On Friday, President Obama signed into law an extension and expansion of the home buyer tax credit.

A tax credit of $8,000 currently exists for first-time homebuyers who will close on a home by November 30, 2009. This credit was set to expire on December 1, but because of a continued weak economy and the efforts of  Realtors, it will now remain in effect through the end of June 2010.  To qualify, buyers must sign a contract before April 30, 2010 and close on the property by June 30, 2010. This opens up several new possibilities for buyers and sellers for the upcoming winter and spring seasons.  It continues to be a buyer’s market even though the housing market has improved significantly since October 2008.

Additionally and perhaps of even greater consequence, the signed law offers a new $6,500 tax credit for current homeowners looking to buy up. This new credit is intended to reach those who have patiently waited for the right time to buy. Those who have used their home as their primary residence for five consecutive years our of the last eight can claim the credit.  They must also close by the end of June, 2010.  Coupled with the extension of the first-time home buyers’ credit, this additional provision should boost the real estate market in ways beneficial to buyers, sellers, and the real estate industry.

Congress substantially increased the income limits on the tax breaks as well. Individuals earning less than $125,000 will now be eligible (currently $75,000), and married couples with income less than $225,000 who file jointly are eligible (up from $150,000). One item to note, the tax credit can only be used to purchase homes that cost less than $800,000. Here’s a video to explain the details.

The National Association of Realtors (NAR) also breaks down the new law in a concise and simple way.

If you have already purchased a home and intend to use the tax credit, don’t forget to file. Visit www.irs.gov to find the necessary forms to receive the tax credit.

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6 November 2009 ?As home buyers, sellers, Realtors® and affiliated professions await the signing of the expanded Home Buyer Tax Credit by the President, buyer options continue to narrow. According to the regional MLS, MRED LLC, there are 26% fewer homes under $800,000 on the market today than in October of 2007. While single family homes sales in Chicago have increased by 46% in this two year time frame, condo sales have seen a 15% decline over the same period. The added benefits of the housing credit include an increase in income limits and purchase prices as well as a $6,500 tax credit for current homeowners who are in the market to buy.  To receive the credit, those homeowners must have lived in their current homes for five of the last eight years.

I frequently get asked to explain the difference between a short sale and a foreclosure / Real Estate Owned (REO) property. Buyers in today?s market who are cash heavy and have a flexible time frame may be in the best position to purchase one of these foreclosed properties.

A Quick Comparison: Short Sales

A short sale means that a property owner who wishes to sell owes more money on their loan than the actual market value of their property. Some characterize this seller as “distressed” but the lender and/or bank has not started the foreclosure process or taken title from the owner. Therefore, in a short sale situation:

· The homeowner still owns the property

· The owner usually occupies the home (or has tenants)

· The property will be sold “as is,” meaning there will be no property disclosures, surveys, repairs or credits for any inspection items.

· The buyer enters into a contract to purchase with the homeowner, but needs lender approval to forgive the difference between the sale price and the balance on the mortgage.

· The bank will often wait on signing off on the agreement until they receive more than one offer.

· The time frame from contract to close is generally between 3 -6 months.

Foreclosed Properties

A Foreclosed / REO property is owned by the lender, usually a bank. The lender usually hires a company to oversee the management and sale of the property.

· The bank owns the property.

· The home is usually vacant, and unfortunately, may be missing appliances, is damaged, or in need of repair.

· Utilities are generally disconnected which can make previewing the home in the evening or in cold weather difficult.

· Property usually sold “as is.” The bank does not provide any property disclosures or guarantees any information.

· Buyer enters into a contract with the bank/lender.

· Cash offers generally win out, even when other offers are more. The banks generally don?t want to risk selling to a buyer who may be unable to secure financing.

· Response time from a bank can be as quick as 30 days or as long as six months. It can vary drastically depending on which bank it is.

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23 October 2009 ?For buyers who want to take advantage of the First Time Home Buyer Credit that expires November 30th, 2009, this weekend is probably your last chance to get under contract to meet the deadline. The National Association of Realtors® has been lobbying on behalf of their members to extend and expand the tax credit program. Overall, the program had a positive effect on the housing market including those related to trades and professions associated with housing transactions. Some are directly involved in the transaction such as the Realtor®, lender, title company, appraiser, inspector and attorney. Others are at arm?s length like, the handyman, plumber, contractor and home stores that get the benefit of what the new buyer needs to buy for their new home. Unfortunately there are always a few who try and get what they are not entitled to leading to Congress to look at questionable claims.

