Doubling Down on Housing

Record-Low Interest Rates and a Scary Stock Market Are Prompting Investors To Sink Even More Money Into Their Homes.

Text By M.P. MCQUEEN

The housing crash has left at least 11 million people in the unenviable position of owing more on their homes than they are worth—and many more millions with properties worth far less than they paid for them.

But some might not be as trapped as they think.

Record-low mortgage rates and a new slump in home prices are presenting unusual opportunities in the housing market these days—even for so-called underwater borrowers.

David Walter Banks for The Wall Street Journal

Larry and Mary Schuck paid about $29,000 to refinance into a 15-year mortgage at a rate of just 4.5%. That's like an investment return of about 10% a year over five years. They also reduced their total interest payment by more than $95,000.

Some intrepid homeowners are intentionally taking a loss on their current house—and writing a big check to retire their old mortgage—in order to buy twice the home for not much more money. Others, eschewing conventional personal-finance advice, are even opting for "cash-in" refinancings, paying thousands of dollars out of pocket to settle old loans—and then taking out new mortgages with lower payments, shorter durations or both.

Katie Everett, a real-estate broker in Denver, says none of her clients kicked in cash when selling their homes last year. This year, "about half are willing to bring money to closing, anywhere from $5,000 to $45,000," she says.

Are these people crazy to be tying up even more of their cash in their homes, in effect doubling down on what has been a losing bet thus far? After all, any number of variables, from the employment picture to the credit markets, could weigh on housing for years to come.

Yet economists say trading up to new homes or refinancing existing ones can be smart—even if it means plunking down more cash to get out of old mortgages. People living in less-desirable neighborhoods might be able to find better homes in tonier ones that offer better appreciation potential. And with mortgage rates so low, such buyers can keep their monthly payments manageable, even though the new homes are more expensive.

"If you are trading up, what better time than when interest rates are at record lows and the cost of the trade-up is much less than it used to be?" says Christopher J. Mayer, a Columbia Business School economist.

The refinancing equation is changing, too. Thanks to rock-bottom interest rates and liberal lending terms for Federal Housing Administration loans, a person who plunks down cash to retire a higher-rate mortgage might be able to reduce his monthly payments, even as he shortens his loan term to 20, 15 or 10 years.

In the past, financial planners typically recommended that homeowners devote as little cash to real estate as possible, and to invest it in the financial markets instead. But with stocks essentially where they were 11 years ago and market volatility seemingly on the rise, people are rethinking that wisdom. Devoting extra cash to repay a mortgage early is among the safest ways to produce an investment return.

"At this point," says Jay Brinkmann, chief economist of the Mortgage Bankers Association in Washington, "if they don't have anything else that is bringing a tremendous return, then they are buying themselves an annuity by paying their house off sooner than they needed to."

During the fourth quarter of 2009, 33% of refinancings were of the cash-in variety, the highest percentage since Freddie Mac began tracking the characteristics of refinance transactions in 1985. Figures for the second quarter are due next week.

"Historically high percentages of borrowers are paying down their principal when they refinance their mortgages," says Brad German, a Freddie Mac spokesman.

It helps that interest rates are lower than they have been in decades. The average rate on a 30-year fixed-rate loan was about 4.74% on July 21, according to Bankrate.com. That is down from 5.26% in January. Rates on 15-year loans averaged about 4.18%.

The Mortgage Bankers Association said Wednesday that low interest rates sent the volume of mortgage applications 7.6% higher during the week ended July 16. Purchase applications increased for just the second time since the expiration of a temporary federal tax break in May. Refinance applications grew 8.6%, to the highest level since May 2009.

The attractive terms are spurring people like Scott Ayler, 35 years old, into action. He and his wife, Jaclyn, 33, recently decided to trade up to a larger home in their native Denver, despite taking a loss on their current house. In 2004, they paid $234,000 for a three-bedroom, 2½-bath house builtthat same year in Green Valley Ranch, a subdivision that has among the highest foreclosure rates in the city and lacks upscale amenities. They are in contract to sell the home for about $204,000.

Their new home, built this year, cost about $323,000, comes with four bedrooms and three baths, and sits on a corner lot overlooking a reservoir. The house, which was initially listed at $379,000, is in Denver's desirable Cherry Creek area, known for excellent schools, plentiful amenities and few foreclosures.

With $195,000 remaining on their original 6.625%, 30-year fixed-rate loan, the Aylers estimate their total paper loss will be around $45,000. They are putting down only $11,500 on the new house. But because the new FHA loan carries a 4.5% rate, their monthly payment will rise by only $290 a month.

They say they expect better price appreciation in their new home. And with a young daughter and plans for another child, they need more space anyway.

"We don't want to wait for the market to come back," says Mr. Ayler, general counsel for an energy company. "We wanted a better quality of life now."

Of course, many homeowners in states like Arizona, Florida and Michigan are seriously underwater, having overpaid for houses now worth as little as half their value at the market's peak. Making up that yawning gap and scraping up additional cash for a new down payment is beyond their means.

Some of those people are going to extremes by engaging in "strategic defaults," a highly controversial strategy in which they stop paying their mortgages and go into foreclosure to get out of their obligations. But while cutting losses on a bad housing investment might seem liberating, it can stain a person's credit report for years.

The vast majority of homeowners remain reluctant to sell their primary residence at a loss, perhaps irrationally so. In a study of seller behavior in condominium transactions in downtown Boston from 1990 to 1997, economists David Genesove of Hebrew University in Jerusalem and Prof. Mayer of Columbia showed that sellers were so "averse to nominal losses" that it affected their behavior. Those who were selling their homes in down markets and faced the possibility of nominal losses kept their homes on the market for much longer than other sellers, in some cases to their detriment.

"Loss aversion is a very, very strong force," Prof. Mayer says. "People don't like to sell their homes for less than they paid for it."

But, he adds: "Why should it matter? If you sell a home for less than you pay for it, you would buy for less, too."

