In another year of taxes due, I wanted to remind everyone that the Cook County Assessors office has released the new tax assessments for the 2005 first installment on your property tax bill.
If you don’t receive it in the next few days you can contact the treasurers office at 312.443.5100 or visit their website here.
First installment taxes are due by March 1 and can be paid at any Chase Bank.
If you have any questions call me or visit my site and email me.
Monday, January 30, 2006
Friday, January 27, 2006
December Homes Sales
December Homes Sales Data Down; 2005 Homes Sales Set Record
Here is a report of the continuing mixed messages from the media on home sales across the nation. On the one side, we see “RECORD SETTING HOMES SALES” for the year as headlined in the USA Today newspapers. On the other hand, we are seeing the focus on the December reports which are showing a decline in existing home sales of 5.7%. As I’ve stated in my previous blog posts, this news to me is good news for the overall national economy, as the trends which were artificially escalating home prices have begun to wane, and the industry is (I hope) beginning to settle into a more ‘normal’ pace of growth for the year.
Here is a partial article published by the National Association of Home Builders on the annual 2005 stats and the December reports for existing home sales. For a link to the article see below and as always, if you are looking for a real estate professional of choice in the City of Chicago, Don't Forget to Remember Jim!
(January 25, 2006) -- Existing-home sales declined in December but easily set an annual record, according to the NATIONAL ASSOCIATION OF REALTORS®.There were 7.07 million existing-home sales in all of 2005, up 4.2 percent from 6.78 million in 2004. This is the fifth consecutive annual record; NAR began tracking the sales series in 1968.However, total existing-home sales for December — including single-family, townhomes, condominiums and co-ops — were down 5.7 percent to a seasonally adjusted annual rate of 6.60 million units from an upwardly revised pace of 7.00 million in November. Sales were 3.1 percent lower than a 6.81 million-unit level in December 2004.David Lereah, NAR’s chief economist, expected the monthly sales decline. “This is part of the market adjustment we’ve been discussing, with a soft landing in sight for the housing sector,” he says. “The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead. Overall fundamentals remain solid, driven by population and employment growth as well as favorable affordability conditions in most of the country, so we expect the housing market to remain historically high but lower than last year’s record.”
For a full view of the NAR article click here
Here is a report of the continuing mixed messages from the media on home sales across the nation. On the one side, we see “RECORD SETTING HOMES SALES” for the year as headlined in the USA Today newspapers. On the other hand, we are seeing the focus on the December reports which are showing a decline in existing home sales of 5.7%. As I’ve stated in my previous blog posts, this news to me is good news for the overall national economy, as the trends which were artificially escalating home prices have begun to wane, and the industry is (I hope) beginning to settle into a more ‘normal’ pace of growth for the year.
Here is a partial article published by the National Association of Home Builders on the annual 2005 stats and the December reports for existing home sales. For a link to the article see below and as always, if you are looking for a real estate professional of choice in the City of Chicago, Don't Forget to Remember Jim!
(January 25, 2006) -- Existing-home sales declined in December but easily set an annual record, according to the NATIONAL ASSOCIATION OF REALTORS®.There were 7.07 million existing-home sales in all of 2005, up 4.2 percent from 6.78 million in 2004. This is the fifth consecutive annual record; NAR began tracking the sales series in 1968.However, total existing-home sales for December — including single-family, townhomes, condominiums and co-ops — were down 5.7 percent to a seasonally adjusted annual rate of 6.60 million units from an upwardly revised pace of 7.00 million in November. Sales were 3.1 percent lower than a 6.81 million-unit level in December 2004.David Lereah, NAR’s chief economist, expected the monthly sales decline. “This is part of the market adjustment we’ve been discussing, with a soft landing in sight for the housing sector,” he says. “The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead. Overall fundamentals remain solid, driven by population and employment growth as well as favorable affordability conditions in most of the country, so we expect the housing market to remain historically high but lower than last year’s record.”
For a full view of the NAR article click here
Sunday, January 22, 2006
Why We Love the City of Chicago
Here is a link to a pictorial review of why we love this great City of Chicago.
If you are interested in seeing more about the real estate information and statistics for various neighborhoods in the city, in the region and nationally, visit our website.
Jim Gramata
Broker Associate
Friday, January 20, 2006
Edgewater Live!
Check out my Edgewater podcast on the beginnings of what I hope will be a useful resource for our Chicago Edgewater community.
Thursday, January 19, 2006
3rd Quarter 2005 Market Stats Video Podcast
Here is a republishing of the Third Quarter real estate market statistics which we published last month. It is a general summary of the data including National statistics, regional statistics for the East coast, Midwest, Mountain, South and West Regions as well as a detailed review of the Chicago area market for the quarter. You can check out my video podcast here for a full audio review of the recent market statistics and property listings. As always, all of this information is available at www.REMEMBERJIM.com including free pdf downloads of all of the reports referred to in this audiocast. You can also check out my audio podcast here for a full video and audio review of the recent market statistics.
Download it, store it to your ipod or mp3 and listen to it anytime that's convenient for you. I hope you enjoy this recording and please subscribe. There are lots more to come and they are free!. Also, feel free to call me and ask any of your real estate questions at 773.252.HOME or visit www.REMEMBERJIM.com.
Fourth Quarter market stats are available for Chicago here and a full 4thQ report is coming soon once national data are released Jan 25, 2006.
Link: http://www.jimgramata.com/market/Chicago3Q05V2.mov
Chicago Feed Burner
This is an article from Crain's Chicago Business that highlights one of the local Chicago founders of the RSS feed site I use to format my podcasts for syndication on the web, Feedburner. I never knew the company was a local Chicago startup so I thought I'd post this interesting article and wish them the best of luck:
See Jim Gramata's FeedBurner feed here
Info Feeder
A former actor from a local improv theater troupe is leading a Chicago tech start-up into the media unknown.
Dick Costolo is CEO of two-year-old FeedBurner, a West Loop company that manages RSS feeds on the Web.
RSS – short for “really simple syndication” – allows users to subscribe to “feeds” from various Web sites. Readers essentially create their own personalized information service, getting the news, video “podcasts” or blog musings they want whenever new items are published that meet their preset criteria.
FeedBurner has been adding thousands of publishers a month to its list of sources. Most are bloggers. But increasingly, mainstream media outlets are signing on with the 19-member firm to have it manage feeds, tracking what readers click on and when to allow publishers to more strategically place ads.
Link to article
***
See Jim Gramata's FeedBurner feed here
Info Feeder
A former actor from a local improv theater troupe is leading a Chicago tech start-up into the media unknown.
Dick Costolo is CEO of two-year-old FeedBurner, a West Loop company that manages RSS feeds on the Web.
RSS – short for “really simple syndication” – allows users to subscribe to “feeds” from various Web sites. Readers essentially create their own personalized information service, getting the news, video “podcasts” or blog musings they want whenever new items are published that meet their preset criteria.
FeedBurner has been adding thousands of publishers a month to its list of sources. Most are bloggers. But increasingly, mainstream media outlets are signing on with the 19-member firm to have it manage feeds, tracking what readers click on and when to allow publishers to more strategically place ads.
Link to article
***
Wednesday, January 18, 2006
We Know It's Coming, But What is Zillow?
Talking about creating hype in its veil of secrecy. Teasers here. Expedia founder that. Just come out with it already! In case you haven't heard, there is a new real estate based company started by Expedia founder, Rich Barton that is going to launched sometime this year. He has collected a group people that's a "who's who" of successful people.
We know it will "change the course of real estate forever"; We've heard that before, but I tend to feel this statement has more impact than ever. I will be curious as to the business model they developed and what niche they are filling. It does appear there are gaps in both FSBO, discount broker and full service brokers that can provide a basis for a new business model.
