Why Real Estate Is Strong Even in a Weak Economy (2001)

When the U.S. economy went through a recession 10 years ago, commercial real estate hit the pits. Vacancy rates were high, rents were low, and the downturn was so severe that it took years for real estate to return to normal. Today, although the economy again faces a slowdown, real estate is well equipped to face it. Why? Experts at a meeting organized by Wharton’s Zell-Lurie Real Estate Center offer some answers.

Stocks and bonds and real estate: (Federal Reserve Bank of New York 2001) Although stocks accounted for about a third of household assets by the end of the decade vs. around 13% in 1989, more than half of that increase came from stocks' stunning performance vs. bonds or real estate, not because Americans went on a buying spree for stocks. The majority of that increase was focused among the wealthiest half of the population.

(USA Today) A change in investment patterns accounted for "at most" 18% of the jump in the average household equity share during the 1990s as total household stock holdings soared to $12.6 trillion from $2.6 trillion.

Heady returns, an aging population and a shift to retirement plans invested by employees in stocks accounted for the remaining 82% of the increase.

Of these, the biggest contribution — 53% — came from gains in stocks which returned roughly 320% during the 1990s, while bonds gave 120% and real estate, the largest household investment, just 36%.

Real Estate Commissions: (Consumer Federation of America 2001)

6% If your agent agrees to represent you exclusively and shares the commission with another agent: 6%.

5% to 5 1/2% If your agent refuses to represent you exclusively and shares the commission with another agent.

4% to 5% If your agent represents you exclusively and isn't required to split the commission with a second party.

3.5% to 4% If your agent represents both you and the buyer.

Real Estate (Wharton 2002) Property markets have held their ground fairly well in the current uncertain economic times, but equilibrium is still some distance away, the speakers said. Office rents have been depressed for about a year now, with massive amounts of cheaper-than-usual subleased space coming on to the markets. Zell put it in perspective. “You have to be really careful when you talk about how far rents have come down,” he said, adding that of late, rents have begun moving back to 1999 levels — and 1999 was a good year. But what makes the situation worrisome is that the cost of building new space is at 2002 prices. Zell added: “The spread between current rents and the cost of replacement that creates new competition will go back to what it was in 1993, when there was a big gap. It obviously means that I see very little construction for the next four years.”

“Today the public REITs represent probably 10% or 11% of all the commercial real estate in the country and probably 30% to 35% of investment grade real estate,” he said. “In 10 years that number will be 60% of investment grade real estate.”

Home is where the heart is- and more: (Scott Burns 2002) The National Association of Realtors said that the median home resale price in 1991 was $97,100. A 20% down payment would have required $19,420, and you would have mortgaged the house for $77,680. At the end of 2001, the same home was worth $147,500.

This means your equity grew to $69,820 through price appreciation. (We are ignoring equity growth through amortization of your original debt.) Put that number in a financial calculator and the 10-year annual compound growth rate is 13.7%.

Invest the same sum in the Vanguard 500 Index fund and it would have grown to $60,593 over the same period, after paying taxes on dividends and capital gains that were distributed over the period. That computes to a compound annual return of 12.1%.

My comment- you can use whatever numbers you want about growth but I have always told people that a house is where you live. It is what you enjoy with your family. The investment element is secondary since spending your existence in something you don't like for years and years is not logical. Additionally, if you are so intent on the monetary element that you buy a house that then takes you 2 to 4 hours each day for a commute, you are destroying whatever life you could have had. 15% annually while you spend only 5 minutes a day with your kids seems illogical in the extreme.

CREDIT SCORING - (eNews 2002) The use of credit history in determining auto and homeowners insurance rates charged to consumers is gaining media attention...mostly negative. The NAIC has released a consumer alert on the subject, "Credit Scoring: How Does It Affect You?,"

Deducting points on a loan (WSJ)  The general rule of thumb is you may deduct all the points you paid in the year you paid them, as long as you meet several qualifications, such as if your loan is secured by your main home and if you use your loan to buy or build your main home. For the rest of the fine print, see IRS Publication 936, which has a handy summary on page six.

But you aren't always required to follow this rule. In some cases, even if you qualify to deduct your points in the year you paid them, it may be better to spread out your deductions over the life of the loan, says Martin Nissenbaum, national director of personal income-tax planning at Ernst & Young.

Suppose a couple paid 1.25 points late one year on a mortgage to buy a home. But like most taxpayers, they discovered they were better off taking the standard deduction for that year, instead of itemizing. (The standard deduction is a flat amount based on your filing status.) Thus, the couple would prefer to take the standard deduction for that year and spread the points over the life of the loan. That's okay, the IRS said in a private-letter r

That's an important choice to keep in mind since about seven out of every 10 federal income-tax returns claim the standard deduction, instead of itemizing. Remember that if you take the standard deduction, you can't deduct your interest costs for that year.

Here is an example from Ernst & Young: Suppose you took out a 15-year loan on Jan. 1 of this year and you paid $2,700 in points. Also let's assume that it's better to take the standard deduction this year than to itemize. In 2003, if you itemize, you could deduct $180 of those points ($2,700 divided by 15) as mortgage interest, he says. And you could continue to deduct $180 each year for the rest of the loan's term. "When you pay off or refinance the loan, you can deduct the points remaining, if any, in that year," he adds.

What about a home-improvement loan? The IRS says you may fully deduct those points in the year you paid them as long as you pass various other tests listed in Publication 936.

The rules are different with points you pay on a loan secured by your second home. In that case, you generally must deduct the points over the life of the loan.

That same general rule applies with refinancings: Generally, those points aren't deductible in full in the year you paid them. Spread them over the life of the loan.

But there can be exceptions. If you use part of the refinancing proceeds to improve your main home and if you meet all the other criteria listed in IRS Publication 936, then you can fully deduct the part of the points related to the home-improvement work in the year you paid it. As for the rest of the points, deduct them over the life of the loan.

For example, if half of the loan is attributable to home-improvement costs, then half of the points would be currently deductible, says Mr. Nissenbaum of Ernst & Young.

Accountants tell me some people make a costly mistake when they refinance several times. Suppose you are refinancing for a second, third or even fourth time. In that case, be sure to deduct any points from the earlier refinancing that you haven't yet deducted. The same idea applies when you sell your home and pay off the mortgage; in that case, any points you haven't yet deducted would be deductible for that year.

Here's an additional wrinkle: Real-estate agents say sellers sometimes pay points for the buyer in order to facilitate the deal. In such cases, the buyer reduces the basis of the home by the amount of the seller-paid points -- and then the buyer gets to treat the points as if he or she paid them. The seller can't deduct those points as interest, but they are "a selling expense that reduces the amount realized by the seller," the IRS says.

Real estate: According to the National Association of Realtors 2002 Profile of Buyers and Sellers, the average homebuyer is 36 years old three years younger than in 1999. And the median age of sales agents is 50, up from 42 years of age in 1978. . 42 percent of buyers are first-timers. They are a full ten years younger than repeat buyers, and accounted for 2,916,000 home sales in 2001.

The NAR 2002 Buyer/Seller Survey says that more than half of homebuyers asked them to sign an agency disclosure form indicating whom they represent in the transaction. Only 35 percent signed at the first meeting, and 26 percent when the contract was written.

Overwhelmingly, agents are white. Only two percent are black and two percent are Asian. Five percent of Realtors are of Latin, Hispanic, or Spanish backgrounds.

that 80 percent of Hispanic homebuyers last year were first-time homebuyers, many with language barriers. In 2000, 19 percent of Realtors conducted at least one percent of their business in another language besides English.

Seventy-five percent of agents have e-mail, but many do not treat it as the ringing phone that it is. While the NAR reports that seven out of ten agents used e-mail in their transactions, buyers' number one complaint about agents is that they don't answer their e-mail promptly.

Seven Reasons Buyers Need Title Insurance (Kim Daugherty 2002)

Title insurance can help ensure the buyer and the lender that title defects will not make a property unsaleable in the future because of:

1. forged documents

2. undisclosed heirs to the property

3. mistaken legal interpretations of wills or trusts

4. misfiled documents—deeds, liens, mortgage satisfaction documents

5. confusion caused by similarities in names

6. incorrect marital status

7. mental incompetence

What goes up must come down??: (NY Times 2003) Sixty-eight percent of all American families own homes, the most ever and a sizeable increase from 64 percent a decade ago. But more mortgages than ever are now being foreclosed, and more homes repossessed.

In the three months that ended in June, the association reports, creditors across the country began foreclosing on 134,885 mortgaged homes, or about 4 in every 1,000 — the highest rate in the 30 years that the association has been monitoring mortgages. Creditors' backlogs of foreclosed homes reached 414,772, another record.

Foreclosures among the 26.4 million families with sound enough credit to get conventional loans are rare but growing. Since late 1999, as the boom was slowing, the association reports, the number of foreclosed conventional loans has climbed 45 percent, to 76,526, the highest level in 11 years.

people with subprime mortgages, which were rare five years ago but are commonplace now, were eight times more likely to default than those with prime, conventional mortgages.

With the rise in foreclosures, record numbers of families have applied to hold on to their homes under Chapter 13 of the federal bankruptcy code. At midyear, the Administrative Office of the U.S. Courts reports, Chapter 13 covered 220,720 homeowners, 8 percent more than a year earlier and the most ever.

Real Estate Bubble (2003)- Home prices rose at a significantly slower pace in the third quarter than in the previous period, a sign that the housing market may finally be facing a correction. In the U.S. existing home sales are up 6.1% since last October, while the median home price rose 7.2% to $161,800. Personal income, meanwhile, is up 3.3%.

San Francisco- • Existing home sales: + 2.3% ,• Median home price: $530,900

• Change in prices: + 12.0%

• 30-year mortgage rate: 6.38%

• Median family income: $86,100

• Change in income: + 7.5%

• Mortgage delinquencies: 3.1%

• Unemployment rate: + 5.4%

Changes are year over year.

Las vegas- • Existing home sales: + 20.0%

• Median home price: $163,200

• Change in prices: + 7.5%

• 30-year mortgage rate: 6.22%

• Median family income: $54,300

• Change in income: + 4.2%

• Mortgage delinquencies: 5.0%

• Unemployment rate: 5.1%

San Diego- • Existing home sales: + 2.3%

• Median home price: $379,200

• Change in prices: + 21.5%

• 30-year mortgage rate: 6.34%

• Median family income: $60,100

• Change in family income: + 5.6%

• Mortgage delinquencies: 3.1%

• Unemployment rate: 4.1%

 Portland- • Existing home sales: - 2.2%

• Median home price: $182,700

• Change in prices: + 4.5%

• 30-year mortgage rate: 6.25%

• Median family income: $57,200

• Change in income: + 2.3%

• Mortgage delinquencies: 3.0%

• Unemployment rate: 6.9%

Seattle- • Existing home sales: - 1.9%

• Median home price: $261,500

• Change in prices: + 11.7%

• 30-year mortgage rate: 6.34%

• Median family income: $77,900

• Change in income: + 7.9%

• Mortgage delinquencies: 3.3%

• Unemployment rate: + 6.8%

Changes are year over year.

