Major home markets' slump continues

Boston and Detroit led the way down, according to latest figures from Case Shiller Weiss. Seattle bucks the trend.
By Les Christie, CNNMoney.com staff writer
January 30 2007: 2:45 PM EST

NEW YORK (CNNMoney.com) -- Housing prices fell in nearly every major U.S. market in November, though some Northwest markets are bucking the trend, according to the latest numbers from Case Shiller Weiss.

Boston prices have swooned by 5 percent for the 12 months through November and Detroit was off 4.5 percent. Of 20 major cities tracked, all but three showed declines in November and seven recorded 12-month losses.

Northwest cities have best weathered the storm with Seattle showing a year-over-year increase of 13 percent and Portland a gain of 11.6 percent. In November, Miami led all other markets with growth of 7.4 percent.

The Case Shiller indexes are the basis for derivative investments traded on the Chicago Mercantile Exchange.

Case Shiller's 20-city composite index, which also includes Chicago, New York, and San Diego, dropped 0.4 percent in November, after inching down 0.2 percent in October. For the 12 months, the index was up 1.7 percent, a far cry from its performance in 2005, when the index gained 15.7 percent.
Armani, Jagger - condo branding in overdrive

"Country-wide, home price declines appear to show no signs of slowing down," said Robert Shiller, chief economist at MacroMarkets LLC, in a release. "But while the downward trend is visible on a national level, it is clear that certain cities, like Boston and Detroit, have been more susceptible to the price correction."

Some of the smart money is betting that the decline will continue. Case Shiller real estate derivatives are down an average of about 3.9 percent for its 12-month future contracts, which expire in October of 2007.

The derivatives may, however, exaggerate the market's pessimism. According to Shiller, not only are the futures too thinly traded still to be a very accurate guide to market sentiment but there is also a risk premium to be taken into account; at this point, more traders are interested in protecting themselves against loss than are interested in buying into a growing market. That imbalance drives down the prices of the futures.

"Market Monitor"-James Stack

"Market Monitor"-James Stack, President of Investech Research
Friday, January 26, 2007

PAUL KANGAS: My guest market monitor this week is James stack, president of Investech Research, based in Whitefish, Montana and welcome back to NIGHTLY BUSINESS REPORT, Jim.

JAMES STACK, INVESTECH RESEARCH: Thank you, Paul. It's great to be here.

KANGAS: You know, it's been a wild and wooly week on Wall Street with the Dow posting its best point gain of the year on Wednesday and its biggest point loss of the year yesterday. What do you think is behind all this volatility and do you see it continuing?

STACK: Paul, the volatility that we're seeing is confirmation that this is an emotional market. It's the second longest period in the past 75 years without a 10 percent correction in the blue chip indexes and the volatility, I think, is also a reflection of the difficult past facing the Fed in navigating a soft landing.

KANGAS: There has been talk, a lot of talk that the Federal Reserve has pretty well achieved a soft landing. Does that mean that the housing and real estate slump is just about over?

STACK: I think the jury is still out on the so-called soft landing and will be for another three to six months. The Fed is dealing with two very opposing pressures. One is firming inflation pressures from the tight labor market and from high commodity prices. And the other as you said is the housing market. I think it would be naive to think that the worst of the housing market is behind us. I'm surprised how many analysts are claiming that when in fact we have a very difficult affordability problem out there from the run-up in prices, and at the same time, we have a lot of excesses to unwind, including the inventory. I think looking back two years from now, we will look at today and realize that we have -- were not near the bottom in the unwinding of the housing boom.

KANGAS: Interesting. I know it's impossible of course to predict where oil prices are going, but in the current environment, what strategy are you advising for your clients?

STACK: A simple three-part strategy because this bull market is already about 30 percent longer than the average bull market life span of the last 100 years. Simply strategy number one, sell down to a level of comfort. For us, that's raising cash to our highest level in five years, over 30 percent. Secondly, focus on defensive sectors, those that are more resilient to rising inflation and rising interest rates. And third, be very, very selective.

KANGAS: Give us your opinion where the stock market stands now from both the fundamental and technical viewpoints.

STACK: From a technical standpoint, the blocks (ph) are still in place for a bull market. Our technical gauges have not confirmed a bear market yet, but this is a rising risk market and 2007 could be a year of surprises. On the inflation front, I think any surprises will be to the upside. You have another risk in the U.S. dollar where any surprises will be to the down side, and if either of those developments occur, we could see the Fed, unfortunately, be forced back to the tightening table which no one on Wall Street expects. So it's a year of potential surprises. That means it has to be a year of increasing defensiveness from a strategy.

KANGAS: On your last visit in mid-July, you recommend the purchase of two stocks for our viewers. Let's have a look and see how they've done since then. We see Pepsico, very conservative choice, up 4.3 percent and Johnson & Johnson up 9.3 percent. They're both in the plus column and I congratulate you on that.

STACK: They're good steady gainers, the kind of blue chips that pay decent dividends that are going to be holding up well, regardless of what happens to the broader market I think.

KANGAS: And so you would stay with these two issues?

STACK: Yes, we're still holding them in our managed accounts.

KANGAS: Now given your cautious outlook, do you have any new stock recommendations?

STACK: In the defensive sectors, which would include the pharmaceutical sector, we like Abbott Laboratories, symbol ABT.

KANGAS: There we see on the chart and it's had quite a move.

STACK: It pays over a 2.2 percent dividend yield. It has had 33 consecutive years of increasing its dividends. It has close to double- digit gains in both revenue and earnings of the past 10 years.

KANGAS: Another choice? We have time for one more.

STACK: Another would be Automatic Data Processing. It provides financial and data processing services to corporate America. Again, very steady revenue growth, good dividend yield, good, solid performer, regardless of (INAUDIBLE).

KANGAS: It's had a little setback recently so this might be a good entry point.

STACK: Yeah, it is. I think that ABT and Abbott Labs are good steady...

KANGAS: OK, how about one more?

STACK: Another one I think from a defensive standpoint, to provide defense both against weakness in the U.S. market and a potential weakness in the dollar, look international. After a year of consolidation, the Japanese market, I think, will be moving higher this year. The Ishares, Japan symbol EWJ is one of the best opportunities to take advantage of that.

KANGAS: Jim, do you personally own any of the stocks you mentioned?

STACK: Absolutely, Paul, we own all of them. I wouldn't recommend them if we didn't like them.

KANGAS: That's a confidence builder. Jim, it's great to have you back. Thanks for being with us. We look forward to your next visit.

STACK: Thank you, Paul, it's also a pleasure being here.

KANGAS: My guest, James Stack of Investech Research.

Under water by 2100? Risk of the rising sea

Posted on Fri, Jan. 26, 2007

CALIFORNIA'S CHANGING CLIMATE
SCIENTISTS SEEK WAYS TO AVERT A CREEPING CATASTROPHE IN BAY AREA
By Mike Taugher

The seas have been rising for 18,000 years, but the pace has quickened.

At the Golden Gate Bridge, the Pacific Ocean crept seven inches higher during the past century, as global warming melted glaciers and expanded ocean waters.

Californians are taking notice. In one of the first efforts of its kind in the state, officials are starting to address the threats rising seas pose to the Bay Area.

One of the first steps was to compile maps that show what would happen if the sea level rose three feet -- the upper limit for what might occur by 2100, according to computer models of climate used by the state.

The maps show a dramatic level of inundation: San Francisco and Oakland international airports would be under water, along with Foster City, parts of Redwood City and virtually all the bay wetlands, many of which have been restored at great public expense as habitat for wildlife.

Also at risk are railroad tracks running through Alviso, highways, buildings, and public works projects, such as the East Bay Municipal Utility District sewage-treatment plant in Oakland.

``There are some areas that are extremely vulnerable,'' said Leslie Lacko, a coastal planner for the San Francisco Bay Conservation and Development Commission.

According to a 1990 study, a three-foot rise in sea level would threaten $48 billion in real estate, roads and pipes around San Francisco Bay.

``We have a lot of infrastructure that is very vulnerable to a little bit of sea level rise,'' said the study's author, Peter Gleick, president of the Pacific Institute in Oakland. ``We're going to have to spend a lot of money to protect them.''

The issue is already having an effect on flood insurance rates. They're going up around the country, in part because of natural hazards that could be worsened by warming, according to Evan Mills, a staff scientist at Lawrence Berkeley Laboratory.

As sea levels continue to rise, he said, ``The demand will go up, I am sure.''

Recent climate models suggest a sea level rise of four to 36 inches by 2100, although that range will reportedly narrow when a major report from an international team of climate scientists is released on Tuesday.

On the other hand, a recent study in the journal Science suggests that since 1990, the seas have been rising in accordance with the worst-case scenario. Stefan Rahmstorf of the Potsdam Institute for Climate Impact Research in Germany argues that climate models may underestimate how fast the seas will rise because they don't take into account some of the complexities of glacier behavior.

Surprises feared

While any rise is likely to be gradual and could be modest, especially if greenhouse gas emissions are curtailed, scientists worry that there will be catastrophic surprises, such as huge ice sheets sliding into the oceans.

Even a relatively modest increase could spell trouble.

Raise sea level 18 inches, and salty ocean water would flow deep into the Sacramento-San Joaquin River Delta, intruding into the drinking water supply for 23 million Californians.

``A foot and a half would be huge,'' said John Andrew, chief of special planning for the state Department of Water Resources.

A rise of just one foot would put tremendous pressure on the levees that protect the delta's fresh water supply. High tides that now come once a century would come once a decade; levees that are designed to withstand 100-year events could crumble and break.

A 2005 study estimated a two-in-three chance of catastrophic levee failures in the delta by 2050, partly because of added pressure on levees from a rising sea level.

Flooding from storms, especially during high tides, would be much more widespread.

Take, for example, a powerful storm in February 1998 that struck during a tide that was about two feet higher than normal.

Waves splashed over the San Francisco Embarcadero, as much as four feet of water washed over U.S. Highway 101 in Marin County and hundreds of people fled their homes around the bay, according to the U.S. Geological Survey.