Below is a partial copy of an article on the Zillow topic posted today at Inman.com (http://www.inman.com/hstory.aspx?ID=49647)
Readers attempt to unravel Seattle company's mystery
Wednesday, January 18, 2006
Inman News
What is Zillow? It's a Seattle real estate startup headed by Expedia creator Rich Barton that will be consumer and Internet focused. Barton last week said, "It's going to be provocative, but we're not going to be an agent."
Aside from those tidbits, no one knows exactly what Zillow will be when it launches this year. Company officials have been tight-lipped about the business model and everyone in the industry is intrigued to find out.
That's why Inman News is announcing a "What is Zillow?" contest. The exact winning entry will win two free passes to Real Estate Connect SF, July 26-28. Here are the rules: in one paragraph describe exactly what tools, information and business model Zillow will deploy. You must identify yourself. To enter, simply use the comments feature on the Inman News Blog. The judges will be the Inman News editorial team.
Here are the serious and fun Inman News team guesses:
1. Knock-off of Trulia;
2. Knock-off of PropertyShark;
3. A virtual real estate game with Brad Inman as the villain;
4. An online real estate dating service;
5. A national MLS.
Link to article
***
We know it will "change the course of real estate forever"; We've heard that before, but I tend to feel this statement has more impact than ever. I will be curious as to the business model they developed and what niche they are filling. It does appear there are gaps in both FSBO, discount broker and full service brokers that can provide a basis for a new business model.
Below is a partial copy of an article on the Zillow topic posted today at Inman.com (http://www.inman.com/hstory.aspx?ID=49647)
Readers attempt to unravel Seattle company's mystery
Wednesday, January 18, 2006
Inman News
What is Zillow? It's a Seattle real estate startup headed by Expedia creator Rich Barton that will be consumer and Internet focused. Barton last week said, "It's going to be provocative, but we're not going to be an agent."
Aside from those tidbits, no one knows exactly what Zillow will be when it launches this year. Company officials have been tight-lipped about the business model and everyone in the industry is intrigued to find out.
That's why Inman News is announcing a "What is Zillow?" contest. The exact winning entry will win two free passes to Real Estate Connect SF, July 26-28. Here are the rules: in one paragraph describe exactly what tools, information and business model Zillow will deploy. You must identify yourself. To enter, simply use the comments feature on the Inman News Blog. The judges will be the Inman News editorial team.
Here are the serious and fun Inman News team guesses:
1. Knock-off of Trulia;
2. Knock-off of PropertyShark;
3. A virtual real estate game with Brad Inman as the villain;
4. An online real estate dating service;
5. A national MLS.
Link to article
***
Monday, January 16, 2006
How Cool is it the Market is Cooling?
So many people are asking me how the market is expected to do this coming year. Of course the answer depends on which part of the country (world) your asking that question from, but the general answer I am giving is the economy is returning to a "more normal" pace.....i.e., it has been on such a white hot pace the past five or six years, that the "cooling" which in many peoples minds is a NEGATIVE actually makes me more confident in the markets future.
Why?
Because the increase in investors in the national real estate market since the dot.com crash of '01/'02 has been well documented. People became frightened when the almight stock market was inflated like a bubble (hey wait that's a real estate term!) and people jumped on the dot.com bandwagon to make a quick buck.
Then (much to my dismay believe it or not) many jumped the stock market/mutual funds ship and rode out the last four years in the 'white hot' real estate market. However, whenever there is a massive jumping of ship and the market begins to feel the pressures applied to it internally from the armchair investors who "will buy something, sit on it a few months and flip it and make a killing" bubbles start to form in the perception of the 'invincible' armour of the real estate market (See Bubbles Hurt, Just Ask Japan from 12/25 blog).
So, I am very glad to see the "cooling" of the market and the heating up of the stock market (now over 11,000 from its low of 7,200 a few years back). I think it will help stabalize the real estate market across the nation to more realistic valuations and the panic bubbles which may still be out there are less likely to have an effect in the near future.
Of course, the new Fed chairman will have a huge effect on the real estate market and financial centers depending upon which course of action he takes the ship (i.e., will he continue the Greenspan rate increase or has inflation been put in check and will the short term rates take a breather from the steady rise we've seen...we will see)
Like all investments, I believe in a slow methodical and patient investment of money and the (almost) inevitable respectable rates of return which can be enjoyed in the real estate market (this of course is true in any market including the stock market).
While the headlines will be running "cool" on the real estate market, I believe the numbers will actually still show growth and the returns will be returning to more normal rates of growth which, to this conservative, methodical investor, is a good sign of the year to come.
Happy New Year.
Why?
Because the increase in investors in the national real estate market since the dot.com crash of '01/'02 has been well documented. People became frightened when the almight stock market was inflated like a bubble (hey wait that's a real estate term!) and people jumped on the dot.com bandwagon to make a quick buck.
Then (much to my dismay believe it or not) many jumped the stock market/mutual funds ship and rode out the last four years in the 'white hot' real estate market. However, whenever there is a massive jumping of ship and the market begins to feel the pressures applied to it internally from the armchair investors who "will buy something, sit on it a few months and flip it and make a killing" bubbles start to form in the perception of the 'invincible' armour of the real estate market (See Bubbles Hurt, Just Ask Japan from 12/25 blog).
So, I am very glad to see the "cooling" of the market and the heating up of the stock market (now over 11,000 from its low of 7,200 a few years back). I think it will help stabalize the real estate market across the nation to more realistic valuations and the panic bubbles which may still be out there are less likely to have an effect in the near future.
Of course, the new Fed chairman will have a huge effect on the real estate market and financial centers depending upon which course of action he takes the ship (i.e., will he continue the Greenspan rate increase or has inflation been put in check and will the short term rates take a breather from the steady rise we've seen...we will see)
Like all investments, I believe in a slow methodical and patient investment of money and the (almost) inevitable respectable rates of return which can be enjoyed in the real estate market (this of course is true in any market including the stock market).
While the headlines will be running "cool" on the real estate market, I believe the numbers will actually still show growth and the returns will be returning to more normal rates of growth which, to this conservative, methodical investor, is a good sign of the year to come.
Happy New Year.
Sunday, January 15, 2006
Lakeview Investment Property Videocast
1334 W George Street , Lakeview
Enjoy this movie of the 1334 W George Street which we are offering for sale for $899,000 in the Lakeview neighborhood on Chicago's north side located between the Lincoln Avenue and Southport corridors. See our See a Google Map here.
This 2 flat plus multi-unit opportunity is for investors, live-in investors with rentals and developers with condo or single-family conversion opportunities. Duplex up and down to aleady finished attic and basement for huge multi-unit live-in or conversion opportunities.
Take a look at the pictures in our gallery or watch this slideshow and see for yourself. Then look around the neighborhood and see what is happening in terms of developments if you don't know already. This is a great property in an excellent location. See our Gallery of Photos
You can also watch this slideshow of pictures of this exclusive featured property.
Drive by the property and if you think its a fit with what you are looking for, give me a call. I hope you enjoy this videocast. Feel free to call me and ask any of your real estate questions at 773.252.HOME or visit www.REMEMBERJIM.com.
If you are looking for a real estate agent that stands above the crowd in the Chicago area, I encourage you to visit my website and review the commitment and pledges I make to all my clients.
I offer a free buyer's coffee consultation and a free coffee consultation for seller's where I can meet you at a Starbuck's near where you live or work as a convenience to you and we can review in person my services.
If you are looking to sell your property please visit the services I dedicate to each of my clients who are selling their homes here. . As you can see I offer podcasts, gallery photos and movies as part of ALL of my marketing and sales sttrategies for each of my properties and much, much more.
If you are looking to buy a property or want to see this property and do not have an agent representative, we can meet at a Starbuck's and I will show you my buyer's program on my laptop using Starbuck's Hotspot service. If you are looking to buy and are currently working with an agent representative this is not a solicitation. Inform your agent we are offering a cooperative commission.