Blame it on Distressed Properties: September?s Housing Numbers

This morning the Illinois Association of Realtors reported that in September 2009 the number of residential sales were up 3.3 % but that the median sales price fell to $160,000 statewide, a 9.3% decrease compared to September 2008. Following this trend, units sold in the City of Chicago were up 5.8% – 1,918 sales this year compared to 1,813 homes sold in September 2008. Chicago?s median home price this September was $225,000, down 16.2 percent compared to $268,600 in September 2008. Outside of Chicago, in those areas that include the rest of Cook County as well as DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will county, the average sales price was only $199,00.

Why the Increase in the Number of Sales but the Decrease in Pricing?

For the traditional homebuyer, pricing is back to 2004 levels. Short sales and foreclosures have impacted property values for sellers but they have also given buyers the opportunity for finding a good value for a home. The first time home buyer tax credit has been an incentive for some and steady interest rates that have hovered around 5% for the past year have also helped. As savings rates have increased over this past year, home buyers have repositioned themselves to meet new lending guidelines. It is not unusual to now see buyers putting 20% down.

What the Next Months Will Bring

Market watchers believe the next few months will be a mixed bag for buyers and sellers. If unemployment does not abate, distressed properties will continue to impact market pricing for months and even years in the future. Bank inventories of REO properties continue to grow. On top of this, the median sale price may only rise if financing larger projects and homes become increasingly available. For example, Chicago?s $500,000 – $1,000,000 market is crippled by having a conforming loan number of $417,000 – much lower than those numbers found in other areas of the country. Qualified buyers are expected to enter the market at higher rats because of relocation and also because they have financially readied themselves to move forward with a home purchase. On the flip side, many homeowners are opting to stay in their current home for longer periods of time, often to see if the market rebounds. Just as buyers need to be qualified to buy, sellers need to be qualified and willing to sell.

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Representing both buyers and sellers I have learned the impact of price changes in this particular market. It is home-buying process is not only about the value of the property, but also the buyer’s perception that the seller really wants to sell.

Sellers Must Acknowledge Price Pressures

The underground walkway between Concourse C & B at O'Hare Airport

Sellers need to remember, particularly right now, they need to do everything to capture that buyer. I recently had potential buyers on a listing of mine. The buyer’s agent let me know it was between my listing and another very similar home in the neighborhood. During the time these purchasers where making their mind up, the other property lowered their price, not much, but still a reduction. My seller’s would not. Their response was bring us an offer. I diligently tried to convince the other agent to get something on paper and we would work with it. The buyers opted to go forward on the other listing. That price change said to them those sellers really wanted to sell.

It Is All About the Price Change

Showings of listings are currently more sporadic then ever. A seller cannot wait to see if a buyer who came through is going to put in an offer or anticipate that the next buyer will put in an offer. Make the necessary adjustments now. We are seeing some buyers come back months later. If there is still no adjustment they will probably move on again. Don’t you want to sell before then?

According to Trulia, more than a quarter of the homes on the market have reduced their prices for the fourth consecutive month in a row. Chicago ranked number 16 with 30% of the homes on the market taking an average of 9% price decrease.

Buyers Looking for Signs of Serious Sellers

Working with several home buyers right now, I see great differences compared with buyers in the past. They are not anxiously waiting for what is new on the market?they are looking for the reduction. They are not just watching for prices to fall but looking for the sign that the seller is serious in this market.

Small changes can generate an offer and get the negotiations started. We are starting to see multiple offer situations with larger changes. If a property has been sitting on the market for a while with no changes, the buyers think the seller is not serious and will be difficult in the negotiations.

Home buyers who have been out there looking are really only interested in a new listing if it is priced at?but usually less than?the comparable properties they have been looking at. Sellers can longer test the market with a “try me” price.

Marketing the Property

It is price that gets the offer but is marketing that gets the buyers in. The first showing is now the photos online accompanied by the virtual tour and its presentation on all the dozens of common real estate websites. Sellers need to make sure their listing is properly marketed and priced by today’s definition or you will not get the second showing.

