERMITS DIP IN MAY: Starts rebounded from a 13-month low to increase 5.0 percent in May as builders worked down a backlog of unfilled orders in unusually good weather conditions. Yet issuance of new building permits fell by 2.1 percent, continuing the moderate downslide from the peak last September. The pace of new-home construction rose to a seasonally adjusted annual rate of 1.957 million units, according to figures released by the Commerce Department, 3.8 percent below the pace of a year ago. At the same time, permit issuance dipped 8.5 percent behind the May 2005 pace. "The rebound in total housing starts for May primarily reflected typical volatility in the multifamily market, and the modest increase in single-family starts largely reflected a build-out of units that had been sold and permitted earlier," said Chief Economist David Seiders of the National Association of Home Builders (NAHB). "Strong numbers in the South and West regions may also have been supported by some rebuilding in the wake of last year's record-breaking hurricane season." Single-family housing starts were up 2.1 percent in May. Multifamily housing construction rose 19.7 percent for the month to a seasonally adjusted pace of 371,000 units. "Today's reported increase in housing starts is not inconsistent with an ongoing moderate erosion of housing market activity, a pattern shown by both today's permit numbers and NAHB's surveys of single-family home builders," Seiders added. "The builders still are reporting reductions in housing demand, and we expect both housing starts and building permits to lose some ground as 2006 progresses." Single-family permit issuance was down 2.1 percent on a national basis to an annual rate of 1.466 million units. The pace of multifamily permit issuance also dipped 2.1 percent, to 466,000 units for the month.

CONSIDER THESE QUICK AND EASY WAYS TO SPRUCE UP YOUR HOME: Laurie Smith, star of the Learning Channel's show, Trading Spaces, suggests you can improve a home's appearance without spending much money. According to the Dallas Morning News Realtor magazine, you can move the furniture, empty out the room, find a focal point, then relocate the furniture with that spot in mind. Then, evaluate lighting to brighten it up. Sometimes just changing a lampshade can update a white room. Also, throw a few pillows (not AT anybody). Since pillows add color and charm, use lots of them and change their look seasonally. Finally, move the artwork to give the room a whole new feel.

GREEN IS GOOD: More builders are getting onto the green bandwagon, even though consumers are still hesitant to join the parade. The number of home builders producing environmentally responsible homes increased by 20 percent in 2005, according to a McGraw-Hill Construction/National Association of Home Builders (NAHB) survey, says Realtor magazine. In 2006, the study predicts that the number will grow by another 30 percent. Although green construction is rapidly moving into the mainstream, unwillingness by consumers to pay higher upfront costs for energy conserving materials and technologies is perceived as a major obstacle by 79 percent of the builders surveyed. But green building doesn't always translate into higher costs. Callie Barker Schmidt, NAHB's director of environmental communications, notes that construction costs for Elevation 314 - a mixed-use building in Takoma Park, Md., that won NAHB's National Green Building Award for Multifamily Home Design of the Year - were about $70 per square foot; that's a figure she categorizes as "really low." Says Harvey Bernstein, vice president of Industry Analytics and Alliances for McGraw-Hill Construction: "Green home building isn't a fad, but a trend, and one that's increasing at rapid rates. The data we recently collected indicates builders will reach the tipping point by early next year, where more builders will be producing green homes compared with those who aren't."

LATE MORTGAGE PAYMENTS, FORECLOSURES DECLINE: Fewer U.S. households were late with their mortgage payments in the first quarter of 2006, and home mortgage foreclosures were down slightly compared with the fourth quarter of 2005, according to the Mortgage Bankers Association, says the Wall Street Journal in Realtor magazine. Excluding areas in Louisiana and Mississippi, which were affected by Hurricane Katrina, national delinquency rates for January through March would have been 4.31 percent, down from 4.55 percent in the fourth quarter of 2005. The MBA expects rising interest rates and higher energy prices to push delinquencies and foreclosure rates up modestly in the second quarter, but job growth should keep them from rising rapidly, says Doug Duncan, the MBA's chief economist.

EXTERIOR IMPROVEMENTS EXCITE CONSUMER INTEREST: Although the overall size of homes continues to level off after decades of expansion, consumer interest in property enhancement, particularly outside the home, showed a sharp increase, according to architects surveyed in the First Quarter 2006 Home Design Trends survey conducted by the American Institute of Architects, says Realtor magazine. Informal, open designs and accessibility also remain top priorities. Seventeen percent of architects surveyed said home sizes are declining, 51 percent said they're holding steady, and 32 percent report home sizes are increasing. The home features that showed the sharpest increase in popularity are those related to the outdoors. The number of architects reporting increased demand for outdoor living spaces, such as patios, decks, and outdoor kitchens, jumped to 64 percent from 47 percent a year ago. Also ranking high were amenities such as pools, tennis courts and gazebos. The architects additionally reported that consumers are gravitating toward single-story homes. "Almost 40 percent of residential architects see this as a trend, up from just less than 30 percent a year ago. An open space floor plan also continues to be a popular option in homes," noted Kermit Baker, AIA's chief economist. "The need for ease of mobility within the home, as evidenced by wider hallways and fewer steps, is necessary in the design or renovation of houses that will be used by baby boomers entering their retirement years. On the other hand, younger home owners who grew up with structured, formal living rooms are far more apt to want an open layout with less rigid boundaries."

MORE EVIDENCE OF THE SHRINKING HOME: The golden age of McMansions, which fueled much of the housing boom, may be coming to an end, the Wall Street Journal says. But thanks to rising energy and mortgage costs, smaller families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut. The 2003 American Housing Survey, the latest available, found nearly 3.2 million homes in this country with 4,000 square feet of space or more - the largest category the group tracks and perhaps 1,000 square feet fewer than the typical McMansion. That was 11 percent more than the previous survey, in 2001. Part of the big-house mania was fueled by speculation as home prices surged, says housing economist and consultant Thomas Lawler in Vienna, Va. "Folks bought mega sized houses well beyond their needs to increase their investment in real estate," he continues. Now, some boomers in their late 50s are counting on selling their huge houses to help fund retirement. With the rise in home heating and cooling costs, McMansions are increasingly expensive to maintain; it can cost $5,000 a year or more to heat and cool a 5,000-square-foot house in a city such as Farmington, Conn., according to Connecticut Light & Power Co. The overall slump in the housing market also is crimping big-home sales. Further, the jump in interest rates has put the cost of a big house out of more people's reach.

IF YOU NEED EVEN MORE PROOF, READ THIS: First-time home buyers in the Portland, Ore., area are slimming down their new-home expectations - literally, says The Oregonian, according to the Wall Street Journal. Spurred by both high prices and a scarcity of buildable land, developers are constructing "skinny" houses on smaller plots of land, the paper says. These homes can be as narrow as 25-square-feet wide and are found in high-density neighborhoods with little or no backyards. Also catching on are three-story houses that pack in more living space on less land. Such developments squeeze 10-15 homes on an acre, compared with the four to six per acre of 10 years ago, one builder executive says. Land in the area is priced at about $500,000 an acre. While an affordable option for prospective homeowners, these houses are also attractive to empty nesters who don't want the hassle of yard upkeep.

HULK HAS HIGH HOPES FOR HIS HOME: Professional wrestler and actor Hulk Hogan is trying to sell his Florida mansion, according to the St. Petersburg Times in Realtor magazine. Asking price: $25 million. The five-bedroom, eight-bath home is believed to be the most expensive home on the market on the west coast of Florida. The 2.3-acre property overlooks the Intracoastal Waterway and the Gulf of Mexico near the Pinellas County town of Belleair. It has a guest house, boat house, pool with waterfall, a maid's quarters and a four-car garage. No gym? Terry Bollea, otherwise known as The Hulk, and his family moved to Miami Beach about three weeks ago. The house was assessed last year at about $6.4 million, and property taxes were $126,207 annually.

CONSUMER ADVOCATES AND REALTORS DUKE IT OUT: A national consumer advocacy group has condemned real estate trade groups as a "cartel" that sets prices and blocks competition to maintain its traditional commission structure and to keep discount firms from gaining market share, reports the Washington Post. The commission system is "cockamamie," said Stephen Brobeck, executive director of the Consumer Federation of America. Even some inexperienced real estate agents are charging a 7 percent sales commission, he added - an amount he likened to the cost of a new car. And he questioned why the brokerage fee on an $800,000 house is four times higher than that for a $200,000 house, saying the work involved is basically equal. The District-based federation applauded efforts by government antitrust regulators to put pressure on the trade groups to change the way they do business, but Brobeck said no one had yet found the "magic bullet" to reduce costs. He said consumers have been left on their own and urged home buyers and sellers to negotiate over the sales commissions they are charged and make sure it is clear who is representing whom, what each agent will be paid and for what services. Thomas M. Stevens, president of the National Association of Realtors, fired back within hours, saying the Consumer Federation is ill-informed and incorrect. "It's clear and evident that they don't understand the real estate business," Stevens said. "Real estate is probably one of the most competitive industries out there." Stevens said real estate agents put themselves at financial risk showing clients from house to house and advertising homes for sale in hopes a transaction will be completed. He said that more than 2 million people in the United States hold real estate licenses and that the work has grown only more competitive and difficult with the real estate slowdown of recent months.

ARCHITECTS SAY THEIR INCOME IS SLIPPING: For the first time since September 2004, the Architecture Billings Index (ABI) posted a negative score in May, according to the American Institute of Architects. The ABI is a leading economic indicator of nonresidential construction activity based on the approximately 6-9-month lag time between architecture billings and construction spending. Previously, it had been positive for 19 consecutive months and 28 out of the last 29 months. The American Institute of Architects (AIA) reported the May ABI rating was 49.6 (any score below 50 indicates a drop in billings), down sharply from the 54.2 mark in April. "After such a prolonged period of positive business conditions at architecture firms, it is inevitable that the market would soften a bit," said AIA Chief Economist Kermit Baker. "Because inquires for new projects continue to be strong, this isn't alarming news. If this pattern continues over the next few months, then there will be greater concerns for the nonresidential construction outlook. But at this point, there are so many construction projects in the pipeline that the industry shouldn't feel a slowdown yet."

