(See Corrections & Amplifications item below.)

By Jane J. Kim and Ruth Simon
From The Wall Street Journal Online

Consumers should soon start feeling the impact of Tuesday’s Fed rate cut in the form of lower borrowing costs and stingier savings rates. But the rate cut doesn’t offer much help for the key problems bedeviling many mortgage borrowers.

The Federal Reserve said it lowered short-term interest rates by half a percentage point, to 4.75%, to combat the effects of a weaker housing market and tighter credit on the broader economy. The steep reduction in the Fed funds rate surprised many on Wall Street who expected a more modest rate cut. Stocks rose sharply after the Fed’s announcement, with the Dow Jones Industrial Average gaining 335.97 points, or 2.5%, to 13739.39.

The rate cut should reduce payments on many home-equity lines of credit, credit cards and some car loans. Perversely, however, some economists say it could lead to higher rates on fixed-rate mortgages down the road if bond markets expect the Fed move will spur higher economic growth or inflation.

There also is likely to be little immediate relief for borrowers with certain types of adjustable-rate mortgages. That’s because the rates on some of these loans are tied to the London interbank offered rate, or Libor, which recently jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets. Libor, which has drifted downward recently, is an interest rate charged by banks for short-term loans to each other.

“If Libor doesn’t come down, there is no relief” for many mortgage borrowers, says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.

Borrowers who should see immediate benefits from the Fed cut are those holding loans tied to U.S. banks’ prime rate. Consumers can contact their lenders to inquire how their rates are calculated. Many banks cut their prime rates by half a percentage point after yesterday’s Fed move.

Here is a look at what the Fed’s action means for consumers:

• Homeowners. The rate cut is good news for borrowers with home-equity lines of credit, and savings could show up as soon as the next monthly statement. Borrowers looking for a new fixed-rate home-equity loan could also see lower rates. There are likely to be regional differences, with lenders most likely to cut rates on these loans in areas where the housing market is healthy and the local economy is robust, says Doug Duncan, chief economist of the Mortgage Bankers Association. Before the Fed’s latest move, rates on home-equity lines averaged 8.72%, while home-equity loans averaged 8.29%, according to HSH Associates.

But in a twist, the Fed cut could boost rates down the road for 30-year fixed-rate mortgages. These rates are typically influenced by rates on 10-year Treasurys, which have moved lower recently in anticipation of a quarter-point cut in rates and because of a flight to quality in bond markets. But if markets expect a higher level of economic growth than previously anticipated, or a pickup in inflation, borrowers could see “some modest increase in fixed-rates going forward, though not necessarily immediately,” Mr. Duncan says.

Recent news has been mixed for borrowers with adjustable-rate mortgages. Borrowers with ARMs that are tied to Treasury averages have benefited from a recent decline in rates. For those who are facing their first rate reset on Oct. 1, “that reset will be less painful than it would have been had it taken place a couple months ago,” says Greg McBride, a senior financial analyst with Bankrate.com.

But higher borrowing costs may still be in the offing for homeowners whose adjustables are tied to Libor. Libor is frequently used to set rates for subprime adjustables, loans made to borrowers with scuffed credit. As for non-subprime ARMs, roughly half of these originated in recent years are also tied to Libor, estimates Keith Gumbinger, a mortgage analyst with HSH Associates. Borrowers can determine which index their adjustable is tied to by checking their loan documents.

The rate cut isn’t likely to do much for the biggest problem facing the mortgage market: a liquidity crunch that has made it tougher for many borrowers to get a loan. “People have been characterizing this as a bailout for housing, but I don’t think that’s accurate,” says Mr. Duncan of the Mortgage Bankers Association. The rate cut is “much more about the broader economy,” while the mortgage market’s troubles are “all about credit and property values.”

• Savers. Savers could soon see lower payouts on their savings accounts, certificates of deposit and money-market mutual funds. In fact, some banks have already started to reduce their rates or scale back their deals. Bank of America Corp., for instance, recently shortened the maturities on its promotional CDs paying 5% to four months from eight months.

Nevertheless, banks are going to be reluctant to cut rates before their competitors, in part because consumer deposits remain one of the cheapest sources of funds available for the banks, says Bankrate.com’s Mr. McBride. In fact, average CD rates have barely budged in recent months with yields on five-, three- and one-year CDs currently at 4%, 3.77% and 3.76%. “That is very uncharacteristic,” since CD yields normally move well in advance of a Fed action, he says. “Savers are getting a break.”

Average yields on money-market mutual funds, which have been hovering at 5% for about a year, are likely to drop to about 4.5% in the next month, says Pete Crane of Crane Data LLC. But part of the fall in yields may be counteracted by some managers’ moves to buy higher-yielding asset-backed commercial paper, he says. As a result, there may be a benefit to shopping around since money managers can differentiate their funds’ performance by investing in the higher-yielding securities.

• Credit Cards. Many credit-card customers should soon see some relief. About 85% of all credit cards carry variable rates. But many holders of these cards will see a benefit only if their current rate exceeds any floors established by the issuers, typically around 14% to 15%, below which their rates can’t fall. Today, most interest rates are in the 18%-to-19% range.

Since most issuers adjust their pricing on a monthly basis, about half of all variable-rate cards should see an adjustment in October, with the rest in November, says Robert McKinley, chief executive of CardWeb.com. “Consumers could find some money in their pockets in about a month.” The half-percentage-point drop in rates should result in a savings of about $30 a year for the typical household, which carries a median credit-card debt of $7,000, he says.

• Auto Loans. A rate cut isn’t likely to have a big impact on new-car loans in part because more than half of all auto loans are already offered at reduced rates due to heavy manufacturer incentives, says Art Spinella, president of CNW Marketing Research Inc. But the Fed’s move could make it cheaper to get a used-car loan because many people turn to banks and credit unions to finance their purchase, he says.

