Small business in action!

I wanted to share this "fun" commercial picture of a small businessman in action in Moscow, Russia. This kiosk is right near Red Square, but most of the kiosks were only lightly filled with shoppers. Tourism is certainly down in Moscow with hotels reporting occupancy down around 50%. That will make it a tough summer for small sellers. This kiosk owner did manage to relieve us of about 800 RUB for some nesting dolls for my children!

-JSM

New Investments to the IMF

The IMF has been busy helping countries respond to the economic crisis through financing. Lending commitments are at a record $157 billion. One of the changes, though, has been an easing of the loan conditions that often went along with IMF aid. The IMF has often encouraged political policy changes in exchange for money. Is this a good thing? The tension here is that the countries need the loan money without delay. The IMF is wise to respond quickly to the crisis. That does not mean that the IMF and the borrowing countries, though, are not missing "opportunties" to promote better business and other practices that enhance competitiveness in the longer term. In the end, the borowing countries may still need changes in local laws and governmental frameworks to be competitive. Perhaps now, though, is not the best time to impose such changes given the instability in the borrowing countries already.

Moreover, the IMF's focus may be changing due to the financial crisis with more efforts toward the donor countries. Not only do the larger countries have to keep markets active with developing countries, but they must support the IMF's loan efforts. There does seem to be some action in that respect. Russia, for instance, just announced a new $10 billion commitment to the IMF. Brazil, China (up to $40 billion) and India are also making new investments in the IMF. The additional investments may lead to these countries having a greater say in the business of the IMF and global monetary policy generally. Of course, new commitments are necessary in order for the IMF to continue the financial arrangements with the borrowing countries. The U.S. Senate recently rejected a proposal to eliminate a $180 billion in loan commitments to the IMF. The funding is still pending, though, but has the backing of the White House.

-JSM

Unauthorized Credit Card Charges - Out of Country

As some of you know, I am teaching Transactions in Emerging Markets as part of the University of San Diego Moscow Program. Of course, paying for things in Moscow is a fun matter! The currency exchange rate for Rubles right now is $1:33.334 RUB. With the less than stellar exchange rate, the company renting me a flat priced the rental in dollars. Since counterfeiting is also commonplace, with one paper claiming that 50% of dollars in Russia are not genuine, Bank of America kindly provided crisp newer issue money! The currency traders in Moscow have been less picky thankfully.

While I've paid for most things in cash, I used my Mastercard at a Кофе Хауз (Coffee House). I checked my online transactions to verify charges and found that I was charged once for our lunch, but again for a slightly larger amount later that day (perhaps someone else's lunch)! The second charge is not mine, an unauthorized charge for sure, but the vender clearly had my card number as we'd been at the shop earlier in the day. I've promptly reported the mistaken charge to the credit card company, but am interested to see how this plays out. As an aside, most banks are now charging 1-3% on transactions for card usage abroad (New Fees For Card Usage Abroad).

-JSM

Obama Signs Credit Card Holders Bill of Rights

After years of legislative wrangling, President Obama has signed a credit cardholders' bill of rights that was passed overwhelmingly by both houses. Last September, the House passed a similar bill that died in the Senate. Last December, the Federal Reserve issued a series of regulations that would have imposed many of the requirements in the new legislation, but not until January or July 2010, depending on the provision. The heightened recent legislative activity had been attributed to a desire to trigger the Federal Reserve regulations more quickly. The final bill, however, calls for implementation 12 months from enactment, meaning that the rules will go into effect only about 1 month sooner than the FED's regulations. The legislation, however, goes beyond the regs in some areas. This post provides a summary of the key points in the legislation. I'll summarize the comments and reaction, and speculate about the effects, in a future post.

Summary of Key Provisions:

Notice: Requires card issuers to provide at least 45 days notice prior to any rate increases or other significant changes, and the notice must include a statement that the cardholder may cancel the card.

Increasing Interest Rates on Outstanding Balances: Limits the ability to increase the interest rate on existing balances to specific situations, including a failure to make the minimum payment for 60 days.

Double Cycling Billing: Prohibits reaching back and assessing interest on balances from the prior billing cycle if the cardholder fails to pay the balance in full. Average daily balance accounting, in which interest is assessed to the entire balance, rather than just the portion left unpaid, is not prohibited.

Allocation of Payment: requires that any payment beyond the minimum be allocated first to debt accruing the highest rate of interest. This provision is substantially tougher than the FED regulation, which would have allowed the banks to allocate payments proportionally among balances of varying interest rates.