I look forward to hearing from you soon.
Jim Gramata
Broker Associate
Your Neighborhood Real Estate Professional
Friday, January 13, 2006
Navy Pier unveils plans for sweeping makeover
Design includes new Ferris wheel, monorail and water park
(Crain’s) — Navy Pier management today unveiled plans for a sweeping makeover of the tourist attraction, including the addition of a monorail, a new Ferris wheel and a Great Lakes-themed water park.
The Metropolitan Pier and Exposition Authority (McPier), the government agency that runs Navy Pier and McCormick Place, presented the plans to its board members this morning. McPier CEO Leticia Peralta Davis called the ideas “a first draft of a long-term vision.”
According to Ms. Davis, McPier aims to attract more visitors from Chicago, increase the average length of stay, improve pedestrian traffic flow on both levels of the pier and simplify vehicle traffic and access to the pier.
“Navy Pier is a great success today, but we need to make sure that success continues,” Ms. Peralta told the board. Navy Pier attracted 8.8 million visitors in 2004, the most recent data available. In the fiscal year ended June 30, 2005, the property generated about $42.6 million in revenue for the authority and a record $5.4 million in net income.
Link to article
(Crain’s) — Navy Pier management today unveiled plans for a sweeping makeover of the tourist attraction, including the addition of a monorail, a new Ferris wheel and a Great Lakes-themed water park.
The Metropolitan Pier and Exposition Authority (McPier), the government agency that runs Navy Pier and McCormick Place, presented the plans to its board members this morning. McPier CEO Leticia Peralta Davis called the ideas “a first draft of a long-term vision.”
According to Ms. Davis, McPier aims to attract more visitors from Chicago, increase the average length of stay, improve pedestrian traffic flow on both levels of the pier and simplify vehicle traffic and access to the pier.
“Navy Pier is a great success today, but we need to make sure that success continues,” Ms. Peralta told the board. Navy Pier attracted 8.8 million visitors in 2004, the most recent data available. In the fiscal year ended June 30, 2005, the property generated about $42.6 million in revenue for the authority and a record $5.4 million in net income.
Link to article
Housing Market to "Normalize" in 2006
Housing Market to "Normalize" in 2006
WASHINGTON (January 10, 2006) – The key word for the housing market in 2006 is balance, with a return to a more normal rate of price growth, according to the National Association of Realtors®.
David Lereah, NAR’s chief economist, said current trends in the housing sector are healthy. “We don’t need to break a record every year for the housing market to be good – in fact, cooling sales are necessary for the long-term health of this vital sector,” Lereah said. “A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong.”
After setting a fifth consecutive annual record, projected to 7.10 million units for 2005, * existing-home sales are forecast to ease by 4.4 percent to 6.79 million this year, which would be the second highest on record. New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6.0 percent to 1.21 million in 2006 – that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units – the highest since setting a record 1972 – with a 6.6 percent slowing to 1.94 million this year.
“A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling. Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year,” Lereah said. The 30-year fixed-rate mortgage is likely to trend up gradually to 6.7 percent during the second half of the year. “This will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace.”
NAR President Thomas M. Stevens from Vienna, Va., said price appreciation should be at more normal levels across most of the country. “Buyers are no longer competing for a tight supply,” said Stevens, senior vice president of NRT Inc. “That means home prices generally will rise much closer to long-term norms, which is the overall rate of inflation plus one or two percentage points. Lower price appreciation will keep the door open to first-time buyers while preserving the investment advantages of homeownership for sellers.
The national median existing-home price for all housing types, projected to jump 12.9 percent to $209,100 for 2005, is forecast to rise 5.1 percent to $219,700 this year. The median new-home price, which should be up 4.6 percent to $231,300 for 2005, is expected to increase 6.0 percent this year to $245,200.
Inflation as measured by the Consumer Price Index is projected to rise 3.4 percent for 2005 and 3.0 percent in 2006. Inflation-adjusted disposable personal income is forecast to increase 1.3 percent for 2005 and 4.6 percent this year.
Growth in the U.S. gross domestic product is likely to be 3.6 percent for 2005, with GDP seen at 4.0 percent this year. The unemployment rate is expected to drop to 4.8 percent by the end of the year.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Existing-home sales data for December, including 2005 totals, will be released January 25; the next forecast is scheduled for February 7, and the Pending Home Sales Index will be February 1.
WASHINGTON (January 10, 2006) – The key word for the housing market in 2006 is balance, with a return to a more normal rate of price growth, according to the National Association of Realtors®.
David Lereah, NAR’s chief economist, said current trends in the housing sector are healthy. “We don’t need to break a record every year for the housing market to be good – in fact, cooling sales are necessary for the long-term health of this vital sector,” Lereah said. “A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong.”
After setting a fifth consecutive annual record, projected to 7.10 million units for 2005, * existing-home sales are forecast to ease by 4.4 percent to 6.79 million this year, which would be the second highest on record. New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6.0 percent to 1.21 million in 2006 – that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units – the highest since setting a record 1972 – with a 6.6 percent slowing to 1.94 million this year.
“A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling. Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year,” Lereah said. The 30-year fixed-rate mortgage is likely to trend up gradually to 6.7 percent during the second half of the year. “This will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace.”
NAR President Thomas M. Stevens from Vienna, Va., said price appreciation should be at more normal levels across most of the country. “Buyers are no longer competing for a tight supply,” said Stevens, senior vice president of NRT Inc. “That means home prices generally will rise much closer to long-term norms, which is the overall rate of inflation plus one or two percentage points. Lower price appreciation will keep the door open to first-time buyers while preserving the investment advantages of homeownership for sellers.
The national median existing-home price for all housing types, projected to jump 12.9 percent to $209,100 for 2005, is forecast to rise 5.1 percent to $219,700 this year. The median new-home price, which should be up 4.6 percent to $231,300 for 2005, is expected to increase 6.0 percent this year to $245,200.
Inflation as measured by the Consumer Price Index is projected to rise 3.4 percent for 2005 and 3.0 percent in 2006. Inflation-adjusted disposable personal income is forecast to increase 1.3 percent for 2005 and 4.6 percent this year.
Growth in the U.S. gross domestic product is likely to be 3.6 percent for 2005, with GDP seen at 4.0 percent this year. The unemployment rate is expected to drop to 4.8 percent by the end of the year.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Existing-home sales data for December, including 2005 totals, will be released January 25; the next forecast is scheduled for February 7, and the Pending Home Sales Index will be February 1.
Monday, January 09, 2006
Top Home Buyer's Regrets After Purchase
It happens every year, home buyers regret their purchase after the house becomes theirs. Regrets are often a result of listening to poor advice from friends, family members and real estate pros, but sometimes buyers get so emotionally attached to a property that they overlook its faults and rush into a purchase. Take a bit of time to learn which mistakes are most common--it will help you make sure that your home buying experience is a good one.
1) Not Performing Inspections
Don't sign away your rights to inspect your new home prior to closing, even if you know the seller won't agree to make repairs. Inspection contingencies should always give you the option of backing out of a contract if you find that the house needs more repairs than you are willing to deal with. A whole house inspection is important, but so are checks for radon gas levels, pests, fireplaces, septic systems, private wells, molds and other potential problems.
2) Neglecting to Plan for the Future
Will you live in the house for the rest of your life? Probably not, so you'll want the property to appeal to potential buyers. Buying a home with good resale value sometimes takes a little patience and research, but you'll love the payback when it sells quickly and puts extra money in your bank account. A low price isn't a "deal" if it buys a house you'll be stuck with for a very long time.
