By Daniel McGinn
Wander the floor of the International Builders' Show in Orlando in February and you'll see little evidence that the US housing market is experiencing its sharpest downturn since the Great Depression. Inside the hall, vendor booths will be full. A few companies will display the new-and-improved nails and engineered lumber you'd expect. But if previous years are any guide, much of the hardware at the show will seem better suited to Best Buy than to Home Depot: in-wall speakers and video for the whole house (inside and outside), wireless remotes that control lights and the thermostat, rooms wired with everything from coaxial to Cat-5, security setups worthy of Dr. No. The Builders' Show may not inspire quite as much technolust as, say, the Consumer Electronics Show, but it does offer proof that a home is the most important gadget you'll ever purchase.
Still, you'd never guess it when shopping for real estate. That charming 1920s three-bedroom craftsman wasn't built to accommodate all these new devices, much less modernized subsystems like updated electrical, solar power, or flexible plastic plumbing. Which is one reason Americans have come to prefer new homes to pre-owned ones. Check out these numbers: In 1993, just 48 percent said they hoped their next house would be newly built. By 2004, that number had grown to 74 percent.
Whether those respondents were looking for something cheaper, bigger, gadgetier, or merely free of other people's cooties, builders responded to that new demand. They built lots of homes and packed them with every new gewgaw a potential buyer might dream of. And then they built some more. Now, thanks to the housing bust, virgin homes and condos sit unoccupied in cities like Las Vegas, Phoenix, Miami, and, yes, Orlando. Of course, the desire for high tech isn't solely responsible for the bust (low interest rates and insane lending practices, anyone?), but it is surely a contributing factor. All that built-in technology on display at the Builders' Show is there because people want it, and retrofitting an existing house to replace hard-wired, screwed-in, gadgetry is a bitch. After all, houses are built to last decades; electronic hardware becomes obsolete in months. And once the paint dries inside a new Spanish colonial-style McMansion, running additional pipes, conduits, or wires necessary for an upgrade creates an ungodly mess — and a shocking bill. "It can be done, but you really need to want it," says Kermit Baker, a Harvard economist who studies the remodeling market.
So how do you reduce people's desire to flip perfectly good dwellings for shiny new ones? Start out by building homes that even 21st-century gadget hounds won't want to leave — because they're easier to upgrade. (Relying on a distant future when every technology is magically wireless is cheating — plumbing will always need pipes, and unless you think the work of Nikola Tesla is due for a renaissance, electricity will always need wires.) Architect Kevin Harris of Baton Rouge, Louisiana, routinely has builders run empty conduit inside a home's walls to accommodate whatever new wiring might be required by future generations of gizmos. Make room for changing infrastructure and all you have to swap out are cables and switch plates. Some architectural thinkers have begun to advocate adapting construction methods used for commercial office buildings to the residential housing market — dropped ceilings and raised floors allow for easier electrical and plumbing retrofits. In the Gator Tech Smart House, a project at the University of Florida, architects used a raised floor and hollow crown molding (to hold wires). At MIT, architecture professor Kent Larson is working on designs in which the bones of a house — a skeleton of studs, beams, and trusses — are like the chassis of a car or a PC, and linked components like sensors and A/V equipment slot into integrated receptacles. The builder community is famously hidebound, but if it could be convinced to change its practices, Larson's scheme would mean faster, cheaper assembly (and disassembly and reassembly). "You'd move away from conventional construction, and builders would become assemblers," Larson says.
When this bust eventually ends and carpenters resume putting hammer to nail, consumers would be better served if the industry explored and embraced ways to make homes easier to upgrade to accommodate tomorrow's technology. "Buildings really should last hundreds of years," MIT's Larson says. "But the only way they can is if they're agile enough to adapt." Maybe that will quell people's desire for a six-bedroom McMansion out in the exurbs. And for building another one after that.