MORTGAGE VOLUME IS NEARLY STEADY: For the week ended June 16, loan applications decreased 0.8 percent on a seasonally adjusted basis from one week earlier, according to the Mortgage Bankers Association. On an unadjusted basis, volume was off 1.6 percent compared with the previous week and 26.8 percent versus one year earlier. Seasonally-adjusted, purchase mortgages went up by 0.1 percent from the prior week, while refinancings dropped by 2.2 percent. The refinance share of mortgage activity declined to 35.5 percent of total applications from 35.7 percent the previous week, and the adjustable-rate mortgage (ARM) share fell to 29.6 percent of total applications from 30.7 percent.

NEW TALK OF A BUBBLE FROM THE ANDERSON FORECAST: If history is any indication, the country may be heading for a housing crash, according to a report from a couple of economists at the University of California, Los Angeles. "The risk of a housing crash rather than a slowdown is far greater than what most people think. In fact history is on the side of a crash," said David Schulman, a senior economist for the UCLA Anderson Forecast. In his report, he added that every major housing cycle of the past 45 years ended with activity declines in excess of 50 percent and asked, "Because the current cycle was so powerful, why should we expect any less?" Casting blame on the Federal Reserve Board, the report finds that there is "some truth" to the notion that it created the housing bubble to prevent the deflationary forces of collapsing stock prices to take hold in the real estate economy. "The great housing boom of the past five years is unwinding under the weight of higher interest rates and unsustainable home prices," Schulman wrote. In a separate Anderson Forecast report, forecast director Edward Leamer maintained that the housing market "is like a powerful rocket whose fuel has been exhausted." Leamer went on to note that home prices rarely drop, saying, "and if they do, the decline is not very much."

THE MIDDLE CLASS IS DRIFTING FROM U.S. CITIES: Middle-class neighborhoods, long regarded as incubators for the American dream, are losing ground in cities across the country, shrinking at more than twice the rate of the middle class itself, according to the Brookings Institution in a Washington Post story. In their place, poor and rich neighborhoods are both on the rise, as cities and suburbs have become increasingly segregated by income. The think tank found that as a share of all urban and suburban neighborhoods, middle-income neighborhoods in the nation's 100 largest metro areas have declined from 58 percent in 1970 to 41 percent in 2000. Middle-income neighborhoods - where families earn 80 to 120 percent of the local median income - have plunged by more than 20 percent as a share of all neighborhoods in Baltimore, Chicago, Los Angeles and Philadelphia. They are down 10 percent in the Washington area. Widening income inequality in the United States has been well documented in recent years, but the Brookings analysis of census data uncovered a much more accelerated decline in communities that house the middle class. It far outpaced the decline of seven percentage points between 1970 and 2000 in the proportion of middle-income families living in and around cities.

DO YOU WANT TO BENEFIT FROM THE MISFORTUNE OF OTHERS: If so, put July 10 on your calendar, when the District of Columbia begins its annual real property tax sale at 941 North Capitol Street NE. Mandatory registration is required starting Wednesday until the final day of the sale, for which at least 20 percent of the total purchase price must be paid in advance. At the sale, the purchaser acquires a lien on the property that may "ripen" into title through foreclosure. If the tax goes unpaid, a Superior Court judge will order that a deed be issued to the purchaser after that person pays all taxes, costs and expenses. For more information and a list of properties, check out this site: otr.cfo.dc.gov/otr/cwp/view,a,1330,q,594443,otrNav_GID,1679,otrNav,|33288|,.asp.

IF YOU HAVE A GARDEN AND SHADE, GO FORTH AND SEE BEAUTIFUL: Members of the Potomac Hosta Club mount their annual exhibition at the National Arboretum. Experts will be on hand to offer advice on keeping pests such as slugs away from hostas, when to divide them and how to cultivate them. Head for the administration building auditorium Saturday 2-4 p.m. and Sunday from 10:30 a.m. to 4:30 p.m. The event is free.

LAND ITSELF HAS BOLSTERED HOUSING PRICES: In big U.S. cities, housing prices have increasingly reflected underlying land value rather than building value since the mid-1980s, and that trend is likely to continue, according to a Federal Reserve study, says the Wall Street Journal. In the 46 biggest metro housing markets, land's share of property prices increased on average to 51 percent in 2004 from 32 percent in 1984, according to the study by Michael Palumbo, chief economist in the Fed's flow of funds section, and Morris Davis, a former Fed economist now at the University of Wisconsin. The increase was especially sharp during the 1998-2004 housing boom, when land's share of property values gained 11 percentage points, the study said. "With residential land having appreciated so significantly over the past 20 years around the country, the future course of land prices is expected to play an even more important role in governing home prices - in terms of average appreciation rates and volatility - in the next two decades," the authors say. The report concludes that land's increased share of property values "could mean faster home-price appreciation, on average, and possibly larger swings in home prices." Even if land appreciation returns to the slower pace seen before the 1998-2004 boom, cumulative gains in land value mean that house prices might rise more quickly on average than they did before the boom, the report suggests. Regionally, relatively expensive housing markets have seen somewhat bigger increases in land's share of prices in the 1998-2004 period, but the current housing boom has been marked by rapid appreciation of residential land "just about everywhere," according to the report. The Fed study also found that at some point since 1984 most large U.S. cities have gone through one pronounced price cycle in which residential land lost value for several years, usually after several years of rapid appreciation. "In real terms, land prices have generally taken several years to go from peak to trough, and the subsequent recovery from these price declines has generally occurred at a more gradual pace," the study finds.

SPEED ISN'T EVERYTHING: Elk Grove, Calif., had the nation's fastest growth rate among large cities (100,000 or more population) between July 1, 2004, and July 1, 2005, according to new U.S. Census Bureau population estimates. South of Sacramento, Elk Grove is a relatively new city, having incorporated less than six years ago. Its population increased 12 percent during the period, to 112,338. Phoenix had the largest population increase of any city between 2004 and 2005, followed by San Antonio; Fort Worth, Texas; North Las Vegas, Nev.; and Gilbert, Ariz. New York City continued to be the nation's most populous city, with 8.1 million residents in 2005 - more than twice the population of Los Angeles, which ranked second at 3.8 million. The estimates show that among the 10 largest cities, one change has occurred in the rankings: San Antonio has replaced San Diego as the nation's seventh most populous city.

Out and About - Thirty-three lockboxes say it all

For the uninitiated, lockboxes are devices that real estate agents put outside of properties for sale; they securely hold keys that only other agents can obtain for access to apartments and single-family homes seeking buyers. You can find 33 of them – lockboxes, not buyers - arrayed on a chain-link fence outside a recently completed condominium off Massachusetts Avenue a couple of blocks from the Convention Center. The apartments to which they provide entry have never been occupied; almost certainly without exception, they went under contract months, even years ago, with investors as purchasers. Now, they go begging.

The 33 lockboxes represent stark evidence that some folks thought the enduring hot market would last forever. They are proof that investing in real estate is not for amateurs seeking to hop on a bandwagon that chugs ahead on a road bereft of detours and potholes. Those lockboxes suggest that the investors who were looking to make a killing by flipping are likely, instead, to get killed by their losses.

To prospective buyers who held off in the belief that the market would cool, the warm glow of vindication may color their cheeks. But the persistent gusts of rising interest rates - which, after all, have contributed perhaps more than anything else to the return to a more balanced market – have chilled their passion for purchase. Buyers are unlikely to experience much sympathy for those investors now weighing whether to take their losses at the closing table now or take them monthly with rents that fall short of their expenses.

So it is that you can count on multiple open houses every weekend, though not multiple offers, at that handsomely designed condominium that is advertised, with unmitigated hyperbole, as being in Logan Circle. Five of them were open last Saturday, and they suffer from a blinding sameness. Think hardwood floors that are dark or light, maple cabinets, granite countertops, odd-shaped rooms, small bedrooms and curved halogen track lighting. Imagine views that tend to be of other buildings through tall windows; consider tiny balconies or, in one case, a terrace atop the garage entrance; frown at kitchen cabinetry that merely appears to be high end and at stainless appliances that don't even pretend to be such; and guess where condos fees ranging from the mid-$170s to the mid $270s will end up when the developer departs.

Most important, ask yourself why, in this market, sellers competing with each other would have the temerity to be offering condos at around $500 per square foot. The answer is obvious: They paid too much originally for those apartments, and they can't stomach the pain of a loss. Thirty-three lockboxes speak loud and clear. The owners of those units must be flipping out, so long have their investments gone unsold.

Other properties that have been listed by various agents and seen in past week:

• In Georgetown, a darkly decorated two-bedroom, one-bath co-op with hardwood floors, high ceilings, easy street parking and an older kitchen. Saddled with an awkwardly shaped small living room in a cat-friendly building, this 1,258-SF apartment does have a formal dining room. The owners reduced the price from $675,000 to $649,000 after three weeks on the market, with a $698 monthly fee that covers taxes, heat and assorted other expenses. The owners are in no hurry to sell, according to the listing agent, so they won't be disappointed when this unit languishes for a much longer time.
  
• A pleasant one-bedroom Dupont Circle co-op with hardwood floors, high ceilings and built-in bookcases. Although the bath is cramped, the kitchen lacks flash, the air conditioning comes from window units and a parking space is not included, this 850-SF apartment in a pet-friendly building is offered at a reasonable $369,900 with $625 monthly fee that covers utilities and taxes.
  
• In Chevy Chase, D.C., an immaculate colonial with a beautifully landscaped rear yard, well-proportioned rooms, detached garage, deck, walk-up attic and powder room on the main floor. The three bedrooms on the second floor share two baths, each of them with period black-and-white tiles. Adjoining the reasonably bright recreation room in the basement are a laundry, quarter bath and a bedroom through which you must pass to reach the walkout. It's a 70s kitchen with pantry, serviceable enough but out of fashion. This home is listed appropriately at $855,000.
  
• An attached rowhouse in the U Street Corridor that needs a complete makeover. Including a dreary and nearly unusable lower level that is imaginatively described as an English basement, this home has four bedrooms and two-and-a-quarter baths. Almost none of the improvements over time were done right – e.g. that quarter bath with a toilet on some sort of platform squeezed into what may have been a hall closet, the SubZero in a laminate kitchen, a washer that has to be rolled into place for use, and the lime-green tiles in the single bath upstairs. There's a skylight but no central air conditioning, and the floors are in desperate need of refinishing. The one asset this property has is the original woodwork everywhere. At $749,999, this house is laughably overpriced – by around $200,000.
  
