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August 31, 2005 No disaster relief from bankruptcy I'm impressed with the L.A. Times' coverage of housing and real estate matters of late. Most likely it's due to the massive price overruns in Southern California, but their writers have a good grasp of the issues when it comes to home ownership and financing. Take this article about the problems disaster-stricken homeowners are facing under the new bankruptcy laws, set to take effect October 17th. Of key importance is the fact that homeowners who have refinanced end up losing their protections when disaster strikes. Interesting, isn't it? On one hand homeowners are being exhorted and cajoled to refinance and cash out to buy more with the money from their equity. On the other hand, when a terrible tragedy occurs and they lose their homes, the new laws will force them to pay back those debts, which will further compound their losses and destroy their financial futures. To say that stories like this don't bode well for the massive losses suffered from Hurricane Katrina is an understatement. The moral here is twofold. First, buy the right kind of insurance for where you live...accident, disaster, terror, whatever. Just get it. Second, think very carefully about how you refinance and what you're spending it on. It might come back to haunt you when you least expect it. Posted at 06:37 PM | TrackBack Wednesday Housing News The L.A. Times has an interesting article on the changing attitude towards equity and debt. I think a lot of quotes in here are just chilling, specifically this one: If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years. It's as if you had 500,000 dollar bills stuffed in your mattress.... [It's] very unsophisticated.' Wow. I'm in awe that an economist would SAY something like that. This flies in the face of advice that has worked for generations...don't buy more than you can afford. Pay your mortgage off. Save up and earn your way to a reward. Pardon me for being unsophisticated, but this guy is out of his mind. Luckily, the folks over at Patrick.net think so too. Tapping your home's equity to finance important things like your children's education, your retirement, medical expenses, or even a vacation is absolutely a smart way to use your investment. I'm just incredulous at the notion that experts are encouraging home buyers to drain their equity in order to spend, spend, and spend. A friend of mine always tells me that debt is a tool, and if properly managed, can be a useful means to achieve big financial successes. I may be "unsophisticated," but I prefer to think that the best way to live is free of owing anyone else anything for the things you've worked hard for. Posted at 04:39 PM | TrackBack August 30, 2005 10 Most Overpriced Cities In America Cost of living -- from housing to the electric bill -- is going up just about everywhere, but these 10 cities have the rest of the country beat. Seattle tops the list. Again. Home Fueling For Your Natural Gas Powered Car Until recently, finding a source to fill up your natural gas car was anything but convenient. Pumps are hard to find, with many pumps operated by govermental and state agencies and private companies. Now, Fuelmaker of Toronto manufactures a home-fueling system called the Phill. Phill is the world's first appliance that lets you refuel your natural gas vehicle indoors or outdoors from your household natural gas line. Here are questions and answers about home fueling your natural gas powered vehicle: Q. How do you fill up at home? A. The Phill delivers natural gas from your line and compresses it (from a quarter-pound per square inch to about 3,600 p.s.i.) into the tank of your natural gas car. The Phil mounts to a wall - it is about three feet high and a foot wide, and is made by Fuelmaker of Toronto. It takes about eight hours to fill the tank of a Honda Civic GX. Q. What's does the appliance cost? A. A Phill is $3,400, plus $500 to $1,000 for installation, but in Southern California the South Coast Air Quality Management District provides a $2,000 rebate. Honda also leases the unit for $34 to $79 a month. The federal government provides a $2,000 tax deduction for natural gas cars (as well as for hybrids), with a more generous tax credit to take effect next year. Also, some states and municipalities offer their own incentives. New York State recently extended a credit for up to half of the cost of installing any alternative-energy refueling station. Q. Does natural gas save you money? A. The equivalent of a gallon of gasoline is now $1.27 in Southern California, and the electricity to operate a Phill for eight hours is about 50 cents in Orange County, where regular gas is nearly $3 a gallon. Home fueling is now exempt from federal and state highway taxes, though that may change. Q. Is natural gas dangerous? A. Phill does not store gas, so fueling is quite safe. Studies by the National Renewable Energy Laboratory found the system to be no more dangerous than any household appliance that uses natural gas. Q. If I'm not at home, can I find a station? A. There are natural gas pumps in many urban areas, though access to some is restricted. For instance, there are 61 within 100 miles of New York City, and about half can be used by the public. Lists and maps of stations are at www.eere.energy.gov/afdc/. Posted at 09:05 AM Roomba - The Robotic Vacuum