Still, consumers could start seeing better financing deals if the Fed continues to cut rates. Auto-loan rates, generally tied to the movement in Treasurys, already had started to ease given the recent drop in Treasury yields. Average rates on five-year new-car loans are 7.72%, versus 7.81% on July 4, according to Bankrate.com.

• Student Loans. Students with private, variable-rate student loans pegged to the prime rate may see their rates adjust more quickly than borrowers with loans tied to Libor. (Loans pegged to Libor or the prime rate are split about equally.)

But that doesn’t automatically mean that borrowers should switch to prime-based loans. Historically, loans pegged to Libor have tended to yield a slightly lower rate than loans tied to prime over the life of the loan, says Mark Kantrowitz, publisher of FinAid.org.

Today’s Rates 30 yr fixed mtg 6.09% 30 yr fixed jumbo mtg 6.92% 15 yr fixed mtg 5.71% $30K home equity loan 8.47% 7/1 ARM 6.06% $30K HELOC 7.61%

Email your comments to rjeditor@dowjones.com.

– September 20, 2007

Corrections & Amplifications:
THE FEDERAL RESERVE’S half-percentage-point drop in short-term interest rates should result in a savings of about $30 a year for the typical household, which carries a median credit-card debt of $7,000. A previous version of this article incorrectly said the rate cut would result in a savings of about $30 a month.

Sphere: Related Content

By June Fletcher
From The Wall Street Journal Online

A new Web site will debut on Sept. 25 that will allow home sellers and buyers to haggle, cement a deal and see it through completion — all online, and all without the help of a real estate agent.

RealUmbrella, the brainchild of Laguna Hills, Calif., chief executive officer Bryant Katzen and chief technology officer Michael Updegraff, is a patented system that will guide sellers and buyers through the home-sale process, from the initial listing to the final closing. Using a secure server, sellers who list their home through RealUmbrella will be able to view comparable listings on the site to set an asking price for their property, post their home listing on popular Web sites like Zillow and Trulia, and upload a schedule online of open house dates for buyers to see. Using contract forms that are legal in each state, buyers will be able to make offers on homes, secure financing, and arrange for inspections and title searches. Because the site will allow for electronic signatures, the entire process will take place online. Theoretically, a transaction could take place without the buyer ever seeing the house, or the seller and buyer ever meeting in person.

Costing between $349 and $949, the service is a bit more expensive than marketing packages sold by most other for-sale-by-owner sites like Owners.com and ForSaleByOwner.com, which also offer numerous self-help tools like contract forms and links to lenders. RealUmbrella’s higher fees are justified because it brings all of the elements of the sale into a single integrated platform that all parties in the transaction can access in real time, Mr. Katzen says. “We tie everything together,” he says.

RealUmbrella will have few listings, at least initially. When it rolls out, the service will only be available in California, and Mr. Katzen expects that it will collect just 150 to 350 listings a month. Within 120 days, however, he expects to expand from coast to coast and hopes that the service’s listings will “expand exponentially.”

Of course, the Web already allows home shoppers to appropriate much of the information that used to be controlled solely by real estate agents. In fact, industry statistics say that eight out of 10 shoppers start their home search on the Internet. Will this new service be the “killer app” that renders agents’ service obsolete?

Walt Molony, spokesman for the National Association of Realtors, says that’s not likely. He says that the trade group’s research shows that more than half of Web surfers begin their searches on metropolitan multiple listing sites or on the industry’s own Realtor.com. For-sale-by-owner (FSBO) sales are at “historic lows” of only 12% — and 5% of those transactions occur between people who already know each other, according to NAR. Furthermore, he says, no matter what tools a Web site offers, many buyers and sellers will still want a professional to guide them through a home-sale transaction.

But Mr. Katzen, 28, thinks the role of real estate agents is rapidly changing. A real estate agent since the age of 21, he blasts the current system that churns out agents “with less hours of training than a hairdresser gets.” Given that most agents handle only a handful of transactions a year, he argues that they’re neither as expert nor as experienced as the public is led to believe — and are therefore overpaid for what they do. In the future, he expects, Web tools that empower FSBO sellers will force agents into speciality niches that serve time-pressed clients. (Mr. Katzen already does–he specializes in investors.) “Realtors will have to be repurposed,” he says.

– June Fletcher is a staff reporter at The Wall Street Journal and the author of “House Poor” (Harper Collins, 2005). Her “House Talk” column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don’t want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

By June Fletcher
From The Wall Street Journal Online

Universal design may actually be getting universal.

Home builders have long given lip-service to designing houses that accommodate people of all ages and physical abilities, but few companies actually built them. Now, though, the idea is gaining traction. Big builders such as K. Hovnanian on the East Coast and Standard Pacific on the West are touting wheelchair-friendly doorways, shelves and countertops that require less bending and reaching, and master suites on the first floor. And while furniture and housewares manufacturers have already discovered the market for remote-control recliners and ergonomic potato peelers, major appliance manufacturers are now stepping in, with the likes of General Electric, Delta and Jacuzzi offering new appliances and fixtures for homeowners with physical limitations.

Traditionally, the market for these products has been the elderly and handicapped, but builders and manufacturers see a bigger prize: middle-aged homeowners who don’t need them yet. The beleaguered housing industry is hoping it can attract these buyers with more stylish, less institutional fare such as “smart” kitchen faucets and dishwashers and walk-in spas with “chromatherapy mood lighting.”

Garry and Kathleen Houghton are in their 50s and aren’t disabled. Still, the $944,000 Craftsman-style home they’re building in Sisters, Ore., will be a model of accessibility. The three-bedroom house will be all on one level. Wide doorways will accommodate wheelchairs, as will the tile and wood flooring used instead of carpeting. Oversized showers in each of the three bathrooms will have built-in seats, and in the kitchen, to cut down on back-straining bending and reaching, the oven will have a door that swings open to the side and there’ll be no hard-to-get-at upper cabinets.