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Upon a mixed bag of numbers released last week by the National Association of Realtors, Standard & Poor?s Case-Shiller Housing Numbers released this morning show continued movement upwards making July the sixth month in a row with slight gain. ?The rate of annual decline in home price values continues to decelerate and we now seem to be witnessing some sustained monthly increases across many of the markets? says David M. Blitzer, Chairman of the Index Committee at Standard & Poor?s.

Locally, Chicago had a 2.7% increase from June to July. The year-over-year numbers show a decrease of 14.2%.

What Do All These Numbers Mean?

Chicago's Skyline from the West Loop

Everyone is looking at the historical data to predict the future. As Realtors®, that is what are clients are looking to us for. Should they list? Should they buy? Should they wait? In the big picture, there are so many variables that are effecting the housing market including unemployment, the first-time-buyer tax credit, and the lending industry. The ?should?? for the buyers and sellers depends on their individual situations.

For sellers it comes down to, can you afford to sell or do you have to sell? If you want to sell, do you have the equity in your property to sell at today?s market value or can you write the check for the difference if need be? If not, it is probably not the time to list. If you must sell for whatever reason, we have to ask the same questions but if you don?t have the equity in your home or cannot write the check, then it is time to explore the short sale option and make sure the seller clearly understands what it involves.

For home buyers there are great opportunities, but they have to be the right opportunity. Buyers must also be better financially qualified than in the recent past, as well look at the long term value as there will probably not be a short term gain. For the true investor it is being about a bottom feeder with cash. Purchasers who are looking for a home should be looking for the best value for the space that will work for them. This is going to be defined by the specific neighborhood?s conditions. Some factors to take into account are inventory levels, past pricing performance, foreclosure and short sale rates, and most importantly the most recent comparables. How long do you plan to be in the home?

In the height of the frenzy of the real estate market not so many years ago, buyers would over look conditions they could not change about a property. For many years to come, price is going to be the only factor that will overcome that you cannot change. Remember, every buyer becomes a seller.

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The week after Labor Day traditionally marks the beginning of Chicago?s fall real estate. As this has been a period of non-traditional activity, I have thought carefully about what are my expectations. The strengths and weaknesses in the marketplace will depend on what type of property in what area at what price. There is no blanket citywide answer. The one constant about Chicago real estate is that it is local to the building, the block, and the neighborhood.

Buyers

The Jay Pritzker Pavilion

Overall there will be fewer home buyers out there than in years past but more than we have seen in the first months of this year. The majority of buyers have gotten themselves in a stronger position financially, coming into the transaction with larger down payments or just paying cash. Those who have the wherewithal to purchase are now actively engaging. These buyers have the opportunities to take advantage of short sales and well priced homes. If they are contracting to purchase a short sale they must have a clear understanding, no matter how financially qualified they are to buy, that the transaction is controlled by the sellers’ lenders.

The strength of the lower end/first time buyer will depend on how the government reacts to the rising default rates on Federal Housing Authority (FHA) loans as reported in the Wall Street Journal. If FHA is forced to tighten its guidelines it will impact a large number of new construction and conversion condominiums which have typically been entry level products. FHA loans became popular with the demise of subprime mortgages, enabling purchasers to get into homes with only 3.5% down payments.

Sellers

Regardless of market conditions it is still about the space. If the space works for the potential buyer then pricing becomes equally important. Over the last months home values have been leveling off. With that said, overall values are significantly lower than in years past. A home?s value is based on the last three sales in the last six months of comparable properties. Because of specific areas of high inventory levels, high rates of default, and foreclosure there are still pockets of the city that will continue to see devaluation.

What you paid for the home factors into your decision to list. Can you afford to sell it now for the current market value or do you have to sell? If you have to sell, will it result in a short sale? Most listings will not get many showings but each and every one is an opportunity.

REALTORS^®

There continue to be far fewer of us. It is down to 10% of real estate professionals doing 90% of the business. To get a transaction closed is a combination of the years of expertise, number of transactions, and the experience of working as a REALTOR^® in this perfect storm of the last eighteen months. These are the agents who have the skills to bring the offers, get them negotiated, and get a higher percentage of successful transactions in an environment where many contracts never get to the closing table.