Denver- • Existing home sales: - 3.9%

• Median home price: $233,600

• Change in prices: + 4.3%

• 30-year mortgage rate: 6.17%

• Median family income: $69,900

• Change in income: + 8.5%

• Mortgage delinquencies: 3.1%

• Unemployment rate: 5.2%

Houston- • Existing home sales: + 0.1%

• Median home price: $134,300

• Change in prices: + 9.9%

• 30-year mortgage rate: 6.20%

• Median family income: $59,600

• Change in income: + 1.9%

• Mortgage delinquencies: 6.2%

• Unemployment rate: 5.9%

Fort Meyers- • Existing home sales: + 3.0%

• Median home price: $142,100

• Change in prices: + 6.2%

• 30-year mortgage rate: 6.17%

• Median family income: $52,100

• Change in income: + 6.3%

• Mortgage delinquencies: 5.1%

• Unemployment rate: 4.2%

Atlanta- • Existing home sales: + 7.3%

• Median home price: $148,500

• Change in home prices: + 6.1%

• 30-year mortgage rate: 6.11%

• Median family income: $71,200

• Change in family income: + 7.1%

• Mortgage delinquencies: 6.0%

• Unemployment rate: 5.1%

Washington DC- • Existing home sales: + 0.8%

• Median home price: $259,300

• Change in prices: + 17.0%

• 30-year mortgage rate: 6.20%

• Median family income: $91,500

• Change in income: + 6.9%

• Mortgage delinquencies: 5.0%

• Unemployment rate: 3.5%

New York- • Existing home sales: - 0.1%

• Median home price: $328,000

• Change in prices: + 19.4%

• 30-year mortgage rate: 6.22%

• Median family income: $62,800

• Change in income: + 6.3%

• Mortgage delinquencies: 4.6%

• Unemployment rate: 6.6%

Boston- • Existing home sales: - 7.2%

• Median home price: $415,800

• Change in home price: + 13.2%

• 30-year mortgage rate: 6.27%

• Median family income: $74,200

• Change in family income: + 6.0%

• Mortgage delinquencies: 3.3%

• Unemployment rate: 4.9%

Monmouth County, NJ- • Existing home sales: + 1.5%

• Median home price: $273,500

• Change in prices: + 26.0%

• 30-year mortgage rate: 6.13%

• Median family income: $69,900

• Change in income: + 6.6%

• Mortgage delinquencies: 4.7%

• Unemployment rate: 4.7%

Indianapolis- • Existing home sales: - 1.3%

• Median home price: $120,400

• Change in prices: + 0.2%

• 30-year mortgage rate: 6.23%

• Median family income: $64,100

• Change in income: + 5.6%

• Mortgage delinquencies: 5.8%

• Unemployment rate: 4.5%

Chicago- • Existing home sales: + 2.4%

• Median home price: $230,200

• Change in prices: + 8.7%

• 30-year mortgage rate: 6.25%

• Median family income: $75,400

• Change in income: + 7.0%

• Mortgage delinquencies: 4.9%

• Unemployment rate: 6.3%

Minneapolis- • Existing home sales: + 0.7%

• Median home price: $189,400

• Change in prices: + 11.1%

• 30-year mortgage rate: 6.22%

• Median family income: $76,700

• Change in income: + 2.7%

• Mortgage delinquencies: 2.9%

• Unemployment rate: 4.1%

Underinsured: (2003) three-quarters of all homes nationwide are undervalued for insurance purposes, by an average of 35 percent, according to a study last year by Marshall & Swift/Boeckh

rising construction costs and property values have increased the cost of replacing a home. From 1996 to 2002, the cost of building a home rose 28 percent in the Northeast and 33 percent in the West, according to the Census Bureau.

Over the same period, many insurance companies, stung by big losses on homeowner policies in the 1990's (in part because of hurricane and wildfire claims), have dropped "guaranteed replacement cost" coverage.

most companies offer "extended replacement" instead of guaranteed replacement coverage. These policies insure the home for a specific value, and usually add a 20 percent to 25 percent cushion

House: (2003) Boston's AEW Capital Management, a real-estate investment adviser, calculates that home buyers in late 2001 were borrowing an average 67.3% of a home's purchase price, compared with 41.3% two decades earlier.

Homeowners don't seem to be in any rush to rid themselves of this debt. According to the Federal Reserve, total mortgage debt stood at 44.4% of home values in late 2002, up from 30.1% in late 1982.

Mortgages: (2003) From 1992 through first quarter of 1994, about $1.1 trillion worth of mortgages were refinances. From 2000 through 2002, the total was $2.7 trillion.

In the 1990-91 recession, consumption fell 0.4%. In the 2001 recession it rose 2.1% even while real disposable income rose just 0.1%. So spending was kept high even while income growth stalled. Part of the reason: refinancing and cash-out refinancings put more money in consumers' pockets.

Recognize this volatility- Over the past two years, mortgage rates moved a quarter percentage point in a single day only once. Over the past three weeks, it's happened eight times.

Here's the likely source: Holders of mortgage-backed securities can use treasuries to hedge their portfolios. Treasuries help them lengthen or shorten the average age of the cash flows in their portfolios and protect them against prepayment from refinancing. In general, when mortgage rates fall, increasing the chances of prepayment, MBS holders buy treasuries for this protection. When mortgage rates rise, decreasing the prepayment rate, MBS holders sell.

This wasn't a problem when mortgage refinancing was a rare option. Now, the value of mortgage-backed-security debt has exploded relative to treasury debt. According to John Lonski of Moody's Investors Service, the ratio of MBS to treasuries was 67% in 1993. Now its 175%. That means huge swings in treasuries when mortgage rates move because more MBS holders are buying and selling relatively less in treasuries.

a half-percentage point increase in mortgage rates could force the sale of $300 billion in treasuries.

the average size of a loan has risen substantially. It now stands at $166,000 for an agency loan, one conforming to standards of Fannie Mae or Freddie Mac. Back in the early 1990s, the average value was $100,000.

The larger the loan, the more sensitive the holder is to smaller changes in interest rates. Before a borrower might have required a full percentage point move to make refinancing worthwhile. Now a half percentage point move will do.

Over 80 percent of seniors own their homes rather than rent   (2003Of the  17,513,000 owner-occupied elderly households in the U.S., 73 percent or 12,792,000 are owned free and clear, i.e. no mortgage. Mean home value of householders age 65 or older is $113,071. Multiplying 12.8 million free and clear homes of the elderly times the mean value of $113,071 gives $1.45 trillion.

There are 3,838,000 elderly home owners with one or more mortgages, the median outstanding principal amounts of which are $34,147. Assuming the value of the mortgaged homes is the same as the homes with no mortgage and that the median principal amount approximates the mean, then the average equity in these mortgaged properties would be $113,071 minus the remaining loan balance of $34,147 or $78,924. Multiplying the equity in mortgaged homes owned by the elderly by the total such homes (3.8 million) gives an additional $302.9 billion in home equity held by elderly households.

Adding the $1.45 trillion in unmortgaged home equity of seniors to the $.30 trillion of equity in mortgaged homes gives a total of $1.75 trillion.

Researchers Study 2.7 Million Auto Records and Find Irrefutable Connection Between Credit History, Risk of Loss (2003) In the largest and most comprehensive study ever undertaken on the connection between credit history and insurance risk, a team of researchers has found that a consumer's credit-based insurance score is unquestionably correlated to that consumer's propensity for auto insurance loss. Even more significantly, the study found that insurance scores are consistently among the most important rating variables used by insurers.

For sale by owner (National Association of Realtors 2004) Among the property owners who sold their homes in 2003, some 14 percent - or one in seven - bypassed agents. That is down from the record level of 18 percent, in 1997, but up from 13 percent in 2001.

Housing bubble?: (NY Times 2004) The average home price in the nation rose 7.71 percent in the 12 months ended in March. But the first three months of this year showed far slower growth than previous periods. Prices rose only 0.96 percent, according to the Office of Federal Housing Enterprise Oversight. In nominal terms, United States home prices are up 60 percent since 1995; in real terms, adjusted for inflation, they are up 37 percent. Viewed historically, home prices are up twice as much now as they were in the bullish real estate markets of both the mid-1970's and the 1980's.

withdrawals from home equities have recently totaled 6.3 percent of household disposable income. In the late 1980's, equity withdrawals reached only 2.5 percent of disposable income.

Federal Reserve studies indicate that as much as half of the equity withdrawals went into personal consumption and home improvements. As a result, the equity cash-outs added 1.75 percent to the growth in the gross domestic product in 2003. That is a significant increase from the 1.25 percent kick that equity withdrawals added in 2002.

There are areas that a WAY overpriced- San Francisco for example. While there may not be a major reduction in prices, they have to drop to something like 1% per year for awhile. Otherwise, almost everyone will be priced out of the market- if they haven't been already.

Real estate and an alternative to the 1031 tax deferred exchange: (2004) A tenants-in-common structure is a form of joint property ownership whereby two or more individuals each own an undivided interest in the property. Tenants-in-common shares are not required to be of equal size or value, and—unlike partnership interests—they may be bought, sold, and left to heirs independently of the approval of other owners. And, also differing from partnership interests, they are tax-advantaged to boot.

TIC structures have been used for years, but they existed in a gray area of tax law before the Internal Revenue Service issued guidelines for them in March 2002 (Revenue Procedure 2002-22). The guidelines don’t provide a safe harbor ensuring the qualification of all such programs for use in a 1031 exchange, but they do establish 15 conditions under which the IRS will consider issuing a private-letter ruling (see “A Framework for Building TIC Deals,” on page 18). “The revenue procedure’s true impact was legitimizing the TIC structure by acknowledging there is a proper way of structuring one,” says Kevin Fitzgerald, president of U.S. Advisor, a sponsor of these investments in Napa, Calif.

With the IRS guidelines in place, tenants-in-common structures are increasingly being packaged for advisers’ consumption on behalf of their clients. Though they are used for other purposes as well, about 95 percent of the arrangements function within a 1031 exchange, estimates Julianna A. Clementi, vice president with Cole Taylor Deferred Exchange, a qualified exchange intermediary affiliated with Cole Taylor Bank in Chicago. One reason they’re popular for 1031 exchanges is that they come in various sizes—some as small as $50,000 or $100,000 increments so investors have greater flexibility in finding appropriately valued replacement property within Sec. 1031 deadlines. To qualify for tax deferral, investors must identify replacement property within 45 days of the original sale and complete its purchase within 180 days of the sale date. Finding a single property at the right price in a hot real estate market can be very difficult. But as more and more TIC ownership interests become available, program sponsors say, advisers and their clients will be better able to identify suitable exchange candidates, as well as backups, within the allotted time frames. Equity invested in commercial real estate using tenants-in-common is expected to exceed $2 billion this year, double the amount invested in 2003.

Housing: (2004) The MetLife Mature Market Institute released the results of a poll “The Future of Retirement Living,” which finds that almost all pre-retirees (people aged 50 to 65) want to live in their own home during retirement. After a preference for one’s own home, the next most popular living situations are an adult retirement community that has services and amenities or a home/apartment for people 55 and over.

On a related note, Del Webb, the nation’s largest builder of retirement housing, released the results of a survey of baby boomers finding that they are ready to reclaim their independence and enjoy being empty nesters. Del Webb also says that an increasing number of people buying into Del Webb’s adult communities are working baby boomers whose children have moved out.

Mortgages: 27% of boomers expect to carry a mortgage into retirement.

Homes: (2004) there are nearly 100,000 homes per year that federal agencies end up owning because of borrower defaults and foreclosures?

The three federal agencies that control the bulk of these properties -- the Departments of Housing and Urban Development, Veterans Affairs and Agriculture -- have joined to offer these homes for sale in one place for buyers and shoppers nationwide.

The HomeSales.gov website allows you to search in cities or states where you might be interested in purchasing a house. You'll find what's on the market at that moment. Each listing will indicate if there are any problems with the home, such as mold or flooding, and some listings will also give an estimate of repairs needed to get the house up to code.

Anyone can buy a home for sale by Uncle Sam, but you need a real estate agent or broker to submit an offer or bid for you.

"Do Stock Prices Really Reflect Fundamental Values? The Case of REITs" (2004) Real estate investment trust (REIT) stock prices deviate substantially from net asset values (NAV). Using REIT data since 1990, we find large positive excess returns to a strategy of buying stocks that trade at a discount to NAV, and shorting stocks trading at a premium to NAV. Estimated alphas from this strategy are between 0.9% and 1.8% per month, with little risk. Trading costs and short-sale constraints are not prohibitive and the results strengthen when we control for differences in liquidity or the extent of institutional ownership. We find that some variation in P/NAV makes sense, as premiums are positively related to recent and future NAV growth. However, there appears to be too much volatility in P/NAV, giving rise to potential profits from short-term mean reversion. The closed-end fund literature has some similar findings on stock price deviations from fundamental value, but compared to closed-end funds REITs are much larger and have much higher insider and institutional ownership. These differences suggest that REIT premiums and discounts reflect more than just small investor sentiment, which is a common explanation of why closed-end fund prices deviate from their fundamental value.