Form and Function: The floor of Gaggenau’s Lift Oven raises and lowers.

“We want to be prepared,” says Ms. Houghton, a retired nurse. The Houghtons say they’re also creating a haven for their elderly parents, currently living on their own but in declining health.

Wider Halls, Higher Sockets

Although no one tracks the number of homes built with accessibility in mind, new demonstration houses across the country reflect a groundswell of interest. In December, Centex Homes built a 4,000-square-foot model home in Bristow, Va., with gently sloping sidewalks, lower cabinets for the wheelchair-bound, and a staircase with contrasting-color wood for the sight-impaired. The model has attracted thousands of visitors amid a slow local market, the company says. The two official show houses at February’s International Builders Show in Orlando, Fla., featured elevators, wide hallways and shower stalls, and “rocker” light switches easily operated by arthritic hands. And in Omaha, Neb., Curt Hofer Construction has broken ground on a “barrier-free” house that will have lowered closet rods, high electrical sockets and a ramp leading up to stadium-style seating in the media room. The 4,300-square-foot home will open to the public in July and cost $700,000.

Builders and architects who already incorporate accessible design into their projects say demand is growing. McLean, Va., architect William Devereaux says about a third of the 100 large production-home builders he works with nationwide now ask him to include features like the ones he included in the Bristow demonstration house. “Five years ago, no one did,” he says. Builder Roy Wendt says sales of his three- and four-bedroom ranch-style homes in the Atlanta area were up 10% last year over the year before. Marketed mostly to able-bodied boomers, the homes have higher toilets, pull-out trash containers and more drawers than doors in kitchen cabinets. Mr. Wendt started specializing in accessibility seven years ago after two wheelchair-bound visitors couldn’t get in the front door of one of his models.

Designers say that installing accessibility features like wider doorways can add as much as 20% to the price of a home if it’s done as a retrofit, although the cost is negligible if the features are included in the plans for a new house. And many of the new offerings are in the marble-countertop and Tuscan-tile price range. At the International Builders Show, Delta showed a $1,064 faucet that can be turned on and off by tapping it or by waving hands past a sensor. Jacuzzi prominently featured its $10,600 Finestra Therapy Bath, a bubbling spa with a chair-high seat that is entered via a waist-high door. And Gaggenau introduced a $3,300 over-the-range convection oven with a floor that drops down to countertop height at the touch of a button so it can be loaded.

Brizo’s Pascal Culinary faucet is operated by tapping or placing hands under the spout.

Functional, but Ugly

The term “universal design” was coined about two decades ago by the late Ron Mace, an architect who spent most of his life in a wheelchair and who established what is now known as the Center for Universal Design at North Carolina State University. As Mr. Mace explained it, universal design would make living spaces fully functional for everyone, not just the disabled. While the idea met with much praise at the time, it didn’t catch fire. Proponents soon learned that even things as obviously useful as grab bars in the shower were a turnoff to consumers because they suggested frailty and decline. Not only that: “They were ugly,” says Dick Duncan, a spokesman for the center.

Indeed, the concept as it is known today might better be identified as “universal-design lite.” Full access is no longer the goal and features that obviously point to disability are left out unless customers request them — and they usually don’t until they actually need them. “I even had trouble convincing a couple in their 80s to put in grab bars,” says Vince Butler, a Clifton, Va., remodeler, who retrofits homes for accessibility.

But since one in three Americans will be over 50 by the year 2010, consumers’ acceptance is probably inevitable. Marc Hottenroth, leader of industrial design for GE Consumer & Industrial, says aging consumers in hundreds of recent focus groups and in-home observations have expressed frustration with home appliances that require so much bending and reaching. As a result, the company recently rolled out a refrigerator with French doors that is more accessible for people with walkers, front-loading washers and dryers that sit on pedestals for ease of loading, and a “smart” dishwasher that dispenses liquid detergent from a bottle so users won’t have to bend down to add soap each time.

Kohler Memoirs’ shower seat is part of the fiberglass surround.

A changing legal landscape is encouraging builders to take accessibility seriously. Although the Americans With Disabilities Act of 1990 requires public places to be barrier-free, no such federal law applies to single-family homes. But 14 states and numerous localities have enacted a patchwork of laws that either mandate builders to make homes more accessible or offer tax credits or other incentives for doing so. Almost two-thirds were passed within the past five years, and nine more states have initiatives pending.

More accessible public spaces — sidewalk curb cuts, hands-free faucets — have also changed expectations, says California remodeler Iris Harrell. “People just assume that they’ll be able to go anywhere, uninterrupted,” Ms. Harrell says. The designer soon plans to install an elevator in her own house and to replace three steps with a ramp. She and her partner, both 60, want to make sure they can stay there long after they retire; the changes will also make visits easier for Ms. Harrell’s brother, recently wheelchair-bound after several surgeries.

Hidden Downsides

Putting in features that you don’t really need can have unintended consequences, says Mr. Devereaux. Stoves with knobs in front can be helpful for arthritic fingers but a danger to curious toddlers unless there is a locking mechanism. Curbless entry doors and showers can leak. And wider hallways, bathrooms and kitchens may mean smaller bedrooms, dining areas and living rooms.

Anne-Marie and Bill Peters know all about the downsides. Four years ago, they paid $275,000 for a four-bedroom house in Chapel Hill, N.C., with features they loved, including an automated revolving rack in the closet, and shower nozzles set at different heights. But the home’s tall countertops were too high for visiting children. And the kitchen cabinet on casters was annoying: Meant to slide out so a wheelchair-bound person could work at the countertop, the cabinet rolled around and got jammed whenever someone tried to open its door. “It drove me crazy,” says Ms. Peters, a homemaker. They eventually hired a handyman to install slide-in shelves instead.