If your the type who hates to clean, then the Roomba may just the thing for you. Cleans wood, tile linoleum, and low-to-medium pile carpet while you’re watching Monday Night Football. $279.99 at Amazon.com Posted at 02:07 AM August 29, 2005 More signs of a bursting bubble? Hedge fund investor Bill Fleckenstein has a fairly pointed take on the likelihood of a housing bubble. I don't agree on all of his points, but one issue I am firmly agreed with him upon is the fact that speculators are buying property just for the sake of buying property. Housing and real estate is being turned into a disposable purchase, almost like buying DVD's or a neat new decoration for a dinner table. Of course, the answer to this rampant desire for property will be more supply, which, as Fleckenstein notes, we may already have too much of. The country's a big place, with lots of undeveloped acreage, but does that mean we need more? What about refurbishing and maintaining existing homes for the market? Fleckenstein also quotes real estate columnist Kenneth Harney on the popularity of option ARMs. ARMs are so popular, in fact, that the Feds and Standard & Poors are beginning a crackdown on them. Much like raising mandatory minimum credit card payments, the short-term effects of restricting ARMs will be "sticker shock" for overextended consumers, a lot of foreclosures, and a lot of sagging housing prices. But in the long run, it will help the housing market "right" itself by discouraging consumers from taking on more debt than they can handle, and by spanking unscrupulous lenders who will cook the books to get a deal closed. We hope. Posted at 10:20 PM | TrackBack Eye of the Hurricane As I'm writing this, Hurricane Katrina is coming ashore just outside New Orleans, bringing with it the potential for enormous environmental, financial, and personal disaster. Thousands are expected to lose their homes and livelihoods, if not their lives. Not only that, but the insurance payouts for the disaster are estimated at $25 billion. It may seem trivial or myopic to be tying such a monumental catastrophe to housing issues, but every homeowner in the New Orleans area who survives the hurricane is gonna be thanking whatever deity they pray to that they have homeowner's insurance. It's a good reminder of how necessary it is to get that coverage, because for all the things we can control when it comes to our homes, there are many things we can't. Forces of nature are chief among them. My thoughts and prayers are going out to everyone in the New Orleans area. Be safe, stay well, and hang in there. Posted at 05:52 PM | TrackBack August 26, 2005 Greenspan’s Legacy: A Housing Bubble? Federal Reserve Chairman Alan Greenspan is worried about our long-term economic forecast, and much of that has to do with the low interest rates for mortgages. Of course, one could argue that the Fed's continual cutting of interest rates in the first place was as much to blame for this...oh, wait, isn't Greenspan chairman of the Fed? Bill Sung at the L.A. Times adeptly notes the precarious legacy of Greenspan, particularly his love for ARMs. Still, it's not fair to put it all on Greenspan's shoulders. A recent conversation at Patrick.net illustrates that conflicted thinking about bubbles isn't limited to the guys at the top. Posted at 09:41 PM | TrackBack Friday Housing News The Mississippi Sun-Herald reprints a useful article from Bankrate.com on the unforeseen problems of building in the country. It's this type of lackadaisical business mindset that has gotten major home builders like KB Home a bad reputation and fines from the FTC. Building codes and zoning regulations aren't "guidelines" or "suggestions," they're rules. If they don't get followed, it's the buyer who suffers in the end. Robert Kuttner over at the American Prospect posted an insightful entry in June on the underlying reasons for the bubble, and how it won't be as bad as people think. Insightful reading, especially the sections regarding the policy decisions that may be artificially pushing prices up. On the other hand, the new bankruptcy legislation is about to become law, which may mean hard times ahead for people who want to use the homestead exemption to escape crushing debt, or for those whose minimum credit card payments are about to double. If you haven't been saving or budgeting for a house, now is the time to start. Take a critical assessment of your budget and what it will take to make your down payment, mortgage payments, closing costs, inspection fees, and so on. You can make your money stretch a lot farther than you think, but only if you're prepared to tighten the belt and plan ahead for all the possible costs that come with home ownership. Posted at 03:51 PM | TrackBack Moving Expenses: Some Strategies