Real Estate: (WSJ 2005) The number of existing single-family homes sold in the U.S. is expected to have risen 7.9% to a record 6.58 million in 2004, up from the previous record of 6.1 million in 2003, according to the National Association of Realtors.

The price of a median existing single-family home is expected to have risen 6.9% to $181,700 in 2004, from $170,000 in 2003 -- just slightly slower than the 7.5% increase recorded in 2003. Sales activity was strongest in the West and South. The rate of price increases was exceptionally strong in California and Florida, while more modest in the Midwest.

The stocks of REITs, companies owning real estate or mortgages that must pay out at least 90% of their taxable income in the form of dividends, delivered total returns (stock-price appreciation plus dividends) of 32.1% in 2004, up from nearly 37% in 2003.

The full-year performance is surprising because REITs' total return was down 5.7% in the second quarter, in part on fears that rising interest rates would make their stocks less attractive than other investments and on fears their shares were overpriced.

The average dividend yield for REITs was 4.7%.

Investors weren't only snatching up REIT stocks, but properties as well. Transaction volume for apartment complexes, warehouses, office buildings, malls and shopping centers with purchase prices of more than $5 million rose to $159.7 billion in 2004, from $120 billion in the year-earlier period, according to Real Capital Analytics Inc., a New York real-estate research firm.

It wasn't just big investors gobbling up properties. The number of apartment, retail, office and industrial properties that changed hands in the $500,000-to-$10 million range is projected to have risen 23.3% in 2004, to 31,688 deals from 25,684 a year earlier, compared with the more than 13% increase in 2003,

The average vacancy rate for the nation's 64 biggest office markets was expected to fall to 16.5% at the end of 2004 from 16.9% at the end of 2003, the first annual decline since 2000

Are Home Prices the Next "Bubble"? (Jonathan McCarthy and Richard W. Peach 2005)

The strong rise in home prices since the mid-1990s has raised concerns over a possible bubble in the housing market and the effect of a sharp price decline on the U.S. economy. This article assesses two measures frequently cited to support a bubble—the rising price-to-income ratio and the declining rent-to-price ratio—and finds the measures to be flawed and the conclusions drawn from them unpersuasive. In particular, the measures do not fully account for the effects of declining nominal mortgage interest rates and fail to use appropriate home price indexes. The authors also estimate a structural model of the housing market and find that aggregate prices are not inconsistent with long-run demand fundamentals. Accordingly, they conclude that market fundamentals are strong enough to explain the recent path of home prices and that no bubble exists. Nevertheless, weakening fundamentals could have an impact on home values on the east and west coasts, where the new housing supply appears to be relatively inelastic. However, prices in these regions have typically been volatile, and previous declines have not had a sizable negative effect on the overall economy.

"The two measures of home price fundamentals presented above both support the notion of a home price bubble and suggest that home prices are likely to fall, at least in real terms, in the near future. However, these measures have flaws that call into question these conclusions.

First, neither measure takes interest rates into account. Clearly, interest rates should matter in assessing the existence of a bubble because they influence home ownership affordability and because they represent the yield on a competing asset in a household’s portfolio. The downward trend in nominal mortgage interest rates—a major feature of the housing market over the past decade—thus has significant implications for home ownership affordability (the home-price- to-income ratio) and for the equilibrium return on housing (the rent-to-price ratio). Accounting for this trend in interest rates in the analysis casts doubt on the existence of a bubble. Second, the particular home price index used to calculate these ratios can have an impact on the conclusions derived from them. Again, when the appropriate index is used in calculating the ratios, doubt is cast on the evidence of a bubble."


Our analysis of the U.S. housing market in recent years finds little evidence to support the existence of a national home price bubble. Rather, it appears that home prices have risen in line with increases in personal income and declines in nominal interest rates. Moreover, expectations of rapid price appreciation do not appear to be a major factor behind the strong housing market.

Our observations also suggest that home prices are not likely to plunge in response to deteriorating fundamentals to the extent envisioned by some analysts. Real home prices have been less volatile than other asset prices, such as equity prices. Several reasons have been cited for the lower volatility, including the cost to speculate in the housing market.37

However, there have been examples of extreme home price volatility where it presumably has been costly to speculate, such as in Japan in the late 1980s and the 1990s. Therefore, we prefer instead to emphasize that the lower volatility of national home prices likely stems from the disjointed nature of the U.S. housing market.

Furthermore, our state-level analysis of home prices finds that while prices have risen much faster recently for some states than for the nation, the supply of housing in those states appears to be inelastic, making prices there more volatile.

We therefore conclude that much of the volatility at the state level is the result of changing fundamentals rather than regional bubbles. Nevertheless, weaker fundamentals have caused home price declines in those areas with inelastic supply. If the past is any guide, however, that phenomenon is unlikely to plunge the U.S. economy into a recession.

Home improvement: (Harvard's Joint Center for Housing Studies 2005)  Spending on home improvements rose 52% to $233 billion in 2003 from $153 billion in 1995.

The most popular home projects were kitchen and bath remodels or room additions. Households with incomes of $120,000 and up were the primary drivers of home improvement, responsible for 60% of the growth in remodeling spending since 1995

Conservation Easement:  George Chamberlain 2005

What is a conservation easement?

The basis of the conservation easement is found in the Internal Revenue Code which defines a qualified conservation contribution as a contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes.1 Under the statute, a qualified real property interest could be any of the following interests: the donor's entire interest in the property, excluding mineral interests; a remainder interest; or a permanent restriction on the use of the property (such as an easement). The qualified organization must be either a not for profit organization (often a land trust) or a governmental unit or organization primarily funded by a governmental unit or the public.2 Allowable conservation purposes are broadly defined to include the preservation of open space for the benefit of the public, preservation of land areas for recreational or educational purposes, preservation of historic structures or land areas and the protection of a natural habitat or ecosystem.

In practice, the owner of real property wishing to engage in a conservation easement will voluntarily limit his or her use of a parcel of real property by granting an easement or restriction to a qualified organization, usually a governmental entity or a nonprofit organization. This easement or restriction generally must be perpetual in nature. The owner of the property will retain title to the property and all the rights and responsibilities inherent in that ownership other than those relinquished through the grant of the easement. This means that the owner will continue to pay taxes and use and maintain the real property and may also transfer that property to others subject, of course, to the conservation easement.

Why would a property owner consider using this technique?

There are numerous considerations which may support a client's decision to enter into a conservation easement. First, the grant of a conservation easement typically carries with it an income tax deduction for the property owner. The amount of the deduction is based upon the value of the rights relinquished by the property owner through the grant of the easement. Most often, this value is based on the difference in fair market value of the property with and without the easement and this amount may be substantial.

A second tax reason for employing the conservation easement involves the transfer tax consequences of the easement. The reduction in the value of the underlying real property also reduces the value of the property in the estate of the property owner on death or at the time of a transfer by gift prior to death. In addition, the estate of the property owner may be entitled to exclude up to 40% of the value of the property subject to a conservation easement from the property owner's estate.3 These tax benefits may, however, be affected when the property owner uses debt-financed property for the contribution and the owner's estate may lose the estate tax exclusion entirely if a development right is retained in the subject property.

Yet another potential tax break exists where a state or locality offers income or property tax breaks to property owners based on their grant of conservation easements. Such reductions may be significant and prove to be an additional motivating factor.

Of course, there are also important non-tax reasons for choosing the conservation easement. The owner of real property may wish to preserve a particular parcel of real property both as a gift to the community as well as a means of establishing a legacy in his or her name. Establishing a conservation easement means that there is someone - the qualified organization - making sure that the preservation of the property is assured, beyond the property owner's lifetime. There is no need to rely on the uncertainty how heirs might act in connection with the property.

In the context of the conservation easement, it is possible to allow for controlled development of a portion of the property in keeping with the intent of the conservation easement. This approach may be used to preserve the natural state of much of the property, including the wildlife and open space. In addition, the property owner may retain the right to restrict public access to the property in keeping with the purpose of the conservation easement.

What factors might deter a property owner from implementing a conservation easement?

One of the major factors working against implementation of the conservation easement technique is the permanency of the restriction on the contributed property. Such a limitation on the use of the property often precludes further development of the property. If the owner's circumstances later change, there is little flexibility and the owner may be unable to access the real value of the property subject to a conservation easement. In addition, the conservation easement typically takes much of the property owner's equity in the subject property, thus removing this equity from the assessment of other goals. The immediate income tax break may be a very expensive one down the road if the property owner's circumstances change, as they often do.

Creating the conservation easement may be a time consuming and expensive process, depending on the nature of the real property involved and the purpose and intent of the underlying easement. The flip side is the difficulty of terminating a conservation easement. Although it may be possible to terminate a conservation easement if the original purposes of the easement can no longer be accomplished, this may require court action and will likely be costly to the property owner even if successful.

Once the conservation easement has been implemented, there will be a new, ongoing relationship between the property owner and the qualified organization which received the easement. The interests of the two parties may diverge on some points and it is important to note that rights of the holder of the conservation easement typically take priority over those of the property owner who retains a lesser interest in the property held prior to the transfer. The holder of the conservation easement will have the right to enter on the property and monitor its use to ensure compliance with the terms of the conservation easement by the property owner and others.

Finally, although there are potential tax benefits to a conservation easement, those benefits may not be available in every case. The IRS has announced, in Notice 2004-41, that it will examine more closely transactions denominated as conservation easements and may disallow claimed deductions. For example, the notice states "if the public benefit of an open space easement is not significant, the charitable contribution deduction will be disallowed."4 Further, as is the case in other areas of the tax law, very careful attention is being given to the appraisal of the real property and the determination of the tax deduction. Some abuses in this area prompted the issuance of Notice 2004-41 and signal the potential for limitation of this increasingly popular technique.

Engaging in the Process

The owner of the real property considering a conservation easement will need to be prepared before entering into the actual transaction. Probably the most important step is to retain expert tax advice on the transaction and to work with a professional in creating the easement documents. Oftentimes, the qualified organization will provide assistance with the documentation. You, as the client property owner's trusted advisor will likely play a role in determining the impact on the client of the transaction and how it fits into the broader financial strategies the client employs.

Quite apart from the team that works with property owner are several other features of the technique that must be considered and completed. For example, the property owner should obtain a current certified appraisal of the property and will need to provide an inventory of the property - possibly including an environmental evaluation - as well as its complete legal description (a survey may be required as well). The owner may also be required to obtain a commitment to title insurance for transfer. Consideration must be given to any outstanding mortgage liability or other claims against the property and these will likely need to be subordinated to the rights of the transferee qualified organization if the conservation easement is to be effective. It is likely that there will be fees and other costs associated with the creation of the easement and the owner will bear the burden of these costs as well. Finally, the property owner - who is generally insured for losses connected with the use of the property - may be required to agree to indemnify the qualified organization in the event of any loss related to the ownership and use of the property.

The transaction is not necessarily a simple one and may require the qualified organization to take steps as well, including obtaining insurance for its interest in the property. Not all of the burdens of the transaction are placed on the property owner. In the usual case, the qualified organization will have staff experienced in handling the establishment and operation of conservation easements, though, to ensure the process is handled properly and efficiently. This staff will usually provide some assistance to the property owner, though it is better practice for the property owner to retain their own real estate and tax professionals for the transaction.


The conservation easement provides clients with a way to retain control of real property while obtaining tax breaks and an assurance about how the property may be used in the future. However, it is not necessarily a simple process and there is much to consider when evaluating this technique for application to a client' financial strategies. The technique takes its place along with other approaches to estate planning, although this technique provides more utility to the client than merely planning his or her estate. At bottom, it is necessary for a property owner considering the potential for development of a parcel of real property to weigh the benefits of the easement versus the benefits of retaining the unrestricted ability to further develop the property prior to implementing either course of action. As an advisor conversant with the technique, you will better be able to participate in the discussion with the client and the estate planner and real estate or tax professional about the best course of action to meet the client's goals.

House prices: (2005) Since 1950, housing prices have risen regularly by almost two percent per year. Between 1950 and 1970, this increase reflects rising housing quality and construction costs. Since 1970, this increase reflects the increasing difficulty of obtaining regulatory approval for building new homes. In this paper, we present a simple model of regulatory approval that suggests a number of explanations for this change including changing judicial tastes, decreasing ability to bribe regulators, rising incomes and greater tastes for amenities, and improvements in the ability of homeowners to organize and influence local decisions. Our preliminary evidence suggests that there was a significant increase in the ability of local residents to block new projects and a change of cities from urban growth machines to homeowners' cooperatives.