• A colonial in American University Park with three bedrooms and one and a half baths upstairs, a finished attic now used an office, an unfinished basement and a lovely added family room that is open to the kitchen, which has been partially updated with granite but not new cabinets or appliances. Sitting on a large level lot, this home with detached garage has its charms, not counting the pink clouds painted on the ceiling in the finished attic – who could make this up? Still, the offering price of $799,000 is in line with the market and bait for multiple offers.
  
• In Columbia Heights, a newly completed condominium with typical look-alike units. At least they look nice, with good design that, for a change, does not skimp on closet space. The apartments feature hardwood floors, big windows (some with expensive glass bricks if they are close to other buildings), attractive open kitchens with Silestone countertops, stainless appliances and excellent cabinetry, in-unit washer/dryers, airy spaces and bedrooms that, as usual, are notably smaller than the living areas. Ranging between 759 and 870 square feet, the one-bedroom units are listed between $384,900 and $399,900 and have monthly fees around $200, with parking for sale. The two-bedroom units are 900 to 1,141 square feet and have fees between $220 and $276 but come with parking. Upgrades such as tub glass and pendant lighting cost up to $1,200. Per square foot, the one-bedroom condos are $460-507; the two-bedroom units are $526-555/SF. For a transitional block, that's a bit high.
  
• A Dupont Circle classic Victorian rowhouse that seems to have tried the patience of the owners, whose half-hearted attempts at renovation contribute to an ambience of neglect and a sense that it will take lots of money to make the place desirable. For example, the poorly laid out L-shaped kitchen has new appliances that are spaced far apart, cheap cabinets and the uncontestable need for a smart center island. And between the second and third levels is a staircase that has been partly finished. Elsewhere in the house's more than 4,000 square feet, paint has been slopped onto the walls. In all, there are four bedrooms and three baths, including an English basement that rents for $1,600 monthly. With a rear patio but no place to park, the current owners rent a space next door for $150 a month. All this would not be so bad if the price were not a breathtaking $1.45 million.
  
• In Berkley, a breathtaking six-bedroom, four-and-a-half-bath multi-level house with heated pool, gazebo, soaring trees on a quiet street that backs up to Battery Kemble Park, yet is a stone's throw from numerous neighborhood amenities. There are walls of glass looking into the verdant park, a movie screen that is hidden in the ceiling of the master bedroom, enormous closets, an expansive kitchen that is slightly out of date, five fireplaces, a breakfast room, home office and marble in the baths. This stunner is very well priced at $1.9 million.
  
• A completely renovated Logan Circle condo that occupies the bottom two floors, as in English basement, of an attached rowhouse that had collapsed on itself. It is a nice apartment with three bedrooms, three and a half stylish baths, an expensively equipped kitchen, good light, even downstairs, and secure parking. The hardwood floors are hickory, the ceilings are high, and there is Bosch in the laundry room. But a master bedroom behind the kitchen will not be to everyone's liking; and the carpeted downstairs bedrooms, even if two are combined, do not represent the height of fine living for buyers being asked to shell out $1.135 million, or $600 per square foot. This condo, which carries a $500 monthly fee that covers only the master insurance policy and snow removal, first went on the market while under construction half a year ago and again at the end of April at $1.195 million. Now, after three weeks at the new price, it is still too expensive.
  
• In Georgetown, a large colonial overlooking Tudor Place – which must be the only explanation for the exorbitant price. Yes, it has an outdoor swimming pool in a gorgeously landscaped rear garden, a kitchen the size of Minneapolis, five bedrooms, four and a half baths, hardwood floors, a detached garage and a library. Built in 1980, this house, which seems to have been designed for entertaining, also boasts a flawed layout, at least for one that costs so much. For example, entry is into a spacious hall flanked by two of the bedrooms, then up a flight of stairs to the living area. Compared with the Berkley property, in a decidedly less fashionable neighborhood, the offering price of $3.45 million is ridiculous but apparently aimed only at social climbers with seeking snob appeal and snubbing sane judgment.
  
• A beautifully expanded red brick Colonial in Wakefield on a large, level lot with fully fenced patio and yard. Great features include an appealing family room with cathedral ceiling, den, powder room, and separate dining room on the first floor. On the second floor, there is a master bedroom suite with full bath plus two additional bedrooms and another full bath. The third floor has a fourth bedroom, with sitting area and full bath. The large lower level boasts a rec room plus laundry, half bath and ample storage. At $924,900, this home is attractively priced.

Items of Interest - June 17, 2006

ONLINE VOLUME OF EXISTING HOMES FOR SALE IS BOOMING: The number of previously owned homes listed online for sale in the largest 100 metro areas in the nation grew 60 percent from May 2005 to May 2006, according to an analysis of homes listed online at the Realtor.com property-search site, says Inman News. A survey, conducted by Corzen, a real estate research firm based in New York City, found that the inventory of homes listed in these metro areas grew from 1.3 million 2.3 million. Median list prices were up 8.4 percent, while "in some parts of the country ... median asking prices showed steep declines, a clear sign of softening with the real estate market," Corzen said. Asking prices for existing homes dropped most in Florida, California, Massachusetts and in Northern Virginia. The company's monthly survey is based on a ZIP-code-by-ZIP-code analysis of homes listed on Realtor.com - but, caveat emptor, only there.

IT'S NO LONGER A RENTER'S MARKET: So proclaims the Wall Street Journal in a piece that finds landlords liberated in many markets to raise rents at the fastest pace in years. They're also cutting back on the goodies that previously helped lure tenants such as a free month's rent or a free DVD player. Average effective rents - or what tenants pay after taking concessions into account - are expected to rise 3 percent this year, according to Reis Inc., a real-estate research firm. Rents began picking up last year after several years of softness. As recently as 2002, rents fell 1 percent. The pace of change varies greatly from market to market. In its survey of 69 metro areas, Reis found 60 markets with rising rents, with Florida's Fort Lauderdale, Palm Beach, Miami and Tampa-St. Petersburg and California's San Jose topping the list. It also found nine markets in which rents are flat or falling, including Buffalo, N.Y.; Charlotte, N.C.; Denver, and Omaha, Neb. It's partly a supply-and-demand issue. Years of soaring house prices (and recent increases in mortgage rates) have simply priced many people out of the home-buying market. Indeed, the portion of U.S. households owning their own home slipped to 68.5 percent in the first quarter from 69.1 percent a year earlier, according to the Census Bureau. The higher costs for rentals come as strong job growth in recent years has boosted demand for apartments. At the same time, many apartments have been converted to condos, reducing the availability of rentals. Tenants forced out of units being converted to condos often have trouble finding another apartment with a similar rent. The squeeze comes as average vacancy rates dropped to 6 percent in the first quarter from as much as 7.4 percent at the end of 2003, according to Property & Portfolio Research Inc., giving landlords more power to boost rents than they've had since the beginning of the decade.

SENIORS SAY THE DARNDEST THINGS: If you're old enough to remember what Art Linkletter used to say, then you'll appreciate the misstep by San Diego's Downtown Residential Marketing Alliance, which found that 56 percent of downtown's 30,000 resident were 50 or older. Hoping to boost the population there, billboards emerged urging folks to "simplify your life ... live downtown," reports the AARP Bulletin. No more big yard, three-car garage or other trappings of suburban life, went the implied message. "We didn't come downtown to simplify our lives," respondents told Lake Research Partners. "We came downtown to enliven our lives, to be where the action is." Said Bob Meadow, the firm's partner: "The things people are interested in at 30 to 35 aren't really much different from what they're interested in from 60 to 65." Well, gee.

THE HOUSING BOOM IS COMING UNDER PRESSURE: That is the unsurprising conclusion of this year's State of the Nation's Housing report by Harvard's Joint Center for Housing Studies. As long as the economy continues to create jobs and builders trim production to match slowing demand, house prices will keep climbing and the housing sector will likely achieve a soft landing, according to the report. Although house price growth will likely moderate in many areas, sharp drops in house prices are unlikely anytime soon. Major house price declines seldom occur in the absence of severe overbuilding, major job loss, or a combination of heavy overbuilding and modest job loss. "Fortunately, these preconditions are nowhere in evidence across the nation's metropolitan areas," say the report's authors. One in 10 homeowners faces higher mortgage payments this year, said Nicolas P. Retsinas, director of Harvard's Joint Center for Housing Studies, adding that eight in 10 owners have no mortgage or have a fixed-rate mortgage. And most owners with adjustable loans have an initial fixed-rate period of three or more years. Similarly, most interest-only loans extend for at least five years, leaving ample time to move, refinance, or incomes to grow before principal payments start coming due. Still, from 2001 to 2004 alone, the number of households spending more than half their incomes on housing increased by 14-15.8 million. "The paradox of today's housing market is that while more people are building home equity than ever before, slow growth in wages for households in the bottom three-quarters of the income distribution is not keeping pace with escalating housing costs," the report maintained. "Amidst a housing boom, it is now impossible to build housing at prices anywhere near what low-income households can afford without subsidies." This year's report also highlights the significant contribution that the foreign-born and minorities will make to overall household growth. New household projections incorporating higher but more realistic immigrant assumptions suggest household growth will accelerate to 14.6 million over the next 10 years from 12.6 million over the last 10. "Strong household growth, combined with record incomes and wealth, will lift housing investments to new highs next decade," allowed Eric Belsky, executive director of the Joint Center. "Each generation is achieving higher homeownership rates, incomes, and wealth than the one ahead of it, with the leading edge of the echo baby boom now in their 20s and the baby bust now in their 30s starting off on especially high paths. This is despite the fact that each younger generation has successively higher shares of foreign-born and minority household heads with lower average incomes than same-age native-born whites."

POOR HILARY (SWANK): The Greenwich Village town house of the actress Hilary Swank and her husband, the actor-director Chad Lowe, has come on the market with an asking price of $8.25 million, according to the New York Times. The couple bought the four-story, 17-foot-wide town house on Charles Street for $3.9 million in 2002. The house, which they renovated, has six fireplaces, two full bathrooms and two half baths, in about 4,000 square feet. The listing comes after the couple announced plans to divorce.

