The Mortgage Mess
Yesterday saw the Feds promise to bail out Fannie Mae and her siblings with you and me footing the bill. No surprise here - the Wall Street Journal has been predicting exactly this outcome for at least a decade - indeed, as the result of very bad political policies, this outcome was inevitable. But I don't see an alternative, now that Fannie is the only entity providing liquidity to the home lending market; while it (she, he, whatever) holds or guarantees 1/2 of existing mortgage loans, its share of new loans has soared to 70% - no one else wants to participate in the market. It took twenty years to dig this hole; let's hope it doesn't take twenty more years to climb out. I'm posting this before Wall Street has had a day to digest the news but I'm curious to see what its reaction will be to today's Fannie Mae auction of $3 billion in bonds. Hold onto your hats, and here we go.

Mega Mansions begin their decline?
The New York Times reports (and a large ad in yesterday's Greenwich Time announced) that a huge (the Times claims 26,000 sq. ft but that may not include the basement or, as such things are called at this price range, the "lower level) mansion on Taconic Road is on the auction block for $19,000,000, a sharp reduction from its original asking price of $31,000,000. I believe I wrote about this place when it came on a year ago. If memory serves, I thought it was too big for practical living and certainly that's what its owners think now. I once wondered in print what would become of these monstrosities when tastes changed and an older reader from the Back Country relied, "the joke in my peer group is that there will be no shortage of nursing homes when we need them".

There are still buyers for these things, of course, but fewer of them and I would think that even a multi-millionaire might question the wisdom of heating 20,000 sq.ft. with $5.00 per gallon fuel oil. Judge Judy is completing an enormous house for herself on lower Round Hill Road but aside from that (and it's rumored that she's paid $1,000,000 per episode, 50 weeks a year) I'm not seeing a lot of activity. Another article in the Times today focuses on the trouble investment bankers are having getting past co-op boards in Manhattan. It seems that the boards, like the bankers themselves, are just discovering that humongous annual bonuses don't necessarily appear every year. Plus, lenders no longer will count the bonuses as income and are demanding much larger down payments, so buying power is down. Jesus weeps, but if the bonus babies disappear, our Greenwich market will suffer alongside NYC. I think we're in for an interesting year.

Who Knew?
A reader has corrected my spelling of "just deserts" which, contrary to what I thought I knew, has nothing to do with a sweet tooth and therefore deserves just one s, and not two. Check the link below for a full explanation of this phrase's origins and correct spelling. Learn something new every day.

Death Watch
I've been keeping an eye on a listing on Ridgebrook Road (near Greenwich Academy) which came on in April for the surprising price of $6,950,000. Surprising because, while it's a nicely renovated house in a close-to-town location, it didn't seem - to me - to compare favorably with other houses in that price range. I'll give the sellers this much: realizing their mistake, they've sent the place plunging through the price strata and today it dropped again, to $3,995,000. Is that its final resting place? I bet not, but I'll report back.

No wonder hedge funds are in trouble - the managers are stupid!
Reuters reports (see link, below) that hedge fund managers are donating huge amounts of money to Obama's campaign. The "news" service claims that this is a break from the past but I want to research that a bit - its my memory that the Street's gone Democratic for years. But if the managers of this failing and flailing industry are really supporting a candidate who promises to tax the hell out of the middle class, impose a disastrous national health plan on the country, curtail fossil fuel production and walk away from the Middle East, it's hardly surprising that they're also making dumb bets on complicated things like CDOs. Just desserts, says I - remind me to wipe a tear next time another one of them goes belly up.

UPDATE: desserts (which one eats) have two "s's", sandy spots just one. I plead guilty on the other error, now corrected.

Boys just wanna have fun
The wiffleball controversy continues and, while yesterday I expressed a certain ambivalence while judging the rights of homeowners to enjoy peace and quiet (as though that exists in crowded Riverside), I was dismayed to read in today's Greenwich Time that the Boy's Club has offered to step up to the plate and organize a wiffleball tournament in some other, more suitable location. Yeah, that's what we need, yet another program structured and run by adults. God forbid we let kids figure out what they want to do on their own.

Meanwhile, I see that the town has just finished erecting a cyclone fence on the corner of the Post Road and Carey Road in Riverside, thus effectively blocking (for now) access to the rope swing over the Mianus. For years (certainly dating back to my childhood in the 60's and probably long before that) local kids would hang a rope off a big tree on the bank of the river, close to the dam, and everyone in town under 18 would find their way there to swing into the river, scramble atop the dam and, in general, cool off and have fun. The cops would show up occasionally to cut down the swing and chase us off the roof of the pump house on the other side of the river (great jumping spot) but a replacement would be found, always.