Need has a way of turning skeptics into converts, however. When she bought a new home in Atlanta for $250,000, Rhonda Buckley wasn’t particularly impressed with the oversize shower, the lever door handles and the fact that there were no steps to the front door. In fact, the 49-year-old marketing manager was more worried that such things would make her seem over-the-hill.

Then she sprained her ankle. The functional benefits of her home became so clear that she recently convinced her elderly parents to buy a similar house down the street. “I never plan to move,” says Ms. Buckley. “As I get older, this house will be there for me.”

By Kelly Greene
From The Wall Street Journal Online

Question: We recently sold our home and have relocated to a different part of the state. We are renting until we decide which neighborhood we wish to live in and have eight more months on our lease. Should we decide to buy at our ages, 75 and 73, or continue to rent? We are both healthy and able to pay all cash, or shouldn’t have trouble getting a mortgage as we both have excellent credit and no debt. We have heard arguments both ways involving life expectancy, the continuing drop in housing prices within our time frame, and rentals becoming more scarce as homeowners are having to foreclose, etc.

–Herbert Dennis, Vancouver, Wash.

Answer: Two certified financial planners, one on the East Coast and the other on the West Coast, suggested that you seriously consider continuing to rent — or, if you’d rather buy, at least scale down to a condominium with less maintenance involved than a house.

Financially speaking, you’ll have to weigh what you’re paying for rent against what you’d want to pay for a house, factoring in taxes and potential appreciation, says Cary Carbonaro, a planner who practices in Clermont, Fla., and New York. And if you have children, you’ll need to think about whether it’s important to you to leave them a house as their inheritance.

It’s also important to consider how long you might want to own a new house — especially, as you reference in your note, at a time when the housing market is struggling in many parts of the country. Whether the housing market is doing well or badly, there are so many extra costs involved in buying the roof over your head — closing costs, insurance, and inspection and appraisal fees among them — that over the first five to seven years, a renter who invests the equivalent of a down payment in stocks could probably do better overall than a house buyer.

And if you’re worried about budgeting for monthly rent payments in retirement, you could set up a conservative investment portfolio with the profits from your house sale to provide income for that purpose, Ms. Carbonaro says. For example, a couple with $500,000 from a house sale could buy certificates of deposit with staggered maturity dates, Treasury bills, corporate bonds and a “tiny bit of some growth stock, and they could probably get 6% to 7% on that money,” or about $32,500 a year, she says.

But the bigger question, says Phillip Cook, a planner in Torrance, Calif., is this: “What’s your lifestyle?” If you’re traveling a lot, you may not want to be “tied down to a house,” and even if you tend to stay busy with activities closer to home, it’s likely that you’ll begin to hire out the “heavy-lifting” chores like yard work within the next decade or so.

“Rent is money going down a rathole, but you get some freedom you don’t have when you own your own home,” Mr. Cook says.

However, there’s one potential pitfall to renting at the moment: With the meltdown of the subprime-mortgage market, rents could be pushed upward in coming months. You might want to check with your local building department to find out how many permits are being pulled to build multifamily residences, to make sure the supply is keeping up with demand.

Another option to consider is a condo, which typically costs a bit less than a single-family house and uses association fees to pay someone else to take care of the gardening. But it’s better to buy in a development where owners live in their own units, rather than in a place where investors may be trying to resell units quickly — and get caught, he adds.

And if you would like to combine your current residence with planning for possible personal-care needs in the future, scout out continuing-care retirement communities, or CCRCs, in the area, Ms. Carbonaro says. Such communities often charge a large upfront fee, which may or may not be refundable, along with monthly rent for an independent-living apartment or villa. But they generally have assisted-living and skilled-nursing units that residents can use for temporary or long-term medical needs, which might be a valuable amenity down the road.

By Conor Dougherty
From The Wall Street Journal Online

“Own Your Own Home in Florida for $350 down. Total Price $4,950 includes house and lot. It’s Pompano Beach Highlands on the famed Florida east coast!”

–Advertisement in Life magazine, 1955

“It’s just not the place I originally moved to. You’ve got overcrowded roads. The utilities are higher now. Taxes are unreasonable. Everything in Florida is more expensive.”

–John Cypherd, retiree, who left Florida last month for North Carolina

For almost a century, Florida has been a magnet for mobile Americans. The state’s plentiful sunshine and open space has attracted “snowbirds” fleeing winter, retirees living out the last chapter of their lives and down-on-their-luck workers in search of jobs. A steady flow of newcomers has kept the state’s population growing faster than the nation’s, often much faster, since the 1920s.

But for Americans on the move, Florida has become a less-appealing destination. Moving company Atlas Van Lines brought 6,700 families into Florida last year and took 8,000 out, the first time it has moved more out than in. The number of people from other states who switch to a Florida driver’s license is down more than 8% from last year. And the state’s crowded schools actually lost students last year, prompting many counties to cut back on their construction schedule and, in some cases, look to close schools. While foreigners continue to arrive at a rate of about 100,000 year, migration from inside the country is slowing.

Florida’s pull has been weakened mostly by rising costs. Though real-estate prices are now falling, the median price for an existing single family home, at $231,900 remains 64% more than five years ago. That kind of price appreciation has increased property taxes, especially for newcomers and for snowbirds, whose primary residence is out of state. Florida is also recovering from a spate of hurricanes that have pushed up already high property-insurance rates. A two-tier tax system hits newcomers and part-time residents harder than long time homeowners.

Florida is also dealing with new competition. Looking to tap the economic boost seniors can give, many of the South’s less-expensive, relatively warm states have been reaching out to seniors and fiddling with their tax laws in the hope of grabbing more retirees. Georgia Gov. Sonny Perdue is pushing to exempt all retirement income from taxation as a way to attract and retain retirees.

“Instead of everyone making the assumption that they’re going to move to Florida, now it’s more of an open playing field,” says Dave Schreiner, national vice president at Pulte Homes’ Del Webb communities.