For Saving Money Moving into a new apartment or house is among the most overwhelming of life events, both emotionally and financially. And today there are myriad choices for trading off cost vs. hassle. (Hartford Courant) Continue reading "Moving Expenses: Some Strategies For Saving Money" Posted at 08:21 AM Beat the Bubble: Don’t Let the Housing Frenzy Get To You By Martin H. Bosworth, Staff writer for Housing.com “It’s the best investment you can make in your future.” All of these phrases and many like them sum up the current residential housing market—part P.T. Barnum huckster’s dream, part frenzied before-the-bell stock trade, and part nerve-wracking, credit-score-checking, aneurysm-inducing worry that you might lose out on property values, or be stuck with a lemon, or worse. Oh yeah, and you and your family need a place to live. Right now, the American residential home market is experiencing an unprecedented jolt of success and prosperity. A combination of incredibly low interest rates and construction booms has energized the market. The broadening of mortgage and loan requirements has tantalized buyers with the possibility of owning homes they never could have imagined living in before. But with these remarkable developments come terrifying tales of increased foreclosures, excessive mortgage costs, and frustration at builders’ poor construction and customer service. What’s an eager home buyer to do? Beneath the Bubble The phrase “Housing bubble” is bandied about with such frequency that it’s become part of our daily lexicon. Web sites and blogs such as “The Housing Bubble” have devoted themselves solely to tracking the ups and downs of real estate prices in order to gauge when the bubble will burst. Buyers are moving so frantically to lock in prices for homes that even an hour’s pause may cause their rate to increase, or so it seems. But is there a bubble? What’s causing it? How long will it last? And can you still buy a home without worrying that a “bubble burst” may cost you your home’s value? Like stock market bubbles, housing bubbles are caused by escalations in price values of houses that far outstrip income or other economic indicators. However, whereas stock market bubbles such as the “dot-bomb” collapse can be tracked by massive stock selloffs, housing bubbles are harder to track or analyze, because the stabilizations are gradual. Homeowners don’t sell, houses stay on the market longer, and prices begin to drop. Housing bubbles are most acutely felt in densely populated urban centers, such as Los Angeles, San Francisco, and Washington, DC. The The “bubble creep” is driving prices upward in outlying suburban areas as well, but not to the same degree. Statistics regarding housing price increases also have to factor in job conditions and long-term developments. Washington, DC continues to register strong prices due to the increases in government- and defense-related jobs in the greater DC area, a situation that’s unique to the region and not a national trend. As a result, there’s more likelihood of a bubble burst in DC than there is in Des Moines, Iowa. When buyers think “Location, location, location,” it’s not just about the view from the patio…it’s about whether or not the prices in your region are far beyond your income’s ability to pay. Buyer Beware? Another side effect of the housing “feeding frenzy” is that it brings many unpleasant aspects of the home buying process to the foreground, specifically what happens when homeowners get blinded by the promise of incredible equity and regular price increases, only to get blindsided by bad construction and extra costs. The speculative housing market is fueling construction to such a degree that the infamous “McMansions” can be found in almost any development or untouched plot of land in the country. The rush to build and sell entices homebuilders to cut costs on construction, and bid lower for contractors, avoiding many of the essential steps necessary to building a good home. This has fueled a growing rebellion against cookie-cutter homes that take up too much land, and are priced far more than they’re worth. Then there’s the question of the real estate professionals you’re dealing with. The pressure to close deals and get houses sold can push even the most scrupulous agent to gloss over important details in a homeowner’s warranty, like that nasty binding arbitration clause that keeps you from going to court over defective construction. Or you could fall victim to one of the many “subprime” lenders that preys on young hopefuls, those with bad credit, or anyone who’s just plain desperate to get into the market. Or you could (willingly or unwillingly) take part in a case of flat-out mortgage fraud, where your lender or agent will “cook the books” on your application just to get you locked in. No matter how enticing an ARM (Adjustable-Rate Mortgage) or an interest-only loan may seem at first, remember, that money needs to be paid sometime. The idea of “flipping”—buying a property, then selling it quickly to get a cashout and move up to the next level of