BluefoxToday blog : June 2007

It's encouraging to see that Washington is taking steps, still kind of small but steps anyway, to fund research on how to increase efficiency in our houses. The home building industry is already spending money on it and now the federal government is joining in. The two-prong approach will add more muscle to the effort and ultimately benefit everyone. The U.S. Department of Energy just announced that it'll have up to $40 million available to support research, development and deployment of technologies that will eventually cut new home energy consumption by 30-90%.

What exactly is the research zeroing in on? The goal is pretty clear from what I gather. It aims to bring new energy efficient products to the real estate market, enhance builder productivity, decrease construction time, come up with new and creative home designs and curtail waste. That's a comprehensive list of processes in the building of a home and if the program can achieve half of its goals, we're making solid progress. The research program is supposed to engage architects, building scientists, builders, community planners, mortgage lenders, equipment manufacturers, engineers, material suppliers, realtors and contractor trades. I'd say that's just about everybody.

The initiative is a component of the Building America project, a public-private partnership, that is seeking to make green-minded changes to the home building industry. Its objective is to facilitate by 2020 the production of net Zero Energy Homes which means that a home would annually generate as much energy as it uses. That would be novel. And good for the planet. If my tax dollar goes to support research like this, I'm all for it.

It is if you look at the report that the National Association of Home Builders, or NAHB, and Wells Fargo just published. The study took into account the median family income and the median sales price of a sample metro area during the first quarter of 2007 and then arrived at an affordability index. According to its findings, Las Vegas ranks 186 with only 18.9% of households able to purchase a median-priced home. That is a worrisome number.

I don't know what the index was before the residential real estate boom started early this decade, but it must've been much higher than the above figure. Those days you could buy a nice 3-bedroom house for $140,000, while today the same home will cost double that. The other component in the index is the median income and all I can say is that it certainly hasn't doubled here in the last 6-7 years. Incomes have improved some, but nowhere near the home value pace. In short, there is the reason to the low number, the 18.9%.

In addition, this affordability weakness is largely responsible for the current sluggish real estate market here in Southern Nevada. Household incomes simply aren't high enough to support a normal buy and sell environment. So, what is the solution? Incomes would have to rise quite a bit to close the gap, but for it to have a meaningful impact would take years. Many years. The other solution is lower prices. And that is presently taking place, although slowly. This route will help the market faster, at a cost. The fat equities that some homeowners have accumulated are going to shrink.

The report tells us that nationally affordability has improved to 44% in the first quarter, from 41.6% in the last quarter of 2006. That hike is clearly the result of the current housing slump, one of its benefits. The most affordable major market area was Indianapolis with an index of 89% and the least affordable city was Los Angeles with an index of 3.0%, and the ranking of 219. I mean, who is buying homes in the LA area?

Maybe that's the medicine we need here. Lower real estate prices, that is. Well, I understand, no one wants to see his house value drop, and that includes me. The equity you were counting on could be 5% less in a matter of months. Or 10% less. Or even more than that. Anyway, the market here is still reeling and the sooner we get to the bottom of it, the sooner it can settle down and then return to normal again. Right now we are in a wait mode that serves no purpose.

According to a local analyst Dennis Smith, in May the price of a new single family home declined 3% to $308,874, when compared with April's figures. To read the complete article, please click here.

Summerlin has been famous for years for being one of the top-selling master-planned housing communities in the nation. Which has partly helped Las Vegas carve a favorable niche for itself as a livable city. Besides that, it has top finishes on other lists, too. It was the first local developer to introduce extensive desert landscaping in its common areas and it did something in 2003 that was thought unthinkable only a few years ago, namely doing away with lawns in front of new homes. Summerlin has earned the image of blazing the way to innovative and somewhat untested solutions.

Now Summerlin is at it again. It is selling 300 acres of land to Pulte Homes in its northwest corner because the builder is committed to green building practices for its planned project there. It'll be called Reverence and it is to open sometime in 2008 and upon completion the village will have about 1,500 homes.

Let's look at some of the environmentally important features at Reverence. Southern Nevada Water Authority has a water-smart program that encourages water saving and Reverence qualifies for it. It'll feature desert landscaping and water-sipping plumbing. Sprinklers in common areas will use advanced timers that turn off watering when it's not needed, like during rainy days. The recreation center, 13,500 square feet in size, will be designed to meet the U.S. Green Building Council's LEED criteria. That is a large step, the LEED certification. Furthermore, Pulte is still considering what type of eco-friendly home design and building materials to use and when decisions are made, will announce them accordingly.