Florida has been soaking up migrating Americans since the 1920s and has had one of the fastest-growing populations ever since. The most prominent group, retirees, started pouring in after World War II. Just as Americans started living longer lives, with shorter work weeks and fat union pensions, developers responded with trailer lots and tract houses sold with slogans like “We Give Years to Your Life and Life to Your Years.” Some Americans came to stay year-round, but about one million live in Florida just part of the year and return North to avoid the steamy summer.

Long before Disney World opened in 1971, tourists drove down to see aquatic theme parks with dolphin shows and roadside alligator pits. Last year, about 85 million people visited the state. Many of those tourists have later made Florida their permanent home.

“Growth is what Florida is known for,” says Carl Hiaasen, the novelist and Miami Herald columnist. “Florida is in the business of cramming people into real estate for absurd prices.”

Florida’s reality has always been seamier than its sun-kissed image. In the 1950s, flim-flam men peddled mail-order real-estate schemes. In 1980s, the drug trade was celebrated in “Miami Vice.” The state’s lenient bankruptcy laws have long made the state a destination for debtors on the run. Florida’s unrestrained growth has destroyed mangrove swamps and drained large swaths of the Everglades.

But growth has transformed Florida from an agricultural backwater to a key player on the national stage. Florida had just 10 electoral votes when John F. Kennedy was elected in 1960; he didn’t carry the state, but won anyway. In 2000, Florida delivered the presidency to George W. Bush with 25 electoral votes.

A few months ago, Randy Quinones, a retired plumber in New Hampshire, was gearing up to leave the chilly Northeast and live out his days in Florida — just like millions of retirees before him. He got ready to put his home on the market and told his buddies that he’d be in Florida soon. But Florida housing prices caused him to look elsewhere. “It didn’t fit our budget, so we didn’t do it,” he says: Instead of Gainesville or Ocala where prices were $250,000 to $300,000, Mr. Quinones moved in May into a home outside Knoxville, Tenn., that cost $207,000.

Then there are the so-called “half-backs,” northeasterners who move to Florida and then move halfway back home.

Faith Cohan moved to Florida from Rhode Island in 1982, with dreams of living on the beach and opening her own business. With the proceeds of their house sale, Ms. Cohan and her then husband moved to Florida and opened a store near Naples.

Two years ago, Ms. Cohan and her husband divorced. Ms. Cohan had planned on staying in their condominium, but after Hurricane Wilma, condo fees jumped to $3,200 from $1,220, reflecting higher insurance costs for the building. The couple sold their condo for $280,000 and split the proceeds. But instead of looking in Florida, Ms. Cohan paid $140,000 for a townhouse in Simpsonville, Ky. “I just couldn’t stay another year and pay those kinds of fees by myself,” she says.

After years of nonstop growth, many Florida cities have been caught off guard by slowing growth.

Between 2000 and 2005, the Tampa Bay region, with its 2.7 million residents on Florida’s west coast, grew 10%, adding about 242,000 residents. The number of single-family-home permits doubled, as new residents flooded in, buoyed by subprime and no-down-payment mortgages. Tract homes on the outskirts of the county, in a town called Ruskin, have blossomed on land that was once set aside for oranges and tomatoes. The supply of new housing had everyone from the school district to local churches gearing up for years of booming growth.

But all this has slowed. Two years ago, Father Tracy Wilder, rector at Ruskin’s St. John the Divine Episcopal Church, envisioned his parish growing 10% a year for the foreseeable future. He asked a church volunteer to do a feasibility study for an elementary school. That’s now been shelved. Father Wilder says the number of new members has declined precipitously. When he first arrived in 2001, the church was signing up 70 new members a year. This past year there were 15. “We had to scale back some of our plans,” he says.

Few organizations have been as rattled as the local public-school system. In recent years, the schools have added an average of about 5,400 new students a year, and have put overflow classes in portable trailers. This year, through the 20th day of school, Hillsborough County schools have between 400 and 500 fewer students than last year. Last year, the school district opened a new high school in the Ruskin area, one of five new schools built to relieve the crammed classrooms and address projected growth. But on the first day of school, Lennard High School had about 1,028 students, half of capacity. Every teacher in the school has a dedicated classroom plus an unused classroom where they’ve put copy machines and are storing computers and extra chairs. “We’re not seeing the growth we anticipated,” says Principal Denny Oest.

The school district now projects flat attendance for at least three years and has shelved plans for yet another high school as well as two elementary schools.

A decline in migration trends could spell broader trouble for Florida’s economy. In addition to tourism, the influx of retirement savings and Social Security checks are a big driver of the state’s economy. This, in turn, creates a huge stock of service-oriented jobs — one reason why some of Florida’s best-known businesses include homebuilding companies and restaurants like Outback Steakhouse and the Olive Garden.

Florida is always in need of doctors and nurses as well as civic employees like teachers. Over the past five years Florida has created 846,000 jobs, more than any U.S. state, and about as many as California and Arizona combined. The growth has helped out communities even beyond Florida: The state’s demand for new workers has acted as a sort of a pressure release valve for many rust belt states that have seen unemployed workers leave for better opportunities in the South.

Michigan, Ohio and Illinois have long been among the biggest contributors to Florida’s population growth. Yvette Thomas moved to Tampa from Dayton, Ohio, in 2002. In Ohio, Ms. Thomas had been working as a full-time substitute teacher in an elementary school, but had to move to a charter school after the teacher she was subbing for came back from maternity leave.

Then came a spring break vacation to Tampa. It was cold in Ohio; balmy in Tampa. Ms. Thomas and her future husband hung out on the beach, saw dolphins from a boat and ate fresh grouper. On a whim, they stopped by the school district’s recruiting office. A recruiter called them the next day, and a few months later they were looking for a new apartment. “It was very easy for us to come in the system,” she says.