Timely Payment: Requires statements to be issue 21 days before the due date, and prohibits assessing late fees when the due date is a day on which mail is not delivered (or not accepted) and the payment is received by mail the next business day.

Over-the-Limit Fees: Requires that the cardholder opt-in to a system in which charges over the limit are permitted with a late fee and limits these fees to once per billing cycle. This provision is also more consumer friendly than the FED regulations, which had left open the possibility of an opt-out scheme.

Minors & College Students: Prohibits the issuance of credit cards to unemancipated minors, unless a parent is designated as the primary account holder, and places strict limits tied to annual income on the credit limit for cards issued to college students.

Means-of-Payment Fees: Prohibits fees for using non-standard payment methods, except for expedited payments by phone on the due date or the proceeding day.

Warning: Requires solicitations to provide a warning of the adverse effects of excessive credit inquiries.

Sedona at Dos Vientos in Thousand Oaks

Sedona
at Dos Vientos Ranch

There is a newer section of Thousand Oaks set within an elevated bowl surrounded by the gorgeous and scenic, Santa Monica Mountains. Located just north of the Pacific Coast and perched at the very western edge of the Conejo Valley Shelf, this area is bordered by Malibu to the Southeast, the much lower Oxnard Plain to the West and Newbury Park to the North East.

Drive down Borchard Road away from the older neighborhoods of Newbury park, up and over the Potrero Ridge line, and back down the other side into the valley bowl that is Dos Vientos Ranch. As you coast down the hill through the rustic, rocky, cactus and yucca lined hillsides, you follow a gentle left curving roadway until you begin to glimpse the sprawling, stucco tribute to expensive tract homes that is Dos Vientos Ranch.

In the far Southwest corner in a little L- shaped bowl of rocks, cactus and coyotes is Sedona, the newest tract. These are roughly 4500 sq ft to 6,000 sq ft homes which are offered in what the developer calls Italianate, Spanish and Tuscan Elevations. Sixty nine homes are currently planned which range in price from roughly $1,446,000 to about $1,600,000.

There are 7 phases planned and they are currently selling the 8 homes of Phase 1. These 8 homes were put on the market Saturday the 16th of May. Today, Monday the 18th, four of the homes have already sold! When my wife and I visited the site on Sunday, there were cars lining both sides of the road, for a block on either side of the model homes. Clearly, our newspapers and tv have failed to convince these people how bad our economy is, and how poorly real estate is faring. Imagine that.

The Phase 1 homes are being offered at a “low introductory price.” Each of these 8 homes is being offered with an additional $25,000 worth of interior options. Buyers can pick their lot, or they can pick the model of home they want, but the builder has already determined which models will be built on which lots.

By the way, the developer has the A- team working to serve prospective buyers. I was very impressed by the professionalism of the Sales Counselors I met. They were friendly and composed even when there were 3 and 4 groups of people actively seeking their help at any given time. They answered all my toughest questions with no dodges or excuses and they were extremely knowledgeable.

Build time is about 9 months with the Phase 1 homes projected to be move-in ready next January 2010. I was told that Phase 2 may be built earlier than originally planned if demand continues, with a possible March 2010 move-in.

Buyers are expected to pre-qualify with either Chase or Bank of America, but they can use any bank for their loan. Bank of America is offering a long term rate lock of up to a year to cover build time on these homes.

There is no Mello-Roos on these homes ( see my blog on Mello-Roos ) but there is a $266/month combined HOA. A Master Association covers the cost of keeping the brush clear around the homes for fire protection, and a few other things like building and maintaining the Park Center. The Sedona Association takes care of the maintenance of the security gates, roads and walkways.

These are big homes, lavishly presented. Myself, I think some of the homes “flow” better than others. The models are not always very representative of what you can make the homes into either. There are numerous layouts available for the two story homes but only one example of each model is presented.

The two story models are the Santa Barbara and the La Jolla (which was my personal favorite). These homes have the option of a 3 car tandem garage with an optional bedroom and bathroom “suite” or what most of us would call a great big granny flat. Depending on the model, you can have a 5 car garage or you can substitute another Den, or you can move the dining room or granny flat location if you choose a 3 car garage.

Pick a design with up to 6 bedrooms, or fewer bedrooms and additional recreation/ family rooms. There are a lot of design opportunities for buyers to review before their specific home design is frozen. I like that the developer is offering a bit of flexibility to his buyers.