LENDERS ARE MODIFYING OPTION MORTGAGES: In a bid to lessen the impact of higher interest rates, mortgage lenders are starting to tweak the features of popular "option adjustable-rate" mortgages, which allow borrowers to lower their monthly payments in the early years of the loan, according to the Wall Street Journal. The retooled mortgages such as those rolled out recently by IndyMac Bancorp and American Home Mortgage Investment feature an extended fixed-rate period before interest charges reset and, in some cases, an option to defer repayment of principal for a longer period of time. Lenders say the new products allow borrowers more breathing room before the bigger payments come due. Some analysts, however, doubt that the new bells and whistles can actually help lenders reduce potential defaults among consumers pinched by rising interest rates and softening home prices. Often, the minimum payment remains fixed for 12 months, and each year thereafter it changes to reflect the prevailing rate to which the loans are pegged. With the new option mortgage offered by IndyMac, a borrower can opt to have the minimum monthly payment fixed for three years, five years or seven years, or until the principal due reaches 110 percent of the original balance. Once that "negative amortization" balance cap is reached, the monthly payment has to be adjusted higher. The new option mortgage from American Home Mortgage offers a fixed rate for five years, enabling borrowers to defer repayment of principal for as many as 10 years, even after the loan balance hits the 110 percent trigger for recasting.

JOYCE KILMER WOULD NO DOUBT AGREE: Money spent sprucing up the yard with trees, shrubs, lighting and patios is well spent - especially when it comes time to sell the home, a new study says, according to Realtor magazine. The report by Arbor National Mortgage found that 84 percent of real estate professionals believe a house on a treed lot would fetch at least 20 percent more than one on a lot without trees. Another of the company's surveys suggested that shelling out for top-of-the line landscaping may bring a 4-5 percent higher sale price and that below-average expenditures will cost the home seller. The magazine offers these tips: If you can't afford to hire a landscape architect, check out the services offered by nurseries and big-box home improvement retailers such as Home Depot; you can save about half the cost of landscaping if you do the work yourself, but keep in mind that large trees are often killed when carried uncovered in the back of the buyer's SUV from the nursery to the house, not because they are planted poorly; remember that a few larger plants will have a greater visual impact than many small ones; before planting trees, determine how large they will become, what leaf pattern will develop, and what room damage could occur if placed too close to a house foundation, sidewalk or driveway.

MEGAN'S LAW AFFECTS PROPERTY VALUES: Federal law requires states to register convicted sex offenders and make their names and addresses publicly available, notes the Washington Post. At Columbia University, economists Leight L. Linden and Jonah E. Rockoff used the list of registered offenders in Mecklenburg County, N.C. to study home values before and after an offender moved in. "Houses within a one-tenth-mile area around the home of a sex offender fall by 4 percent on average (about $5,500), while those farther away show no decline," they reported in a working paper published by the National Bureau of Economic Research.

GOLIATH, LOOK OUT FOR DAVID: Here come microhomes - typically, houses spanning from a few hundred to a little more than a thousand square feet, reports the Wall Street Journal. These houses, far smaller than the average 2,400 square-foot home built in the U.S. last year, contain most of the amenities of larger dwellings, including kitchens and bathrooms. Many occupy just two rooms, or sometimes two rooms plus a living area. Some microhomes compensate for the small layout by capitalizing on vertical space, custom-designing cabinets and furniture, raising ceilings to build in sleeping lofts, or even using flat-roof space as a deck or patio area. While the market for tiny houses is still tiny itself, architects say they have seen interest from buyers jump significantly in the past five years. In 2002, Greg Johnson, an information-technology consultant in Iowa City, co-founded the Small House Society, a group that champions extra-small homes. He says he initially sent his newsletter to seven people; today, he has about 260 individuals and architectural firms on the list. For architects who are weary of designing large-scale or cookie-cutter houses, building a minihome offers the challenge of figuring out how to make every nook and cranny count. Rocio Romero, who heads an architectural firm in Perryville, Missouri, says she finds it rewarding to make every space purposeful. A recent design for a 625-square-foot guest house uses a loft sleeping area and built-in beds to create more room below. She added windows in the loft and alcoves at the head of each bed with recessed lighting fixtures to facilitate reading in bed. Architects and buyers say two of their biggest challenges they face with tiny houses are creating enough storage space and finding furniture small enough to be squeezed into compact rooms. Sleeping lofts, raised beds and underbed storage are staples. V2World uses small European appliances, including a Miele 24-inch convection oven and combination washer-dryer units, in its 450-square-foot, one-room units. In-house designers at V2World build cabinets to fit the units. Large windows make a little house seem less boxy. Living in a tiny home, as opposed to doing yoga in it or using it for vacations, often appeals to people who want simpler lives that leave less of an ecological "footprint." Small houses require less fuel for heating and cooling, fewer building resources and are much easier to clean.

LOAN APPLICATION VOLUME GROWS: For the week ended June 9, mortgage activity increased 7 percent on a seasonally adjusted basis from one week earlier, reports the Mortgage Bankers Association. On an unadjusted basis, the rise was 17.9 percent compared with the previous week but was down 34.3 percent compared with the same week of 2005. Seasonally-adjusted, purchase mortgage applications grew by 4.8 percent from the prior week, and refinancings increased by 10.6 percent. The refinance share of mortgage activity increased to 35.7 percent of total applications from 34.2 percent, and the adjustable-rate mortgage (ARM) share went up to 30.7 percent from 29.4 percent.

WHY CAN'T EVERYBODY JUST GET ALONG: When Kimberly-Clark financed a couple of surveys by Opinion Research to try to gauge what contractors and consumers really think about one another, the picture that emerged was not pretty, notes Realty Times. For homeowners who have used a contractor in the last few years, the worst fear is shoddy workmanship. Four of 10 respondents who had work done in their homes in the last few years chose this issue over other unpleasant possibilities such as contractors who make romantic advances, break things, talk all day or even use the bathroom without flushing. By contrast, a contractor's worst nightmare was the customer who continually asks for work to be changed or redone. This situation was followed by customers who don't pay on time. Lower down on the contractor's nightmare meter were customers who talk too much, who ask for work that doesn't conform to building codes and even who threaten to sue. What were the top three complaints that contractors and customers had about each other? For customers: Work isn't started on time, when the price of the job is increased after it's been started or completed, and contractors who leave a mess and don't clean up. For contractors: Customers who try to get them to do more work without additional compensation, customers who don't pay on time, and customers who try to renegotiate the price after the job is completed.

IF YOU WANT TO SAVE ON HOUSING COSTS, TRY ILLINOIS: Factory closures, a loss of industrial jobs and falling incomes have resulted in dramatic home-price reductions in Illinois's Vermilion County, 100 miles south of Chicago, says the Chicago Tribune, according to the Wall Street Journal. While bad news for area homeowners, the market's weakness is seen as a boon by Chicagoans, some of whom have been purchasing vacation or retirement homes there, the Tribune says. Among the buyers are retired Chicago police officers and Ameritech (a telephone firm) retirees, the article says. One of the most affordable locations in the county is the Hoopeston/Danville area, which in 2005 had a drop in housing prices of 12 percent, the biggest decline for any U.S. metro area. In the first quarter of 2006, the median home price in Hoopeston/Danville was $52,500, the lowest in the country, according to the Tribune.

ONLINE LENDING SITES ATTRACT FEW ACTUAL APPLICANTS: Borrowers who applied online for home loans were more likely to have used search and product select tools than those who didn't ultimately apply, a recent study suggests, according to Inman News. But very few online mortgage sites are successful at getting visitors to apply online. Nearly one in five online mortgage applicants used search, compared with only 7 percent of those who visited online mortgage-related sites but did not apply, the study by Compete and Forrester Research found. It observed navigational behavior from Compete's panel of more than 2 million consumers between June and November 2005. Of the three most successful sites at converting prospects to applicants - LendingTree, Quicken Loans and Countrywide - only 10 percent of visitors to LendingTree, which had the most success, filled out applications online. Consumers were found to use Web sites to educate themselves on the process, but the majority wants human assistance to complete the decision, Forrester none too shockingly concluded. Also, online fulfillment processes are "substandard," with discontented consumers mentioning problems such as having difficulty getting questions answered and confusion on how far along they were in the process. Gen Xers, usually defined as those born in the 1960s to the early 1980s, and Baby Boomers are most likely to research and apply for mortgages online, the study indicated. For traditional lenders with a number of online prospects are existing customers – 75 percent for Wells Fargo and 65 percent for Bank of America.

THE GRASS CAN ALWAYS SEEM GREENER: Individual real-estate investors are seeking out profits by snapping up rental properties far from their home markets, observes the Wall Street Journal. Rents are rising in metropolitan areas such as Orlando, Fla.; New York and Phoenix, according to research firm Reis Inc., and vacancy rates are falling in many cities. "These guys used to be local," says Dan Fasulo, director of market analysis at Real Capital Analytics, a research firm in New York. "They used to buy what they could drive to. Now state lines don't matter anymore." Landlords in California, for instance, are moving torrents of money into Arizona, Nevada, Texas and other states. Many Californians believe property values in their own market are peaking. So they want to take profits there and invest in less-expensive areas with better long-term prospects. Some of their favorite markets are Phoenix, Dallas, Las Vegas, Atlanta and Seattle. Individual investors and partnerships based in California acquired about $7.6 billion of apartment buildings in other states in the first quarter, up from $2.4 billion in the first quarter of 2004, according to Real Capital Analytics. (The data include only transactions of $5 million or more and exclude investments by institutions, hedge funds and national real-estate companies.) In New York State, the figure for out-of-state purchases rose to $5.3 billion from $1.4 billion in the same period.