Five years later, Ms. Thomas has her mind set on going back north. With the aid of a no-money-down mortgage, Ms. Thomas and her husband bought a $168,000 house. The mortgage, with property taxes and homeowner’s fees, comes to about $1,500 a month — more than half a month’s pay. To supplement her income as a middle-school teacher, Ms. Thomas teaches night school two days a week. “There is no way I could raise a family here,” she says. Next year, she plans to sell her home and move north, perhaps back to Ohio. “I thought it would be like a vacation,” she says. “It turned out to be a hurricane.”

Florida has been through this before. In the early 1990s, economic weakness and failures in the savings-and-loan industry pushed the state’s unemployment rate to among the highest in the nation. Immigration slowed and some metropolitan areas had a net outflow of residents. The state recovered and the next boom came along.

Many economists believe that this lull, too, will be temporary. Despite a 41% drop in home sales in the past year, Florida’s economy has so far skirted recession, and unemployment remains a low 4%, though joblessness has been rising. While domestic migration from other states to Florida has slowed, it hasn’t turned negative. Last year, domestic immigration contributed 166,000 people to Florida’s population, down 19% from the five-year average of 206,000, according to the census bureau. Those figures don’t reflect the most recent trends.

But there are some signs of trouble in the economy. In July, retail sales declined 2.5% statewide from the same period a year earlier, compared with a 0.5% gain nationally. Car retailer AutoNation Inc. reported a dip in second-quarter revenue because of “a decline in new-vehicle retail sales especially in California and Florida.” Over the past few months, retailers, including Wal-Mart Stores Inc., Target Corp. and Lowe’s Cos. Inc. have all reported sluggish sales in Florida.

A Florida rebound would likely require housing prices to fall further than they already have. With the help of subprime and no-money-down mortgages, the state became a place for rampant speculation that more than doubled prices in a four-year period. The price appreciation fueled a refinancing boom that gave consumers access to billions in home equity, and they spent it. Research firm Moody’s Economy.com estimates the real-estate sector has been responsible for one in three new jobs over the past few years, everything from mortgage brokers to Home Depot Inc. stockboys. But the rise in prices also locked out a lot of prospective migrants from other states. While home prices were doubling, the state’s personal income rose just 31%. That made it tough for anyone living on Florida wages to crack the real-estate market and recent declines haven’t offset that.

What’s more, as Florida’s population has swelled, the state has created a two-tiered tax system that hit newcomers and part-time residents harder than longer-term residents. For tax purposes, permanent residents receive a $25,000 “homestead” reduction in the assessed value of their home, which reduces their property taxes. A 1992 amendment to the state’s constitution caps the annual increase in residents’ assessed home value at 3% a year or the rate of inflation, whichever is lower.

The effect is that over the past few years, as home values have soared, newcomers have paid higher tax bills. For instance, the owner of one North Tampa house assessed at $214,764 paid $1,992 in taxes last year, according to the Hillsborough County property appraiser’s office. A new owner, who made it his primary residence, would pay about $3,820 in taxes next year, assuming the house doesn’t decline in value.

Rising insurance rates prompted by hurricanes are also eroding Florida’s appeal. The average premium for homeowner’s insurance in Florida was $929 in 2004, the fourth-highest of any state in the country. In Hillsborough County, rates on a five-year-old $150,000 house range from $940 to $2,313 a year.

Florida is now scrambling to reduce property taxes and the cost of homeowner’s insurance. Over the summer, Gov. Charlie Crist signed a bill to roll back property taxes to last year’s level. Next year, Floridians could vote on a constitutional amendment that would lower property taxes by increasing the tax exemption given to permanent residents. New legislation also requires the state-run Citizens Property Insurance Corp. to freeze rates in 2007. The idea is to keep other insurers from raising their prices.

But none of that makes a difference to Mel Graves. He sold his New Hampshire software and advertising systems support company and moved to Florida in 2002. He spent $275,000 on a house near Sarasota on the Gulf Coast. In 2004, when Hurricane Charley bore down on their home, Mr. Graves and his wife left for their son’s place in Tennessee. When the hurricane was past, Mr. Graves returned to Florida and sold the house for almost double what he paid for it.

“My wife said ‘No way am I staying here,’” he says.

The Graves have decided to settle in Tennessee.

By Andrea Coombes
From MarketWatch

Mortgage lenders going bankrupt, hedge funds evaporating, the stock market gyrating wildly: What does it all mean for you and me?

There’s no denying that the financial markets are on edge and volatile, and some companies are in difficult straits, triggered in large part by rising foreclosures in the subprime market and the effect on investments tied to those mortgage loans.

But the degree to which the current situation affects individual Americans depends a lot on what you’ve got planned in coming months.

If you’d like to tap into the mortgage market — buy a house, refinance your mortgage, take a home equity line of credit — the recent turmoil will directly affect what kind of loan you can get and how much it will cost.

For many borrowers now, “it’s more difficult to get a mortgage loan,” said Mark Zandi, chief economist with Moody’s Economy.com. “You have to have a better credit score, you have to have more equity,” he said.

Interest rates are rising on some loans, and lenders are going to demand strong proof of income and employment. “They’re doing everything more carefully. They’re more circumspect in extending credit,” Zandi said.

But if you’ve got a fixed-rate mortgage, a good job and no plans to make changes, many economists say that the biggest risk to you right now is owning a non-diversified investment portfolio. Despite the worrisome stock-market volatility, the Dow Jones Industrial Average (INDU) as of Friday afternoon is still well up from its drop in late February.

“We’re going to go through a period of disruption in the markets … but the fundamentals of the stock market have not changed,” said Peter Morici, an economist and professor at the University of Maryland’s Robert H. Smith School of Business.

“If you already have a mortgage and you can make your payments, you’re cool, and if you have an IRA, Keogh or a 401(k), just leave them alone,” he said.

But no one can predict the future, and economists vary widely in their outlook, with some saying a recession is nigh and others saying the economy is in for a soft landing.