The marketing of properties has changed as quickly as the real estate market itself. It is no longer about the Sunday paper, the glossy magazine ads, and entering listings into the MLS. It is all about Web 2.0 and social media. Knowing how to use the brand your brokerage offers, supplemented by the brand you have created for yourself as an agent to get your listings the greatest exposure. A professional agent must know where listings go and how to get them optimized. Saying, ?the listing will go into the MLS and will be on the Internet? is not providing a service.

With a decade of experience as an active REALTOR^® I am optimistic. It is about overcoming objections, finding solutions, and understanding how to market. It is also gaining knowledge from my transactions as well as from the expertise of my colleagues. It is about constantly educating myself to accomplish what I am hired to do: the sales and marketing of real estate.

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The first-time-buyer tax credit of $8,000 is scheduled to end effective December 1st, 2009, however the transaction must close by November 30th, 2009. This will impact both real estate agents and first time buyers. Realtors® and buyers may not realize the month of November is notoriously slow for underwriting as many companies are working at a very reduced staff due to vacation wrapped around the Thanksgiving holiday.

Chaos Likely on November 30th in Closings Around the Country

Are you going to be stuck in a long line on Nov. 30th, worrying if your close will happen?

It is also important to remember that Noverber 30th is a Monday, and right after the Thanksgiving holiday weekend. Like many businesses, banks and title companies often have reduced staff and early closing times. This will absolutely have an effect on the dates that agents should have their buyers go into contract. In fact, many people take the week of Thanksgiving off and this will have a major impact at the lenders. The volume is currently picking up on refinances, which will also have an effect on underwriting times.  For your clients that are in the first-time-buyer category, here are a few important dates and facts:

• November 25th (Wednesday) ? Most banks and title companies will be at a reduced staff and may also close early.
• November 26th (Thursday) ? Thanksgiving everything will be closed.
• November 27th (Friday) ? Many banks and title companies will have reduced staff, and may be closed.
• November 28th (Saturday) ? Most banks will be at a half day or closed.
• November 29th (Sunday) ? Everything will be closed.
• November 30th (Monday) ? Last day for first time buyers to close (can you imagine the chaos at title companies?)

Real Estate Agents Must Lead & Buyers Must Be Educated

Everyone involved in transactions should understand they should be under contract no later than October 15th (not November 15). Agents would be advised to show the timetable above so first-time buyers understand the issues. Agents should make  sure their clients are pre-approved, even if the property address is not determined as of yet; approved buyers can save up to ten business days. FHA loans typically take longer to complete, so keep that in mind if working with clients who are securing FHA loans. Encourage your clients to have their files submitted to underwriting to be approved for income, credit, and assets. The final step is the property, which can be sent in after the first portion of underwriting is complete.

The sooner your first-time buyer goes into contract, the less stress on everyone. I wrote this post as a direct result of my client who is a first-time buyer; she explained to me that she anticipated going under contract the first week of November and closing before the deadline. This got me to thinking, is that a good strategy for my client? After discussing the above she quickly realized securing a property by mid October would be the best scenario.

We would like to thank Daniel Rothamel for sharing today’s photo via the Creative Common’s License.

Grills and chairs waiting patiently outside their condos

This morning Standard & Poor?s Case-Shiller Home Price Indices numbers were released and the results are surprisingly better than expected. In the Chicago condo market, prices showed an increase of 1.1% from May 2009 to June 2009. Over recent months we have seen the leveling off of pricing. This current report shows signs the Chicago housing market is on an uptick. It will probably be gradual but will this increase get the buyers setting on the bench waiting for the bottom to fall out back engaged in the market?

Several factors are contributing to prices being on the upswing. Supply and demand?less inventory always drives up prices in any industry. Property owners are holding off on listing, a significant number of new developments are not getting built or are converting to rental units and there is an increase in pending sales. Although there are fewer buyers right now, they are better quality: they have higher down payments then in the past. They have been forced to because of the changes in lending guidelines.

Will the Signs that Home Prices are Starting to Go Up Get the Buyers to Buy?

Over the last few weeks, I have found that several of the buyers out there looking have reemerged. In communicating with other Realtors® they are experiencing the same. Buyers were looking six months to over a year ago. They are now in a position to move forward on their new home purchase. Some had to wait until their current home sold and it finally did. Others needed to save more money and clean up their credit. The rest where just waiting to see how low it will go. From today?s numbers I think it “went.”

We would like to thank Sharat Ganapati for kindly sharing today’s photo via the Creative Common’s license.