3) Assuming the Listing Agent Would Get them "the Best Deal"
The listing agent was hired by the home seller to obtain the best possible price and terms for the property. That doesn't mean the listing agent can't work with you in a fair and ethical manner, but it does mean that you should have a full understanding of where the agent's loyalties are before you dial his phone number. You aren't obligated to call the listing agent. Most agents are members of groups called Multiple Listing Services that give everyone access to the same properties.
4) Forgetting to Read the Restrictive Covenants
You've moved in to your new house and are clearing a spot for a second garage. And it's the perfect time to take down those pine trees that drip sap all over the roof. Have you studied your deed restrictions or restrictive covenants to make sure you can make the changes? Restrictions dictate exactly what you can and cannot do on the land. You might be surprised how many people buy land and houses without bothering to determine if they can live with the restrictions.
5) Neglecting to Get All Agreements in Writing
Hand-shake agreements sometimes work out just fine, but it's risky to depend on verbal agreements for any portion of your home buying contract. Verbal agreements cannot be enforced and unless terms are in writing there's no guarantee that you and the person you are working with will have the same memory and interpretation of what was agreed to. Put every aspect of your contact in writing and make sure that everyone involved signs the agreement.
6) Not Taking a Final Walk-Through Before Closing
How would you like to walk into your new home and find out that the sellers damaged every piece of doorway molding when they removed bulky furniture? Or find a huge stain on the wood floor that had been hidden by a bed? You want to find damage before money changes hands, because it'll sure be more difficult to recover funds to make repairs after the papers are signed. Do a final walk-through after the house is vacant, on the day of closing if possible, and don't let anyone talk you out of it.
7) Taking on Too Much Debt
Many home buyers are using no-down or low-downpayment loans to purchase real estate. Even more are increasing debt by using loans to tap into their equity--the difference between what's owed on the home and what it's worth. If your equity is low, and the local real estate bubble bursts, you might owe more for the house than it's worth. That's not a problem if you plan to stay put until prices come back up, but an unexpected move could make it difficult to sell the house for a profit.
1) Not Performing Inspections
Don't sign away your rights to inspect your new home prior to closing, even if you know the seller won't agree to make repairs. Inspection contingencies should always give you the option of backing out of a contract if you find that the house needs more repairs than you are willing to deal with. A whole house inspection is important, but so are checks for radon gas levels, pests, fireplaces, septic systems, private wells, molds and other potential problems.
2) Neglecting to Plan for the Future
Will you live in the house for the rest of your life? Probably not, so you'll want the property to appeal to potential buyers. Buying a home with good resale value sometimes takes a little patience and research, but you'll love the payback when it sells quickly and puts extra money in your bank account. A low price isn't a "deal" if it buys a house you'll be stuck with for a very long time.
3) Assuming the Listing Agent Would Get them "the Best Deal"
The listing agent was hired by the home seller to obtain the best possible price and terms for the property. That doesn't mean the listing agent can't work with you in a fair and ethical manner, but it does mean that you should have a full understanding of where the agent's loyalties are before you dial his phone number. You aren't obligated to call the listing agent. Most agents are members of groups called Multiple Listing Services that give everyone access to the same properties.
4) Forgetting to Read the Restrictive Covenants
You've moved in to your new house and are clearing a spot for a second garage. And it's the perfect time to take down those pine trees that drip sap all over the roof. Have you studied your deed restrictions or restrictive covenants to make sure you can make the changes? Restrictions dictate exactly what you can and cannot do on the land. You might be surprised how many people buy land and houses without bothering to determine if they can live with the restrictions.
5) Neglecting to Get All Agreements in Writing
Hand-shake agreements sometimes work out just fine, but it's risky to depend on verbal agreements for any portion of your home buying contract. Verbal agreements cannot be enforced and unless terms are in writing there's no guarantee that you and the person you are working with will have the same memory and interpretation of what was agreed to. Put every aspect of your contact in writing and make sure that everyone involved signs the agreement.
6) Not Taking a Final Walk-Through Before Closing
How would you like to walk into your new home and find out that the sellers damaged every piece of doorway molding when they removed bulky furniture? Or find a huge stain on the wood floor that had been hidden by a bed? You want to find damage before money changes hands, because it'll sure be more difficult to recover funds to make repairs after the papers are signed. Do a final walk-through after the house is vacant, on the day of closing if possible, and don't let anyone talk you out of it.
7) Taking on Too Much Debt
Many home buyers are using no-down or low-downpayment loans to purchase real estate. Even more are increasing debt by using loans to tap into their equity--the difference between what's owed on the home and what it's worth. If your equity is low, and the local real estate bubble bursts, you might owe more for the house than it's worth. That's not a problem if you plan to stay put until prices come back up, but an unexpected move could make it difficult to sell the house for a profit.
Friday, January 06, 2006
Investors unknown factor in 'cooling' 2006 economy
This article sheds some light on the impact investors have on the eonomy and the housing market in particlular.
While housing and finance industry economists say they don't expect the real estate boom to turn to doom and gloom this year, they do say that the record run-up in housing prices and sales has run out of steam, and 2006 should be an above-normal year but probably won't make the record books.
There is an asterisk for these predictions: How real estate investors react to this downturn could foil the forecast and potentially be devastating for the housing market and overall economy, economists said during an economic outlook presented Thursday by the Homeownership Alliance, a national coalition of housing and finance organizations.
While housing has been an economic boost over the past several years, this year the housing market could be a slight drag on the national economy, the Homeownership Alliance economists generally agreed.
"It's difficult to follow the strongest year ever," said David Lereah, chief economist for the National Association of Realtors trade group, which has about 1.2 million members. "The boom is obviously winding down. That's what we're all saying and observing." Existing-home sales should drop about 4 percent to 5 percent this year, compared to the 2005 levels, Lereah said, and new-home sales should drop about 5 percent to 6 percent year-over-year.
Price drops are possible in some "very, very hot metro markets," he added, though "it's very difficult to know which markets they will be right now." Nationwide, though, Lereah expects home-price appreciation to be up about 6.1 percent this year, compared to a rise of 13 percent in 2005.
As for investors, Lereah said, "Investor activity is by far ... the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory." Speculators who bought properties to flip quickly may be left at a loss, as interest rates are rising and the market is in transition from a seller's market to a buyer's market.
David Seiders, chief economist for the National Association of Home Builders trade group, said, "I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us," he said, adding that it's a "major uncertainty" where investors would put their money if they pulled it out of the real estate market.
"All of us will be observing keenly," Lereah said. In March 2005, the Realtor trade group released a study that showed a high level of investor activity in the housing market: 23 percent of all homes purchased in 2004 were for investment, and another 13 percent were vacation homes.
Frank E. Nothaft, chief economist for Freddie Mac, said rising energy prices also have the potential to disrupt the overall economy and could potentially lead to higher-than-expected increases in the mortgage rate.
The panel of economists said they expect the Fed will soon stop its trend in raising the federal funds rate, which they expect will level off at about 4.5 percent to 5 percent this year.
There will likely be no quick solution to affordability problems in markets where home-price appreciation has outpaced income growth, though 2006 may see income growth more in-line with price gains, economists said.
Nothaft said that areas that have experienced 20 percent or more appreciation for the past several years and have also had high levels of investor activity may be at particular risk as the housing market cools. Investment activity in Las Vegas, for example, has accounted for close to 40 percent of purchase activity, he said. "What will happen in Las Vegas in the coming year? It's very hard to say."
Refinancing activity should be down about 14 percent to 15 percent this year compared to 2005, and that should lead to lower consumer spending relative to refinancing cash-outs, he said.
Nothaft also said he expects the share of adjustable-rate mortgages to tail off in 2006, from about 30 percent of the overall share in 2005 to 25 percent of the overall share, and he also expects declining activity in interest-only and other unconventional mortgage products as there is "more regulatory scrutiny and pressure on lenders."
