Did you get out of bed today?
I know what you're thinking. 'Here we go again. It's the Bear Market of 2008 back to punch us in the stomach and take our lunch money one more time. There goes the stock market. There goes the real estate market. There goes the global economy.'
Certainly the events of early August have been unsettling, even maddening. The triple whammy of a slowing U.S. economy, the ongoing European debt crisis and Standard & Poor's downgrade of U.S. credit has rattled an already fragile consumer confidence.
Lou Barnes, a mortgage banker from Boulder, Colo. said it best in an August 8 interview with The Wall Street Journal's Developments blog: "Who wants to get out of bed today, let alone buy a house?"
Yet a lot of people right here in Chicagoland did get out of bed today and buy a house. Why is that? Is it because the same fundamentals that existed yesterday - record low mortgage rates and record high affordability - still exist today? Is it because local apartment rents are rising faster than Starlin Castro's batting average? Or could it be that real estate (like our now AA+ rated US debt) is still considered a relatively safe long-term investment?
That's a radical concept in 2011. But an investment that can also shelter you and your family, provide a large tax deduction, serve as a hedge against inflation, and allow you to put down roots in a top community or school district has to be given serious consideration - especially if it comes at a discount of more than 33% off its peak value... especially if it's in the business, cultural, tourism and innovation hub of the Midwest... especially if you plan to live there for a while.
As it stands today, there are only 18 nations in the world rated AAA by Standard & Poor's. Among them are Guernsey, Liechtenstein and Isle of Man. I don't know about you, but I'd rather live in AA+ Chicago, Illinois, USA.
What will the stock market do tomorrow? What will the housing market do tomorrow? If we knew that, we'd all be sipping fruity drinks on our own private island. But if the last century of American economic history is any indication, the long-term trend is up. I believe that, which is why I'm in the real estate business. And @properties believes that, which is why we're continuing to invest in and expand our business even in tumultuous times.
As in 2008, we're keeping a cool head, focusing on hyper-local market conditions and framing most conversations about housing, not around the headline of the moment, but around your individual wants and needs at your particular stage in life.
I'm here to help, so please contact me if you have any questions or are getting ready to buy or sell. And remember I always appreciate your referrals.
Showing posts with label Chicago Real Estate Services. Show all posts
Showing posts with label Chicago Real Estate Services. Show all posts
Tuesday, August 23, 2011
Sunday, December 5, 2010
When Home Prices Will Head Up
Property values are still drifting down, but look for relief at the end of 2011.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, January 2011
The lowest mortgage interest rates in almost 60 years, plus affordable homes in cities where buyers had been priced out for years, should be turning the housing market around. But the market also labors under some heavy burdens: a glut of foreclosures that are dragging down home prices, high unemployment and tight credit. Sales fell off a cliff after the home-buyer tax credit expired. And “foreclosure-gate” -- legal squabbling about the process used to repossess many homes -- postponed the sale of many foreclosed properties and struck yet another body blow to confidence in the housing market.
For the four years beginning with the downturn in mid 2006, the median price of an existing home nationwide fell by 27%, or 7.7% annualized, according to Fiserv Case- Shiller, a home-price research firm. (At the worst of the decline, a year ago, prices had fallen 30%.) The median home now sells for $177,000, a bit more than what it would have fetched in 2003.
Among the cities that Fiserv tracks, Merced, Cal., fared worst, with a 68% plunge in its median home price in the four years since the peak, followed closely by Modesto, Salinas and Stockton, Cal.; Cape Coral-Fort Myers, Fla.; and Detroit. Prices rose in just 12 cities -- in upstate New York, Tennessee and Pennsylvania -- that missed the boom and plugged along at their usual slow pace of appreciation.
Stuck Underwater
The home-price plunge has left 23% of mortgage borrowers (out of 53.5 million) underwater -- that is, they owe more on their mortgage than the market value of their home. Unless they can ante up the difference -- an average of $75,000, according to CoreLogic, which analyzes mortgage data -- they can’t sell and they can’t move. Their choices? Stick it out, ask the lender for permission to sell for less than they owe (a short sale), or default.
In Norwood, Mass., south of Boston, Al and Shannon Becker wish they could buy a bigger home, but they’re underwater by about $50,000. But the couple have a plan. They bought their 1910 farmhouse, with three bedrooms and two baths, for $389,000 in 2005. By 2006, the property appraised for $423,000 and the couple refinanced, taking cash out for home improvements. Now it’s worth $350,000. Still, they can afford to move -- and could come up with the cash to pay off the mortgage. Instead, they are paying an extra $500 a month on the second mortgage they took out when they purchased the house and anticipate the day when debt pay-down and home-price growth will converge. Walk away? No. “That would be un-American, and my parents would kill me,” says Al.