Now they've gone and fenced off the path to the swing. I'm sure resourceful kids don't need my help but I may just drop off a huge pair of bolt (and fence) cutters that remain from my own misspent youth.

Barbarians on the field!
Our little town has achieved front page status in the New York Times (check link - I think it's working) via an article by my friend, Peter Applebaum. Peter wrote a fair and balanced story covering the issue but I tend to side with our town's chief of police who is quoted in the Greenwich Time this morning as disapproving the kids' argument that it's a choice between whiffleball and heroin. Reminds of that idiotic ad campaign in the 60's (or maybe early 70's) showing an unattended car with its key in the ignition and the tag line, "don't help a good boy go bad". I was very much not good boy during that period, but even I could appreciate that good boys wouldn't be tempted to do evil by the sight of an easily-boosted car.

I sympathize with both sides here. The kids were bored, and Greenwich is truly boring for kids of that age, so they did something about it in an enterprising way. The neighbors want peace and quiet, however, and that's being ruined by the noisy games. It will take a wiser man than I to decide this one fairly - in the meantime, the neighbors could pray for rain.

UPDATE
One commentator below expressed disappointment that I don't side more strongly take the kids' side - I was focusing more on the dumb threat one of the kids made that, if they weren't allowed wiffleball they'd just turn to drugs, but the merits of the case itself probably fall in favor of the kids. Heck, we had a pretty-much non-stop baseball game going on in my backyard in Riverside long ago, with an ever-changing lineup as local kids showed up, played a few innings and went on to other things (drugs and alcohol? I think we were too young) and were replaced by the next player. I'm sure our games made a lot of noise but somehow the adult neighbors survived and amazingly (this was 40 years ago, in another era) never complained. For that matter, and again to demonstrate how different is the world we live in today, we had at least two broken arms from bat-body collissions, another couple of broken arms from kids falling out of the big tree in the outfield, and not one of the parents brought suit. Imagine that.

Apples to Apples?
It's often difficult to calculate price increases in the market because so many older houses are bought at one price, completely renovated and then placed back on the market. If they sell for a higher price, how much can be attributed to shiny new kitchen appliances, master baths and granite counters versus the general upswing of the market itself? So it's nice to find an untouched house and see what's going on. One such example is 228 Stanwich Road, an older house in need of renovation that sold for $1,700,000 (from an original asking price of $2,125,000) on August 30,2007. The new owners did nothing to it and changed their mind about holding on to it so today it was returned to the market at $1,895,000. Has the property really increased $200,000 in value? I personally doubt it, but I'll watch what happens and let you know.
196 Bible Street sold on June 14,2007, for $4,050,000 and after being re listed in November for $4,555,000, untouched, was dropped today to $3,850,000. There's an owner who has some grasp of current market conditions, I think.

Then there's 23 West End Avenue, new construction right next to the Old Greenwich sewage pumping station. The seller originally asked $1,895,000 and the house sat unsold, despite its description as "abutting town land" (might have worked for noseless, blind buyers). It remains unsold, three years later and today was listed for $1,649,000. The builder owner is getting there, but now he's selling a three-year-old house. Tough to get new construction pricing under that circumstance.

Mortgages in Greenwich?
A reader expresses surprise that we have such things - "I thought everyone paid in cash?" Hardly. First, if the median price for a house in town is around $2,000,000, that leaves plenty of houses for sale in the $450,000 - $2,000,000 range to be purchased by folks who, if they lived in Zimbabwe, might be considered wildly rich but here in Greenwich are probably just struggling to get buy. No college scholarships for most of these people, but lots of taxes and more on their way - someone has to pay for Obama's largess. Second, even wealthy people don't like sticking a huge sum of cash into a relatively illiquid "investment". I know many instances where buyers of multi-million dollar mansions took out 80% mortgages. either because their stock holdings were restricted or they just didn't want to part with their cash. I've got a call in to a couple of my mortgage broker friends but I'd bet at least 80% of all house sales in town involve a mortgage, even though the current tax law disallows any interest deduction after the first million (at least, I think that's still the law - not being in quite that category myself, I haven't checked recently).