REIT correlation. Pay attention


House Prices: (Economist) The IMF has warned that, just as the upswing in house prices has been a global phenomenon, so any downturn is likely to be synchronized, and thus the effects of it will be shared widely.

This article is effectively mirrors the same way that I have looked at the coming real estate "debacle".

Housing bubble: (NY Times 2005) Australia is a country with one of the highest levels of home ownership in the world. A midlevel office worker, for example, who bought a house in a middle-class Sydney suburb for 188,000 Australian dollars in 1996 was offered 720,000 Australian dollars ($504,000) in 2003.

In the last two years, though, the Australian housing boom has come to a halt, in a move that many experts see as the first signs of the end to a housing bubble, not just in Australia, but also in the United States as well as several other rich countries around the world.

local housing experts expect prices to flatten out, perhaps remaining stagnant for a number of years to allow gradually rising incomes to catch up with the sharply higher level of home values.

Housing prices: (USA Today 2005) Key findings on the likely direction of home prices the next two years:

• The risk of price declines — based on an analysis of prices, employment conditions and affordability — has increased in 36 of the nation's 50 largest housing markets since PMI's last study, released in the spring.

• The number of markets with a 50%-plus chance of a price drop has jumped from two to six.

• There is a 21.3% chance of a nationwide house-price drop, up from 20.2%.

• The highest-risk sites remain in coastal areas, with the biggest odds of falling prices in Boston (55.3% ) and Long Island (Nassau-Suffolk), N.Y. (54.0%). Six of the 10 highest-risk areas are in California.

• The risks are also rising in the suburbs of hot coastal cities, as well as non-coastal markets.

As housing prices rise at a record-setting pace, the risk of a price decline in hot markets is rising. The chance of a price decline in the next two years for the 50 largest housing markets in the U.S.:

Rank City Risk index

1 Boston-Quincy, Mass. 55.3%

2 Nassau-Suffolk, N.Y. 54.0%

3 San Diego-Carlsbad-San Marcos, Calif. 52.8%

4 San Jose-Sunnyvale-Santa Clara, Calif. 51.3%

5 Santa Ana-Anaheim-Irvine, Calif. 51.2%

6 Oakland-Fremont-Hayward, Calif. 50.9%

7 Cambridge-Newton-Framingham, Mass. 46.9%

8 San Francisco-San Mateo-Redwood City, Calif. 45.9%

9 Providence-New Bedford-Fall River, R.I.-Mass. 43.2%

10 Riverside-San Bernardino-Ontario, Calif. 42.2%

11 Los Angeles-Long Beach-Glendale, Calif. 42.1%

12 Sacramento-Arden-Arcade-Roseville, Calif. 41.9%

13 Edison, N.J. 36.4%

14 New York-Wayne-White Plains, N.Y.-N.J. 32.6%

15 Detroit-Livonia-Dearborn, Mich. 29.5%

16 Newark-Union, N.J.-Penn. 25.1%

17 Minneapolis-St. Paul-Bloomington, Minn.-Wis. 24.9%

18 Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. 21.9%

19 Washington -Arlington-Alexandria, DC-Va.-Md. 20.9%

20 Denver-Aurora, Col. 16.9%

21 Warren-Farmington Hills-Troy, Mich. 16.8%

22 Miami-Miami Beach-Kendall, Fla. 16.6%

23 Tampa-St. Petersburg-Clearwater, Fla. 16.6%

24 Las Vegas-Paradise, Nev. 13.0%

25 Baltimore-Towson, Md. 12.4%

26 Austin-Round Rock-Texas 11.6%

27 Virginia Beach-Norfolk-Newport News, Va.-N.C. 10.6%

28 Atlanta-Sandy Springs-Marietta, Ga. 10.6%

29 Dallas-Plano-Irving, Texas 9.9%

30 Portland-Vancouver-Beaverton, Ore.-Wash. 9.5%

31 Orlando, Fla. 9.4%

32 Houston-Baytown-Sugar Land, Texas 9.3%

33 Chicago-Naperville-Joliet, Ill. 9.2%

34 Phoenix-Mesa-Scottsdale, Ariz. 9.2%

35 St. Louis, Mo.-Ill. 9.0%

36 Charlotte-Gastonia-Concord, N.C.-S.C. 8.9%

37 Kansas City, Mo.-Kan. 8.9%

38 Fort Worth-Arlington, Texas 8.0%

39 Philadelphia, Penn. 7.6%

40 New Orleans-Metairie-Kenner, La. 7.1%

41 Milwaukee-Waukesha-West Allis, Wis. 7.0%

42 Cleveland-Elyria-Mentor, Ohio 6.9%

43 San Antonio, Texas 6.8%

44 Columbus, Ohio 6.6%

45 Seattle-Bellevue-Everett, Wash. 6.4%

46 Nashville-Davidson-Murfreesboro, Tenn. 6.4%

47 Cincinnati-Middletown, Ohio-Ky.-Ind. 6.0%

48 Indianapolis, Ind. 5.9%

49 Memphis, Tenn. 5.8%

50 Pittsburgh, Penn. 5.6%

Source: PMI Mortgage Insurance

Housing (National City 2005) Fifty-three metropolitan areas representing 31% of the total U.S. housing market are considered extremely overvalued and confront a high risk of future price corrections. The study determines a market extremely overvalued if prices are 30% above where the study estimates they should be based on historic price data, area income, mortgage rates and population density.

Metro areas that are extremely overvalued and vulnerable to price correction:

Rank Metro area Q1 valuation

1 Santa Barbara, Calif. 69%

2 Salinas, Calif. 67%

3 Naples, Fla. 62%

4 Riverside, Calif. 60%

5 Merced, Calif. 59%

6 Stockton, Calif. 58%

7 Port St. Lucie, Fla. 58%

8 Madera, Calif. 57%

9 Napa, Calif. 57%

10 Medford, Ore. 55%

11 Sacramento, Calif. 54%

12 Modesto, Calif. 53%

13 San Diego, Calif. 53%

14 Santa Rosa, Calif. 52%

15 Chico, Calif. 52%

16 Barnstable Town, Mass. 50%

17 San Luis Obispo, Calif. 49%

18 Oxnard, Calif. 48%

19 Fresno, Calif. 48%

20 Los Angeles, Calif. 48%

21 Miami, Fla. 46%

22 West Palm Beach, Fla. 46%

23 Vallejo, Calif. 45%

24 Ocean City, N.J. 45%

25 Bend, Ore. 45%

26 Sarasota, Fla. 45%

27 Redding, Calif. 44%

28 Fort Lauderdale, Fla. 43%

29 Nassau-Suffolk, N.Y. 42%

30 Santa Ana, Calif. 41%

31 Atlantic City, N.J. 41%

32 Bakersfield, Calif. 40%

33 Oakland, Calif. 39%

34 Santa Cruz, Calif. 39%

35 Palm Bay, Fla. 38%

36 Las Vegas, Nev. 38%

37 Poughkeepsie, N.Y. 37%

38 Vero Beach, Fla. 37%

39 San Jose, Calif. 36%

40 Bellingham, Wash. 35%

41 Panama City, Fla. 35%

42 Calif.pe Coral, Fla. 35%

43 Providence, R.I. 34%

44 Reno, Nev. 33%

45 Kingston, N.Y. 32%

46 Visalia, Calif. 32%

47 Deltona, Fla. 31%

48 Boston, Mass. 31%

49 Washington D.C. 31%

50 Essex County, Mass. 30%

51 San Francisco, Calif. 30%

52 Prescott, Ariz. 30%

53 Duluth, Minn. 30%

The rest of the top 229 metro areas and their first quarter valuation:

54 Portland, Ore. 29%

55 Eugene, Ore. 29%

56 Worcester, Mass. 28%

57 Bay City, Mich. 27%

58 Tampa, Fla. 27%

59 Edison, N.J. 27%

60 Bethesda, Md. 27%

61 Minneapolis, Minn. 27%

62 Grand Junction, Colo. 27%

63 Fort Walton Beach, Fla. 27%

64 Flint, Mich. 27%

65 Monroe, Mich. 26%

66 Jackson, Mich. 25%

67 Portland, Maine 25%

68 New York, N.Y. 25%

69 Asheville, N.C. 25%

70 Cambridge, Mass. 24%

71 Charlottesville, Va. 24%

72 Greeley, Colo. 24%

73 Charleston, S.C. 24%

74 Jacksonville, Fla. 24%

75 Holland, Mich. 23%

76 Newark, N.J. 23%

77 Honolulu, Hawaii 23%

78 Boulder, Colo. 23%

79 Santa Fe, N.M. 22%

80 Baltimore, Md. 22%

81 Salem, Ore. 22%

82 Virginia Beach, Va. 21%

83 Battle Creek, Mich. 21%

84 Manchester, N.H. 21%

85 Springfield, Mass. 20%

86 Seattle, Wash. 20%

87 Detroit, Mich. 20%

88 Ocala, Fla. 20%

89 Lansing, Mich. 20%

90 Pensacola, Fla. 19%

91 Chicago, Ill. 19%

92 Savannah, Ga. 19%

93 Niles, Mich. 19%

94 Orlando, Fla. 19%

95 Rockingham, N.H. 19%

96 Brunswick, Ga. 19%

97 Gainesville, Fla. 18%

98 Wilmington, N.C. 18%

99 Tallahassee, Fla. 18%

100 Tacoma, Wash. 18%

101 Ann Arbor, Mich. 18%

102 Olympia, Wash. 18%

103 Warren, Mich. 17%

104 Longview, Wash. 17%

105 Casper, Wyo. 17%

106 Racine, Wis. 17%

107 Bremerton, Wash. 17%

108 Phoenix, Ariz. 17%

109 Eau Claire, Wis. 16%

110 Corvallis, Ore. 16%

111 St. George, Utah 16%

112 Flagstaff, Ariz. 16%

113 Saginaw, Mich. 16%

114 Muskegon, Mich. 15%

115 Trenton, N.J. 15%

116 Denver, Colo. 15%

117 Mount Vernon, Wash. 15%

118 Fort Collins, Colo. 15%

119 Tucson, Ariz. 15%

120 Camden, N.J. 15%

121 Norwich, Conn. 14%

122 Lake-Kenosha, Ill.-Wis. 14%

123 Richmond, Va. 14%

124 Milwaukee, Wis. 13%

125 Anchorage, Ala. 13%

126 Grand Rapids, Mich. 13%

127 Madison, Wis. 13%

128 Michigan City, Ind. 12%

129 La Crosse, Wis. 12%

130 York, Pa. 12%

131 Farmington, N.M. 12%

132 Rockford, Ill. 12%

133 Kalamazoo, Mich. 12%

134 Canton, Ohio 11%

135 Colorado Springs, Colo. 11%

136 Gainesville, Ga. 11%

137 Burlington, Vt. 11%

138 Philadelphia, Pa. 11%

139 Lakeland, Fla. 11%

140 Waterloo, Iowa 10%

141 Wilmington, Del. 10%

142 Pittsfield, Mass. 10%

143 Lynchburg, Va. 10%

144 Dalton, Ga. 10%

145 Dubuque, Iowa 10%

146 Toledo, Ohio 10%

147 Hickory, N.C. 10%

148 Vineland, N.J. 9%

149 Janesville, Wis. 9%

150 Roanoke, Va. 9%

151 Peoria, Ill. 9%

152 St. Joseph, Mo. 9%

153 New Haven, Conn. 9%

154 Fayetteville, Ark. 9%

155 St. Louis, Mo. 9%

156 Mansfield, Ohio 8%

157 Harrisonburg, Va. 8%

158 Billings, Mont. 8%

159 Davenport, Iowa 8%

160 Albany, N.Y. 8%

161 Allentown, Pa. 7%

162 Spokane, Wash. 7%

163 Springfield, Ohio 7%

164 Kansas City, Mo.-Kan. 7%

165 Reading, Pa. 7%

166 Cleveland, Ohio 7%

167 Burlington, N.C. 7%

168 Pueblo, Colo. 7%

169 Erie, Pa. 6%

170 Yakima, Wash. 6%

171 Green Bay, Wis. 6%

172 Lancaster, Pa. 6%

173 Sheboygan, WI 6%

174 Youngstown, Ohio 6%

175 Wenatchee, Wash. 6%

176 Gary, Ind. 5%

177 Athens, Ga. 5%

178 Topeka, Kan. 5%

179 Cheyenne, Wyo. 5%

180 Durham, N.C. 5%

181 Fond du Lac,W is. 4%

182 Atlanta, Ga. 4%

183 Champaign, Ill. 4%

184 Bridgeport, Conn. 4%

185 Hartford, Conn. 4%

186 Boise City, Idaho 4%

187 Sandusky, Ohio 3%

188 Akron, Ohio 3%

189 Columbus, Ohio 3%

190 Omaha, Neb. 3%

191 Salt Lake City, Utah 3%

192 Wausau, Wis. 3%

193 Lawrence, Kan. 3%

194 Kennewick, Wash. 3%

195 New Orleans, La. 3%

196 Rochester, Minn. 2%

197 Anderson, Ind. 2%

198 Chattanooga, Tenn. 2%

199 Lima, Ohio 2%

200 Amarillo, Texas 2%

201 Spartanburg, S.C. 2%

202 Florence, S.C. 1%

203 Bloomington, Ind. 1%

204 Louisville, Ky. 1%

205 Raleigh, N.C. 1%

206 Provo, Utah 1%

207 Lexington, Ky. 1%

208 Ogden, Utah 1%

209 Winston-Salem, N.C. 1%

210 Cincinnati, Ohio 1%

211 Appleton, Wis. 1%

212 Columbia, Mo. 1%

213 Cedar Rapids, Iowa 1%

214 Houma, La. 1%

215 Lafayette, La. 0%

216 Columbia, S.C. 0%

217 Greenville, S..C 0%

218 Greensboro, N.C. 0%

219 Dayton, Ohio 0%

220 Oshkosh, Wis. 0%

221 Utica, N.Y. 0%

222 Decatur, Ill. 0%

223 Lincoln, Neb. 0%

224 Scranton, Pa. -1%

225 Pittsburgh, Pa. -1%

226 Monroe, La. -1%

227 Las Cruces, N.M. -1%

228 Knoxville, Tenn. -1%

229 Harrisburg, Pa. -1%

230 Des Moines, Iowa -1%

231 Fargo, N.D. -2%

232 Greenville, N.C. -2%

233 Sioux Falls, S.D. -2%

234 Charlotte, N.C. -2%

235 Baton Rouge, La. -2%

236 Rocky Mount, N.C. -2%

237 Sherman, Texas -3%

238 Bloomington, Ill. -3%

239 Albany, Ga. -3%

240 Kokomo, Ind. -3%

241 Nashville, Tenn. -3%

242 Owensboro, Ky. -3%

243 Albuquerque, N.M. -3%

244 Jefferson City, Mo. -3%

245 Evansville, Ind. -3%

246 Columbus, Ind. -3%

247 Lubbock, Texas -3%

248 Waco, Texas -4%

249 Augusta, Ga. -4%

250 Columbus, Ga. -4%

251 Warner Robins, Ga. -4%

252 Idaho Falls, Idaho -4%

253 Wichita, Kan. -4%

254 Iowa City, Iowa -4%

255 Bowling Green, Ky. -4%

256 Tyler, Texas -4%

257 Birmingham, Ala. -4%

258 Springfield, Ill. -4%

259 Buffalo, N.Y. -5%

260 Corpus Christi, Texas -5%

261 Macon, Ga. -5%

262 Austin, Texas -5%

263 Syracuse, N.Y. -5%

264 Fort Wayne, Ind. -6%

265 Tulsa, Okla. -6%

266 Fort Smith, Ark. -6%

267 Binghamton, .NY. -6%

268 Abilene, Texas -6%

269 Alexandria, La. -6%

270 San Angelo, Texas -6%

271 Indianapolis, Ind. -6%

272 Hattiesburg, Miss. -6%

273 Midland, Texas -6%

274 South Bend, Ind. -6%

275 Oklahoma City, Okla. -7%

276 Springfield, Mo. -7%

277 Mobile, Ala. -7%

278 Shreveport, La. -7%

279 DeCalif.tur, Ala. -7%

280 Little Rock, Ark. -8%

281 Bismarck, N.D. -8%

282 Houston, Texas -8%

283 Lafayette, Ind. -9%

284 Jackson, Miss. -9%

285 Charleston, W.V. -10%

286 Fort Worth, Texas -10%

287 Rochester, N.Y. -10%

288 Longview, Texas -10%

289 San Antonio, Texas -10%

290 Elkhart, Ind. -11%

291 Dallas, Texas -11%

292 Memphis, Tenn. -11%

293 Huntsville, Ala. -11%

294 Beaumont, Texas -12%

295 Killeen, Texas -13%

296 Odessa, Texas -14%

297 Montgomery, Ala. -15%

298 El Paso, Texas -17%

299 College Station, Texas  -19%

AMERICAN DREAM BECOMING UNAFFORDABLE - (2005) The housing market in booming in cities across the country, making the dream of owning a home out of reach for many in the middle class. "Many of the overheated real estate markets throughout the country have become unaffordable for the majority of the population," . "Many people are paying well over 50% of their income for shelter. It leaves no money for savings or sometimes even for recreation." In California, only 17% of households can afford a home with a median price tag. The median home price in California is $522,590 and to buy the typical home with monthly payments of $3,067, a California family would need to earn about $122,700 to qualify for a conventional loan.

Rankings of metropolitan areas in terms of the risks of future declines in house prices. (2005)

Rank PMI Mortgage Insurance                (1) National City (2)                                    Credit Suisse First Boston (3)

1 Boston                                                 Santa Barbara, Calif.                                   Fresno, Calif.

2 Nassau-Suffolk,    NY                         Salinas, Calif.                                               Las Vegas

3 San Diego                                           Naples, Fla.                                                  Los Angeles

4 San Jose                                              Riverside-San Bernardino, Calif.                    Riverside-San Bernardino, Calif.

5 Santa Ana-Anaheim-Irvine,               Calif. Merced, Calif.                                          Phoenix

6 Oakland, Calif.                                  Stockton, Calif.                                                Bakersfield, Calif.

7 Cambridge, Mass.                             Port St. Lucie, Fla.                                          Sarasota, Fla.

8 San Francisco                                    Madera, Calif.                                                Sacramento

9 Providence, R.I.                                 Napa, Calif.                                                   Jacksonville, Fla.

10 Riverside-San Bernardino, Calif.      Medford, Ore.                                               Naples, Fla.

11 Los Angeles                                      Sacramento --

12 Sacramento                                         Modesto, Calif. --

13 Edison, N.J.                                         San Diego --

14 New York                                           Santa Rosa, Calif. --

15 Detroit                                                  Chico, Calif. --

16 Newark, N.J.-                                      Union, Pa.                                             Barnstable Town, Mass. --

17 Minneapolis-St. Paul, Minn.                  San Luis Obispo, Calif. --

18 Fort Lauderdale, Fla.                           Oxnard, Calif. --

19 Washington-Northern Virginia              Fresno, Calif. --

20 Denver-Aurora, Colo.                          Los Angeles --

21 Warren-Farmington Hills- Troy, Mich.   Miami --

22 Miami                                                   West Palm Beach, Fla. --

23 Tampa-St. Petersburg, Fla.                   Vallejo, Calif. --

24 Las Vegas                                             Ocean City, N.J. --

25 Baltimore                                                Bend, Ore. --

(1) Reflects labor market data, median incomes and mortgage costs

(2) Reflects incomes, mortgages data and space constraints

(3) Based on interest-only loans, price trend, investor activity, job growth and supply constraints

The absurdity. People just got through the Dotcom and then started the real estate.com

Housing bubble: (David Rosenberg 2005) Real estate has accounted for 70% of the rise in household net worth since 2001.

" Over 40% of private-sector jobs created since 2001 have been housing-related.

" Excluding housing, real final sales slowed sharply in the first quarter of 2005 to a 2.4% annual rate, from 3.2% in the fourth quarter and 4.9% in the third quarter, of 2004.

" Subprime market has accounted for a 28% share of new mortgage funding in the past six months (vs. 5% five years ago).

" The Fed's loan-officer survey shows that mortgage standards have eased a massive 13 percentage points in the past three years.

" An estimated 42% of first-time buyers made no down payment on their home purchases last year.

" In the hottest price areas, adjustable-rate mortgages (ARMs) now account for over 50% of new mortgage originations.

" Over 60% of new mortgage loans in -- where else? -- California this year have been in interest-only loans or option ARMs.

Under the heading "Affordability Stretched," David notes:

" According to the FDIC, 38 of 50 states in the past year have seen home- price appreciation far outpace personal incomes -- and nationwide, home prices grew 6.7 percentage points faster than incomes.

" From 1955 to 1995, home prices rose with inflation, or basically 0% in real terms. Since 1996, home values have risen 45% in real terms. End result: a $5 trillion increase in housing-bubble wealth.

" Over a third of homeowners are devoting over a third of their income to monthly mortgage payments; 12% are devoting over half their income.

" Homeowner affordability is now at a 13-year low and total household debt-service ratio in the first quarter hit a peak 13.40%.

" Oversupply may be a looming risk to prices -- housing starts at two million units per year are now outpacing new household formations of 1.6 million. Could the excess supply, David muses, reflect speculative buying?

" And, finally, under the heading "Speculation Rampant," he ticks off the following:

" National Association of Realtors data show 23% of home sales in the past year were "investor" (read: speculative) based; another 13 were second property.

" A proxy for speculative buying, he reports, namely units sold but not yet started, are up 47%, year over year, a record high. Nearly one in four Americans polled in the University of Michigan Consumer Confidence survey believe that now is a good time to buy a home because it's a good investment and/or prices will continue to appreciate. That represents a 25-year high in bullishness.

" His research shows that 60% of the country is currently in a housing bubble (where the ratio of house price to income is greater than one standard deviation from the historical mean). And that includes the Northeast, the Pacific Coast and any number of pockets in between.

" He calculates that a decline from double-digit growth in home prices to no growth would trim at least 1% from GDP next year (which, he reports, is the current experience in the U.K.).

Overpriced real estate: (2005) Santa Barbara, Calif., is the nation's most out-of-whack market, with houses 69% overpriced. Rounding out the top five: Salinas, Calif.; Naples, Fla.; and Riverside and Merced, Calif.

College Station, Texas, is the most undervalued, priced 19% below where the data suggest it should be. Other inexpensive communities include El Paso, Odessa and Killeen, Texas, and Montgomery, Ala.

The highest-risk markets are in California; Southern Florida; parts of the Boston area; the Long Island, N.Y., counties of Nassau and Suffolk; and Ocean City, N.J.

The big culprit: in 85% of the cities surveyed, home-price gains outpaced income gains during the past year. In Bakersfield, Calif., prices rose 33% while incomes increased 3%. In 29% of areas, prices outpaced income growth by at least 10 percentage points.

Just 2% of markets were in bubbly territory at the start of 2004, vs. 31% in the first quarter of 2005.

Ye gods!: (2005) Real Estate speculation has become so pandemic that 23% of all residential home sales in 2004 were for investment purposes, and 13% were tagged as so-called vacation/second homes.who are today’s Real Estate speculators? We’ve come to find they are not your average financial speculator, someone that understands risk and who can afford to take a loss if his speculation fails. Today’s speculator is the person next door. The average Joe whose full-time job is not Real Estate speculation. This average Joe is not necessarily a financial powerhouse, but is willing to risk his hard-earned capital on what he thinks is a fairly riskless investment.

Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions, (Charles Himmelberg, Christopher Mayer, and Todd Sinai 2005)  

The authors construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, Himmelberg, Mayer, and Sinai’s measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. The authors find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued.