MORTGAGE RATES SUFFER A CASE OF FLUCTUATIONS: The 30-year fixed-rate mortgage (FRM) averaged 6.63 percent for the week, up a notch from last week's 6.62 percent and only one point above last year's 5.63 percent, according to Freddie Mac. The average for the 15-year FRM was 6.25 percent, up slightly from 6.23 percent. A year ago, it was 5.22 percent. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.23 percent compared with 6.20 percent the prior week and 5.10 percent the previous year. One-year Treasury-indexed ARMs were 5.66 percent this week, also up from last week, when it averaged 5.63 percent. At this time last year, it was 4.25 percent. "Mixed economic indicators are causing some volatility in financial markets. This invariably leads to the fluctuations in mortgage rates like what we have seen recently," commented Frank Nothaft, Freddie Mac vice president and chief economist. "Still, there has been no drastic movement in mortgage rates and we see nothing on the horizon that would bring about any extreme rise or fall in rates going forward. Our economic forecast still indicates strongly that, even with gradually rising rates, 2006 may well be the third strongest year on record for housing."

D.C. Market Update - If this isn’t a buyers’ market, what is?

The engine of inventory growth is steaming ahead as the sparkplug of strong sales starts to sputter. Predictably, the apartment situation is far bleaker than that of single-family homes.

Condos and co-ops

The number of new listings surged by 34.6 percent, rising no less than 12.5 percent to as much as 200 percent at every price level from May of last year. Most of the apartments put on the market during the month were clustered between $200,000 and $500,000, with 261 of the 762 new listings between $300,000 and $500,000. By the end of the month, there were 274.6 percent more condos and co-ops still seeking buyers, a total 1,418 and easily more than in any month of the previous 12. The $200,000-300,000 level had the biggest increase, 182.2 percent, to 126, followed by $600,000-700,000, up 170.4 percent, to 146. In fact, triple-digit increases characterized each price level between $200,000 and $900,000.

The volume of sales plunged 25.6 percent versus May 2005, with double-digit declines at every single price level but $200,000-300,000, which rose 129.2 percent, to 55. A total of 378 condos and co-ops had ratified contracts, slightly more than every month but March since July. For the year to date, sales activity was off 15.8 percent, shrinking from 1,990 in 2005 to 1,676 last month. At the three levels between $400,000 and $700,000, declines were 22.6 percent to 25.2 percent. At $1 million to $1.25 million, there was a 60.9 percent decrease in volume, no change at $1.25 million to $1.5 million and a 57.1 percent reduction above $1.5 million. The absorption rate was a pallid 19 percent.

As for prices, they predictably have continued to fall, from an average of $426.576 last year to $411,836 this year and a median of $375,000 last year to $360,000.

Single-family homes

Homes added to the market during May represented a 23 percent increase over the same month last year, rising to 801. There were gains in the large majority of all price points, mostly in the double digits. Exceptions were: below $200,000, which had strong double-digit declines; at $400,000-500,000, down 4.5 percent; at $500,000-600,000, up 8.6 percent; and at $900,000-$1 million, unchanged. The biggest category of new listings was $300,000-400,000, up 21.9 percent to 128. By the end of the month, 1,418 homes languished on the market, 119.8 percent more than in May of last year, reaching at least a 12-month peak. Between $200,000 and $900,000, gains were in the triple digits as high as 182.2 percent ($200,000-300,000, to 127).

Sales volume slumped 26.6 percent, thanks to declines in the double digits at every price point below $1 million, except for $700,000-800,000, which was 9.3 percent lower than May of 2005. Above $1 million, 64 homes went under contract in contrast to 52 a year earlier. In all, 406 properties found buyers. But the month’s sales activity was about even with every month since July, except for the winter months, which lagged. For the year to date, sales sank 19.1 percent, to 1,863, with every single price point but one posting declines. The exception was 15.5 percent growth, to 67, for homes offered between $1 million and $1.25 million. The absorption rate was 22.3 percent.

The average price of a home has edged down from $628,179 to $627,547, and the median has slipped from $488,000 to $475,000.

What it all means

There is no mystery in the numbers. They speak of a buyers’ market caused by blossoming inventory, shriveling sales and interest rates that are relatively robust in comparison with recent years. Certainly, as they always have over time, single-family homes are proving to have held their value more reliably than have apartments. Condos and co-ops are demonstrating their vulnerability in a changing market and their risk as investments. But for folks who can afford to enter the market only by purchasing an apartment, a co-op or condominium remains a desirable alternative to renting. Look for further softening of the market as a whole, but there continues to be not a scintilla of evidence that some vaunted bubble is about to burst. It’s not going to happen.

Out and About - When a building this size goes co-op today, it’s news

Anyone who has traveled up 16th Street in Dupont Circle is bound to notice the wedding cake-building called the Chastleton. After a checkered history, the Chastleton became a co-operative on May 18, and many of its tenants, now owners, are beginning to enjoy windfall “profits” by selling out. One unit recently sold for roughly twice the $152,000 that the tenant paid to become an owner. Several other units, largely unrenovated, are now or soon will be on the market at prices that are rather high in the current sales environment.

The history of the edifice is perhaps worth considering. An eight-story brick, terra cotta and stone 315-unit luxury hotel-apartment building, the Chastleton was built starting in 1919. At the corner of 16th and R Streets NW in the Sixteenth Street Historic District, it was listed on the National Register of Historic Places and was known as the largest Gothic Revival apartment building in Washington.

The building's exterior design features a double-story-height pointed arched Gothic window with terra cotta gargoyles, tracery and pseudo-buttresses. The striking Gothic motif continue inside, where the two-story main entrance lobby, lounge, ballroom and public spaces feature flagstone floors and pilasters with floral capitals. The balcony railings showcase ornate ironwork and the richly detailed plaster work ceilings were highly intricate and appropriately elaborate.

Following are major excerpts of an article the Intowner newspaper by Paul Kelsey Williams, an historic preservation specialist with Kelsey & Associates in D.C.:

For a brief period, Washington's largest apartment building, the Chastleton was built beginning for the S.W. Strauss Co. of New York City and has had a varied series of ownership ever since. Used variably as both an apartment and hotel complex, the building has also been home to many notable residents.

The building was designed by architect Philip M. Jullien as one that was only about half the size of the present day configuration, containing 155 apartments. Upon its completion in August of 1920, the owner had him immediately prepare plans for an expansion on the northern side, in effect doubling its size. Costing $1.7 million, the expanded Chastleton opened in 1921 with 310 apartments ranging from efficiencies to two bedrooms. Originally, there were a total of 2,410 distinctive casement windows that were covered with removable awnings during the summer months.

Filling a need for small, high-end apartments that had been missing until that date in Washington's even then overpriced housing market, the Chastleton was sold only months after completion to investor Felix Lake for $3 million. He, in turn, sold it at an inflated price just a year later to Alfred I. du Pont of Wilmington, Delaware. Shortly thereafter, that transaction resulted in a lawsuit claiming that Lake had also inflated the true value of the rental income. Losing the case, the du Ponts sold the building in 1923 to an owner who briefly changed its name to the "Sixteenth Street Mansions;” three owners and three years later, it was changed back to the Chastleton.

In March of 1926, prolific builder and developer Harry Wardman bought the building and operated about 25 per cent of it as a hotel. He also had a drug store established at its R Street entrance. Wardman lost the Chastleton and several other apartment buildings he owned in 1932 as a result of financial reverses brought on by the Depression.

Over the years, it was home to General Douglas McArthur, Wallis Simpson, who later became the Duchess of Windsor, and an assortment of Members of Congress and local business persons.

During World War II, the federal government proposed housing women naval officers in the building, but the nearly nightly protests of the Chastleton's 800 residents eventually persuaded officials otherwise. After the War, in 1946, the building was sold and converted into a transient hotel with 623 rooms. In 1958, it was converted back into an apartment house with a total of 309 apartments, and its popular dining room closed for good.

Owner Norman Bernstein renovated the Chastleton in 1966, removing the casement windows and installing new bathrooms, kitchens and HVAC systems. It sold in 1979 for just $4 million to developer Virginia Page, who unsuccessfully attempted to offer each resident $4,000, a then novel color television and a five-month rent subsidy in Southwest Washington if they moved out so she could convert the building into condominiums. All but 12 took the offer and stayed in the building until 1984. Two years later, she completed another total renovation in partnership with an investor group styled Interstate General of St, Charles, Maryland, and began renting apartments once again.

Two units now available for sale in the Chastleton are underwhelming and overpriced. One of them contains 518 square feet, a single bedroom, oppressive views and a small, shabby kitchen – remember, these apartments were carved out of a hotel for transients. The price is $299,900, making the cost per square foot close to $600. In a market where apartments are languishing, such a price is indefensible, though the agent suggests that the novelty of the co-op conversion of such a well located and impressive looking building can fetch a premium. In addition, the likelihood is great of a successful negotiation with a seller who is looking at considerable instant return on his or her investment.

The other unit is on the building’s second floor. It is bigger, enjoys open views and has little else to distinguish it from the fifth-floor apartment. The price: $319,000. Too much! Other properties listed by D.C. area agents and seen in the past week:

• A 750-SF one-bedroom, one-bath condo in the Park Fairfax neighborhood of Alexandria. Listed at $309,900 with a $211 condo fee, it seems a smidge overpriced for this market. The 1941 townhouse style apartment has an updated kitchen with fancy Bosch washer and dryer, an inviting living area with hardwood floors that, with many windows, looks into the private, green and flagstoned backyard. The bedroom is a decent size, but the non-existent closets would have any clothes horse running in the opposite direction. It would be to the seller's advantage, after more than 20 days on the market, to lower his asking price to a kinder sounding $299,000.
  
• A 14-unit condominium in Logan Circle with two units for sale. The one-bedroom apartment on the tippity top floor – three long flights – has had many attractive added touches, including a compact new maple and granite kitchen, white-on-white bath with granite, recessed lighting, walk-in closet, plasma TV, central air conditioning, three skylights, a very pleasant deck and all the charm of an aerie in the sky. With two years paid parking down the block, this 609-SF condo is too expensive at $454,900 with a $245 monthly fee that excludes anything costly. The first-floor apartment features a three-window bay, 11-foot ceilings, custom built-ins, working fireplace, garage parking, an impossibly small and discordantly designed kitchen, and needless extra molding in the living room, yet the appearance of a comfortable space. The 682-SF apartment is listed at $474,900 with a $277 monthly fee. It should be $15,000 or $20,000 less.
  
