With winter approaching, many homebuyers and sellers assume now is the time to put real estate matters on hold. That logic may have held true in years past, but in the current market the idea of hibernating for the winter may not be the best decision. Following are a few reasons why right now is the right time for both buyers and sellers to be in the market.
Good Time to Buy
1. Price - The #1 reason qualified individuals are reluctant to buy today is a fear that prices will fall. And they may. But according to a recent story on MSN.com, "it doesn't really matter in the long haul." Housing affordability is near an all-time high, and according to the S&P/Case Shiller Home Price Index, local prices have increased for six consecutive months through August.
2. Interest Rates - Mortgage interest rates are 30% lower than they were four years ago. When you layer today's rates on top of prices that are 30% lower, you get monthly principal and interest that is only slightly more than half of what it was four years ago. That's a big deal.
3. Less Expensive Than Renting - According to the latest Trulia.com Rent vs. Buy Index, it is less expensive to own a home in Chicago than it is to rent. The 50-city index is calculated using the average list price compared with the average rent on two-bedroom apartments, condos, townhomes and co-ops listed on Trulia.com.
Good Time to Sell
1. Buyers Are Serious - It may be fun to drive around and look at open houses on a beautiful summer day, but when the weather starts to turn and people get busy with holiday schedules, kicking the tires on a new home is usually the last thing on someone's mind...unless, of course, they actually need to buy. Sure, there are fewer buyers in the fall and winter, but the ones who are out there are serious.
2. You're Moving Up - The thought of losing equity on a sale doesn't appeal to anyone, but in this market, sellers who trade up have more to gain than to lose. That's because, dollar for dollar, the more expensive home they're buying almost certainly has come down in price more than the home they're selling, which means move-up buyers will actually come out ahead provided they have the finances to complete a transaction.
3. Less Competition - While inventories remain high relative to past markets, the number of homes for sale in the fall and winter is generally about 25% less than in the spring. In addition, the recent moratorium on foreclosures has kept thousands of homes off the market. Those homes will eventually be put up for sale. So if you can capture the last few weeks of fall, you will face less competition than if you wait until next spring.
If you're considering buying or selling, there are many more reasons why it makes sense to do so now. To talk about your specific real estate needs, call or e-mail me today. And please remember that I always appreciate your referrals.
Dave Straub
@properties
(773) 255-3180
Thursday, October 28, 2010
Sunday, October 24, 2010
Should We Buy a New House?
Should We Buy a New House?
Q: I've recently married, and would like to give my new wife a new home. I'm tempted to buy one now, since builders have been giving away things like finished basements—one even will credit 1% of the price of the home towards upgrades for teachers like me. But since new-home prices still seem to be falling, we're nervous about committing. Plus, we see a lot of great deals on apartments, too, like one month's free rent for a unit with free WiFi and utilities. What should we do?
—Chicago
A: If you're motivated by incentives, suggest that you keep house-hunting. I don't think great builder incentives are going to last too much longer, and may even disappear before a newly-signed lease can expire.
It's true that there are deals on new homes now, spurred by the Chicago's still-weak economy. In its Chicago Market outlook PNC Financial Services Group noted that the city experienced a "more draining downturn" during the recession than the rest of the country due to heavy job losses and slow population growth.
But the city has a broad-based business sector that's beginning to revive, causing unemployment to tick down to a projected 9.8% in August from 10.1% a year earlier, according to the U.S. Bureau of Labor Statistics. While the recovery is still nascent and fragile, the housing market is responding. According to the most recent statistics from the Illinois Association of Realtors, in the Chicago metro area, 49,293 homes were sold from January to August this year, up 15.8% from the same period a year ago.
View Full Image
Associated Press
A sign advertises a new home's reduced price in a development in Twinsburg, Ohio.
.Although it's unclear what impact the current foreclosure mess will have on home prices, Standard and Poor's Case-Shiller indexes based on housing futures, while lightly traded, point to a possible turnaround in the offing, at least for Chicago. The composite index, which tracks 10 major metro areas, predicts that overall home prices will decline an additional 5.7% by Nov. 2011, while in Chicago, they'll fall only 0.5%. Then Chicago's prices are expected to pick up steam, rising 3% in Nov. 2012 and 5.4% in Nov. 2013. Meanwhile, the composite index for the same period is expected to fall 4.5% in 2012 and 1.4% in 2013.