Median home prices in 150 metro areas (2006)

Metro areas ranked by percent change  Metro area     2004 Q3  (thousands)     2005 Q3 (thousands)    Change

Akron, OH                                                                $122.9                             $129                            .1 5.0%

Albany-Schenectady-Troy, NY                                  $168.9                              $192.8                        14.2%

Albuquerque, NM                                                      $144.5                               $170.8                        18.2%

Allentown-Bethlehem-Easton, PA-NJ                          $222.6                              N/A N/A

Amarillo, TX                                                                $98.1                               $111.1                        13.3%

Anaheim-Santa Ana, CA (Orange Co.)                         $643.6                            $710.7                         10.4%

Appleton, WI                                                                 $122.1                           $132.5                         8.5%

Atlanta-Sandy Springs-Marietta, GA                              $159.7                           $171.2                         7.2%

Atlantic City, NJ                                                            $202.4                            $247.6                         22.3%

Austin-Round Rock, TX                                              $158.6                              $167.1                         5.4%

Baltimore-Towson, MD                                               $235.8                              $282.1                         19.6%

Barnstable Town, MA                                                 $382.9                               $398.5                         4.1%

Baton Rouge, LA                                                         $130.8                              $156.3                          19.5%

Beaumont-Port Arthur, TX                                            $95.3                                $103. 7                        8.8%

Binghamton, NY                                                           $89.8                                 $97.6                            8.7%

Birmingham-Hoover, AL                                               $147.8                               $158.4                         7.2%

Bloomington-Normal, IL                                                 $149.3                               $170.9                      14.5%

Boise City-Nampa, ID                                                   $140.1                               $151.3                        8.0%

Boston-Cambridge-Quincy, MA-NH                             $407.2                              $430.9                          5.8%

Boulder, CO                                                                  $334.9                                $357.5                      6.7%

Bridgeport-Stamford-Norwalk, CT                               $444.9                                 $476.9                      7.2%

Buffalo-Niagara Falls, NY                                               $99.3                                 $103.7                     4.4%

Canton-Massillon, OH                                                   $119.3                              N/A N/A

Cape Coral-Fort Myers, FL                                          $194.8                              $277.6                         42.5%

Cedar Rapids, IA                                                          $129.8                               $134.2                          3.4%

Champaign-Urbana, IL                                                  $133.9                               $140.7                           5.1%

Charleston-North Charleston, SC                                  $184.0                               $202.0                          9.8%

Charleston, WV                                                           $119.7                               $120.6                          0.8%

Charlotte-Gastonia-Concord, NC-SC                          $171.0                               $189.8                           11.0%

Chattanooga, TN-GA                                                   $125.8                              $136.3                              8.3%

Chicago-Naperville-Joliet, IL                                         $248.0                             $274.7                             10.8%

Cincinnati-Middletown, OH-KY-IN                             $143.1                              $148.7                               3.9%

Cleveland-Elyria-Mentor, OH                                       $139.6                                 $147.0                           5.3%

Colordo Springs, CO                                                   N/A                                     $200.9                            N/A

Columbia, SC                                                               $129.1                               $138.3                             7.1%

Columbus, OH                                                               $151.1                              $156.6                             3.6%

Corpus Christi, TX                                                        $116.9                               $128.8                            10.2%

Cumberland, MD-WV                                                   $72.2                                  $90.2                            24.9%

Dallas-Fort Worth-Arlington, TX                                    $140.3                                $147.2                         4.9%

Danville, IL                                                                    $70.2                                 $72.8                            3.7%

Davenport-Moline-Rock Island, IA-IL                           $119.5                              $123.3                             3.2%

Dayton, OH $                                                               118.5                                 $123.6                             4.3%

Decatur, IL                                                                    $78.1                                 $85.5                               9.5%

Deltona-Daytona Beach-Ormond Beach, FL                  $155.6                               $208.2                            33.8%

Denver-Aurora, CO                                                       N/A                                   $253.5                          N/A

Des Moines, IA                                                             $144.5                               $147.8                         2.3%

Detroit-Warren-Livonia, MI                                             $168.2                             $172.1                         2.3%

Dover, DE                                                                      $155.1                                $194.3                       25.3%

Durham, NC                                                                  $147.0                              $156.4                           6.4%

Elmira, NY                                                                     $81.5                                 $77.1                           -5.4%

El Paso, TX                                                                     $95.1                              $113.6                          19.5%

Erie, PA                                                                           $107.1                           $108.4                           1.2%

Eugene-Springfield, OR                                                    $165.9                            $208.9                          25.9%

Fargo, ND-MN                                                              $124.6                             $135.1                             .4%

Farmington, NM                                                            $135.1                              $156.1                           15.5%

Ft. Wayne, IN                                                               $99.7                                 $106.5                             6.8%

Gainesville, FL                                                             $166.9                                $185.7                            11.3%

Gary-Hammond, IN                                                        $125.6                             $136.2                              8.4%

Glens Falls, NY                                                                $127.6                            $160.0                             25.4%

Grand Rapids, MI                                                         $133.8                               $140.7                             5.2%

Green Bay, WI                                                             $145.1                                 $155.2                           7.0%

Greensboro-High Point, NC                                          $143.1                                $150.8                            5.4%

Greenville, SC                                                              $139.3                                 $147.5                           5.9%

Gulfport-Biloxi, MS                                                     $115.8                                  $133.4                           15.2%

Hagerstown-Martinsburg, MD-WV                                $171.7                               $222.4                           29.5%

Hartford-West Hartford-East Hartford, CT                      $239.8                             $259.5                               8.2%

Honolulu, HI                                                                 $469.0                                 $615.0                          31.1%

Houston-Baytown-Sugar Land, TX                                $137.5                               $145.1                            5.5%

Indianapolis, IN                                                              $128.5                               $128.9                            0.3%

Jackson, MS                                                                $121.1                                 $136.5                            12.7%

Jacksonville, FL                                                            $157.6                                 $187.0                           18.7%

Kalamazoo-Portage, MI                                                $126.8                                  N/A                               N/A

Kankakee-Bradley, IL                                                   $130.9                               $130.5                             -0.3%

Kansas City, MO-KS                                                      $152.3                               $159.0                            4.4%

Kennewick-Richland-Pasco, WA                                  $150.8                                 $157.1                            4.2%

Kingston, NY                                                                $216.4                                  $259.3                         19.8%

Knoxville, TN                                                               $135.0                                  $146.0                           8.1%

Lansing-E.Lansing, MI                                                  $139.2                                 $149.0                            7.0%

Las Vegas-Paradise, NV                                             $283.2                                  $313.0                           10.5%

Lexington-Fayette,KY                                                 $139.5                                  $149.8                              7.4%

Lincoln, NE                                                                 $139.6                                   $138.3                           -0.9%

Little Rock-N. Little Rock, AR                                       $110.9                                $122.7                            10.6%

Los Angeles-Long Beach-Santa Ana, CA                      $452.4                                    $553.2                         22.3%

Louisville, KY-IN                                                       $132.5                                     $137.7                            3.9%

Madison, WI                                                             $209.5                                      $222.8                            6.3%

Memphis, TN-MS-AR                                                $140.0                                      $145.5                            3.9%

Miami-Fort Lauderdale-Miami Beach, FL                   $299.9                                     $386.6                            28.9%

Milwaukee-Waukesha-West Allis, WI                         $205.1                                     $219.7                             7.1%

Minneapolis-St. Paul-Bloomington, MN-WI                 $219.8                                    $233.0                            6.0%

Mobile, AL                                                                    $115.6                                   $133.6                          15.6%

Montgomery, AL                                                          $120.6                                      $139.6                         15.8%

Nashville-Davidson--Murfreesboro, TN                         $149.0                                   $164.3                          10.3%

New Haven-Milford, CT                                               $260.5                                     $291.9                         12.1%

New Orleans-Metairie-Kenner, LA                               $143.5                                   $162.1                          13.0%

New York-Northern New Jersey-Long Island, NY-NJ-PA $398.2                             $461.1                            15.8%

New York-Wayne-White Plains, NY-NJ                     $459.1                                     $533.6                          16.2%

NY: Edison, NJ                                                             $340.6                                   $386.9                           13.6%

NY: Nassau-Suffolk, NY                                             $422.2                                    $471.0                         11.6%

NY: Newark-Union, NJ-PA                                         $397.2                                   $446.8                        12.5%

Norwich-New London, CT                                             $235.4                                $261.1                        10.9%

Ocala, FL                                                                      $114.9                                   $151.5                      31.9%

Oklahoma City, OK                                                       $109.1                                 $121.0                      10.9%

Omaha, NE-IA                                                                 $134.1                               $138.0                        2.9%

Orlando, FL                                                                  $180.5                                    $261.3                       44.8%

Palm Bay-Melbourne-Titusville, FL                               $159.3                                     $212.8                      33.6%

Pensacola-Ferry Pass-Brent, FL                                     $133.8                                    $175.5                        31.2%

Peoria, IL                                                                      $113.0                                     $114.9                      1.7%

Philadelphia-Camden-Wilmington, PA-NJ-DE-MD       $193.8                                       $230.6                    19.0%

Phoenix-Mesa-Scottsdale, AZ                                        $172.7                                      $268.0                   55.2%

Pittsburgh, PA                                                                 $117.4                                       $122.6                    4.4%

Pittsfield, MA                                                                 $196.5                                       $196.3                  -0.1%

Portland-South Portland-Biddeford, ME                          $233.5                                       $249.1                   6.7%

Portland-Vancouver-Beaverton, OR-WA                         $211.5                                   $253.7                    20.0%

Providence-New Bedford-Fall River, RI-MA                    $289.4                                  $305.1                    5.4%

Raleigh-Cary, NC                                                             $172.0                                    $185.4                  7.8%

Reading, PA                                                                    $131.8                                     $143.8                   9.1%

Reno-Sparks, NV                                                          $299.2                                      N/A                        N/A

Richmond, VA                                                                $174.6                                     $214.5                   22.9%

Riverside-San Bernardino-Ontario, CA                            $311.7                                     $387.3                  24.3%

Rochester, NY                                                                 $114.9                                      $120.0                  4.4%

Rockford, IL                                                                    $105.9                                       $120.4                13.7%

Sacramento--Arden-Arcade--Roseville, CA                     $329.2                                      $388.9                 18.1%

Saginaw-Saginaw Township North, MI                            N/A                                          $125.0                      N/A

Saint Louis, MO-IL                                                         $136.5                                       $148.0                   8.4%

Salem, OR                                                                       $163.7                                      $182.8                   11.7%

Salt Lake City, UT                                                             $161.3                                   $181.4                     12.5%

San Antonio, TX                                                           $126.5                                        $137.6                     8.8%

San Diego-Carlsbad-San Marcos, CA                             $578.3                                      $615.0                   6.3%

San Francisco-Oakland-Fremont, CA                           $646.3                                        $721.9                 11.7%

Sarasota-Bradenton-Venice, FL                                   $285.9                                         $353.8                 23.7%

Seattle-Tacoma-Bellevue, WA                                      $278.2                                        $325.0                16.8%

Shreveport-Bossier City, LA                                          $111.6                                        $131.1              17.5%

Sioux Falls, SD                                                              $129.6                                         $134.7                3.9%

South Bend-Mishawaka, IN                                            $98.5                                          $101.6                  3.1%

Spartanburg, SC                                                               $113.9                                     $124.4                 9.2%

Spokane, WA                                                                  $138.5                                     $167.5                20.9%

Springfield, IL                                                                  $106.5                                        $111.5               4.7%

Springfield, MA                                                               $187.3                                       $217.6                16.2%

Springfield, MO                                                              $110.2                                        $122.3               11.0%

Syracuse, NY                                                                 $102.7                                       $118.2                 15.1%

Tallahassee, FL                                                              $155.6                                         $163.7                5.2%

Tampa-St.Petersburg-Clearwater, FL                              $167.0                                      $213.5                27.8%

Toledo, OH                                                                    $114.1                                      $123.5                 8.2%

Topeka, KS                                                                   $109.7                                      $108.3                -1.3%

Trenton-Ewing, NJ                                                         $250.4                                     $290.5                 16.0%

Tucson, AZ                                                                      $179.9                                   $242.3                   34.7%

