Chicago & North Shore Home Buyer

Vacant Dwelling Rate Adds To Evanston's Housing Woes.

Another new wrinkle in Evanston’s housing market is the vacant dwelling rate.  New census data shows Evanston vacant dwelling rate more than doubled to 9.4% in 2010 from 3.8% in 2000.  Much of the blame goes to foreclosures, a weakened economy, and new construction.

 

New construction of large luxurious condos near downtown, west of the Metra tracks remain vacant.  In fact a couple have been taken over by the banks.  It’s any ones guess when the banks will get out of holding real estate.  I’m starting to think that the fire sales should begin.  Get it over with!  Yes people will get remarkable deals, but, when all this stuff is sold off then the economy can pick up.  People that buy homes usually need other stuff, like furniture, carpeting, paint, and hardware.  When they spend money it has a notable on the economy, and this could have a positive effect on the local economy.

 

Currently the condominium market is really quite sluggish.  Sunday open house presentations have seen few buyers…maybe it’s the weather.  We seem to like to blame the weather, the perfect scapegoat.  I’ll be at 1508 Elmwood this Sunday Feb 27th from 2 p.m. until 4 p.m. hope the weather is nice, or nicer.  For more information go to  http://www.1508elmwoodave4.com/ .  I'll have information on other nearby properties.

Short Sales 17% of Active Single Family Home Listings In Evanston,IL

 

Looking at only single family homes in Evanston. the current inventory is 218 active homes.  Of those 218 there are 37 short sales, about 17% of inventory.  Prices range from $45,000, for a two bedroom one bath single story home, to $595,000 for a 3 bedroom 3 bath home.  There are also some four bedroom 2 bath homes.

 

A couple are east of Ridge/Greenbay, but the majority are west of Ridge/Greenbay.  In zip code 60202 which is South Evanston, there are 14 short sales where average list price is around $249K.  In zip code 60201 which is North Evanston there are 18 short sales with an average list price of $259K.  Finally 60203 which is Evanston/Skokie there are 5 short sales with an average list price of $327K.

 

Market times vary, but seem to average around eight months, with some outliers at over a year.  There is one at around 3 years…good area, but, the house has many unusual features.

 

At this point in time we do not know how much of the shadow inventory will affect Evanston.  That is we do not know how many Evanston single family homes are being held by banks, or how many properties are entering the foreclosure process.  I suspect that we will know when the spring market hits in the coming weeks.  Bottom line reduced inventories is key to price stabilization.  If you must put your home on the market, be prepared to price your home competitively.

 

Evanston, Il Market Watch: Median Prices December 2009 and December 2010

The following statistics compare real estate activity in Evanston for December 2009 and December 2010.

 

Attached Properties Condos, Townhomes

 

There was a 23.1% decline in sold attached properties, 26 sold in December 2009, and 20 sold in December 2010.  No change in median sales price $248,000 for December 2009 and December 2010.

 

Detached Properties Single Family Homes

 

Sold single family homes increased 45% in December.  With 20 sold in December 2009, and 29 in December 2010.  Median sales price for December 2009 was $397,750 and $350,000 in December 2010 a 12% decrease in median sales price.

 

North Shore Trends

 

Attached properties showed an increase of 9.6% in the number of sales, but a median price decrease of a 1.7% to $206,000 for December 2010.  Single family homes for the same period experienced increase in the number of sales to 8.3%, and price decreases of 20.7%.  Median sales price for North Shore homes in December 2010 were $412,577.

 

Market expectations for the new year are expected to remain flat.  Remember all real estate is local so we may experience different market conditions in our market place.  A reduction in 2010 of single family homes in Evanston could help to stabilize home prices.  That being said don’t rush out to put your home on the market, if you do not need to move then don’t.  Unless, you can take advantage of a move up opportunity, and you are priced competitively.  The buyers market will probably be with us through out this year and well into 2012.

 

Condominiums have a long difficult road to travel.  Inventories are much too high, around a 14 month supply.  I expect to see more price declines and more foreclosure activity for condominiums especially for self managed condos in less desirable areas of town.  I also see investors taking over smaller condos, 3  to 6 unit buildings, and changing them back to rental apartments.

Interest Rate Increase Will Begin To Cut Into Home Buyers' Purchasing Power.

Last week the U.S. Treasury stopped buying mortgage-backed securities.  A program that kept interest rates below 5% for much of last year.  This gave some people the opportunity to re-finance their mortgages, to get out of adjustable rate mortgages and into 30-year fixed-rate mortgages.  By ending the program, we saw an immediate increase of  .27 of a percent, from 5.04% to 5.31% on 30-year fixed-rate mortgages.