All of which points to the likelihood that the days where you can score free finished basements and granite countertops are numbered. Indeed, last month the Federal Reserve's Beige Book noted that while residential building activity in Chicago has been minimal of late, despite falling inventory levels, "downward pressure on new home prices had likely bottomed out " and that "builders were refraining from reducing prices below costs, as many had done earlier in the year."
JUNE FLETCHER Wall Street Journal
HOUSE TALK
OCTOBER 21, 2010, 3:27 P.M. ET.
Q: I've recently married, and would like to give my new wife a new home. I'm tempted to buy one now, since builders have been giving away things like finished basements—one even will credit 1% of the price of the home towards upgrades for teachers like me. But since new-home prices still seem to be falling, we're nervous about committing. Plus, we see a lot of great deals on apartments, too, like one month's free rent for a unit with free WiFi and utilities. What should we do?
—Chicago
A: If you're motivated by incentives, suggest that you keep house-hunting. I don't think great builder incentives are going to last too much longer, and may even disappear before a newly-signed lease can expire.
It's true that there are deals on new homes now, spurred by the Chicago's still-weak economy. In its Chicago Market outlook PNC Financial Services Group noted that the city experienced a "more draining downturn" during the recession than the rest of the country due to heavy job losses and slow population growth.
But the city has a broad-based business sector that's beginning to revive, causing unemployment to tick down to a projected 9.8% in August from 10.1% a year earlier, according to the U.S. Bureau of Labor Statistics. While the recovery is still nascent and fragile, the housing market is responding. According to the most recent statistics from the Illinois Association of Realtors, in the Chicago metro area, 49,293 homes were sold from January to August this year, up 15.8% from the same period a year ago.
View Full Image
Associated Press
A sign advertises a new home's reduced price in a development in Twinsburg, Ohio.
.Although it's unclear what impact the current foreclosure mess will have on home prices, Standard and Poor's Case-Shiller indexes based on housing futures, while lightly traded, point to a possible turnaround in the offing, at least for Chicago. The composite index, which tracks 10 major metro areas, predicts that overall home prices will decline an additional 5.7% by Nov. 2011, while in Chicago, they'll fall only 0.5%. Then Chicago's prices are expected to pick up steam, rising 3% in Nov. 2012 and 5.4% in Nov. 2013. Meanwhile, the composite index for the same period is expected to fall 4.5% in 2012 and 1.4% in 2013.
All of which points to the likelihood that the days where you can score free finished basements and granite countertops are numbered. Indeed, last month the Federal Reserve's Beige Book noted that while residential building activity in Chicago has been minimal of late, despite falling inventory levels, "downward pressure on new home prices had likely bottomed out " and that "builders were refraining from reducing prices below costs, as many had done earlier in the year."
JUNE FLETCHER Wall Street Journal
HOUSE TALK
OCTOBER 21, 2010, 3:27 P.M. ET.
Saturday, October 23, 2010
Rise of the renting class
By Nin-Hai Tseng, reporter July 28, 2010: 9:33 AM ET
FORTUNE -- Modern America has long paired the "American Dream" with home ownership. The idea of staying put, paying property taxes and periodically mowing the lawn belonged to citizens who were somehow more American than the poor saps who could only afford to rent the place they called home.
The notion isn't accidental. Ownership and the American Dream are deeply linked in government policies that favor mortgages over rent payments, dating back before Herbert Hoover was elected president in 1929. As secretary of commerce, amid the Red Scare, Hoover trumpeted homeownership, believing that if one had an equity stake in the country, they'd less likely fall under the spell of Communism. What followed during the Great Depression were a spate of federal measures to help troubled homeowners, at a time when half of all mortgages were in default.
CommentMassive government programs supporting ownership still exist today, but record home foreclosures and spiraling prices have forced a redefinition of the American Dream -- one that includes renting.
In today's weak housing market, ownership has ceased to be an investment vehicle that millions used to trade up into the houses of their dreams in the boom years. And it's not an ATM machine for constant refinancing, either. Instead, for the past four years, ownership has been a culprit of distress. In June, one in every 411 housing units received a foreclosure filing, according to RealtyTrac Inc. Between 2006 and 2009, home prices fell more than 32%, according to the S&P/Case-Shiller Home Price Index.