Tulsa, OK                                                                          $115.8                                 $123.1                  6.3%

Virginia Beach-Norfolk-Newport News, VA-NC             $182.2                                   $208.6                 14.5%

Washington-Arlington-Alexandria, DC-VA-MD-WV      $349.4                                        $441.4              26.3%

Waterloo/Cedar Falls, IA                                                 $96.7                                       $111.0                 14.8%

Wichita, KS                                                                      $106.6                                     $111.2                4.3%

Worcester, MA                                                               $284.0                                      $296.6                  4.4%

Yakima, WA                                                                  $136.3                                      $140.7                  3.2%

Youngstown-Warren-Boardman, OH-PA                            $91.1                                   $90.2                    -1.0%

U.S.                                                                                 $188.2                                    $215.9                   14.7%

Northeast                                                                           $220.2                                  $249.3                  13.2%

Midwest                                                                              $153.2                                $173.3                   13.1%

South                                                                               $172.1                                     $185.3                  7.7%

West                                                                               $271.0                                       $322.0                18.8%

N/A - Not available

Source: National Association of Realtors

House Prices Home price changes in 265 metro areas Metro area price appreciation through Sept. 30 2005

Metro area                                         Rank   1-Yr. % change    5-Yr. % change

Akron, OH                                        218 4.57 21.02

Albany-Schenectady-Troy, NY          69 14.98 68.25

Albuquerque, NM                              79 13.66 37.36

Allentown-Bethlehem-Easton, PA-NJ 76 14.1 60.91

Amarillo, TX                                      179 6.12 22.51

Anchorage, AK                                  84 12.68 51.37

Anderson, IN                                     260 2.62 18.17

Anderson, SC                                   178 6.14 22.79

Ann Arbor, MI                                  245 3.91 27.59

Appleton, WI                                    240 4.05 25.19

Asheville, NC                                    129 8.38 41.35

Athens-Clarke County, GA                 233 4.25 29.22

Atlanta-Sandy Springs-Marietta, GA 196 5.36 27.93

Atlantic City, NJ                                 52 17.59 91.92

Augusta-Richmond County, GA-SC  127 8.42 29.62

Austin-Round Rock, TX                    174 6.48 18.64

Bakersfield, CA                                 13 27.07 123.68

Baltimore-Towson, MD                     43 19.05 89.14

Barnstable Town, MA                      107 9.79 91.15

Baton Rouge, LA                              216 4.62 22.22

Battle Creek, MI                               223 4.52 24.53

Bay City, MI                                     168 6.69 25.09

Beaumont-Port Arthur, TX                 262 2.43 21.29

Bellingham, WA                                  39 19.96 75.98

Bend, OR                                            34 21.24 66.15

Bethesda-Frederick-Gaithersburg, MD 47 18 101.56

Billings, MT                                         99 10.4 43.52

Birmingham-Hoover, AL                      121 8.66 31.9

Blacksburg-Christiansburg-Radford, VA 113 9.33 39.37

Bloomington, IN                                    141 7.63 28.63

Bloomington-Normal, IL                        252 3.51 18.25

Boise City-Nampa, ID                           74 14.29 39.71

Boston-Quincy, MA                             152 7.17 69.61

Boulder, CO                                         182 5.96 26.37

Bowling Green, KY                              137 7.84 23.57

Bremerton-Silverdale, WA                    50 17.71 65.35

Bridgeport-Stamford-Norwalk, CT       101 10.3 65.91

Buffalo-Niagara Falls, NY                    184 5.89 29.83

Burlington, NC                                     251 3.57 13.47

Burlington-South Burlington, VT            91 11.87 62.02

Cambridge-Newton-Framingham, MA 146 7.39 56.18

Camden, NJ                                         72 14.51 78.25

Canton-Massillon, OH                         244 3.95 21.61

Cape Coral-Fort Myers, FL                   2 33.16 119.85

Cedar Rapids, IA                                253 3.44 20.12

Champaign-Urbana, IL                        133 8.24 33.98

Charleston, WV                                   188 5.66 20.99

Charleston-North Charleston, SC          66 15.61 51.46

Charlotte-Gastonia-Concord, NC-SC 222 4.52 18.98

Charlottesville, VA                               63 15.86 71.78

Chattanooga, TN-GA                           163 6.92 31.93

Cheyenne, WY                                     125 8.53 44.29

Chicago-Naperville-Joliet, IL               118 9.05 47.71

Chico, CA                                           42 19.23 117.14

Cincinnati-Middletown, OH-KY-IN    208 4.85 23.7

Cleveland-Elyria-Mentor, OH             239 4.08 22.35

Coeur d'Alene, ID                                7 29.88 69

Colorado Springs, CO                         161 7 32.54

Columbia, MO                                    139 7.8 28.2

Columbia, SC                                     151 7.26 27.88

Columbus, GA-AL                            112 9.39 33.28

Columbus, IN                                   186 5.8 17.6

Columbus, OH                                  210 4.79 24.46

Dallas-Plano-Irving, TX                       236 4.18 20.99

Davenport-Moline-Rock Island, IA-IL 204 4.94 25.51

Dayton, OH                                         242 3.99 19.35

Deltona-Daytona Beach-Ormond Beach, FL 16 26.61 101.69

Denver-Aurora, CO                             238 4.11 26.55

Des Moines, IA                                  180 6.11 27.92

Detroit-Livonia-Dearborn, MI              261 2.48 22.1

Dubuque, IA                                      194 5.51 27.6

Duluth, MN-WI                                  147 7.36 56.8

Durham, NC                                       193 5.51 23.38

Eau Claire, WI                                     153 7.13 34

Edison, NJ                                          80 13.58 89.29

Elkhart-Goshen, IN                            173 6.5 20.92

El Paso, TX                                        131 8.35 30.55

Essex County, MA                            162 6.95 62.27

Eugene-Springfield, OR                      58 16.55 46.71

Evansville, IN-KY                               234 4.21 21.07

Fargo, ND-MN                                   170 6.63 39.67

Fayetteville-Springdale-Rogers, AR-MO 90 11.97 43.81

Flagstaff, AZ-UT                                 27 22.76 76.54

Flint, MI                                             225 4.5 23.25

Florence, SC                                      231 4.34 24.04

Fond du Lac, WI                              181 6.05 25.2

Fort Collins-Loveland, CO                  241 4.03 28.83

Fort Lauderdale-Pompano-Deerfield Bch, FL 18 26.55 125.67

Fort Wayne, IN                                   229 4.4 17.09

Fort Worth-Arlington, TX                    246 3.87 21.31

Fresno, CA                                          26 23.36 134

Gainesville, GA                                 190 5.62 28.21

Gary, IN                                           169 6.64 24.35

Grand Junction, CO                           104 10.04 44.82

Grand Rapids-Wyoming, MI                 206 4.88 24.44

Greeley, CO                                       264 2.21 25.55

Green Bay, WI                                   212 4.71 27.33

Greensboro-High Point, NC              215 4.65 18.55

Greenville, SC                                   209 4.8 21.81

Gulfport-Biloxi, MS                             102 10.14 27.61

Hagerstown-Martinsburg, MD-WV    32 21.84 82.06

Harrisburg-Carlisle, PA                       111 9.52 34.83

Hartford-West Hartford-East Hartford, CT 106 10 55.99

Hickory-Lenoir-Morganton, NC          226 4.48 19.32

Holland-Grand Haven, MI                    203 5 23.28

Honolulu, HI                                       28 22.45 93.5

Houston-Baytown-Sugar Land, TX    220 4.55 25.16

Huntsville, AL                                    158 7.02 24.36

Indianapolis, IN                                  214 4.66 20.42

Iowa City, IA                                     165 6.83 28.06

Jackson, MI                                       259 2.76 26.43

Jackson, MS                                     164 6.88 25.13

Jacksonville, FL                                    45 18.51 71.78

Janesville, WI                                     171 6.62 27.16

Jefferson City, MO                            248 3.81 21.71

Joplin, MO                                        243 3.97 27.06

Kalamazoo-Portage, MI                    205 4.89 25.51

Kankakee-Bradley, IL                      135 8.07 26.74

Kansas City, MO-KS                         202 5.13 29.41

Kennewick-Richland-Pasco, WA        256 3.16 27.15

Kingsport-Bristol-Bristol, TN-VA       172 6.55 29.71

Knoxville, TN                                     114 9.15 33.79

Kokomo, IN                                      224 4.51 14.88

La Crosse, WI-MN                          157 7.06 33.41

Lafayette, IN                                     263 2.25 10.7

Lafayette, LA                                    156 7.09 29.77

Lake County-Kenosha County, IL-WI 166 6.75 38.87

Lakeland, FL                                    19 26.02 70.76

Lancaster, PA                                   100 10.36 42.58

Lansing-East Lansing, MI                  255 3.26 29.25

Las Vegas-Paradise, NV                  77 13.77 99.04

Lawrence, KS                                  160 7.01 33.57

Lexington-Fayette, KY                      183 5.92 27.93

Lima, OH                                         189 5.65 24.67

Lincoln, NE                                       197 5.35 22.63

Little Rock-North Little Rock, AR     167 6.7 27.46

Logan, UT-ID                                    115 9.1 21.93

Longview, WA                                   82 12.89 30.54

Los Angeles-Long Beach-Glendale, CA 44 18.81 121.59

Louisville, KY-IN                               185 5.86 25.47

Lynchburg, VA                                   103 10.11 35.14

Macon, GA                                        249 3.77 23.17

Madison, WI                                     132 8.34 40.34

Manchester-Nashua, NH                   120 8.81 69.17

Mansfield, OH                                    265 0.76 22.28

Medford, OR                                    25 23.38 94.29

Memphis, TN-MS-AR                      191 5.62 19.87

Merced, CA                                       6 30.27 137.83

Miami-Miami Beach-Kendall, FL       24 23.39 117.39

Michigan City-La Porte, IN             122 8.64 28.55

Milwaukee-Waukesha-West Allis, WI 126 8.53 43.48

Minneapolis-St. Paul-Bloomington, MN-WI 145 7.4 55

Missoula, MT                                     110 9.59 57.75

Mobile, AL                                         232 4.33 23.09

Modesto, CA                                     14 26.87 137.2

Monroe, MI                                       213 4.67 25.8

Montgomery, AL                              123 8.63 24.1

Muskegon-North Shores, MI           211 4.75 23.21

Myrtle Bch-Conway-N. Myrtle Bch, SC 59 16.55 44.29

Napa, CA                                        57 16.8 106.11

Naples-Marco Island, FL                   3 32.35 119.43

Nashville-Davidson-Murfreesboro, TN 150 7.26 25.32

Nassau-Suffolk, NY                       86 12.64 91.04

Newark-Union, NJ-PA                    87 12.47 74.54

New Haven-Milford, CT                   92 11.74 69.14

New Orleans-Metairie-Kenner, LA 138 7.84 38.38

New York-Wayne-White Plains, NY-NJ 81 13.56 81.25

Niles-Benton Harbor, MI                  140 7.74 33.01

Norwich-New London, CT              95 11.16 73.02

Oakland-Fremont-Hayward, CA      37 20.04 89.13

Ogden-Clearfield, UT                       136 8.05 16.95

Oklahoma City, OK                          134 8.08 31.36

Olympia, WA                                   55 17.16 54.97

Omaha-Council Bluffs, NE-IA        207 4.86 24.04

Orlando, FL                                   12 28.04 85.73

Oshkosh-Neenah, WI                    247 3.83 27.3

Oxnard-Thousand Oaks-Ventura, CA 73 14.31 112.77

Palm Bay-Melbourne-Titusville, FL 10 28.36 121.98

Pensacola-Ferry Pass-Brent, FL    8 29.8 72.01

Peoria, IL                                    198 5.32 22.52

Philadelphia, PA                          83 12.76 71.61

Phoenix-Mesa-Scottdale, AZ        1 34.37 80.93

Pittsburgh, PA                             195 5.37 31.26

Portland-South Portland-Biddeford, ME 105 10.04 69.88

Portland-Vancouver-Beaverton, OR-WA 53 17.49 48.83

