I looked at how many of the closed sales in my local communities were under $100,000 compared to total sales. I also wanted to find out what percentage of these lower priced sales were paid with cash rather than financed. The numbers really tell the story. For the south side of Chicago (as defined by the MLS), the percentage of total sales under $100,000 was almost 70%. Wow. For the south suburbs (those mostly north of I-80), the percentage is still almost 50%. Crazy. The percentage of these sales under $100,000 that were paid with cash versus financing is around 80% for both of these areas. This puts the borrower who needs financing at a disadvantage in the competition for these homes . Cash beats financing in deal after deal in this market.
I also wanted to demonstrate that it was not in the best interests of these buyers to bid significantly below list price. Overall, sales price to list price is 93 and 94% for these areas. If the ratio is that high, there are a decent number of buyers offering above the listed price in order to secure the property. Buyers have to keep in mind that these homes are already priced below market. The list price for physically distressed homes usually factor in some kind of discount for repairs needed. You’re not giving away anything by offering list for a home that you know is priced low to sell.
This is a market where wealth will be built. For some first-time homebuyers or existing homeowners wanting to downsize, there is great opportunity. You just have to be aware of the market. Sales Activity Under $100K*
*Source: Midwest Real Estate Data, LLC
“Forget the Doom and Gloom… It’s a GREAT time to Buy!”
Foreclosures for the state of Illinois declined 27% in February compared to January levels. Foreclosure levels were also 45% lower than February 2010. Illinois currently has the 11th highest rate nationally. Foreclosure filings also fell significantly in Illinois (33% lower than January levels). It should be noted, however, that IL still ranks third in the nation due to high unemployment and a lagging economy.
The lower foreclosure rate appears to be having a positive impact in a number of communities in the greater metropolitan Chicago area according to MLS data for Northern Illinois. Overall, the average and median sales price is flat through February 2011 compared to the same period in 2010. [Click here to see market statistics by town.]
This news sounds encouraging but the consensus is that the decline in foreclosures is due more to court challenges regarding the processing of foreclosure paperwork and other cases affecting the mortgage industry. In other words, this may just be a lull in the storm before the next hit starts. It has been widely reported that the shadow inventory of foreclosure will strongly impact the housing market. The shadow inventory for the Chicago area is, not surprisingly, huge. As a matter of fact, Standard and Poor’s estimated 59 months to clear this inventory as of the end of 4th quarter 2010. The impact of a significant number of additional foreclosures is expected to cause market values to decline.
This actually may be a pocket of good news for some sellers. This is not a recovery in prices but sellers looking to put their home on the market this year may want to act sooner to take advantage of this lull. Less competition from foreclosures is definitely a good thing. Homes that are properly priced and prepared for viewing may just net a better price than later in the year.
“Forget the Doom and Gloom… It’s a GREAT time to Buy!”
In almost every conversation I have with potential sellers, the conversation begins with the line “I’m not going to give my home away!!” Despite the comps, there is the perception that they are being cheated on the price. Typically, the conversation will include a list of all the past projects and improvements made on the house. If it was purchased during the peak of the market, the owner will mention how much they paid for it. And, of course, the appraised value was this much just 3-4 years ago, how can it be worth so much less?
I am reminded of the caveat used in the stock market. “Past performance is no guarantee of future value.” Market valuation– whether you are talking about stocks, cars, housing or anything else—is determined by what current buyers are willing to pay. The price that buyers are willing to pay is based on the asking price of today’s choices. Remember the tech bubble of the nineties? That was fun while it lasted. The returns were so high that you could withdraw money and the market would make up the difference within months. However, after the bubble burst, many of those same stocks were worth a fraction of what they were at their peak. Markets have cycles. Financial markets have cycles. Housing markets have cycles. This cycle just benefits the buyer rather than the seller.
You are not giving your home away if you sell it at market value. However, you can be guilty of giving away some of your price. If you insist on initially pricing your home higher than the market value, you give away some of your price because in a declining market your home may be worth less in the future than it is today. It is also a fact that many times, small incremental price changes often result in homes being sold at less than market value. Price changes to stay current with a changing market value is different from price changes to inch your way down to market value.
You also might be guilty of giving away a little bit of your price when your home is not presented well. Exterior curb appeal and a nice interior help your home stand out in any market. In a market with such high inventory, it can make a big difference. Many buyers want a home that is in move-in condition.
You also may be giving away some of your price if you don’t allow interior pictures. Most buyers start on-line and interior pictures are a big part of marketing your home on the internet. It is documented that homes with few or no pictures are not clicked on (viewed) as often as those with more interior pictures. You want your home properly marketed in the place where buyers are looking.
For those still focused on the costs of past improvements and projects of their home, you just have to let go of the idea that you will get a dollar for dollar return for those past expenditures. Actually, in most cases, you never get 100% return of your costs. What those projects will do is have your home viewed as a comparable home for other homes in similar condition. The value of your home is compared against other homes with gourmet kitchens, hardwood floors and new roofs. Often, these homes are selling at a higher price. The fact that you have invested in your home does matter but only in the context of what’s happening in this market not the past.