“Clearly the big worry is that the stock market starts a big, long bear trend. I don’t think that’s likely because a lot of fundamentals in the U.S. and global economy are still pretty good,” said Nariman Behravesh, chief economist with Global Insight in Lexington, Mass.

To investors, “I would say, ‘don’t panic,’” he said.

Job market hit?

Still, there may be trouble ahead for Americans in other areas.

Thanks in part to the subprime mess, companies are finding it harder to get financing for some deals. Right now, companies are mainly unable to finance their riskiest deals, but if the credit crunch should spread and hit most companies, average Americans may feel the pinch — in the job market.

“Businesses that can’t get credit or have to pay more for capital will be less aggressive in their investment and hiring,” Zandi said. “The job market is weakening and I think will weaken further as a result of recent events.”

To forestall a credit constriction, central banks in the U.S., European Union and Canada are pumping more money into their systems. “This whole subprime mess is creating a lot of uncertainty,” Behravesh said.

“For investors, it’s like you’re in a minefield. You don’t know where the mines are so you freeze up, you stop doing anything.” The central banks’ money influx is aimed at easing those fears, and if that fails, a move to lower interest rates may be next, he said.

For his part, Zandi notes the economy is still in growth mode, but the rate of growth is slowing. In a note on Thursday, Zandi wrote that “the odds of a recession over the next six to 12 months have risen from one-in-six to one-in-four.”

“I do think most everyone will be touched in some way by the meltdown” in various parts of the mortgage market, Zandi said in a telephone interview.

Homeowners who aren’t in the market for a loan may still find their home value decreasing as the tightening of credit constricts home sales, and that plus a volatile stock market “could affect a household’s wealth and their perception of their wealth and how aggressively they spend.”

Mortgage crunch

Homeowners who can afford their mortgage payment can simply sit this turmoil out, some note. But those eager to buy a home or tap home equity are jumping right into it.

The investors who buy mortgage-backed securities are eyeing rising foreclosure rates among subprime and even some “good credit” mortgage borrowers, and responding by refusing to buy loans. That, in turn, means lenders are tightening up their underwriting standards. Only those borrowers who fit certain criteria are likely to find the loans they want.

Plus, if you’re hoping to max out your home equity with, say, a second mortgage, your lender might be a little more leery of a high loan-to-value ratio. For homebuyers, gone are the days of getting mortgage loans with just a 5% down payment and no proof of income, economists said.

And if you’ve got great credit but live in an area where home prices average more than about $417,000, you’ll pay higher mortgage rates right now, even as those who borrow smaller loan amounts are enjoying mortgage-rate declines on those loans.

The investors who buy mortgage loans in the secondary market “really drive the bus in terms of what’s available in the mortgage market,” said Greg McBride, senior financial analyst with Bankrate.com. “Those investors are now pricing for risk to a greater extent than they’ve done in recent years” and they see greater risk in the larger, or “jumbo” loan area.

The average rate on a 30-year fixed-rate conforming loan — conforming loans are for less than $417,000 — dropped to 6.66% while the average rate on jumbo loans rose to 7.35% last week according to Bankrate’s survey of 100 banks, pushing the spread between the two rates to 69 basis points, up from 28 basis points in just two weeks.

Prospective home buyers who’ll need a jumbo loan may want to sit on the sidelines in hopes those rates ease back a bit.

Meanwhile, homeowners need to ensure they understand the terms of their mortgage loan. “The key is planning ahead,” McBride said. “Don’t get blindsided by a big payment increase.”

Some “prime borrowers are still in the position that they can refinance at attractive fixed rates and avoid the type of huge payment increase that’s impacted so many subprime homeowners,” he said.

Note that getting a home equity line or loan is going to be “a little bit harder and a lot more expensive. It’s going to require some digging by the consumer,” said Ron Chicaferro, a Scottsdale, Ariz.-based real-estate industry consultant who recently retired as president of Thornburg Mortgage Home Loans Inc.

Consumers are “going to have to start making phone calls, they’re not going to be able to rely on a mortgage broker running around doing this. It’ll be working on the Internet, making phone calls to their bank. That’s the first place they should start,” Chicaferro said.

Investors: ‘Don’t panic’

What’s an investor to do? Many say this is the time to stay put, as long as your portfolio is well-diversified.

“It’s a great reminder that volatility is part of the game when it comes to investing,” McBride said.

“If your portfolio is invested in tune with your long-term objectives, it’s much easier to stomach the short-term volatility, and if your portfolio is out of whack, maybe you decide you don’t have the stomach for this kind of volatility,” he said. That might mean turning to cash investments. “Money markets and CDs are yielding well over 5%, risk free,” McBride said.

Investors should not panic, Behravesh said. “I would urge a little caution. If they’re going to move anything, I would say make a few sensible moves into maybe less risky assets, but I definitely would urge people not to panic.”

Others say investors should be ” risk-averse,” said Nouriel Roubini, chairman of Roubini Global Economics in New York. “Try to stay away from risky assets and see whether this is just a temporary thing and see whether the economy is going to slow down or have a hard landing,” he said.

“In my view, the real economy has been slowing down for a while and this financial turbulence is going to make the real economy worse,” he said.

Even as some are pointing to an opportunity to buy cheaper financials stocks, Roubini says now is not the time, noting that there is still “a high degree of uncertainty of where these [subprime-related] losses are, I think you’re going to see financial firms increasingly saying, ‘yes, we had exposure,’ and there will be losses that are going to emerge day after day that will keep these valuations low and falling,” he said.

Un-squeezed credit

The credit squeeze has not spread to other forms of consumer credit. With credit cards, car loans and other consumer credit, McBride said there’s been no noticeable change in access to credit or rates.

“You’re not likely to see much movement in those rates or restriction to capital without some deterioration in credit quality” — and that’s not happening at this point, he said.

But others see problems ahead, particularly for borrowers who have less-than-perfect credit ratings. “Even in those [credit card and auto-loan] markets you have the process of securitization of these loans,” Roubini said.

