21 April 2009 – Mortgage bonds, an indicator of mortgage interest rates, opened favorably this morning; however, recent comments by Treasury Secretary Timothy Geithner that the market seems to be stabilizing, coupled with favorable reports from Standard & Poor’s indicating that home builders are starting to see some positive momentum, have turned the mortgage markets against us. Our opinion is if you are not in a rush, float; if however, you have a definite deadline and need to close your loan, I would consider a loan locking position today. Over the past four months, the 30 year fixed conventional interest rate has held stable within a range of 5.25% and 4.75%. We see no definite indication that the economy has improved to a point where rates will increase significantly from the range we’ve seen thus far. Today, conventional mortgage interest rates are seeing some pressure.

Rental Season is Coming Soon to Chicago

It?s no secret to anyone that the current sales market is less than ideal. Under most normal circumstances, average homeowners are holding on to their property and hoping for the housing storm to pass. But what if you have to sell? You could be someone who is being transferred to another city or state by your employer. Or, you might be like one of a million owners who are in financial trouble and simply need to sell.

Sellers Might Want to Consider Renting

People are faced with a difficult decision: Do I try and sell, and hopefully suffer marginal losses and manage the debt associated with selling in a down market? Do I attempt a refinance to bring down my mortgage payment? Or do I hold on and try to weather the storm a bit longer in hopes that the market will turn around? Any way you look at it, these choices seem grim. However, there is another option. It may make sense to rent your unit out for a couple of years.

Today?s post will focus on the Lakeview neighborhood rental market. (Lakeview is defined as Irving Park Rd. to Diversey Pkwy, Damen to the Lake Michigan?map below.) In order for potential sellers to make an educated decision on even considering the option of renting their home, it is important to understand what is happening in the market.

My Thoughts On Lakeview?Flat Rents and Landlords a Bit Panicky

Post-gentrification rental numbers put Lakeview at the upper-middle spectrum of the Chicago rental market (in regards to price, size, and amenities).  With a diverse renter base and an eclectic mix of condos and apartment styles, Lakeview, in my opinion will always do well, no matter what.  From what I’ve seen over the last six months (particularly this winter), landlords have been a bit panicky and frantic to get their places rented in a timely fashion.  I have never been asked more often about price and marketability than I have been this year.  Like any other neighborhood in Chicago, Lakeview is 90% price driven.  What matters most to renters looking during the winter is price.  Consumers know there is a housing crunch and they will try everything they can to capitalize on that.  However, come the spring, it’s a different story all together.

We are right on the cusp of the “busy season” in the rental business.  While traffic is picking up, and there is in fact a flurry of activity, the real wave has yet to crash.  Expect to see a massive swell of renters for all unit types within the next two months.  Year-on-year, 2009 is projected to be an outstanding year for the industry.  Having said that, my advice to landlords out there is:

1. Make sure you get your renewals done at least 60 days before the lease end date.
2. If you want to experiment with rent increases, do it 30-45 days before your lease end date.
3. Advertise your available units as soon as possible- however you go about doing that.  The more traffic the better.

I project rental averages in Lakeview to remain flat because landlords are worried about what people are going to do.  As unemployment increases, insecurity on whether units will rent will become more prevalent in the summer.  That’s not to say that a landlord who delivers a good product has anything to worry about.  If a unit is priced right, looks good on paper, and shows well, landlords will have no problem getting their units rented in a timely manner.

Lakeview Rental Data From the MLS

Studios (condo quality)
Average rental price: $900 for 500 square feet usually no parking available.
Average market time: 2 months

1 Bedrooms (condo quality)
Average rental price: $1.350 for 800 square feet.
Parking typically costs $100-150 extra, however most landlords use parking as a bargaining chip depending on the strength of the applicant.
Average market time: 1 ½ months

2 Bedrooms / 1.5 baths (condo quality)
Average rental price: $1,950 for 1250 square feet.
Parking: Same cost and principal as 1 bedrooms
Average market time: 2 months

3 Bedrooms / 2 baths (condo quality/few single families)
Average rental price: $3,000 for 2000 square feet.
Parking: $100-200 extra
Average market time: 3 months

4 Bedrooms (single family caliber)
Average rental price: $4,000 for 2600 square feet.
Parking: Included
Average market time: 3 months