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“Forget the Doom and Gloom… It’s a GREAT time to Buy!”
In general conversation, there is a lot of emphasis put on the credit score when it comes to discussing financing qualifications. However, this is not your only concern.
- Down payment – The days of no down payment are largely gone. Lenders expect you to have some “skin in the game” when purchasing a home. Expect to need 3.5% for FHA loan. Current credit scores to qualify for 3.5% are 640. You can qualify for a FHA loan with lower scores but they also require “clean credit” for the last 24 months and other criteria. Conventional loans will require down payments of 5-20%.
- Closing costs – Closing costs for buyers include such expenses as attorney and appraisal fees, loan fees, title costs, property tax and insurance escrow. Expect this to be 3-6% of the purchase price. In today’s buyers market, this can often be included in the negotiation with the seller but that is not guaranteed, of course.
- Debt levels – Lenders will require that your debt levels be limited to a certain percentage of your income. For FHA loans, your housing costs should generally be no higher than 31% of your gross monthly income. Housing costs include Principal, Interest, Taxes and Insurance (PITI). Total revolving debt (housing costs plus credit cards and loans) should be no higher than 43% of gross monthly income. If you carry high amounts of debt, this is the time to start paying it down. The ratios for conventional loans are even stricter. Housing costs should be 28%. Total revolving debt is limited to 36%.
- Credit report – In addition to the score, the specifics of the credit report are also important. Late payments, bankruptcies, judgments and previous foreclosures also affect whether you will qualify for a home loan. FHA has more lenient qualifications than conventional but recent late payments will knock you out of consideration.
The above is meant to give you a basic grounding for getting your finances in place to purchase your home. It is best to meet with a lender early in the process. In addition to assessing your qualifications, a lender will give you a dollar amount of how much you can expect to get.
On top of whatever you are told by your lender, you also need to look at your individual obligations. You also need to factor in tuition payments, child care costs, retirement savings, emergency savings and any other obligation that determines how much you can afford to pay for a mortgage.
It’s a lot to consider but buying a home should not be an impulse decision. It is an absolutely great time to buy. Rates are low. Choices are high. Prices are great. This is an incredible time to buy that dream home, downsize, or purchase an investment property or second home. Seize the moment!
“Forget the Doom and Gloom…It’s A Great Time to Buy!”
The market outlook for 2011 for the Chicago area overall is not rosy. According to Crain’s Chicago business, Chicago had the second highest level of home repossessions among all U.S. metropolitan areas in 2010. There was a 20% increase in repossessions from 2009. There was a 16.1% increase in foreclosure filings.
There has been a lot of discussion about the shadow inventory of foreclosures and the number of months that it will take to clear the inventory. The most recent assessment by Standard & Poor’s Rating Services reports that the shadow inventory for the Chicago metro area would take 59 months to clear based on fourth quarter 2010 data. This includes the broad definition of foreclosures including those that are 90-plus day delinquencies, properties in the foreclosure cycle and REOs. The increase from earlier estimates is said to be due to the deceleration of the distressed property liquidation rate rather than a rise in overall distressed property levels. In other words, the timeline for properties to complete the foreclosure cycle lengthened.
Buyers have to start buying in order for us to recover. Investor activity is on fire. The average price of bank-owned properties in Cook County is only $79,900 [Source: RealtyStore.com]. If the concern is being qualified to get a loan, speak to an agent who can refer you to a lender that can let you know where you stand and give you some pointers for getting to where you need to be. There is time to get in on the opportunities in this market. Interest rates are below 5%. Some buyers may be able to take advantage of down payment assistance programs. FHA downpayment levels are still only 3.5%. Forget the doom and gloom. You can’t time the housing market any more than you can the stock market. Different areas will recover at different times. Interest rates won’t stay this low forever. Prices may decline a little more but they are at levels in some areas not seen for a decade. What are you waiting for?
Millie C Lumpkin, SFR
Century 21 Pro-Team
“Forget the Doom and Gloom. It’s a Great Time to Buy”
Selling Your Home – Presentation is Important
No one will argue that appropriate pricing is key in this buyers’ market. However, the presentation of your home is also important in selling your home and in attracting and keeping the attention of potential buyers. Otherwise, your pricing has to work harder. I am not suggesting that sellers be prepared to put forth an HGTV-style staging but some simple steps can go a long way.
- De-clutter – Your potential buyer should not have to strain to see the potential of your home behind piles of clutter. Buyers will look in closets and pull open those kitchen cabinets and drawers. Also, those extra items stored on the counters, on top of the refrigerator and in the corners detract from the features of your home. Finally, for the pack rats out there, organized clutter is still clutter. Less is more.
- Clean – Enough said.
