BluefoxToday blog : May 2007

Let's step away from the subprime discussion and go into something else that for a change should yield positive returns. Enough is enough. Undoubtedly a mortgage is the single largest debt obligation we'll ever sign up for. It can be intimidating, but it doesn't have to be. If handled correctly, it can work to our financial benefit. Why don't we take a look at some ideas here.

Financial experts tend to agree that mortgage money is the cheapest money around. The low rate is just one thing, the other is that the interest is tax deductible. And this brings us to the equity that has accumulated over the years. It can be tapped in a refinance for a house remodel, college expenses, investments and many other uses. That gives us a good start.

A home loan can be used as a leverage, too. Say we go ahead and buy a $400,000 house with a 10% down payment, or $40,000, and the real estate market in this particular location performs decently with a 3% appreciation rate. The annual value hike on the $400,000 house is $12,000, or the yield on the original outlay is about 30%. That is solid.

What about paying down the mortgage quickly? In many cases it works against us. A recent study concludes that 38% of homeowners would earn more by putting the extra mortgage payment into their 401(k) program instead. As we know, 401(k) offers tax-deferred investment growth and often generous matching employer contributions and the interest expense that is saved by bringing down the mortgage balance won't match that. Give this idea some thought.

How else can a mortgage benefit us?

It's straight ahead all right, but the real question is when. First of all, let's clarify this a little. We're talking about residential real estate and more specifically about the regions that have been lately whacked by stagnant or falling home prices, high levels of listing inventories and tougher mortgage underwriting standards. As we know, all real estate is local, so some areas are doing just fine, like generally the Northwest and New York City.

The rebound may still be a few months away for the affected regions. We're seeing encouraging signs, though, that the slide appears to have come to a halt and where you go from there is up. First cautiously maybe, but up anyway.

Just last week the Commerce Department issued a report that new home sales for April jumped 16.2%, a solid gain. Today the Conference Board tells us that the Consumer Confidence Index increases a few ticks, indicating that the consumer is mildly optimistic. Even the job market remains quite healthy. These are good signs for the psychology of buying, whether it's a new house or a piece of furniture or whatever. Yes, we still hear and read about the real estate market's struggles, but at least some positive news are now cutting in and claiming more headline space. That's what we need.

The consumer index is an important barometer. The consumer, after all, is the king because his spending represents about two-thirds of all of our economic activity. And the mortgage and residential housing industries play major roles in it.

The green town of the future is already on the drawing board for a Florida Panhandle site. The developers are determined to join the gradually growing $12 billion a year sustainable building industry and make Sky a reality as soon as possible. Upon completion it would house about 600 families on 571 acres, roughly half of which would be reserved for farming where homeowners can grow produce in their own gardens or in community plots. The developers like to caution here that it's not going to be a commune, like where the hippies of days gone by went to live.

It's designed to attract people who are environmentally conscious and want to join others thinking the same way. They're those who just want to say no to large, crowded cities and clogged freeways. They have the necessary desire to contribute to the battle we now face with global warming.

Florida State University's Center for Advanced Power Systems has signed up to work as partners in the project, helping in the town's overall design. For instance, engineers are hoping to develop one central air conditioning system for Sky that would then deliver cooled air to individual houses. The aim also is to use the Earth's underground temperature to either cool or heat homes. Besides that, they're looking into operating appliances with batteries powered by solar energy.

As we can see, they're working on a host of things that would surely make a difference and with any luck Sky could become a prototype for towns to come.

The other day I was scanning this story about a book titled "Cities Ranked & Rated" and figured its my duty to say something about it. The publication uses all sorts of criteria to arrive at its conclusions about over 300 metropolitan areas in the country. Some of them are leisure opportunity, health care, job availability, auto theft rate and so on. Generally speaking the usual stuff, but also a few new items.

Las Vegas is ranked a disappointing 154. And you wonder what happened? Whenever you see one of these, you'd like to think right away that your place is for sure top ten material. Well, didn't work out that way in this list for us.

On the good news side Sin City ranks well in job growth which we already know is one of the better ones around. Another bright spot is the household income that scores well above the national average. And here's an important one, we have 66 Starbucks vs. 13 in the national average. That should've helped a lot, but obviously didn't.

On the bad news column we can find our health care ranking at 349 out of 373. That's terrible. No wonder plenty of people go out of state for anything more than an ingrown hair removal. Other weighty ones in it are transportation and education. When you assess that information it kind of tells you that the rapid growth here in Southern Nevada has been so overwhelming that the infrastructure, human and physical, fails to keep up. In short, that's the cost of being a boom town.