The storm occurred during a massive El Niño event, part of a natural climate cycle that has not been linked to global warming. But it dramatically illustrated how rising seas and high tides can combine to intensify the effects of storms.

``If we have that same El Niño and that same high tide in 20 years, the damage would be much more extreme,'' said Amy Luers, California climate manager for the advocacy group Union of Concerned Scientists.

``We have developed our society to manage our existing weather and existing extremes,'' she said. ``What global warming is doing is making those more challenging.''

Rising seas will also flood coastal areas and nibble away at beaches and cliffs, threatening houses from the Bay Area to San Diego.

In some places, such as Monterey and La Jolla, the bluffs are sturdy, said Mark Johnsson, a geologist at the California Coastal Commission. But other real estate with prime ocean views is more vulnerable to erosion, including Sand City and Marina in Monterey County and Pacifica just south of San Francisco.

Like the San Francisco Bay Conservation and Development Commission, the state Coastal Commission is in the early stages of considering how California might deal with the consequences of a rise in sea level along the rest of the coast. It could, for example, require bluff-top houses to be set farther back.

Sea wall dilemma

The issue could pit regulators trying to protect the long-term health of beaches and wetlands against property owners' desires for stunning vistas.

Property owners would often rather build sea walls to prevent erosion than give up their views.

But regulators say those walls actually jeopardize beaches. The problem, Johnsson said, is that they disrupt natural processes that maintain beaches by cutting away the bluffs and releasing new sand.

``Sea walls protect property, but they inevitably destroy beaches in the long run in this environment of rising sea level,'' he said. Even so, he said, regulators have little legal authority to reject applications from property owners who want to build them.

Lacko of the BCDC said that while sea walls seem to be an obvious solution to the threat of flooding around the bay, they would destroy wetlands and turn a living bay into nothing more than a ``giant reflecting pool.''

As Susanne Moser, a geographer at the National Center for Atmospheric Research in Boulder, Colo., put it: ``Do we really want an America behind sea walls?''
MediaNews reporter Betsy Mason contributed to this report. Contact Mike Taugher at (925) 943-8257 or mtaugher@cctimes.com.

"Market Monitor"-James Stack

"Market Monitor"-James Stack, President of Investech Research
Friday, January 26, 2007

PAUL KANGAS: My guest market monitor this week is James stack, president of Investech Research, based in Whitefish, Montana and welcome back to NIGHTLY BUSINESS REPORT, Jim.

JAMES STACK, INVESTECH RESEARCH: Thank you, Paul. It's great to be here.

KANGAS: You know, it's been a wild and wooly week on Wall Street with the Dow posting its best point gain of the year on Wednesday and its biggest point loss of the year yesterday. What do you think is behind all this volatility and do you see it continuing?

STACK: Paul, the volatility that we're seeing is confirmation that this is an emotional market. It's the second longest period in the past 75 years without a 10 percent correction in the blue chip indexes and the volatility, I think, is also a reflection of the difficult past facing the Fed in navigating a soft landing.

KANGAS: There has been talk, a lot of talk that the Federal Reserve has pretty well achieved a soft landing. Does that mean that the housing and real estate slump is just about over?

STACK: I think the jury is still out on the so-called soft landing and will be for another three to six months. The Fed is dealing with two very opposing pressures. One is firming inflation pressures from the tight labor market and from high commodity prices. And the other as you said is the housing market. I think it would be naive to think that the worst of the housing market is behind us. I'm surprised how many analysts are claiming that when in fact we have a very difficult affordability problem out there from the run-up in prices, and at the same time, we have a lot of excesses to unwind, including the inventory. I think looking back two years from now, we will look at today and realize that we have -- were not near the bottom in the unwinding of the housing boom.

KANGAS: Interesting. I know it's impossible of course to predict where oil prices are going, but in the current environment, what strategy are you advising for your clients?

STACK: A simple three-part strategy because this bull market is already about 30 percent longer than the average bull market life span of the last 100 years. Simply strategy number one, sell down to a level of comfort. For us, that's raising cash to our highest level in five years, over 30 percent. Secondly, focus on defensive sectors, those that are more resilient to rising inflation and rising interest rates. And third, be very, very selective.

KANGAS: Give us your opinion where the stock market stands now from both the fundamental and technical viewpoints.

STACK: From a technical standpoint, the blocks (ph) are still in place for a bull market. Our technical gauges have not confirmed a bear market yet, but this is a rising risk market and 2007 could be a year of surprises. On the inflation front, I think any surprises will be to the upside. You have another risk in the U.S. dollar where any surprises will be to the down side, and if either of those developments occur, we could see the Fed, unfortunately, be forced back to the tightening table which no one on Wall Street expects. So it's a year of potential surprises. That means it has to be a year of increasing defensiveness from a strategy.

KANGAS: On your last visit in mid-July, you recommend the purchase of two stocks for our viewers. Let's have a look and see how they've done since then. We see Pepsico, very conservative choice, up 4.3 percent and Johnson & Johnson up 9.3 percent. They're both in the plus column and I congratulate you on that.

STACK: They're good steady gainers, the kind of blue chips that pay decent dividends that are going to be holding up well, regardless of what happens to the broader market I think.

KANGAS: And so you would stay with these two issues?

STACK: Yes, we're still holding them in our managed accounts.

KANGAS: Now given your cautious outlook, do you have any new stock recommendations?

STACK: In the defensive sectors, which would include the pharmaceutical sector, we like Abbott Laboratories, symbol ABT.

KANGAS: There we see on the chart and it's had quite a move.

STACK: It pays over a 2.2 percent dividend yield. It has had 33 consecutive years of increasing its dividends. It has close to double- digit gains in both revenue and earnings of the past 10 years.

KANGAS: Another choice? We have time for one more.

STACK: Another would be Automatic Data Processing. It provides financial and data processing services to corporate America. Again, very steady revenue growth, good dividend yield, good, solid performer, regardless of (INAUDIBLE).

KANGAS: It's had a little setback recently so this might be a good entry point.

STACK: Yeah, it is. I think that ABT and Abbott Labs are good steady...

KANGAS: OK, how about one more?

STACK: Another one I think from a defensive standpoint, to provide defense both against weakness in the U.S. market and a potential weakness in the dollar, look international. After a year of consolidation, the Japanese market, I think, will be moving higher this year. The Ishares, Japan symbol EWJ is one of the best opportunities to take advantage of that.

KANGAS: Jim, do you personally own any of the stocks you mentioned?

STACK: Absolutely, Paul, we own all of them. I wouldn't recommend them if we didn't like them.

KANGAS: That's a confidence builder. Jim, it's great to have you back. Thanks for being with us. We look forward to your next visit.

STACK: Thank you, Paul, it's also a pleasure being here.

KANGAS: My guest, James Stack of Investech Research.

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Friday, January 26, 2007, at 6:00 p.m. EST.

A last-hour rally lifted stock prices from the lows of the day. At the close, the Dow dropped 16 points, closing at 12,487; the Nasdaq added 1 point, to close at 2,435; oil closed up $1.19 to $55.42 per barrel; and gold closed down $3.40 at $644.70 an ounce.

Historically, numerous corporations try to raise prices during the month of January in order to improve margins. Consequently, prices tend to rise--even spike up--in January. However, many of these January price increases are rolled back in February or March when they meet resistance from customers or when market share declines. Consequently, inflation is always a problem every January. No one tells investors that inflation and the Consumer Price Index (CPI) are moderate in February and March.

While the Fed governors "worry about inflation," Fed Chairman Bernanke has quietly accelerated the pace of money creation to push GDP growth up to the 3.0 percent to 3.5 percent range, thus creating faster economic growth to support the dollar. Yet many global/international markets, especially the emerging markets, will still outperform the U.S. stock market this year.

Market volatility over fourth-quarter earnings will subside on/or about February 15, 2007, after which the market should move still higher.

Another great boom and bull market is unfolding now. This stock market is still undervalued by 28 percent. You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates.

The next Hotline Update will be on Tuesday, January 30, 2007, at 6:00 p.m. EST.

Home sales fall; show faint life-signs

By MARTIN CRUTSINGER, AP Economics Writer 1 hour, 41 minutes ago, 01/26/2007

WASHINGTON - Sales of new homes plunged in 2006 by the largest amount in 16 years as the nation's housing industry suffered through a sharp contraction after five boom years.

However, there have been some signs that the steep slide in housing may be coming to an end. For December, new home sales were up 4.8 percent, the second strong monthly gain after a 7.4 percent rise in November.

While those increases were better than expected, analysts cautioned that they were influenced by unusually warm weather in those two months.

The
Commerce Department reported that sales of new single-family homes totaled 1.06 million units for all of 2006, down 17.3 percent from the all-time high for sales of 1.28 million units set in 2005.

After setting sales records for five straight years, sales of both new and existing homes suffered sharp declines last year, and that has caused ripple effects throughout the whole economy.

Last year's plunge in new home sales was the biggest drop since a 17.8 percent drop since the recession year of 1990. Sales of existing homes fell by 8.4 percent to an annual rate of 6.48 million units, it was reported Thursday. That was the biggest decline in the sale of previously owned homes since 1989.

The median price of a new home sold in 2006 was up by 1.8 percent from 2005 but that price gain was far lower than the 9 percent jump in new home prices in 2005.

New home sales were up in all parts of the country in December except the West which posted a 4.4 percent drop. Sales rose by 27.3 percent in the Northeast, 26.6 percent in the Midwest and a much smaller 0.3 percent in the South.

Separately, the Commerce Department reported that orders to U.S. factories for big-ticket manufactured goods rose in December by the largest amount in three months, led by a huge jump in demand for commercial aircraft and the biggest increase in orders for cars and trucks in more than two years.

New orders for durable goods rose 3.1 percent last month to a seasonally adjusted total of $221.9 billion. The gain followed a 2.2 percent November increase and was the strongest showing since an 8.7 percent September advance.