Seiders estimated that new-home sales, which increased about 6.7 percent in 2005, should drop about 6.6 percent this year, while existing-home sales should drop about 4.8 percent this year.
David Berson, Fannie Mae
David Berson, chief economist for Fannie Mae, said he predicts an 8 percent drop in new- and existing-home sales this year, with home-price appreciation of about 3 percent. Berson said his forecast is down largely because of a high level of investment activity in the real estate sector.
"Our data ... suggests that the investor share of the market has been at record levels and rising ... and the investor share has effectively doubled over the past three or four years. Investor demand is always more volatile than other housing demand," he said. Investors appeared to pull out of some markets toward the end of 2005, he said, and that trend could continue this year.
Overall, though, the housing market still looks good, he said. "It's still not a bad year for housing -- just not the record year we've had for the past couple years," he said.
Economists forecast cooling trend
Friday, January 06, 2006
David Seiders, NAHB
While housing and finance industry economists say they don't expect the real estate boom to turn to doom and gloom this year, they do say that the record run-up in housing prices and sales has run out of steam, and 2006 should be an above-normal year but probably won't make the record books.
There is an asterisk for these predictions: How real estate investors react to this downturn could foil the forecast and potentially be devastating for the housing market and overall economy, economists said during an economic outlook presented Thursday by the Homeownership Alliance, a national coalition of housing and finance organizations.
While housing has been an economic boost over the past several years, this year the housing market could be a slight drag on the national economy, the Homeownership Alliance economists generally agreed.
"It's difficult to follow the strongest year ever," said David Lereah, chief economist for the National Association of Realtors trade group, which has about 1.2 million members. "The boom is obviously winding down. That's what we're all saying and observing." Existing-home sales should drop about 4 percent to 5 percent this year, compared to the 2005 levels, Lereah said, and new-home sales should drop about 5 percent to 6 percent year-over-year.
Price drops are possible in some "very, very hot metro markets," he added, though "it's very difficult to know which markets they will be right now." Nationwide, though, Lereah expects home-price appreciation to be up about 6.1 percent this year, compared to a rise of 13 percent in 2005.
As for investors, Lereah said, "Investor activity is by far ... the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory." Speculators who bought properties to flip quickly may be left at a loss, as interest rates are rising and the market is in transition from a seller's market to a buyer's market.
David Seiders, chief economist for the National Association of Home Builders trade group, said, "I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us," he said, adding that it's a "major uncertainty" where investors would put their money if they pulled it out of the real estate market.
"All of us will be observing keenly," Lereah said. In March 2005, the Realtor trade group released a study that showed a high level of investor activity in the housing market: 23 percent of all homes purchased in 2004 were for investment, and another 13 percent were vacation homes.
Frank E. Nothaft, chief economist for Freddie Mac, said rising energy prices also have the potential to disrupt the overall economy and could potentially lead to higher-than-expected increases in the mortgage rate.
The panel of economists said they expect the Fed will soon stop its trend in raising the federal funds rate, which they expect will level off at about 4.5 percent to 5 percent this year.
There will likely be no quick solution to affordability problems in markets where home-price appreciation has outpaced income growth, though 2006 may see income growth more in-line with price gains, economists said.
Nothaft said that areas that have experienced 20 percent or more appreciation for the past several years and have also had high levels of investor activity may be at particular risk as the housing market cools. Investment activity in Las Vegas, for example, has accounted for close to 40 percent of purchase activity, he said. "What will happen in Las Vegas in the coming year? It's very hard to say."
Refinancing activity should be down about 14 percent to 15 percent this year compared to 2005, and that should lead to lower consumer spending relative to refinancing cash-outs, he said.
Nothaft also said he expects the share of adjustable-rate mortgages to tail off in 2006, from about 30 percent of the overall share in 2005 to 25 percent of the overall share, and he also expects declining activity in interest-only and other unconventional mortgage products as there is "more regulatory scrutiny and pressure on lenders."
Seiders estimated that new-home sales, which increased about 6.7 percent in 2005, should drop about 6.6 percent this year, while existing-home sales should drop about 4.8 percent this year.
David Berson, Fannie Mae
David Berson, chief economist for Fannie Mae, said he predicts an 8 percent drop in new- and existing-home sales this year, with home-price appreciation of about 3 percent. Berson said his forecast is down largely because of a high level of investment activity in the real estate sector.
"Our data ... suggests that the investor share of the market has been at record levels and rising ... and the investor share has effectively doubled over the past three or four years. Investor demand is always more volatile than other housing demand," he said. Investors appeared to pull out of some markets toward the end of 2005, he said, and that trend could continue this year.
Overall, though, the housing market still looks good, he said. "It's still not a bad year for housing -- just not the record year we've had for the past couple years," he said.
Economists forecast cooling trend
Friday, January 06, 2006
David Seiders, NAHB
Feds Soft Rosy Outlook for 2006
U.S. Economic Growth Will Soften in 2006, Chicago Fed
Forecasts from Nineteenth Annual Economic Outlook Symposium
The nation’s economic growth will soften slightly in 2006, inflation
will decrease, and the unemployment rate will edge lower, according
to the median forecast of participants at the Federal Reserve
Bank of Chicago’s Economic Outlook Symposium. The consensus
outlook shows that real gross domestic product (GDP) is
forecast to increase 3.6% this year and 3.2% in 2006. Inflation,
as measured by the Consumer Price Index, is expected to rise
3.9% this year and then moderate to 3.0% in 2006. The unemployment
rate is forecast to fall to 5.1% by the end of this year
and edge down further to 5.0% by the end of 2006.
The nineteenth annual Economic Outlook Symposium, held in
Chicago on December 2, drew participants from manufacturing,
banking, auto industries, academia, consulting, and service firms.
One session of the Symposium presented the results from the
consensus economic outlook. This year, 32 individuals provided
forecasts for major components of real GDP as well as several
key statistics for the U.S. economy. The median forecast results
are presented in the table.
All major components of real GDP are expected to contribute
to the slight softening expected in economic growth next year,
particularly a projected flattening in residential investment.
Notably, the consensus outlook shows residential investment
to increase 7.0% this year and then fall 0.8% in 2006. Most major
real GDP components are forecasted to continue expanding
in 2006, albeit at a slower pace than in 2005. Symposium participants
anticipated that light vehicle sales will edge down to
16.8 million units in 2006. Oil prices are expected to decrease
to just above $55 next year. Additionally, real personal consumption
expenditures are projected to edge down from 3.1% this
year to 3.0% next year.
Housing starts are also expected to drop
slightly from 2.04 million in 2005 to 1.90 million in 2006.
However, industrial production growth is forecasted to improve
from a 2.4% increase in 2005 to a 3.2% increase next year.
Interest rates, both short term and long term, are expected to
rise roughly one-half percent in 2006. With both short-term
and long-term rates rising the same amount, this suggests that
the yield curve will stay relatively constant.
A summary of the nineteenth annual Economic Outlook
Symposium will be published in an upcoming issue of the
Chicago Fed Letter.
Note: This article is available on my website (http://www/rememberjim.com/blog)
—William A. Strauss • Senior Economist and
Economic Advisor
Forecasts from Nineteenth Annual Economic Outlook Symposium
The nation’s economic growth will soften slightly in 2006, inflation
will decrease, and the unemployment rate will edge lower, according
to the median forecast of participants at the Federal Reserve
Bank of Chicago’s Economic Outlook Symposium. The consensus
outlook shows that real gross domestic product (GDP) is
forecast to increase 3.6% this year and 3.2% in 2006. Inflation,
as measured by the Consumer Price Index, is expected to rise
3.9% this year and then moderate to 3.0% in 2006. The unemployment
rate is forecast to fall to 5.1% by the end of this year
and edge down further to 5.0% by the end of 2006.