The price gains that would put the Beckers and the millions of homeowners like them in the black have been tantalizingly out of reach, though glimmers of hope exist. Median home prices rose by 3.6% during the year ended June 30. Many California cities saw double-digit increases. Prices rose by at least 5% in many cities in California’s beleaguered Central Valley and Inland Empire (such as Riverside-San Bernardino), a few cities in Florida, and in Phoenix, Washington, D.C., and Minneapolis-St. Paul.
David Stiff, chief economist at Fiserv Case-Shiller, says those price increases, artificially propelled by the home-buyer tax credit, weren’t sustainable. The tax credit expired on April 30. By June, sales had begun to slide, and in July they tanked. In late summer, sales of existing homes (including single-family houses, townhouses, condos and co-ops) began to climb again, but in the National Association of Realtors’ most recent report, they were still 19% below a year ago. The lower the price tier, the greater the decline in sales, which reflected the pullback of first-time home buyers.
Although this recovery may seem unendurably long, Stiff says that five to seven years is historically a “pretty standard time frame” for prices to stabilize after a large correction. But in the past, some regions suffered longer than others. For example, Dallas home prices took 12 years to recover after they fell from their peak in mid 1986. This time around, however, the downturn hit more areas because the mortgage-credit bubble was so widespread.
The Foreclosure Factor
Now, short sales and foreclosures are the driving force behind continued price declines. Throughout 2010, they accounted for about one-third of home sales, with an average price discount of 26%, according to RealtyTrac. Everyone agrees that more such sales are on the way, but estimates vary.
Moody’s Analytics chief economist Mark Zandi says the foreclosure pipeline holds about four million loans that are delinquent by 90 days or more -- or headed that way -- and he thinks half of those will end up for sale. He thinks that delinquency rates have peaked and that foreclosures will peak in 2011. He reckons that, given current supply and demand, it will take two years to work through the excess inventory (which is concentrated in Florida, the Atlanta area, Arizona, Nevada, California’s Central Valley, the Rust Belt and a few other spots in the Midwest). The longer it takes to put to rest the foreclosure-processing issue raised in October, the greater the backlog of properties -- and the more they will suppress prices when they hit the market. But Zandi says foreclosure-gate will be resolved within a few months, not a few quarters. Even so, foreclosure moratoriums have ensnared plenty of bargain hunters, including Kerry Deland of St. Cloud, Fla. Deland moved to St. Cloud, near Orlando, in 2005. A kindergarten teacher, Deland quickly figured out that she couldn’t afford to buy a home -- especially one with enough land for her horse -- on her salary.
A friend tipped her off to a property that appeared destined for foreclosure -- a 5-acre spread with a three-bedroom, two-bath house that would have sold for $300,000 in 2005. Deland watched and waited. In July, the foreclosing lender listed the property for $114,000. Deland made two offers. The first time she lost out to a higher bidder, whose deal fell through. In late August, she made a winning bid of $111,900. Closing was scheduled for early November, but in October Deland learned that the seller, Fannie Mae, had imposed a foreclosure moratorium. Fortunately, it offered to extend Deland’s contract until December 5. “I’ve waited this long,” she says. “I can wait some more.”
A Glass Half-Full
The worst-case scenario for home prices? Slow economic growth and high unemployment drive up the foreclosure numbers, which push down home prices. Consumers refrain from spending, further dampening economic growth and job creation. Demand for homes decreases because would-be buyers either don’t have a job or don’t have confidence that they’ll still have one in months to come. Confident buyers hold off because they expect further price declines.
But Zandi thinks the job market will begin to turn around by mid to late 2011. And the Federal Reserve will ensure that mortgages stay dirt-cheap at least until employment picks up again. Zandi says that the best reason for a bit of optimism is this: With few exceptions, the market is fairly valued based on the relationship of home prices to income and apartment rents. Some markets have actually become undervalued, which will attract more buyers and investors.
Bank of America Merrill Lynch economist Michelle Meyer says that to frame the housing outlook in a more optimistic light, “everything has to go as planned.”To buoy consumer confidence and put home sales on a strong, upward trajectory, job growth will have to be considerable and the unemployment rate clearly receding. Meyer agrees that we could see that begin to occur in the second half of 2011, but, she says, “it will be a slow process.” Fiserv expects the housing market to finally hit bottom in mid 2011, with another 7% decline in the U.S. median home price for the year ending June 30, 2011. The firm’s forecasting model says that prices are 90% of the way back to being in line with household incomes. Stiff says that the housing market is now “bouncing along the bottom,” with buyers and sellers creating price volatility as they try to match bid and ask prices. The firm predicts that in many cities, prices will begin to tick upward again in 2012.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, January 2011
The lowest mortgage interest rates in almost 60 years, plus affordable homes in cities where buyers had been priced out for years, should be turning the housing market around. But the market also labors under some heavy burdens: a glut of foreclosures that are dragging down home prices, high unemployment and tight credit. Sales fell off a cliff after the home-buyer tax credit expired. And “foreclosure-gate” -- legal squabbling about the process used to repossess many homes -- postponed the sale of many foreclosed properties and struck yet another body blow to confidence in the housing market.