Orders for commercial aircraft surged by 26.5 percent, reflecting the sizable 212 plane orders that Boeing Co. booked during the month. There also were gains in a number of other industries, providing evidence that manufacturing is working its way through last year's economic slowdown.

The auto sector, which struggled last year with rising gasoline prices and stiff foreign competition, saw a 6.8 percent rise in orders for vehicles and parts, the biggest one-month gain since August 2004.

Excluding transportation, orders for durable goods posted a solid 2.3 percent increase, the best showing in this category since last March and much better than analysts had been expecting.

For all of 2006, new orders rose by 7 percent, a slight slowdown from an 8.6 percent increase in 2005. Orders had risen by 6.9 percent in 2004 after having fallen in 2002 and 2003 as the country was struggling to emerge from the 2001 recession. Manufacturing was the hardest hit sector in the last downturn.

Economic growth slowed to a lackluster 2 percent in the July-September quarter, raising concerns that the steep slump in housing could trigger an outright recession.

However, in recent weeks a number of reports have shown the year ended with stronger-than-expected activity, easing worries about such a general slowdown.

Home to set world price record at $155 mln

Fri Jan 26, 10:01 AM ET

NEW YORK, Jan 25 (Reuters Life!) - If you're looking for a new home and have $155 million to spare, you could be the proud owner of the world's most expensive abodes.

Forbes.com, the online site of Forbes magazine, on Thursday said timber and real estate baron Tim Blixseth has just upped the ante in the price of the world's most expensive home, planning to build and sell a home for $155 million.

The 53,000-square-foot stone and wood mansion will be built at the Yellowstone Club, a members-only, residential ski and golf resort near Bozeman, Montana developed by Blixseth.

That tops the $139 million asking price for Updown Court in Windlesham, England, which was listed No. 1 in the Forbes.com list of the world's most expensive homes in 2006.

It also exceeds the $125 million that U.S. media mogul and reality TV star Donald Trump is asking for the renovated estate he owns in Palm Beach, Florida.

Blixseth, who ranks No. 322 in the 2006 Forbes 400 list with a $1.2 billion fortune, said he had already received interest in the home.

"Some of (the world's richest) just have to have the best. Price is not an issue," he told Forbes.com.

The 10-bedroom mansion will sit on 160 acres and will come with a private gondola-like chairlift that will carry residents to the Yellowstone Club's private ski slopes, an indoor/outdoor swimming pool, and a home movie theater, and it is fully furnished.

Existing home sales plummet in 2006

By MARTIN CRUTSINGER, AP Economics Writer 35 minutes ago, 01/25/2007

WASHINGTON - After a five-year boom, the nation's housing market cooled considerably in 2006 with existing home sales falling by the largest amount in 17 years.

While the worst may be over, the rebound could be slow in coming, analysts said, given a continuing huge backlog of unsold homes that will keep downward pressure on prices, particularly in former boom areas.

The National Association of Realtors reported Thursday that sales of existing homes totaled 6.48 million units for all of 2006, down 8.4 percent from 2005 when 7.08 million existing homes were sold, the fifth straight year that sales hit an all-time high.

That boom drove prices up at double-digit rates and caused a stampede of investors into the market who purchased housing hoping to quickly sell the homes for big profits.

David Lereah, chief economist for the Realtors, said that 40 percent of home sales in 2005, the peak of the housing boom, represented purchases by investors and people buying vacation homes.

"A lot of those people have now left the market," Lereah said, predicting that sales have bottomed out and should start a slow rebound in 2007.

"With fingers and toes crossed, it appears that we have hit bottom in the existing home market," Lereah said.

However, other analysts cautioned that the rebound will likely be extremely slow because it will take time for unsold inventories to be worked down and for speculators to unload homes they purchased hoping for a quick profit.

"Last year was a tough year for housing and 2007 will be difficult as well," said Mark Zandi, chief economist at Moody's Economy.com. "Sales are near a bottom, but prices and new home construction will continue to fall throughout most of this year. I don't expect the market to show broad improvement until 2008."

Even with the sales decline in 2006, the median price of a new home managed to rise slightly last year to $222,000, compared to a median, or midpoint price, of $219,600 in 2005. However, the 1.1 percent price increase last year was far below the 12.4 percent price surge in 2005.

Analysts said prices are likely to continue falling in such formerly red-hot markets as California, Florida, Arizona, Nevada and the Northeast corridor.

"There was an unprecedented boom in housing that created a lot of imbalances that have to be righted before the market revives," Zandi said. "We have gone from boom to bust and the bottom is here to stay at least until this time next year."

For December, sales of existing homes fell by 0.8 percent to a seasonally adjusted annual rate of 6.22 million units. Analysts had been hoping for a small increase after sales gains in October and November, the first back-to-back increases since the spring of 2005.

The median sales price in December was unchanged at $222,000, the same as December a year ago, which represented an improvement after four straight months in which the median sales price had fallen compared to the same month a year ago, the longest stretch of such declines on record.

The slowdown in housing has been a major factor dragging down overall economic growth, trimming more than a percentage point from growth in the July-September quarter, when the economy expanded at a lackluster 2 percent growth rate.

Still, economists are growing more confident that the housing bust will not be severe enough to push the economy into an outright recession, as job growth outside of housing-related industries has remained strong, helping to bolster consumer spending.

By section of the country, sales in December were down the most in the West, a drop of 9.1 percent, and the Northeast, where sales fell by 2.8 percent. Sales rose by 4.3 percent in the Midwest and 0.8 percent in the South.

For the entire year, sales were down in all regions of the country, dropping 19.6 percent in the West, 7.2 percent in the Northeast, 6.6 percent in the Midwest and 5.1 percent in the South.

In December, the inventory of unsold homes fell by 7.9 percent to 3.51 million units, which represents a still-high 6.8 month supply at the December sales pace.

In other economic news, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits rose to 325,000 last week, an increase of 36,000, which was the biggest one-week jump since the hurricane-related layoffs in the fall of 2005.

However, analysts said that the big increase followed two weeks of bigger-than-expected declines and probably was not a signal of a weakening labor market.

Millionaire in the making: Sherelle Derico

Single-mother sacrifices then savors prosperous course for herself and daughter.
By Christian Zappone, CNNMoney.com staff writer
January 24 2007: 4:44 PM EST

NEW YORK (CNNMoney.com) -- Sherelle Derico, 36, had a 3-week-old daughter and no job when she and her husband split in 1997. But the challenges of the separation and single-motherhood didn't deter her from seeking financial success.

"It was frightening. Most definitely," said Derico of the experience.

At the time of her divorce Derico, who held an accounting degree, was already considering earning a master's degree.

"As soon as the baby turned one I started on a Masters in Financial Management at the University of Maryland," she said.

The period brought changes not just in her educational and career goals but in her spending habits too. Derico, who enjoys interior design, says she used to spend a lot of money on clothes and furniture. She used to travel more.

Today, she prefers to pay off debt and to save money down to the penny. When this journalist contacted Derico on her cellphone, one of the first things she said is, "Can you call back on my landline? I want to save on my minutes."

Derico's personal history helps explain her habits. After becoming a mother and getting divorced she returned to a former employer who hired her back - for a lower paying job. Then 9/11 happened and she got laid off.

"I found myself in lots of debt. That's when I started to save a lot of money," said Derico, who now works as senior consultant in project management for Booz, Allen, Hamilton in the Washington, D.C.-area.
25 rules to grow rich by

Derico has paid off roughly $25,000 in student debt she racked up for her undergraduate degree in 10 years. She paid for her masters' degree mostly in cash along with matching plans from her employers.

Also, five years ago she started receiving a small amount of child support and is now receiving $700 a month.

As for her own money, Derico puts away 20 percent of her income into her 401(k) and IRA.

She says she's adamant about paying into her savings like she would any other bill.

She has $95,000 in an account with TIAA-CREF. Her Booz Allen 401(k) account has $36,000. She keeps about $8,000 in her regular savings.

"My friends say I'm pretty obsessive [about my savings]," Derico says, pointing out that she 'loses it' if her savings fall below a certain amount.
Buying a home

Although Derico faced lean times, she has managed to set and keep financial goals - like home ownership.

But Derico's 1999 purchase of the 4-bedroom 2-bath Fairfax, Virginia, 1,300 sq. foot town home didn't come without sacrifice.

She was enrolled in her master's program at the time and had to ask for a refund on that semester's tuition in order to come up with the down payment for the house.

To scrimp for the rest of the payment, she says she didn't go to the grocery store for 3 months and instead ate only the food she had stockpiled in her pantry.

"The majority was canned food," she said. "Spam. Ramen noodles soup."

But her daughter Sharmon didn't mind. Sharmon, who was 4 years old at the time, wanted to be able to jump; living in an apartment with neighbors in the unit below meant she couldn't.

Derico succeeded in making the down payment and took out a 30-year mortgage on the $114,000 home.

Not long after, she refinanced and brought the length of the mortgage down to 15 years.
More Millionaires in the Making

The value of the property has soared in Fairfax County's overheated real estate market. Similar homes in the area sell for $500,000-$600,000.

Derico has racked up $460,000 in equity in the town home.

She wants to pay off the mortgage in 10 years, which would mean she would own the home outright by 2009.

She points out that "any extra money goes towards her mortgage."

Although Derico still sacrifices today she no longer has to buy ramen.
Money handling

Today her one indulgence is a new 2007 LS460 Lexus. She bought it after trading in the 1996 ES300 Lexus which she had paid off. She financed the car through her credit union.

Derico has no credit credits, pays for everything in cash with the exception of her Lexus. If she can't use cash, she uses a debit card. She also uses coupons and savings cards when eating out, and for groceries and toiletries.

She eats turkey sandwiches every day at work and never eats out during the week. Her entertainment-dining out budget is $100. For the month.

One trick that has helped Derico, who still confesses to a weakness for impulse buys, is to save money in her ING Money Market account. Once you contribute money to it, you can't touch it for 2 or 3 days which she says prevents spur-of-the-moment purchases.