• In Dupont Circle, a two-bedroom, one-bath condo in a handsome pet-friendly building with a swimming pool. The second bedroom of this 924-SF corner apartment is barely a bedroom but would do as such; it is separated from the living room by added doors. Bright and sunny, the unit has a new and very attractive open kitchen, in-unit washer/dryer, oak floors, good closets, granite in the roomy bath, and the possibility of purchasing a garage parking space for $45,000. It is listed at a reduced price of $540,000 with a $400 monthly fee that excludes utilities and the extra $32 fee for parking. For such a condo in such a location, the price is just a tad high.
  
• A Mount Pleasant attached rowhouse with a spacious and appealing in-law suite, a total of six bedrooms and three and a half baths in its four levels, a hefty climb to the front door, decently updated kitchen, detached two-car garage, lovely hardwood floors upstairs and original ones in need of refinishing downstairs, plus a finished attic with skylight that is not uninviting as an office, despite the low head clearance. Facing Rock Creek Park, this home suffers from having just one bath to be shared by the three bedrooms on the second floor. Still, at $875,000, this home represents good value, even if it is not a bargain.
  
• In Shaw, a brand new semi-detached home of puzzling design and disconcerting proximity to a large, currently vacant lot. Dripping with style, this home has three bedrooms, two and a half baths, parking for two cars, a six-burner Dacor gas stove, flagstone patio, gas fireplace, good closet space and an unfinished basement with plumbing. What it doesn’t have is sensible flow: Entry is into a small sitting area, then down a long dark hall equipped with a built-in desk and finally into the open kitchen with dining and living areas beyond. The upstairs layout is similarly awkward, but perhaps finishing such as granite, high ceilings, tall custom windows, beautiful tiled baths and trendy exterior design compensate for the property’s deficits, at least for some buyers. The asking price of $799,000 is more or less within reason, all things considered.
  
• An attached turn-of-the-century rowhouse on a quite block in Kalorama Triangle. This home shows extremely well, thanks to its sensitive renovation, which features a top-of-the-line kitchen, small parlor, home office and good-size dining room on the main floor with access to an agreeable deck, patio and two parking spaces. An airy and welcoming living room with fireplace, high ceilings and a wall of built-ins was created on the second floor, which also has a bedroom, wet bar and a full bath with tumbled limestone flooring. On the third floor, find the master suite with black and white ceramic tile, frameless shower door and separate whirlpool. The basement apartment is under-rented at $1,200 a month. Appraised one and a half years ago at $1.4 million, before all the work was done, the house is listed not unreasonably at $1.695 million.
  
• In Columbia Heights, A two-bedroom, two bath renovated rowhouse with not enough space to make comfortable. Entry is into a small living room and open center-island kitchen, to which the eye travels immediately, transforming the main level into one medium-size kitchen. Outside is a sunken patio; that is, it is deep, narrow and surrounded by walls. The upstairs has the bedrooms and one of the two baths, which boasts white wainscoting floor to ceiling. The lower level, which has almost a full kitchen and Mexican tile floor, doesn’t have any logical place to array much more furniture than a table and chairs or perhaps just a bed. Another issue is the nearby street corner, where an all-night little grocery store attracts loiterers even in daylight. As a condo alternative, maybe someone will think the residence is worth the $565,000 asking price. However, that’s a someone in need of therapy.
  
• A condo in Springfield, Virginia listed at $315,000. This two-bedroom, one-bath, two-level unit in Cardinal Forest is an attractive end unit with a newly remodeled kitchen and new floors throughout the main level. The upstairs has the standard layout of two smaller bedrooms and the home's only bath. Its inviting private and fenced-in patio suggest barbeques and parties with friends. The condo fee of $237/month covers all the usual things as well as the condo association's pools, tennis and basketball courts. This almost 1,000-SF apartment is well priced, so it is surprising that it has lingered on the market for more than a month.
  
• In Brookland, a 26-unit condo conversion that has been marketed for more than a year, with fewer than half now under contract. These mostly one-bedroom, one-bath apartments feature hardwood floors, decent closet space, in-unit washer-dryers, modern kitchens with okay appliances, travertine tile floors in the baths, and no parking. Their reduced prices range between $199,500 and $269,500 with $5,000 closing credit, and their modesty suggests starter apartments for any buyer who is not expecting wide open spaces or looking to wow visitors.
  
• A U Street Corridor townhouse in an ersatz old complex with three bedrooms and two and a half baths on three levels. The open floor plan on the main floor is welcoming, there is an attached garage, and the kitchen is modern. What this home lacks is a décor that will appeal to a wide market, furnished in retro style and painted in impossibly vivid colors. Can you spell kaleidoscope? Another problem is its location, which has the front door facing a blank brick wall, and its entry on the lower floor to the living area via a space commonly used as an office and as access to the garage. All in the all, the price of $685,000 is unrealistic.
  
• On Capitol Hill near the Southeast Expressway, too near that noisy highway for some sensibilities, an 11-unit condo conversion aimed at the entry market. These small but stylish units are priced at least $35,000 too high, between $379,000 and $399,000, and given layouts that make most of the living rooms into nothing more than big kitchen and enough closet space for only a few shirts or skirts. Really! Go figure.
  
• An irrepressibly charming little attached rowhouse in Dupont Circle with just two bedrooms, one and a half baths and two parking spaces. This handsomely renovated home has just two levels with basement storage, small but pretty rear and front yards, a kitchen with high-end appliances, including Viking stove and a true exhaust fan, and a cute bath with a tub painted red, appealingly. It should go under contract for more than its $699,000 asking price.

Items of Interest - June 10, 2006

HOME PRICE GROWTH SLOWS IN FIRST-QUARTER: Freddie Mac says its quarterly national Conventional Mortgage Home Price Index (CMHPI) rose 8.7 percent in the first quarter of 2006 on an annualized basis, down from a revised fourth quarter of 2005 annualized rate of 12.9 percent and a third quarter 2005 growth rate of 13.7 percent. "Home prices are starting to feel the effects of the upward trend in mortgage rates," said Frank Nothaft, Freddie Mac vice president and chief economist. He added that the trend continued during the first quarter, with 30-year fixed mortgage rates climbing from an average 6.15 percent in January to 6.32 percent in March, according to the Primary Mortgage Market Survey. Rates on adjustable-rate mortgages rose even faster, with the introductory rates on 1-year Treasury-indexed ARMs rising from an average of 5.16 percent at the start of the year to 5.51 percent by the end of March. "We have seen a lot of mixed news with respect to the housing market in the past few months. Construction employment, which had been one of the reliable growth sectors, was relatively flat throughout the first quarter," the economist continued. "But a gradual and orderly slowing of the housing market has been anticipated for some time now as we come off of record high sales and single-family home construction. We anticipate about a 7 percent decline in home sales this year and a transition from a sellers market to a buyers market." Nothaft said that the first quarter of 2006 marks the third consecutive quarter of moderation in home-value growth. "We are expecting about half of the increase that we saw in the national average home-value appreciation in 2005 for 2006, which puts annual home price growth between six and eight percent, depending on how fast interest rates rise over the remainder of the year," he opined. Nationally, home values increased 12.7 percent from the first quarter of 2005 through the first quarter of 2006, down from the 12.9 percent annual growth seen over the four quarters ended in March 2005.

RATES MOVE DOWN FOR A CHANGE: The 30-year fixed-rate mortgage (FRM) averaged 6.62 percent for the week, down from last week's 6.67 percent and up from last year's 5.56 percent, according to Freddie Mac. The 15-year FRM this week was 6.23 percent, down from of 6.26 percent last year. A year ago, it averaged 5.14 percent. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) were 6.20 percent this week, versus 6.26 percent last week and 5.01 percent a year ago. One-year Treasury-indexed ARMs averaged 5.63 percent, down from last week, when it was 5.68 percent. At this time last year, it was 4.21 percent. "Mortgage rates are down a little this week on news of disappointing job growth in May coupled with downward revisions for the previous two months," said Frank Nothaft, Freddie Mac vice president and chief economist. "The slight drop in long-term rates reflects a cautiously optimistic outlook in the market that core inflation remains contained. The soon-to-be released Producer Price Index (PPI), followed by the Consumer Price Index (CPI), will give a better indication which way inflation is headed."

REALTORS GROUP SOFTENS FORECAST: The housing boom has ended, but sales at historically healthy levels will continue and price appreciation will return to normal patterns across much of the country, according to the National Association of Realtors (NAR). Said David Lereah, NAR's chief economist: "Now the housing market has cooled, but 2006 still expected to be the third strongest on record. In this case, experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability." He projected existing-home sales to drop 6.8 percent to 6.6 million this year from the record 7.08 million in 2005. New-home sales are forecast to fall 13.4 percent to 1.11 million from a record 1.28 million in 2005. Housing starts are likely to decline 6.2 percent to 1.94 million in 2006 compared with 2.07 million last year, the economist says. Lereah added that the national median existing-home price for all housing types should rise 5.3 percent this year to $231,300. With more construction in 2006 taking place in lower-cost housing markets, the median new-home price is projected to increase 0.8 percent to $242,900. "Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation, so the rise we anticipate in existing home prices this year is actually a little above the high end of historic norms," Lereah said. "The double-digit home price gains we saw in 2005 underscore what a superlative year it was."

NOT ONLY ARE THEY PRETTY, BUT YOU CAN EAT (!) THEM: At Brookside Gardens on Saturday 10 a.m. -4 p.m. , the annual herb fair includes vendors, who are not to be consumed, with plants for sale as well as the culinary and therapeutic products of herbal plants. The address is 1800 Glenallan Ave., Wheaton, and the Web site is brooksidegardens.org.

BUILDER CONFIDENCE IN RENTAL MARKET SOARS: It reached a new high in the first quarter of 2006 as rising occupancies and rental rates pointed to increased consumer demand, according to new results of the National Association of Home Builders/Fannie Mae Multifamily Housing Market Index (MMI. The same survey also found that multifamily builders are less optimistic about the market for condos, which is in the midst of a cooldown. Chief Economist David Seiders of the National Association of Home Builders (NAHB) said the slowdown in the condo sector is because of serious affordability problems as well as a pullout by the investors who drove the market to unsustainable heights last year. "The changing supply-demand balance in the condo segment means that this component of the multifamily sector is slowing to a more sustainable level," Seiders said. Yet the index tracking condo supply dipped sharply in the first quarter of 2006, down to 37.0 in the first quarter of 2006 from 66.9 at the same time last year. The index tracking builders' expectations for condo starts over the next six months also dropped, from 54.0 in the first quarter of 2005 to 46.0 in the first quarter of this year. The indexes tracking builder expectations for all classes of rental apartments all moved higher, with each at 50 – the line between optimism and pessimism - or above.