At issue now is the affordability factor and the decrease in purchasing power.  A $300,000 mortgage last week would have cost you $1,617.81 per month.  Today that same mortgage will now cost you $1,667.78 per month.  But wait there is more...interest rates are expected to rise through out the year, perhaps to 6%, at which your mortgage will cost you $1,798.65 per month.  If you consult your mortgage calculator you will see that a $270,000 loan at 6% will cost you $1.618.79 a month, a 10% decrease in purchasing power.

Home prices may still be decreasing, but in some areas, prices are starting to stabilize.  I believe the interest rate increase could be a wake-up call to many folks who wanted to buy, but were nervous about buying a home because of price declines.  I think this will be the last call for the buyers market.  For some owning a home will become a lost opportunity.  Prices may even decline a little bit, but for the most part prices will stabilize.   The opportunity to buy at near bottom is here, especially if you plan on staying in the home for several years.  Like all cycles this will end, and at this point in time, it's more likely to end sooner than later.

Lots of Positive Economic News, But No Dancing In The Streets.

Some more positive signs that the economy is headed in the right direction.  Most noticeably the recent jobs report which showed the largest gain since last November.  But, the 162,000 is only a drop in the bucket when you consider the 4.5 million of job losses since January 2009, and 8.2 million since January 2008.  At this rate it will be well into 2011 before we see the unemployment near the 5% mark.  Probably the most hopeful sign is job growth in construction, manufacturing, retail, and hospitality.

The recent consumer confidence index also went up, a little above 50%.  Seems like a long way to go here too, I believe in 2003 2004 it was close to 100%.  And that should come as no surprise here, while spending did increase a bit, it still isn't enough to rocket the economy.  There were a few surprises, like auto sales were up, and leading the pack was Toyota.  Actually if I were in the market today, I would probably buy a Toyota despite their safety issues.  The other surprise was the increase of the number of vacation homes sold, price were down, but sales of vacation homes were up.

Real estate sales continue to grow nation wide, but prices are still down.  Comparing February 2009 to February 2010 we have also seen increase in sales with a mix in prices.

Condos, town houses in Evanston had  a 37.5% increase in sales with 14 closed in February 2009 and 19 closed in February 2010.  Median sales price also edged up from $231,500 in February 2009 to $315,000 in February 2010 a 36% increase.

Single family homes in Evanston had  a 11.1% increase in sales with 9 closed in February 2009 and 10 closed in February 2010.  Median sales price also edged up from $360,000 in February 2009 to $387,000 in February 2010 a 7.5% increase.

Condos and town homes on Chicago's north shore had a 63.4% increase with 41 closed in February 2009 and 67 close in February 2010.  Prices decreased 12.1% from $243,000 in February 2009 to $213,000 in February 2010.

Single family homes on Chicago's north shore had a 59.6% increase with 99 closed in February 2009 and 158 close in February 2010.  Prices decreased 9.2% from $515,000 in February 2009 to $467,500 in February 2010.

We have some way to go, this will not be a U shaped economy, in fact it looks like it will be more like a long L shaped one.  And please no W shaped one!

Basic Short Sale Issues, The Seller.

In a short sale the home owner owes more money on the mortgage, and other property liens, than the sale of the home will likely produce.  And the home owner is unable or unwilling to bring cash to the closing.  The lender has not yet foreclosed on the property, providing the home owner an opportunity to sell the home and perhaps partially reimburse the lender.

An advantage of a short sale is that it will lessen the impact on the surrounding neighborhood.  Foreclosures have a greater downward price pressure on the surrounding area, than a short sale would.  More importantly, for the seller, a short sale will not hurt the credit score as much as a foreclosure would.  Foreclosure remains on credit history for seven years and can take 200 points or more from ones credit score.

While a short sale may be the best approach for a home owner, not every home owner can be a short sale candidate.  For the home owner to be a good candidate, the home owner must have a valid hardship.  A valid hardship would be events such as job loss, business failure, medical costs, divorce or death of a spouse, or some natural disaster.  Take note here that a loss in equity is not considered a hardship.  Just because the market went sour and you have lost equity in your home, that is not considered a hardship.

Also is there enough time to accomplish a short sale?  If you have two months or so left before a judicial sale, then it is really too late to take the short sale route.  After all a short sale requires quite a bit of marketing to get people aware of the availability of a home.

In our current environment, the difficult part is determining the price the home will be offered.  With high inventories, a declining market, and buyers sitting on the fence, the value must be set so that it is not too high.  Too high and no one who can afford it will see it, too low and the home owner will lose more money.  In fact too low and the lender may not accept it.  See and this is another problem with short sales, instead of dealing with two parties, we are really dealing with three parties.

How much does the home owner owe on the property?  Are their other liens like a second mortgage, property taxes, or other liens?  Has the home owner talked with their lender, tax professional, and attorney?  If the home owner is acting in good faith and generally cooperative, then a short sale may work.  By being in a state of denial, or being uncooperative, sometimes the only alternative may be foreclosure.