In terms of stretching dollars, "my friends try to figure out how I do so much on my little income. I've been called a penny-pincher, a thrift-saver, a cheapskate."

Derico says she learned little about financial management from her parents. Instead, her money education came from financial literacy lessons she took at her church.

She wants to pass those lessons on to her daughter.

Sharmon doesn't get a fixed allowance but Sherelle makes sure she always has some money on hand. Sherelle expects her daughter to save at least 10 percent of the money. As an incentive, at the end of each month, Sherelle matches whatever Sharmon takes to the bank. Including change.

Sherelle then shows Sharmon what's going into her account every month and how much her money has grown.

"My friends say [Sharmon] knows a lot more about finances than they do now," Sherelle says, who notes, "she understands credit cards aren't a good thing."

Sherelle does the same with the 529 education plan she opened up for her daughter last year which so far has more than $3,000 in it.

And finally, Sherelle has Sharmon tithe 10 percent to the church, as Sherelle does when not contributing to the renovation of her grandmother's 30-year-old house.
Future plans

Since Derico is on track to be debt-free in 5 years, including her mortgage, her prospects of a comfortable retirement are substantially raised.

She says she would like to retire from her current profession one day and move back to her home state of Georgia to teach financial literacy in the schools there. She'd also consider working part-time.

She also toys with the idea of starting an interior design business if it didn't mean going back to school. Sharmon, now 11, would one day like to be a graphic designer.

With the financial lessons applied to her own life, Sherelle Derico says she doesn't understand people who don't pay attention to their money. "It's nothing you can ignore," she said.

She marvels at people who can't make their finances work while they're employed, because if they can't succeed now that they're making an income how will they survive when they're not working?

"You can finance everything else," said Derico. "But retirement is the one thing that can't be financed."

----------------------------------------------------------------------

Are you a Millionaire in the Making? To be considered for feature, tell us how you save and spend. Send e-mails to millionaire@money.com.

Mortgage applications slide

Weekly activity index falls 8.4% as interest rates climb, industry trade group reports.
January 24 2007: 7:45 AM EST

NEW YORK (Reuters) -- U.S. mortgage applications for both home purchase and refinancing loans dropped last week as interest rates rose, an industry trade group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended Jan. 19 skidded 8.4 percent to 611.3.

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Current Mortgage Rates

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30 yr fixed mtg 5.78%
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As housing affordability goes up, homebuyers are looking to exotic mortgages and taking on greater risk.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, rose 2.2 percent.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.22 percent, edging up 0.03 percentage point from the previous week. Interest rates were also above year-ago levels of 6.04 percent.
Is your real estate agent on your side?

The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, slumped 8.4 percent to 402.7. The index was also sharply below its year-ago level of 473.7.

The group's seasonally adjusted index of refinancing applications decreased 9.6 percent to 1,848.8, its first drop in four weeks. A year earlier the index stood at 1,773.9.

The refinance share of applications decreased to 47.8 from 49.9 percent the previous week.

Fixed 15-year mortgage rates averaged 5.93 percent, up from 5.92. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.91 from 5.85 percent.

The ARM share of activity decreased to 20.3 from 21.2 percent the previous week.

The MBA's report precedes other data this week gauging the state of the U.S. housing market.

The National Association of Realtors will release data on sales of U.S. existing homes Thursday. The Commerce Department will release data on sales of new homes Friday.

The MBA's survey covers about 50 percent of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

Video: As housing affordability goes up, homebuyers are looking to exotic mortgages and taking on greater risk. CNN's Gerri Willis reports.

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Tuesday, January 23, 2007, at 6:00 p.m. EST.

Good economic news lifted stock prices today. At the close, the Dow rose 57 points, closing at 12,533; the Nasdaq remained flat, to close at 2,431; oil closed up $2.46 to $55.04 per barrel; and gold closed up $11.80 at $645.90 an ounce.

The Leading Indicators Index rose three-tenths of a percent in December and revealed strength in housing and autos. Fed Chairman Bernanke accelerated the growth of the nation's money supply in July of 2006. In December, he accelerated the pace of money growth again. The economy is responding and so are stock prices.

Have you noticed that some Fed governor is always worried about inflation and warning that another Fed funds rate increase is possible? Meanwhile, the Fed Chief is speeding up the money printing presses to create faster economic growth. The Fed is deliberately distracting your attention away from the most powerful monetary policy tool: CREATING MONEY.

Another great boom and bull market is unfolding now. This stock market is still undervalued by 28 percent. You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates. We will continue to recommend additional global/international investments that will benefit from a falling dollar. The dollar was down again today.

The next Hotline Update will be on Friday, January 26, 2007, at 6:00 p.m. EST.

U.S. image around world sharply worsens: BBC poll

7 minutes ago, 01/22/2007

LONDON (Reuters) - The image of the United States has deteriorated around the world in the past year because of issues such as
Iraq and prisoners at Guantanamo Bay, according to a poll by the BBC World Service released on Tuesday.

The proportion of people believing the United States has a mainly positive influence in world affairs dropped seven points from a year ago -- to 29 percent from 36, the results from 18 countries that were also polled the previous year showed.

Fifty-two percent thought U.S. influence was mainly negative, up from 47 percent a year ago, the poll found.

The survey, released on the day
President George W. Bush gives his State of the Union speech to Congress, found sharp disagreement with U.S. policy on Iraq which is ravaged by violence nearly four years after the U.S.-led invasion.

In all, 26,381 people were questioned in 25 countries. Almost three in four people disapproved of U.S. policy on Iraq, while two-thirds disapproved of U.S. handling of terrorism suspects held at the Guantanamo Bay camp in Cuba.

"The U.S. administration's recent decision to send more troops to Iraq is at odds with global public opinion ... This policy is likely to further hurt America's image," Doug Miller, president of pollsters GlobeScan, said.

Sixty-five percent disapproved of U.S. policy on last year's war between
Israel and Hezbollah guerrillas, 60 percent of its handling of
Iran's nuclear program, 56 percent of its stance on global warming and 54 percent of its policy on
North Korea's nuclear program.

More than two-thirds believed the U.S. military presence in the Middle East provoked more conflict than it prevented and only 17 percent thought U.S. troops there were a stabilizing force.

The poll found that the American public also seemed to have serious doubts about U.S. foreign policy. Majorities of Americans polled disapproved of how the United States was handling the war in Iraq (57 percent) and global warming (54 percent) while half disapproved of U.S. policy on Guantanamo and Iran.

Fifty-three percent of Americans said the U.S. military presence in the Middle East "provokes more conflict than it prevents," the survey said.

The poll found U.S. policy was regarded poorly in Britain, Bush's closest ally in Iraq. A majority (57 percent) of the British public saw U.S. influence in the world as mainly negative and 81 percent disapproved of U.S. actions in the war in Iraq, the BBC World Service said.

The poll, carried out between November 3 and January 9, covered Argentina, Australia, Brazil, Chile, China, Egypt, France, Germany, Britain, Hungary, India, Indonesia, Italy, Kenya, Lebanon, Mexico, Nigeria, the Philippines, Poland, Portugal, Russia,
South Korea, Turkey, United Arab Emirates and the United States.

Builders Look for Housing To Recover in 2007

By John Spence
From MarketWatch

Homebuyers have been backing out of sales contracts and forfeiting their down payments during the housing slowdown, but cancellation rates should steady in the first quarter and taper off later in 2007, said the chief executive of one of the nation's largest home builders Thursday.

"Cancellations are likely to stabilize and stay level this quarter, and then decrease," said Ara Hovnanian during a Web cast of a real estate conference sponsored by Deutsche Bank in New York, adding cancellations should get back to "normalcy in a quarter or two."

The Hovnanian CEO said many cancellations are for older contracts signed when the market was booming and home prices were rising. He said one way the company is avoiding cancellations is to negotiate with buyers at the closing table.

"We don't like to do it, but it can prevent cancellations," Hovnanian said.

Home builders have been reporting surging cancellation rates driven higher by sagging consumer confidence and difficulty in selling existing homes.

When asked to pick an indicator he's looking at to spot a potential bottom for housing, Hovnanian said "we're watching [home] resale listings, which is something we never used to focus on."

Home builders face an inventory glut sparked by overbuilding and speculative demand drying up, but are hoping the spring selling season can jumpstart a recovery in 2007.

"The time between Thanksgiving and the Super Bowl is a slow time, so it's difficult to gauge anything," Hovnanian said. "We're waiting to see if things stabilize."

Meanwhile, Toll Brothers Inc. Chief Financial Officer Joel Rassman said the speed of various markets' recoveries will depend on the amount of "speculative" building and the use of incentives.

Home builders have ramped up concessions to buyers such as appliance upgrades and financing breaks in order to move homes in inventory. For example, Lennar Corp. earlier this week said sales incentives offered to homebuyers averaged $47,300 per home in the fourth quarter, up from $10,600 the previous year.

Rassman said buyers are putting off home purchases because they think the house may end up being cheaper soon. The CFO said the luxury builder is closely watching buyer traffic at its communities and reservation deposits to get a handle on where the market is heading. It also conducts "soft" interviews during home tours to see if people are "real buyers" or what the company calls "tire-kickers."

If local housing markets and economies bounce back, there could be some consolidation in the home-building business, especially with larger public companies snapping up smaller private competitors, Rassman said.

"There was no [spring] selling season last year, and if it happens again a lot of the smaller private builders won't be around the next selling season," he said.

Email your comments to rjeditor@dowjones.com.
-- January 22, 2007

Programs let homes produce green power

By MICHAEL HILL, Associated Press Writer 25 minutes ago, 01/21/2007

HYDE PARK, N.Y. - When the sun shines bright on their home in New York's Hudson Valley, John and Anna Bagnall live out a homeowner's fantasy. Their electricity meter runs backward.

Solar panels on their barn roof can often provide enough for all their electricity needs. Sometimes — and this is the best part — their solar setup actually pushes power back into the system. The Bagnalls "net meter," a state-sanctioned setup that allows homeowners to adopt renewable energy without taking the more radical step of disconnecting from their local electric utility, Central Hudson Gas & Electric.