IF YOU'RE A VEGAN, SKIP THIS ITEM: Aiming to help homeowners who want to add warmth to their modern and often-cold interiors, retailers and urban decorators are pushing an unusual solution: stuffed dead animals, the Wall Street Journal observes. Over the past year, boutiques and high-end department stores have begun adding everything from $450 deer heads to $25,000 zebras. Taxidermy shops report they're selling more pieces to people other than those who shot them. Many members of the new taxidermy class have never picked up a rifle, and are, in some cases, vegetarians. Since last fall, when Parisian taxidermist Deyrolle teamed up with New York department store Bergdorf Goodman, the store has sold pieces including a $19,500 ostrich. (Offerings on the store's housewares floor also include a $795 black crow and a goose for $2,595.) Later this year, Barneys New York will introduce a line of mounted birds - from $700 exotic finches to $3,400 peacocks - in its Manhattan store. There's at least a six-month wait for 12-point buck mounts at Animal Artistry in Reno, Nev. "They fly in here from San Francisco or Seattle to get these things," says Stuart Farnsworth, the store's general manager. "A few years ago, we couldn't give that stuff away." Cynthia Vincent, a fashion designer, fielded some grousing after she added animals to her two-story contemporary Los Angeles home last year. A 4-foot English pheasant stands on her living room coffee table, and two swifts are mounted side by side near a bay window. Her favorite is a free-standing 2-foot-tall partridge on a bookshelf in the home's entryway. More than one friend told her the décor was "a little peculiar," she says. "Some of them thought it was ugly." No comment.

HOMEOWNER EXPECTATIONS OF VALUE MEET REALITY: They have declining expectations for increases in home value, according to an annual survey conducted for ING Direct, reports Inman News. Homeowners who participated in the survey said their home has increased in value by about 6 percent over the past 12 months, and they expect their home's value to increase by about 4 percent in the next 12 months. Approximately 74 percent of respondents who have owned a home for at least three years also said they "were not very concerned that there might be a downturn in the housing market in the next year, which would lower the value of their home." Two-thirds estimated that even a 10 percent decrease in home value would have no impact on day-to-day spending. Synovate, a market research arm of Aegis Group, conducted a telephone survey in April and May 2006 of 1,000 respondents using a continental U.S. Census-balanced group of homeowners with residential telephone numbers. In addition, respondents who indicated that closing costs were higher than they had expected said the difference was nearly $600 higher.

KATIE COURIC HAS YET ANOTHER REASON TO BE PERKY: She just paid close to $6.3 million for a seven-bedroom, six-bath cedar-shingle house in the tony Long Island resort community of East Hampton. Given driving conditions on the Long Island Expressway, you can be sure that she won't be commuting from there.

A NOVEL, IF QUESTIONABLE, WAY EMERGES TO AVOID TAXES: The soaring real-estate prices of the past few years are helping to feed the popularity of a complex tax-savings technique called a "private annuity trust," notes the Wall Street Journal. The strategy is being promoted as a way for investors to defer hefty capital-gains taxes on the sale of highly appreciated assets - especially real estate - and save on estate taxes while also generating a stream of income. In a private annuity trust, you essentially exchange appreciated assets for fixed annuity payments, which spreads out your capital-gains taxes over many years. Private annuity trusts can cost anywhere from about $3,000 to well over $10,000 to set up, plus additional administration and investment fees that can run upwards of 1 percent of trust assets. In a typical arrangement, you sell appreciated assets to a trust in exchange for a series of fixed annuity payments that last for the rest of your life. The trust then goes ahead and sells the appreciated asset to an end buyer. The cash proceeds are invested by the trust, and are used to fund your annuity payments. By selling the property in exchange for an annuity, you avoid paying the upfront capital gains that you would have owed if you had simply sold the asset outright. Instead, you are taxed on the annuity payments when they come out of the trust, which spreads out the taxes over a longer period of time. What's more, you can defer receiving the annuity payments for years, thereby further postponing your tax payments. The strategy also has estate-planning benefits. When you die, the annuity payments stop and whatever is left over in the trust is considered out of your estate and isn't subject to estate taxes. The annuity payments you receive during your lifetime are considered part of your estate unless you spend down the money. However, the strategy is on the IRS's radar screen. The agency doesn't like arrangements in which sellers continue to control trust assets or properties that were purportedly sold. The IRS is also concerned that, before the trust is even set up, a buyer has already contractually agreed to take the property. In that case, the government could ultimately view the trust as an improper shelter, set up chiefly to avoid immediate capital-gains taxes rather than providing real economic substance.

A PIED-A-TERRE THIS IS NOT: Anyone who wants to tour the house with the highest asking price in the country will first have to prove a net worth of $500 million or an annual salary of $10 million, reports the Los Angeles Times in Realtor magazine, failing to note that anyone so wealthy would be unlikely to bruit it about. The house is a 30,000-SF mansion known as Portabello perched on a cliff in Corona del Mar, Calif., south of Newport Beach. It's priced at $75 million. Some local real estate professionals are shaking their heads. ''Every agent in town is talking about it,'' says real estate associate Mark Whitehead, who sells homes in Corona del Mar. "It's a joke. It's an image thing. It's an ego trip to sell the most expensive home on the market.'' Bill Cote, owner of Cote Realty Group in Newport Beach, said Portabello's asking price is 300 percent more than the highest amount paid for an Orange County home. Listing agent John McMonigle released a statement saying that the house was reasonably priced considering that the land was worth $45 million and it would cost up to $1,500 per square foot to rebuild the home. The estate belongs to Frank Pritt, who in 1982 founded software maker Attachmate Corp., a large privately held technology company in Bellevue, Wash.
INSURANCE MAN BITES DOG: There is a push by lawmakers and animal-welfare groups to ban the growing insurance-industry practice of refusing to write homeowners' policies for people who own dogs of certain breeds, observes the Wall Street Journal. Some big insurers, including Allstate and Farmers Insurance Group, won't cover homes in some states if certain breeds are present. Others exclude the breeds from liability coverage or charge extra for it. The so-called vicious-breed lists include such popular pooches as German shepherds, Akitas and Siberian huskies, along with Alaskan Malamutes, Chow Chows, Doberman Pinschers, American pit bull terriers and their cousins. The insurers' practice is spurring rising complaints by dog owners that their homeowners' and renters' policies have been dropped, or they have been denied coverage, because their dog is on the list. They say the rules unfairly link well-behaved family pets with aggressive miscreants responsible for high-profile attacks. Dogs bite an estimated 4.7 million people in the United States annually, 800,000 seriously enough to require medical attention. About 40 percent of victims are children. Dog bites were responsible for $317.2 million in claims in 2005, an average of more than $21,000 each. They make up 15 percent of liability claims, which in turn are about 4 percent of total claims, according to the Insurance Information Institute. Some insurers cite a 2000 study conducted by the Centers for Disease Control and Prevention of 20 years of fatal attacks by dogs on humans. It found that pit-bull-related breeds and Rottweilers were involved in more than half of the 238 dog-attack deaths between 1979 and 1998. But the study's authors, including Julie Gilchrist, say that public and private policymakers have drawn flawed conclusions from it. Dr. Gilchrist said the study wasn't designed to determine which are the most dangerous dog breeds and didn't establish bite-fatality rates for the breeds it named. "You can't say that one breed is more likely to bite (than another)," she said. Dr. Gilchrist, a pediatrician, said the involvement of some breeds in more attacks may reflect the sheer prevalence of those breeds. Other factors, such as training and neutering, are more relevant than breed, she said, noting that owners choose and train some dogs for aggression. The CDC has posted a notice on its Web site trying to discourage lawmakers and others from using the study to ban specific breeds. Not every insurer limits coverage for owners of certain breeds. State Farm and Fireman's Fund are examples. But Farmers Insurance excludes several dog breeds from coverage in five of the 41 states in which it does business. Nationwide also has a list of banned breeds, but owners can be exempted by having their dog pass an American Kennel Club-approved "Canine Good Citizenship" test, though probably not by reciting the Pledge of Allegiance.

WATCH OUT FOR HIGHER HOME HEATING OIL PRICES: Expect the price of heating oil to cost about 45 percent more next winter than it did last winter, heating oil companies say, according to the Associated Press in Realtor magazine. In Concord, N.H., where summer is short and winter comes early, oil companies are already filling customers' tanks. They say customers who lock in now will pay about $2.60 per gallon, up from $1.85 per gallon last year. That translates into an additional $600 to heat the average home.

IS IT THE END OF THE ROAD FOR THE CUL-DE-SAC: For many families, cul-de-sac living represents the epitome of suburban bliss: a traffic-free play zone for children, a ready roster of neighbors with extra gas for the lawnmower and a communal gathering space for sharing gin and tonics, reports the Wall Street Journal. But thanks to a growing chorus of critics, ranging from city planners and traffic engineers to snowplow drivers, hundreds of local governments from San Luis Obispo, Calif., to Charlotte, N.C., have passed zoning ordinances to limit cul-de-sacs or even ban them in the future. While homes on cul-de-sacs are still being built in large numbers and continue to fetch premiums from buyers who prefer them, the opposition has only been growing. The most common complaint: traffic. Because most of the roads in a neighborhood of cul-de-sacs are dead ends, some traffic experts say the only way to navigate around the neighborhood is to take peripheral roads that are already cluttered with traffic. And because most cul-de-sacs aren't connected by sidewalks, the only way for people who live there to run errands is to get in their cars and join the traffic. For all the criticism aimed at them, cul-de-sacs do seem to have one last defender: the free market. Real-estate brokers say that despite the recent opposition by policy makers, homes on cul-de-sacs still tend to sell faster than other homes - and often command a comfortable premium.