I must say that if you think you are heading for trouble with your mortgage you must contact your lender as soon as possible.  By being proactive you will have more options and hopefully a better outcome.

Alternatives For Distressed Home Owners.

In a previous post I wrote about the foreclosure process and I suggested that there are alternative to foreclosure.  Options for distressed home owners should be considered, and distressed owners should not go it alone.  They need support not only from there friends and family, but also need to consult with tax and finance professionals, attorneys, and a local real estate agent.  Not all these options are for every one.  Indeed the most favorable options will have some sort of undesirable consequences.  Let's work from options that would have the best consequences to the worst.

Refinancing is an option.  Especially since interest rates are still at a 30 year low.  As the year progresses, expect those interest rates to creep up.  Some say interest rates my be as high as 6% by the end of the year.  Talk to your mortgage broker and find out what will take to refinance into a 30 year or 15 year fixed rate mortgage.  If you can not refinance because your home has lost value, go to the Making Home Affordable web-site to see if you qualify.  You need to be current on your existing mortgage payments, and have enough income to support the new mortgage.  Your existing mortgage must be owned or backed by Fannie Mae or Freddie Mac, with a Loan To Value ratio over 80% not to exceed 125%.  You must also live in the home, which can be between one and four units.

The second alternative is to sell your home and bring cash to the closing.  You want to avoid any damage to your credit that a short sale or foreclosure sale could do.  Lets say you have a $200,000 mortgage on a home that you need to sell.  But, due to declining values in the real estate market you can not sell that home even to break even at $200,000.  You sell your home for $180,000 then you need to bring $20,000 to the closing.   You could liquidate some other asset and bring that to the closing, remember your doing this to maintain a good credit rating.  Be sure to talk with your tax or finance professional, especially when we are talking about liquidating an Individual Retirement Account.

A third alternative is to call your lender.  Lenders are starting to Get It, they do not want to own your three bedroom split with the two car garage.  Lenders have always had work out options for consumers that find themselves in trouble.  Some options may include the recasting of loans, rolling back interest rates, letting you make partial payments.  But here is the main thing.  You must talk to your lender, you can not wait until you are behind in your mortgage payment.  You need to be proactive, if you know that your financial future is not too bright, you need to talk with your lender today. And check out the Making Home Affordable web-site specifically the Home Affordable Modification page.

Short sale is the fourth alternative.  The home owner owes more money on the mortgage, and other property liens, than the sale of the home will likely produce.  And the home owner is unable or unwilling to bring cash to the closing.  The lender has not yet foreclosed on the property, providing the home owner an opportunity to sell the home and perhaps partially reimburse the lender.  Short sales are interesting, so I will discuss short sales in more detail tomorrow.

Other alternatives are foreclosure, deed in Lieu of foreclosure, and just plain walking away.  These alternatives will do the most damage to ones credit.  And unfortunately it may be the only alternative available to the home owner.  In deed of lieu of foreclosure is simply signing over the deed of the property in exchange for forgiveness of debt.  In some states, like Illinois, where foreclosure time lines may be long, deed in  lieu of foreclosure works to the advantage of the lender.  First of all legal fees are greatly reduced.  Second the lender can secure the property sooner, and protect the property from damage and neglect.  Thirdly in an appreciating market, the property has more upward potential.  Of course in a declining market the property must be sold quickly.  Which is why dear real estate investor, or buyer that wants’ a great deal...which is why you need to be ready!  These deals can and do close in a matter of weeks, but, only to those that can bring the cash to the table.

Tomorrow, more details on short sales.

Foreclosure a Legal Process Not a Property Type

What is a foreclosure?  Well it is not a type of property, it is really a legal process.  In Illinois it is a process that can take just over a year to accomplish.  The process begins when a home owner has missed two or more mortgage payments.  The lender will attempt to contact the borrower, to tell the borrower that they are now in default, a Notice Of Default (NOD) letter. At this point the borrower can reinstate the loan within a certain period of time, paying all interest and penalties.  Or the lender will begin foreclosures proceedings.  You will see these in the public notice area of classified ads in local newspapers.  Notice of Foreclosure in the title of the ad, means the property is in the foreclosure process.  In Illinois it takes about eleven and a half months to reach this point.  Title to the property has not changed hands.  In fact  this notice must be published in local newspapers on three consecutive weeks and no more than 45 days and no less than 7 days prior to sale.  The actual sale of the property is announced in the Judicial Sale ad.  In fact the borrowers that are in default may still be living at the address until the court orders the sale of the property.   The borrowers still can redeem the loan, but after the sale it is too late, they need to move out of the premises.  Some states allow redemption after the sale of the property, but not Illinois, also note that this process can be different in other states, Georgia for example completes the process in 30 days.