“You’re going to have a credit crunch across any securitization market. That’s going to tighten credit conditions for consumers across the board.”

That’s a squeeze some homeowners are already feeling. Homeowners who “bought at the peak [and] milked every last dollar of equity out of the home, then they could well be upside down,” McBride said.

“In that case, lenders won’t touch it with a ten foot pole. That’s a tough spot and it’s not one that has a whole lot of easy answers,” McBride said. “If you owe more than your house is worth, good credit or not, lenders will be reluctant help bail you out.”

– Andrea Coombes is MarketWatch’s assistant personal finance editor, based in San Francisco.

By Ruth Mantell
From MarketWatch

As a growing number of borrowers fall behind on their mortgage payments, the smartest move they can make is to contact their lender, mortgage-industry experts and consumer advocates say.

These days, there’s more incentive for companies to work with borrowers to avoid foreclosure: Regulators and lawmakers, prompted by troubles in the mortgage market, are encouraging companies to assist troubled borrowers.

Major lenders in the subprime mortgage market have agreed to a set of principles proposed by Sen. Chris Dodd, D-Conn., calling for servicers to try to modify loans before the interest-rate reset if borrowers will be unable to afford the new payments, among other actions.

Lenders also have a financial incentive to keep you in your home: They can lose tens of thousands of dollars for each loan that goes into foreclosure, according to a June report from the Office of the Comptroller of the Currency.

Also, a bank’s reputation can be sullied by borrowers who go into foreclosure.

“We’re in unusual times. The problems that are being experienced throughout the market are so severe that many lenders might be willing to be more flexible,” said Allen Fishbein, director of credit and housing policy with the Consumer Federation of America.

“There’s a recognition that run-ups in foreclosures do not benefit lenders and could be devastating to the surrounding communities,” he said.

More borrowers are having trouble making their payments, some with interest rates that are resetting and rising, and some are defaulting on their mortgages. This trend is hitting the markets as Wall Street firms rack up losses from securities tied to these mortgages, and financing options decline.

The delinquency rate for mortgages on one-to-four-unit residential properties reached 4.84% in the first quarter (on a seasonally adjusted basis), up 43 basis points from the same period in the prior year, according to the Mortgage Bankers Association.

Contacting your lender before your situation seriously deteriorates will improve the chances that you keep your home. Consider this: Half of borrowers whose homes go into foreclosure never talk to their servicer, while the majority of loans that start repayment plans will cure within 18 months, according to the OCC report.

“Effective foreclosure prevention relies on increasing the amount of contact between servicers and delinquent borrowers,” according to the OCC.

Others agreed. “The disappointing thing is that some borrowers are very reluctant to talk to servicers they see as collection agencies, so they are cutting themselves off from possible solutions to keep them in their home,” Fishbein said.

To get back on track with payments and avoid foreclosure, here are some tips from experts.

Tips to get back on track

Call your loan servicer: By doing so, you can try to arrange workout options that will keep you in your home. A lender may be able to modify the loan to make it more affordable in the long term.

One note: The OCC report notes that one obstacle to the process is that some lenders sell their mortgage loans into packages of mortgage-backed securities. The resulting contracts often “contain restrictions on actions a servicer may take in conjunction with loan workouts,” the report said, thus “placing limitations on the percentage of loans in a securitized pool that may be modified.”

To find out the status of your loan, you’ll need to ask your servicer to work with you.

If you have an adjustable-rate mortgage, ask about refinancing into a lower cost, fixed-rate loan. That option could be particularly important for borrowers who may have been wrongly given higher-cost loans. Loan modifications can also reduce the principal balance outstanding and extend the term of the loan.

Some other options include repayment plans that increase your regular payments until you pay back the delinquency. A forbearance arrangement suspends payments or can allow you to make a reduced payment for a few months.

For some, holding onto their homes may be impossible. For those people it’s just as important to reach out to their servicer to avoid foreclosures, which can seriously damage your credit and linger of your credit report for seven to 10 years, according to MBA.

Servicers can help troubled borrowers sell their home. They can also accept a house deed, or a short sale payment in which you hand over the proceeds from selling the home, even if it’s less than the amount still owed on your mortgage.

Get in touch with a counseling agency

Borrowers should also consider getting in touch with a housing counselor to help either as an intermediary or to offer advice. These services are free or very inexpensive. Experts recommend the hotline at (888) 995-HOPE.

“The landscape of nonprofits that are willing to act as go-betweens with the homeowner and the servicer has increased. They are much more engaged than they were a year ago” said Douglas Robinson, a spokesman with nonprofit NeighborWorks America, which focuses on community-based revitalization.

Serious illness, losing your job and marital problems are the main causes of delinquency, foreclosure and bankruptcy, according to MBA. Counselors can help at-risk borrowers who may be reluctant to step forward because they are embarrassed about their situation or simply overwhelmed and confused.

“If you are a homeowner you think that the process is just going to continue to be complicated. Admit you have trouble and ask for assistance from either your servicer or local nonprofit,” Robinson said. “It’s a phone call that can really assuage your fears, provide you with a moment of calm, of guidance.”

Laurie Maggiano, deputy director of the single-family asset management office with the Department of Housing and Urban Development, recommended that borrowers in trouble should avoid foreclosure bailout schemes. The schemes can turn out to be good to be true, with borrowers unwittingly deeding away their home.

Instead, Maggiano said borrowers need to take a hard look at their financial situation and be honest with their lenders.

“Be honest and candid and tell your lender everything you know about your situation, because if they have the full story they can help you,” she said.

Strapped homeowners also need to be honest with themselves, make some tough decisions, and stop spending as soon as possible on luxury items, Maggiano said.

“Try to figure out how you can reprioritize your spending so that you can make your mortgage your priority,” she said. “The credit card companies are not going to evict you from your home.”