Net metering essentially allows people to become mini-power producers. Programs vary state to state, but they are typically coupled with financial incentives that make it easier to invest thousands of dollars for photovoltaic panels, windmills or fuel cells. Since sun and wind are intermittent, customers still rely on the grid for steady service. The meter runs backward when more energy is produced than a customer consumes.

"When they first put this in, it ran backward more than forward," said John Bagnall, standing by a meter on a winter morning. "Even with a hazy sun ... we're producing electricity."

Advocates see net metering as an environmental twofer: it promotes green energy and reduces the strain on the power grid. But the number of people investing in solar panels or wind turbines has been relatively small so far, despite the selling point of being able to turn the table on electric utilities.

Federal legislation requires states to consider adopting net metering standards by 2008, though programs are already in place in more than 40 states, according to the Interstate Renewable Energy Council. California is king when it comes to net metering, accounting for 86 percent of the 15,200 customers tallied nationwide in 2004 by the Network for New Energy Choices, a New York City-based renewable energy advocacy group.

While only a tiny sliver of eligible customers net meter nationwide, the number of participants has picked up quickly in the last few years, said Chris Cooper, the network's executive director. He expects the trend to continue.

"Sun and wind, which used to be the purview of the crunchy, green left, are now pretty much mainstream," Cooper said.

Still, Cooper complained that burdensome paperwork, Byzantine rules and caps on the amount of renewable power any single customer can produce discourages participation in too many states. Also, many people don't even know programs exist since neither government nor industry is making a big advertising push.

The Edison Electric Institute, which represents utilities nationwide, does not oppose net metering but noted that in many states, excess energy is sold back to utilities at retail rates, not wholesale. That amounts to a subsidy for net meterers, utilities claim.

"There should not be cost shifting," said Steve Rosenstock, manager of energy solutions for the industry group. Rosenstock said a possible solution would be "smart meters," which can keep track of wholesale costs of electricity.

But the biggest obstacle for most would-be net meterers is the startup cost.

Prices vary depending on how big a system is installed, but prices in the $8,000 range are common. New York offers rebates based on wattage that shave thousands off the costs and there are tax credits from the state and the federal government, according to John Wright of Hudson Valley Clean Energy, which installs the systems.

Wright said systems can provide 80 to 90 percent of a home's electricity, so they are able to pay for themselves usually in 10 to 12 years.

John Bagnall, a retired anesthesiologist, said he spent about $40,000 after rebates for a 15 kilowatt system. But in nearby Rhinebeck, Michael Trimble and his wife spent about $14,000 for a 3 kilowatt system, which is enough to power their guest house. At the end of one year, Trimble's local utility calculated that he produced more power than he consumed, so they wrote him a check for $23.

Trimble plans to frame it.

While participants talk about the joy of meter watching — "On sunny days, if I want a thrill, I walk outside and watch my meter run backward," said Judith Karpova of Kerhonkson, N.Y. — it's about more than money for most participants.

"It's philosophical," Anna Bagnall said. Her husband explains that he didn't believe the Bush administration was prepared to tackle energy independence, so the burden falls on individuals. The Bagnalls and Karpova each invested in geothermal heating too. And the Bagnalls bought a used Prius.

In New York, advocates plan to make a push this year to expand net metering to businesses, as is allowed in New Jersey, California, Colorado and many other states.

Larisa Romanowski of the Environmental Advocates of New York said adding the large commercial customers will relieve the strain on New York's power grid, which is particularly congested in the New York City area.

"All these big energy-hog businesses that have these huge unshaded flat roofs that are perfect for PV (photovoltaic) systems cannot net meter right now under the net metering law for New York state, which is horrible," Wright said.

The push for expansion in New York has barely begun, but Cooper believes governments and utilities nationwide will warm up to net metering as the power grid ages and the demand for power increases.

"The regulated utilities will eventually come to the conclusion that they need the help of customer generators," Cooper said. "That realization will come the easy way or the hard way."

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Friday, January 19, 2007, at 6:00 p.m. EST.

The economic news is good, but Q4 earnings releases will keep traders on the cautious side. At the close, the Dow dropped 2 points, closing at 12,565; the Nasdaq added 8 points, to close at 2,451; oil closed up $1.51 to $51.99 per barrel; and gold closed up $8.30 at $636.40 an ounce. The dollar was down today.

Technology stocks rebounded today. Economic growth is gaining momentum. Abundant liquidity is driving the economy and will also drive stock prices still higher. Global liquidity is saturated; hence, the global boom. P/E levels are almost half of what they were in 2000 at the market peak. And, finally, the stock market is still undervalued by 28 percent.

You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates. We will continue to recommend additional global/international investments that will benefit from a falling dollar.

The next Hotline Update will be on Tuesday, January 23, 2007, at 6:00 p.m. EST.

Sales of New and Existing Homes Will Continue Their Slide in 2007

By Robert Schroeder
From MarketWatch

Sales of new and existing homes will continue their slide this year, due largely to investors pulling out of the housing market, mortgage-finance company Fannie Mae said Wednesday.

In an economic and housing outlook, Fannie Mae said sales of new homes are expected to drop by 7.1% in 2007, while sales of existing homes are expected to drop 8.1% this year.

Fannie Mae's projections follow similar estimates released Tuesday by the Mortgage Bankers Association. The trade group forecast declines in 2007 of 7% in existing-home sales and 8% in new-home sales. See full story.

Fannie economists said the projected sales for 2007 would be the lowest since 2002.

The two-year drop in sales during 2006 and 2007, the economists said, would be the largest since the 1989-1991 housing downturn.

"We expect additional declines later this year as investors continue to leave previously hot housing markets, although the largest drops may be behind us," wrote Fannie economists including chief economist David Berson.

Nation-wide, home prices should fall by between 1% to 2% this year, Berson predicted at a press briefing Wednesday.

However, he said, "most of the United States will probably not see home price declines at all -- simply more modest gains." He said the modest gains combined with significant declines in some parts of the country would produce the estimated 1% to 2% overall gain.

Later in the year, an end to the glut of unsold homes may help prices rise, he predicted.

Berson also told reporters at the briefing Wednesday afternoon that the condominium market is suffering as investors are pulling out.

Also, Fannie is projecting drops in mortgage originations for last year and this year.

For 2007, Fannie Mae is predicting a decline of 11.2% in purchase originations. It would follow an estimated drop of 3.1% in 2006.

Refinance activity, meanwhile, is projected to change little this year thanks to refinancing out of upward-adjusting adjustable rate mortgages, or ARMs.

Fannie said total single-family home originations are expected to decline by 7% to $2.33 trillion in 2007 following a drop to $2.5 trillion in 2006.

Email your comments to rjeditor@dowjones.com.
-- January 19, 2007

Consumer inflation slows in 2006

By MARTIN CRUTSINGER, AP Economics Writer 11 minutes ago 01/18/2007

WASHINGTON - Inflation in 2006 eased to the slowest pace in three years as consumers finally got some relief on energy and medical bills. In further good news, inflation-adjusted wages rose at the fastest clip in nearly a decade.

The Labor Department reported Thursday that the
Consumer Price Index climbed by 2.5 percent last year, the best showing since 2003 and nearly a full percentage point lower than the 3.4 percent jump in 2005.

The encouraging news stemmed from a sizable slowdown in energy costs in the second half of last year, after 2 1/2 years when the price of gasoline and other fuels had surged to new highs.

Also helping was a significant moderation in health care costs. They rose by 3.6 percent, the smallest annual gain since 1998.

Gasoline pump prices jumped again in December, pushing up the CPI by 0.5 percent for the month. But consumers should see further relief ahead on energy: Crude oil is now trading at a 20-month low near $50 per barrel, down the record $77-plus in July.

The slowdown in prices last year occurred as workers' wages, which have lagged in this recovery, began to show bigger gains.

That combination of lower inflation and faster wage growth translated into an increase in inflation-adjusted weekly wages of 2.1 percent for the 80 percent of the work force in nonsupervisory positions.

The increase was the biggest gain since 1997 and followed three straight years in which wages, after adjusting for inflation, had fallen even as many businesses posted record profits.

Democrats focused on those wage declines to argue in last fall's congressional elections that
President Bush's economic policies were failing the middle class.

Analysts attributed the improvement in real wages in 2006 to a tighter job market that forced businesses to offer higher salaries to attract workers. They predicted further gains.

"Things have finally come together for workers after a long period of tough conditions," said Mark Zandi, chief economist at Moody's Economy.com.

Analysts believe companies will finance the higher wages by trimming profits rather than boosting the price of their products. The latter could fuel inflationary pressures that would raise concerns at the
Federal Reserve.

The Fed is expected to keep interest rates on hold until midyear when analysts believe the slowing economy and moderating inflation will give the central bank room to start cutting rates.

Hopes of rate cuts before that time have faded, given a string of recent reports showing stronger-than-expected activity in December.

On Thursday, the
Commerce Department reported that construction of new homes rose by 4.5 percent in December. It was the second straight monthly increase and a signal, according to some analysts, that the worst of the housing slump may be over.

The CPI report showed that core inflation, which excludes energy and food costs, rose 2.6 percent last year, compared with 2.2 percent gains in both 2004 and 2005. It was highest increase since a 2.7 percent jump in 2001.

Economists, however, said this increase was influenced heavily by a rise in housing costs, reflecting higher demand for rental units as the five-year boom in home sales cooled.

They also noted that core prices have slowed sharply in recent months, rising at an annual rate of just 1.4 percent in the October-December period, just half of the 2.8 percent rise in the late summer. The Fed's comfort zone for core inflation is between 1 percent and 2 percent.

David Wyss, chief economist at Standard & Poor's in New York, predicted that consumer prices would rise by just 1.9 percent this year, reflecting a continued retreat in energy prices.

"We think lower oil prices and a slower economy will keep inflation under control," he said.

