The Other Side of Real Estate.

Why the recession is good for some Chicago neighborhoods.

2011-02-06T17:18:00.000-06:00

The housing crash in property values has been devastating to practically every neighborhood and that can never be good. However during the recovery it appears a trend is emerging that may be very positive for many Chicago neighborhoods’.
Essentially it appears a back to basics with first time home buyers purchasing property in their neighborhood and not moving to the Chicago suburbs. The typical reason to move out there was larger homes at more affordable prices. But with an ample supply of suitable homes for the modern family within the City of Chicago, this reason has dissolved so a certain extent. In addition gas prices are high and expressways like I-55 and I-290 are always a nightmare.
It is unknown if this trend will continue but if it does it will actually strengthen the neighborhoods with more family members living closer together.
There is plenty of affordable housing on the South side of Chicago available in Chatham, Mount Greenwood and Beverly. Not to mention in many other parts of the City.

Judge Has Questions for Big Banks

2010-12-21T16:35:00.000-06:00

In Trenton, New Jersey, the mortgages industry's biggest players have been called to court. The judges question is "why should you keep your license", considering that the six largest lenders made 30,000 foreclosure filings in this state alone. And as we all know, due to time constraints, did not or could not, make a real review of the documents before signing.

It is a good question, why should they keep their licenses? Firstly this question will most likely be asked in every State. The answer I fear is that the public has no choice. So I do not see any revocations.
But I fear some pretty hefty fines being placed which of course will be loose change for the big players.

Chicago South Side Markets Still Struggling

2010-12-20T15:58:00.000-06:00

Below are median prices compared from the beginning of 2010 to the end of 2010. In each case taking the median for a three month period.

Oak Lawn $200,000-$197,400
Oak Forest $171,000-$174,750
Tinley Park $251,000-$215,000
Orland Park $290,000-$278,750
Bridgeview $155,000-$162,000
Burbank $170,100-$160,000
Evergreen Park $160,000-$149,000
Mt Greenwood $220,000-$232,900

It is interesting to note how adjacent communities can vary. Tinley Park has been in decline all year while Oak Forest has stuck its ground. The same story for Burbank and Bridgeview. In both cases it is the dominant community that is struggling.

It is good to see Mount Greenwood surviving. There are many comments to be made about Evergreen Park. Taxes and water are high for example. The schools used to be very good but are now far from the best.

1 in 5 of Homeowners With Mortgages Underwater!

2010-12-19T14:02:00.005-06:00

Corelogic recently put out some data stating that the number of people with underwater mortgages has fallen to 10.8 million down from 11.3 million at the beginning of 2010. This is only an decrease of 500,000 nationwide. Not very much.

Depending on what you read that would mean 22.5 percent of Americans with a mortgage at the end of September 2010 (=48 million), or if take 51 million mortgages that mean 21.12%. Big deal either way that is 1 in 5.

But think of it like this if there are just 75 million owner occupied properties in the US that is 1 in 7 homes underwater.

But remember these numbers do not take into the cost of selling a home which on average is between 5%-8%.

On the good news side a program started in September ran by FHA to help with underwater homeowners. To qualify, borrowers must be current on their mortgages, and owe at least 15 percent more than their home’s current worth. Lenders must agree to forgive at least 10 percent of the homeowners debt. This is mostly likely to help 300,000 homeowners according to Barclays Capitol and 500,000- 1.5m according to the government.

Let us take 500,000 as a figure. That still leaves another 10.3 left in trouble. A number that is more likely to increase over the winter months rather than decrease.

Ben' s Big Mistake!

2010-12-16T16:50:00.007-06:00

The Federal Reserve has been buying its own treasuries from banks. How much, where and when is up to the Ben and his buddies, and a limit is currently set for $600B.

The philosophy is this: If banks have more cash because they have reduced their Treasury Holdings, then they will lend more money. Businesses can expand and this will decrease unemployment. And the economy will improve.

This has resulted in an increase in long term interest rates (and an increase in banks profits).

A big part of the very limited recovery so far was due to low long term interest rates. It allowed homeowners to refinance and get a lower interest rate allowing more money for other things.

Leaving long term interest rates low is more likely to help the people on a residential street, while increasing long term rates is more likely to help the people on High street.
That is assuming the banks lend the money! They will not, in the way Ben hopes and that is the one flaw in his thinking. Also I am not even sure he thought the whole thing out. Did he fully realize that long term interest rates would rise?

Before any else is said, lets get one thing straight, there will be no grand recovery in the general economy without an, at least, modest recovery in the housing market. The allows the necessary mobility of people for the general recovery to occur.

And this was beginning to happen! The government tax credits allowed a lot of old inventory to clear the market. And low interest long term rates allowed people to refinance (even those in the 6%+ range. Two of the three wheels supporting the market have gone. Now there is only one wheel propping up the housing market and that is still low, relatively speaking, long term rates.... naturally compared to history. So we have gone from three wheels to one.

Sorry Ben, remember that mobility is the key. You might make it with three wheels on my wagon, but the laws of economics are defied with only one wheel. So that is a partially wasted $600B.

Think of like this: Mr Jones living in Florida (example),recent grad, married, etc cannot take that job in Illinois because he is going to lose $50,000 or $100,000 on the sale of his current property! Keeping long term rates low is the key to the general recovery.

