Homeowners' Love of Remodeling Will Help Push Up Home Values

U.S. consumers will continue to put money into their homes, satisfying our cravings for two-person showers and granite countertops - despite the housing slowdown.
By: June Fletcher: The Wall Street Journal Online
Remodeling Urges Help Push
Home Prices Upward, Expert Says

Does a desire for two-person showers, travertine floors and granite countertops push home prices up? Housing economist Tom Lawler, a Vienna, Va., consultant, argues that it does - and says these cravings are partly responsible for ballooning home prices throughout much of this decade. In a subscription-only report, he notes that household spending for improvements for single-family homes increased to $1,900 last year from $1,100 in 1997, and that such spending will likely continue to rise, despite the slowdown in home sales and prices reported earlier this week by the National Association of Realtors. Although the impact of these spruce ups is hard to gauge statistically - improvements often aren't noted in public records - he estimates that overall, remodeling is responsible for 1% to 1.5% of home-price appreciation each year. So, while prices overall may continue to decline due to overbuilding, speculation and risky mortgages, remodeling will continue to add real value to many homes.

Commercial Real Estate
Outshines Housing Market

So what if housing has hit the skids? The outlook is still pretty sunny for the commercial and multifamily building industry, according to the second-quarter databook on the sector just released by the Mortgage Bankers Association. Although the report acknowledges that consumers may not be spending as freely as they did when they thought their homes were ATMs, it's cautiously optimistic about the future, noting "consumers are still hanging in there." Meanwhile, demand is still strong for rental apartments in many markets, like New York and Chicago - no doubt the result of skyscraper-high housing prices - and commercial building is picking up speed almost everywhere. During the second quarter of this year, the report shows that commercial and multifamily mortgage bankers' loan originations increased 17.3% compared to the year before and 23.3% over the first quarter.

Federal Agency Calls for Reform
Of Freddie Mae and Freddie Mac

In a speech before the National Economists Club Thursday (Sept. 28), James Lockhart III, director of the Office of Federal Housing Enterprise Oversight, called for reform of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, "due to their history of mismanagement and massive size." He said that Congress should grant OFHEO bank regulator-like powers with independent legal authority, improved enforcement capabilities and better funding to oversee the GSEs and rein in their growth.

New York Commemorates 9/11
With Outpouring of Daffodils

DaffodilFest will take place at 11:30 am on Saturday (Sept. 30) at Union Square Park in New York, with free food and drinks, jugglers and a giant puppet parade. But the real purpose of the festival is to commemorate those who died in the 9/11 terrorist attacks. For the fifth year in a row Dutch bulb supplier Hans van Waardenburg of B&K Flowerbulbs will give out 50,000 free daffodil bulbs in the hopes that gardeners will plant them in memory of those fallen. Since the project's inception in October 2001, New Yorkers have planted more than 3 million daffodils through the city, according to the organizers, Parks and Recreation Commissioner Adrian Benepe and New Yorkers for Parks co-chairman Lynden Miller. We think that's a great gesture for gardeners to copy everywhere.

Homes Seen as a Nest Egg
By Most U.S. Homeowners

Although housing prices nationwide are falling, nearly half of all homeowners still expect the value of their homes to rise at least 5% a year, according to a recent survey of 1,003 Americans by RBC Capital Markets, a corporate banking and investment banking firm. Our homes are still our nest eggs: About 80% of homeowners surveyed estimated that they have at least $50,000 of equity in their homes, and 60% said they have at least $100,000. Surprisingly, many of those polled are immune to worries about interest-rate hikes, since they've already paid off their mortgages. But those who got risky variable-rate and interest-only mortgages are getting worried: Nearly four out of 10 such borrowers are concerned about how they'll meet higher payments.

Comparing Home Prices Within
The U.S. and Across the Globe

Coldwell Banker has released its annual Home Price Comparison Index of 382 markets - including, for the first time, 42 markets outside of North America.

The study, which compares typical 2,200-square-foot, four-bedroom homes, found that the cost of a home in Bend, Ore., is commensurate with one in Amsterdam, The Netherlands, while one in Sydney, Australia, costs as much as one in Bellevue, Wash. The most expensive market in the study? In the U.S., it's Beverly Hills, Calif., naturally, where a typical house costs a cool $1.8 million; the most affordable, Minot, N.D., where the same house (but with a much-diminished chance of a TomKat sighting) costs $132,333. Overseas, the priciest market is Milan, Italy, where the sample home costs slightly more than $1.8 million; but in Bogota, Colombia, you can find the same quality house for $56,522.

And for your parlor-game pleasure: The site also has a nifty home price comparison tool. You enter your home's estimated market price, and it shows you what that would buy you in three separate markets of your choice.

Assuming that, in this topsy-turvy market, you actually know what your home's market value is.

Trade Group Predicts Number
Of New Homes Built to Increase

The National Association of Home Builders released its long-term economic forecast Tuesday (Sept. 26), projecting to the year 2015. Although the report is subscription-only, a summary says that while production and sales will slow over the next few years, overall the numbers of new homes built over the next decade will reach historic highs - though no single year will match last year's record of 1.72 million starts, fueled as it was by a combination of speculation and low-interest-rate mortgages.