Do Las Vegas residents favor energy efficiency in their homes? They definitely do. A recent survey found that 90% of them mentioned it as a key factor. 88% are also familiar with the Energy Star logo, which signifies that the builder uses environmentally sensitive materials and appliances. How about this statistic. In 2006 over 65% of new homes sold in Las Vegas were in the Energy Star program. The next best city in U.S. stood at 35%.

That's the wording on one of the more famous signs on the entire planet of ours. This star sits just south of Mandalay Bay in the middle of Las Vegas Boulevard South, or like many call it casually the Strip. It was designed in 1959, certainly a few moons ago, by Betty Willis who still resides in town. In those days her skills at neon design were supposed to convince Californians to come back and do a little gambling and from what I know, the sign has done its job real well.

So driving north towards town you would read Welcome to Fabulous Las Vegas on the face of the sign. On the other hand, when you are leaving the gambling mecca heading south, the reverse side says fittingly Drive Carefully. See, the casinos are concerned about your well-being. But today's visitors regrettably haven't paid that much attention to those two words. When they want their pictures taken in front of it, they've become rather determined. They bravely dash across three lanes of traffic with their lives hanging on the balance, they park rental cars in the middle of the boulevard, they ask taxis and limousines to drop them off right there blocking traffic, they do just about anything to make it to the sign for pictures.

So, the location has become a unique hazard by being so popular. At last Clark County has had it with the horror stories it keeps generating. The gavel came down recently with a bang and it's going to build a small parking lot in the wide median right in front of the icon. When it's completed in the months ahead, the newlyweds, film crews, tourists, showgirls and the rest can cruise over in peace for their photo op. Saving innocent lives is always a relief.

The residential real estate market in the last year or two has been rather trying for new home builders in just about all regions of the country. Some areas have weathered the storm a little better than others, but overall the market is in a slump. Even though they have dutifully cut back on the supply, demand for their product has languished below the supply level and thus led to the weakened state they're in now. Let's look at two notable developments associated with this shift.

In 2006 the 100 largest builders managed to increase their market share to 44%, from 37% in 2005. This despite the fact that sales for the entire market was down by 231,000 units from the previous year. This is what happened with the top 100. The elite of them, the top 10, fared even better. That revered segment increased its share from 21% up to 25.7%, as reported by Builder, an industry journal. Which translates to slightly more than one house from every four sold. Not bad. Consolidation is clearly under way.

By the way, the top three builders based on closed sales were D.R. Horton, Lennar Corp. and Pulte Homes.

Secondly, the incentives to move inventory are very much alive and getting more creative. Since people hardly camp outside the sales office doors any more, something has to be done to stir their interest. A National Association of Home Builders, or NAHB, survey reports that about half of its members have reduced prices by the average amount of 7% to do that. On the other hand, roughly 75% are using non-price inducements, like free options and upgrades and buying down the mortgage interest rate. These are the typical ones.

One builder in Georgia has put together a more exotic package. If a prospect has a house to sell before he's able to buy a new one, it has arranged to take care of the home loan payments up to a year. Now there's an incentive for you. That'll ease up the buyer's concern about two mortgage payments. Another company gives the prospect the use of a resale team that helps with painting, plumbing, gardening and handyman issues to spruce up the current home. The final touches are then applied by a stager. I like the creativity here.

It was only a matter of time before the news started surfacing about unsavory operations preying on foreclosure victims. That business is now in full swing across the land. As the housing troubles deepen, the legitimate, mostly non-profit, companies are forced to compete with the scam artists for the ear of the homeowner in distress. The one who is the most convincing gets to help, or to rip off. 

The scammer's plan has one basic aim, get his hands on the homeowner's equity. To pull that off, his first job is to find a house against which a mortgage lender has filed a notice of trustee sale at a local court, the initial step in the foreclosure sequence. This information can be accessed at the courthouse or obtained from one of the many Internet firms that sell public data. And eventually he acquires a list with plenty of names on it.

Then, through tax records, he looks at how long a particular owner has lived in his house and if it's for several years, that's the one he chooses to target. This home most likely is carrying a large equity, in other words real money. Recently purchased or refinanced ones don't interest him because there is no equity or very little of it. Now the phone starts ringing at the delinquent property and the white knight makes his presentation about how he's going to help the owner work his way through this rough stretch in his life.