Beginning of the Year

2010-02-28T07:31:00.004-06:00

As the first two months of the year of the year come to a close, it is difficult to say how things are going for the Chicago real estate market.

There is one thing working against a definite conclusion and that is weather. Seasonal factors play a huge role in sale numbers. February saw the 7th snowiest month on record for Chicagoland with 51 inches. That is nothing compared to the East.

Foreclosures are selling quite well in variety of areas. Generally speaking the number of foreclosures appears to be decreasing... there are some notable exceptions. Even parts of the inner city have seen a decrease even though inventory remains high and sales numbers are seasonally low.

Chicagocondosonline reported a 21% increase in the Jan sales numbers but I do not think that means very much. Last years numbers in Jan were miserable. However this is a good resource for any home buyer.

I do think there are a lot of home buyers of looking, trying out for the tax credit. Good houses at good prices are selling.

A Few Notes On Buying Previosly Foreclosed Property

2009-12-12T13:32:00.005-06:00

For those of us working around the big cities there has been no shortage of foreclosures. Now the market has improved somewhat and these foreclosures are re-entering the market as fully renovated properties.

Buying these properties is a good idea. In many cases the work is excellently done-just make sure it actually is. Choose your home inspector wisely.

As far as the appraisal, be aware that there may be two full appraisals completed on the property, especially if it is FHA and there has been a short turn around time between now and the foreclosure. Since the advent of HVCC appraisals have gotten darn expensive. At $450+/- a pop, think carefully who is going for pay for this. Is it entirely the responsibility of the buyer?

Also there are some neighborhoods which have been so stricken with foreclosures that 90% of sales are either short sales, foreclosures, estate sales or just properties that need a lot of work.
This leaves just 10% of sales for "normal sales" and a few rehabbs . And you are buying one of them. Even if there are three sales to support the sales price, does that actually mean the house if worth that amount? Think about that carefully! Ask your Realtor to really analyse the market and get him to explain the number of foreclosures etc verses the number of rehabbed sales.

Look at the current market for guidance as well. Seeing a large inventory is a red flag for the future value of your rehabbed property. These forecloures will also end up rehabbed and competing against each other which means prices will drop if demand stays stable. This would mean that the value ($$ you pay) should definately not be at the top end of the range.

It Figures- why the jump in sales numbers is normal.

2009-12-01T16:56:00.005-06:00

A multitude of explanations crossed the air waves last week when the new figures for home sales were released. Unfortunately among the opinions there was one missing. October 2008 was the month prior to the election and even without all the Wall Street calamities and recession it would have been a bad month.

Sales figures for the month prior to the Presidential election have historically been weak, compared to the other three October's in the 4 year cycle.

I do wish the media would ask the "working on the street" rather than the "working behind a desk".

What appraisers can or cannot do?

2009-11-21T08:19:00.004-06:00

Ever watched the antiques roadshow? No doubt it has been noticed that the appraised value of Lincoln's toe nail was between $1500-$2,000. Note the appraiser did not say $1,750. That is because he cannot. And it makes sense! The appraiser is given data and that data supplies a value range.

So why does an an appraiser of real estate put an exact figure on value. This is called "a point of value" estimate. It is done purely because the banks want it like that. The adjusted comparables establish a range of the subject property and the appraiser uses a number in that range.

With the current market value ranges are large but good experience will tell an appraiser where to go in that range. The data for active and pending listings is also correlated with data of the closed comparables sales. This very often also points the appraiser in the right direction. Condition can play a role as well but it may not. If you live in a neighborhood of highly upgraded and renovated properties then your highly upgraded and renovated property will be compared to similar properties and no condition adjustments will be made. If you live in the average neighborhood with a variety of property condition and some of them end up on the appraisal then a condition adjustment may be warranted.

So the appraiser can narrow the range by also putting more weight on some data (it is not always good to put more weight on certain properties if the data sample is large).
But by no means can an appraiser put a specific value on something. I guess that it why it is very important to know that the $250,000 stated at the bottom of the report is an "opinion of value ". Now that opinion is said to be market value, which is defined by Fannie Mae... but nonetheless.

Converted Garage at $145,000

2009-11-18T17:25:00.006-06:00

One of the fun things about being an appraiser is that you get to trample (with no shoes) through all different kinds of property. To this date the most memorable appraisal done in this company was very early on. The property was in Dundee, a delightful estate with a top floor ballroom overlooking the Fox River ....etc.

However the number one spot has now been taken by a legal condo that is detached, one story, vinyl sided and 20x 20 at the back of a lot. Yes this is garage! Only Chicago could approve something like that. No one dares to speculate!

The property is divided into three rooms all about 10 x 10 with 100 sq ft for whatever!

Ah it has deck! So everyone is saying that it is why it fetched $145,000 in July of 2007.

Who ever had the idea to buy that space must have had romantic ideals. It reminds me of a similar desperate purchase seen in London in the mid 80's. Then someone purchased a converted hall closet with flop down bed as a condo, about 200-250 sq ft. Forgot the sticker price but 50-60K (pounds of course) comes to mind.

Well at least someone is crazier! That's good....and it didn't happen in Chicago.

Declining Markets Begin Year Number 3

2009-11-13T19:11:00.002-06:00

In was late in 2007 when the Chicago markets started to rapidly change. Marketing times throughout the summer were extending and the number of sales quarter over quarter was dropping.