Others are coming around to that view. In Minneapolis, real-estate agent Jason Walgrave says he recently helped a couple buy a 2,800 square-foot home in nearby Plymouth, Minn., an affluent suburb, for $325,000. To get there, they sold for $175,000 a 1,500 square-foot house for which they had paid $190,000 in 2005. Their existing home is financed with a 7.5% mortgage; they will get 4.5% on the new one.

The couple is bringing $25,000 to the closing table to pay off the old loan and closing costs. "They want to take advantage of the bigger house at a lower price and the lower interest rate," Mr. Walgrave says. Now, for an extra $390 a month, they are getting almost twice as much house.

Just as old beliefs about selling houses are being upended, the conventional wisdom surrounding refinancing is changing, too. Time was when the only question about a refinance deal was how much money the homeowner could take out of the house. From the 1980s through the mid-2000s, the so-called cash-out refi became an easy way for homeowners to spend beyond their means.

Now, some homeowners are doing the opposite: writing big checks to pay off their old mortgages and taking out new ones with far lower interest rates, shorter repayment terms or both.

David Walter Banks for The Wall Street Journal

The Schucks, of Winston, Ga., recently refinanced to save money. .

Should You Invest Your Cash in a Refinance

Until recently, few homeowners were "underwater" on their mortgage, meaning they owe more on it than their house it is worth. Now millions of people are in that situation. But that doesn't mean they can't refinance—it simply means they must pay down the principal of their loan with cash.

Because that concept is relatively new, few online calculators help people run the numbers for themselves. Here, Jack Guttentag, professor emeritus of finance at the Wharton School and self-styled "Mortgage Professor," calculates the potential return on a hypothetical deal. He considers only the cash used to retire the mortgage; closing costs would affect results as well. And he assumes a five-year period because that's a typical length of time people hold a mortgage. (The returns are similar over 15 years, he says.)

In general, the rate of the return is larger when there is less cash required, or when there is a greater difference between the old and new mortgage rates.

Current loan balance: $809,000

(on a 30-year fixed mortgage at 6%)

Current monthly payment: $6,398

Cash paid at closing to retire current loan: $80,000

New loan terms: $729,000, 15-year fixed mortgage at 4.375%

New monthly payment: $5,530

Monthly payment savings: $868 per month

Return on the $80,000 investment: 10.4% annually for five years.*

*Includes both the principal paid down on the new, shorter-term loan and the monthly savings in loan payments.

Source: Jack Guttentag, http://www.mtgprofessor.com/


Anthony Hsieh, chief executive officer and founder of loan broker LoanDepot.com, says that because home values have fallen so much, many people have to bring cash to qualify for refinancing these days. "Surprisingly to us, they are willing to do it," he says.

Skeptics question why people would throw more cash at a depreciated asset. But according to Prof. Mayer, the Columbia economist, the decision centers on whether the homeowner thinks he or she can find better ways to invest the cash being sunk into housing.

During most of the 1980s and 1990s, the answer was unquestionably yes. The stock market was rising, and investing in housing seemed comparatively dull. During those years, personal-finance experts even argued against paying "points" on a mortgage to reduce the interest rate. With banks lending at 7% to 8% throughout much of the period and the stock market returning more, it was foolish to devote more cash to housing than was necessary.

But since 2000, stocks have essentially gone nowhere. Meanwhile, the recent recession gave new currency to the idea of living as close to debt-free as possible, a process economists call deleveraging. "Today, people are a lot more conservative," Mr. Hsieh says.

Larry Schuck, 60, a semiretired security consultant, is among them. Mr. Schuck is opting to pay money out of his own pocket to refinance into a shorter-term mortgage. The goal: to reduce his total interest payments over the life of the loan.

He and his wife, Mary, 56, like their Winston, Ga., community and plan to stay there. They bought their home in December 2008 for $246,000, and it appraised recently at $228,000.

Mr. Schuck this month paid $29,000 in principal and closing costs to refinance his 30-year fixed-rate mortgage, which carried a 5.87% interest rate, into a 20-year loan at 4.5%. The deal will save him more than $95,000 in interest charges over the life of the loan, he estimates, while lowering his monthly payment by $147. In investment terms, the deal produces a return of about 10% a year for five years, which about as long as most people keep a mortgage, according to Paul Habibi, professor of real estate at the UCLA Anderson School of Business.

"You are lucky if you get 1% interest in your savings account," he says. The average savings account pays interest of 0.21%, says Greg McBride of Bankrate.com.

Economist Laurence Kotlikoff, a professor at Boston University and president of Economic Security Planning, a financial-planning software company, calculates that by refinancing the mortgage to a lower rate and a shorter term, Mr. Schuck and his wife were able to increase the amount of money they can spend during retirement by about 3% each year. The short-term cost: a four-year period of belt-tightening resulting from their forgoing the ability to spend the $29,000 they paid for the new loan.

"Even though things will be a little bit tight for the next four years, on balance it was a good move," Prof. Kotlikoff says.

For scores of other homeowners, summoning the courage to take a loss now could lead to gains later on.

"People who have suffered losses and would like to refinance hesitate to do so because they have to acknowledge this loss and come up with money to get a decent rate," Prof. Kotlikoff says. "But it might still be in their interest to do it."

Double Dip? Seven Reasons Why Not

WSJ Blogs


Real Time Economics

Economic insight and analysis from The Wall Street Journal.

July 19, 2010, 1:11 PM ET.

Double Dip? Seven Reasons Why Not

There has been a lot of speculation about a double-dip recession affecting the U.S. economy. In the following guest contribution Lord Abbett senior economist and market strategist, Milton Ezrati offers seven reasons why the scenario is unlikely.

Getty Images

It seems these days that half the headlines in the financial media fear a double-dip recession, as do half the conversations on Wall Street. There certainly are risks, not least in Europe’s financial difficulties. But still, there are reasons to question such widespread concerns. History, after all, offers only one true double-dip experience, and that grew out of a policy error. More, the actual data on the economy fly in the face of such an outlook. Following are seven reasons to doubt the double-dip outlook.