For 2006, energy prices slowed to a 2.9 percent increase after soaring by 17.1 percent in 2005 and 16.6 percent in 2004 as global oil markets were roiled by Middle East tensions and heavy demand.

Also helping restrain inflation last year was the sharp slowdown in medical prices, typically one of the fastest growing expense for consumers. For 2006, physician charges rose by just 1.7 percent, the smallest increase in 57 years. Prescription drug prices rose by just 1.9 percent, the smallest gain in 33 years.

Analysts credited the move by Wal-Mart to introduce a $4 generic prescription drug program, which was matched by other big retailers, to helping hold down drug costs.

Hospital costs continued to race ahead, however, rising by 6.1 percent last year, the biggest gain since 2003.

Clothing prices, which had fallen for eight consecutive years, posted a small increase of 0.9 percent in 2006. Airline fares and new car prices were both down for the year.

Condo prices reveal housing trends

Comparing condo prices may be the best way to gauge the direction of housing prices.
By Les Christie, CNNMoney.com staff writer
January 18 2007: 1:20 PM EST

NEW YORK (CNNMoney.com) -- In trying to get a read on how much real estate markets are slumping, some people may be looking at the wrong indicator.

The National Association of Realtors (NAR) tracks sales of both single-family homes and condos.

The prices of condos may be more relevant to market direction than the prices of houses.

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Current Mortgage Rates

Type Overall avgs
30 yr fixed mtg 5.78%
15 yr fixed mtg 5.56%
30 yr fixed jumbo mtg 6.05%
5/1 ARM 5.58%
5/1 jumbo ARM 5.75%
Find personalized rates:


In the third quarter of 2005, NAR stats for single-family homes show that prices fell 1.2 percent from a year earlier, with 30 percent of markets showing declines.
Latest home prices

Condo prices not only dropped more steeply, 2.1 percent, but 46 percent of markets showed declines.

Which gives a truer picture? Adam Koval, a former investment banker who now runs SocketSite.com, which covers San Francisco's real estate market, insists condos are the way to go.

"Look at the same building six or eight months after the first sales were made," he says. "The prices then will be a pretty good indicator of what's going on."

The reason: It's an apples-to-apples comparison. With condos, there's, "no adding floor space or big improvements," says Koval. If you see a price change, it's usually pure appreciation - or depreciation.

Contrast that with single-family house stats.

NAR prices, for example, do not account for the differences - especially the improvements - in homes. New houses, for example, have grown much larger, to an average of about 2,400 square feet from 1,500 in 1970.

To be more accurate, you'd have to see what the same houses sell for at different times. An index constructed by the Office of Federal Housing Enterprise Oversight (OFHEO) index does compare same-home sales, but it doesn't account for investment in that home, say a big remodeling project.

Other shortcomings: The OFHEO data doesn't do a good job capturing luxury home sales, because they track only transactions with conforming mortgage loans, which are limited to $417,000 for most of the nation. And it does capture values listed in refinancings, which are based only on appraisals.
Why condo prices are so useful

Chief economist for the Mortgage Bankers Association, Doug Duncan, says there are several reasons why condo prices are more accurate.

"A smaller percentage of people who own condos occupy them; many are bought as second homes and for investment purposes," he says. "There's less friction in that market; it's more liquid."

More condo sellers react to market changes and act quicker than owners of single family homes, who tend to hang onto property in the face of lower prices.

Single-family house owners act like buy-and-hold value stock investors, riding out market peaks and valleys. They sell when they go through a life change - raising a family, retiring or moving for a new job, for example.

Condo owners act more like growth stock investors, who bet on the hottest companies and trade in and out of stocks much more often, reacting to what they perceive is happening in the market.

In looking back over the historical data of when the national housing market peaked, Duncan pinpointed July 2005 as the top. He also found it was the first month in four years that condo price appreciation was less than that of existing single-family houses.
Manhattan market prices

Of course, condo stats have their own imperfections. Jonathan Miller, of the New York appraisal firm, Miller Samuels, says when markets slump, the mix of apartment sales changes. The best condos - ones with great views or the finest features and amenities - make up a larger proportion of the total number of sales, skewing the median prices upwards and making the market look stronger than it actually is. The less expensive, cookie-cutter condos, languish on the market and are not included in the statistics.

Too, condo developers, like their counterparts among single-family house builders, will offer inducements to buyers that, effectively, lower condo prices without showing up in the stats.

Miller argues that the condo market is too different from the rest of the housing market to be a viable stand-in for it. He says, "Because of the investor component, condo prices show more volatility."

For others, of course, that's what makes them compelling as indicators

Even though condo prices may be a useful indicator of housing prices, nobody has really attempted to create a national same-condo sale index. The only national figures seem to be from NAR and those, like their single-family house prices, are median prices. And there's little historical data; the organization started reporting condo data only a few quarters ago

Despite the caveats, it may be very useful to take a close look at NAR condo price stats when they come out in mid-February, even if you're more interested in single-family houses; the condo stats may tell you where prices are going in your town

Is your realtor on your side?

Make sure your agent gets you the best house at the best price.
Money Magazine
By Stephen Gandel, Money Magazine senior writer
January 18 2007: 10:15 AM EST

(Money Magazine) -- When you're shopping for a house, it might appear that the friendly broker who listens to your needs, drives you around to showings and answers your questions is unflaggingly devoted to you.

In reality, however, most agents work for sellers. Now, even more so. These days, see, agents representing buyers are increasingly being showered with extra incentives that may cause them to push certain houses.

Traditionally, sellers pay 6 percent commissions - 3 percent to their agent, 3 percent to the buyer's agent.

But with the market slowing, sellers are upping the slice going to buyer's agents.

In Livingston, N.J., Roseland Properties is offering 5% to buyer's brokers alone.

And in Las Vegas, where prices are expected to drop significantly in 2007, American Homes West has upped what it pays buyer's brokers from $1,000 to $10,000, with an added $5,000 if the agent gets the buyer to pay full price.

It's not just builders that are offering agent incentives; even individual homeowners, like Mohamad Khurram of Woodbridge, Va., are getting in on the trend. The reward for Khurram's $785,000 four-bedroom is 8 percent plus $5,000 - that's nearly $70,000 to just the buyer's broker - if the house sells at listing price.

Those increased commissions draw agents and, in turn, buyers. "People offer higher commissions because it works," says Spencer Barron, a broker associate at HQHomes in Denver, who says houses in his area with higher commissions tend to get sold faster.

Consumer advocates, however, fear that higher payouts mean buyers will be shown houses more in the brokers' interests than in their own. Even so-called buyer's brokers, agents who sign a contract saying they represent you, could be susceptible.

"It's tough to be objective when the reward for selling one house is much greater than the rest," says Joseph Fox, whose BuySide Realty in Chicago rebates the larger fees to buyers.

Not that you have any way of knowing if you're being shown houses that give the broker added reward: The National Association of Realtors does not require agents to tell buyers their potential compensation when they show a house.

Federal rules require the disclosure of fees at closing, but by that time it is often too late to pull out. There is some industry debate over whether parties should be required to come clean, but until it's resolved, you need to protect yourself.

Choose one of these techniques to help ensure that the house you're shown is the best deal for you, not your broker.
1. Go it alone

Finding a house yourself, rather than relying on a broker, is easier than ever. Realtor.com has extensive listings, and you can call listing agents directly to set up appointments.

Once you decide to buy, ask for 3 percent off your final price. Listing agents often try to collect the full 6 percent if a buyer is brokerless.

But you did the work; you deserve the rebate.
2. Set the fee

If you'd rather use a broker, have him put in writing what percentage he'll get paid and guarantee that it will be the same for every house.

Tom Early, spokesman for the National Association of Exclusive Buyer Agents, says to sign a contract before looking at houses. Stipulate that any bonus being paid by a seller be used to pay closing costs.
3. Put it in dollars

Eliminate all conflicts by getting your agent to agree to a set dollar fee rather than a percentage of the sale. That way your broker will have no incentive to show you overpriced homes or discourage you from negotiating the price down, since she'll get paid the same either way. Top of page

"Doomsday Clock" Moves Two Minutes Closer To Midnight

Bulletin of the Atomic Scientists Adjusts Clock From 7 to 5 Minutes Before Midnight; “ Deteriorating” Global Situation Cited on Nuclear Weapons and New Factor: Climate Change.

WASHINGTON, D.C. and LONDON, ENGLAND /// January 17, 2007 /// The Bulletin of the Atomic Scientists (BAS) is moving the minute hand of the Doomsday Clock two minutes closer to midnight. It is now 5 minutes to midnight. Reflecting global failures to solve the problems posed by nuclear weapons and the climate crisis, the decision by the BAS Board of Directors was made in consultation with the Bulletin’s Board of Sponsors, which includes 18 Nobel Laureates.

BAS announced the Clock change today at an unprecedented joint news conference held at the American Association for the Advancement of Science in Washington, DC, and the Royal Society in London. In a statement supporting the decision to move the hand of the Doomsday Clock, the BAS Board focused on two major sources of catastrophe: the perils of 27,000 nuclear weapons, 2000 of them ready to launch within minutes; and the destruction of human habitats from climate change. In articles by 14 leading scientists and security experts writing in the January-February issue of theBulletin of the Atomic Scientists (http://www.thebulletin.org), the potential for catastrophic damage from human-made technologies is explored further.

Created in 1947 by the Bulletin of the Atomic Scientists, the Doomsday Clock has been adjusted only 17 times prior to today, most recently in February 2002 after the events of 9/11.

By moving the hand of the Clock closer to midnight — the figurative end of civilization — the BAS Board of Directors is drawing attention to the increasing dangers from the spread of nuclear weapons in a world of violent conflict, and to the catastrophic harm from climate change that is unfolding. The BAS statement explains: "We stand at the brink of a Second Nuclear Age. Not since the first atomic bombs were dropped on Hiroshima and Nagasaki has the world faced such perilous choices. North Korea’s recent test of a nuclear weapon, Iran’s nuclear ambitions, a renewed emphasis on the military utility of nuclear weapons, the failure to adequately secure nuclear materials, and the continued presence of some 26,000 nuclear weapons in the United States and Russia are symptomatic of a failure to solve the problems posed by the most destructive technology on Earth."