5 Bedrooms + (Single family caliber or new construction)
Average rental price: $8,500 for 4,650 square feet. This is an average based on 5.5 bedrooms and 4 bathrooms.
Parking: Included
Average market time: 5 months

Some Basic Advice to Landlords This Rental Season

These stats are based off of activity over the last year. My advice to anyone thinking of renting would be to make sure that when you do decide to put your unit on the market for rent, be certain that your place is priced as good as or better than anything else out there. Like buyers, renters are very savvy and tend to know a lot more about the market than they are given credit for. A lot of newer landlords feel the need to price their property based on their monthly housing payment (taxes, assessments and mortgage). The fact is, you might not be able to cover all of your costs. If you can cover your monthly payments or even have a little postive cash flow; consider it a bonus.

We would like to thank TurkeyChik for so generously sharing today’s photo via the Creative Commons License.

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Nearly All Buyers Start Online

Any Real Estate agent that has been in the business for any length of time has heard of Realtor.com.  Many people outside of the real estate industry have also heard of Realtor.com.  When Realtor.com first hit the scene it was an excellent outlet to get a listing out on the internet.  That has changed rapidly however. Today it is lagging behind the likes of many sites: Zillow.com, Trulia.com, and even CraigsList.org.

Realtor.com has, in my opinion, become a somewhat dated web site with an older way of doing business. Here is how it works. When an agent gets a listing, that agent has to become a Member of Realtor.com in order for interior photos of their listing to be posted. Realtor.com calls this, Enhanced Listings. Any Realtor® or anyone who has sold their house in the age of the Internet will tell you that without interior photos, you may as well not even bother posting the listing. Most buyers, when shopping online, want to see interior photos in order to even consider a home.  Without interior photos most buyers pass it up because they do not want to waste their time.

In order to become a Member of Realtor.com, someone on the Realtor.com sales team will assess how many listings that particular agent has had in the previous year.  If you are like a typical agent in Chicago, that could be 10+ listings.  With that number a Realtor.com membership will likely run into the thousands.  If an agent had no listing the previous year, the membership to Realtor.com is less than $200.

Realtor.com Is a Tough Bill to Pay

In today’s rough economic times it makes it more difficult to become a member of Realtor.com when an agent can post their listings, with interior photos, to websites such as Zillow.com, Trulia.com, CraigsList.com, etc.  Everyone is strapped for cash these days, including real estate agents.

The bigger question is this…do the sellers expect to see interior photos on Realtor.com?  The answer is yes.  The seller can benefit from Realtor.com. Buyers that use Realtor.com will see the listing and hopefully there will be interior photos, and with that they might request a showing.

When a consumer or client signs onto Realtor.com there are many amenities on the website that are helpful.  A buyer can search for a home via city, price point, bedroom and bath count, etc.  The listings are fed to Realtor.com through the Multiple Listing Service in each particular area.  Most of the listings are accurate, however it can take a day or two for the listing to be updated in Realtor.com after a price change or if it goes under contract.  The buyer can also set up an automatic search themselves and have it sent directly to their iPhone.  There are other amenities such as having your credit checked, market conditions, local mortgage interest rates, and automated home valuation products.  From a buyer’s perspective this is the entire home shopping web site all in one.

Real Estate’s Future

What every real estate agent needs to keep in mind is that the average home buyer and seller is becoming more and more internet savvy.  With all the internet tools out there, the real estate agent needs to stay informed about every tool they have access to.  The Chicago Tribune Online posted a very interesting post today entitled, “High-Tech Inroads Point the Way to Real Estate’s Future.” This post is from the perspective of a tech savvy seller/buyer working with an agent that was not quite so up with the times.  The agent could have lost the listing due to lack of Internet marketing knowledge.  This is a pivotal time in real estate.  This market is going to weed out those agents and web sites that do not change with the times.

Illustrations by Luca Conti

A Low Ball...Will the Buyer Swing at It?

It’s hard to believe that last year was only two weeks ago. On the first day of 2009, I had five e-mails in my inbox that read something like this, “I have a strong desire to purchase a home this year. When can we get started?” In my seven years in the business with seven New Year’s Days, my inbox on January 1st usually contained a dozen or so well wishes for the new year but rarely a sincere interest in starting a home search immediately!