1. The Consumer Seems Firm Enough
Markets are healthy enough to avoid a double dipAt some 70% of the economy, the American consumer almost always calls the general tune, and here, the picture is one of relative strength. To be sure, the market took it to heart when reports some weeks ago showed that retail sales in May dipped by 1.4%. But that sales decline followed a powerful 10% advance in retail sales during the prior 12 months. Had the consumer not paused, it would have been worrying. Meanwhile, broader-based measures of personal outlays have expanded moderately throughout. The 2.4% annual rate of expansion registered for overall outlays in May was slightly slower than the 4.2% annual rate of expansion recorded for the prior six months, but still, that was a slowdown not a decline.

More telling fundamentally, household income has risen sufficiently enough to support future spending. Overall personal income rose at an annual rate of 5.4% annual last May (the most recent month for which data are available), actually accelerating from the 4.4% annualized rate of advance during the prior six months. Meanwhile, the personal savings rate, at 4.0% of after-tax income, generates a $454 billion annual flow of new money from which households can pay down debt even as they maintain existing levels of spending. If income continues to expand, as is likely, households will have the wherewithal to continue that “de-leveraging,” even as they increase spending. All they need do is keep outlays from growing faster than income—a circumstance that should easily support at least moderate spending growth.

2. Housing Data Are Misleading on Two Sides

The $8,000 first-time homebuyer’s tax credit has played hob with monthly housing statistics and investor perceptions of the sector’s fundamental strength. Of course, it was always ridiculous to suggest, as Washington did, that the credit would prompt someone to purchase a house. Even those with the most backward approach to financial matters would resist taking on a $200,000 debt to save $8,000 on taxes. But for those who otherwise would have bought a house, the homebuyer credit could and did affect the timing of purchases.

Thus, as the first expiration of the credit approached last November 2009, many who were otherwise looking for a new home crowded their purchases into the eligible period. Not surprisingly, home buying surged in October and November. But since many of these hurried sales would have otherwise occurred in December, January, and February, new purchases in those months dropped by more than 12%. Something even more extreme occurred as this latest expiration date approached in April 2010. People who were looking crowded their purchases into March and April in order to qualify for the credit, driving up home sales by almost 30%. Then, because so many of those sales would have occurred after April, recorded sales fell suddenly by about 30% in May. Housing starts and residential construction put in place followed this same up-and-down pattern.

But none of this says anything fundamental about the housing market. There, the more significant consideration is the drop in the inventory of unsold homes by 27%; in fact, during the last 12 months, from the equivalent of 13 months’ supply during the 2008–2009 crisis to about eight months’ supply more recently. This development fundamentally has lifted previous downward pressure on new construction, sales, and pricing. According to the National Association of Realtors, for instance, the median sales price of homes sold in the United States has risen 5.3% so far this year, and prices continued to rise in May. It will be a long while before residential real estate becomes a good investment, but the price pattern nonetheless suggests that the market has easily compensated for the gyrations surrounding the tax credit.

3. Business Spending and Exports Are Awfully Strong for a Dip

If business is anticipating a second dip in the economy, it has chosen a strange way to show it. To be sure, firms have held back on new construction, hardly surprising given the low level of capacity utilization. So far this year, nonresidential construction spending has dropped by 2.1%, or at an annual rate of 5.0%. But business managers cannot be too frightened, for they are spending heavily on new equipment. Shipments of capital goods (excluding defense materials) rose at a 3.0% annual rate during April and May—the same pace they have maintained during the past 12 months. More telling of expectations than actual shipments, new orders for such capital goods exploded at a remarkable 48.3% annual rate during this supposedly weak April–May period—a tremendous acceleration from the already rapid 25% rate of expansion during the prior 12 months.

Meanwhile, business also has begun to rebuild inventories, presumably in anticipation of future sales growth. Stocks of finished goods on hand rose at a 6.0% annual rate between March and May (the latest month for which data are available), and work in progress increased at a 4.3% annual rate.

Exports also showed strength. So far this year, through April (the latest month for which data are available), total U.S. exports to the rest of the world have expanded at an impressive annual rate of almost 17%. In April, they jumped at a 12.7% annual rate. That kind of growth will not only help spur the overall U.S. economy but it also argues that the world economy is far more robust than double-dip arguments suggest. As a take on domestic U.S. demand, it is noteworthy that imports have expanded at a 23.5% annual rate so far this year, a pace they held in April. Clearly, someone in this economy is buying.

4. Overall Production Levels Look Fairly Good, Too

More general measures of economic activity also cast doubt on the double-dip outlook. Industrial production, for instance, continues to rise at impressive rates. The year-to-date rate through May (the most recent month for which data are available) has seen this measure of output in factories, mines, and utilities rise at an annual rate of more than 8%, and in May, the pace actually accelerated to an annual rate of more than 15% — clearly unsustainable, but quite the opposite of weakness, much less a double-dip. Similarly, the Purchasing Managers Index (PMI) of the Institute of Supply Management shows continued growth. To be sure, the index fell in May and June (the most recent months for which data are available), to a level of 56.2 from an April level of 60.4. But since any reading above 50.0 speaks to economic expansion, even the lower figure records continued growth and not another dip. The fact is that the April figure was unsustainably high.

5. Employment Does Not Look Threatening, Either

Indicators on hours, temporary employment, and even full-time employment have begun to edge up. And even though the unemployment rate has failed to fall in a concerted way, such a move would be premature at this stage in the recovery, at least given the lags averaged in past cycles. Actually, the jobs market is slightly ahead of schedule, according to these historical benchmarks.

6. Financial Markets Are Healthier Than the Headlines Imply

Though Europe’s sovereign debt problems present a huge financial and, consequently, economic risk, financial markets have nonetheless demonstrated an impressive resilience. Indeed, their behavior under this strain speaks to a significant, fundamental healing. Contrary to the tone of the headlines, markets have avoided the much-looked for relapse into the mess of 2008–2009. For example, the TED spread (the gap between Treasury bill and interbank lending rates, and a good indicator of liquidity) has only widened in this crisis, from 20 basis points (bps) to about 40 bps. Some widening was to be expected in the face of European uncertainties, but matters are still a long, long way from the 460 basis-point spread recorded during the 2008–2009 crisis. Similarly, junk bond spreads have widened, from some 600 bps over Treasuries earlier this year, to 700–750 bps, as the European problems have become evident. Though an unsurprising reaction to the European credit scare, these spreads are a far cry from the 2,100 bps they reached in 2008–2009. Meanwhile, issues continue to get sold on bond and money markets, and even bank lending has shown some tentative signs of flowing again.

