i heart chicago real estate

The Cost of Waiting for Prices to Fall

molly — Sat, 12 Feb 2011 00:04:49 +0000

Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. However, today’s buyers should not be concerned about housing prices. They should be concerned about cost.

What is cost? It’s the purchase price plus the interest rate they’ll be paying.

The National Association of Realtors (NAR) recently released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year.

A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, news regarding interest rates may change that. The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. This equates to interest rates on a 30-year fixed-rate mortgage being at the highest level since the last week in April 2010.

So while prices have remained stable, interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?

The price is the same. It just costs more.

Bottom line, even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buy now while the cost is less!

Most Expensive in the Country

molly — Tue, 04 Jan 2011 18:16:06 +0000

What is the most expensive in the country? Well, that depends on what you’re talking about. One would think that real estate in New York City is pretty expensive, or maybe the taxes in San Francisco, but what I’m talking about here is local to the city of Chicago.

As of Jan. 1, 2011, Chicago is the proud sponsor of the most expensive parking in the country. More specifically, street parking. As I like to call it, leased real estate on the smallest scale.

The Loop is lucky to have the largest increases in price, up 75 cents or 18% to $5/hour. The Loop is defined as Wacker Drive (to the north and west), Congress to the south, east to the lake.

Outlying areas will see rates jump 20%. From Roosevelt to North Ave, west to Halsted, parking is now $3/hour up from $2.50. Anywhere else in the city that there is a meter, hourly rates are now $1.50 up from $1.25.

Sounds expensive, right? Get used to it, folks, as it’s only going up from here. There are scheduled increases in 2012 and 2013, adding 75, 50 and 25 cents to the Loop, downtown and neighborhoods respectively each year.

This planned increase was part of Daley’s highly criticized privatization of the city’s parking meters, which he sold for $1.15 Billion for a 75-year lease. The city got the raw end of that deal, as the meters could have been undervalued by up to $3 Billion. Oh, and the money we did get? It’s been spent.

The one silver lining to all of this – it’s now easy to find street parking in the city!

Waiting for the Bottom?

molly — Mon, 13 Dec 2010 16:21:25 +0000

It may already be gone.

Homebuyers trying to time the real estate market today may think they have it down to a science. They watch the news, read the papers, hear that prices are dropping, and assume the bottom hasn’t arrived. So they wait.

There’s just one problem. The bottom – at least the bottom for interest rates – appears to be gone. And it just so happens that interest rates are a very powerful determinant of how much home you can afford and what you’ll pay each month – even more powerful, in some instances, than price.

Conforming 30-year mortgage rates are already a half-point above their October lows, clocking in at 4.625% heading into the second week of December. This is consistent with the Mortgage Bankers Association’s (MBA) prediction that the average rate on the 30-year loan will increase to 4.7 percent in the first quarter of 2011, and could reach 5.1 percent by the end of next year. Meanwhile, a recent forecast by the University of Chicago Booth School of Business predicts that Chicago home prices will remain near their current levels, while the U.S. economy will enjoy stronger than expected growth in 2011.

In Illinois, the economy is fighting its way back. State unemployment has gone down for seven consecutive months, and a great start to holiday shopping indicates consumer confidence is on the rise. While the Fed has stated its intention to purchase an additional $600 billion in Treasury securities, the MBA says this move is priced into current rates.

It may be hard to believe, but in the long run it makes more financial sense to buy a home at a higher price with a lower interest rate than vice versa. So instead of trying to time the bottom for prices, get the best interest rate you can on a mortgage and home that’s right for you.

For more information on how interest rates affect purchasing power, please feel free to contact me. And please remember that I’m never too busy for your referrals.

Interest rates can impact your payments and purchasing power more than the price of a home.
Monthly principal & interest per $100,000 borrowed
4.25% $492
5.25% $552

Loan amount with $2,000 monthly principal & interest
4.25% $406,000
5.25% $362,120

Contact me directly with any questions.

Big Picture and Statistics

molly — Thu, 26 Aug 2010 22:01:12 +0000

The most recent doom and gloom in the media surrounding the real estate industry is a report that Chicagoland home sales were down 25.1% in July from the previous year (according to the Illinois Association of Realtors).

I’ll convey more bad news: In the city, sales of condos were down 21.2%, with 950 units sold, and prices down by 12.9% to $257,000 from the same month as the previous year.

Yes, these stats sound terrible. It sounds like the worst has come and that real estate is dying a slow death. But when analyzing stats, you can’t just take the numbers as they are. You need to look at the larger picture of the market to see why these numbers are as they are.

Unfortunately, these numbers are just a result of the Federal Tax Credit that expired earlier this year. Many buyers who wanted to take advantage of the tax credit (but may not have been ready to buy) were forced into an earlier purchase. They could have waited until the 2nd half of this year, but since the government imposed a false sense of a good deal, many moved their purchases up. I’m sure that if you look at the stats for the entire year-to-date compared to last year, the sales numbers would be more in line (but probably still down).

And if you read my previous blog post, you’ll see that if some had waited, they’d have gotten a better deal with the lower interest rates of today.

As is the case with most things in life, the big picture is what matters most. Minutia matters, but only as it fits into the larger sense of the world.

How Much Could You Be Saving?

molly — Tue, 03 Aug 2010 21:32:55 +0000

With interest rates at historic lows, do you know what this means for you?

By refinancing to a lower rate, you could be saving thousands of dollars over the life of your loan. Even if you’re not planning to stay in your current home for 30 years, even the 5 year savings could be worth it.