Daniel McGinn (firstname.lastname@example.org) is a national correspondent for Newsweek and the author of House Lust: America's Obsession With Our Homes.
December 26, 2007
December 14, 2007
December 13, 2007
December 11, 2007
From The Wall Street Journal Online
The mortgage plan outlined by the Bush administration should help some borrowers with subprime adjustable-rate mortgages. But other borrowers who are having trouble making their payments won't qualify for the "fast-track" interest-rate freeze outlined yesterday. Here's a look at the agreement:
Which mortgages does the plan cover?
The agreement covers only a subset of borrowers. These are borrowers who took out subprime ARMs that were originated between Jan. 1, 2005, and July 31, 2007, and whose interest rates will reset for the first time between Jan. 1, 2008, and July 31, 2010. It applies only to loans that have been packaged into securities and not those that are held by banks on their own books. Homeowners should call their servicer to determine if their mortgage is covered by the plan. It doesn't apply to borrowers with subprime ARMs that have already faced their first rate reset. It also doesn't cover loans that are seriously delinquent, fixed-rate mortgages or ARMs issued to borrowers with good credit.
How do I know if I have a subprime mortgage?
The agreement doesn't provide a specific definition of subprime ARMs because it isn't always clear. Typically, subprime ARMs carry a fixed interest rate for the first two or three years, then adjust annually. Borrowers who aren't sure whether or not they have a subprime ARM can ask the company that collects their loan payments.
What are mortgage companies doing for these borrowers?
Mortgage companies are setting up guidelines for who may qualify for a fast-track program that would freeze the interest rate at the introductory rate for five years. Some borrowers who don't qualify for fast-track may be eligible to refinance into a new mortgage, based on their credit score and the amount of equity in their home. Mortgage companies have been encouraged to "take all reasonable steps" to facilitate a refinancing.
Who qualifies for the rate freeze?
To qualify, borrowers must live in their home and face a payment increase of more than 10% when the rate on their ARM resets for the first time. The program is designed to help borrowers who aren't good candidates for refinancing because of a poor credit score, have little or no equity in their homes or a history of late payments. To qualify for the fast-track program, borrowers must have a credit score of less than 660 and it can't have improved by more than 10% since the mortgage was originated.
What if I've missed a mortgage payment?
Missing one mortgage payment won't automatically disqualify borrowers from the program. Borrowers can't have more than 60 days late more than once in the last 12 months.
What if I can't qualify for the fast-track freeze?
Some borrowers may be able to refinance into Federal Housing Administration loans or other mortgage programs. Borrowers who don't qualify for a refinance or who don't meet the criteria for the fast-track program will be dealt with on a case-by-case basis by their mortgage-servicing company. In some cases, these borrowers may be able to obtain a lower rate or a reduction in the amount owed. Other options include a short sale, in which the house is sold for less than the amount owed with the lender forgiving the balance, or foreclosure.
Whom should I call if I have questions?
Borrowers are encouraged to contact the mortgage-servicing company that collects their loan payments. They can also call 1-888-995-HOPE, which provides counseling to homeowners with mortgage problems.
December 10, 2007
You may ask, "What does this have to do with real estate?" The answer of course would be absolutely nothing. Real Estate news is so dismal I have to take more frequent breaks. "But politics?" you ask. I promise I am not getting into that ring. Believe me I am no pugilist.
But this New York Times editorial by Stanley Fish really inspired my imagination. In his piece entitiled, Integrity or Craft: The Leadership Question, Fish begs the reasoning behind the 10 questions that CBS News is forcing Katie Couric to ask the candidates to get them to expose "what really makes them tick." The deeply penetrating questions will include:
“When was the last time you lost your temper” (a question Lyndon Johnson could have answered, “When was the last time I didn’t?”), or
“Who is the single most impressive person you’ve ever met” (watch out; you may be endorsing someone other than yourself), or
“What’s the biggest mistake you’ve ever made?” (doing this interview), or
“Besides your family, what are you most afraid of losing?” (the nomination and election).