purchasing—is part of what’s driving the housing markets in major cities to insane levels. Eventually, housing prices will get so overvalued due to bubble fears and the pressure to get “in” that a “correction”—what most people call a “slump”—will occur. Then many “flippers” will be left with a house they can’t afford, in a market that can’t sustain the competition, and with no buyers to take that expensive property off their hands. So between a market you may get priced out of and competition that may cause corners to be cut and costs to increase, is there any incentive to getting in on the market at all? Fight the Frenzy The trick to beating the odds and finding the house that’s right for you in the current market is to not believe the hype. The housing market will eventually crest, but more gradually and less dramatically than other investment bubbles, simply because trends in buying take longer to register. Once prices start falling, investors and lenders will offer even better rates and discounts to ensure continued sustainability in the market, giving the home buyer more power to make decisions and build the best possible deal for themselves. Here are a few basic, common-sense tips to remember when beginning your hunt for the house of your dreams: Get your finances in order. Make sure your credit is clean and that any debts or loans you have are either paid or under control. Trying to buy a house just to tap the equity in order to pay off debts may end up saddling you with even more debt than you’ve already got. Start saving months or years before making your move, because even if you lock in a loan with no money down, you still have to factor in paying agents, brokers, purchasing homeowners’ insurance, lawyers’ fees, and so on. Read the fine print. I mentioned “lawyers’ fees,” and you probably wondered why you’d need a lawyer to buy a house. Better to pay an expert to go over the details of a contract or warranty ahead of time, than to blindly sign a document that strips you of all of your rights as a consumer and leaves you with an overpriced lemon you can’t even live in, let alone sell for any kind of profit. The home building and real estate industries are not regulated nearly as much as one would think, given the incredible amount of revenue they generate. It’s up to the consumer to educate themselves and come in to any decision informed and ready Know your market. Instead of making your decisions by the amount of equity you’ll earn, figure out the long-term growth of the area you want to buy in. Is it overdeveloped? Untapped? Are there resources like schools, shopping centers, supermarkets, etc.? What will buying or building in your chosen area mean in terms of a job commute? Will you be saving on gas or paying more? Purchasing a house isn’t an isolated affair…everything connects to everything else, from property values to property taxes. Knowing the playing field ahead of time will prevent you from being fleeced by offers that seem too good to be true, and inevitably are. Shop smart. Buying a house may be one of—if not the—most important financial moves you’ll ever make, so why trust it to blind luck or the first offer you get? Quiz your friends, family, co-workers, and colleagues about their experiences with the housing market. Look for referrals for good mortgage brokers and realtors who work through word of mouth—don’t just buzz through the classifieds and pick someone at random. Find out all you can about their records, their success stories, any problems they might have had, and what their offers are. Anyone with a few bucks to spend can buy a license and call themselves a broker, but only the best have proof that they can get you a home, and they shouldn’t be afraid to demonstrate it. Use your resources. No matter how hot or cold the market is, there are endless avenues to explore for information on loans, mortgages, brokers, construction materials, and so on. Bankrate.com, myFICO.com, ELoan.com, and yes, Housing.com…the list is endless. Don’t rely on the information from any one site, book, or news article, however. If you can get a second opinion from a doctor, you can get a second opinion on your mortgage rate. Don’t panic! The housing market has gone through enormous bubbles and crashes before, and it will do so again. Nationwide and regional trends may drive the market, but they don’t own it. There are myriad options to choose from when it comes to putting that down payment on your future, so keep your eyes peeled and don’t give up…your dream home may be right around the block. Or the next corner. Or in that subdivision a few miles down…you get the point. Posted at 02:16 AM | TrackBack August 25, 2005 Rents Head Up as Home Prices Put Off Buyers Rents are rising again across the country, squeezing tenants who are already coping with high gasoline prices and improving returns to landlords after a deep five-year slump. (By DAVID LEONHARDT, NY Times) Continue reading "Rents Head Up as Home Prices Put Off Buyers" Posted at 11:29 PM | TrackBack Go back |
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