I hope that all of you are having a great holiday season despite the weather and gloomy economy. As many of you may know because the media is actually reporting it, interest rates on 30-yr FIXED conforming (loan amount of $417,000 or less) loans hit a low of 4.75% yesterday and are continuing to hover under 5% today. I am not a big proponent of pushing my buyers to think about buying before they're absolutely comfortable so I am sending this email after some deliberation as many of you have signed leases into 09 and '10 and others are waiting to put more aside to buy a bigger or more long-term place. However, I just wanted to urge you to think about the opportunity at hand since rates are at their lowest since 1960 and prices are back to 2005 levels - a rare confluence of cheap money and cheap property prices.
What this means in your world is that compared to 3 weeks ago, interest rates have dropped to a point where the $400,000 property of 12/1/08 is now effectively priced at $356,000 when the new lower monthly payment is calculated. Or to put it another way, with the same monthly payment you'd be making at 12/1/08's rates, you'd be able to buy a $444,000 place and keep the monthly payment the same as it was at the old higher (but still historically really low) interest rate.
Again, I am not telling you to scrap well-laid plans and to breach leases, etc. but it might make sense to call a/your mortgage person to see where you stand. It might make sense to break your lease (rental rate MULTIPLIED BY months left on your lease = $) if the cost of doing so is offset by the benefit of buying at these interest rates and prices. Thought of another way, if it would cost you $10,000 to break your lease or if you have to sell for $10,000 less than you'd like AND you intend to buy and stay in a place for at least 2 years, the savings on the theoretical $400,000 property may outweigh that cost when one adds up the monthly interest savings AND the very real potential that the $400,000 property will be worth more than $400,000 in 24 months.
I hope this helps and doesn't confuse or scare anyone. I am not advocating that you do anything that makes you uncomfortable and good deals will still be there in early 2009 but I did want to make sure you at least thought about the situation.
It’s tempting when you read about the growing number of housing foreclosures across the country and locally here in Chicago to consider entering the market for distressed properties. After all, there are plenty of housing bargains to be found, right? But before you take the plunge, you should consider this: Purchasing a foreclosed property or a short sale is far riskier - and much more challenging - than is buying a typical residential home.
There is certainly an opportunity for investors to find foreclosed properties in the Chicago area. Geoff Smith, vice president of the Woodstock Institute, said recently that the number of foreclosures in the Chicago area will rise nearly 40 percent to more than 53,000 in 2008. But finding a foreclosed property and buying one are two different matters.
First, don’t try to buy a foreclosed property without the help of a licensed REALTOR® who has experience working the foreclosure market. Such a REALTOR® can help you find a good home for a good price. Such a REALTOR® can also help you avoid some of the more common pitfalls associated with buying a distressed property.
Second, remember that foreclosed homes are often in terrible shape. Owners who are about to lose their homes don’t always take the best care of their residences. Some, frustrated at their situation, may even take out their anger on their property, intentionally damaging their homes. If you want to invest in a foreclosure, don’t expect a home that’s in top condition.
Third, don’t be unrealistic. You can’t buy a HUD home for $1. That’s a myth. Don’t expect to steal a property just because a bank is selling it. Again, by working with a REALTOR® with experience in the foreclosure market, you can determine what homes are good values and which ones aren’t. Just don’t expect too much. Remember, too, that foreclosures often require far higher down payments than do typical residential purchases. Often, buyers are required to put down 50 percent or more of the sales price of a foreclosed home.
The competition in this market is fierce, too. You may have to compete with several other offers, which means you may end up paying more than asking price for a short sale or foreclosure. Also expect extremely long delays when you’re waiting for a response from a bank on either a short sale or foreclosure. Committees usually approve or reject offers on such properties, and committees, unfortunately, rarely act quickly.
The foreclosure market is a solid one for many investors. But it’s also one that can trip up most casual buyers. If you are interested in pursuing the foreclosure market, think long and hard first. And then, if you’re still interested, seek out a REALTOR® who’s helped others enter this often lucrative but equally risky market.
Today’s mortgage lenders are a lot more cautious about whom they pass out mortgage loans to. During the heyday of the housing boom, even borrowers with suspect credit – not to mention high levels of debt and shaky job histories – were able to obtain mortgage loans with low interest rates.
Thanks to the credit crisis currently gripping our nation, this is no longer the case. Today, borrowers better have solid credit if they hope to qualify for any mortgage loan at all.
What if your credit isn’t the best? Don’t panic. You can rebuild your credit score. It will take time, and you may have to put off your purchase, but it can be done. Mortgage bankers and brokers can help, too, and often do work with potential borrowers to improve their credit scores as part of their service.
First, order copies of your credit reports from the three credit bureaus, Experian, Equifax, and TransUnion, something you can do for free by visiting AnnualCreditReport.com, a Web site that is owned jointly by the three bureaus. The credit bureaus occasionally make mistakes. If you find a mistake on your report, you need to correct it. Doing so might boost your credit score. Unfortunately, this takes a fair amount of time, so be sure to check your credit reports well before you’re ready to start applying for a mortgage loan.
Secondly, if your credit score is low, that’s a sure sign that it’s time to eliminate your credit-card balances. According to the Federal Reserve, the average amount of credit-card debt in this country now stands at $8,700 a household. You can’t have this much debt on your cards, though, if you want a good credit score. The credit bureaus consider revolving credit-card debt to be bad debt. If you pay off your balance every month, of course, there is no negative impact on your credit.