Fish brings John Milton, Thomas Hobbes, and of course everybody's favorite, Machiavelli to the table for the debate of leadership vs. craft. Of course Machiavelli anticipated politicians and probably understood them like no other modern mind.
I excerpt from Leadership or Craft:
Hobbes was anticipated by Machiavelli, who noted that everyone always proclaims “how praiseworthy it is in a prince to keep faith and to live with integrity and not with craft.”
But, says Machiavelli, everyone is wrong. A prince should keep faith until he discovers that those to whom he has given it are working against his interests. In those circumstances “a wise lord cannot, or ought not … to keep faith … when the reasons that caused him to pledge it exist no longer.” Nor, he adds, “will there ever be wanting to princes legitimate reasons to excuse this nonobservance.” That is, you can always plausibly claim to be keeping faith at the very moment you break it; but when you do so, Machiavelli counsels, you “must know well how to disguise this characteristic, and be a great pretender and dissembler.”
How well do we really understand political leadership? Or is it one of those truths we just can't handle?
Is your money on Couric or Machiavelli: Clinton or Giuliani? Or none of the above?
December 9, 2007
Not ready to jump into the deep end of the second-home pool? Read on and wade into the world of partial ownership in this well-researched piece from Departures Magazine . This is not the time-shares of the 70's. Want to buy Christmas week in Aspen? You'll need a very healthy bank account. Photos from The Registry Collection.
By Mike Offit
There is no way to spoil a pristine Caribbean afternoon more completely than by thinking about real estate. As I sat with my wife contemplating an azure sea beneath a cerulean sky, I somehow felt we were missing our last best chance to own a piece of paradise. That angst led us away from the beach and to a tour of a beautiful resort development offering condominium hotel units and villas at prices equal to Park Avenue, Mayfair, or the Seventh Arrondissement. The fantasy of owning a vacation home is virtually irresistible—a reverie of peaceful nights spent dozing to the lapping of waves, a sound that mutes the cold reality of needing windows strong enough to meet the post-Katrina building code and withstand 150-mile-per-hour winds.
The decision to buy or not to buy a secondary home comes down to convenience and finance.
Back in the wintry chill of Manhattan, a far more sober process took over. An attorney was procured, paperwork exchanged, and the real research and soul-searching began. It seems I’m a slacker with a lot of free time and a single-digit handicap, likely to feel the call of the condo whenever it was not leased out. My wife, on the other hand, takes great joy in seeing new places on the tight schedule her work entails. She also understands the damage repeated sun exposure does to the skin at the microcellular level. The kids have circumscribed school vacations, which means we’d be eating up those premium holiday weeks ourselves. Tension began to emerge like a gypsy moth from its pupa. For the price of the unit to make any sense, it had to be rented more than 70 percent of the time that we weren’t visiting, after deducting the 50 percent of rental income we’d be required to pay the manager. Our dream started to fade. My investigation also discovered the possibility of thousands of additional rooms planned for our tiny, peaceful isle. Lights out.
It seemed there must be some better approach than a ruinously expensive and all too often disappointing suite at a luxurious but ultimately impersonal hotel. I dug deeper and uncovered more options than I expected. The old chestnut that they ain’t makin’ any more real estate is, landfills aside, true. But, as I soon discovered, they sure can slice up what’s already there. The concept of partial ownership has spread from jets to yachts to houses (are kids next?), and I decided to examine all the alternatives.
The island project introduced me to the world of condo hotels. You buy a unit and the management rents it out when you don’t want to use it. Essentially, the buyer takes on the risks of home ownership together with the vagaries of the hospitality industry. As a commercial real estate finance veteran, I find that discussing the boring details such as Revpar or goppar is familiar but a real mood killer. Hotels sell a lot of food, beverages, activities, and services to guests—revenue that makes them profitable and which they do not share with condo-unit owners. Effectively, the hotel operator has you as the ideal financial partner: You’re on the hook for all the expenses but only share in roughly half the revenue from the room and none from the extras.