The BAS statement continues: "The dangers posed by climate change are nearly as dire as those posed by nuclear weapons. The effects may be less dramatic in the short term than the destruction that could be wrought by nuclear explosions, but over the next three to four decades climate change could cause irremediable harm to the habitats upon which human societies depend for survival."

Stephen Hawking, a BAS sponsor, professor of mathematics at the University of Cambridge, and a fellow of The Royal Society, said: "As scientists, we understand the dangers of nuclear weapons and their devastating effects, and we are learning how human activities and technologies are affecting climate systems in ways that may forever change life on Earth. As citizens of the world, we have a duty to alert the public to the unnecessary risks that we live with every day, and to the perils we foresee if governments and societies do not take action now to render nuclear weapons obsolete and to prevent further climate change."

Kennette Benedict, executive director, Bulletin of the Atomic Scientists, said: "As we stand at the brink of a Second Nuclear Age and at the onset of unprecedented climate change, our way of thinking about the uses and control of technologies must change to prevent unspeakable destruction and future human suffering."

Sir Martin Rees, president of The Royal Society, professor of cosmology and astrophysics , master of Trinity College at the University of Cambridge, and a BAS sponsor, said: "Nuclear weapons still pose the most catastrophic and immediate threat to humanity, but climate change and emerging technologies in the life sciences also have the potential to end civilization as we know it."

Lawrence M. Krauss, professor of physics and astronomy at Case Western Reserve University, an a BAS sponsor, said: "In these dangerous times, scientists have a responsibility to speak truth to power especially if it might provoke actions to reduce threats from the preventable technological dangers currently facing humanity. To do anything else would be negligent."

Ambassador Thomas Pickering, a BAS director and co-chair of the International Crisis Group, said: "Although our current situation is dire, we have the means today to successfully address these global problems. For example, through vigorous diplomacy and international agencies like the International Atomic Energy Agency, we can negotiate and implement agreements that could protect us all from the most destructive technology on Earth—nuclear weapons."

Highlights of the new statement from the Bulletin of Atomic Scientists include the following:

* "The second nuclear era, unlike the dawn of the first nuclear age in 1945, is characterized by a world of porous national borders, rapid communications that facilitate the spread of technical knowledge, and expanded commerce in potentially dangerous dual-use technologies and materials. The Pakistan-based network that provided nuclear technologies to Libya, North Korea, and Iran, is an example of the new challenges confronting the international community."
* "Sixteen years after the end of the Cold War, following substantial reductions in nuclear weapons by the United States and Russia, the two major powers have now stalled in their progress toward deeper reductions in their arsenals."
* "More than 1400 metric tons of highly enriched uranium and approximately 500 tons of plutonium are distributed worldwide at some 140 sites, in unguarded civilian power plants and university research reactors, as well as in military facilities."
* "Global warming poses a dire threat to human civilization that is second only to nuclear weapons. Through flooding and desertification, climate change threatens the habitats and agricultural resources that societies depend upon for survival. As such, climate change is also likely to contribute to mass migrations and even to wars over arable land, water, and other natural resources."
* "The prospect of civilian nuclear power development in countries around the world raises further concerns about the availability of nuclear materials. Growth in nuclear power is anticipated to be especially high in Asia, where Japan is planning to bring on line five new plants by 2010, and China intends to build 30 nuclear reactors by 2020."
* "Several factors are driving the turn to nuclear power— aging nuclear reactors, rising energy demands, a desire to diversify energy portfolios and reduce reliance on fossil fuels, and the need to reduce carbon emissions that cause climate change. Yet expansion of nuclear power increases the risks of nuclear proliferation."

The BAS statement also outlines a number of steps that, if taken immediately, could help to prevent disaster, including the following:

* Reduce the launch readiness of U.S. and Russian nuclear forces and completely remove nuclear weapons from the day-to-day operations of their militaries.
* Reduce the number of nuclear weapons by dismantling, storing, and destroying more than 20,000 warheads over the next 10 years, as well as greatly increasing efforts to locate, store, and secure nuclear materials in Russia and elsewhere.
* Stop production of nuclear weapons material, including highly enriched uranium and plutonium—w hether in military or civilian facilities.
* Engage in serious and candid discussion about the potential expansion of nuclear power worldwide. While nuclear energy production does not produce carbon dioxide, it does raise other significant concerns, such as the health and environmental hazards of nuclear waste, the production of nuclear materials that can be diverted to the production of weapons, and the safety and security of the plants themselves.

ABOUT BAS AND THE CLOCK

The Bulletin of the Atomic Scientists was founded in 1945 by University of Chicago scientists who had worked on the Manhattan Project and were deeply concerned about the use of nuclear weapons and nuclear war. In 1947 the Bulletin introduced its clock to convey the perils posed by nuclear weapons through a simple design. The Doomsday Clock evoked both the imagery of apocalypse (midnight) and the contemporary idiom of nuclear explosion (countdown to zero). In 1949 Bulletin leaders realized that movement of the minute hand would signal the organization’s assessment of world events. The decision to move the minute hand is made by the Bulletin’s Board of Directors in consultation with its Board of Sponsors, which includes 18 Nobel Laureates. The Bulletin’s Doomsday Clock has become a universally recognized indicator of the world’s vulnerability to nuclear weapons and other threats. Additional information is available on the Web at http://www.thebulletin.org.

CONTACT: Patrick Mitchell, (703) 276-3266 or pmitchell@hastingsgroup.com.

EDITORS NOTE: A streaming audio replay of the news event will be available on the Web at http://www.thebulletin.org as of 6 p.m. ET and 11 p.m. in London/2300 GMT on January 17, 2007.







Published date: January 17, 2007

Foreclosure rates up big in December

Lower lending standards and softening markets contribute to continued troubles for homeowners.
By Les Christie, CNNMoney.com staff writer
January 17 2007: 4:29 PM EST

NEW YORK (CNNMoney.com) -- Americans continue having difficulties paying their mortgage obligations, with December foreclosure rates above the 100,000 mark for the fifth straight month.

The number of homeowners entering into some stage of the foreclosure process in December was 109,652, down 9 percent from November but up 35 percent from December 2005, according to RealtyTrac.

Bankrate.com
Current Mortgage Rates

Type Overall avgs
30 yr fixed mtg 5.78%
15 yr fixed mtg 5.56%
30 yr fixed jumbo mtg 6.05%
5/1 ARM 5.58%
5/1 jumbo ARM 5.75%

Adjustable-rate mortgages, especially subprime ARMs, continue to drive the spike in foreclosures: many of those loans are due to reset in 2007, and many of the loans written in 2006 are performing less well than in previous years.

"The combination of slower home sales and rising interest rates on ARMs continues to drive foreclosures at significantly higher numbers than a year ago," said James J. Saccacio, chief executive officer of RealtyTrac.

Other circumstances are involved. One is that the housing market turned, removing one avenue of escape for some homeowners facing foreclosure. "People would be reselling their homes if they got into trouble," says Rick Sharga, VP of marketing for RealtyTrac.

When they can't sell at or above what they owe, they may go into delinquency instead.
Latest home prices - 150 markets

Another contributor is that some lenders tried to maintain business in a slower market. To do that, some relaxed their underwriting standards, approving more marginal borrowers for loans.

Interest rates were also higher for the year, putting additional strain on borrowers. Doug Duncan, chief economist for the Mortgage Bankers Association, estimates that $500 billion to $800 billion in loans outstanding went to borrowers who may face difficulties.

"Some of that," Duncan says, "would go into foreclosure."

A sustained increase in the number of foreclosures could accentuate the decline in the housing market, according to Duncan. "It could take longer to work the inventory down," he says.

Overall, however, Duncan is optimistic that the pain will be minimal. He expects the economy to keep adding jobs through the rest of the year and for mortgage rates to vary little from around 6.2 percent for a 30-year fixed mortgage.

Colorado recorded the highest foreclosure rate in the nation, one for every 376 households. In sheer numbers, Texas led the nation with more than 14,000 households entering into some stage of foreclosure.

http://money.cnn.com/magazines/moneymag/bplive/2006/states/MA.html

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Tuesday, January 16, 2007, at 6:00 p.m. EST.

A flood of economic news due tomorrow kept traders on the sidelines today. At the close, the Dow added 27 points, closing at 12,582; the Nasdaq lost 5 points, to close at 2,497; oil closed down $1.78 to $51.21 per barrel; and gold closed down $1.00 at $625.90 an ounce.

Stock traders decided to take a look at tomorrow's economic reports before investing today. The December Producer Price Index will be released at 8:30 a.m. tomorrow, December Industrial Production will be released at 10:15 a.m. and the Federal Reserve Beige Book will be released at 2:00 p.m.

The stock market is undervalued by 28 percent. Record liquidity is up 9.5 percent compared to last year and should move stock prices much higher in 2007.

You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates. We will continue to recommend additional global/international investments that will benefit from a falling dollar. At least 30 to 50 percent of your portfolio should be invested in global/international investments.

The next Hotline Update will be on Friday, January 19, 2007, at 6:00 p.m. EST.

U.S. investors send their cash packing

By John Waggoner, USA TODAY Tue Jan 16, 7:20 AM ET

Lured by red-hot gains in foreign markets, investors poured money into international stock mutual funds at a record-shattering pace in 2006.

Investors flooded international stock funds with an estimated $150 billion last year, according to TrimTabs.com, which tracks flows of money into and out of mutual funds. An estimated $180 billion flowed into stock funds of all types.

By contrast, "The $30 billion that went to U.S. stock funds is the smallest since 2002," says Charles Biderman, CEO of TrimTabs.com.

In November, the last month for which figures are available from the Investment Company Institute, the funds' trade group, $11.5 billion flowed to international funds. Meantime, funds that invest mainly in the USA saw an outflow of $169 million.