For those numerous markets in the Chicago Metro area, which have not recovered over the summer months (no guaranteeing that those that have will continue to do so), are beginning their 3rd straight year of declines. With supply exceeding demand and very slow absorption rates in some areas, the recovery will be slow.

Predicting future price moves is folly, but in some instances I cannot see them getting much lower. There are recorded sales of as little as $500 in one South side Chicago neighborhood. An irrelevant statistic but fun to know.

True Cost Of Homeownership.

2009-11-07T19:49:00.004-06:00

When calculating the cost of homeownership, typically principal, interest, tax and insurance are included, commonly know by the acronym PITI. Sometimes its easy to wonder the worth of that when we all have to do repairs on property practically each and every year. Wouldn't it make sense if banks worked with buyers to make sure they can afford the 12 months PITI and then let us say another 3 months PITI (or 3% of purchase price) for repairs and upgrades.

Maybe even if the banks can't make it happen, then maybe the homebuyers themselves can step up and make the extra calculation.

Just a thought.

More Government Support

2009-11-07T06:18:00.004-06:00

Well just about every blog is covering the extension to a whole bunch of support for the housing market.

Couldn't quite work out why the senate voted(98-0)to extend unemployment benefits for states with rates of 8.5% or higher ONLY. Sad to say that does include Illinois.

Although not completely passed the House, the extension to the homebuyer tax credit of $8,000 to April 30 is a great reprieve. The idea to inlcude "move up" buyers and give them $6,500 is even better. Remember home owners must be in their house for at least 5 years. Other general stipulations are homes must cost less than $800,000 and its $125,000 a head on income limits.

Looking at the general housing data for many local neighborhood things look positive but in each example inventory, despite dropping, remains precariously high. One could not help but wonder what would happen to values when both the buying season and the tax credits ended.

With any luck the buying season will now be extended which is what we need. For if the market has any chance of recovery inventory levels have to come down much more.

Chicagoland Real Estate Update

2009-11-01T18:56:00.008-06:00

We can all say the last few months have been positive for the Chicago Real Estate Market. But results vary and any positive signs are patchy. It seems that single family property is recovering better than attached housing specifically condominiums.

There are whole district of Metropolitan Chicago with an over supply of property. Downtown Chicago has a notable glut of condo's for sale, Trump Tower has no financing options through Fannie Mae, so its pretty much cash, cash or cash. The problem with over supply of attached multi family is also apparent in a number of suburbs from Evanston to Oak Lawn as well as Chicago neighborhoods such as Lakeview, Near South side and Lincoln Park.

As said median values have stabilized (or slightly increased)in some areas such as; Oak Lawn, Evanston, Mount Greenwood, Berwyn, Burbank, Brookfield and Beverly, Arlington Heights.

Supplies remain high with declining values in Cicero, Englewood, North and South Lawndale, Austin and New City as a result of foreclosures. The South Shore also has a heavy supply.

The remote newer subdivisions around cities like Plano (Lakewood Springs) and Yorkville (various) are fairing badly with short sales running higher than foreclosures.
The reverse to true for Naperville's high end White Eagle which has seen a respectable recovery in value. This is consistent with the whole of Naperville with median values stable at $400,000 for the last two quarters and up from $365,000 the quarter prior to that. Median values are back up to $300,000 from $260,000 in Schaumburg while Arlington Heights shows a narrow range with median values varying just from $335,000 to $350,000 in the last nine months.

The city of Elgin has an excess of property and continued declining values. This week a well located property on a massive 0.69 acre, 2300 sq. ft, 4 car garage, brook, needed little work with own stream sold for $129,000.

So generally speaking if the property is single family and the location was originally a good. Then those are recovering well. Attached housing is mostly struggling and sometimes well located. However I did notice Uptown with a stabling attached housing market which is a positive sign. Lets hope it spreads.

What to Remember About FHA Appraisals

2009-10-18T10:20:00.004-05:00

FHA appraisals adhere to a higher standard of inspection but that does make them, in any way, a home inspection. There are three key words to know when getting you home ready for an FHA appraisal... health, safety and soundness.

You do not have to worry about a cracked window pain but expect it to be noted under deferred maintenance in the report. Be aware that if you house was built prior to 1978 then all peeling paint will have to rectified prior to closing. These are the two most common questions that get asked.

Even though www.hud.gov is an excellent resource for all FHA related questions; the question to ask is, if this defect affect the "health" or "safety of the new occupant, or will this defect affect the "soundness" of the structure.

For example a broken downspout will effect water drainage and will therefore have to be repaired. A hand rail is not mandatory on stairs anymore, but if the stairs are really steep it could effect the occupants safety and therefore would be required. Electrical covers must be placed on all outlets correctly. The later appears to be a very common defect. However GFI outlets are no longer required.

Remember that if you live in a condo, spot approval is possible, however the association will be required to have reserves.

A really important mention for all homeowners is that the appraiser will have to put at least "his head and shoulders" in the attic and crawl space. So please make sure access is possible.

All appraisals require interior photographs, the appraiser does not care about clutter, he is taking pictures of walls, floors and any features, etc. However a room filled with "storage" is not acceptable and will be asked cleared as this poses a clear fire risk. Same applies to excess "storage" in the basement.

If anyone has any questions then they are always free to call.