The nineteenth annual Economic Outlook Symposium, held in
Chicago on December 2, drew participants from manufacturing,
banking, auto industries, academia, consulting, and service firms.
One session of the Symposium presented the results from the
consensus economic outlook. This year, 32 individuals provided
forecasts for major components of real GDP as well as several
key statistics for the U.S. economy. The median forecast results
are presented in the table.
All major components of real GDP are expected to contribute
to the slight softening expected in economic growth next year,
particularly a projected flattening in residential investment.
Notably, the consensus outlook shows residential investment
to increase 7.0% this year and then fall 0.8% in 2006. Most major
real GDP components are forecasted to continue expanding
in 2006, albeit at a slower pace than in 2005. Symposium participants
anticipated that light vehicle sales will edge down to
16.8 million units in 2006. Oil prices are expected to decrease
to just above $55 next year. Additionally, real personal consumption
expenditures are projected to edge down from 3.1% this
year to 3.0% next year.
Housing starts are also expected to drop
slightly from 2.04 million in 2005 to 1.90 million in 2006.
However, industrial production growth is forecasted to improve
from a 2.4% increase in 2005 to a 3.2% increase next year.
Interest rates, both short term and long term, are expected to
rise roughly one-half percent in 2006. With both short-term
and long-term rates rising the same amount, this suggests that
the yield curve will stay relatively constant.
A summary of the nineteenth annual Economic Outlook
Symposium will be published in an upcoming issue of the
Chicago Fed Letter.
Note: This article is available on my website (http://www/rememberjim.com/blog)
—William A. Strauss • Senior Economist and
Economic Advisor
Thursday, January 05, 2006
So Many Lenders So Few Takers
So Many Lenders, So Few Takers
As housing slows, the roof is falling in on the overbuilt mortgage industry Maybe it was the way Alan Greenspan uttered the word "froth" this summer. Or maybe all the doom-and-gloom newspaper articles finally sank in. Whatever the cause, sometime during the last quarter of 2005, the housing boom peaked.
Not convinced? The proof is in the paperwork. Applications for purchase mortgages in early November fell below their 2004 level for the first time in six months -- after a 5% drop from September to October, according to the Mortgage Bankers Assn. (MBA). By late December, applications had plunged to June, 2002 levels. The MBA expects mortgage originations to fall by 18.6% in 2006.Even the industry's boosters are getting nervous. "There's no doubt that we're transitioning to a more challenging environment," says Richard H. Wohl, CEO at IndyMac Mortgage Bank in Pasadena, Calif. Lenders' earnings have already begun to fall. "Profitability in the industry is down, and over time that will take its toll," says Doug Duncan, chief economist at the MBA.Suddenly the mortgage industry's lending machine looks like an eight-cylinder engine crammed into a tiny Ford Focus. During the past few years, the industry built up enough capacity to pump out $3 trillion worth of loans a year. Now retrenchment is in the air. The first real whiffs came in November. The nation's largest mortgage bank, Countrywide Financial Corp. (CFC ) in Calabasas, Calif., closed two loan-processing centers and eliminated 300 jobs. National City Corp. (NCC ), a Cleveland bank, trimmed 70 workers at its mortgage business and hinted at more to come. Ameriquest Capital Corp., an Orange (Calif.) lender, cut 1,500 people.As if falling mortgage demand weren't bad enough, changing interest rates during the past year have made loans less profitable. Mortgage lenders make money by borrowing short-term funds at low interest rates and granting long-term loans at higher rates. The trouble is, the spread between short-term and long-term rates is narrowing. In fact, on Dec. 27, the yield of the 10-year Treasury note briefly dipped below that of the two-year Treasury bill; a year ago, about two percentage points separated the two. The smaller the spread between the two rates, the harder it is for lenders to make a profit.
A SHRINKING PIE It gets worse. As mortgage demand has slowed, price competition among lenders has heated up. "There are some competitors who are pricing irrationally," says Stephen J. Rotella, chief operating officer at Seattle's Washington Mutual Inc. (WM ), the nation's third-largest home lender.The result of these forces: a shrinking pie of less-profitable loans. In October, National City said third-quarter home-loan profits tumbled 91% from last year, to $13 million. In November, tax preparer H&R Block (HRB ) in Kansas City, Mo., blamed a $72 million loss in its fiscal second quarter (since revised to an $86.3 million loss) on a 44% annual drop in pretax income at its mortgage unit.
Who stands to lose the most in 2006? It won't be the big, diversified financial companies. When one of their business units slows, others can pick up the slack. Citigroup (C ), for example, is the nation's sixth-largest home lender, yet it derives just 10% of its revenues from sales of home mortgages. Companies that specialize in mortgage lending, however, face tough times. Some have taken steps to diversify in anticipation of declining business. Washington Mutual, which began life in 1889 as a regional thrift, has bulked up its retail banking operations, which now account for two-thirds of its net income. In October it paid $6 billion to acquire credit-card issuer Providian Financial Corp. (WM ), expanding further beyond mortgage sales. But to maintain its federal charter as a thrift, WaMu must keep at least 65% of its assets in real estate lending. Although that category can include loans for apartments and commercial buildings, home loans will remain a significant part of WaMu's business indefinitely.
At especially high risk: lenders that have sold lots of mortgages to so-called subprime borrowers with spotty credit records or unstable incomes. Some of these borrowers have escaped default in recent years only by refinancing at higher home values and lower interest rates, reducing their monthly payments and pulling equity out of the home to spend on other things. "If real estate stops going up, the opportunity to refinance because of a higher value is going to go away," says Michael Moskowitz, CEO at mortgage bank Equity Now in New York. "That's going to hurt companies that were doing bad business."Companies that specialize in lending to risky borrowers include New Century TRS Holdings (NCEN ), Accredited Home Lenders Holding (LEND ), Delta Financial (DFC ), NovaStar Financial (NFI ), and Netbank. If defaults rise, such lenders may have to set aside additional money to cover losses and buy back bad loans they've sold to institutions -- measures that could erode their capital.Some lenders also face the consequences of the exotic-mortgage binge that has intoxicated borrowers for the past few years. Back when house prices were soaring, interest-only mortgages and so-called option mortgages appealed to cash-strapped but creditworthy borrowers. Those products offer low payments for the first few years of the loan, after which the monthly bill rises. Low interest rates and rapid home-price gains have allowed borrowers to refinance before the high payments came due. But with that possibility starting to fade, more borrowers may default, and fewer borrowers may take out such loans in the first place. In the third quarter of 2005, the top sellers of option mortgages were Countrywide Financial, IndyMac Bancorp, Golden West Financial (GDW ), North Fork Bancorp, and NovaStar Financial, according to trade publication National Mortgage News.Problems with option mortgages are already arising. In the third quarter of 2005, the amount of such mortgages available for sale to institutional investors from New York's MortgageIT Holdings Inc. swelled to about 30% of the company's total inventory. Those mortgages carry a low introductory rate of 1% in their first month, which is usually how long MortgageIT owns them before selling them. That 1% rate brings in less money than it costs the company to finance the loans with short-term borrowing. Yields on loans held for sale fell during the third quarter, costing MortgageIT about $18.3 million.
If short-term rates keep climbing, yields could drop further.Higher default rates, funding shortages, and overcapacity will turn some small lenders into cheap acquisition targets. Deals are already happening. In December, ARH Mortgage Inc. in Greenwich, Conn., paid $37 million for United Financial Mortgage Corp. in Oak Brook, Ill., which had bought two small mortgage lenders in the first half of 2005. In September, Wachovia Corp. (WB ) paid $83 million to acquire AmNet Mortgage Inc., a San Diego mortgage bank. "We expect the declines in mortgage volumes will be a key catalyst for consolidation," says Robert Lacoursiere, an analyst at Bank of America Securities (BAC ). Smart lenders will see the writing on the wall early and sell to improve their efficiency during the coming slow period. Lenders that wait may wind up selling themselves for less than a house in foreclosure.