The numbers can sour fast with a bad season, a storm, or a soupçon of global financial crisis. Decor is also an issue. You generally have to take one of the hotel’s packaged looks, and wear and tear means more upkeep. You get the amenities and reservation system of a five-star resort or boutique chain (St. Regis, Raffles, Four Seasons, Mandarin Oriental, Kor, and even Canyon Ranch) along with its economy of scale in operating expenses.
Reselling condo hotel units is a largely untested market, and developers must be careful about discussing the investment and income aspects of their properties lest they run afoul of securities laws. One example: Prices of condo hotel units in Las Vegas, which have soared in recent years, are softening, with some units being offered at well below preconstruction highs. Several projects have even been cut back or canceled. But it’s hard to say how much of that is due to the nature of the product, worries about occupancy rates, or more stringent financing requirements in the middle of a real estate downturn and credit crunch.
Moving along, I investigated residence clubs, which fractionate everything. They subdivide both your use of the property and your exposure to operating costs and market risk. The Ritz-Carlton Club in Jupiter, Florida, for example, will give you several weeks of access to a comfortable golf villa, a great Nicklaus course, and a luxurious clubhouse. In some residences you can even pay a premium to reserve certain holiday weeks every year (whereas most clubs rotate holidays among the owners).
Clubs managed by large operators—such as the Ritz-Carlton, Mandarin Oriental, St. Regis, or Four Seasons—may offer an exchange program with their other locations or allow you to give your time to family or friends. Companies have even sprung up that trade and barter fractional time and other travel services (theregistrycollection.com is among the largest). If you are in love with a specific spot and its scheduling options work for you, fractionals make a lot of sense, provided you understand that selling your share can be a lengthy process. You may find yourself competing with the developer’s unsold inventory in a search for someone who had exactly the same dream you did, just a little later. DESTINATION CLUBS
Finally, I looked into destination clubs, the option that best approximates "virtual" second-home ownership. You don’t actually own any real estate and you never have to hear a repairman say "The oil leak ran down the water supply pipe into the well." The club owns and runs everything and makes any one of hundreds of residences yours for a week or two at a time. The industry leaders are Exclusive Resorts, Quintess, Ultimate Resort and Private Escapes, and Solstice. I set out to visit various clubs’ residences wherever my travels took me.
In Miami and at resort, beach, golf, or ski destinations, the homes I saw were grander than even a top hotel suite, with cozier appointments, though the locations were often just a click off the premier spot. The clubs stress the entire "experience," and their host staffers were generally bright and energetic young people who could cover the basics, particularly within the more circumscribed options of a resort.
In more sophisticated and challenging settings, I was less impressed. For instance, the locations and accommodations at the residences I saw in New York were not truly high-end—I would never recommend Times Square or the Midtown business district as a base for a friend’s family, and the hotel suites on Central Park are just that, suites. In Paris the apartments felt on the small side but were serviceable and in quieter spots. The hosts in both cities seemed an odd mix—in New York a former garment worker from the outer boroughs, in Paris an engaging Irish lad at one residence and, at another, a lovely young lady from the French countryside who could not point me to the nearest metro station. These were not worldly hotel concierges with deep connections but competent helpmeets eager to satisfy.
Understanding that urban environments are not the signature product for destination clubs, I examined their procedures. They operate like luxury golf clubs: The mostly refundable membership deposit gets you in, and your annual dues cover the basic costs. Depending on your membership level, you can generally get one major holiday each year on a rotating basis booked from six months to two years in advance and nonholiday reservations in less time. So don’t count on using a club to go to Aspen every spring break. More optimistically, as a Quintess spokesman put it, if a popular spot is fully booked, "we can usually reserve another ski destination like Beaver Creek or Steamboat." Time slots can generally be given as gifts to family members. Past issues in the industry have led to clubs’ opening their financial statements, instituting more conservative policies, and securing deposit refund guarantees with real assets and less debt. After taking a long, hard look at the key numbers—occupancy rates and total contract nights per home—I concluded that destination clubs make a lot of sense for people willing to be flexible as to where and when they go and for those drawn to sports or activity resorts. The larger accommodations also make them attractive and highly cost-effective for groups. For us, one of the high-end clubs could make a lot of sense once our kids are out of school.