Bill to Recall HVCC/Appraisers In the News.

2009-07-05T22:45:00.004-05:00

This week in congress a one page bill was introduced to revoke the two month old HVCC (Home Valuation Code of Conduct). To recap the code was designed to completely separate the appraiser from the loan officer to reduce pressure from the Mortgage company and create appraiser Independence. Not a bad thing But this code combined with declining markets and strict data standards from mortgage companies has generally bought appraised values down.

So it is of no surprise that this is slowly becoming news. On Tuesday NBC is having a segment on its nightly news called " Appraise This".

Recently the National Association of Realtors answered concerns from its members over this subject. NBC Chicago also ran a piece on that. Here they did blame the appraiser, citing some points that rarely happen as common place and thoroughly over simplifying the issue.

Here are some more details as to why appraiser is just a cog in a big machine and has nothing to with this problem.

The code has given rise to Appraisal Management Companies (AMC'S) which act as gophers between the appraisal and mortgage companies. (see previous blog). The appraisal management companies are not a very big part of the problem. Certainly they've driven up costs. Also a lot of valuation issues start with "out of state" review appraisers, who work for the AMC's, which have no idea about local neighborhood's which leads to an even more conservative opinion of value.

However a bigger part of the problem is unrealistic appraisal requirements by mortgage companies which in themselves control value. For example the mortgage companies require at least two sales within 3 months of the date of appraisal. This all to often includes a foreclosure as only available data in this category. And we all know what that does to value. There are alternative ways but these would be rejected by the banks.

So don't blame the appraisers.

It should be remembered that problems are only exacerbated by the declining markets. In a stable market these two points would not be such a problem.

Now to 125% and More Bank Failures in Illinois

2009-07-05T08:00:00.003-05:00

Many of us have heard of the governments attempts to alleviate pressure on the housing market. One such move was to allow homeowners to refinance to 105% of appraised value. This has now changed to allow homeowners to refinance to 125%. Everyone welcome positive moves to help out homeowners but I think everyone agrees it kind of scary that the government, in this case Fannie Mae find it necessary to take these measures.

Illinois saw another crushing defeat last week with the closures of six small banks. The list includes Founders Bank, a standard fixture on the South side of Chicago.

Is Your Home Inpector Really Qualified?

2009-06-25T12:36:00.005-05:00

In a real estate transaction this is a very important question to ask. For that matter it is good question to ask all the parties involved, be it the loan officer, the real estate agents or the appraiser. However this is question is especially important to ask to your Home Inspector. ... and here is a good example why.

I listed an older bungalow recently, it was very cute on the outside and situated on a large 9,000 sq. ft price of land which is a lot for the City of Chicago. The bungalow needed some modernization of the inside but soon attracted offer number 1. The first home inspector associated with this transaction noted some deferred maintenance and some minor issues that would need to be addressed. This first contract died shorty after due to financing issues so that was that.

Some time later a second contract came in and along with that another home inspector, being a bit more with he noted the roof was very old. I took exception to that since the seller swore to me she had it replaced some six years prior. But I had to agree to one thing. Why were some of the shingles curling on the West side which is usually a tell tale sign of aging. Anyway the buyer wanted a new roof despite the "as is" contract so it fell through.

Finally a third contract comes in and with it a third inspector. This home inspector says that the roof is newer but since the achitectural shingles were not laid properly they were curling at the sides.. apparently a correct explanation. But more importantly the property has an asbestos problem. It seems to me that only the third inspector was actaully qualified to inspect this property with the other two basically incompetant. Can you imagine what would have happened if one of the first two contracts actually closed and people moved in? I do not dare to think. I can only thank the third home inspector for his vigilance, his knowledge and his expertise and would recomend him any day of the week. He was Linas Dapkus of Linas Dapkus Home Inspections at 815-834 1830 or 708 822 3893. http://www.dapkusinspections.com.

Be careful just because the guy has a license and screw driver it does not make him a home inspector.

FHA Changes the Rules and Lending Updates.

2009-06-04T11:38:00.003-05:00

FHA probably the best way to purchase single family property at the moment has raised its minimum credit score from 600 to 620. Remember FHA is not typically credit score driven, but more debt to income ratio driven.... ask a loan specialist. 620 is still quite low and attainable for many people. Remember the $8,000 tax credit will not available forever so now is your chance.

Required credit scores for conventional loans are currently quite high, but if your credit score is missing a few points Credit Technologies may be able to help. The idea is to rescore your report. You will need something to rescore.... again ask a loan specialist. The only mortgage company that I know of using credit technologies is Supreme Lending. They have offices in most states.

NAR (National Association of Realtors) posted a rise in pending home sale for April, up 6.1%.
A green shoot that there is life in real estate market.

Another Wave Of Foreclosures?

2009-05-19T17:06:00.004-05:00

Listening to a business news channel and I hear, apparently, that there is another wave of foreclosures on the horizon. This is due to the huge jobs losses that have occurred over the last 8 months and more. Some of these guys will not make it and as we know; no job, no money equals no mortgage payment.

Real Estates experts say we will not a see a bottom to the housing crisis until this wave of foreclosures has worked its way through. And that's true. ...... partially. But we have many government sponsored plans to help alleviate the financial stress for recently redundant home owners. What is now called "The Obama plan" where the homeowner can refinance and still not pay PMI, despite lower property values, is very popular..... I am told. Let us hope this and other government sponsored restructuring plans help enough people out.