Port St. Lucie-Fort Pierce, FL    17 26.6 133.63

Poughkeepsie-Newburgh-Middletown, NY 85 12.67 89.63

Prescott, AZ                               11 28.31 77.96

Providence-New Bedford-Fall River, RI-MA 96 10.9 94.36

Provo-Orem, UT                       142 7.58 18.23

Pueblo, CO                                228 4.41 26.33

Punta Gorda, FL                          21 25.14 115.84

Racine, WI                                   128 8.4 42.58

Raleigh-Cary, NC                        219 4.55 17.97

Reading, PA                                 88 12.43 49.37

Redding, CA                                36 20.34 120.4

Reno-Sparks, NV                       29 22.34 103.64

Richmond, VA                            70 14.65 54.85

Riverside-San Bernardino-Ontario, CA 40 19.78 131.37

Roanoke, VA                               108 9.75 39.27

Rochester, MN                            201 5.14 30.3

Rochester, NY                             200 5.24 23.76

Rockford, IL                                177 6.24 27.38

Rockingham County-Strafford County, NH 119 8.88 64.83

Sacramento-Arden-Arcade-Roseville, CA 41 19.42 121.89

Saginaw-Saginaw Township North, MI 258 2.83 20.77

St. Cloud, MN                              144 7.52 46.96

St. George, UT                               4 31.57 58.77

St. Louis, MO-IL                       154 7.13 38.51

Salem, OR                                   93 11.47 32.34

Salinas, CA                                35 20.96 115.85

Salt Lake City, UT                      97 10.87 25.65

San Antonio, TX                        149 7.27 30.97

San Diego-Carlsbad-San Marcos, CA 94 11.42 115.2

San Francisco-San Mateo-Redwood City, CA 64 15.83 59.87

San Jose-Sunnyvale-Santa Clara, CA 46 18.43 50.32

San Luis Obispo-Paso Robles, CA 61 15.99 111.44

Santa Ana-Anaheim-Irvine, CA      65 15.66 116.86

Santa Barbara-Santa Maria-Goleta, CA 62 15.88 126.12

Santa Cruz-Watsonville, CA          48 17.92 67.35

Santa Fe, NM                                 109 9.59 53.36

Santa Rosa-Petaluma, CA              49 17.73 83.92

Sarasota-Bradenton-Venice, FL      5 30.35 111.44

Savannah, GA                                98 10.53 50.89

Scranton-Wilkes-Barre, PA           116 9.09 34.31

Seattle-Bellevue-Everett, WA        71 14.54 47.52

Sheboygan, WI                            175 6.39 27.1

Shreveport-Bossier City, LA         117 9.09 33.66

Sioux Falls, SD                               159 7.01 26.9

South Bend-Mishawaka, IN-MI     235 4.21 21.08

Spartanburg, SC                            217 4.6 18.9

Spokane, WA                                54 17.49 45.44

Springfield, IL                                230 4.37 19.44

Springfield, MA                             89 12.17 68.31

Springfield, MO                             176 6.27 25.64

Springfield, OH                             192 5.57 23.67

Stockton, CA                                  20 25.49 119.6

Syracuse, NY                                148 7.35 37.42

Tacoma, WA                                  60 16.34 56.89

Tallahassee, FL                           51 17.62 66.09

Tampa-St. Petersburg-Clearwater, FL 31 22.14 87.55

Toledo, OH                                  250 3.63 24.06

Topeka, KS                                  227 4.42 27.46

Trenton-Ewing, NJ                        68 15.36 82.9

Tucson, AZ                                   23 24.18 71.01

Tulsa, OK                                     237 4.17 19.69

Tuscaloosa, AL                           143 7.56 28.96

Vallejo-Fairfield, CA                    38 19.98 111.92

Virginia Bch-Norfolk-Newport News, VA-NC 30 22.19 84.7

Visalia-Porterville, CA                  9 28.46 106.71

Warren-Farmington Hills-Troy, MI 254 3.34 22.29

Washington-Arlington-Alex., DC-VA-MD-WV 33 21.32 107.42

Waterloo-Cedar Falls, IA            199 5.29 32.64

Wausau, WI                                  130 8.36 32.64

Wenatchee, WA                             75 14.28 34.42

West Palm Bch-Boca Raton-Boynton Bch, FL 15 26.7 125.43

Wichita, KS                                     257 2.87 20.11

Wilmington, DE-MD-NJ                   67 15.5 67.12

Wilmington, NC                               56 17.11 44.84

Winston-Salem, NC                       187 5.68 19.6

Worcester, MA                              124 8.59 70.41

Yakima, WA                                    155 7.11 23.47

York-Hanover, PA                             78 13.67 45.23

Youngstown-Warren-Boardman, OH-PA 221 4.54 23.03

Yuba City, CA                                   22 24.53 135.96

1-Rankings based on one-year appreciation, for areas with at least 15,000 transactions

REAL ESTATE:  (2006) This paper examines the experience of 14 developed countries for which there are about 30 years of quarterly inflation-adjusted housing price data. Price dynamics is modelled as a combination of a country-specific component and a cyclical component. The cyclical component is a two-state Markov switching process with parameters common to all countries. We find that the latent cyclical variable captures previously undocumented changes in the volatility of real housing price increases. These volatility phases are quite persistent (about six years, on average) and occur with about the same unconditional frequency over time. In line with previous studies, the mean of real housing price increases can be predicted to be larger when lagged values of those increases are large, real GDP growth is high, unemployment falls, and interest rates are low or have declined. Our findings have important implications for risk management in regard to residential property markets.

About time: Sales of existing homes fell for a third time in the past five months in May, with the weakness led by a big drop in demand in the Northeast.

But look at this: (USA Today mid 2006) Many Americans are facing a housing affordability crisis. Here's a look at the metropolitan areas with the most expensive median-priced homes1, and the strongest price appreciation from the first quarter of 2000:


Phoenix Mesa-Scottsdale $268,300 105%

Tucson $248,600 118%


Anaheim-Santa Ana-Irvine $712,600 137%

Los Angeles-Long Beach-Santa Ana $563,900 179%

Riverside-San Bernardino-Ontario $396,200 195%

Sacramento-Roseville $376,200 183%

San Diego-Carlsbad $607,300 142%

San Francisco-Oakland $720,400 72%

San Jose-Sunnyvale-Santa Clara $746,800 N/A


Boulder $360,400 N/A


Bridgeport-Stamford-Norwalk $471,200 N/A

District of Columbia

Wash. DC-Arlington, Va.-Alexandria, Va. $422,500 170%


Cape Coral-Fort Myers $267,400 171%

Deltona-Daytona Beach-Ormond Beach $212,600 158%

Jacksonville $195,600 102%

Miami-Fort Lauderdale-Miami Beach $377,000 175%

Ocala $159,800 124%

Orlando $260,500 143%

Palm Bay-Melbourne-Titusville $208,000 135%

Sarasota-Bradenton-Venice $382,900 148%


Honolulu $625,000 116%


Baltimore-Towson $265,900 125%


Barnstable Township $384,700 N/A

Boston-Cambridge-Quincy $390,400 69%

Worcester $278,700 N/A


Las Vegas-Paradise $317,900 137%

Reno-Sparks $357,000 131%

New Jersey

Atlantic City $251,700 114%

Edison $374,100 100%

Newark-Union $405,300 74%

New York

Kingston $248,900 131%

NYC-N. New Jersey-Long Island $458,500 111%

New York-Wayne, N.J.-White Plains, N.Y. $528,700 119%

Nassau-Suffolk $475,300 127%


Allentown-Bethlehem $233,700 118%

Rhode Island

Providence-New Bedford-Fall River $287,100 103%


Seattle-Tacoma-Bellevue $338,600 93%

1- first quarter of 2006.

Note: Historic data not available for some areas recently added to coverage. Source: National Association of Realtors

* "People who moved to Temecula, 60 miles from here, five years ago had a 60-minute commute to work (downtown); now, it's 2½ hours. What does that do to the family?"

Jim Waring, head of San Diego's land use and economic development office of the mayor

* "The bear market in housing stocks is an early warning of just how ugly the housing market will get, "Publicly traded home builders are more like a futures indicator," he says. "They show where the economy will be four to six or nine months from now."

Housing and home builder stock bubbles were inflated by a series of events that will magnify the unraveling. A combination of  low interest rates, overly aggressive lending and the desire of consumers to buy homes larger than they needed will rip apart once buyers realize their income and savings haven't kept up with their debt

Bryan Sadoff

A history of foreclosures (NY Times 2007) British Foreclosures here are at an eight-year high; lenders have repossessed a record 14,000 properties in 2007, 30 percent more than at the same time last year, according to the Council of Mortgage Lenders. An additional 125,100 households are behind in their mortgage payments.

And personal bankruptcies are at an all-time record, spurred largely by a crushing increase in mortgage debt. The situation has grown so dire — as has the threat of desperate homeowners being exploited — that the newly installed government of Prime Minister Gordon Brown is attempting to change the fundamentals of the mortgage system.

Currently, only 5 percent of British home buyers take out fixed-rate mortgages. The norm here is a mortgage with a fixed rate for the first two years, and then a floating rate for the duration of the mortgage.

But the rate on adjustable mortgages have skyrocketed as the Bank of England ratcheted up interest rates — five times over the last 12 months to 5.75 percent, their highest level since 2001. Add the rising costs of necessities, like food and utilities, and British homeowners are increasingly squeezed.

If there is a silver lining in Britain, it is that, unlike in the United States, home prices are still rising, for now, after more than tripling since 1997. Recent interest rate increases have yet to reverse the trend. In fact, the National Housing Federation recently predicted prices would rise an additional 40 percent in the next five years, taking the average price of a home, which already costs about 11 times the average British salary, to 302,400 pounds, or $618,000.

As long as home prices rise, distressed property owners can still sell their home and get enough money to repay their mortgage debt — in theory. In reality, selling a property here can take several months, and by the time many owners are threatened with foreclosure, they often do not have that kind of time.

Higher prices may push some prospective buyers out of the market, but others will simply take out larger mortgages. Owning a home is so entrenched in the British psyche that most consumers would rather take on additional debt than rent, even if they can’t afford it, say real estate experts.

Some debt advisers have warned that higher borrowing needs could result in an increase in lax lending practices and plunge more people into personal bankruptcy, which in turn could hurt consumer spending and slow economic growth.

Home sales (NAR 2007) Second-home sales dropped from 40 percent of all home sales to just 36 percent

That happened despite a rise in vacation-home purchases, one of the two components of second-home sales. These were actually up 4.7 percent during the year to a record 1.07 million units.

But a precipitous decline in investment-home sales, they fell 28.9 percent in 2006 to 1.65 million units, led to the overall drop in second-home sales.

Some 79 percent said the primary reason for their vacation-home purchase was to use the home for vacations or as a family retreat.

Other factors that influenced the buy include: 34 percent to diversify investments; 28 percent to use as a future home; 25 percent for the tax benefits; 22 percent for use by a family member or friend; 21 percent because they had extra money to spend and 18 percent to rent to others.

Rural areas, at 29 percent of all purchases, were most popular destination with 24 percent buying in resorts, 22 percent in suburbs and 10 percent in cities.

34 percent of homeowners are clueless about their mortgage (2007)

What do you do when your ARM readjusts

What, if anything, is holding you back from buying a home today?

Timber- (2007) financial institutions now own nearly 5 percent of the forests of loblolly pine, Douglas fir and other widely harvested trees in the United States, and that percentage is expected to widen. A significant portion of the timberland is held through privately run timber investment management organizations, or TIMOs.

At the Hancock Timber Resource Group, a TIMO with $6.6 billion in assets and 3.8 million acres under management worldwide, returns after fees averaged 13.8 percent, annualized, from its inception in 1985 through last year, according to Courtland L. Washburn, the chief investment officer. The National Council of Real Estate Investment Fiduciaries Timberland Property Index, meanwhile, rose at an annualized rate of 15.09 percent from its inception in 1986 through the first quarter of this year, and over the last three years through the quarter it returned 14.63 percent, exceeding the 12.25 percent annualized gain of the Standard & Poor’s 500-stock index over the same period.

most minimums at TIMOs, which function much the way private equity funds do, start at around $1 million and rise to as much as $10 million