Renting on the rise
With homeowner markets stressed, it appears renting has become more appealing than owning. Between 2004 and 2009, the number of renter households rose nearly 10% or by 3.4 million, according to a 2010 study of the Joint Center for Housing Studies of Harvard University. The rise was most dramatic in the Midwest, where growth of renter households swung upwards by 15.4% between 2004 to 2009. The South added the biggest number of renter households with a 1.2 million increase from 2004 to 2009, the study states.
All that has made Capitol Hill rethink its definition of the American Dream. As recently as the Clinton and George W. Bush administrations, the mantra of homeownership was almost synonymous to civic duty, but top policymakers now say that homeownership isn't necessarily good for everyone.
In May, U.S. Housing and Urban Development Secretary Shaun Donovan testified before a House committee that the financial crisis proved the need for a better balance between ownership and rental housing. And HUD senior official Raphael Bostic last week told the Washington Post: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go," Bostic said. "You're not going to hear us say that."
Owning a home wasn't always as easy as the liar loans of 2000's made it. When the economy went bust during the Great Depression, legislation intended to stimulate plummeting housing starts and defaulting mortgages laid the foundation for a bigger role of government over the housing market. Hoover signed the Federal Home Loan Act, and in 1933, Franklin D. Roosevelt created the Home Owners' Loan Corporation to provide low interest loans.
And the government was just getting started: a flurry of legislation was passed over the ensuing decades, helping veterans, minorities and the populace as a whole secure mortgages. But it appears the pendulum has swung.
"The government shouldn't blindly encourage homeownership," says Joe Gyourko, real estate finance professor at University of Pennsylvania's Wharton School. "If the government does anything the government should encourage people to make the right decision."
Gyourko says that he's not entirely against the idea of homeownership. After all, as a father of two, the 53-year-old professor owns a home. But he stresses that ownership should be looked at more broadly -- beyond any kind of long-term investment or cost benefit over renting.
Owners don't pay the landlord, but they pay taxes and maintenance costs on their house, and Gyourko says those costs can end up being roughly the same.
As far as buying a house as a smart long-term investment, Gyourko says that's not always true. He says between 1975 and 2008, the price for houses of similar quality and size appreciated an average of about 1% per year after inflation. Investors could have earned more by buying Treasury bills.
The post-crisis role the federal government decides to play in the housing market remains to be seen. In response to plunging home prices and record foreclosures rates, the Obama administration is pursuing an overhaul of policies that could put much less focus on homeownership. The administration could also scale down government support of home loans and put more focus on affordable rentals, but it isn't clear what direction officials will take.
The issues with Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), the mortgage-finance giants seized by the government in September 2008 amid huge problems with bad loans, remain a touchy topic with lawmakers.Their combined bailout, according to some estimates, could reach $1 trillion -- a figure some might pin as the ultimate cost of generations of policies geared to favor home ownership.
Many blame the agencies' loose lending practices for contributing to the financial crisis. Republicans wanted the mortgage giants' fates to be addressed in the recently approved Dodd-Frank bill overhauling the nation's financial regulations, but that didn't happen.
However lawmakers define the government's role in the housing market, consumers have already begun redefining the American Dream: One where it has become socially OK to mail in a rent check rather than a mortgage coupon.
FORTUNE -- Modern America has long paired the "American Dream" with home ownership. The idea of staying put, paying property taxes and periodically mowing the lawn belonged to citizens who were somehow more American than the poor saps who could only afford to rent the place they called home.
The notion isn't accidental. Ownership and the American Dream are deeply linked in government policies that favor mortgages over rent payments, dating back before Herbert Hoover was elected president in 1929. As secretary of commerce, amid the Red Scare, Hoover trumpeted homeownership, believing that if one had an equity stake in the country, they'd less likely fall under the spell of Communism. What followed during the Great Depression were a spate of federal measures to help troubled homeowners, at a time when half of all mortgages were in default.
CommentMassive government programs supporting ownership still exist today, but record home foreclosures and spiraling prices have forced a redefinition of the American Dream -- one that includes renting.
