Looking Ahead: Two Views

The debate continues. Who is right? That’s for you to decide. Below is a link to an article posted on the Business Week Online site which features two heavyweight real estate giants in the industry (Sam Zell and Barry Sternlicht) and their contrasting views on the future of the real estate market.

In my (pipsqueak) opinion, Zell is a bit disconnected with the overextension of many buyers today. He claims it’s a 20% of income debt, but I know a lot of homeowners who are using the adjustable rate mortgages and I would estimate one in four of those are in a interest-only program many of which adjust monthly! With rates rising monthly, and homeowners already overextended on their mortgages this poses a potential problem in the future as rates rise, mortgages rise and incomes stay steady or slight growth.

Also, another industry concern is that so many of the adjustable mortgages will be coming due and adjusting in the next three to five years. They will of course be adjusting up and this too will mean less disposable income for those homeowners or investors. This may mean an increase in foreclosures but it will also mean there will be opportunities for investments as people begin liquidating their real estate assets to reduce their risk.

So, I am instructing all of my clients to get locked into a 30 year mortgage and resist the temptation of the adjustable mortgages unless the investment is less than a year or two (at most). For example, if a buyer is going to purchase a property do minor rehab and resell or flip it, then an adjustable or interest-only loan is a good option. But look at how close the ARM rates are to the 30 year rates and you will see the best investment for the majority of people will be the fixed mortgages.

Here are a few paragraphs on the article referenced above and a link to the full article here



Two Views of the Real Estate Boom
By Christopher Palmeri
Business Week OnlineApril 28, 2006

Any time you get two market heavyweights to predict the future of the real estate boom, you're going to attract a lot of investor interest. And when they hold views as divergent as those of Sam Zell, the Chicago investor who early in his career earned the nickname "The Grave Dancer" for his skill in picking up distressed properties, and former Starwood Hotels & Resorts Worldwide (HOT) chief Barry Sternlicht, sparks are bound to fly. The venue for the Apr. 26 faceoff was the annual Milken Institute Global Conference in Los Angeles. Zell immediately dismissed inflation figures showing relatively benign 2% to 3% growth. "If you're trying to build, you're looking at 30% increases in construction costs in the past 24 months," he said. The financier believes inflation will continue to hold real estate prices up. "I don't think there's bubble or any area with oversupply," he said, before hedging by naming a few markets -- Las Vegas, San Diego, and Phoenix -- where he thought high-end condos were overbuilt.Zell quickly shot down the notion that Americans have overextended themselves by paying too large a share of their income for mortgage payments. "In Europe, it's more like 50%. Here, people think they're pressed if its 20%," Zell said. And if buyers get strapped, they'll cut down on discretionary spending before they stop paying their mortgage. "We're still the cheapest housing in the world," he said.ON THE CHASE.  Zell, who controls two large real estate investment trusts -- Equity Office Properties (EOP) and Equity Residential Properties Trust (EQR), an apartment owner -- said that while there are still some markets with relatively unfettered opportunity to build new homes, many cities and states are increasing zoning restrictions and other artificial barriers to construction. "The whole country is going the route of California," he said.Sternlicht took the opposite view. "This is too bullish," he said. "One thing I learned on Wall Street is that the flow of funds overwhelms fundamentals. There are so many funds chasing the real estate game -- oil sheiks, Hong Kong billionaires, hedge funds. This is a totally different market than even a year before."

No Surprise. Rates Rise

No surprise that interest rates have gone up a bit this week, however, experts are still predicting the rates will not cross the 7 percent threshold this year, which will still keep our local market active and healthy. Here's an article from Inman News on the topic:

Mortgage rates were up for the fifth straight week, boosted in part by strength in existing-home sales and the economy, according to surveys conducted by Freddie Mac and Bankrate.com.

In Freddie Mac's survey, the 30-year fixed-rate mortgage grew to an average 6.58 percent for the week ended today, up from last week's average of 6.53 percent. The 30-year fixed has not been higher since the week ending June 20, 2002, when it averaged 6.63 percent.

The average for the 15-year fixed-rate mortgage this week is 6.21 percent, up from last week's average of 6.17 percent. The 15-year fixed has not been higher since the week ending May 31, 2002, when it averaged 6.22 percent.

Points on both the 30- and 15-year fixed loans averaged 0.5.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 6.21 percent this week, with an average 0.6 point, up from last week when it averaged 6.16 percent. The one-year Treasury-indexed ARM averaged 5.68 percent, with an average 0.7 point, up from last week when it averaged 5.63 percent.

"Indications of a stronger economy gave rise to an increase in mortgage rates this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Consumer confidence and existing-home sales unexpectedly rose. Much of this strength is attributed to a healthy labor market, which translates into greater consumer spending. This should support an active housing market over the next few months.

"We expect mortgage rates to gradually rise throughout the year. A stronger labor market, coupled with moderation in house-price growth, means our outlook for overall housing conditions remains upbeat."

In Bankrate.com's survey, fixed mortgage rates increased again, with the average 30-year fixed-rate mortgage hitting 6.64 percent. This is the highest since the week of June 12, 2002. The 30-year fixed-rate mortgages in this week's survey had an average of 0.38 discount and origination points.

