Home Ownership and Wealth Building

[One Step Ahead]

Dang.  That's some complicated stuff that I never would have thought of . . . sounds like it would have been a good option for some, though.

I don't think it would have been a good option for anyone.

if you got into the scheme in the first round, half of your mortgage or more would be paid off.  it is the folks getting sloppy seconds that are really screwed.

[A.]

America will prosper!

[A.]

An amusing 2.5-y.o. article (lol note the lawyer salaries...amazing how far we've come just since I've been in law school):

February 27, 2005
Six Figures? Not Enough!
By ALEX WILLIAMS

MAUREEN SPILLANE, an executive at a shoe and handbag maker in New York, always thought a $100,000 salary equaled serious success. Like many professional people, however, when she finally broke the barrier, she was a bit deflated to learn that it was hardly salvation. It still took her several years of "hoarding away" and avoiding standard Manhattan indulgences - fancy food, fancy clothing - in order to afford a down payment on a one-bedroom fixer-upper on the Upper West Side.

"It's not the big shiny number that you think about when you first get out of college," said Ms. Spillane, who is in her mid-30's. "Don't get me wrong, I'm making a nice living, I enjoy what I do. I'm certainly in a better position than a lot of people."

"But Melania and I don't shop in the same places, let me tell you," she said, referring to the latest Mrs. Trump, Melania Knauss. "I'm not jetting off to the Bahamas."

There was a time not long ago when earning six figures was a significant milestone among upwardly mobile professionals. If you were young and single in one of the nation's big cities, you could live in a building with a doorman, drive a European car, eat at fine restaurants and vacation in Jackson Hole. For married people it meant a suburban home and college savings accounts for the children.

Beyond the lifestyle, $100,000 was a psychic achievement; it meant joining the meritocratic elite. The prospect of "six figures" kept white-collar workers toiling for 20 years, confident that hard work would be rewarded and that the American social contract was securely in place.

Certainly $100,000, which is more than twice the national median household income of $43,527, is still a princely wage in most of the country, placing you in the top 5.2 percent of American wage earners with full-time jobs, according to the 2000 census. Even in New York City, only 7.5 percent of full-time workers make that much. But $100,000 isn't what it used to be. It has been devalued, in the practical sense by inflation and psychologically because it is now a relatively common salary for newcomers in fields like law and banking. For today's executive strivers in the more affluent cities, there is a new grail: $200,000.

"It's the new black," said Bill Coleman, senior vice president in charge of compensation at Salary.com, an online career service based in Needham, Mass., that tracks executive pay. "There's a lot of bunching between $100,000 and $150,000. That's the vast majority of the people who used to aspire to $100,000. Now they are aspiring to $200,000 or $250,000."

"It's the players," he added, echoing a common sentiment, "who make $200,000."

While a salary of $100,000 is still "rarefied," said Jared Bernstein, a senior economist at the Economic Policy Institute in Washington in charge of its living standards program, in many regions "it's not uncommon for households in that range to feel pinched."

Housing in cities like New York, Boston and San Francisco can cost three or four times that of the national median, Mr. Bernstein said, to say nothing of the escalating prices of big-ticket items like education and health care.

"There are certainly cities in this country where it takes an income of a couple of hundred thousand dollars to start to genuinely feel affluent," he said.

Not for nothing did Senator John Kerry propose rolling back tax cuts during the presidential debates on those earning more than $200,000, symbolic of "the rich." Not for nothing did the Nestlé candy company change the name some years back of its $100,000 bar. It is now the 100 Grand bar. It seems $100,000 doesn't summon the old magic.

Passing the $200,000 threshold these days appears to be a ticket to the good life much in the same way that crossing the hallowed $100,000 barrier was during the prime yuppie years of the 1980's. About 1.9 million tax filers (or less than 2 percent) reported gross adjusted incomes between $200,000 and $500,000 in 2002, the last year for which the Internal Revenue Service has compiled statistics. The year a similar percent of tax filers had incomes between $100,000 and $200,000 was in 1987.

In the 1985 film "Lost in America," Albert Brooks's character was able to build up a big enough nest egg as a $100,000-a-year advertising executive that he could abandon the white-collar life before he turned 40 to travel the country in a luxury motor home with his wife.