Or if you’re thinking about purchasing a home for the first time – you could save more with a lower rate than you would have if you’d received the government $8000 credit.

See the comparison below for a 30-year fixed conforming loan:


Loan Amount	$200,000	$300,000	$417,000
Monthly Payment at 5.56%	$1,143	$1,715	$2,383
Monthly Payment at 4.54%	$1,018	$1,527	$2,123
Monthly Savings	$125	$188	$260
Annual Savings	$1,500	$2,256	$3,120
5-Year Savings	$7,500	$11,280	$15,600
10-Year Savings	$15,000	$22,560	$31,200

Note that 5.56% was the rate in June 2009, and 4.54% was the rate as of 7/30/10 according to Bankrate.com. Also – $417,000 is the max amount you can finance without needing to do a jumbo loan, which is why I included that number.

Please contact me if you would like to learn more, or if you need a great referral for a mortgage person to help you!

Top 10 Home Features

molly — Thu, 17 Jun 2010 16:57:08 +0000

What do you think the top 10 features are for current home buyers?

Read the list below to see how your home measures up (especially if you’re considering selling anytime in the near future):

1 – Garage or parking space

2 – Master suite

3 – Ample storage space

4 – Large or walk-in closets (isn’t this the same as #3??)

5 – Guest bedroom

6 – Outdoor entertainment area

7 – Gourmet or updated kitchen

8 – Breakfast room or eat-in kitchen

9 – Large yard

10 – Wood floors

Notice the only thing that house hunters probably won’t find in Chicago is a large yard. Other than that, the list seems about right. So, if you think having a separate dining room and whirlpool tub will set your home apart, you might need to think again and reconsider other features.

If you are thinking of selling and need to make some cosmetic changes before putting your home on the market, hopefully this list will help you decide where to invest the money (in my experience, gleaming hardwood floors are ALWAYS a top selling feature).

Another Extension for Home Buyers

molly — Thu, 17 Jun 2010 16:40:11 +0000

The senate approved an amendment to extend the time buyers have to close the property to make sure they receive the first time home buyer tax credit.

This only applies to those who were under contract by the April 30 deadline – it won’t allow any new buyers to qualify. But for those who are under contract, it gives them a little more time to keep their deals together.

This amendment is part of a larger jobs and tax package that both chambers must vote on before it becomes law.

What do you think? Is this good for the economy?

Government Still Giving Out Money (but not for houses)

molly — Fri, 23 Apr 2010 22:24:48 +0000

The first-time home buyer credit is expiring in one week. Despite 3 past extensions, there are no indications that the credit will be extended any further. Instead, they are offering money to improve these homes, with rebates for certain Energy Star upgrades.

Illinois offered up $6.5 million to entice consumers to purchase appliances. The state had planned to give away the discounts from April 16-25, but the money was gone within 11 hours on the first day.

Don’t fret, you can still get some money in other areas. If you’re planning to do any major home improvement projects, you may qualify for a rebate on qualifying stoves, HVAC equipment, insulation, roofing material, water heaters and window & doors. You can get up to 30% of $1500 of the purchase amount. These need to be purchased by December 31, 2010.

If you’re looking for more green updates, you may qualify for up to a 30% rebate of the cost of materials when purchasing geothermal heat pumps, residential wind turbines and solar energy systems. You have some more time to think about this investment, until December 31, 2016 to qualify.

For further information regarding qualifying Enery Star rebates, click here

The Latest Fad – Real Estate Auctions

molly — Fri, 19 Mar 2010 17:50:47 +0000

Another development is jumping on the auction bandwagon. This time, it’s at 1400 Lake Shore Drive. The developer, RDM Development & Investment LLC, is hoping that the auction will jump start sales momentum lost after the market took a nosedive in 2008.

The 391 unit development, started in 2006, still has about 80 unsold units. They have decided to auction 30 of those units. Prices will start at $50,000 for studios (formerly selling for $140-$160K), and one bedrooms will start at $90,000 (formerly selling for $250-$270K). Owners who purchased prior to the auction prices will most likely see a drop in their home values due to the low sales prices.

The developer has lined up different lenders to finance auctioned condos, and they are hoping that the increased sales will make the building meet the now-tighter lending requirements (thanks to constantly changing Fannie Mae and Freddie Mac guidelines).

1400 Lake Shore Drive is just one of many recent developers to auction off remaining units. Some others include:
1600 S. Prairie
701 S. Wells
Motor Row Lofts

Coming Changes to FHA Loans

molly — Wed, 20 Jan 2010 21:39:26 +0000

FHA (Federal Housing Authority) loans, or basically government insured loans, accounted for almost 1/3 of home loans for 2009. Coming soon, there will be stricter standards for obtaining a FHA loan.

Some of the new rules include:
≈ increase the charges for mortgage insurance premiums
≈ those with lower credit scores will have to come up with a higher down payment (580 or less could be up to 10% down)
≈ reduce the amount of money a seller can assist with closing costs to buyer (to reduce the potential for inflated appraisals)

Why all the changes? Apparently in November of 2009, the reserve fund dropped to .53% of insurance guarantees, well below the Congress mandated 2% reserve. The new rules are meant to help bring that fund back above the 2% mark.

We will see how much these new rules affect the markey in 2010. Since about half of all first-time homebuyers used an FHA loan last year, we’ll probably see the largest impact in these next 3 months until the first-time home buyer credit expires. Stay tuned.