Winter Heating Costs May Ease On Drop in Natural-Gas Prices

By Stephanie I. Cohen

From The Wall Street Journal Online

The recent drop seen in natural gas prices is likely to help soften consumer heating bills this winter, the American Gas Association said at a briefing.

The group said consumers may see a drop of as much as 10% compared with last year's bills, but officials also warned that consumers heating with natural gas shouldn't expect a sharp decrease in their utility bills.

Consumers have faced a steady increase in winter heating costs in the past five years. The Energy Department is slated to release its annual outlook for residential winter heating bills today.

The impact of natural-gas prices is felt by a large portion of U.S. residents -- roughly 68 million American homes, or 52% of U.S. households, heat with natural gas.

Although wholesale natural-gas prices began to drop in September, the price of natural gas throughout the year, not just during the winter months, determines consumer bills, American Gas Association officials said. Utilities typically begin purchasing and stockpiling a significant portion of the natural gas they use to meet customer demand six to 18 months prior to the heating season, according to the group.

"Bills will be lower if the weather is the same as last year but weather is never the same," said Paul Wilkinson, vice president for policy analysis at the American Gas Association. "We've been on a price roller coaster for six years now," he said.

But officials for the group feel confident consumers won't see the sharp price increases of recent years thanks to natural-gas spot market prices in the first nine months of 2006 and the fact that natural gas in storage is at a record high.

During the first three months of this year spot prices were significantly higher than for the year-earlier period. But from April to June prices were about the same as the prior year and for the most recent three months prices have been significantly lower than the year-ago period, the group said.

While customers are also likely to benefit from the lack of hurricanes in the oil-producing regions of the U.S. this year, a cold snap during the winter that leads to higher demand is still the primary driver in determining winter heating bills during the heating season.

"This year, the industry has repaired much of the damage to its infrastructure and wholesale prices are lower, but the weather is a wild card," the American Gas Association said.

Natural-gas utilities don't make a penny more in profit if the price of natural gas rises but they can typically pass the increase in fuel prices along to consumers.

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As Housing Market Slows, Rental Market Heats Up

By Christine Haughney

From The Wall Street Journal Online

Bidding wars, once waged by prospective home buyers in a red-hot housing market, may be moving to a new front: rental apartments.

As rising interest rates and flattening home values have made renting more attractive, renters are beginning to resort to the same one-upmanship tactics to secure a choice apartment.

In Washington, D.C., the owner of the Ellington, a 190-unit rental building on U Street, has a 12-person waiting list, and nearly a half dozen renters are paying rent two to three months before their move-in dates. San Francisco renters are showing up early to open houses and racing to fill out applications before other applicants. In Manhattan, some renters are offering landlords more money than asking rents, while others are paying the equivalent of the entire year's rent upfront in cash.

In August, Adrian and Amanda Liang agreed to pay $5,300 a month for a two-bedroom apartment on Manhattan's Upper West Side -- $100 more than the asking rent and $1,000 more than they intended to spend. "I just wanted to get this done as soon as possible," says 31-year-old Mr. Liang, who moved to New York from San Francisco with his wife after selling his software-services company. "I was sick of looking at places." The couple had spent a month looking at nearly two dozen Manhattan apartments and had lost two apartments to other tenants because when they showed up at open houses, the landlords said they already had plenty of qualified applicants.

Justin Lindblad, a broker with New York-based Citi Habitats Inc. who represented the Liangs, says another client secured a $2,300-a-month, two-bedroom apartment on the Upper West Side only after offering to pay $13,800 in rent upfront and a $13,800 security deposit. "You're not in a situation anymore when you can wait around a week and think about an apartment," says Mr. Lindblad. "You take it on the spot on that day, or you move on."

Rental landlords, who used to fret as prime would-be tenants jumped into the housing market instead, suddenly are in the driver's seat. Nationally, rent for a 1,000-square-foot apartment has jumped 3.7% to $1,389 a month from $1,339 a year ago, according to data collected by Boston-based research firm Property & Portfolio Research Inc. Rent increases haven't been this high since the fall of 2001, when rents jumped by 4.1%.