"Twenty years ago a person would have thought that if they were making $100,000 they were rolling in the dough," said Karen Ramsey, a certified financial planner in Seattle. Now, she said, clients "will be making $100,000, $120,000, and they'll be looking at me and saying: 'We're just getting our kids through school. If we have any left over for a vacation, we're lucky.' "

Adjusted for cost-of-living inflation in the New York metropolitan region, a $100,000 income in 1987 would be worth about $170,000 today. And yet it still seems that another $30,000 or more is needed to be a "player." Part of the explanation may be the almost perverse escalation in the price of commodities favored by upwardly mobile professionals: whether $170 Diesel jeans, which have replaced $30 Levis; $3.95 lattes from Starbucks versus 25-cent coffee from a deli; or the must-have $449 iPod that supplanted the must-have $75 Sony Walkman of the Reagan years.

When Patricia Belden, a 39-year-old developer of affordable housing in Boston, was a student at Cornell University in the mid-80's, she dreamed of a six-figure income. "I would be satisfied with the life that would buy," she recalled thinking. Ms. Belden passed that milestone and is not complaining. But when she and her husband, a violin maker, recently shopped for a home in Boston for themselves and their newborn son, they settled for a loft in the city's trendy South End.

Sounds chic, Ms. Belden allowed, except the family has subdivided a space the size of a large studio into a three-bedroom apartment, what she calls "a ranch house in the sky."

The couple's big extravagance was a permanent parking space for $20,000. "My father told me, 'Honey, don't worry, we paid $20,000 for our first parking space,' " Ms. Belden said. "But it came with a house and a garage."

Compensation experts said the expectations of many white-collar workers were turbocharged in the late 1990's, during the long run-up in the stock market and the high-tech boom.

"Only in the latter half of the 90's did starting salaries break $100,000 a year," explained Hussam Hamadeh, a co-founder of Vault.com Inc., a Web-based career services company. "At that point $100,000 stopped being an eye-popping salary and started to become routine. After all, if 'everyone you know' is making at least $100,000 a year, there's nothing very exceptional about it."

By the time professionals in certain high-earning fields are in their mid- or late 30's, they're at least within striking range of the new $200,000 goal. A senior creative executive at a major New York ad agency, for example, earns about $170,000, according to salary statistics compiled by Vault.

A senior vice president at a major public relations firm typically earns up to $160,000, with perhaps another $15,000 in bonuses. In the high-technology field the majority of "e-commerce marketing directors" surveyed by Salary.com earned $120,000 to $150,000 in total cash compensation. The top quarter, however, earned an average of $204,800.

[A.]

The legal profession is perhaps the most clear-cut example of changing expectations due to changing pay scales. "There was a time when if you were making $100,000, you were a partner, and that wasn't that long ago," explained Jon Lindsey, a managing partner of Major, Hagen & Africa, a national legal recruiting firm. "In New York they now look at $100,000 as a living wage, but not much more."

Last year the median base salary for first-year associates at firms with more than 501 lawyers was $120,000, moving up to $185,000 for eighth-year associates, according to figures from the National Association for Law Placement.

Noble Black, 29, hardly considers himself living it up. He earned his law degree from the University of Virginia a few years ago, moved to New York and took a job in securities law in the Manhattan office of the firm McKee Nelson. His starting salary, he said, was $135,000.

"You think you're going to be making all this money, but it all goes so quickly," said Mr. Black, who left after a few years to work as a consultant to the television show "The Apprentice" (and is now an associate real estate broker for the Corcoran Group in New York).

Mr. Black didn't find much sympathy from his family back in Mississippi, where $100,000 is still a country club income. "You go home and tell them how much you're making, and they think you're doing so well, but then you tell them about the rent," he said, recalling the $4,650 monthly rent for the apartment he shared with a friend in Symphony House, near Columbus Circle.

It was only when his annual compensation began to approach the new affluence threshold that he began to feel he was building real equity. "A couple of years making close to $200,000 puts you into that good place," Mr. Black said.