And this is my personal beef about the rankings. How did we earn a measly one on a 1 to 10 scale for restaurants? The national average shows a two. The last time I checked the Strip resorts nowadays host dozens of world famous chefs that cook American, Asian, French, Hawaiian, Italian and just about any cuisine you can think of. The food is great, the wine tastes good and the places are packed.

To voice your opinion about the list, go to www.bestplaces.com.

Who are these guys? The talk about who is to blame for the subprime jolt is going around as strong as ever. Consumer advocates are leaning hard on the mortgage industry. Washington is probing into the practices of the secondary mortgage market that packages loans for investors. Lenders are pointing the finger at real estate speculators. And so it goes. Oh, wait, why don't we take a look at the speculators, or investors.

Let's examine unscientifically how human nature and a market economy interact? To me one large reason to the current real estate mess is the adverse impact caused by the speculator. I can indentify two kinds of them.

One is the professional speculator. He's often called a flipper. He's knowledgeable about property values and mortgage financing and how to smooth-talk. He spends his time searching for a market about to make a move and when he finds one, he jumps in and starts acquiring assets. In time more speculators smell profit in the same market and follow the lead man in and all this fuels the rising market into a nice gallop. Early on and midway through they all garner handsome profits. If they're smart, they'll time the end of the cycle and then get off the runaway train and start the search all over again.

The other is the weekend speculator. He's your regular homeowner who keeps a half eye on the neighborhood property values and knows exactly what type of a home loan he has. All of a sudden he realizes that the house down the street sold for much more than it should've, because the pro speculators had moved in and were bidding up prices. He gets excited about the prospect of earning some real money by becoming a part-time investor. Large dollar signs dance across his eyes. He bravely buys in and soon others like him join the frenzy and so it continues until the artificially created upmarket just slams into a wall for everybody. And it's all over, the dollar signs broken up and scattered across the yard.

Those who entered the hot real estate market late are now licking their deep wounds. But the fact of the matter is that it's human nature to seek gains, or profits. In this case money. And the basis of a market economy supports that condition. As long as we have a market economy, we'll have the inevitable ups and downs because we, the people, make it behave that way. Those who choose to participate have only themselves to blame if their timing is off. And those who decide to stay out and look from the sidelines, prepare yourself early for the downturn.

As a former member of the local resort food & beverage scene I still keep an eye on its latest happenings and developments. When you spend as much time as I did making a living there it sort of gets in your blood and won't let go. Yes, and who doesn't mind talking about fine food and beverage and sampling the same. I certainly do.

The Epicurean Foundation was founded by Rino Armeni a few years ago to advance culinary education in town and to raise money it holds an annual dinner and the proceeds from that go to scholarships. Currently it supports twelve local high school students either at UNLV or the Culinary Institute of America. Besides financial aid, it also offers the students professional and ethical guidance and mentors appropriate work experiences. Very noble cause.

It just held its sixth anniversary dinner at the Stirling Club at Turnberry Place. The award-winning chefs who were honored this year are Alessandro Stratta from Alex at Wynn Las Vegas and Julian Serrano from Picasso at the Bellagio. Big names in the chef business. I don't know how involved they were in the event's menu planning, but to give you a glimpse of the evening's flavor, the reception featured crusted tuna, assorted fois gras and caviar appetizers. That's a nice start to any kind of gourmet dinner.

Southern Nevada Water Authority, or SNWA, has a large responsibility to carry on its shoulders. As the Las Vegas metropolitan area keeps on growing at a healthy pace, it has been working tirelessly to satisfy its ever-increasing water needs. But growth is only one thing to worry about. Another is that this is a desert. Annual rainfall here is almost nothing. So, think about that. To throw in one more challenge is the current drought in the region. To put it mildly, SNWA sure has its plate full.

One of its conservation programs involves local builders. It's called the Water Smart Home and was developed in partnership with the Southern Nevada Home Builder's Association. The homes that qualify will exceed the federal water efficiency standards and can save up to 75,000 gallons of water every year. That is a lot of water savings per house. It is voluntary, builder-funded and the largest new home water efficiency program in the country. I can understand why Southern Nevada is at the forefront of national conservation efforts. It has to be. There is no other choice.