The thing I really like about the two story homes is the use of outside space. This is featured prominently in the marketing of these homes as well. Simply put, the designs encourage home owners to adapt the many courtyards, covered porticos, balconies, decks and covered loggias as everyday living space. The built-in barbeques, outside fireplaces, relaxing fountains and beautifully tiled courtyards encourage you to pull up a big comfortable chair and kick back with friends or family while everyone enjoys the open air and sunshine.

The covered loggia/balcony off of the master bedroom in the Santa Barbara model is particularly inviting, with gorgeous views and cool breezes and yet, a bit more privacy than most balcony designs. It has outdoor drapes which can be pulled across each side to enclose the room around a gas log fireplace. Very romantic.

The Montecito Plan is essentially a 1-story home with a second story recreation room. It is a 4 bedroom home with a 3 car tandem garage. Featuring a central courtyard, it tends to be a bit smaller than the 2-story homes having just under 5,000 sq ft. of living space. Three different walls of the courtyard have doors leading into the home, and an outside staircase leads up from the courtyard wall to the second story recreation room . This is just a little weird for me. Like the movie “Labyrinth”, you have to wonder what happens if you choose the wrong door.

The rest of the interior is like walking around a squarish mall. A narrow hallway runs in front of each of the bedrooms and widens out in front of the Den and Living Room. Like an echo of the nearby courtyard, an open dining room occupies a smaller framed area within a central atrium. The hallway skirts the dining room on two sides and runs past the Family Room entry on the left and Dining Room to the right. It narrows back down as it passes by the powder room on the right and on to the Master Bedroom entry on the left. I swear I passed some joggers along the way.

The Family Room is the largest room in the house and is open to the huge kitchen. I liked this combination layout. Each of these rooms has a nice outside view and backyard access. The kitchen has a large island with tall low-backed chairs for snacking. It adjoins a breakfast nook which is large enough for a smaller table. Unfortunately, you need to hire a guide to get from the kitchen through the family room and over to the main dining room.

The next largest room appears to be the Master Bedroom. The bedroom opens through double glass doors to the rear, outdoor patio. On the other side of the bedroom, a tall, rather narrow arched doorway leads to the Master Bath. There are two recessed reading lights in the ceiling above the headboard of the bed, but they are so high up in the 12’ coffered ceiling that they are useless for reading. There is a thin screen tv on the distant wall opposite the bed, but you need binoculars to see what’s on.

The Master Bath is quite large with separate tub and shower enclosures. The shower is nicely tiled and big enough for about a dozen of your closest friends. Strangely enough, the jetted jacuzzi tub is a mere 6’, two person bucket by comparison. I also think the tub surround should be made of a material that wouldn’t be slippery when wet. Maybe a small hand rail would be useful as well.

The walk-in “his closet” reminds me of my college dorm room and across the hallway, something about 3 times larger is obviously the “her closet”. Most of the models I saw have rather sparsely furnished walk-ins. Maybe a shelf, but not much in the way of quality wall organizers or center room fixtures. Lighting in these walk-in closets was similar to my garage and is a missed opportunity for the developer to please women with lots of needs.

The Monterey Plan is the other single story floor plan and does not have a model. The floor plan appears to be identical to the Montecito Plan but without the second story recreation room.

I have one major concern with each of these homes. The downstairs view for most of them is not much more than a brick wall or embankment. The best views were usually upstairs views from the front or rear of the homes. Being a tract home, each home has minimal set back from its’ neighbor, with homes in higher elevations enjoying greater privacy. This is a disappointment for homes in this price range.

My wife was a bit put off by the rather imposing kitchens. They are appropriately huge with ovens that look more like stereos - sprouting buttons, gauges and switches. The refrigerator in one model had 2 doors that were each about 3 feet wide and heavy as a safe. Once opened, the refrigerator shelving was only about a foot deep. Forget about walking by an open refrigerator door, it’s like crossing the border. You have to wait for the door to close.

The central island stands about chest high on me and a bit higher for my wife. The cabinets were fabulous but again a bit high. My wife could not see inside the microwave mounted on the overhead cabinets. If you are an NBA basketball player, you’ll love these kitchens.

Some of the family rooms were centered on fireplaces with the entertainment center off to one side. Other family rooms were centered on the entertainment center with the fireplace off to one side. Personally, I am more of a tired tv person in the evening than a romantic fireplace person. I’ve been married a long time.

A word about presentation. I expect to see all the most expensive upgrades on new home models. Designer nick-nacks and leather furniture do well in these homes. However, please don’t try to sell me a 6,000 sq ft home by employing undersized furniture and beds in the bedrooms! It’s a bit tawdry and silly in these huge homes.