Fair enough - there's plenty of pent-up demand in the market, among both the millions of boomers on the verge of retirement and would-be first-time buyers who were priced out of the market during the recent housing mania (notice we did not say "bubble"). But the report also predicts "larger average sizes" for new homes over the coming decade. Huh? In a market that will be dominated by first-time buyers and retirees? We don't think so - or at least, we hope not.

Baltimore's Foreclosure Rate
Higher than Neighboring Cities

Baltimore homeowners face a higher rate of foreclosure than other nearby cities, according to a new report by The Reinvestment Fund, supported by the Goldseker Foundation.

The report shows that there were 30.6 foreclosures for every 1,000 owner-occupied households in the city, compared to 16.1 in Philadelphia and 12.2 in New Castle, Del. Many of those who are losing their homes are young, with little cash and poor credit. Once their homes are lost, they often aren't resold to other young families -- increasingly, they're being bought by investors.

To help families facing foreclosure keep their homes, Baltimore Mayor Martin O'Malley announced today (Sept. 27) a new initiative that includes counseling services. The initiative was spearheaded by a new coalition of government and non-profit groups called the Baltimore Homeownership Preservation Coalition.

About Half of U.S. Businesses
Are Operated From Home

So much for the stereotype that folks who stay at home sit around drinking gin and eating bon bons: The U.S. Census Bureau just-released results of its 2002 Survey of Business Owners, which shows that almost half of all the nation's businesses are operated from home. For 70% of these owners, the home business is their primary source of income; six in 10 use their own money or family assets to finance the start-up. Nearly two-thirds of those who launch a home business have some college education, and 60% are at least 45 years old.

Still a mystery: If so many people are working at home, why are the roads still so clogged at rush hour?

Real-Estate Search Engine Trulia
Expands Its Reach Across the U.S.

Trulia, a residential real-estate search engine that debuted last year in San Francisco, has gone national. It's not quite as cool or comprehensive as Zillow, which shows aerial views of houses and just recently allowed homeowners to update information on their homes so valuations are more accurate. And Trulia's "interactive heat maps," which, the press release claims, "dynamically search a city to see which neighborhoods and zip codes are hot or not!" are subjective, since they're based on consumer impressions.

But House Talk likes anything that puts essential information that used to be closely guarded by the real-estate industry into the hands of the people. So it's worth visiting this site to check out the home comparison search tool, which shows recent comparable sales, as well as the neighborhood snapshots, which show weekly changes in average and median sales prices, price per square foot and number of sales. We also liked the easy-to-use tabs linking to stats on income, crime, the age of the housing stock, commuting time and community services.

Real-Estate Telanovela Coming
To a Television Station Near You

As if steamy affairs, coma awakenings and backstabbing lovers aren't enough, a new telenovela called "Nuestro Barrio," or "Our Neighborhood," will debut this Wednesday in seven markets. But though most soap operas have underlying morals about sex, this one has a different twist: It's moralizing about money.

Specifically, into the usual storylines of romantic intrigue and jealousy, the Spanish-language soap opera weaves subplots warning of predatory lenders, out-of-control credit-card debt, redlining and other obstacles to home buying.

The program is targeted to Spanish-speaking buyers because Hispanics are the country's fastest-growing minority group. According to the U.S. Census Bureau, one out of two people added to the population in the year ending July 1, 2005 were Hispanic. Currently, the nation's 42.7 million Hispanics comprise 14% of the population; by 2050, they're expected to make up 24% of the population.

But many Hispanics are recent immigrants with misconceptions about the process of home buying and its potential pitfalls, lenders say. So rather than resorting to the usual dry brochures and public service announcements, Community Reinvestment Association of North Carolina, based in Durham, a nonprofit group, created this spoonful-of-sugar approach. A test run of the soap opera proved popular with focus groups, so on Sept. 27, it will roll out in Austin, Texas; Dallas/Fort Worth; Houston, San Antonio and Phoenix; and Oct. 1 in Miami/Fort Lauderdale.

Freddie Mac, which packages and sells loans on the secondary mortgage market, funded the first 13-episode season of the season. One reason was to encourage homeowners who get into financial trouble to call their lenders before their loans default -- a big concern these days as interest rates tick up. A foreclosure typically costs a lender almost $60,000, Freddie says.

Moving Study Looks at States
New Residents Are Choosing

About 43 million people move each year. St. Louis, Mo.-based moving company Mayflower surveyed 5,800 of them to find out why; in order, the top reasons were a new job (33.8%), new retirement location (31.8%), health or personal reasons (22.4%) or a company transfer (12%). More than half of those studied (54.5%) moved at least once within the last five years. And the most popular destinations, based on the company's 86,000 annual shipments? In order: South Carolina, Washington, D.C., North Carolina, Montana and Kentucky. The losers: North Dakota, New Jersey, Connecticut, New York, Nebraska and Michigan. We have the numbers for all 50 states.

Touring New-Home Models
Via Builders' Podcasts

Podcasting, short for 'personal on-demand broadcasting', is catching on with home builders who want to reach out and touch their customers 24/7 on their iPods or computers. Taylor Woodrow, a firm based in West Midlands, England, that also builds in the U.S., is showing podcasts on architectural trends, as well as some of its California communities, with streaming video of various models and plans. When we visited, the technology worked smoothly; it was much less herky-jerky than the typical online virtual tour. But we could have done without the distracting background sales chatter, which sounded like it was being delivered by a robot realtor with the dial set on "perky."


- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.