The newest member is Pulte Homes and their first Water Smart neighborhood will be built in Summerlin. But Pulte is going one step further in a show of commitment to the community. They are also building 20 ultra-high-efficiency houses in the same neighborhood that is part of a national study of water efficiency in new homes. SNWA and EPA are in on this national effort as joint sponsors.  

It's encouraging to see more builders join the Water Smart Home program. I wonder what will happen if the drought continues another several years. Will a membership become mandatory? It might go to that.

When I first saw the news I had to rub my eyes and refocus. What I looked at on the screen might be just a mirage, the result of wishful thinking that is playing mind games with me. But it was true. It was real. The Commerce Department reports that in April the sales of new single-family homes leaped by 16.2%, a much larger increase than most experts had predicted. No problem, I'll take that number regardless of the economists' gloomier expectations.

It's the best news we in the residential real estate business have received in a long while. But we have to be careful not to overdo it. We need to keep our feet to the ground. This is just the first sign that maybe a recovery has finally started. It's still a long road to a completely healthy market environment.

South had the best showing with a 27.8% climb in new home sales, West was next with 8.5%, Northeast had a 3.8% gain and Midwest actually fell by 4%. As we can see, it's still for the most part a regional issue. And a local issue.

That's the good news. Now to the other side, the less than good news. The median price of a new home dropped a record 11.1% in April, to $229,100. The major reason to that decline is that builders have aggressively cut prices to move inventory.

What's the best about this is that the media is at last reporting something positive about the real estate sector. It has taken a while to get this far. For the last several months it has been nothing but trouble here and trouble there. Congressional hearings in Washington and blame games and foreclosures and subprime bankruptcies. It appears that there's light at the end of the dark tunnel.

The real estate down market many areas are currently going through poses several dangers in the form of foreclosures. Sometimes we don't pay much attention to a foreclosure in our neighborhood, but we really should. It's understandable to feel sorry for the people who have to leave their home under a cloud. It's never easy for anybody.

We ought to look beyond the emotions, however. What does it mean to the property values in the area? To the value of your own house? Usually they'll suffer. Could be very little, could be substantial. If there is only one, it probably won't have much of an effect. But should there be several, look out. Whoever, be it a bank or the homeowner, is selling wants to move the property fast and at almost any price. There is not much neighbors can do to change that sequence of events.

But there is something they can do to protect their property values when a foreclosure sits vacant for a longer time. These homes are often in less than stellar condition and tend to attract vandals and squatters and other opportunists on the prowl for appliances. This sort of activity will further depress the property's value if left unchecked. Therefore, area homeowners could team up to keep an eye on the foreclosure.

Here's an inspiring example of teamwork. When one bank refused to maintain a foreclosure yard before finding a buyer, homeowners on the same street agreed to do it themselves to preserve the neighborhood's clean-cut character. I'd call that pro-active. It may cost you some time and a few dollars, yet the savings at the end could be generous. 

The term lobby bar generally has very little luck in getting anyone honestly excited. Major hotels in Las Vegas and beyond have one somewhere within a short stroll from the front desk to give you a hand in quickly dousing your thirst or need for a temporary boost. Typically they're not much to look at, only a space with lots of bottles of liquor on display in front of mirrors and clean glassware throughout. And maybe a couple of micro-brew beer taps.

Vegas is moving in a slightly different direction now. The idea is to make the lobby bar a destination you can spend quality time in. Not just come and go. The Galleria bar at Caesars is attracting a steady stream of hotel guests, shoppers from around the property, some locals and resort visitors. During the day it's a place to sit down and relax and people-watch, which is often entertainment in itself. At night there is sensible entertainment that allows quiet conversation, if that's what you prefer.

MGM Grand's answer to the challenge is Zuri. It's decor is rather appealing with severely padded couches, chairs and foot stools and there is real floor space between them, too. Daytime guests include conventioneers who come in to start a deal, maybe even involving residential real estate, work on a deal or close a deal. Those who have no deal to work on, just mingle. Hotel guests frequently choose to plan their day on the premises or meet one another there. At night it has carved itself a niche as an after-dinner destination. To give the bar atmosphere a variety of music is piped in that is kept low to accommodate proper interaction.

The concept has been a hit. The trend is catching on along the Strip. Lobby bars used to be break-even missions but are now slowly turning into revenue generators. They add a new flavor to any resort in the fierce competition for customers. The casino was the king in the past but is gradually seeing its role diminish as other features, the latest being the revamped lobby bar, move in to claim territory.