Remember, too, that the credit bureaus keep a close eye on your ratio of credit used to credit available. For instance, if you have a $10 balance on a credit card with a limit of $100, your ratio of credit used to credit available stands at 10 percent. That’s worse, actually, than having a balance of $10,000 on a card with a limit of $200,000. In this later example, the ratio of credit used to credit available stands at a healthier 5 percent.
Next, pay all your bills on time. Even if you’ve not done this in the past, start doing it now. Late payments are the number-one reason why people have bad credit scores. If you consistently pay your bills on time, your credit score will rise.
The unfortunate truth is that all three of these steps take time. You can’t turn a bad credit score into a good one in a day, no matter how many spam e-mail messages promise that you can. This means you may have to wait a year or more to buy a home. Don’t view this as a negative. Look at it instead as a chance to rebuild your credit score and improve your financial health at the same time. If you do both, you’ll truly be ready to become a homeowner.
Now that we are suffering through one of the most serious housing slumps that I can remember, much of what I’ve long told buyers and sellers suddenly carries more weight. There is no clearer example of this then my longstanding recommendation that homeowners and buyers work with REALTORS® who are advisors, not mere order takers, when buying or selling a house.
During the housing boom, REALTORS® didn’t have to work as hard to be successful. Homes sold in record time. Sellers juggled multiple offers. And buyers were willing to pay full listing price or higher to get their dream homes. We all know that this has now changed.
Today, more than ever, sellers and buyers have to work with REALTORS® who earn their commissions by providing them with sound advice on properly managing the purchase or sale of their largest financial investment. They need to work with REALTORS® who will sit down with them to determine exactly what it is they are looking for from their home sale or purchase. The best REALTORS® then create strategies for achieving these desires. They don’t just list a home. They don’t just drive buyers from property to property. They work with their clients to make sure that what might be the biggest financial move of their lives is a wise one.
I was reminded of this when I read this story in the Seattle Times. The story focuses on the work that REALTORS® are doing to educate themselves on new lending programs, the shifting fortunes of the market and the features that buyers are looking for when purchasing a home.
Armed with this knowledge, REALTORS® give their clients every possible advantage in what has become an extremely difficult and competitive market.
Remember, your REALTOR® is just as important to your financial health as any financial advisor. When you interview REALTORS® to work with you, ask them what steps they are taking to meet the challenges of our new market, what research they’ve done on suddenly important products like FHA loans and how they’ve fine-tuned their marketing efforts now that homes are taking far longer to sell.
You do the research when you buy a car, right? Be as vigilant when you’re deciding with which REALTOR® to work.
As someone who makes his living selling real estate, I like to keep up with our city’s economic fortunes. After all, when Chicago’s economy is humming along, more people think about buying and selling homes. When it’s not? That means I have to work just as closely with my clients to make sure they are taking all the steps necessary to either sell their homes for fair prices or buy their ideal homes without overpaying.
The Nov. 13 edition of the Chicago Sun-Times, then, did little to make my morning. There on the front page, in a big, bold headline, was the news from Mayor Daley that local corporations are expecting “huge layoffs” to hit our city very soon. You can read the grim news here.
What does this mean for Chicago homebuyers and sellers? It means that more residents of our city are going to be facing uncertain financial times. More are going to be worrying about losing their homes and meeting their mortgage payments.
For buyers, it may mean even more homes on the market for amazing prices. During this real estate slump, buyers have benefited. They are now able, even in some of Chicago’s top neighborhoods, to get more home for their money. That isn’t going to change. Housing affordability might even improve a bit.
For sellers, the news isn’t as good. Many homeowners will be forced to sell their homes. No one wants to be in this situation. But if you are, it’s imperative that you work with a skilled, savvy REALTOR®, one who knows your neighborhood and the best price to attach to your residence. Such a REALTOR® can get you a fair sale in the least amount of time possible.
This has been a challenging time, not just in Chicago but across the nation. I still maintain that we’re fortunate to live and work in the city. The real estate crash has been far more serious in places like California, Florida and Nevada. While housing prices here have dipped in some neighborhoods, there are other neighborhoods, such as Lincoln Park, the Gold Coast and Lincoln Square, where housing prices have either remained solid or have actually risen. The city also benefits from a diverse economy. It’s not dependant on one industry, but on many. That helps during an economic slowdown.
There may also be an Obama effect. A new administration might be willing to try new ideas to resolve our country’s housing and economic slumps. And you can’t discount the sense of excitement that Obama’s historic election has brought to many in this country. It may be symbolic, but when people are optimistic about the future, they are more willing to invest in items such as housing.
Perhaps the most important thing to keep in mind during this economic slump is to remember that we will get through this time. The same edition of the Sun-Times had an excellent column by writer Mark Brown. He wrote about all the recessions of his lifetime, seven in all. Despite that, the column wasn’t depressing at all. The point was that he and his family, not to mention the country, had survived all of them. We’ll survive this one, too.
Mario Greco is the #2 full-service residential real estate agent in Chicago. He has sold over $575 million in Chicago real estate since 2002, and leads a group of 8 agents and 9 office personnel.
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