For the four years beginning with the downturn in mid 2006, the median price of an existing home nationwide fell by 27%, or 7.7% annualized, according to Fiserv Case- Shiller, a home-price research firm. (At the worst of the decline, a year ago, prices had fallen 30%.) The median home now sells for $177,000, a bit more than what it would have fetched in 2003.
Among the cities that Fiserv tracks, Merced, Cal., fared worst, with a 68% plunge in its median home price in the four years since the peak, followed closely by Modesto, Salinas and Stockton, Cal.; Cape Coral-Fort Myers, Fla.; and Detroit. Prices rose in just 12 cities -- in upstate New York, Tennessee and Pennsylvania -- that missed the boom and plugged along at their usual slow pace of appreciation.
Stuck Underwater
The home-price plunge has left 23% of mortgage borrowers (out of 53.5 million) underwater -- that is, they owe more on their mortgage than the market value of their home. Unless they can ante up the difference -- an average of $75,000, according to CoreLogic, which analyzes mortgage data -- they can’t sell and they can’t move. Their choices? Stick it out, ask the lender for permission to sell for less than they owe (a short sale), or default.
In Norwood, Mass., south of Boston, Al and Shannon Becker wish they could buy a bigger home, but they’re underwater by about $50,000. But the couple have a plan. They bought their 1910 farmhouse, with three bedrooms and two baths, for $389,000 in 2005. By 2006, the property appraised for $423,000 and the couple refinanced, taking cash out for home improvements. Now it’s worth $350,000. Still, they can afford to move -- and could come up with the cash to pay off the mortgage. Instead, they are paying an extra $500 a month on the second mortgage they took out when they purchased the house and anticipate the day when debt pay-down and home-price growth will converge. Walk away? No. “That would be un-American, and my parents would kill me,” says Al.
The price gains that would put the Beckers and the millions of homeowners like them in the black have been tantalizingly out of reach, though glimmers of hope exist. Median home prices rose by 3.6% during the year ended June 30. Many California cities saw double-digit increases. Prices rose by at least 5% in many cities in California’s beleaguered Central Valley and Inland Empire (such as Riverside-San Bernardino), a few cities in Florida, and in Phoenix, Washington, D.C., and Minneapolis-St. Paul.
David Stiff, chief economist at Fiserv Case-Shiller, says those price increases, artificially propelled by the home-buyer tax credit, weren’t sustainable. The tax credit expired on April 30. By June, sales had begun to slide, and in July they tanked. In late summer, sales of existing homes (including single-family houses, townhouses, condos and co-ops) began to climb again, but in the National Association of Realtors’ most recent report, they were still 19% below a year ago. The lower the price tier, the greater the decline in sales, which reflected the pullback of first-time home buyers.
Although this recovery may seem unendurably long, Stiff says that five to seven years is historically a “pretty standard time frame” for prices to stabilize after a large correction. But in the past, some regions suffered longer than others. For example, Dallas home prices took 12 years to recover after they fell from their peak in mid 1986. This time around, however, the downturn hit more areas because the mortgage-credit bubble was so widespread.
The Foreclosure Factor
Now, short sales and foreclosures are the driving force behind continued price declines. Throughout 2010, they accounted for about one-third of home sales, with an average price discount of 26%, according to RealtyTrac. Everyone agrees that more such sales are on the way, but estimates vary.
Moody’s Analytics chief economist Mark Zandi says the foreclosure pipeline holds about four million loans that are delinquent by 90 days or more -- or headed that way -- and he thinks half of those will end up for sale. He thinks that delinquency rates have peaked and that foreclosures will peak in 2011. He reckons that, given current supply and demand, it will take two years to work through the excess inventory (which is concentrated in Florida, the Atlanta area, Arizona, Nevada, California’s Central Valley, the Rust Belt and a few other spots in the Midwest). The longer it takes to put to rest the foreclosure-processing issue raised in October, the greater the backlog of properties -- and the more they will suppress prices when they hit the market. But Zandi says foreclosure-gate will be resolved within a few months, not a few quarters. Even so, foreclosure moratoriums have ensnared plenty of bargain hunters, including Kerry Deland of St. Cloud, Fla. Deland moved to St. Cloud, near Orlando, in 2005. A kindergarten teacher, Deland quickly figured out that she couldn’t afford to buy a home -- especially one with enough land for her horse -- on her salary.