Here's a price reduction for you
45 Baldwin Farms South was brought to market in January for $9,750,000. Very nice house but an inadequate yard, in my opinion, for that price range, and stuck on a flag lot (long narrow driveway that runs forever before finally reaching the lot itself). Today it was reduced 30% to $6,995,000, or nearly $3,000,000. Not necessarily a sign that the market is collapsing, because, as I said, I never liked its original price, but that's a heck of a whack. For you price per square foot fans, it's a drop from $1,000 a foot to $715. I still wouldn't call it a bargain, but its builder is obviously eager to sell.

The end of my air travel
I thought this idea (electric shock bracelets for all airline pasengers, in case the link doesn't work) was a joke. But at Homeland Security, there is no laughing, ever.
http://www.washingtontimes.com/weblogs/aviation-security/2008/Jul/01/want-some-torture-with-your-peanuts/

Market Timing
One reader points out that, if prices are likely to continue falling for the next year or two so it's better to sell now, than then. Another asks the entirely sensible question, so is this not the time to buy? The best answer I can give is, "who the hell knows?". If you want to sell your existing house and buy another, you might as well do it now. If you don't have a house to sell, waiting a year could yield some financial benefits. But people go broke trying to time their Wall Street investments and you could hurt yourself trying the same thing in real estate. What I've always suggested to my clients is that they look at a house as a place to raise a family and find shelter from the storm. If you want or need a new house and find one you like go ahead and buy it now. Prices have dropped and most (many, anyway) sellers are realistically flexible. If you don't need a new house right now, you might want to wait to see what happens over the next year. One caveat: the home lending market seems to be falling apart and, a year from now, you might find it much harder to obtain a mortgage.

Daily Rant
I heard a perfectly rational-sounding fellow on Connecticut NPR yesterday discussing all the wonderful new energy sources that will power our state and, by extension (pun intended) our country. Wind, solar, electric cars, you name it, it will all be along soon to keep us warm and scurrying about. In the meantime, of course, there must be no new production of energy sources from "old" technology, such as coal, oil or natural gas. I look forward to the day when we can tell our Arab friends to pound sand but experts like the one on NPR never address one basic question: how is all this great stuff going to be delivered to our state and who will tolerate (and pay for) the necessary infrastructure?
Connecticut has fought, and defeated,mostly, every effort to bring more energy here. We don't want gas pipelines running across our fields or Long Island Sound; no new transmission lines, anywhere, no liquid gas barges six miles out and, of course, no nukes! So okay: somewhere in Texas, they're planning a million acre plus solar energy installation. Good for Texas, but that leaves us in the dark. Plug-in electrical cars would be wonderful, but where is the electricity to charge them?

In South Africa, gold mines are shut down, bakeries are closed, schools are operating in the dark because of periodic, daily blackouts that come and go at unpredictable times. The country's leader admits that there have been warnings of exactly this happening for the past 11 years, but the country found other uses for its limited funds. Now those funds are even more limited, because gold mining was a huge source of income.

The folks in charge of predicting the Washington D.C. - Baltimore region's energy needs - not mouthpieces for the energy industry but honest-to-God citizens - said last week that in less than 3 years the region can expect the same sort of blackouts now afflicting South Africa because no one will even begin to consider a permitting process to bring in more electricity from the west. We're not talking about the actual location of such transmission lines-that's whole'nother fight - just the concept itself-a beginning of a discussion. I can only hope that Washington goes dark and its politicians go home but the howling from down there will certainly reach us here in Connecticut, especially because our own TVs and radios will have shut down,I-95 will be traffic free, and we'll all be living in blissful buccolic quiet.

Go have a talk with a Green and ask them how they propose to power the country. They'll tell you of the wonder of wind farms, ignoring the fact that the wind don't always blow and Teddy Kennedy and his ilk won't let them be located anywhere nearby. They like the idea of hydrogen cells and ignore the sad fact that to make hydrogen you'll need some form of energy, perhaps from those non-existant wind farms. They're happy to tell you what they don't want: no more oil drilling, either offshore or onshore, no Canadian oil from the oil sands and again, no coal, no nukes, no gas - it only encourages Big Oil and encourages them to keep up their evil ways. Biofuel is turning into an embarrassing mess (as predicted in this column repeatedly over the years)but something is bound to turn up, just in time - wait and see (I actually heard a caller complain yesterday that Detroit has sat on a super-secret engine that yields 120 mpg for 30 years, just to force Detroit's customers to pay more for gas. That same rumor has been around all of my life and, according to my mother, at least since 1930, so I guess it must be true). Greens believe in pixie dust and fairy magic and what's scary is that they seem to be prevailing. I don't much care that 53%of Americans believe that the US government attacked the World Trade Center on 9/11 and a larger percentage think Elvis is alive but when that same horde shuts down our economy's engines, there will be hell to pay and we're all going to be forced to make that payment.