These evolving real estate models ultimately offer reasonable alternatives to multiple home ownership. If one fits your space needs, dream destinations, and schedule—particularly one of the luxury hotel chain affiliates or the larger destination clubs—do some due diligence. While nothing is perfect, owning a slice of heaven might be better than the whole thing after all.
WHAT IT COSTS: MEMBERSHIP TIERS AT FOUR TOP DESTINATION CLUBS
Highest Membership Deposit
Exclusive Resorts $459,000
Ultimate Resort and Private Escapes $375,000
Maximum Contract Days
Exclusive Resorts 45
Ultimate Resort and Private Escapes - Unlimited
Highest Annual Dues/Per Night
Exclusive Resorts $34,900/$775
Ultimate Resort and Private Escapes $32,500
Exclusive Resorts 3,000+
Ultimate Resort and Private Escapes 1,200
Exclusive Resorts 350/40
Ultimate Resort and Private Escapes 140/42
2006 Total Occupancy
Exclusive Resorts 67%
Ultimate Resort and Private Escapes 48%
2006 Occupied Nights per Home
Exclusive Resorts n/a
Ultimate Resort and Private Escapes n/a
Exclusive Resorts 80%
Ultimate Resort and Private Escapes 80%–100%
Solstice 80% of market or 100%
WHAT YOUR $ GETS YOU
Use of one location as many nights as you want (subject to local zoning laws), when you want
The ability to rent out your unit and keep approximately 50 percent of the revenue
Luxury hotel services and amenities
Exposure to the real estate and hotel markets
Little or no say in decor if in rental pool
Units range from a hotel room to a three-plus-bedroom villa, with prices from $250,000 to up-wards of $5 million. Carrying costs are $10,000 to $20,000 per bedroom plus any mortgage.
A defined number of weeks each year at one location, with holidays allocated by lottery and/or rotation, though some clubs will sell specific weeks
You may be able to give your time to family or friends, but most upscale clubs limit renting.
Concierge-type services and clubhouse facilities (hotel services and amenities available at different locations)
Exposure to the real estate market and the costs of maintaining the facilities; little or no say in the decor
Purchase prices range from about $10,000 to over $100,000 per week. Carrying costs are roughly $500 to $2,000 a bedroom per week, plus any loan payments. (You may be able to trade time through the manager or independent Web sites.)
From 30 to 60 nights per year at any one of up to 300-plus properties in more than 40 locations
Holidays generally allocated by date rotation and destination lottery
In most cases your nights may be given to family or friends.
Travel and concierge services
No exposure to the real estate market
Members’ feedback is often taken into account when decor decisions are made.
Deposit prices for the highest membership tier range from $459,000 to $1.75 million.
Carrying costs run $32,500 to $68,000 per year.
The Head Homeboy at HomeTips is Don Vandervort, host on the HGTV show "The Fix" as well as the home improvement expert at MSN Home Advisor website. I discovered the site not by searching for home improvement tips or by watching the HGTV show but by the "long tail" of Guy Kawasaki's blog, How To Change The World. I admit it was a very circuitous route.
My interest was from as a Realtor's tool: Guy's interest was as Google's winner of the Adsense Story Contest. Don Vandervort, owner, said that the Google Adsense revenues went from paying for coffee, to paying for lunches, to paying for all salaries, overhead and business development. All this from what Guy describes as a modest monthly viewership of one million. (Boy, do I have a long way to go to fund my daily tap water.)