As I read through each of these e-mails, I couldn’t help but imagine that these buyers woke-up, jumped out of bed, and immediately penned this year’s resolutions. My mental picture of their lists looked like this:

1. Go to the gym!
2. De-clutter by selling all excess junk on Craigslist
3. Enter every penny spent into Quicken
4. Contact my Realtor about buying in this “New Market”

Shortly after completing their lists, they must have booted up their computers and either e-mailed me (if they knew me already) or searched for homes on Sudler Sotheby’s website and found me through one of my listings.

Each e-mail I received included a laundry list of wants and needs, and concluded with, “I am a serious buyer and I am going to low-ball. If you want to work with me, you need to know that upfront!” Since I have spent the last four months on the receiving-end of low ball offers, I have accepted that this is the scope of the market, and so I agreed to help these buyers with their home searches.

Let’s Look Back

So, what is this “New Market” mentality that today’s real estate buyer has adopted? What has prompted them to start their searches earlier than the usual Spring Market*? Well, to understand buyers’ mentality, let’s take a quick look at stats from the past eight years?they tell an interesting story:

2000 ? 2005: Real estate consumers experienced a rapid appreciation in the value of their home or investment properties. According to statistics found on the Chicago Association of REALTORS® website, neighborhoods like Lakeview experienced an average increase of 21% in condo values, South Loop 30%, West Loop 21%, and Bucktown 39%. Buyers who struck gold timed their purchase and sale ideally and, in some cases, depending on “product,” reaped a 50% or more profit on their purchase.  The real money-making years meant buying before 2003 and selling in 2005 or 2006.  Most experts agree that 2006 was, in most cases, the height of the market.

So, what has happened since the height of the market? Statistically, those same neighborhoods listed above experienced the following appreciated condo values between 2005 – 2008:

• Lakeview: 7% appreciation since 2005; 3% appreciation from 2007 to 2008
• South Loop: 30% appreciation since 2005; 25% appreciation from 2007 to 2008 because of the large volume of new construction condos in the million-dollar-plus range that were delivered in 2008 (which means that they most likely went under contract in 2006/2007)
• West Bucktown: 4% appreciation since 2005; .03 appreciation from 2007 to 2008
• West Loop: 1% appreciation since 2005; 0% appreciation from 2007-2008

From my personal experience, I found 2007 to be a tough year for bringing deals together, as most sellers were not accepting that prices had not escalated 3% or more per year. Because buyers were told that it was a “buyer?s market,” they were not very open to negotiation. By 2008 there was a level of acceptance by the seller that appreciation had slowed and properties hadn?t escalated in value as they had in ’05 and ’06. As a result, buyers were buying and sellers were selling because all parties agreed on market value.

The New Market Mentality?

This year is a whole new ball of wax.  Buyers are thinking short sales and foreclosures, and taking advantage of buyers who have to sell. They are thinking depreciation and buying at prices prior to the “boom.” Their logic: “I don?t know where the market is going, and in these uncertain times, I can?t risk buying too high.” What is too high? Prices at or above sale prices for units that closed within the past 3?6 months? Buyers don’t want to see comparables dating a year back to justify a seller?s price; they want to see recent comps only. This is all quite different from 2008?s Spring Market.

Advice for Sellers In The New Market

What does this mean for owners who want to sell? It means you’ll have to accept the fact that properties have not appreciated much in the past two years. You are going to have to look at the most recent sales and price yourself accordingly. You will need to evaluate the feedback and the number of showings relative to market time, and you’ll need to adjust your price to meet the market. If you don?t have to sell, this isn?t the time to test the market aggressively. Consult with your real estate agent about accurate pricing strategies to meet the market demand. There still is such a thing as receiving multiple offers when your price is acceptable to market value.

There’s a whole new buyer out there. Buyers are strong and savvy, with money to put down, great credit, and the mentality to “find a deal.” If you’re selling, you may have to take a “hit” on your desired profit, but if you turn around and buy, you can also take advantage of this New Market!

In my next post, I will address the points to consider when selling your home vs. renting your home if taking a “hit” is a tough pill to swallow.

And by-the-way, the one offer that has been accepted so far was a relocation. The company that owns the property was eager to unload and my buyer was able to take advantage of it!

* Spring Market is the time of year in Chicago when most real estate transactions take place. It usually begins after Super Bowl Sunday and ends shortly after Memorial Weekend.