If you want me to see the genius of design in your outside living areas, then impress me. Don’t stick a mid-priced home depot barbeque in the middle of a huge stucco wrap around. Show me some barbeque tech and a built-in refrigerator at least. Also, explain to your interior designer that outside design means not putting candle decorations in the sun. They melt all over the furniture!

From a strictly safety point of view, I was glad to see home sprinkler systems standard in these homes. I was a bit concerned that none of the second floor homes had a second way downstairs other than the main staircase. That might be an issue in a home fire. Why doesn’t someone develop a stylish way to hide a few fire extinguishers in these huge homes? Once the main sprinkler system trips, water damage can get expensive.

Speaking of technology, I didn’t see much. Lots of extra bedrooms/dens, but I didn’t see a single home theater. I saw no integrated solar panels powering these huge homes even though we live in an area of the world that just screams for them. Many local residences and businesses have already adapted them as eco-friendly and economic windfalls. There is no voice activated lighting or music. No adjustable polarizing windows on the sun side of the home or even personalized door locks. I guess that is just too much to ask for.

I did see 3 air-conditioning units lined up just outside the window of a ground floor bedroom in a 1.5 million dollar model home. Yuuch!

We all know a large part of our population is rapidly aging, but I saw none of the new elevator designs which are now available to two story residences. These new elevators are concealed behind what looks like closet doors, yet are wide enough for wheelchairs. They open up a whole new market for two story structures and enable long term home owners to maintain the full utilization of their homes, even if their owners develop physical limitations.

The lots themselves speak for the way our culture seems to have changed in the last few decades. The tract is locked away behind some really pretty wrought iron gates. Presumably this is for enhanced security and privacy. It just doesn’t work. People just follow each other through the opened gates.

If you are serious about security, you can employ an additional entry arm to separate individual vehicles as they pass through the gate or you hire real, live gate security. I’ve seen many less expensive neighborhoods with better security than this – (see Victoria Estates in Oxnard).

The individual lots remind me of pictures of aircraft parking revetments in a war zone. Stone walls atop earthen embankments surround each lot on the sides and back. It looks for all the world like someone hooked a tow bar to the front of each home and shoved it into its own parking spot. Whatever happened to neighborhoods with lot lines made of flowering hedges and property lines of fragrant evergreens? Sorry, I’m showing my age.

Considering what people seem to want in a new home these days, I give these homes a solid B. Although the design of the exterior spaces on some of the two story models is intriguing, I didn’t see much real innovation or serious new technology. These are just nice, big, expensive tract homes like they have been building for the last 10 years.

Just the way I see it.
Mark Thorngren

See my Realty Times Video Newsletter for daily real estate updates

http://www.markthorngren.com/
mark@markthorngren.com
(805) 504-0228
Movwest Realty, Inc.

Falling Behind on Your Mortgage?

For those wondering how exactly did all these people fall behind on their mortgages, take a look at a pretty honest personal story in the New York Times. The author, like many, bought a home he couldn't afford, tried to compensate with credit cards and refinancing and had a spouse lose a job. There are tough times for many who bought into the traditional model of rapid real estate value increases and living beyond their means. Reading the piece, it is easy to see how people fall into the trap.

A surprising little aside is that the banks have not had time to foreclose on his home or do a loan modification even though his last payment was eight months ago!
- JSM

Bank Stress Test Skit on SNL

In case you missed it:

- JSM

Camarillo's Montelena 1 Tract

Camarillo’s Montelena 1 Tract

There are many wonderful neighborhoods in Camarillo, but one of the nicer mid-priced tracts is Montelena 1. Built 1990 through 1995, these are very comfortable Mission Oaks homes, with a number of view locations. They are 3 and 4 bedroom homes with 2.5 to 3.5 bathrooms which range from about 1800 sq ft to almost 2800 sq ft. Lots range in size from about 6,000 sq ft to over 9,500 sq ft. The homes are all uniform stucco with red tile roofs, built with many luxury amenities, nicely landscaped and with no HOA!

The homes in Montelena 1 are located in the Mission Oaks area with a hilltop view overlooking the Calleguas Creek. Flynn and Lewis Roads are part of the expansive view to the North and West with mountain and partial ocean views on the horizon. This is a fairly quiet neighborhood with limited access to the busier streets of Creekside Drive and Mission Oaks Boulevard.

The neighborhood itself resembles a flattened loop with 3 streets and a cul-de-sac. Via Pacheco and Paseo Montelena have some amazing view locations, while Via Cupertino runs a block behind the cliffside homes. Chula Vista Court is a small cul-de-sac off of Paseo Montelena with a quiet, friendly feel.