More on pricing per square foot
A reader asks (see comments) "So land is not a variable in the square foot method? Where does it fit it, or is it added as a premium to the overall price?" Not quite, but when I'm using the method as a rough tool for measuring value, I just lump the land value into the total asking price and see what turns up. Again, though, you have to be sure you're comparing apples to apples. For instance, a building lot in Havemeyer that would support a 4,000 sq.ft. house might sell for $750,000 (sad news for Havemeyer residents who a few years ago might have expected as much as $900-$950K, but that's what's happening). A similar lot in Riverside, south of the Post Road on a decent street might sell for $1,350,000. That's a land cost of $187.50 per sq. ft. for the former, $337.50 psf for the latter. Assuming (dreaming, perhaps) that you could sell that Havemeyer new construction for $2,000,000, total cost for a 4,000 sq.ft. house would be $500 per sq. ft., including the land value and a $2,750,000 house of the same size in Riverside (ignoring the fact that buyers of new construction in Riverside prefer 5,000 sq.ft. and up) would cost $687 per sq.ft. for what I am assuming is the identically-constructed and finished house. So land value does play a role, but if you're comparing two new houses in Havemeyer or two new houses in Riverside, you can (sort of) ignore the land value.

But builders don't.I've seen houses in Havemeyer priced at $950,000 being pitched as ideal building sites. The math won't work for a builder. Figure $200 per square foot construction costs and $100,000 soft costs - interest, lawyers fees even, God bless them, real estate commissions - that's $900,000. Add $950,000 in land cost and the builder's up to $1,850,000 before he even tries to sell his project for that hypothetical $2,000,000. Consider the likelihood that he'll have to sell for less than he's asking in this market, and he's risking a huge sum for a small gain. So, not surprisingly, land values are dropping. Not to nothing,but dropping all the same. My advice for now is, if you aren't in a rush to sell, postpone.

June Inventory
Courtesy of my friend John Cooke, here are the latest numbers for our June inventory of single family homes (click on the image and it should enlarge for easy reading - hope you're as impressed as i am that I figured out how to upload this as a jpeg).

Look at the homes between $7,000,000 - $8,000,000. Up 128%. If I were a mansion seller, new or old, I'd be nervous. In fact, anything priced over $4,000,000 would have me checking my bank's lending policies.

Price per square foot
A reader asked me to comment on this method of valuing a house and I'm happy to do so. When I went house hunting in Boulder CO a few years ago I discovered (a) that land use laws have driven prices way above even Greenwich and (b) new houses are sold by the square foot. My Realtor showed me various developments on the plains (the hills of Boulder itself are long since built out) and described them as "$200 per square ft. houses", or "$400 psf houses". and so on. Worked for me, but here in Greenwich, it's not so easy.
Some of the problems with using the method here are the variables. A house north of the Post Road in Riverside or Old Greenwich will obviously not command the same price as one south of that road, so the land value will be less, the builder, if he's smart, won't put the same finishes into the house, etc. Still, withing a discrete neighborhood, and adjusting for precise location, it's not a bad tool. But watch out for builders' calculations of square footage, because some add the basement to that measurement while others do not. Finished or not, a basement just isn't worth the same as finished space above grade. I work with a client, Greenwich Construction Company (just in the way of full disclosure here) who never includes the basement space in the square footage calculation. They (and I - remember the above disclosure) sold 4 new houses in Riverside last year for between $635 and $675 psf. That's up quite a bit from a few years ago, when I did a survey of new homes sold in Riverside and found an average price of $565. Unsold new houses at that time averaged $665 and never did sell until they dropped below $600. We've seen some big increases in land and building material costs since then, so that probably accounts for the jump.

It's tougher to use this method on existing houses but, with the possible exception of Conyer's farm or high end direct waterfront like Meade Point or Field Point Circle, any house asking more than $1,000 psf is usually doomed to sit for a long, long time. This is not a widely-known fact, judging from some of the prices I see out there.