Foreclosures have always been a fact of life.  The word foreclosure has become a household word, due to the number of sub prime loans, but, experts (hmmm?) also believe that many people who borrowed against their homes may also begin to have problems repaying that debt.  No one wants to talk about it, after all it's embarrassing.   You have options other than walking away or going through the foreclosure process.  Check out the foreclosure avoidance agencies that are approved by the U.S. Dept of Housing and Urban Development (HUD) (go to their Foreclosure Web page).  You do not have to pay for counseling, in fact there are plenty of scams out there where some one will profess to be on your side to help you. Beware, they will do little for you but take your money.  Several of your options are to refinance, sell and bring cash to the closing, a loan modification or a lender work out, finally a short sale.

If you are in some such a situation, the first thing to do is to contact your lender and work something out.  If you know of a friend or relative in such a situation then you should talk to them about their options, at least have them check out the HUD web site.

Strong Economic Numbers, More Needed For Sustainability

Federal Reserve holds back on raising the funds rate.  Other measures of the economy show very strong numbers.  GDP for the fourth quarter at 5.9%.  While consumers are saving more, they are also spending a little more.  Perhaps due to a slight increase in personal income in January.

But the disappointment in the jobless rate, near 10%, and the weak real estate market have Bernanke concerned.  Concern that a positive economic recovery may not be sustainable.  GDP for 2010 is expected to be between 3% and 3.5%.  Inflation remains low, at 1.5 percent, which gives the Fed time  to watch the recovery take hold.  Many Fed watchers believe that the Fed will not increase the funds rate until the fourth quarter.  Giving time for jobless claims to fall, and perhaps an increase in housing starts.

And on a positive note the Case-Shiller Index is out this week.  Many metro areas are seeing home price appreciation.  Rising home prices would ease the pain on distressed home owners.  More people would stay in their homes instead of walking away and defaulting on their mortgage. Or perhaps less short sales and more break even sales of homes, allowing some distressed home owners the opportunity to get out of an uncomfortable home ownership situation.

2010 A Transitional Year To A Stable Real Estate Market...Maybe!

Absorption rates are used in the real estate industry to determine the supply of inventory.  Basically if you were to ask me, "How long will it take to sell my home?"  I would say,"X number of months."  What I am  really relying on is the absorption rate, and how much time it takes to sell your home in a given market environment and price point.  I thought I would share with you some data  on absorption rates and average sales price in some of Chicago's North shore communities.

December 2006 through December 2009

Single Family Homes data from Midwest Real Estate Data (MRED)

2006 2007 2008 2009 Supply in Months Ave Sales Price Supply in Months Ave Sales Price Supply in Months Ave Sales Price Supply in Months Ave Sales Price Evanston 5 $620K 7 $656K 7 $617K 7 $461K Wilmette 4 $941K 6 $971K 9 $912K 6 $770K Winnetka 7 $1,640K 7 $1,687K 12 $1,498K 11 $1,403K Glenco 9 $1,327K 11 $1,457K 13 $1,308K 9 $1,138K Highland Park 9 $975K 12 $828K 13 $777K 14 $603K Skokie 5 $436K 10 $404K 12 $345K 6 $304K Northbrook 9 $746K 9 $692K 12 $665K 9 $571K Deerfiled 6 $689K 8 $717K 16 $653K 9 $522K
NOTE:  A balanced market has a 3 to 4 month supply of housing. So in 2006 we see the bubble about to burst, prices are at an all time high and the supply of home are starting to increase.  Sometime during the summer of 2006 sellers were asking agents and agents were asking agents where are the buyers?  Few if any deals were closed from August to October of 2006. During 2007 it took a lot of time to sell a house, and prices started to decline some what.  Average selling prices appear to have increased, but I think that it was just the final swan song as developers and spec builders try to unload their homes. 2008 double digit becomes the norm, especially for high end homes.  This is also the time when we find out that the really bright boys really screwed up.  The good old days, when the credit markets went into seizures, and the Fed had to pump a lot of money into the banking system.  Short Sales and Foreclosures become household words, and yep, in some communities you can see average sales prices fall between 14 to 28 percent. The real estate market ends in 2009 as a still rather weak market.  Despite efforts by the Fed to give it a kick start with loan modification programs and first time buyers tax incentives.  Prices continue to decline and the inventory also starts to decline.  What 2010 will hold for real estate.  Well agents are reporting that their public open house are well attended.  More contracts are actually closing.  Interest rates are lower, more loan applications are being made, and some banks are loosening credit.  Prices may be leveling out for January 2010, and there was another downward nudge for inventory.  2010 might be an Okay year for real estate, It will probably be a transitional year, where prices will remain stable and the market reaches the magic 3 to 4 month supply of inventory.