Generally, the rescue artist either offers to do a refinance or execute a lease option that would let the owner purchase the house back later on. The anxious homeowner agrees to do one of them. And now comes the final scam. More often than not, hidden in the pile of closing papers is a quit claim deed and the minute the owner signs it, the home belongs to the white knight. Done deal. Typically, the former owner can stay in the property, but the rent is by design so high that he can't cover it, gets evicted and the scammer grabs the equity for his troubles.

According to laws in most states, it's quite legal for one person to convince another to transfer his ownership over. The other thing is that when a crooked rescuer makes his promises, it's in most cases all verbal, so how do you prove deception in a court of law. The only legal route the homeowner actually can explore is through civil proceedings. Many states today are working on tightening their laws around this issue and hopefully they get it done sooner rather than later.

The Southern Nevada real estate market continues to struggle. In its latest report the Home Builders Research, a Las Vegas firm, registers 1,724 new-home permits in May, putting the year-to-date total at 7,934 that in turn tells us that there is a 34% decline in the figure from the same time last year. A considerable drop, I must admit.  What's surprising is that even though local builders are offering incentives in all shapes and sizes, the sales still remain sluggish.

Industry analysts are now saying that the new-home permits are likely to stay flat for this and most of next year, too. One important reason to that is the high existing home inventory, now over 24,000, and nearing an all-time record set in October of 2006. To read complete article, please click here.

Hoover Dam has carved a name for itself for places to see when in Las Vegas. A visit there is well worth it. It was made possible by the Colorado River that gets its start high in the Rockies and after a 1,400-mile twisting run winds up at the Gulf of California. The river was erratic in its natural state, causing flooding in the early summer from snowmelt and then later in the year it would almost dry up. So, a decision was made to control it by dams, most famous of which is the Hoover Dam just a stone's throw outside Sin City.

It's two main benefits are electricity and water. The huge concrete structure sits in Black Canyon and houses inside its thick base 17 massive generators that are 70 feet tall and have 400 moving parts. To do maintenance on one takes three months, they are so large. All in all the dam provides electricity to 13 million customers, and supplies over half of Southern California's power needs.

The primary benefit, though, is water. It brings water to 18 million people, which translates to about 1 in 16 Americans. The farthest customers are way over in San Diego. It provides irrigation to 1.5 million acres of crop land in U.S. and Mexico. As you can see, it's a major source for water here in Southwest. The seven states and Mexico through which Colorado runs are part of an agreement that spells out how the water is divvied up.

Lake Mead is the reservoir that the dam established, the largest in the nation. Locals like to go there to do boating and I guess there is some fish in it, too. The dam itself is a tourist attraction, drawing 1 million visitors a year. If you go, take the guided tour and ride the elevator down to the base. From there you can really see and understand, when looking up, how huge it is. And while back on top, you'll notice the water rings on the rock surrounding the lake that tells you about the drought affecting our area.

If your FICO score comes in too low you can go online and look up a specialty company there that will help you boost it by up to 300 points. Go from, say, 500 to 750 in a matter of weeks. That improvement will make a large difference when you apply for a mortgage, not only putting you in a position to get a home loan in the first place, but also making you eligible for a lower rate and possibly fewer fees. How is that doable, you might ask?

Here's how it works. These specialty Internet companies recruit credit card holders with excellent payment backgrounds to rent their credit by allowing borrowers with poor credit to be added as authorized users on their accounts. The companies then pay the renters a percentage from the fees they collect for their dubious services. Allegedly the renters can make several Ks a month by doing this.

The fake users have no access to the credit card itself and therefore cannot charge anything on it. But FICO's software will now spread the renters' stellar payment histories straight to the files of all authorized names on the account. This in turn will promptly hike the scores for the fake users.

Typically parents have added their children on their credit card accounts as authorized users, or they could be close relatives or friends. That has been the pattern up until now. Federal law permits anyone to become an authorized user, in other words there are no limits to how many it can be. And the specialty Web companies are the first ones to shout that they are not violating any laws and they are not trying to defraud the mortgage industry.

But mortgage lenders, federal and state regulators and credit businesses think otherwise. They see a serious problem with this practice, asserting that the home loan application becomes fraudulent with this massaged information. And FICO largely agrees with this assessment. It has a new model, FICO 08, ready to launch in September and it will effectively do away with this practice. I have to agree with that.