Robert H. Frank, an economist at Cornell said: "A lot of people think this is about spoiled people who can't keep up with the Joneses, but it's really deeper than that. There's a consumption standard that every group has. If you ask, 'How am I doing?,' it's always, 'Compared to what?' And people hardly ever look down."

If they did, it might seem a bit odd to see a number they had spent much of their lives staring up at longingly. Then again, Mr. Coleman of Salary.com is not sure people will ever quite strive for the $200,000 life in quite the specific way they dreamed of a $100,000 one. The latter "is a natural milestone," he said. "It's a power of 10."

"One hundred thousand is magical because it is 100 - 100 is perfect, remember when you're in school?" he said.

The real point, perhaps, is the dreaming itself, the sense among many professionals that there needs to be some light flickering on the horizon to get you through the long hours and the stress of a career. In that sense, Mr. Coleman said, the dream salary of today is the same as it's always been. "It's beyond reasonable expectation," he said, "but not beyond hope."

http://www.nytimes.com/2005/02/27/fashion/27200K.html?ei=5090&en=f78968e3bebbd60f&ex=1267160400&pagewanted=print&position=

[A.]

Sucks for you New Yorkers:

Manhattan’s Real Estate Slump That Wasn’t
By TERI KARUSH ROGERS

IT wasn’t supposed to happen this way.

Just a year ago, as real estate brokers fretted through an ominously quiet third quarter, many Manhattanites waited for the housing market to reverse its madcap ascent and fall into line with the rest of the country.

But something happened on the way to the Great Manhattan Housing Slump. After what brokers optimistically termed a “pause” in the second half of 2006, buyers swarmed into the market. The torrent was so intense that by the end of this past June, it was clear that an astonishing gulf had opened up between Manhattan and nearly everywhere else.

On the national level, sales of existing homes slowed by 17 percent in the second quarter of 2007, compared with the second quarter of 2006, while inventory swelled by 16 percent, according to figures provided by the National Association of Realtors. New homes fared even worse: they fell by almost 19 percent, according to Commerce Department figures.

In Manhattan, by comparison, sales of new and existing apartments more than doubled. In a trend that could shift quickly in light of the recent problems in the credit and stock markets, inventory shed a third of its bulk. It dropped to 5,237 units, despite the influx of several thousand new condos, according to Miller Samuel Inc., the Manhattan appraisal company

Prices have been starkly different as well. By last month, the national picture was so dire that Angelo R. Mozilo, the chairman and chief executive of Countrywide Financial, the country’s largest mortgage lender, said things had not been so bleak since the Depression.

Cut to Manhattan. After a boom with annual price increases of 20 percent or more ended in mid-2005, prices have continued to rise over all, but not as sharply. In the second quarter of 2007, Miller Samuel said the average sale price of a Manhattan studio climbed 16.5 percent compared with the second quarter of 2005. The average for a one-bedroom climbed by 18.4 percent and a two-bedroom by 5.9 percent.

Apartments with three bedrooms, which make up about 6 percent of the market but appeal to an ever-more-moneyed class of buyers, rose by 17.9 percent in the same period.

Major brokerages, including Halstead Property, Bellmarc Realty, Brown Harris Stevens, Prudential Douglas Elliman and the Corcoran Group, say they are recording sales and profits that rival boom-time results. In fact, Douglas Elliman and Corcoran predict that this will be their most lucrative year by far.

Whether this momentum can be sustained remains to be seen, particularly in light of the recent gyrations in the debt market, which have led to a reduction in the availability of large mortgages and to an increase in their rates. A deepening credit-market crisis and national housing slump could squeeze the economy, the stock market and bonus pools.

“For the first time in over a year, there is some negative talk — about the credit markets and whether or not this will permeate the New York City real estate market,” said Pamela Liebman, president of Corcoran. “As of right now, it hasn’t. There has been no slowdown.” She said the biggest concern among her agents is finding enough inventory to satisfy demand.

But a buying binge alone does not a housing boom make. “I’m still not characterizing the market right now as a housing boom except in the upper echelon,” said Jonathan Miller, president of Miller Samuel.

So how has Manhattan (and, to a lesser extent, sought-after pockets of Brooklyn) managed to avoid a slump?