This is Guy's synopsis of the HomeTips website:
· The company started in a backyard clubhouse. Don converted the bottom floor of his sons' two-story treehouse. (See below) "Two-story" treehouse? How cool is that?
· The site has a clear focus: content for homeowners. There's nothing that I can find that smacks of "Web 2.0 social media" at all. This is just so refreshing: All you can do is find information, you don't need to bond with any strangers.
· Don added Adsense to his site by himself. He said it took twenty minutes. He probably didn't do any market research, focus groups, or 2x2 McKinsey-esque matrix analysis.
· He probably didn't even raise a dime of venture capital. He probably didn't even try to raise venture capital. He probably didn't even boot PowerPoint. He certainly didn't present at Demo or TechCrunch40.Yes sir, there's a lot to like about Don's story: do what you love, focus on a niche, find a viable business model, and work for yourself.
Yes, this is pretty clean living. Below is the treehouse birthplace of HomeTips. Does it have leather seats? A DVD player? I think we're good.
December 7, 2007
Wired: How is Zillow weathering the housing crunch?
Barton: When we were building Zillow, you had to be ready to make an offer on a home the day you saw it. In that market, Zillow was interesting, but whatever. People didn't have the time to use it for research. Now it's a buyer's market. People are taking a lot longer to make decisions and offers. So more people are using Zillow as a research tool.
Wired: Not everyone has been thrilled with their Zestimate. Tell us how it's done.
Barton: Our algorithm is a complex piece of AI that pores through a ton of data, looks for patterns, and creates predictive models. Then it goes through by zip code and identifies which models work best in each neighborhood. We're going to take that all the way down to the house level eventually. It's an interesting computer science and stats problem. A fun one.
Wired: Why wait until now to upgrade your algorithm?
Barton: Zestimates are based on history; we plot house prices like stock prices. We are careful about major updates to the algorithm because we are literally rewriting history.
Wired: So how does your users' data fit into the formula?
Barton: The Zestimate is only going to be as good as the information we have going in, and there are lots of holes and inaccuracies. We opened up Zillow so owners could correct facts about their homes, publish their own estimate of their house's value, and upload pictures. We can feed some of that information back into the algorithm. If you say, "No, there are four bathrooms, not three," we take that as reality. It makes the Zestimate significantly better.
Wired: Can sellers really be trusted to give honest appraisals?
Barton: It's kind of like a warts-and-all corporate blog — stuff is going to come out that you wouldn't want, but everybody ends up better. It's a very modern concept. Smart homeowners get it: If there was a flood in the basement two years ago, it's going to be found out. So let's talk about the fact that it happened and what we did about it.
Wired: OK, maybe that works now, when we're in a buyer's market. But what happens to that candor in a seller's market, when buyers don't ask as many questions?
Barton: Once you open the information doors, it's difficult to close them. I don't think it's characteristic of just the current market. I'm of the opinion that there is no hiding, period. Everybody is a reporter, a blogger, a rater of everything. Fighting that force is like fighting gravity.
Wired: So how does that kind of transparency change the market?
Barton: The more confident all market participants are in the veracity of the data, the more likely they are to trade. I'm fascinated by the ramifications of our Make Me Move concept [in which homeowners who aren't actively selling their houses post a price they would accept]. Whether or not a home is for sale is not binary. It has been forced to be binary by the structure of the marketplace, but everything is for sale to a certain degree. And many homes have uncollected and unsystematized interest from potential buyers. I think, as we put that information together, you'll see transactions that would otherwise not have happened.
Wired: How long before Zillow offers a mortgage product?
Barton: If you take Zillow's principles — power to the people, transparency in marketplaces, rich information — and apply them to mortgages, there's an obvious opportunity. So we're working on that. We think there are many consumers out there who... There is a lot of mortgage-buyer's remorse. Let's put it that way.