As housing slows, the roof is falling in on the overbuilt mortgage industry Maybe it was the way Alan Greenspan uttered the word "froth" this summer. Or maybe all the doom-and-gloom newspaper articles finally sank in. Whatever the cause, sometime during the last quarter of 2005, the housing boom peaked.
Not convinced? The proof is in the paperwork. Applications for purchase mortgages in early November fell below their 2004 level for the first time in six months -- after a 5% drop from September to October, according to the Mortgage Bankers Assn. (MBA). By late December, applications had plunged to June, 2002 levels. The MBA expects mortgage originations to fall by 18.6% in 2006.Even the industry's boosters are getting nervous. "There's no doubt that we're transitioning to a more challenging environment," says Richard H. Wohl, CEO at IndyMac Mortgage Bank in Pasadena, Calif. Lenders' earnings have already begun to fall. "Profitability in the industry is down, and over time that will take its toll," says Doug Duncan, chief economist at the MBA.Suddenly the mortgage industry's lending machine looks like an eight-cylinder engine crammed into a tiny Ford Focus. During the past few years, the industry built up enough capacity to pump out $3 trillion worth of loans a year. Now retrenchment is in the air. The first real whiffs came in November. The nation's largest mortgage bank, Countrywide Financial Corp. (CFC ) in Calabasas, Calif., closed two loan-processing centers and eliminated 300 jobs. National City Corp. (NCC ), a Cleveland bank, trimmed 70 workers at its mortgage business and hinted at more to come. Ameriquest Capital Corp., an Orange (Calif.) lender, cut 1,500 people.As if falling mortgage demand weren't bad enough, changing interest rates during the past year have made loans less profitable. Mortgage lenders make money by borrowing short-term funds at low interest rates and granting long-term loans at higher rates. The trouble is, the spread between short-term and long-term rates is narrowing. In fact, on Dec. 27, the yield of the 10-year Treasury note briefly dipped below that of the two-year Treasury bill; a year ago, about two percentage points separated the two. The smaller the spread between the two rates, the harder it is for lenders to make a profit.
A SHRINKING PIE It gets worse. As mortgage demand has slowed, price competition among lenders has heated up. "There are some competitors who are pricing irrationally," says Stephen J. Rotella, chief operating officer at Seattle's Washington Mutual Inc. (WM ), the nation's third-largest home lender.The result of these forces: a shrinking pie of less-profitable loans. In October, National City said third-quarter home-loan profits tumbled 91% from last year, to $13 million. In November, tax preparer H&R Block (HRB ) in Kansas City, Mo., blamed a $72 million loss in its fiscal second quarter (since revised to an $86.3 million loss) on a 44% annual drop in pretax income at its mortgage unit.
Who stands to lose the most in 2006? It won't be the big, diversified financial companies. When one of their business units slows, others can pick up the slack. Citigroup (C ), for example, is the nation's sixth-largest home lender, yet it derives just 10% of its revenues from sales of home mortgages. Companies that specialize in mortgage lending, however, face tough times. Some have taken steps to diversify in anticipation of declining business. Washington Mutual, which began life in 1889 as a regional thrift, has bulked up its retail banking operations, which now account for two-thirds of its net income. In October it paid $6 billion to acquire credit-card issuer Providian Financial Corp. (WM ), expanding further beyond mortgage sales. But to maintain its federal charter as a thrift, WaMu must keep at least 65% of its assets in real estate lending. Although that category can include loans for apartments and commercial buildings, home loans will remain a significant part of WaMu's business indefinitely.
At especially high risk: lenders that have sold lots of mortgages to so-called subprime borrowers with spotty credit records or unstable incomes. Some of these borrowers have escaped default in recent years only by refinancing at higher home values and lower interest rates, reducing their monthly payments and pulling equity out of the home to spend on other things. "If real estate stops going up, the opportunity to refinance because of a higher value is going to go away," says Michael Moskowitz, CEO at mortgage bank Equity Now in New York. "That's going to hurt companies that were doing bad business."Companies that specialize in lending to risky borrowers include New Century TRS Holdings (NCEN ), Accredited Home Lenders Holding (LEND ), Delta Financial (DFC ), NovaStar Financial (NFI ), and Netbank. If defaults rise, such lenders may have to set aside additional money to cover losses and buy back bad loans they've sold to institutions -- measures that could erode their capital.Some lenders also face the consequences of the exotic-mortgage binge that has intoxicated borrowers for the past few years. Back when house prices were soaring, interest-only mortgages and so-called option mortgages appealed to cash-strapped but creditworthy borrowers. Those products offer low payments for the first few years of the loan, after which the monthly bill rises. Low interest rates and rapid home-price gains have allowed borrowers to refinance before the high payments came due. But with that possibility starting to fade, more borrowers may default, and fewer borrowers may take out such loans in the first place. In the third quarter of 2005, the top sellers of option mortgages were Countrywide Financial, IndyMac Bancorp, Golden West Financial (GDW ), North Fork Bancorp, and NovaStar Financial, according to trade publication National Mortgage News.Problems with option mortgages are already arising. In the third quarter of 2005, the amount of such mortgages available for sale to institutional investors from New York's MortgageIT Holdings Inc. swelled to about 30% of the company's total inventory. Those mortgages carry a low introductory rate of 1% in their first month, which is usually how long MortgageIT owns them before selling them. That 1% rate brings in less money than it costs the company to finance the loans with short-term borrowing. Yields on loans held for sale fell during the third quarter, costing MortgageIT about $18.3 million.
If short-term rates keep climbing, yields could drop further.Higher default rates, funding shortages, and overcapacity will turn some small lenders into cheap acquisition targets. Deals are already happening. In December, ARH Mortgage Inc. in Greenwich, Conn., paid $37 million for United Financial Mortgage Corp. in Oak Brook, Ill., which had bought two small mortgage lenders in the first half of 2005. In September, Wachovia Corp. (WB ) paid $83 million to acquire AmNet Mortgage Inc., a San Diego mortgage bank. "We expect the declines in mortgage volumes will be a key catalyst for consolidation," says Robert Lacoursiere, an analyst at Bank of America Securities (BAC ). Smart lenders will see the writing on the wall early and sell to improve their efficiency during the coming slow period. Lenders that wait may wind up selling themselves for less than a house in foreclosure.
Tuesday, January 03, 2006
Affordability in the Chicago Area Declines
Affordability in the Chicago Area Declines
Jason Hawkins makes a living arranging mortgages for new homes in the suburbs. But when the 23-year-old loan officer looked for a house of his own, he was disappointed he couldn't find anything close to his Naperville office — or in his price range.
In November, Mr. Hawkins moved into a $245,000 three-bedroom house in DeKalb with fewer amenities than he wanted.
"Housing has gotten expensive and we found we couldn't afford everything we wanted," Mr. Hawkins says. "It would have been a townhouse or a condo in Naperville."
As housing prices soar, a growing number of homebuyers find themselves in similar straits. Chicago-area homes were 8% less affordable last year than a year earlier, according to a measure used by the Federal National Mortgage Assn. (Fannie Mae).
The measure, an index that calculates median income and median-priced homes, shows the Chicago area is still much more affordable than overheated markets like San Francisco and New York. Still, rising prices are likely to force homebuyers to scale back their expectations this year, says Neville Alperstein, a regional manager for Kimball Hill Homes LLC of Rolling Meadows.
"People who thought they could afford a single-family house might choose a duplex or townhouse instead," he says.
The average hourly worker wage in Illinois was up 4.7% in the first 11 months of 2005, according to the Illinois Department of Employment Security. But the average asking price for a house in the Chicago area jumped 11% last year to $323,000, according to Multiple Listing Service of Northern Illinois Inc. in Lisle. A rise in mortgage interest rates of nearly half a percentage point in the past six months and rising prices for building materials such as cement and lumber have combined to make houses less affordable.