A friend tipped her off to a property that appeared destined for foreclosure -- a 5-acre spread with a three-bedroom, two-bath house that would have sold for $300,000 in 2005. Deland watched and waited. In July, the foreclosing lender listed the property for $114,000. Deland made two offers. The first time she lost out to a higher bidder, whose deal fell through. In late August, she made a winning bid of $111,900. Closing was scheduled for early November, but in October Deland learned that the seller, Fannie Mae, had imposed a foreclosure moratorium. Fortunately, it offered to extend Deland’s contract until December 5. “I’ve waited this long,” she says. “I can wait some more.”
A Glass Half-Full
The worst-case scenario for home prices? Slow economic growth and high unemployment drive up the foreclosure numbers, which push down home prices. Consumers refrain from spending, further dampening economic growth and job creation. Demand for homes decreases because would-be buyers either don’t have a job or don’t have confidence that they’ll still have one in months to come. Confident buyers hold off because they expect further price declines.
But Zandi thinks the job market will begin to turn around by mid to late 2011. And the Federal Reserve will ensure that mortgages stay dirt-cheap at least until employment picks up again. Zandi says that the best reason for a bit of optimism is this: With few exceptions, the market is fairly valued based on the relationship of home prices to income and apartment rents. Some markets have actually become undervalued, which will attract more buyers and investors.
Bank of America Merrill Lynch economist Michelle Meyer says that to frame the housing outlook in a more optimistic light, “everything has to go as planned.”To buoy consumer confidence and put home sales on a strong, upward trajectory, job growth will have to be considerable and the unemployment rate clearly receding. Meyer agrees that we could see that begin to occur in the second half of 2011, but, she says, “it will be a slow process.” Fiserv expects the housing market to finally hit bottom in mid 2011, with another 7% decline in the U.S. median home price for the year ending June 30, 2011. The firm’s forecasting model says that prices are 90% of the way back to being in line with household incomes. Stiff says that the housing market is now “bouncing along the bottom,” with buyers and sellers creating price volatility as they try to match bid and ask prices. The firm predicts that in many cities, prices will begin to tick upward again in 2012.
Wednesday, November 17, 2010
5 Reasons You Should Use a Real Estate Professional
Should you spend the money on a real estate commission or save that money by selling your home by yourself? That is a question many home sellers ask themselves. Today, we want to discuss why it is crucial to have a true professional guiding you through the minefield of challenges that exist in the current real estate market.
The housing market today is more challenging than it has ever been and seems to be becoming more difficult each day. What impact will foreclosures have on prices? Which loan products that were available just last month are no longer available? How do you convince perspective purchasers to pull the trigger on an offer when everyone is telling them that they should see another 100 houses before they make a decision? These are tough questions for a trained, experienced professional. The lay person would find it almost impossible to keep abreast of this rapidly evolving industry.
Here are five important reasons to use a real estate professional:
1. Pricing Is Difficult
Just a few years ago, you didn’t have to worry about overpricing your home. If it was too high, all you needed to do was wait as historic appreciation was taking place. The situation is quite different today. With experts calling for another drop in home values, overpricing your property will cost you time. In this market, time costs you money. A professional real estate agent will discuss how increasing inventory could dramatically impact the value of your property in the months to come. They will help you set the right price in today’s market.
2. Negotiating Ability Is Crucial
Buyers today have an almost unlimited supply of homes from which to choose. They realize that puts them in a great negotiating position. Most buyers are now being represented by an agent. Sellers need to also be represented by a professional expert trained to negotiate real estate contracts.
3. Mortgaging Is Key to the Deal
The biggest impact of the housing market collapse is that lending standards are much stricter today than they were a few short years ago. Rules are constantly changing. Even FHA has gone through a guidelines overhaul in the last several months. You need a real estate expert who has teamed up with a knowledgeable mortgage professional to make sure that the buyer in the deal is in fact capable of obtaining a mortgage. Losing time with an unqualified buyer costs you money in a market where prices are falling.
4. Your Family’s Safety
We have always found it puzzling that the same person that will lock every door and window and set the alarm today will then allow total strangers into their house tomorrow. The real estate industry trains its practitioners to take steps to protect themselves and their clients. Take advantage of putting a person between you and the person calling on an ad or yard sign.
5. You Probably Have More Important Things to Do
Selling a home could turn into a full time job. Learning the necessary disclosures, coordinating the dates of your closings, dealing with a challenge regarding your appraisal and re-negotiating the offer after an engineer’s report are just a few of the concerns you may face. You would probably be better off spending that time with the items important to you and your family and leaving the challenges to your agent.
Bottom Line
To make sure the sale of your home is handled professionally – hire a trained professional. In the long run, you will wind-up with more money in your pocket and have fewer challenges with the move.