7. China Continues to Grow

A slowdown in China is not only consensus but it also is a reasonable expectation. A housing bubble of sorts is deflating in China’s major cities. The government in Beijing has taken monetary and fiscal steps to slow the pace of growth. Beijing’s recent decision to allow the yuan to appreciate against the dollar on foreign exchange markets has raised questions about the future growth of Chinese exports, both to the United States and to Europe.

But though all these factors are real and will slow China’s general economic growth rate, it would be a mistake to exaggerate them. China’s decline in residential real estate prices hardly risks the financial collapse that occurred in the United States about a year and a half to two years ago. For one, debt levels in China are much lower than they were or are here. While Chinese households on average are carrying debt equal to about 40% of income, American debt levels approach 120–130% of income. For another, Chinese typically put 50% down for a home purchase and almost never less than 20%. Neither will the yuan’s increase impact exports very much. The currency appreciation is so slight and so carefully managed that it is more cosmetic than real. It is certainly insufficient to threaten Chinese exports. Broad economic indicators also show a slowdown, not a decline. The PMI, for instance, dropped from 53.9% in April to 52.1% in May, but still anything above 50% is expansion. If, as expected, China’s overall growth slows for an 11.9% annual rate in the first quarter, to 9.5%, it will still remain faster than the rest of the world — and hardly the stuff of which double dips are made.

Where a Magician Disappears

Near Vegas, Criss Angel relaxes amid crosses, fountains and Houdini's handcuffs

By CANDACE JACKSON


Henderson, Nev.

Magician Criss Angel stands with his 'skeleton' motorcycle

Michal Czerwonka for The Wall Street Journal

Magician Criss Angel is known for performing stunts like burying himself alive, levitating off the tip of Las Vegas's Luxor hotel and being lifted by helicopter via fishhooks dug into his back, all with his signature goth style and highly dramatic flair. His new six-bedroom, nine-bathroom home, which he purchased for about $12 million and has spent at least $8 million renovating, is about as unconventional as one might expect.

Criss Angel's 'Serenity'

 

Michal Czerwonka for The Wall Street Journal

View Slideshow Here:

http://online.wsj.com/article/SB10001424052748703792704575366903895872506.html?mod=WSJ_RealEstate_LEADTopNews#project%3DSLIDESHOW08%26s%3DSB10001424052748704682604575369222146628454%26articleTabs%3Dslideshow

In a community with multiple guard gates about a half hour from the Las Vegas strip, the 22,000-square-foot Mediterranean features dark wood, onyx, marble and gothic interior trimmings like custom stained glass and wrought iron. It abuts the 13th hole of a private golf course—13 is Mr. Angel's "lucky number."

The home has many Vegas mansion trappings—10 fountains, a bronze sculpture garden, a 3,000-square-foéot master suite and a sprawling infinity pool with four fire pits, underwater bar stools and a seating island reachable by a small stone footbridge. The pool's focal point: an acrylic ball about 4 feet in diameter with water cascading around it, sitting just above the water's surface. Nearly the entire back of the house opens to the waterscape with wall-size glass pocket doors.

Inside is Mr. Angel's extensive collection of magic memorabilia, including items like Harry Houdini's handcuffs and Lance Burton's top hat. Décor includes drawings and paintings by Salvador Dali, as well as several custom pieces by popular artist Michael Godard including a three-dimensional painting of a rabbit pulling Mr. Angel's head out of a hat. There are numerous gothic crosses and two large murals of crucified Jesus, one of which is embellished by drops of Mr. Angel's own blood puddled on the floor below.

A stone rotunda just off the home's entry-way has two 19th-century wood chairs and a 200-year-old Bible, which belonged to Mr. Angel's late father; a gold cross hangs above. Upstairs, a bathroom is wallpapered in fake $100 bills. A framed photograph of Mr. Angel overlooks the toilet. Several coins are shellacked to the floor, and the mirror above the sink squirts water.

A painting of a rabbit pulling Mr. Angel's head out of a hat.

Michal Czerwonka for The Wall Street Journal

"This is all me, I didn't have any designers," said Mr. Angel, an energetic and boyish-looking 42-year-old with a long black hair and a Long Island accent.

Raised Greek Orthodox, Mr. Angel, whose real name is Christopher Sarantakos, grew up on New York's Long Island, where his Greece-born mother still lives part-time, though she has her own room at his new house. He began performing as a young child, and his big break came when he got his own off-Broadway show around 2001, after which he starred in several TV specials.

Mr. Angel's sixth season of his A&E reality show "Mindfreak" debuts Aug. 4; he also performs 10 live shows a week at the Luxor under his 10-year, $100 million contract in a show he collaborates on with Cirque du Soleil called "Believe." Some critics have panned the show, though it often ranks in the top five or 10 Las Vegas events in terms of weekly ticket sales, according to TicketNews.com. Mr. Angel also markets over 1,000 branded products, from magic kits to clothing.

After several years of living in Las Vegas hotel suites, Mr. Angel purchased this home, the first he's owned and inhabited, in December and began renovating soon after. A newly built 15,000-square-foot seven-bedroom house in the area that has an indoor bowling alley is listed for $7 million.

The $100-bill bathroom

Michal Czerwonka for The Wall Street Journal

Mr. Angel said he named the house "Serenity" because it offers a respite from a busy schedule and it's a place for friends and family to hang out on his day off. "For me, this is very tranquil and serene, and then I have this life that is chaos," he said. On a recent visit, Serenity was a flurry of activity, however, with landscapers, staffers and relatives buzzing about. In addition to his chef, a housekeeper, an executive assistant and a personal assistant (who lives on the property), two handymen and his brother Costa are frequently at the home.