A big reason for the rising rents -- and the emerging bidding wars -- is a smaller stock of apartments, caused partly by developers who built condominiums instead or converted existing apartments into condos to take advantage of the once-hot housing market. Rental vacancy rates dropped to 5.3% in the second quarter of 2006 from 6.2% in the second quarter of 2005. The vacancy rate could shrink to 5% by year end, according to Encino, Calif.-based real-estate investment brokerage Marcus & Millichap.

In Manhattan's pricey Tribeca neighborhood, where Citi Habitats says vacancies are a miniscule 0.55%, finding an apartment has been much tougher than Kerry Stichweh anticipated. After looking at 10 different apartments to buy in downtown Manhattan, Ms. Stichweh, a 34-year-old choreographer and interior designer, and her boyfriend, a 50-year-old hedge-fund executive, abandoned their purchasing plans for the more affordable rental market.

But after touring nearly three dozen apartments, they couldn't find anything they liked within their $5,000 monthly rent budget. So next month, they are moving into a fifth-floor, two-bedroom Tribeca apartment that rents for $6,500 a month and initially won't have a working elevator. Still, the couple figures that is a better deal than buying a similar unit -- which would cost more than $1.5 million with monthly payments of about $10,500 including taxes and maintenance fees, according to their broker, Craig Filipacchi of Brown Harris Stevens.

The boom in demand for rental apartments follows several brutal years for landlords. From 2002 to 2005, 438,000 renters from age 20 to 34 nationwide took advantage of low interest rates and became first-time homeowners, says Hessam Nadji, managing director of Marcus & Millichap's research services. Landlords offered free rent for a time and paid brokers to find them tenants.

To be sure, the good times for rental landlords may not last. With the rapidly cooling home-buying market, many condo developers are expected to switch units back to apartments. "The rents aren't going to continue growing like they have," says Manhattan developer Douglas Durst, whose second residential apartment building, which has 600 units, has filled up in the past 18 months. While rents have risen roughly 10% from the year before, he is cautious about developing more rental projects.

But for now, it is a landlord's market. In the second quarter, AvalonBay Communities Inc., of Alexandria, Va., which owns 45,000 apartments nationally and is concentrated in the Northeast, raised its asking rents by 4.7% from the year before and cut concessions by 67% for incentives such as free rent for a month or more and gifts including vacations, microwaves and televisions.

San Francisco renters are increasingly anxious, says Abigail Glynn, a broker with San Francisco-based firm Davis Realty Co. "A lot of them run into the apartment and come running out to hand you the [rental application] papers," she says.

Rob Hielscher, a 31-year-old commercial-real-estate broker, recently moved back to San Francisco from Chicago with his girlfriend, Lisa Lombardi, a 29-year-old occupational therapist. After two trips to the Bay Area and visits to 12 apartments, they moved into a two-bedroom apartment with a private backyard in the Potrero Hill area. To Mr. Hielscher, the $2,300 monthly rent was a better deal than buying a similar unit -- which would cost nearly $900,000, or about $3,800 a month after a mortgage payment, tax savings and homeowners' fees, according to Potrero Hill real-estate broker Greg Angilly.

"I don't plan to be a renter for the rest of my life," Mr. Hielscher says. But "even if the house appreciated, I wouldn't have the money to go to [Lake] Tahoe or take trips because I would be putting all of my money into a mortgage."

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Tricks of the Trade: How to Spot Leaky Plumbing Early to Save Cash

By Sarah Tilton

From The Wall Street Journal Online

A small water leak is like a snowball rolling down a hill, says Ed Del Grande, a plumber with more than 25 years of experience. The longer you leave it alone, the more it will drip and eventually it will become an emergency.

He says his city water meter can help reveal hidden leaks. The meter has a visible wheel that moves and measures every drop that goes through the system. So Mr. Del Grande turns off everything in his house that uses water and then checks if the wheel is moving. Ideally, the wheel stops. If it's still moving, there's a leak. The most common culprits: toilets.