Metro-area new-housing starts totaled 45,000 in 2003 and 43,500 in 2004, says Tracy Cross, president of Tracy Cross & Associates Inc. in Schaumburg. Mr. Cross estimates starts fell to around 42,000 units in 2005.
The average price of a new single-family home in metro Chicago rose to $265,000 in the third quarter, up nearly 9% over the same period a year earlier, according to market researcher Metrostudy in Hoffman Estates.
"Builders are aware of the affordability issue and they're concerned," says Christopher Huecksteadt, a Metrostudy director.
Single-family homes in Chicago sold for an average $317,000 in 2005, nearly 16% more than in 2004. With higher prices, volume has slowed. The number sold declined about 5% last year to fewer than 12,300 units.
Meanwhile, the price of suburban homes continues to climb. For the first time, the average asking price in Hinsdale recently crossed the $1-million mark, according to Multiple Listing Service of Northern Illinois.
"Not everybody has a $250,000 income to qualify for these houses," says Tina Porterfield, a broker with Prudential Preferred Properties in Hinsdale.
Crain Communications Inc.
Jason Hawkins makes a living arranging mortgages for new homes in the suburbs. But when the 23-year-old loan officer looked for a house of his own, he was disappointed he couldn't find anything close to his Naperville office — or in his price range.
In November, Mr. Hawkins moved into a $245,000 three-bedroom house in DeKalb with fewer amenities than he wanted.
"Housing has gotten expensive and we found we couldn't afford everything we wanted," Mr. Hawkins says. "It would have been a townhouse or a condo in Naperville."
As housing prices soar, a growing number of homebuyers find themselves in similar straits. Chicago-area homes were 8% less affordable last year than a year earlier, according to a measure used by the Federal National Mortgage Assn. (Fannie Mae).
The measure, an index that calculates median income and median-priced homes, shows the Chicago area is still much more affordable than overheated markets like San Francisco and New York. Still, rising prices are likely to force homebuyers to scale back their expectations this year, says Neville Alperstein, a regional manager for Kimball Hill Homes LLC of Rolling Meadows.
"People who thought they could afford a single-family house might choose a duplex or townhouse instead," he says.
The average hourly worker wage in Illinois was up 4.7% in the first 11 months of 2005, according to the Illinois Department of Employment Security. But the average asking price for a house in the Chicago area jumped 11% last year to $323,000, according to Multiple Listing Service of Northern Illinois Inc. in Lisle. A rise in mortgage interest rates of nearly half a percentage point in the past six months and rising prices for building materials such as cement and lumber have combined to make houses less affordable.
Metro-area new-housing starts totaled 45,000 in 2003 and 43,500 in 2004, says Tracy Cross, president of Tracy Cross & Associates Inc. in Schaumburg. Mr. Cross estimates starts fell to around 42,000 units in 2005.
The average price of a new single-family home in metro Chicago rose to $265,000 in the third quarter, up nearly 9% over the same period a year earlier, according to market researcher Metrostudy in Hoffman Estates.
"Builders are aware of the affordability issue and they're concerned," says Christopher Huecksteadt, a Metrostudy director.
Single-family homes in Chicago sold for an average $317,000 in 2005, nearly 16% more than in 2004. With higher prices, volume has slowed. The number sold declined about 5% last year to fewer than 12,300 units.
Meanwhile, the price of suburban homes continues to climb. For the first time, the average asking price in Hinsdale recently crossed the $1-million mark, according to Multiple Listing Service of Northern Illinois.
"Not everybody has a $250,000 income to qualify for these houses," says Tina Porterfield, a broker with Prudential Preferred Properties in Hinsdale.
Crain Communications Inc.
Monday, January 02, 2006
Home Buying Primer
Home Buying Primer
Kick the new year off buy setting your home buying goals
You know you are ready to buy a home when owning is cheaper than renting and a home purchase is a natural fit for your lifestyle and financial needs, goals and obligations. Instead of making the home-buying decision based on income alone, consider it in a more holistic context that includes your complete financial picture. Viewing home buying in a vacuum is a common misstep first-time homebuyers should avoid. Other potential slip-ups include:
Not knowing the market
In a buyer's market, buyers who feel a competitive edge are more likely to leap before they look. The glut of information on the Internet makes obtaining home buying and local market knowledge a relatively easy task. Real estate agents, brokers, lenders, title companies and other real estate professionals offer free seminars, workshops and classes. The vast library of real estate guidebooks can also give you an edge. A lack of knowledge about home buying and market conditions tends to perpetuate additional buying errors.
Failing to get pre-approved
Get pre-approved - in writing - for what you can afford, not what the lender is willing to lend. A written pre-approval reveals that you are serious about buying and it helps prevent you from shopping for more than you can afford.
Low-balling
Uneducated buyers tend to offer too little and ask for too many concessions, including asking the seller to pick up buyer's costs, to make extensive repairs, or to provide a home warranty. That could insult the seller, even in a buyer's market. In a seller's market, it will alienate a seller who has taken the time to price the home right and prepare it for market.
Paying too much
Avoid multiple-offer bidding frenzies. Make the same price checks sellers make to price their homes right -- get comparables, track sale prices in your area, scan the local newspaper to check asking prices, visit open houses and use a knowledgeable real estate agent.
Failing to buy low now to sell high later
Buy the least expensive house on the best block. Buy into the least expensive neighborhood in the best community. The cheapest home in a neighborhood, community or region in transition provides the greatest return on your investment in any market.
As you learn to avoid mistakes, you'll find it easier to put your emotions on hold long enough to reach your goal. That prevents buyer's remorse, an all-too-common malady suffered by ill-prepared buyers.
By Broderick Perkins, DeadlineNews
Kick the new year off buy setting your home buying goals
You know you are ready to buy a home when owning is cheaper than renting and a home purchase is a natural fit for your lifestyle and financial needs, goals and obligations. Instead of making the home-buying decision based on income alone, consider it in a more holistic context that includes your complete financial picture. Viewing home buying in a vacuum is a common misstep first-time homebuyers should avoid. Other potential slip-ups include:
Not knowing the market
In a buyer's market, buyers who feel a competitive edge are more likely to leap before they look. The glut of information on the Internet makes obtaining home buying and local market knowledge a relatively easy task. Real estate agents, brokers, lenders, title companies and other real estate professionals offer free seminars, workshops and classes. The vast library of real estate guidebooks can also give you an edge. A lack of knowledge about home buying and market conditions tends to perpetuate additional buying errors.
Failing to get pre-approved
Get pre-approved - in writing - for what you can afford, not what the lender is willing to lend. A written pre-approval reveals that you are serious about buying and it helps prevent you from shopping for more than you can afford.
Low-balling
Uneducated buyers tend to offer too little and ask for too many concessions, including asking the seller to pick up buyer's costs, to make extensive repairs, or to provide a home warranty. That could insult the seller, even in a buyer's market. In a seller's market, it will alienate a seller who has taken the time to price the home right and prepare it for market.
Paying too much
Avoid multiple-offer bidding frenzies. Make the same price checks sellers make to price their homes right -- get comparables, track sale prices in your area, scan the local newspaper to check asking prices, visit open houses and use a knowledgeable real estate agent.
Failing to buy low now to sell high later
Buy the least expensive house on the best block. Buy into the least expensive neighborhood in the best community. The cheapest home in a neighborhood, community or region in transition provides the greatest return on your investment in any market.
As you learn to avoid mistakes, you'll find it easier to put your emotions on hold long enough to reach your goal. That prevents buyer's remorse, an all-too-common malady suffered by ill-prepared buyers.
By Broderick Perkins, DeadlineNews
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