“Obviously, the market was helped first by the rumor and the reality of bonus money,” said Frederick W. Peters, president of Warburg Realty. He was referring to the fourth straight year of substantial bonus increases, particularly on Wall Street, that along with a rising stock market helped push buyers off the sidelines at the end of 2006 and caused some agents to cancel their winter vacations.

“But I also think we’re just in one of those demographic upswing periods,” Mr. Peters added. “More people are moving into the city, fewer people are moving out, and the rental market got much tighter over the course of 2006, which once again made buying a more attractive option. You put all those things together, and the market sort of entered the narrow part of the hourglass.”

There were other factors to consider, too. Tourism is at record highs, and the local economy is doing well in general. And it’s nearly as hard to find premium office space or a spot in private school as it is to find a family-size apartment.

But that’s exactly what more and more families have set their sights on.

It has been years since Samantha Kleier Forbes, a broker at Gumley Haft Kleier, lost a client to the suburbs. “My last casualty was in ’04,” she said. As two-career couples work longer hours and as the city grows safer and more family-friendly, there is a big demand for large apartments like Classic 6’s — a two-bedroom apartment with living room, dining room, kitchen and maid’s room (where children can be found bunking like sailors).

Families who want to stay, brokers say, are only one segment of the more stratified and well-heeled masses clamoring for a piece of Manhattan. While the dollar’s seemingly endless slide may have crimped the foreign vacation plans of many Americans, the purchasing power of Europeans has strengthened. They are increasingly matched, if not outmatched, by buyers from countries like China and India. And foreign buyers find Manhattan real estate very appealing when they compare prices in other large international cities like London.

“I’ve had 20 percent more business from international clients in the past couple of years,” said Sallie Stern, a senior vice president and managing director of Brown Harris Stevens. “They probably account for 30 to 35 percent. It’s a world market now.”

[A.]

Shaun Osher, the chief executive of CORE Group Marketing, which is handling 11 condominium projects in Manhattan, said the number of foreign apartment-seekers had doubled since the end of 2005. Foreign buyers now constitute 5 to 10 percent of the sales in the buildings marketed by his firms.

“When you look at hotel rates and what it costs to come into Manhattan, it makes sense now to buy a pied-à-terre,” he said.

Besides foreign buyers, brokers say, more parents are snapping up apartments for their children, and some retirees are choosing Manhattan over the likes of Boca Raton.

“The baby boomer generation isn’t ready to give up and live in a swamp,” said Darren Sukenik, an executive vice president of Prudential Douglas Elliman. In fact, they are living the lives their nearby children would like to lead if only they weren’t working so hard, he said.

Meanwhile, renters have emerged as a force in the market, particularly for entry-level apartments. “Rents are rising again, and that pushes people back into the condo and co-op market if they have more than a one- or two-year time frame for living in Manhattan,” said Stephen G. Kliegerman, the executive director of marketing for new developments at Halstead Property.

Fanning the flames have been job and population growth, historically low interest rates and a trove of personal wealth minted by hedge funds, private equity firms and, to a lesser extent, the investment banks that serve them. Add to that the psychological comfort of knowing that Manhattan flourished after the Sept. 11 terrorist attacks, and further, that it appears to have shrugged off a national housing slump.

Even the condo glut that so many real estate executives feared has turned out instead to be a boon of sorts. “If we didn’t have new development coming on at the pace we did, we’d have a chronic shortage across all sectors, and we’d see 20 percent price growth,” said Mr. Miller, the appraiser.

Mr. Peters of Warburg Realty agreed. “You can’t even imagine how awful it would be,” he said. On the other hand, he added, things may feel pretty awful already for buyers who want a prewar apartment, since inventory in this sector continues to evaporate. In the last two years, co-ops, about half of which were built before World War II, have slipped from 63 percent of the market to 47 percent as new condos have been built, Miller Samuel said.

“There are so many new units coming on the market and being sold, but the real heart and soul of the co-op market is really depleted,” said Barbara Fox, the president of the Fox Residential Group, a Manhattan brokerage.

Consequently, brokers say, many prewar apartments in good condition, along with family-size apartments of any vintage, are being snatched up in bidding wars whose aggressiveness outrivals those of two years ago.