The housing market today is more challenging than it has ever been and seems to be becoming more difficult each day. What impact will foreclosures have on prices? Which loan products that were available just last month are no longer available? How do you convince perspective purchasers to pull the trigger on an offer when everyone is telling them that they should see another 100 houses before they make a decision? These are tough questions for a trained, experienced professional. The lay person would find it almost impossible to keep abreast of this rapidly evolving industry.
Here are five important reasons to use a real estate professional:
1. Pricing Is Difficult
Just a few years ago, you didn’t have to worry about overpricing your home. If it was too high, all you needed to do was wait as historic appreciation was taking place. The situation is quite different today. With experts calling for another drop in home values, overpricing your property will cost you time. In this market, time costs you money. A professional real estate agent will discuss how increasing inventory could dramatically impact the value of your property in the months to come. They will help you set the right price in today’s market.
2. Negotiating Ability Is Crucial
Buyers today have an almost unlimited supply of homes from which to choose. They realize that puts them in a great negotiating position. Most buyers are now being represented by an agent. Sellers need to also be represented by a professional expert trained to negotiate real estate contracts.
3. Mortgaging Is Key to the Deal
The biggest impact of the housing market collapse is that lending standards are much stricter today than they were a few short years ago. Rules are constantly changing. Even FHA has gone through a guidelines overhaul in the last several months. You need a real estate expert who has teamed up with a knowledgeable mortgage professional to make sure that the buyer in the deal is in fact capable of obtaining a mortgage. Losing time with an unqualified buyer costs you money in a market where prices are falling.
4. Your Family’s Safety
We have always found it puzzling that the same person that will lock every door and window and set the alarm today will then allow total strangers into their house tomorrow. The real estate industry trains its practitioners to take steps to protect themselves and their clients. Take advantage of putting a person between you and the person calling on an ad or yard sign.
5. You Probably Have More Important Things to Do
Selling a home could turn into a full time job. Learning the necessary disclosures, coordinating the dates of your closings, dealing with a challenge regarding your appraisal and re-negotiating the offer after an engineer’s report are just a few of the concerns you may face. You would probably be better off spending that time with the items important to you and your family and leaving the challenges to your agent.
Bottom Line
To make sure the sale of your home is handled professionally – hire a trained professional. In the long run, you will wind-up with more money in your pocket and have fewer challenges with the move.
Saturday, November 13, 2010
Should You Buy or Rent?
Renting may be smarter if home prices in your area will fall further.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, April 2010
If you're a renter, you may be champing at the bit to buy a house after watching prices fall for four years. Is it time to jump? It may well be, especially if you want to capture the home buyer's tax credit (you'll need to have a contract by April 30 and close by June 30). But before you leap, you need to go beyond calculating the impact on your monthly budget and figure out how much home-price froth is left in your local housing market.
Encouraging signs. A key number to consider when switching from renter to homeowner is the price-rent ratio. This figure compares a city's median home price with its median annual rent. At the housing market's peak in 2005, the national median home price had inflated to nearly 21 times the median annual rent. By the third quarter of 2009, however, the ratio had deflated to 15, returning to the historical norm, according to Hessam Nadji, managing director of Marcus & Millichap, a commercial real estate brokerage company in Encino, Cal.
If the price-rent ratio where you're looking to buy is 18 or higher, your market may still be in the bubble zone, with a greater probability that home prices will fall after you buy. That could put you underwater -- meaning your home would be worth less than what you owe on the mortgage. If the ratio has fallen below 15, there's less chance that home prices will sink.
The table on Rent or Buy below shows the ten cities in which home prices are least likely to drop further, as well as those most likely to fall further, based on price-rent ratios. We also show the gap between median monthly apartment rents and median monthly mortgage payments. Five years ago, the difference between monthly mortgage payments and rent was $745 nationally; by the end of 2009, it was just $181.
To get a rough estimate of your local price-rent ratio, divide the average list price of several homes that meet your criteria by the average annual rent of several rental units with the same number of bedrooms and comparable amenities.
Weighing the decision. A year ago, the price-rent ratio in Phoenix was 14 -- down from almost 19 a year earlier. Home prices had fallen by half, and mortgage rates were at historic lows. Financial planner Brendan McNamar decided it was finally time for him to buy. He had rented since moving to the city in 2006, just after the housing bubble peaked, and was sitting on a nice nest egg from a home he had sold in 2004.
McNamar shopped for a long time, made offers on several houses and eventually bought a ten-year-old, four-bedroom, three-bathroom short sale listed for $219,000. (In a short sale, the sellers get permission from the lender to sell for less than the mortgage amount.) The house had sold for $355,000 in 2007. McNamar offered the full price, which the bank eventually accepted after 90 days. He put down 20% and took out a 30-year mortgage with a low fixed rate of 5.25%. He pays $1,176 a month (including taxes and insurance), which is more than twice his former monthly rent of $550. But because he hadn't owned a home in the past three years, he was able to snag the $8,000 first-time home buyer's tax credit.