Mr. Angel also uses the home as a place to work, editing his show from the upstairs screening room. His home office, which had dark wood floors and granite countertops, is inspired by the magic stores he'd hang out in as a child—though it's filled with antiques instead of merchandise. "I wanted to bring that sense of wonder I had as a kid that you loose when it's a business," he said. Shelves are lined with items like memorabilia from magicians like Doug Henning. "You get the chills when you look at this stuff."

Mr. Angel confessed to being something of a neat freak. One of his three laundry rooms also has dry-cleaning capabilities, and his two antique pinball machines are covered in plastic because his cat likes to climb on them. (An attached note reads "please do not use the pinball machines without Criss's assistance, per Criss.") "He's probably one of the most focused workers and individuals I've ever met," says his manager David Baram. "I think that's reflected in the way he's built the house."

A mural/sculpture of Jesus through a stone archway

Michal Czerwonka for The Wall Street Journal

There are plans to expand Serenity further. Contractors will soon begin excavating a small hill to make room for an eight-car garage. Parked in the home's current six-car garage is Mr. Angel's Lamborghini and a motorcycle shaped like a skeleton.

On a scorching, 108-degree June afternoon Mr. Angel sat poolside with his mother, Mr. Baram and a publicist eating chocolate chip cookies baked by his chef. A slightly cooling breeze could be felt off the water. Mr. Angel, who sat cross-legged wearing a black T-shirt, explained how he trained in his pool for a stunt he will attempt on his show next season. The trick involves being shackled in locked chains while his feet are in a barrel of cement, then dropping to the bottom of Lake Havasu. Mr. Angel's mother, Dimitra, shook her head disapprovingly and reminded her son about the time he surprised her by flying her to Vegas for her birthday, then lighting himself on fire (which was featured on the first season of his reality show). "Sorry! I thought it would be like the ultimate candle," Mr. Angel said.

Write to Candace Jackson at candace.jackson@wsj.com

Are Bill and Hillary Clinton Moving On Up?

By Vanessa Richardson Jul 15th 2010 @ 3:05PM

It's still a rumor, but it seems the Clintons are planning a move. The former first couple would still be staying in Westchester County, N.Y., but moving nine miles north, from upscale Chappaqua to even more upscale Bedford Hills. Apparently, they're eyeing Clover Hill Farm, a 7,000-square-foot estate on 20 acres in an area known for rich horse lovers and low-key celebrities.

According to the Coldwell Banker listing, Clover Hill Farm, priced at $10.9 million, boasts five bedrooms; a fireplace in the master bedroom; a wood-paneled library; stone patios; a wine cellar; his-and-her bathrooms and dressing rooms (hers is two stories); a heated pool and poolhouse; two guesthouses; an artist studio; stables, pastures and a dressage ring; and a koi pond.

The agent is Mady Wengrover in Coldwell Banker's Bedford, N.Y., office.

It's been 11 years since the Clintons moved to 15 Old House Lane in Chappaqua, when Hillary was eyeing a U.S. Senate seat from New York.

Also with five bedrooms, their Dutch Colonial is no dump (Zillow.com estimates it at $1.3 million), but it only has one acre and is a frustrating place for the Secret Service to secure -- you can drive within 60 feet of the Clintons' front door.

The Clintons initially got flack for buying the Chappaqua home. They were accused of using it as a suitable site for Hillary to start her political career, as a resident of a nice-but-not-too-ritzy part of New York State, and that it would only be a part- or -quarter-time residence.

But in fact, the Clintons make good neighbors. The New York Times' Peter Applebome writes that they got very involved in the community, marching in Memorial Day parades, walking the dog at the local high school track, buying egg sandwiches and Starbucks coffees downtown, even attending neighbors' Super Bowl parties.

At Clover Hill Farm, their new neighbors would include Glenn Close, Richard Gere, Martha Stewart and other rich folks who probably own more than one horse.

But Bedford Hills is considered a rung down the ritzy scale than Bedford Village next door, due to two prisons in the area -- one of which is the state's only maximum-security prison for women.

"Does it make sense," asks Chappaqua resident Lawrence Otis Graham in the Daily Beast,"to leave a home five blocks from the bucolic Reader's Digest 114-acre campus to move into a house that sits on the same street as two infamous state prisons? The rooftop of the Harris Road mansion is as visible to a local pedestrian's eye as the glistening coils of barbed wire that loop near the yellow sign and walls down the street...."

But while a suburban cul-de-sac is perfect for a junior senator, it's not needed, politically, when you're secretary of state. The Clintons probably want more privacy and space, which Clover Hill Farm has. And it's not a given that they'll buy it. They've reportedly been looking at other Westchester locales, and even as far north as Woodstock near the Catskills.

One thing for sure, buying a new house is not at the top of their immediate to-do list

-- Chelsea's wedding is July 31.

World's Best Tax Havens

Richard Murphy, 07.06.10, 06:55 PM EDT
Here are the top 10 places where you can hide money from prying eyes rather easily:

http://www.forbes.com/2010/07/06/tax-havens-delaware-bermuda-markets-singapore-belgium_slide_2.html

Even if you've worked for some years trying to prevent the problems caused by tax havens, people will still ask you which places are the best in the world to shield your money from taxes. Working with the Tax Justice Network I set out to provide a definitive answer.

"Best" is, of course, a pretty subjective term, so it needed definition. We used two. The first was a measure of a place's opacity, or how secret it is. There's good reason for that. Some time ago I gave up trying to define what a tax haven is, as that proved to be a pretty thankless task. Instead I suggested that unless a place is a secrecy jurisdiction, which means that regulation is intentionally created for the primary benefit and use of those not resident there, it really can't operate as a tax haven. In effect, secrecy jurisdictions create regulation that is designed to undermine the legislation or regulation of another jurisdiction.

To facilitate its use, secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that shields the identities of those making use of its flexible regulatory system. This is important. Even though people who use secrecy jurisdiction claim their activities are perfectly legal, it seems they don't want people to find out about them. So secrecy is a key.