“The new rule is that there are no rules, and when you’re lying bleeding on your way to the emergency room, you’re still shouting, ‘Higher offer, higher offer!’ ” said Julie Friedman, a senior associate broker at Bellmarc.

She was among the many brokers who said that “best and final” offers have largely become neither, with buyers and sellers routinely negotiating after another bid has been accepted. “You remind sellers that there is a moral component, but my duty is to get the highest amount, and ‘moral’ and ‘the highest amount’ don’t necessarily overlap,” she said.

Some brokers complained that the demise of the sealed bid, which has been replaced over the last two or three years by e-mail offers to the seller’s agent, has further undermined fair play. “Buyers don’t trust them as much,” said Michele Kleier, president of Gumley Haft Kleier.

Whether Manhattan continues to be the land the slump forgot or is merely sunning itself before a hurricane is something of a guess. A strengthening dollar, a severe terrorist attack or a national economy hobbled by housing market woes could inflict blows of varying strengths.

More immediate is the worry about the availability of credit. “While I don’t think we were propped up to the extent other markets were by subprime and adjustable-rate mortgages, it does make credit hard to get for everyone to some degree,” said Gregory J. Heym, an economist for Brown Harris Stevens and Halstead Property. “Most people are probably expecting mortgages to be tougher to get.”

Mortgage lenders everywhere are going back to pre-boom lending standards, so obtaining a mortgage is harder for buyers with pockmarked credit or sketchy employment. But there is no panic over rising mortgage rates on jumbo loans (those exceeding $417,000), at least not now.

Large lenders like Chase and HSBC that typically sell mortgages after they make them can no longer do so because the credit crisis has dried up the secondary market, said Jeffrey Appel, a senior vice president and the director of new development financing at the Preferred Empire Mortgage Company in New York. Many large institutional lenders have raised their rates as a hedge against uncertainty, but rates at smaller regional savings banks, the so-called portfolio lenders who hang on to their loans, have hardly budged.

Last Monday, Melissa L. Cohn, the president of the Manhattan Mortgage Company, the largest residential mortgage broker in the New York, New Jersey and Connecticut, said her best rate on a 30-year $1 million mortgage was 6 7/8 percent, offered by a portfolio lender. And her worst rate, offered by a lender that sells mortgages on the secondary market, was 8 3/8 percent.

“Despite this incredible hysteria,” Ms. Cohn said, “there’s plenty of money for qualified borrowers.”

The credit-market meltdown could yet cloud Manhattan’s real estate prospects because of stock-market jitters. And an end to the leveraged buyout boom, if that happens, could trigger layoffs on Wall Street and eat away at bonuses.

But the fiscal year is far enough along that financial services workers can expect gains of 10 to 15 percent when bonus season rolls around later this year, said Alan Johnson, the managing director of Johnson Associates, a Wall Street compensation consultant. The real pain, if there is any to be felt, would come in the 2008-09 bonus season, he said, and a year or two later for private equity firms, which typically make their profits several years after a takeover.

“Pay is going to probably drop, but if it’s dropping from a really, really high level, we’re probably not going to have any charity dinners for these people,” Mr. Johnson said.

By then, too, the flow of new development is expected to slow significantly, judging from the dwindling number of construction permits filed this year. To the extent Manhattan’s housing market is threatened by a weak national economy and by declining bonuses, said Mr. Miller of Miller Samuel, “then the fact that we have a lower level of supply coming on would help keep the market from correcting.”

Neil Binder, a principal in Bellmarc Realty and a 30-year industry veteran, typically views upturns with a jaundiced eye. But in a residential market with tight supply and intense demand, he doesn’t see Manhattan’s real estate karma changing anytime soon, even in the face of mortgage-market turmoil.

“My brokers are saying their biggest frustration is to have buyers when there’s no product and that there’s nothing out there but new construction,” Mr. Binder said. “We may have bumps, but I don’t feel the underpinnings are weakening. My biggest problem this month is that I have all my salespeople taking vacations because they made so much money. My East Side office is a ghost town.”

http://www.nytimes.com/2007/08/19/realestate/19cov.html?pagewanted=1&_r=1&hp

[One Step Ahead]

Free financial advice

Kiplinger's Jump-Start Your Retirement Plan Days
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August 2007

Whether you're just starting your career or plotting your exit strategy, it helps to know whether your retirement plans are on track. Kiplinger's is offering you two golden opportunities to get a free financial checkup.