From an investment perspective, McNamar wanted a house that would allow him to break even or earn a profit if he sold in three years. But given that prices have fallen even further in Phoenix since last spring -- the price-rent ratio is a rough guide, not an infallible one -- he reckons that his break-even point now may be four years away. But it's not a big financial setback to him because he has no plans to move.
Good deals for renters. Renting can be a smart strategy while waiting for this choppy housing market to settle down. Consider Jeremy Portnoff and his wife, Heather, of Edison, N.J. By mid 2009, the median home price in Edison had fallen a healthy 19%, to $317,000, from the market's peak in mid 2006.
The Portnoffs had their heart set on a home with three or four bedrooms to accommodate the family they hope to have, plus an office for Jeremy. The house they could afford was a starter home, probably a small townhouse -- which, on an after-tax basis, they figured would cost them about the same as renting.
But the Portnoffs also figured that if they sold it in three years, real estate commissions would consume any gains they could reasonably expect. Plus, Jeremy believed that the price of their ideal home in that area would continue to decline.
So they took a pass on buying and got a great deal on renting a two-bedroom townhome -- $1,550 a month, $300 less than when they looked at the same development three years before. The couple prudently plan to continue to pay down debt and save for a larger down payment on their next home.
In some markets, rental prices have dropped as supply has increased. By the end of 2009, the vacancy rate nationally had grown to 8.2%, a 30-year high, according to Nadji, of Marcus & Millichap. Meanwhile, rents had fallen 5.8% from the year before.
Markets with the highest vacancy rates include Jacksonville, Fla. (forecast at 14% in 2010), Atlanta, Houston, Las Vegas, Orlando, Phoenix, Tampa and Tucson. Renters in such markets can afford to shop around and negotiate hard. A building's leasing manager may be willing to lower the rent to attract or keep your business.
Nadji expects the vacancy rate nationally to tighten up a bit (to 7.8%) by year-end and start a rapid recovery beginning in 2011, with very strong rent growth between 2011 and 2015. Demographics (five million people will enter the peak renter age range of 20 to 34 over the next decade) and plummeting construction starts in 2009 and 2010 drive his forecast.
Not all cities have an excess of rental units, though. In some large cities, such as New York, downtown Chicago, San Francisco, Los Angeles and Washington, D.C., vacancy rates have remained tight -- and home prices have remained stubbornly high.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, April 2010
If you're a renter, you may be champing at the bit to buy a house after watching prices fall for four years. Is it time to jump? It may well be, especially if you want to capture the home buyer's tax credit (you'll need to have a contract by April 30 and close by June 30). But before you leap, you need to go beyond calculating the impact on your monthly budget and figure out how much home-price froth is left in your local housing market.
Encouraging signs. A key number to consider when switching from renter to homeowner is the price-rent ratio. This figure compares a city's median home price with its median annual rent. At the housing market's peak in 2005, the national median home price had inflated to nearly 21 times the median annual rent. By the third quarter of 2009, however, the ratio had deflated to 15, returning to the historical norm, according to Hessam Nadji, managing director of Marcus & Millichap, a commercial real estate brokerage company in Encino, Cal.
If the price-rent ratio where you're looking to buy is 18 or higher, your market may still be in the bubble zone, with a greater probability that home prices will fall after you buy. That could put you underwater -- meaning your home would be worth less than what you owe on the mortgage. If the ratio has fallen below 15, there's less chance that home prices will sink.
The table on Rent or Buy below shows the ten cities in which home prices are least likely to drop further, as well as those most likely to fall further, based on price-rent ratios. We also show the gap between median monthly apartment rents and median monthly mortgage payments. Five years ago, the difference between monthly mortgage payments and rent was $745 nationally; by the end of 2009, it was just $181.
To get a rough estimate of your local price-rent ratio, divide the average list price of several homes that meet your criteria by the average annual rent of several rental units with the same number of bedrooms and comparable amenities.
Weighing the decision. A year ago, the price-rent ratio in Phoenix was 14 -- down from almost 19 a year earlier. Home prices had fallen by half, and mortgage rates were at historic lows. Financial planner Brendan McNamar decided it was finally time for him to buy. He had rented since moving to the city in 2006, just after the housing bubble peaked, and was sitting on a nice nest egg from a home he had sold in 2004.
McNamar shopped for a long time, made offers on several houses and eventually bought a ten-year-old, four-bedroom, three-bathroom short sale listed for $219,000. (In a short sale, the sellers get permission from the lender to sell for less than the mortgage amount.) The house had sold for $355,000 in 2007. McNamar offered the full price, which the bank eventually accepted after 90 days. He put down 20% and took out a 30-year mortgage with a low fixed rate of 5.25%. He pays $1,176 a month (including taxes and insurance), which is more than twice his former monthly rent of $550. But because he hadn't owned a home in the past three years, he was able to snag the $8,000 first-time home buyer's tax credit.