Surging foreign stocks and a falling dollar have sent international funds flying, and investors are chasing the gains, Biderman says. The average large-company international core fund gained 24.3% in 2006, vs. 12.4% for the average U.S. stock fund, according to Lipper.

Outsized gains in European stocks have propelled much of the rise in international funds. The German DAX index has gained 22.8% over the past 12 months. The falling dollar has amplified those gains: A U.S. investor in the DAX index would have gained 30.9%, according to Bloomberg.

Some more specialized funds produced even more spectacular returns. For example, stocks in the so-called BRIC countries - Brazil, Russia, India and China - have soared over the past few years. And funds that concentrate on those countries have rocketed, too. The average fund that focuses on the Chinese stock market jumped 61.5% last year.

U.S. investors poured about $100 billion into BRIC countries last year, Biderman says. That could be one big reason foreign markets are faring so well.

"The U.S. is giving them its money," Biderman says.

At the same time, the rush abroad might be overdone. Should the U.S. dollar strengthen, overseas markets suffer a slowdown or the U.S. stock market surge, new international investors could miss out on the party.

While some believe the U.S. economy will weaken, Biderman says, "It's stronger and growing faster than Europe or Japan."

The relatively small $30 billion inflow to U.S. stock funds in 2006 looks even punier compared with the estimated total $650 billion that U.S. savers and investors socked away last year. Investors put $206 billion into money market mutual funds through November 2006, according to the ICI. Just $16.2 billion flowed into money funds in the same period in 2005.

Oklahoma car crash

OKLAHOMA CITY (Reuters) - Seven Mexican nationals were killed early on Sunday in Oklahoma when their minivan skidded into a tractor-trailer truck in icy conditions, police said.

The accident raised the death toll on the state's highways to 11 since an ice storm began lashing it early on Friday. The powerful front has dumped rain and ice elsewhere in the central and southwest parts of the United States, disrupting air traffic and leaving tens of thousands without power.

"It's a mess out there. You can't go anywhere," said Oklahoma highway patrol spokesman Pete Norwood.

He said Sunday's accident occurred in the early morning hours in the western part of the state. The van was carrying 12 Mexican nationals. The other five were injured and were hospitalized.

Over 90,000 homes and businesses were reported to be without electricity in Oklahoma early on Sunday as sleet once again pounded parts of the state. A state of emergency remained in effect in all 77 counties.

In north Texas, icy conditions were once again causing delays and cancellations at the Dallas/Fort Worth International Airport. A spokesman for the airport said 312 departures had already been canceled for Sunday.

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Friday, January 12, 2007, at 6:00 p.m. EST.

A flood of good economic news lifted stock prices Friday afternoon. At the close, the Dow rose 41 points, closing at 12,556; the Nasdaq added 18 points, to close at 2,502; oil closed up $1.11 to $52.99 per barrel; and gold closed up $13.00 at $626.90 an ounce.

Today's economic news implies that economic growth will begin to accelerate in the months ahead. An upbeat, more confident consumer continues to spend. Retail sales were up in December. The Federal deficit fell to the lowest level in four years. The dollar closed lower at 4:00 p.m. today after bouncing from an oversold condition.

The stock market is undervalued by 31 percent. Record liquidity in the banking system should move stock prices much higher in 2007.

You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates. We will continue to recommend additional global/international investments that will benefit from a falling dollar. At least 30 to 50 percent of your portfolio should be invested in global/international investments.

The stock market and the offices of The Wall Street Digest will be closed on Monday, January 15, in observance of Dr. Martin Luther King Day. The next Hotline Update will be on Tuesday, January 16, 2007, at 6:00 p.m. EST.

Some boomtowns face rising crime

In Youngstown and other hot markets, rising property values have brought the added burden of more crime.
By Jeff Cox, CNNMoney.com contributing writer
January 11 2007: 9:08 AM EST

NEW YORK (CNNMoney.com) -- Browsing through the real estate listings in Youngstown, Ohio, is a bit like taking a trip back through time.

Here's a two-bedroom modified Cape Cod, asking price $17,000. A three-bedroom ranch with 1,352 square feet of living space lists for $19,900. Then there's the high end of the market: a three-bedroom ranch with a one-car garage: $89,900.

Rising property values have brought an unexpected surge in crime in some of the nation's hottest real estate markets.

Those are not typos. We didn't forget to add any zeroes. In a land where a typical home these days sells for about $225,000, which is the national median, you can still get a nice place in one of the nation's hottest real estate markets for less than $100,000 - in some cases, much less.
Best and worst real estate markets

Yes, Youngstown's housing market is booming. The region ranks first in the Midwest in projected growth, with a 3.8 percent gain forecast for 2007, according to the latest estimates by Moody's Economy.com and financial services firm Fiserv Lending Solutions prepared for Fortune magazine. The projected change in direction for Youngstown's market comes after a 2006 that saw a modest decline in property values.

But the city's long-delayed real estate boom has brought with it rising crime, contradicting the popular notion that rising property values usually go hand in hand with falling crime rates. Burglary, larceny and car theft have shown the biggest increases in the region.

A typical house in Youngstown sold for about $80,000 in 2006 - roughly a third the national figure, an enticement for investors and buyers with limited budgets.

Yet crime in the northeastern Ohio city (population 77,747) has been increasing steadily and substantially.

Violent crime in Youngstown rose 10 percent in 2005, while property crimes - things like burglary and arson - jumped more than 20 percent from 2004 to 2005, according to the latest figures from the FBI's Uniform Crime Report.
Top 10 cities: Where to buy now

Similar numbers are visible in other markets where real estate prices are predicted to rise fastest.

Syracuse is considered the second-hottest market in the Northeast but saw a 12.6 percent jump in property crime from 2005 to 2006, according to FBI statistics.

And the rise in crime isn't limited to the Northeast. Three of the top four markets in the South saw property crime rates jump last year. And Wichita, the second-hottest market in the Midwest, saw a 17.4 percent surge in violent crime last year. Rochester, N.Y., the third-hottest market in the Northeast, saw violent crime soar 19.3 percent in 2006, according to the FBI.

So what gives? Are cities like Youngstown victims of their own growth, or is something else at play?

"Youngstown is considered a shrinking city, and because we're redefining ourself ... it's our neighborhoods that are still dealing with poverty issues, low employment and underemployment that are experiencing the crime," said Jason Whitehead, chief of staff for Mayor Jay Williams.

The reform-minded Williams took office in 2005 as the city's first black mayor - and one bent on restoring the city to its former prominence as an industrial hub and a place where families could live in relative safety and security.

Among his targets was a wasteland of vacant properties that had become nesting places for drug addicts and their suppliers. Thieves looking literally to rip off copper piping for resale on the black market also found the empty homes easy marks.

Youngstown's population, which peaked at 170,000 in 1930, when the steel industry was still growing, sank to 77,000 the year before Williams took office.

Now, according to Whitehead and other community leaders, the city is turning around despite its disturbing crime numbers - and is using affordable housing as the linchpin.
Where not to buy

Frank Weston, president and owner of ERA Tri-Sun Real Estate and a supporter of Williams's efforts, has benefited from the renewed interest in Youngstown's housing market and doesn't think the crime statistics will be a deterrent.

"The bulk of my buyers are investors who come from all over the country, primarily from California. They see the potential to purchase a home at a greatly reduced price, so they are persuaded more on price per square foot versus what the crime rate is," Weston said. "They have no intentions on living here. The crime rate isn't a factor to them personally."

Whitehead predicts the crime numbers will drop in 2007 as the mayor's initiatives take effect and neighborhoods improve. While acknowledging that crime will continue to be a problem where economic disparities persist, he insists the city is moving in the right direction.

"Beyond the domestic violence and quality-of-life issues, we've not seen an increase [in crime] in newer neighborhoods," he said.

In Albany, N.Y., crime rates show a dichotomy, with property crimes dropping in 2006 while violent crimes rose 11.3 percent, aggravated assault being the big gainer in the New York state capital of 94,000 people.

Albany ranks fourth in the Northeast for projected growth in real estate value at 3.7 percent, according to Moody's and Fiserv.

James Miller, a detective with the city police force and its public safety spokesman, believes growth in the local real estate market is happening primarily in the suburbs.

Miller, like others in law enforcement, said a surge in new housing can be a big fat target for a burglar looking for a quick payday.
Five bubble-proof markets

"I think it would be standard that most people would want to live in a good neighborhood and good city. The biggest components of that are crime and schools," he says. "When you have new developments cropping up and new houses being built within that development of course there's going to be that opportunity, that potential for houses to be broken into."

In El Paso, Texas, housing prices are projected to gain 7.1 percent, making it the second-hottest market in both the South and the country. Yet, the city saw a 4.5 percent gain in property crimes last year, something Javier Sambrano, the public information officer for the El Paso police department, attributed to people leaving doors unlocked and other "crimes of opportunity."

Baton Rouge, La., in its post-Katrina rebuilding efforts, can expect a 4.5 percent rise in real estate prices this year, according to the survey, but saw a 10.4 percent hike in violent crime in 2006, fueled largely by a jump in aggravated assault cases.

Sgt. Don Kelly, spokesman for the city's police department, said the influx of flood refugees makes drawing a correlation between property values and crime rates difficult. "When you have half a million people looking for a place to stay ... I don't know that that situation has duplicated itself in any other city," he said.

Still, as once-depressed cities grow, the need for a corresponding increase in services, including police protection, is clear. Cities unable to keep up will soon find themselves grappling with difficult quality-of-life issues.

"Areas grow and the city services can't keep up with it. They're behind the curve for a while until they hire more public safety," said Patrick Clancy, vice president of law enforcement for LoJack Corp (Charts)., a Westwood, Mass.-based maker of vehicle-tracking systems that help police recover stolen cars, trucks and construction equipment.

"I think you could go anywhere in Florida, Texas, the Southwest, Phoenix, and you'll see the same type of thing," he said, referring to the easy target that houses under construction and vacant homes make for thieves.

"Pretty soon police departments are overmatched and they have to add more police to protect the properties. There's definitely a learning curve there."