Any builder knows his numbers and they all use pretty much the same figures. Land is "X", and varies with location and size, but basic constrution costs are about the same - the huge differences come when finishes are selected. Buyers all want granite counter tops (why?), Sub-zero appliances why again?) and so forth, but add a mahagonny panelled library and such and you start piling up the money. Your choice of either a slate,cedar or asphalt shingle roof can easily make a $100,000 difference, and that's before you've added those copper gutters and downspouts.

All that said, it is indeed possible, and not at all foolish, to take a selection of comparable houses, divide their square footage by their asking price and see which is the better value. So long as you make certain you're not including one building's basement and not the other's, you'll end up with a useful gauge. Of course, it helps if you like the house, too.

Fireworks!
I wasn't going to attend the Binney Park fireworks Saturday night but I remembered that it's been Chip Kreuger's Greenwich Capital that's funded these shows for the past decade and Chip sold his company to a Scottish bank last year who, in turn, isn't having such a great year this year. It might be a long time before we see such corporate largess again, so off I went. Not a bad show and enhanced by the presence nearby of two small boys going "oooo, ahhhh!" after almost every explosion. I'm way too coll at my age to express such sentiments, but I was right there with them. The grand finale was the best in my memory so, all in all, a good 1/2 hour well spent. I just hope it can continue - the old funding model of volunteers with fishing nets soliciting contributions during the Memorial Day parade stopped working long ago, which is why Kreuger stepped in. Thanks are due.

Ada's
Ada Cantavero, who ran a little candy store in Riverside forever, has finally died at 88. Funny, but Ada seemed ancient in 1960, when I was just 7, and then seemed to stop aging. When my brother Gideon called with the sad news my first question was, "how old was she?" "104", he replied, and I actually believed him. But she was great.

When I was a kid, penny candy really cost a penny and there was nothing worse than being stuck behind some rich kid with a buck to spend, calling out his selections one by one. Most of us had a nickle or maybe a dime to spare, so the line usually moved quickly, but if I bear any resentment toward the rich, it probably originated here.

Ada would let us hang out on her front porch but any misbehavior risked at least a temporary banishment, a terrible threat that kept us in line. When kids had trouble at home - a divorce, drunken dad, whatever - she'd comfort them and cheer them up and provide a refuge. A heck of a woman and one who seemed to remember all of her kids, no matter how much time passed. I stopped by maybe five years ago to say hello 25-30 years since my last visit and she greeted me, "Hi, Bobby!". Bob is my older brother, but the fact that she could place me in the right family was amazing. Riverside has lost a wonderful institution.

More on moderate housing
Something many of us don't know (I certainly didn't, anyway) is that what used to be called an "elderly conversion unit" - a separate apartment with kitchen - and which could be built and occupied only if at least one of the occupants of either the main house or the apartment was over 62, was changed to the term "accessory housing" and now permits occupancy by tenants of "moderate income". I don't know what the income guidelines are for this exception (it's adjusted from time to time) nor whether it applies, as does the age requirement, to either the main house or just the apartment, but a call to the Zoning Board (call Town Hall at 622-7700 and ask for Zoning or go to the town's website and enter "accessory housing" into the search feature) will answer those questions. Yes, I'm still working on links here - a new project I'm involved with may soon provide an entire website entirely devoted to Greenwich news, opinion, neighborhood association news, etc., so if I'm going to be changing formats, ...) In any event, from what I'm told, teachers, firefighters or policemen would probably qualify as moderate income. Any one of those groups could provide a nice pool of good tenants. You could make some decent money, have live-in security and know that you're doing your small part to provide additional housing in Greenwich, all with the town's blessing. Not a bad deal.

Price Drop?
One of our commentators asks, "is a house that was worth $7,500,000 last year now worth $6,500,000? Certainly not in the case of the Thunder Mountain Road house I mentioned yesterday. In that case, the house was never worth $7,500,000, it was just an imaginary figure dreamed up and reported by a broker trying to protect its client's other project on the same road. Although, it must be said, the average price has dropped 14% this year and that would neatly place a $7,500,000 house at $6,450,000 so perhaps the argument can be made. My point about Thunder Mountain Road is that, since there never was a genuine sale at the reported price, it's impossible to tell. Certainly, if you bought a house last year and want to sell it today, brace yourself for some bad news. If you bought before 2000, relax and enjoy your sizeable gain. Anything in between, it's a guessing game, but it could get ugly out there.