From an investment perspective, McNamar wanted a house that would allow him to break even or earn a profit if he sold in three years. But given that prices have fallen even further in Phoenix since last spring -- the price-rent ratio is a rough guide, not an infallible one -- he reckons that his break-even point now may be four years away. But it's not a big financial setback to him because he has no plans to move.
Good deals for renters. Renting can be a smart strategy while waiting for this choppy housing market to settle down. Consider Jeremy Portnoff and his wife, Heather, of Edison, N.J. By mid 2009, the median home price in Edison had fallen a healthy 19%, to $317,000, from the market's peak in mid 2006.
The Portnoffs had their heart set on a home with three or four bedrooms to accommodate the family they hope to have, plus an office for Jeremy. The house they could afford was a starter home, probably a small townhouse -- which, on an after-tax basis, they figured would cost them about the same as renting.
But the Portnoffs also figured that if they sold it in three years, real estate commissions would consume any gains they could reasonably expect. Plus, Jeremy believed that the price of their ideal home in that area would continue to decline.
So they took a pass on buying and got a great deal on renting a two-bedroom townhome -- $1,550 a month, $300 less than when they looked at the same development three years before. The couple prudently plan to continue to pay down debt and save for a larger down payment on their next home.
In some markets, rental prices have dropped as supply has increased. By the end of 2009, the vacancy rate nationally had grown to 8.2%, a 30-year high, according to Nadji, of Marcus & Millichap. Meanwhile, rents had fallen 5.8% from the year before.
Markets with the highest vacancy rates include Jacksonville, Fla. (forecast at 14% in 2010), Atlanta, Houston, Las Vegas, Orlando, Phoenix, Tampa and Tucson. Renters in such markets can afford to shop around and negotiate hard. A building's leasing manager may be willing to lower the rent to attract or keep your business.
Nadji expects the vacancy rate nationally to tighten up a bit (to 7.8%) by year-end and start a rapid recovery beginning in 2011, with very strong rent growth between 2011 and 2015. Demographics (five million people will enter the peak renter age range of 20 to 34 over the next decade) and plummeting construction starts in 2009 and 2010 drive his forecast.
Not all cities have an excess of rental units, though. In some large cities, such as New York, downtown Chicago, San Francisco, Los Angeles and Washington, D.C., vacancy rates have remained tight -- and home prices have remained stubbornly high.
Sunday, March 14, 2010
A New Window of Opportunity
The lure of contemporary floor plans, custom finishes and upscale amenities drew Chicagoans to new construction in record numbers in the early 2000s. Now, as the market stabilizes, new construction has become attractive once again. In fact, today might be the best opportunity to invest in a new home for years to come. Here's why:
Below Replacement Cost - While land has gotten significantly less expensive, labor and material costs have not come down proportionately. That means many developers simply cannot build the homes they are selling today for the prices at which they're being offered.
See Before You Buy - Traditionally, one of the biggest obstacles to purchasing new construction was buying from a floor plan. However, almost all new homes on the market today are completed. That means buyers can see room sizes, touch finishes and experience views before making a decision – a luxury that wasn't available at the height of the market.
Locked and Low - Another obstacle that has been removed is interest-rate uncertainty. Buying new construction used to mean rolling the dice on where rates would be when your home was finished six to 18 months after you signed a contract. With today's move-in-ready inventory, buyers are virtually assured the lowest rates in history.
Tax Credit - The Federal Homebuyer Tax Credit (up to $8,000 for first-time buyers and up to $6,500 for move-up buyers) is available for new-home purchases as well as re-sales. With the April 30 contract deadline approaching, builder inventory gives new-construction buyers some added flexibility.
Cycling Out - Believe it or not, if you like the idea of owning a brand new condominium in downtown Chicago, the window of opportunity is closing. While 3,400 new condos were delivered downtown in 2009, only 1,200 will be finished this year. In 2011, less than 300 new condos are slated for delivery, and no new condominium deliveries are scheduled for 2012 or beyond.*
Buying or selling, new or existing, I'm here to help with all of your real estate needs. Contact me anytime, and please remember that I always appreciate your referrals.
*Source: Appraisal Research Counselors Downtown Benchmark Report
Below Replacement Cost - While land has gotten significantly less expensive, labor and material costs have not come down proportionately. That means many developers simply cannot build the homes they are selling today for the prices at which they're being offered.
See Before You Buy - Traditionally, one of the biggest obstacles to purchasing new construction was buying from a floor plan. However, almost all new homes on the market today are completed. That means buyers can see room sizes, touch finishes and experience views before making a decision – a luxury that wasn't available at the height of the market.