In addition I would like to think the banks have more brains than to flood the market with more real estate. Remember Mr Banker you are also starting to accumilate commercial real estate interests (and you have your own, of course), so with any additional deterioration in residential real estate automatically depletes all of your commercial interests.

Time to Save

2009-05-18T23:49:00.004-05:00

The current world wide recession is just a symptom of a larger imbalance between large Western economies running huge annual deficits and smaller mostly Middle Eastern and Asian economies running surpluses.

The current US projected deficit runs roughly 7% of GDP. Lets put it like this the US would not be allowed in European Union with a deficit like that. That said Spain, Portugal, England and Italy are among big European culprits. Add Australia to that.

Due to the fluid nature of money markets (thanks globalization), the typical conscientious Asian family who is saving for his retirement is funding the Western deficits.

So now that is another thing for us to learn. Check out www.feedthepig.org

When Will We Learn?

2009-05-10T21:32:00.005-05:00

It remains my sincere belief that we are at the bottom the current real estate slump. And I guess there could not be a better time to reflect on the consequences of over inflated house prices. .... again.

The United States of America has been fairly immune to such crashes in real estate values, but that does mean they have not occurred elsewhere.

In the United Kingdom during the Thatcher administration there was a notorious crash in real estate values with similar stories of huge quantities of families sitting on negative equity. That real estate crash began in 1987 and did really revitalise itself until 1992.

In this instance a large spurt of inflation burst into the economy as a result increasing real estate values. The inflation occurred as the United Kingdom economy was based on producing its own goods and product. Therefore as demand increased it over heated the local economy creating inflation. Basically because England was not globalised.... yet... and funnily enough globalization for that was one of Margaret Thatcher's mantras and she would do everything to change.

In the current U.S real estate crash, the economy did that feel that "overheating" with an increasing amount of production out side the local economy therefore easing any inflationary pressures. Technological advances aid the process of keeping inflation low.

Irony does exist in the world as Margaret Thatcher's number 1 model economy in the world, one that she based her heart and soul upon was that of Japan's. ... and guess what Japan was about to join the United Kingdom in a real estate crash that would last a decade.

Japan's prolonged real estate debacle was created by the over lending of financial institutions. An exceptionally complicated Japanese political process made things worst for they could not admit accept that a lot of the banks were sitting on huge real estate losses.

And nothing was done! (here in the US that has not been the case fortunately).

Finally around 2000 the Japanese real estate market started to loosed up and the country proceeded into oblivion as the demand for goods and services expanded from the western nations. Today the Western nations and other nations a long with other "over lending" nations are not buying that Toyota (this week the company reported a $9 billion loss).

Its kinda funny to see Japan laying off folks as a result of the very same mistake they made themselves in 1990.

When will start real seeing a very liquid and inflated real estate market and a disproportionate real estate value compared to median incomes as a very serious RED FLAG?

......and lets not forget that just having low inflation is not the panacea for economic problems.

...... has globalization finally hit America?

Is it Over???

2009-04-28T21:21:00.006-05:00

Real Estate prices peeked around the late summer of 2005 for the Chicago Real Estate market. They remained fairly static for the first half 2006 but if you had not closed by Labor Day values were on their way down especially if you lived in one of the newer subdivisions. Calling a bottom has been hard but there are significant signs of life.. at least for moment,

In the last 7 days we've had 390 closings (MLS) , 316 in the prior 7 , 242 and 355 before that.
This is good. No doubt some of this is seasonal but pleasing nonetheless.

So be warned there might be no better time to that foreclosure or short sale.

Please refer back in after the end of the month and I'll put in the figures, I think we'll be happy.

Wells Number 1

2009-04-28T20:33:00.003-05:00

Bank of America/Countrywide are now no longer the nations number 1 lender of home loans. Wells Fargo have taken this honour for the time being. Honor said loosely and I am not sure what of an honor this it. Countrywide held this distinction under somewhat dubious circumstances.

Wells Fargo appeared proud saying that they are able to grow market share. Who couldn't in this marketplace?... and who are the competition? That has diminished dramatically. National City Mortgage are really not competition as everyone seems to complain they cannot close a loan. That small regional main street bank try so feebly to sell mortgages, but their rates and terms are laughably mean. Thier market share coming from the customer loyalty stratedgy which can only be short lived.

But there is competition from all the correspondence lenders, it is my belief that this section of lending industry will slowly grow, using savvy investors to fund their loans.

We will see.

Warning!

2009-04-17T22:19:00.002-05:00

The previous posted blog told of trouble appraising high end properties. However there is one more piece of information that everyone should know.. no matter the value of their property.

Firstly I have to explain one thing. Due to all the troubles in the real estate market we have something called AMC's (Appraisal management companies). Actually they have been around for a while. The most famous (infamous) are Landsafe (associated with Countrywide.. soon to be Bank of America) and Rels (associated with Wells Fargo). These companies are set up to separate the appraiser from the loan officer so that there is no undue influence (actually many do a lot more than this... but I am not going there for the purposes of this article).

These companies manage the appraisal order and assign it to one of their appraisers. The bank charges their client (you) an upfront fee for the appraisal. Nowadays that fee is typically $400 and up. Only a portion of that fee actually goes to the appraiser and the rest they keep. (Yes! banks are making gobs of money lke this).