In today's weak housing market, ownership has ceased to be an investment vehicle that millions used to trade up into the houses of their dreams in the boom years. And it's not an ATM machine for constant refinancing, either. Instead, for the past four years, ownership has been a culprit of distress. In June, one in every 411 housing units received a foreclosure filing, according to RealtyTrac Inc. Between 2006 and 2009, home prices fell more than 32%, according to the S&P/Case-Shiller Home Price Index.
Renting on the rise
With homeowner markets stressed, it appears renting has become more appealing than owning. Between 2004 and 2009, the number of renter households rose nearly 10% or by 3.4 million, according to a 2010 study of the Joint Center for Housing Studies of Harvard University. The rise was most dramatic in the Midwest, where growth of renter households swung upwards by 15.4% between 2004 to 2009. The South added the biggest number of renter households with a 1.2 million increase from 2004 to 2009, the study states.
All that has made Capitol Hill rethink its definition of the American Dream. As recently as the Clinton and George W. Bush administrations, the mantra of homeownership was almost synonymous to civic duty, but top policymakers now say that homeownership isn't necessarily good for everyone.
In May, U.S. Housing and Urban Development Secretary Shaun Donovan testified before a House committee that the financial crisis proved the need for a better balance between ownership and rental housing. And HUD senior official Raphael Bostic last week told the Washington Post: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go," Bostic said. "You're not going to hear us say that."
Owning a home wasn't always as easy as the liar loans of 2000's made it. When the economy went bust during the Great Depression, legislation intended to stimulate plummeting housing starts and defaulting mortgages laid the foundation for a bigger role of government over the housing market. Hoover signed the Federal Home Loan Act, and in 1933, Franklin D. Roosevelt created the Home Owners' Loan Corporation to provide low interest loans.
And the government was just getting started: a flurry of legislation was passed over the ensuing decades, helping veterans, minorities and the populace as a whole secure mortgages. But it appears the pendulum has swung.
"The government shouldn't blindly encourage homeownership," says Joe Gyourko, real estate finance professor at University of Pennsylvania's Wharton School. "If the government does anything the government should encourage people to make the right decision."
Gyourko says that he's not entirely against the idea of homeownership. After all, as a father of two, the 53-year-old professor owns a home. But he stresses that ownership should be looked at more broadly -- beyond any kind of long-term investment or cost benefit over renting.
Owners don't pay the landlord, but they pay taxes and maintenance costs on their house, and Gyourko says those costs can end up being roughly the same.
As far as buying a house as a smart long-term investment, Gyourko says that's not always true. He says between 1975 and 2008, the price for houses of similar quality and size appreciated an average of about 1% per year after inflation. Investors could have earned more by buying Treasury bills.
The post-crisis role the federal government decides to play in the housing market remains to be seen. In response to plunging home prices and record foreclosures rates, the Obama administration is pursuing an overhaul of policies that could put much less focus on homeownership. The administration could also scale down government support of home loans and put more focus on affordable rentals, but it isn't clear what direction officials will take.
The issues with Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), the mortgage-finance giants seized by the government in September 2008 amid huge problems with bad loans, remain a touchy topic with lawmakers.Their combined bailout, according to some estimates, could reach $1 trillion -- a figure some might pin as the ultimate cost of generations of policies geared to favor home ownership.
Many blame the agencies' loose lending practices for contributing to the financial crisis. Republicans wanted the mortgage giants' fates to be addressed in the recently approved Dodd-Frank bill overhauling the nation's financial regulations, but that didn't happen.
However lawmakers define the government's role in the housing market, consumers have already begun redefining the American Dream: One where it has become socially OK to mail in a rent check rather than a mortgage coupon.
Friday, October 22, 2010
Contingency Strategies for a Smooth Sale
Great Tips for Sellers:
Contingency Strategies for a Smooth Sale
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, April 2010
Contingencies protect you and your buyer, but they can also sabotage a sale.
Once you've negotiated price and closing costs with your buyer, it's time to get down to the special provisions of the contract -- the contingencies -- that protect your interests and those of your buyer. As a seller, you want to ensure that the buyer's contingencies don't ruin the deal for you.
