Apartment Investors Give Chicago a Much Needed Nod

We all know the Chicago rental market has been less than ideal. Prices have fallen and vacancy rates have risen. Couple that with staggering unemployment statistics, and a slew of other national (and local) financial problems and the result is a dreary, almost hopeless housing outlook for 2009.

But wait! Today in Crain?s, the ?biggest downtown real estate deal of the year? just so happens to be the 480-unit Cityfront Place at 400 N. McClurg Court. Miami-based luxury high-rise developers Crescent Heights (30 E. Huron, Park Place Tower and Regent?s Park) put Cityfront Place under contract for $83 million and the deal is supposed to close this month. According to the article, this acquisition is the first downtown apartment building to sell in over two years which is a good indicator that the rental market might rebound before any other division in the housing market.

Known at “Condo Converters”

Crescent Heights is known in Chicago primarily as condo converters. One could easily assume that the apartment building was bought for conversion, but Tomer Bitton, a Partner at Crescent Heights noted that ?The condo market is dead. The rental market is at the bottom and is beginning to improve.? It seems likely that Crescent Heights will keep the 39 story Cityfront Place as a rental building until the housing market and condo prices improve.

I see this as very positive news for the Chicago rental market. This kind of investment activity may seem counterintuitive given the current unemployment rate for Illinois stands at 10.5%. However, the Regional Economics Applications Laboratory at the University of Illinois predicts the state?s workforce will shrink by 4.15% to about 5.4 million jobs by September of 2010. Larger investors can take this information and speculate that they can see the bottom, which gives them a reasonable basis for projections and ?worse case scenarios? that they were unable to see before.

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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.

We would like to thank rutlo for sharing today?s photo via the Creative Commons License.

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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More Housing Numbers ? Different Data, Same Message

Being that it is the fourth Tuesday of the month, today is the day Standard and Poor releases its Shiller-Case housing numbers. They looked at month to month numbers versus the Realtor® Association who basis their findings on a year over year period. According to their statistics, this month?s Case-Shiller home price indices is reporting improved readings for seven months in a row. Essentially, this new report reflects similar data to last month?s figures.

What this means for the Chicago Real Estate Market

When Case Shiller talks about ?Chicago? they are using the Chicago Metropolitan Statistical Area or MSA which, defined by the U.S. Census Bureau, includes the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will. Keep in mind Chicago?s 77 neighborhoods are thrown in with Joliet and Rockdale Junction in terms of these statistics. With that being defined, they are reporting that Chicago saw an increase in home prices from July 2009 to August 2009 of 1.7%, but a 12.7% decline of year over year prices.

No matter who is pulling the data and how they chart it, the message is the same ? first time buyers and jobs. ?Broadly speaking, the rate of annual decline in home price values continues to improve? says David M. Blitzer, Chairman of the Index Committee at Standard & Poor?s. ?While many of the markets remain down versus this time last year, the relative rate of decline has shown some real improvement. We see this general trend whether you look at the as-reported data or the seasonally adjusted figures.” But Blitzer cautions that “We do want to remind people of the upcoming expiration of the Federal First-Time Buyer?s Tax Credit in November and anticipated higher unemployment rates through year-end. Both may have a dampening effect on home prices.”

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14 October 2009 ?Today’s bonds opened down 47bps and, after staging a rally, they were pushed back down. We are currently down 37bps and are testing resistance levels. As recommended in recent posts, locking was the bias since we reached a low point in mortgage rates on 10/2/2009. While rates are up slightly, these are still phenomenal mortgage rates and they remain near all time lows.

Also, there is strong sentiment that the home buyers tax credit will be extended. The credit may also be expanded to include a broader range of home buyers in the hopes of further stabilizing the real estate market. There are still many more foreclosures to come as unemployment continues to be a problem. The long term outlook for mortgage interest rates remains stable as the economy still is in a recovery mode.

Strong earnings from JP Morgan Chase and Intel have pushed stocks higher and the DOW has exceeded the 10,000 level for the first time in over a year. Although the Bull market mode has arrived, there is always room for a reversal lower as we may see the market take its gains and retreat.

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.

We would like to thank Andrés Larsen for kindly sharing today’s photo via the Creative Common’s License.

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.

We’d like to thank Seth Anderson for sharing today’s photo via the Creative Common’s License.

25 September 2009 ? With a mixed bag a housing numbers released yesterday, the Chicago condominium market appears to continue to face challenges while the single family market continues to gain momentum. There still continues to be a glut of condo inventory with increasingly difficult lending guidelines facing buyers. Lenders are scrutinizing the financial health of condominium associations and owner occupancy levels. Listings appear to be going under contract when sellers position the pricing of their homes at or less then the last comparable closings. Buyers seem to be looking a price adjustments more than new inventory. More than ever sellers need to take into consideration the financial quality of the buyer and not just look at price.

11 September 2009 ? More signs of improvement in the Chicago housing market according to the most recent Capital Home Data Index Market Report. With the increasing number of sales, the number of distressed properties sold decreased by almost 10% as home prices increased placing Chicago in sixth position among the highest performing major housing markets. Overall the study showed the Lakeview neighborhood to be the best performing neighborhood in Chicago with modest price gains and a very low REO saturation rate. The study showed better numbers for most lakefront neighborhoods. Lakeview is also is favored for quality of life, as well as for its famous resident: Wrigley Field.

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.

We would like to thank Sergey Gabdurakhmanov for sharing today’s photo via the Creative Commons License.