Now here comes the WARNING to anyone who wishes to refinance and take advantage of the current low interest rates. I have from two very reliable sources that about 70% of all loans die at this point, because the value of the property will not allow the loan to proceed. Meaning that a homeowner, mostly likely strapped for cash as it is, has just shelled out $400+ for absolutely zip.

Be very careful when applying for a loan. You cannot ask an appraiser for his informal opinion, which is otherwise known as a "comp check"... especially me. So what do you do? Frankly I really do not know. One possibility is to ask a real estate agent and take of 10% of whatever they say. Another is to ask your loan officer if they have any automated valuation models.... most do. However they are notoriously unreliable. May I suggest both ideas plus any homework you can do yourself. Check out you local assessors website as some have recent sales figures (as do newspapers). Compare that sale which should not be larger/smaller than 10% of your home within the same neighborhood, similar lot size etc. (in an ideal world). Remember that most lenders require two sales within three months, one within six months plus two contingent/pending sales.

Just do your homework and do not come out with an off the cuff figure... it could burn a hole in your pocket and a bigger one in your heart.

News of the Day

2009-04-10T16:57:00.005-05:00

It seems that all those folk with high end customized properties are really in a bind now if they are going to resell or refinance. OK financing for such properties was always harder than the average house, but now with appraisal management companies increasing their power and therefore bureaucracy to the point where such appraisals do not fit into the system anymore.

To make things worse you might have someone literally thousands of miles away making a judgement call on the value of your home. This is because after the appraiser has finished his work and a third party can rip it to pieces without even seeing your home. Unfortunately the people employed in these positions have not been into the field for years and would probably do a worse job on the whole. It is very easy to rip into an appraisal nowadays because data is very limited. More importantly these employees are told to be ultra conservative and with their integrity corrupted by corporation culture they will do as they are told.

So I'm very sorry to all those rich folks who might have to sell or refinance. May I suggest passing your house down through the generations and saying " screw you".

Consequences of a Recession

2009-03-12T22:26:00.003-05:00

During a recession we all evaluate our lives and make bold strides to improve them. Becoming more efficient and cutting waste are typical moves. We all decide to loose the cards, finally, some of us will make it.

But something more happens, we actually shift our opinion of value. This has a direct reflection on how real estate values will recover. A simple example is that larger units in far out suburban sprawl recover slower than smaller units closer to mass transit. This would show a change in values. These values could be that people want to become greener and live closer to mass transit or wish to spend less time travelling and that it may be cheaper.

Also think of a factory closing. Property values will not recover until another entity reopens producing something with a sufficient demand for. If it is another factory things haven't changed that much. If it reopens as a mixed use multi unit property with roof gardens and small businesses we could conclude our values have changed somewhat.

Its something to think about when objecting to how land is being developed at the local municipal meeting.

Consider how your neighborhood will redevelop!

An Untold Story

2009-03-03T21:36:00.007-06:00

The losses the lending industry is suffering is well documented with the blame game of who's fault it is played across the airwaves continuously. The reporters and commentators talk of loans people signed knowing they could not repay them. This is difficult to accept as a critical part of the loan process is for a bank to check the borrower's ability to repay the loan. That has been the case ever since the banks have been around which is a very long time. Therefore just stop blaming the borrowers for signing and blame the banks.

When the banks were handing out cash left right and center, they were not really very careful about who represented them. Mortgage brokers sprung up from the woodwork. Suddenly your friend, or your cousin or friend's friend was a loan officer and he had the best deals and could get you into any home. Borrowers were part of a buddy network and deals were signed in cars. Borrowers did not always read the documentation. Loan officers would snap the deal before returning to the day job. In such small mortgage brokers offices, to which some of the blame goes too, loan officers were not necessarily correctly supervised.

In addition the web blossomed with online lending which all to often was not much better and the sub prime industry exploded.

To make things worse the top lenders felt the need to compete on the retail level and all sent out representatives to cover the high street/ neighborhood shops. And deals were done.....

Deals where the cost of the loan was significantly higher with numerous junk fees and points on the closing statement which may have varied from the truth in lending statement . Fees that went to pay for your friend's commission, broker's commission, the offices they occupied, the secretary and all the donuts and coffee they consumed.

The borrowers could have gone to a professional loan officer represented by an established company where there would have been no superflous points and typical fees. But many did not and simply trusted a friend. The real crime of the lending industry is that these loan officers did not actually know what their client was signing either.

One more offense is that many of these borrowers were low income buying in urban gentrifying neighborhoods.

Observation of the neighborhoods shows numerous closings of such pop up mortage brokers and your friend is now hosting tuppaware parties for extra cash.

If these brokers were doing the right thing back in the hay day they would still be turning loans over today.

Where being unusual does not pay

2009-02-27T21:39:00.004-06:00

Everyone likes to be a little different. It's what makes the world go around and in many ways it pays to be a different..... except in real estate. And in time when everyone is moaning about the value of their property, maybe it is time to reflect on some practical things to remember when buying property.

Now first and foremost a house is a roof over your head. It should not really matter what it looks like, but it is still the largest purchase most people make in their life. Therefore a little sensibility will pay well when selling that before retirement or that move up when the family expands.

This does not mean that every house has to be the same, of course not, but to maximise the potential worth of property, a globe house on stilts is not the way to go. There are more practical examples of this and here a few.