Sellers most often include in the contract two common contingencies: The purchase contingency gives you 30 or 45 days to buy your next home, and the leaseback allows you to live in your current home for a while after closing. Those provisions will help you avoid the hassle of moving twice -- first into a rental, and then into your next home. Seller Steve Vieux asked his buyer for both contingencies, as did the sellers who sold him his next home. The downside? While you're renting your former home, you're responsible for fixing anything that fails on your watch. For example, Vieux had to pay to replace a water heater.
--------------------------------------------------------------------------------
Buyers typically request a financing contingency. If they fail to get a mortgage or loan terms agreeable to them, they can bail out of your contract and you must refund their earnest-money deposit. This could send you back to square one, looking for a new buyer. You could avoid such a delay by accepting cash-only offers, but that limits the number of buyers.
The best strategy is to price your home so you receive multiple offers, and then you can be selective. Choose the buyer whose financing is most likely to go through. "Twenty percent down is a very warm and fuzzy feeling. Fifty percent is beautiful, and cash is great," says agent Janis Morgan.
If your house will appeal to first-time buyers, they may want Federal Housing Administration financing because it requires a down payment of only 3.5%. Be forewarned: If the home has defects that will cost a borrower of modest means too much to repair, you will have to ante up the cost of repairs or FHA will refuse financing for that home.
If you're anxious to settle and move on, consider passing up a higher offer with a financing contingency in favor of a lower one without it, says agent Bob Bower. Don't agree to a financing contingency unless the buyers present a preapproval letter from their lender (or a "certificate of eligibility," if they will seek a VA loan) with their offer.
Most buyers will want a home-inspection contingency. Purchase contracts generally say that sellers will turn over homes in "normal" working condition (unless the property is being sold "as is"). If the inspection turns up a problem that affects the home's habitability, you'll have to repair it. If the inspection turns up other, lesser issues, the buyer may ask you to take care of those, too. You can protect yourself from excessive costs by setting a limit upfront on the contingency.
Contingency Strategies for a Smooth Sale
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, April 2010
Contingencies protect you and your buyer, but they can also sabotage a sale.
Once you've negotiated price and closing costs with your buyer, it's time to get down to the special provisions of the contract -- the contingencies -- that protect your interests and those of your buyer. As a seller, you want to ensure that the buyer's contingencies don't ruin the deal for you.
Sellers most often include in the contract two common contingencies: The purchase contingency gives you 30 or 45 days to buy your next home, and the leaseback allows you to live in your current home for a while after closing. Those provisions will help you avoid the hassle of moving twice -- first into a rental, and then into your next home. Seller Steve Vieux asked his buyer for both contingencies, as did the sellers who sold him his next home. The downside? While you're renting your former home, you're responsible for fixing anything that fails on your watch. For example, Vieux had to pay to replace a water heater.
--------------------------------------------------------------------------------
Buyers typically request a financing contingency. If they fail to get a mortgage or loan terms agreeable to them, they can bail out of your contract and you must refund their earnest-money deposit. This could send you back to square one, looking for a new buyer. You could avoid such a delay by accepting cash-only offers, but that limits the number of buyers.
The best strategy is to price your home so you receive multiple offers, and then you can be selective. Choose the buyer whose financing is most likely to go through. "Twenty percent down is a very warm and fuzzy feeling. Fifty percent is beautiful, and cash is great," says agent Janis Morgan.
If your house will appeal to first-time buyers, they may want Federal Housing Administration financing because it requires a down payment of only 3.5%. Be forewarned: If the home has defects that will cost a borrower of modest means too much to repair, you will have to ante up the cost of repairs or FHA will refuse financing for that home.
If you're anxious to settle and move on, consider passing up a higher offer with a financing contingency in favor of a lower one without it, says agent Bob Bower. Don't agree to a financing contingency unless the buyers present a preapproval letter from their lender (or a "certificate of eligibility," if they will seek a VA loan) with their offer.
Most buyers will want a home-inspection contingency. Purchase contracts generally say that sellers will turn over homes in "normal" working condition (unless the property is being sold "as is"). If the inspection turns up a problem that affects the home's habitability, you'll have to repair it. If the inspection turns up other, lesser issues, the buyer may ask you to take care of those, too. You can protect yourself from excessive costs by setting a limit upfront on the contingency.
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