Secondly, enjoying secrecy in a place that does not have the know-how to handle money is not of much use if, like most users of secrecy jurisdictions, you want to move money without too many questions being asked. That's why we added another criterion, a pretty simple one: To be considered significant, a place had to have the capability to move money in serious quantities, or it just didn't rank.

These two characteristics, when combined, create an index of secrecy jurisdictions, or tax havens if you prefer, called the Financial Secrecy Index.

The research was fascinating. First we had to determine what places were secrecy jurisdictions. To do this we created a "list of lists" looking at tax haven listings over a period of more than 30 years and selecting for testing, broadly speaking, all those that came on two lists or more over that period. Then our team researched data on a wide range of issues--about 200 variables per location (See all the results, available here.)

Twelve criteria were then selected as key indicators of opacity, varying from whether there was formal banking secrecy or not, to whether accounts were required to be on public record, to how many tax information exchange agreements the jurisdictions had. The place got a mark for being opaque and none if it was transparent. This produced a list of the usual suspects: Switzerland, Malaysia (Labuan), Barbados, Bahamas, Vanuatu, Belize, Brunei, Dominica, Samoa, Seychelles, St. Lucia, St. Vincent and Grenadine, and Turks and Caicos.

Next we had to determine the amount of cash flowing through each location using International Monetary Fund data. The top 10 here were:


The U.K. (City of London), the U.S. (Delaware), Luxembourg, Switzerland, Cayman Islands, Ireland, Hong Kong, Singapore, Belgium and Bermuda.

Of course we're not saying that all of this cash is illicit--far from it--but if you're going to hide illicit cash, where better to do it? Where it stands out from the crowd, or where it can be lost like a needle in the proverbial haystack? Big numbers help the owner of dubious cash lose theirs in the crowd, and the places named above are big.

Combine the two rankings (deploying a little mathematics along the way, I admit) and you get the overall top 10 list. These are the 10 most significant secrecy jurisdictions in the world, in the opinion of the Tax Justice Network: the U.S. (Delaware), Luxembourg, Switzerland, Cayman Islands, the U.K. (City of London), Ireland, Bermuda, Singapore, Belgium and Hong Kong.

That final list is going to surprise, shock or even annoy a lot of people, but there is good reason for listing places like London and Delaware as tax havens among those which might be considered the more usual suspects.

Secrecy is not something, as many like to think, that happens "over there." It is really happening at home too. Delaware provides a degree of corporate secrecy for those who operate there that makes it highly significant. Incidentally Nevada and other states also offer this feature, but because more companies use Delaware, it stood out from the crowd.

It's not just because many of the more "usual suspect'' jurisdictions--everywhere from Jersey to the Cayman Islands--are all beneficiaries of British protection and support. The truth is that each of these operates as a branch office for the City of London, the square mile that is the epicenter of finance in London.

The City is almost a government in and of itself, within the U.K., wholly captured and controlled by the finance industry that holds for ransom the rest of its economy. From there untold flows move around the world, many hidden by that ultimate British secrecy invention: the trust. Because of the financial power of the City--seen time and time again during the current economic crisis--the government of the U.K. seems quite unable to challenge it, and the transactions the City wants to execute.

Limbaugh Gets Mega Millions on Condo Sale

By JOSH BARBANEL


A year after railing about the high tax burden on wealthy New Yorkers, Rush Limbaugh, the conservative radio talk-show host, is severing one more tie with New York, selling his lushly decorated Fifth Avenue penthouse to an undisclosed buyer.

Mr. Limbaugh's 10-room condominium, which features a 30-foot-wide living room with fireplace and four terraces overlooking Central Park at East 86th Street, went into contract Thursday for a bit under the final $12.95 million asking price, brokers said.

A mural decorates a bedroom ceiling in the condominium just sold by Rush Limbaugh.

Picture: Corcoran

One broker familiar with the transaction said the final price was about $11.5 million. Mr. Limbaugh paid just under $5 million for the apartment as well as a maid's room and a storage locker, in 1994.

At that price, city officials said that the sale would usually trigger a payment from the seller at the closing of about $325,000 in transfer taxes, including about $164,000 for New York City and $161,000 for New York state to help close the state's huge budget deficit.

Last year when New York state adopted a temporary income-tax surcharge to raise more than $3 billion a year, Mr. Limbaugh said on his radio show that he was going to "get out of New York totally" and sell his Manhattan apartment. A Web transcript of the show is titled "El Rushbo to New York: Drop Dead."

Mr. Limbaugh didn't return a call for comment.

On the radio last week, he railed again against high property taxes, and predicted that basketball star LeBron James would bypass New York, and join a team in a place like Miami to save $12 million to $20 million a year in state income taxes he might have to pay in New York.

Mr. Limbaugh put the full-floor apartment—which includes a private elevator entrance and is the largest apartment in the building—on the market in February with an asking price of $13.95 million.

The apartment's 30-foot-wide living room

Picture: Corcoran

The listing by Haidee Granger and Stuart Moss of Corcoran Group shows a richly decorated space with ornate, hand-painted ceiling murals, and walls upholstered in silk damask. A paneled study has a gold-leaf ceiling.

Although the studios for his radio network are in New York, Mr. Limbaugh has been mostly broadcasting from Florida, where he has a sprawling Palm Beach mansion, since the late 1990s.

A mural on one wall in the New York apartment shows palm trees and waves crashing on a beach.

Mr. Limbaugh's condo building on East 86th Street near Fifth Avenue

Picture: Alfred Giancarli for The Wall Street Journal

He has said on the air that after facing regular state tax audits over many years, he was spending only 15 days a year, mainly during the hurricane season, in New York.

In April, the asking price on the 4,661-square-foot apartment on the 20th floor was cut by $1 million. The Corcoran brokers, Ms. Granger and Mr. Moss, declined to comment on the transaction.

But property records show that Mr. Limbaugh has been a beneficiary of rising property values in the city since 1994.

At the time he purchased the apartment, the real-estate market was at the end of a huge decline.

The building, the former Adams Hotel, had just been converted to condominiums.