If houses in the subdivision typically have basements, do not choose to buy one without a basement and vice versa.

Do not buy a house where the functional utility has been reduced.

Do not "load" your house with upgrades, the return on investments becomes minimal after a while.

When buying a new home in a new subdivision do not buy the largest or the smallest model.

When building a house in an existing area do not build several thousand feet larger than the typical home in the neighborhood.

Think about the fact that people will not always want to heat large two story family rooms. They are afterall a little ostentatious. Two story foyers are OK.

Leave the fashion out.

Real Estates Taxes... Do I hear anyone laughing?.

2009-02-19T21:48:00.003-06:00

Now when it comes to real estate taxes no one is laughing even if they are the biggest of jokes.

Just about everyone has faced significant increases in real estates taxes over the last few years.

Many assessors in Chicagoland appear to be well organized and their website include, all details of the property and in some cases a sketch and photograph. Lake and Du Page Counties do very well when it comes to the accuracy of those details.

However there is one big offender in Chicagoland when it comes to accuracy and that is the county of Cook. Cook is terribly far behind in updating its assessor records. This naturally leads to inaccurate real estate tax assessments with some of us paying too little and some of us paying to much.

The most common problem lies in people building second stories or extending and the assessor not keeping up with it. In Chicago, the classic bungalow is often taxed as a single story property despite it frequently having a finished attic with bathrooms and bedrooms. I question the fairness of this.

In addition time and time again we see two very similar properties with totally different taxes. There is no logical explanation as to why. It makes one want to advocate checking out your street and snitching on the neighbors.

There are cases when the Cook County assessor refuse to takes into the effect of external obsolescence in the valuation of property. Basically they are saying the busy street and commercial complex outside your house does not effect the value. The assessor argued, after an appeal on the homeowners part, that the property conformed to the neighborhood and therefore should be taxed the same.

Last year the assessor in Cook County removed all senior citizens exemptions from properties and made the homeowners reapply. This was a good move as it removed all those folks that purchased a home with a senior citizen exemption and forgot to tell the assessor.

No matter there has to be a better way to assess taxes. There are theories to support an actual increase in revenue if we all paid the right amount. Chicago deserves better.

I am very interested to hear your real estate tax story. As usual be fair please.

The Numbers 4 and 1.

2008-12-27T08:42:00.007-06:00

I guess if I was going to play the lotto in 2009 I will have to include the numbers 4 and 1. For us to recover from the overall slump in the Real Estate Market and the complete economy for that matter these numbers are incredibly important.

The 4 is what we need in front of mortgage rates for the whole of 2009. This would vastly increase the affordability of housing and very slowly increasing the demand to slowly soak up some of the supply which as we know averages about of 12 months at the moment. Now this is not a tall order considering the Feds rate and in fact has a good chance of becoming a reality.

Now the 1 is more dubious. Ironically since its also part of a very dubious industry being the oil and gas. We need a 1 front in the gas prices all year long. Now I have no idea if this is likely, but it would very nice!

Too boot I bet if that was the case people would not mind paying and extra 10 cents to a fund to pay for the development of green energy. Funnily enough that tax would actually pay for itself about threefold. The economy would receive a boost from new GOOD paying jobs, it would keep gas prices low and demand for the stuff would drop off (the consumer has more power that it thinks) and thirdly it would help with our emissions problem.

Crisis! What crisis!

2008-12-17T17:13:00.006-06:00

While listening to the radio this afternoon the host invites yet another guest who informs us how hard it is get credit for owner occupied housing. How many similar stories have rang across the airwaves? Yes credit standards have got a lot tighter, but the tone is generally so negative that applying for credit is made to sound like a real ordeal meant for super heroes only. A lot of us hover around the low 700's and according to this guy you need 770+ credit score.

So it would make sense to find out hard this really is. Calling a whole bunch of loan officers the general consensus is that it's not that bad. What is quoted on the radio is really for those wishing to get the best possible rate when a perfectly acceptable rate is available. It was noted that it is probably harder to buy a car than a house.

Nick Morse of Bancgroup said, "Banks are extremely willing to lend money to qualified borrowers. A borrower can have a 650 credit score with 10% down, and receive a 30 year fixed mortgage. Borrowers with a credit score of 720 with 10% down would receive a 30 year fixed mortgage at an extremely competitive rate".

Significant factors relating to the drop in interest rates are directly liked to the US Treachery Department announcing a few week ago that they will purchase $500 billion in mortgage backed securities. Since then interest rates have dropped from about 6% for a rate today of 4.85%.

Who can complain about that? Even Countrywide is offering a no document loan. If this continues along with the one in front of gas prices the world is wide open again and good bye recession.

Lets be positive!

New Construction's Big Bust

2008-12-12T22:12:00.001-06:00

Every city suffers from suburban sprawl with new subdivisions popping up left right and center. I am a big believer in finding the silver lining in every crisis and the big bust in new construction is no exception.

The big builders got into an endless habit of sticking a board next to field and began to build. On that read "Single family homes from $189,950". Customers who decide to buy are faced with a property covered with vinyl and cheap carpeting which is not acceptable for today's standards. So the buyer would choose from endless list of upgrades and on average spend another 10% making the property acceptable. As an appraiser I see this all the time. The cost of these upgrades was always at exorbitant prices, $150 for a faucet that normally cost $30. This is where the builders made a lot of money.