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To make the most of your financial checkup, gather together any relevant records, such as mutual fund statements or your 401(k) menu of investment choices. If your questions are too complex to be answered on the spot, you may be directed to NAPFA's Web site, where you can look for a planner in your area.

More than 26,000 Kiplinger's readers have participated in past call-in sessions. "For 60 years, Kiplinger's has been answering readers' questions about saving and investing," says editor Fred W. Frailey. "Now it's your chance to get one-on-one advice."

Our retirement hotline is a public service that is offered to all, not just Kiplinger's subscribers. "Volunteer advisers from across the country are prepared to help as many people as possible," says NAPFA chief executive officer Ellen Turf. "It is incredibly satisfying for them to have such a positive impact on so many lives."

http://www.kiplinger.com/features/archives/2007/07/jumpstartpromo.html

[A.]

Your House: Breaking the Bank
CNNMoney.com
By Amanda Gengler

If you've been reading Money Magazine for any length of time, you surely get that saving for retirement should be your top financial priority. Even so, the past decade's easy appreciation in home values has made such fundamental advice seem, well, a lot less urgent.

Or so suggests a National Bureau of Economic Research paper recently published in the Journal of Monetary Economics. Comparing results from the biennial University of Michigan Health and Retirement study, researchers found that, excluding home and business equity, 51- to 56-year- olds hold less wealth than the same age group did in 1992.

"These boomers look richer, but a lot of that wealth is because one asset [their house] revalued," says co-author Annamaria Lusardi, a professor of economics at Dartmouth. "Excluding housing, people have very little in other wealth components."

The study did leave out 401(k) savings, but the median balance for those accounts for a similar age group is only $50,000, while fewer fifty can look forward to guaranteed income from pensions today than could in 1992.

Myth: My home is a sure investment

The results call for a reality check: Are you banking too much on your house?

Truth: Your home value may have more than doubled during the boom, but real estate markets have also been known to suffer prolonged stagnation, even downturns (see the 8 percent drop in median prices this past year in some areas). If there's a bust on the cusp of your retirement, your pot of gold could turn up half empty. Besides, the past 10 years aside, history suggests that homes don't give much long-term return compared with other investments: A dollar invested in residential real estate in 1963 has barely outperformed a low-risk T-bill, according to a 2007 Fidelity Research Institute report.

Myth: Downsizing will leave me flush with cash

Truth: Even if the market is up when you're ready to exit the work force, you're unlikely to ever see the appreciation in cold hard cash. Prices on smaller homes jumped too during the boom. In Baltimore the median price of a single family home is $278,800; a condo is $239,300. Savings: less than $40,000.

Unless you move to a less pricey area - think San Francisco to Omaha - "you're unlikely to greatly improve your financial picture," says financial planner Jim Sonneborn of Chatham, N.J.

Myth: I can always tap my equity and invest it for even better returns

Truth: Interest rates are up, with average home-equity loans and lines of credit topping 8 percent. So the hurdle is higher. Earning average stock-market returns above 8 percent will require years of riding market ups and downs, time you probably don't have.

As for reinvesting the funds in your home, the days of making it all back are over. A kitchen redo recouped 80 percent on average in 2006, according to Remodeling magazine.

The bottom line: Saving for retirement is still Job No. 1. Your home may provide a roof over your head in retirement, but you'll need cash if you want to eat.

http://biz.yahoo.com/weekend/break_bank_1.html

[smujd2007]

Interesting article.

You definitely shouldn't see your home as an investment in terms of making money. Of course you don't want bootleg construction or anything, but homes don't really appreciate in value . . . and like the article points out, you may never see the appreciation if you continue to live in the home anyway . . .

I say, still, buy as early as possible . . . throwing away money on rent right now makes me mad! :/

[One Step Ahead]

black folk cutting up and screwing others out of money:

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/25/AR2007082501362_pf.html

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/25/AR2007082500210_pf.html