During the conversion, the developers received city permission to use a Fifth Avenue address, even though the building is located on East 86th Street, a hundred feet from the avenue.

Write to Josh Barbanel at josh.barbanel@wsj.com

Malibu Estate Cuts Price to $47 Million

By JULIET CHUNG
The estate of Nancy M. Daly, the late ex-wife of former Los Angeles Mayor Richard Riordan, has reduced the price on Ms. Daly's Malibu, Calif., estate to $47 million, a $10 million cut after more than four months on the market.

The philanthropist and children's activist, who died last October of pancreatic cancer, bought the three lots comprising the land in the 1990s. The 0.75-acre estate has 180 feet of frontage on Carbon Beach, the "Billionaire's Beach" where Microsoft co-founder Paul Allen recently bought a contemporary for more than $25 million. The nearly 13,000-square-foot mansion, which Ms. Daly built in 2002, has eight bedrooms, nine fireplaces and multiple terraces. The double-height living area has a view of the Pacific through glass doors that slide into the wall. There's also a pool and a sports court.

Ron de Salvo and Chris Cortazzo of Coldwell Banker Previews International share the listing. "Most of the triple lots are 120 feet; 180 is very unusual," says Mr. de Salvo. Ms. Daly's estate sold her Beverly Hills home in May for $7.48 million.

Cookie Magnate Debbi Fields Seeks Buyer in Aspen

Mason Morse

Debbi Fields and her husband, Michael Rose, the former chief executive of Holiday Inn, are still searching for a buyer for their 501-acre ranch near Aspen, Colo. It's now listed at $28.5 million, 24% less than when they listed it in September 2008. It has now been at that lower price for more than a year.

Mr. Rose bought the land in 1993 for $4.8 million. He and Ms. Fields built the 11,000-square-foot wood-and-glass house, inspired by Japanese architecture, in 2002 as a vacation home. "We had this vision that we would have all the kids coming to be with us, and that hasn't happened," says Ms. Fields, 53, who plans to look for a smaller home in the area. Penney Evans Carruth of Mason Morse has the listing.

The heavily wooded property, where herds of elk pass through, borders a trout-filled lake and has a dock. The main house has five bedrooms, a caretaker's apartment and several decks. There's also a 2,500-square-foot guest house. The property is located in Wildcat Ranch, the luxe development where music executive Tommy Mottola also has his home on the market.

Ruby Tuesday's Founder Lists

Low Country Real Estate

Ruby Tuesday's founder Sandy Beall and his wife, Kreis, are asking $3.75 million for a waterfront home they recently renovated in Beaufort, S.C.

The couple have bought, renovated and sold more than 40 homes during their 35-year marriage, according to Ms. Beall. They bought the three-story home in 2008 for $2.65 million and spent $1.25 million renovating but decided instead to move to Alabama, where they previously lived. "Our hearts just ended up being down there," Ms. Beall says.

The 19th-century gated home is in the Point, Beaufort's landmarked historic district, and measures nearly 8,000 square feet. It overlooks the Intracoastal Waterway and neighbors marshland. A separate brick building can be used as a gym or office. Edward Dukes of Lowcountry Real Estate has the listing.

Email us at privateproperties@wsj.com.

Shopping Centers Struggle, But Hope Seen

As Vacancies Rise and Lease Rates Fall, Research Firm Reis Predicts a Recovery Beginning in 2012.ArticleComments (7)more in Commercial ».EmailPrintSave This ↓ More.
By KRIS HUDSON And A.D. PRUITT

Vacancies and lease rates at U.S. shopping centers continued to worsen in the second quarter, but the slowing pace of the deterioration hints at a recovery starting in the coming quarters.

Vacancies at large malls in the top 80 U.S. markets rose to 9% in the second quarter, up from 8.9% during the first quarter, according to real-estate research company Reis Inc. Mall vacancies have increased steadily for nearly four years as consumers reined in their spending and retailers closed stores and curtailed expansions.

Katie Orlinsky for The Wall Street Journal

Forever 21 is among the the few retailers to be in expansion mode, market observers say. To wit, above: a new Forever 21 department store in New York City.

Meanwhile, lease rates at U.S. malls fell for the seventh consecutive quarter, but the 0.2% decline in the second quarter to $38.72 per square foot was the smallest in that span.

The situation is similar for strip centers, which are smaller shopping centers generally anchored by grocery stores or big discount retailers like Wal-Mart Stores Inc. Vacancies at U.S. strip centers rose to 10.9% in the second quarter, up from 10.8% in the first. That rate is the highest Reis has tallied since 1991.

Lease rates at strip centers declined by half a percentage point to $16.58. That rate of decline is the smallest since strip-center lease rates began to fall in 2008.

"Overall, the news is still bad but not as bad as 2009," said Victor Calanog, Reis's director of research. "We're seeing little glimmers of recovery."

Specifically, Reis found 11 markets in which lease rates rose, mainly smaller markets with few new centers opening, including Pittsburgh and Cincinnati.

And vacancy rates declined in 31 markets, such as Las Vegas; Orange County, Calif.; and Northern New Jersey. Last year, in contrast, nearly all markets registered rising vacancies and falling lease rates.

What's more, retailers are showing sales gains. Thomson Reuters forecasts that the 88 retailers it tracks will post a mean 2.5% gain in the second quarter for sales at stores open for at least a year. By comparison, those retailers posted a 3.9% decline in the same quarter last year.

Even so, it likely will take several more quarters for the entire retail-property market to turn the corner. Retail property tends to reflect economic shifts more slowly than do other property types because retail leases typically span longer terms, often 10 years. In addition, the retail-property sector added more new supply in the boom than did other property types, exacerbating vacancies and lease-rate declines.

Reis forecasts that, across the 80 markets it tracks, the average vacancy rate won't begin to decline until 2012 and won't match its 2008 lows until 2016.

Greg Schuster, a senior vice president specializing in retail for brokerage Cassidy Turley in St. Louis, said lease rates won't improve until the broader economic recovery builds momentum. "Unemployment is going to have to come down and consumer confidence is going to have to rise," he said.