HOMEOWNERS, RENTERS DIFFER ON CREDIT MANAGEMENT: More than 81 percent of homeowners and 65 percent of renters believe that they manage their credit extremely well, according to a survey of more than 1,200 persons conducted by the Mortgage Bankers Association (MBA). The survey on consumer credit habits also revealed that 54 percent of renters feel that they have more debt than they should in comparison with 39 percent of homeowners. While renters report that they are generally familiar with important mortgage terminology, homeowners are significantly more knowledgeable about these mortgage terms. Of the renters surveyed, 45 percent say that they are considering buying a home in the next year or two.

ADVICE FOR HOME SELLERS: Steer clear of renovations that will cost you money at resale time, counsels the Wall Street Journal. If you want an edge over other home sellers in an iffy market, here's what not to do: Trying to keep up with the Joneses is fine, but don't keep outdoing neighbors with additions unless you plan to stay put a long time; don't change the general architecture of the home, and make sure that renovations match; think hard about completely altering the purpose of a room is risky since they were built that way for a reason; be extremely confident you're capable of taking on a project before trying to do it yourself; don't underestimate how much projects will cost because expenses usually are added, not subtracted when remodeling for resale; don't waste time with renovations that won't pay off; and perform proper maintenance and annual upkeep.

FALTERING MARKET CLAIMS TWO MAJOR CONDO PROJECTS: Citing slow sales and a cooling real estate market, two major developers are abandoning plans for two condominium projects in the Washington region, according to the Washington Post. The decisions, by District-based Monument Realty and Wood Partners of Atlanta, are among the strongest signs yet of how much - and how quickly - the market for new condos has changed here. Monument said it would not go forward with its plan to convert the three-building, 574-unit Park Center apartment complex in Alexandria to condos. Wood Partners said that it would continue building its 300-unit 1901 West building in Annapolis but that the apartments would be rentals, not condos as planned. Together the two projects would have cost $226 million, according to the developers. Thus, as double-digit housing-price appreciation cools in many markets, rental apartments once seen as ripe for conversion into more lucrative condominiums are beginning to return to their roots. Said Gregory H. Leisch, chief executive of Delta Associates, a real estate consulting firm in Alexandria: "It's a precursor of more to come." He estimated that developers would take 1,200 more units out of the pipeline by year-end. About 25,000 condo units are being marketed now, 16,000 of which are under construction, according to Delta. And the Wall Street Journal observes that buildings converting to condos across the nation are in jeopardy of failure as well. Michael Cohen, a research strategist at Boston real-estate analysis firm Property & Portfolio Research, dubs the reversions "repartments." "It's definitely becoming a problem," he says. "Some of these projects probably don't look as attractive as they did six months ago when developers were buying the conversions." So far, the reversions are dwarfed by the number of units that have been converted into condos in recent years. But an emerging trend is evident as developers stuck with slow-selling condo units struggle to recoup part of their investment and as tenants gripe about being caught in the middle when their building swings from apartments to condos and back again. In south Florida - where the condo-conversion craze has been particularly frenzied - eight converted complexes containing 2,156 units have reverted to rentals in Broward and Palm Beach Counties, according to Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach, Fla. That compares with about 62,904 units that have been converted or have begun to be converted into condos in the area since 2004, he adds. McCabe expects the trend to spill over to San Diego, Washington, D.C., Las Vegas and Phoenix.

THE AFFLUENT VIEW REAL ESTATE AS LESS APPEALING: Although the wealthy continued to hold an average of 15 percent of their portfolios in real estate, the Associated Press reports that they are not as optimistic about future gains in this category as in the past. The information comes from a 2006 U.S. Trust survey that, since 1933, has been measuring the confidence of a sample of the top 1 percent wealthiest Americans - those with an adjusted gross income of more than $300,000 or a net worth greater than $5.9 million. Some 48 percent of the 2006 respondents think real estate values will increase over the next year, down from 72 percent who felt this way in 2005, the study found. The study involved in-depth telephone interviews with 150 randomly selected wealthy Americans, with results accurate to plus or minus 7 percent.

THE SOUTH AFRICAN MARKET REMAINS HOT: Sellers' markets are nothing new in South Africa, where demand for real estate - and the rise in prices - has been more robust this decade than almost anywhere, says the New York Times. But until now the boom was largely confined to middle- and upper-class homes. Now there are hints that it is spreading to an unlikely venue: townships, the ready-made slums erected by South Africa's former apartheid rulers to separate black and mixed-race citizens from whites. A recent survey by FNB Bank of South Africa concluded that for every township home put up for sale, there are 7 potential buyers in Johannesburg, 8 in Cape Town and 16 in Durban. Few homes come to market. In most townships the idea of selling one's home is still a novelty because most have traditionally been handed down to family members. But not for long. In the last 18 months, two of South Africa's biggest real-estate firms have moved into major townships and it is not hard to see why. "Take Beacon Hill," said Agenor Lureman, a principal in the Pam Golding Properties office in Mitchell's Plain. "A year ago, you could sell a house there for 80,000 or 90,000 rand. Today you can sell the same house for 140,000 rand." (That's the equivalent of $21,000.) Beacon Hill is in Mitchell's Plain, a sprawling township thrown up 30 years ago south of Cape Town to isolate mixed-race South Africans who had been forcibly removed from their homes in the city.

AND THE SKY LOOKS LIKE THE LIMIT IN MANHATTAN: Median sales prices for Manhattan cooperatives and condominiums increased 13 percent in the first quarter to $749,000 compared with first-quarter 2005, the Real Estate Board of New York (REBNY) reported, according to Inman News. The median price of condos gained 22 percent to $838,000, while the price of cooperatives grew 5 percent to $665,000. East Side apartments had median sales price increases of 24 percent to $876,000 between the two first quarters, the highest gain among all Manhattan neighborhoods surveyed. East Side condominium units had a 35 percent gain in median sales price, to $958,000. Downtown condominium units registered the highest median sales price, at $1.08 million. East Side and Mid-Manhattan cooperative units posted the highest percentage increase for cooperatives, with median sales prices up 13 percent. The East Side also had the highest overall median price for cooperatives at $799,000, REBNY reported. The price per square foot grew 21 percent to $1,036, for Manhattan condo units, 31 percent to $510 for Northern Manhattan condo units, and 25 percent to $1,061 for East Side condos. Median room prices for Manhattan cooperative units rose 13 percent to $196,000. Compared with first-quarter 2005, East Side median room prices were up 18 percent to $210,000, the highest price and percentage increase of the five major market areas.

MORTGAGE APPLICATIONS CONTINUE TO SLIDE: For the week ended June 2, volume decreased by 1.4 percent on a seasonally adjusted basis from one week earlier, according to the Mortgage Bankers Association. On an unadjusted basis, the decline was 11.7 percent compared with the previous week and 28.0 percent compared with the same week one year earlier. Seasonally adjusted, purchase applications edged up insignificantly, and refinancings dropped 3.8 percent. The Refinance Index is at its lowest level since April 2002. The refinance share of mortgage activity decreased to 34.2 percent of total applications from 34.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity fell to 29.4 percent from 30.7 percent.

APPRAISERS HOP ON THEIR BANDWAGON: In the last year, Kaplan Professional Schools, one of the largest trainers of real estate appraisers nationally, has seen a 10 percent increase in the number of people seeking instruction to become a licensed appraiser, says Realtor magazine. Besides a widespread growing interest in the real estate field, the number of people seeking training is up because a more stringent education requirement goes into effect Jan. 1, 2008 and hopeful licensees want to get in under the wire. Beginning in 2008, education hours for a licensed appraiser go from 90 to 150. A certified residential appraiser will be required to have 200 education hours, up from 120, and an associate degree will be mandatory. The education required of a certified general appraiser will rise from 180 to 300 hours and a bachelor's degree will be required. For many, education is the easiest part. The required 2,000-2,500 hours of appraising experience over a 24-30 month time period working for an experienced appraiser who will mentor, train and compensate apprentices for their work can be the most difficult.

HONEY, I'M HOME: As the potential buyers filed into the open house in Southern California, they gasped in surprise, reports Inman News. Instead of the traditional empty residence with a few pieces of tastefully arranged furniture, they discovered a family baking a cake. Like the tastefully arranged furniture and the cake in the oven, the family was part of the staging of the Centex model home in Santa Clarita, Calif. - completely fake. A public relations firm had hired actors to enact the skit. "There were a few moments of surprise and confusion," said Jim Garfield of California property public relations firm Roddan Paolucci Roddan, the company that created the concept. "But once people caught on, there was an embracing of the moment." Enuff said.

D.C. IS THE TOPS, ACCORDING TO A D.C. GROUP: The Washington area has the wealthiest households and most educated work force of any metropolitan area in the United States, according to a report the Greater Washington Initiative, which cites data from the U.S. Census Bureau, the Bureau of Labor Statistics, market data firm Claritas Inc and other sources, says Reuters. Including the District of Columbia, Maryland and Virginia, the region had the highest U.S. median household income, at nearly $72,800, ahead of the San Francisco area at $71,201 and Boston at $63,958. Housing costs in greater Washington were ranked fourth, with a 2005 median price of $424,700. San Francisco was highest at $715,700, followed by Los Angeles at $529,000 and New York at $446,000. But measuring total living costs among cities internationally, the report ranked Washington 78th, based on the W.M. Mercer Cost of Living Index for 2005. The most expensive city was Tokyo, while London was third and Paris, 12th. Greater Washington had the largest employment growth from 2000 to 2005, at 270,800.

GOOD NEWS AND BAD NEWS FOR GEORGE CLOONEY: The near-Las Vegas strip site of a proposed $3 billion condo and small casino project backed by actor George Clooney has been sold and plans for the project scrapped, according to the Associated Press in Realtor magazine. Clooney's business partner, nightclub owner Rande Gerber, told the news organization that the project wasn't shaping up to be profitable unless they added more casino and hotel space. "We're the largest developer of residential property in the country, and we saw ourselves getting away from what we do best," confirms Related Las Vegas President Marty Burger, which had partnered with Centra Properties and Clooney to build the project. Buyer deposits are being returned. Related and Clooney have sold the 25 acres to Edge Group for $202 million, twice what Clooney paid a year ago. Edge plans to build a more conventional hotel casino complex on the site. "I'll donate my profits from the sale to the African Debt Relief Project," Clooney said in a statement. "And I guess I'll find someplace else to gamble."