Frankly I am glad to see the builders of new subdivisions coming to a screeching halt. If they ever get going again they seriously have to rethink the way they do business. Firstly build a home someone can live in from the start. Secondly stop persuading those with low acumen to use their rip off mortgage companies which was a big problem in the boom time. Yeah they say you get a free appliance if you use our mortgage company, this should be flat illegal.

Lastly and most importantly stop building in that field. The congestion on major highways is pathetic. The real estates taxes these folks face after a few years is practically unbearable. All I can say is knock down some old stuff down and build there; build up with mixed use developments. Lastly build much smaller subdivisions.

Donald's Hand Still Contains A trump

2008-12-10T17:09:00.003-06:00

Chicago’s Trump International Hotel and Tower is nearing completion, at least on the outside. It has been over three years since the first concrete was laid and now we are seeing the spire being placed on its pinnacle. This 92 story building, which will reach 1,362 ft, is a genuine addition to Chicago’s skyline with its iridescent blue exterior located at 401 N. Wabash Ave just north of the Chicago River. On the inside the hotel has been opened since January 2008 and rises to the 29th floor. After that it is all residential condominiums totally 486 units to become North America second tallest building following the Sear’s tower.

Sales have been very respectable with over two thirds already spoken for and that is no surprise since there are some 20 plus floor plans to choose from. This is far more than any other developer in Chicago and together with the hotel builds a unique concept. This is sublimated with units finished to the highest standard and a buyer does not have to pore through endless different types of granite and a very unwelcoming upgrade bill at the end. But it is different in more ways than this. This is the tallest reinforced concrete building in North America which reduces sway and maximizes window space. It is also the worlds 10th tallest building..

For the mere mortal units range from 919 sq. ft to 3,437 sq. ft. However there are 4 penthouses on the 87th and 89th floors with 4 bedrooms, 4.5 baths over a sprawling 6,850 sq. ft. For just one very lucky person, on the 89th floor, there is a 14,260 sq. ft penthouse which enjoys 5 bedrooms, 6 baths, a study and exercise room. This I believe to be some of the highest residential space in North America.

The cost has been significant with a land value of $73m and a total the building at approximately $847m ( that may have changed). Therefore it’s hard to raise a brow with starting price currently at around the $900,000. For this one purchases many things at the Trump Tower and the most notable is excellent service. The building boasts the most gracious foyer in all of Chicago and the ability to enjoy a truly excellent spa and fitness club. But there are many amenities in this building and that includes an in door dining and catering service and a dog run. The hallways in the residential condominium section are a bit dowdy with brown carpeting and dark walls. It would be nice if they were brighter.

Chicago does need a building like this as no other combines a hotel and residential experience quite like Trump International Hotel and Tower. The 2.6m sq ft of floor area are due for completion in the spring of 2009…. Hopefully.

Let’s Remember- All Real Estate is Local…. The Chicago Real Estate Market is no Exception.

2008-12-09T22:18:00.001-06:00

It’s an old adage, all real is local, kind of an extension to the popular reference “location, location, location”. But this is so difficult to remember when the news reels off one scary headline after the other.

Certainly parts of the Chicago Real Estate market are deeply affected with declining values and foreclosures. These neighborhoods tend to be on the periphery of Chicago. However analysis of data from the Multiple Listing Service reveals that not all is lost.

It is always a good idea to differentiate between detached and attached single family housing when looking at the numbers, and the Chicago Real Estate market is no exception. All too often the numbers shown on many prominent websites ( and yes I am thinking of the Tribunes Realty Tracker) mix the two. This doesn’t leave the statistics invalid but leaves a highly confusing result in a field that is difficult enough to understand.
Using median values for 2007 and median values to date for 2008 clearly the old adage is true and not indicative of the nationwide debacle.

2007 Att 2008 Att 2007 Det 2008 Det

Lincoln Square $275,950 $305,000 $620,000 $635,000

Lincoln Park $414,328 $420,000 $1,425,000 $1,485,000

Logan Square $315,750 $315,000 $672,500 $657,500

Near North Side $390,876 $415,000 $1,995,000 $2,125,000

Lakeview $332,500 $350,000 $1,069,000 $1,056,641

Median values can be distorted in neighborhoods where there are an exceptional high number of new construction projects. For example in the case of the Near South Side it is very difficult to show exact data on how median values are trending. Here where numbers are statically invalid for detached housing we have to look at attached housing-condominiums only. Many buildings; low, mid or high rise are nearing close out, notably in Museum Park. These buyers signed contracts two or three years ago and the sales prices are now entering the data stream. The effect of this shows a huge increase (20 %+) in median values for the Near South Side. This is not a true picture of how median values are trending on the Near South Side. Marketing times (which are increasing in all neighborhoods) and the relationship between supply and demand would be better indicators of market trends in this section of the Chicago Real Estate market.
It is the job a Real Estate agent to pull these numbers apart when representing a client. Analyzing the Chicago Real Estate market is especially important for someone who is transferring from another city. The seller here in Lincoln Park or Logan Square also needs to know that things are not that bad. It would be great if this job was left to Real Estate agents who have excellent data at their fingertips. It would be even better if the mass media put a little more thought into some of their reporting and avoid blanket statements.