Retail landlords report that the leasing market remains challenging but has improved slightly from recent quarters. Many retailers are focused on bolstering their existing stores rather than opening new ones.

"Retailers are opening fewer stores so generally they can choose where the want to be," said Michael Glimcher, chief executive of Glimcher Realty Trust, which owns stakes in 23 U.S. malls.

Those still expanding include discount and value retailers such as dollar stores, Ross Stores Inc.'s Ross Dress for Less, Forever 21 Inc. and TJX Cos.' TJ Maxx. Among those cutting back are Blockbuster Inc. and Barnes & Noble Inc.

"The dollar stores are very good for us because they are taking more space," said Leo Ullman, chairman and chief executive of Cedar Shopping Centers Inc., which owns 119 strip centers. "The supermarkets are rolling out new stores often with smaller [sizes] in secondary markets."

The Homeownership Society

Airtime: Tues. Jun. 29 2010

7:39 PM ET

CNBC's Diana Olick has the story on separating government and housing

 

Paul Allen's Malibu

By JULIET CHUNG


Microsoft Corp. co-founder Paul Allen has bought a contemporary oceanfront home in Malibu, Calif., through a corporation, for more than $25 million.

The modular, white stucco-and-glass house is on Carbon Beach, the "Billionaire's Beach" where Hollywood moguls David Geffen and Jeffrey Katzenberg are owners. The roughly 5,800-square-foot home, listed for $29.5 million, has five bedrooms, a deck with a pool, a gym and a screening room, according to the listing.

Mr. Allen, who started Microsoft in 1975 with his childhood friend Bill Gates, owns the NFL's Seattle Seahawks and the NBA's Portland Trail Blazers, three yachts and significant real-estate holdings in Seattle. A spokesman for Mr. Allen said he has given away more than $1 billion and declined to comment on the house. Cathy Bindley of Sotheby's International Realty represented Mr. Allen. Stephen Shapiro of Westside Estate Agency, who declined to comment, represented the seller, Charles Perez, an apparel executive.

Kennedy Listing

Victoria Reggie Kennedy, the widow of Sen. Edward M. Kennedy, formally put their Washington home on the market last week for just under $8 million, after quietly shopping it around.

The couple paid $2.78 million for the home in 1998. "It's full of light, and there are a lot of fireplaces, which I love," Sen. Kennedy told Architectural Digest in 1999. The Massachusetts Democrat, who spent 47 years in the U.S. Senate, died in August at age 77 after battling brain cancer.

The six-bedroom, Colonial-style home is in Kalorama in the city's northwest section. The 8,900-square-foot home has a dining room that seats up to 50, a library, an office with a fireplace and an indoor exercise pool. All six bedrooms have en-suite baths and walk-in closets; the master suite also has a study and balconies looking over the home's gardens. The home has a sunroom, terraces and a wine cellar. Jean and Timothy Hanan of TTR Sotheby's International Realty share the listing.

Bayfront, $27 Million

A bayfront mansion in Newport Beach, Calif., listed in 2008 at $38 million, has sold for $27 million, according to court records.

The 10-bedroom home is on Harbor Island, where Pimco's Bill Gross last year paid $23 million for a house, then tore it down. The seller in the recent transaction was DAKS, a limited-liability company majority-owned by apparel executive Arnold Simon, which paid $14 million in 2001 for the home. The 12,600-square-foot house has a subterranean garage for eight cars and more than 300 feet of bay frontage.

Listing agent Rob Giem of Christie's Great Estates affiliate HOM Group, who shared the listing with Vicki Lee of the same firm, says a Colorado couple in advertising bought the home through a trust. Mr. Giem and Kim Bibb, also of HOM Group, represented the buyer.

—Email us at privateproperties@wsj.com

Greenspan: Recent Decline 'Typical' of Recovery

Published: Thursday, 1 Jul 2010 | 12:53 PM ET

CNBC

Former Federal Reserve Chairman Alan Greenspan said that the recent stock market decline is “typical” of a recovery, and that international instability has more to do with the recent decline than problems in the United States.

“What we’re looking at is an invisible wall, which we’ve run into here. Which, essentially, as far as I can see, is a typical pause that occurs in an economic recovery,” Greenspan said in an interview with CNBC. “Ordinarily we’re saying that the stock market is driven by economic events, I think it’s more in the reverse.”

“I will grant you that this is not a normal economic recovery. We’ve just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen,” he said.

“This recent decline is more international than it is a domestic affair,” he said, adding that “there is an inherent instability in the euro system.”

"I don't know where the end game is. Something has got give here. One possibility is there are fewer members of the European Monetary Unit," said Greenspan, who was Federal Reserve chairman for 19 years before retiring in 2006.

In the US, the lack of hiring is due to businesses being shocked by the collapse and dramatically pulling back on spending, Greenspan said.

“There is clearly a short term fear factor involved,” he said. “People don’t want to hire because they’re terribly concerned they have to let them go. The average work week has been going up which is another way of telling you that they’re more intensively using what they got before they’re hiring.”

He added that the jobless rate will begin to lower once the markets improve and output per hour decreases. "You don't hire when you're fearful," he said.

The hiring that has occurred so far, has been done by larger companies. The current recovery is “dominatedby large banks, higher income individuals and bigger business,” Greenspan said. In past recoveries, small businesses have typically done most of the hiring and have started to pull the economy out of a recession, he said.

The ADP Employer Services report released Wednesday, for example, showed that large and medium sized businesses with over 50 employees reported an increase in hiring in June, while small businesses with fewer than 50 workers reported a decrease. (Read "Jobs Market Barely Budges in June as Hiring Stays Weak")

One of the reasons that small businesses are not hiring, Greenspan said, is because smaller banks are loaded up with commercial loans—a less attractive investment—and aren’t lending. “Small business is in real serious trouble,” he said.

In the far ranging interview, Greenspan said that raising the capital gains tax in the US would be ill advised. He also added that the financial crisis could not have been foreseen.

“It is just not feasible to forecast a financial crisis,” he said. “A financial crisis by definition is a sharp abrupt, unexpected decline in asset prices.”