- Maintenance – Finish those uncompleted projects. Fix those simple plumbing problems such as the dripping faucet, clean the gutters, patch the holes in the wall, etc.
- Painting – If you have strong or overly feminine colors, 1990’s sponge treatments, or peeling wallpaper, consider painting. Painting is cheap, easy and makes a big difference.
- Depersonalize – Personally, I love collecting refrigerator magnets from places I visit and having school notices right where I can see them. I love family pictures and try to display those cute knick-knacks collected over the years. However, when selling, I want the focus on the attributes of the house not the stuff.
- Emphasize the Square Footage – You want to emphasize the square footage in your house. Too many pieces of furniture or big bulky furniture make a room look smaller. If the agent has to constantly direct the buyers attention to the MLS listing to verify that “the bedroom really is a nice size”, that’s not a good thing. You want to have a feeling of an open, spacious environment.
- Curb Appeal – Shovel the sidewalks and driveway, clean and mulch the flowerbeds, and take care of that peeling paint on the shutters and windowsills. You may also want to consider power washing the deck and siding. Make the outside inviting.
These are the basics…no ground-breaking advice. However, these general tips can help make your home appear well-maintained and attractive when selling your home. They won’t allow your home to sell for more than market value but they definitely may make sure that your home is considered. Of course, if you can afford to do more such as replacing older carpeting or updating that 1970’s bath, it can’t hurt. However, in an economy where many don’t have the funds to invest a lot of money into staging, a little elbow-grease can make a difference.
It’s no secret that buyers have the advantage in this market. There are certainly some negatives—a still struggling economy, stricter lending guidelines and reports that we still have not hit bottom. However, there are some areas that are priced now at levels not seen for almost a decade. Interest rates are below 5% and inventory is plentiful. On balance, the pros definitely outweigh the cons for buyers. Some buyers are uncertain but as long as your home buying experience is recognized and respected as a major transaction, this market has opportunities that should be embraced rather than shied away from. Buyers should just proceed with eyes wide open.
- One reason for the length of time that many (but not all) homes are on the market for so long is the price. As part of setting your offer price, your agent should provide a buyer’s CMA that should give you an idea of the fair market value of the home. You don’t want to offer too much but be aware there is also some risk in “low-balling” an offer on a home that you really want.
- Speaking of ”low ball” offers, this is a buyer’s market but for a great buy there are generally multiple offers. Don’t miss out by assuming the banks are desperate and willing to accept anything. The banks generally have guidelines as to how far below fair market value they will go.
- Short sales – short sales just take time. It’s assumed they will take 4-6 months (sometimes longer) to close. If your offer is too low, the seller’s paperwork is incomplete or they are unresponsive, the timeline can be extended or the offer rejected. Short sales can be a great option for many buyers but definitely purchase with EYES WIDE OPEN.
- Banks are lending. If you are considering a purchase, speak with a lender earlier rather than later. He or she can let you know if you qualify, how much you qualify for, discuss types of loans, down payments and give you an idea of closing costs in your purchase range. If there’s some tweaking needed as far as your credit, debts or saving money, you give yourself some time to deal with it by seeing a lender early in the process.
- Finally, make sure you get a home inspection and work with an attorney. There are protections in the purchase contract for you. Take advantage of them. Do the home inspection to make sure that your great deal is not spoiled by an immediate roof replacement, foundational issues, termites or any other item that you are not financially prepared for. As far as an attorney, hiring a real estate attorney for your purchase is always a good idea. In addition, foreclosures and short sales often come with extra addendums outside of the standard contract from the seller’s attorney. They have legal representation. You should too.
Bottom line — do your research, ask questions, and make sure you are comfortable with what’s going on. This market has opportunities that seldom come along for buyers.
“Forget the Doom and Gloom, it’s a Great Time to Buy”
As I sit drinking my coffee this morning, I hear another negative news report on the state of the housing market. This one reported that in the city of Chicago, banks have just walked away from about 2,000 homes. There may be a question mark in other areas of the country as to whether the housing market is beginning to recover. In the greater Chicago area, however, there is no question that we are not there yet.
The news, however, is not all bad. As it is often said, real estate is local. A review of community level market statistics* shows that some areas that have historically attractive remain appealing. In some of these areas, average and median sales prices were relatively flat or even up when comparing 2010 vs. 2009. Some of those with positive growth include Beverly, Hyde Park and the near and lower west sides. Other areas are showing positive growth due to robust investor activity.
In the suburbs, there were also several communities with positive growth. Oak Park, Glenwood, Monee, Orland Park, Tinley Park and South Holland all reported flat or positive growth in 2010 vs. 2009.
Amidst all the doom and gloom, there are pockets of good news. Although some of these listed areas are admittedly priced lower than they were during the peak of the housing bubble, there were not the declines last year experienced in so many other areas of Chicagoland.
For a complete list of market statistics by community, click here.
“Forget the Doom and Gloom, this is a GREAT time to buy”
[Source: Midwest Real Estate Data LLC]