To keep his drains in shape, he plunges them every few months, more often if they become slow. For washing machines, he recommends upgrading rubber hoses to ones wrapped in stainless steel. He always turns off the water to the washing machine when he goes on vacation as the water damage from a burst hose could be major.

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Urban Growth Supplants California's Orange Groves

By Maura Webber Sadovi

From The Wall Street Journal Online

A cooling economy and rising commercial vacancy rates in Southern California's Inland Empire haven't slowed a torrent of new stores, offices and supersize distribution warehouses.

The two-county area extends east from Los Angeles to the Arizona and Nevada borders and includes a mix of suburban tracts, dwindling agricultural land and expansive desert as well as the longtime resort destination of Palm Springs and such fast-growing cities as Riverside and Ontario.

The region traces its nickname to the 19th century, when it was known as the "Orange Empire" because of its citrus crop. In the past 20 years it has become a wunderkind of the warehouse-distribution sector, and more recently, a haven for residents priced out of coastal Southern California. That pushed up the population to 3.9 million last year and made it more populous than about two dozen states. "We are today's Orange County," says John Husing, an economist with consulting firm Economics & Politics Inc., based in Redlands, Calif.

During the past year, both population and economic growth have downshifted, albeit from white-hot levels to still enviable above-average rates. Total net migration dropped to 91,400 last year from a peak of 109,700 in 2003. New residents still were arriving at about three times the national rate in the 12 months ended June 30, according to Moody's Economy.com. Year-to-year job growth for the region in August fell to 3%, from a 5% pace in the year-earlier period, according to the Bureau of Labor Statistics.

At the same time, new construction is expected to nudge up vacancy rates in the warehouse, office and retail sectors, though rental rates are also forecast to rise, according to Property & Portfolio Research Inc., a Boston-based real-estate research firm. The shift is subtle but notable in the robust warehouse sector, where vacancy rates ticked up slightly to 5% in the second quarter from 4.7% in the first quarter -- the first quarterly upward movement since early 2003, PPR says.

Developers -- led by the warehouse sector, including some of the country's largest distribution centers -- appear undaunted. The Inland Empire was the biggest warehouse builder in the nation of 54 major markets surveyed by PPR for the 12 months ended in June, during which some 15.4 million square feet were completed. The average annual pace of supply growth will slow through 2010, but PPR says the market will remain the nation's lead warehouse builder over the period, followed by Chicago and Dallas-Fort Worth. Other sectors are also ramping up. About 4.7 million square feet of retail space is scheduled to be completed this year, up 13% from last year, plus 2.5 million square feet of office space, up 18% from 2005.

Market watchers say the warehouse sector will remain strong, thanks to the region's proximity to the flood of Asian imports coming into the ports of Los Angeles and Long Beach, and to its relatively cheap rents -- at least compared with coastal prices.

Denver-based ProLogis, which owns more than 26 million square feet of industrial distribution space built or under development in the region, is continuing to expand. This summer, ProLogis purchased a 700,000-square-foot industrial building in Redlands for an undisclosed price, and recently signed leases with clients that will fully occupy a 1.2 million-square-foot speculative distribution warehouse it completed last year in nearby Rialto. "The Inland Empire is at a high point in the cycle," says Larry H. Harmsen, managing director of North American capital deployment for ProLogis. "I think it's a broad peak that will last some time because of the fundamentally strong demand."

Office developers, who have enjoyed strong demand for space from mortgage companies and home builders, could be more vulnerable to a housing slowdown. More than half of the 120,000 jobs created in the area between the first quarter of 2002 and the first quarter of 2005 were tied to the housing market, PPR says.

Chris Atkinson, vice president of Bates Co., a real-estate company in Monrovia, Calif., says the profile of tenants he expects to fill his planned 10-story speculative office building in Ontario by the time it's completed in about two years could shift to include more accountants and law firms and fewer real-estate companies. However, he says new office construction is the natural follow to the industrial and retail expansion the region has seen to date. "Everyone's skeptically optimistic," he says.

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