Locked and Low - Another obstacle that has been removed is interest-rate uncertainty. Buying new construction used to mean rolling the dice on where rates would be when your home was finished six to 18 months after you signed a contract. With today's move-in-ready inventory, buyers are virtually assured the lowest rates in history.
Tax Credit - The Federal Homebuyer Tax Credit (up to $8,000 for first-time buyers and up to $6,500 for move-up buyers) is available for new-home purchases as well as re-sales. With the April 30 contract deadline approaching, builder inventory gives new-construction buyers some added flexibility.
Cycling Out - Believe it or not, if you like the idea of owning a brand new condominium in downtown Chicago, the window of opportunity is closing. While 3,400 new condos were delivered downtown in 2009, only 1,200 will be finished this year. In 2011, less than 300 new condos are slated for delivery, and no new condominium deliveries are scheduled for 2012 or beyond.*
Buying or selling, new or existing, I'm here to help with all of your real estate needs. Contact me anytime, and please remember that I always appreciate your referrals.
*Source: Appraisal Research Counselors Downtown Benchmark Report
Wednesday, January 20, 2010
@properties Is #1
@properties Is #1
2009 was a challenging year for businesses across the globe. Some companies took it sitting down. Not @properties. We invested in new marketing and technology, opened new offices, and expanded programs to serve you better. The result: Our independent locally-owned company is stronger today than ever before. In fact, @properties far and away leads the Chicago market in more key categories than any other real estate company. And that means more resources, better service and ultimately better results for you.
@properties is clearly #1.
2009 Market Performance #1 in Market Share (City): 12.4%
#3 in Market Share (Northern Illinois Region): 4.4%
#1 Increase in Market Share (City): 28.0%
#1 Increase in Market Share (Northern Illinois Region): 18.8%
#2 Increase in Market Share (North Shore): 68.6%
#1 New Construction Market Share (City): 16.5%
#1 Buyer's Representative (City): 12.0%
#1 Seller's Representative (City): 12.9%
#1 Average Market Time (Northern Illinois Region): 147 Days
#1 Selling Price to Original Listing Price (Northern Illinois Region): 93.8%
For more information on @properties' services or your local market area, please contact me. I'm here to help.
Source: MRED, LLC, 1/1/09-12/31/09. Based on top 10 companies per category. Market share figures are based on sales volume.
2009 was a challenging year for businesses across the globe. Some companies took it sitting down. Not @properties. We invested in new marketing and technology, opened new offices, and expanded programs to serve you better. The result: Our independent locally-owned company is stronger today than ever before. In fact, @properties far and away leads the Chicago market in more key categories than any other real estate company. And that means more resources, better service and ultimately better results for you.
@properties is clearly #1.
2009 Market Performance #1 in Market Share (City): 12.4%
#3 in Market Share (Northern Illinois Region): 4.4%
#1 Increase in Market Share (City): 28.0%
#1 Increase in Market Share (Northern Illinois Region): 18.8%
#2 Increase in Market Share (North Shore): 68.6%
#1 New Construction Market Share (City): 16.5%
#1 Buyer's Representative (City): 12.0%
#1 Seller's Representative (City): 12.9%
#1 Average Market Time (Northern Illinois Region): 147 Days
#1 Selling Price to Original Listing Price (Northern Illinois Region): 93.8%
For more information on @properties' services or your local market area, please contact me. I'm here to help.
Source: MRED, LLC, 1/1/09-12/31/09. Based on top 10 companies per category. Market share figures are based on sales volume.
Friday, October 30, 2009
About @properties
We can tell you that we became the #1 real estate brokerage in Chicago in only eight years, because we did. We can tell you that @properties has invested millions to ensure that we stay on the leading edge of technology and marketing, because we have. We can also tell you that our agents are held to a higher standard of service, professionalism, and performance than any other brokerage in the business, because they are.
We can tell you all of that.
But what matters most is that you experience it. In short, we make it our goal to provide you with expert, caring, and candid advice throughout one of the most important transactions you will ever make. That is our commitment to you. It is a commitment we deliver on every transaction we make, one that supports our continued success. Your complete satisfaction is our priority, one that we are continually dedicated to.
For us, it is simple; we just won’t accept anything less.
For more information about @properties, please visit http://www.atproperties.com/about-us
or call Dave Straub 773.255.3180
We can tell you all of that.
But what matters most is that you experience it. In short, we make it our goal to provide you with expert, caring, and candid advice throughout one of the most important transactions you will ever make. That is our commitment to you. It is a commitment we deliver on every transaction we make, one that supports our continued success. Your complete satisfaction is our priority, one that we are continually dedicated to.
For us, it is simple; we just won’t accept anything less.
For more information about @properties, please visit http://www.atproperties.com/about-us
or call Dave Straub 773.255.3180
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