Most of the homes I’ve seen have generous back yards that often sport large patio decks (especially the cliffside homes) or very private, lushly landscaped gardens. More than a few of these homes have gorgeous inground pools, built-in barbeques and decorator deck furniture.

Most of the kitchens I have seen are expensively upgraded with granite countertops and stainless appliances. They usually face the backyard and often have part of the valley view. Living rooms and family rooms enjoy vaulted ceilings and at least one fireplace. The master bedrooms are usually downstairs with backyard views or patio access. Huge master baths sport upgrades that may include double marble vanities, separate tub and tile shower enclosures, designer light fixtures and cabinetry.

There are usually 2 to 3 upstairs bedrooms which are quite a bit smaller than the downstairs master and a bit tight in my opinion for a home in this price range. That would be my main criticism of these homes. If Mom and Dad are using the downstairs master and the kids are upstairs, it’s okay. However, if grandma is living here or one of the kids have moved back in, the upstairs bedrooms are small.

Most homes have a downstairs hallway half bath that opens to the living room and the laundry is usually downstairs as well. Inside access to the two car garage is internal also, and a very few homes even have a 3 car garage. If you are retired or the kids are away at college, you essentially have a single story home with upstairs office and guest room. Pretty darn comfortable and often with the perfect backyard view for a couple to enjoy at sunset with an ice cold beverage or maybe a little barbeque with friends.

Eleven homes have come to market in the last year.

Two properties expired last summer after 6 month listings when they didn’t sell at $715,500 and $719,500 respectively.

Five homes have sold for an average of $635,000 with the highest sale price at $687,000 for a 2,400 sq ft home and the lowest sold at $600,000 for a 1,800 sq ft home.

There are four homes actively being marketed in this tract for an average listing price of just over $623,000. The lowest priced home is listed at $539,000 and 1,800 sq ft (it’s a short sale), while the highest priced home is listed at $690,000 for 1,800 sq ft. There is one home priced at $679,900 with almost 2,800 sq ft and a beautiful backyard pool.

By my calculations only one of these eleven homes was a distressed sale, meaning only one home was a short sale or foreclosure. That makes this tract a very stable investment for any home buyer. Just the same, values appear to have eroded about $1,000 to $1,500 a month over the last year. This compares to over $4,000 a month in some Oxnard neighborhoods with even larger, newer homes. (see my blog on Victoria Estates).

Four or five years ago, these homes were selling for the high $600,000’s to low $700,000 range, so they really have not come down as much as I would have expected. These homes are very comfortable, built in a premium location, and are a very solid investment for those with the means to take advantage of our current market.

Warmest Regards,
Mark Thorngren

www.markthorngren.com
mark@markthorngren.com
(805) 504-0228

Merchants Lobbying Congress for Interchange Fee Limits

Credit card interchange fees continue to be a hot topic. These fees, which credit card companies charge to merchants for the right to accept cards, have been controversial for decades. Visa and MasterCard set these fees for their issuers, and as a result, banks such as Citibank, Bank of America, and JP Morgan Chase do not compete on merchant fees. Merchants also claim that even American Express and Discover do not effectively compete.

Although a massive multi-district class action challenging the fees on antitrust grounds has been chugging along for several years, many merchants apparently believe that Congress may prove to be a more fruitful avenue. A coalition of U.S. merchants calling themselves the Merchants Payment Coalition ("MPC") has launched an aggressive advertising campaign seeking to influence the process.

Last July, the House Judiciary Committee approved the Credit Card Fair Fee Act, which would have permitted merchants to negotiate the fees that they pay credit card companies as a group and created some government oversight if negotiations failed. That legislation got lost in the flurry of activity last fall. But the issue has not been forgotten. Staffers in both houses have indicated to me that Congress plans to address the issue, although no consensus has emerged as to the proper course.

The MPC supported the Fair Fee Act bill last summer, but it is currently refraining from backing any specific proposal. Instead, it has lined up a series of meetings with committee members to express its views.

A number of proposals have been made for increasing merchant fee competition. I have proposed requiring the largest Visa and MasterCard banks to set their own fees. Adam Levitan has called for permitting merchants to surcharge credit card transactions, and Allan Frankel has suggested multi-network cards that permit the merchant to choose the processing network. Regulators in Australia and other countries have sought to limit merchant fees to the amount necessary to cover only certain identifiable costs. As Congress generally moves back into the business of regulating financial markets, it will be interesting to see how it approaches credit cards.