The average 15-year fixed-rate mortgage popular for refinancing stepped up to 6.27 percent, according to Bankrate.com. On larger loans, the average jumbo 30-year fixed rate climbed to 6.83 percent from 6.78 percent. Adjustable-rate mortgages increased too. The average 5/1 adjustable-rate mortgage jumped from 6.19 percent to 6.31 percent, and the average one-year ARM inched higher from 5.86 percent to 5.87 percent.

Mortgage rates continue to be driven by inflation and interest-rate expectations, Bankrate.com reported. This week, it was stronger-than-expected home sales data for March that reinforced notions of continued interest-rate hikes by the Federal Open Market Committee. With the housing market not coming apart at the seams, the Fed has the green light to continue raising interest rates to keep inflation from escalating. As a result, the yield on 10-year Treasury notes was propelled upward to 5.1 percent, the highest since June 2002. Since fixed mortgage rates are closely related to yields on long-term government bonds, mortgage rates are also at the highest levels since June 2002.

The following is a sampling of Bankrate.com's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York – 6.62 percent with 0.19 point

Los Angeles – 6.69 percent with 0.53 point

Chicago – 6.8 percent with 0.08 point

San Francisco – 6.72 percent with 0.28 point

Philadelphia – 6.5 percent with 0.65 point

Detroit – 6.72 percent with 0.03 point

Boston – 6.61 percent with 0.28 point

Houston – 6.61 percent with 0.56 point

Dallas – 6.66 percent with 0.48 point

Washington, D.C. – 6.51 percent with 0.72 point

Can Chicago Condos Continue?

Here is an email I sent to the editors of Crains Chicago Business on their article written on condo sales in downtown Chicago titled, "Condo Market: Hanging Tough" by H. Lee Murphy and their reply:

>>> Jim Gramata 4/24/2006 10:46 AM >>>
Dear Editor

While the general content of the article "Condo Market: Hanging Tough", written by H Lee Murphy was accurate, there is a growing concern in this Realtors® mind about the accuracy of the resale data being written about both locally and nationally. When discussing the general market in terms of "in metro area", statistics and trends can become diluted.

While the downtown "loop" area came in tenth in overall condo sales for the year in 2005 (875 units) and they experienced a 14% appreciation from 2004, when looking at the top three areas for condos sold (Near North -4236units, Lakeview-2839 units and Lincoln Park-1908 units respectively), each of those areas experience either negative or slight growth (-1, 1 and -1% growth, respectively (Source: MLSNI and ChicagoHomeBUZZ.com).

Thanks for sending us your comments.

We would like to possibly print them as a Letter to the Editor in an upcoming issue of Crain'ss. May we have permission to do so?


Dawn Prochnow
Editorial Assistant
Crain's Chicago Business
www.chicagobusiness.com

So many articles are being written (either pro or con) and the data is being washed down or inaccurately reported that I felt it important to address the issue with the editors. Consistent statistical reporting is important when discussing or writing on a subject especially when so many people take those words as gold.

Keep your eye on the source and question what you read (and hear)

Here is a link to the article written by Crain's Chicago Business which I encourage you to read.

Chicago HomeBUZZ Podcast Week Ending 4/21

Welcome to the Chicago HomeBUZZ market podcast report for the week ending April 21, 2006. This is a quick glance at the market numbers for single family and condo/townhome sales for the Chicago region. Here is the Chicago HomeBUZZ podcast.


For a full look at the market statistics and a free download of the report, visit ChicagoHomeBUZZ.com here.

Sales Down, Chins Up

Existing-home sales are projected to drop 6 percent to 6.65 million this year from a record 7.08 million in 2005, according to the latest annual forecast by the National Association of Realtors trade group.

Keep in mind, we have been on record setting pace the past five years, so it really can only go down based on the state of the economy. So, keep your collective chins up.

Dave Myers of Inamn news wrote:"In Chicago, values are expected to rise between 5 percent and 10 percent this year as the area's diversified economy continues churning out jobs at a steady rate." [See "Midwest Rocks" blog for full story]

Chins up!!!

The Midwest Rocks!

"It's the only place in the country where we expect [both] prices and sales to rise this year."

While talk of a "housing bubble" has reached a crescendo in many parts of the nation, the topic barely rates a whisper across the Midwest.

That's because, in most Heartland markets, there's simply no bubble to burst.

"We haven't seen those types of wild [price] increases that people in Florida and California saw over the last several years, so we're not really in a position where prices could come crashing to the ground," says Joe Banyai, a Michigan real estate broker and regional vice president of the National Association of Realtors.

"Our market is slow but steady," he adds. "And to be honest, I'd rather have a market where prices are relatively stable, year after year, than a market where prices go up 20 percent in one year and might drop 25 percent the next."

To be sure, the Midwest has been the wallflower in the nation's long housing dance. While the value of a typical U.S. home has climbed about 11 percent a year since 2001 and gains in the Northeast and West have approached 20 percent, prices across the Midwest have risen a more sanguine 7 percent annually and values in some of its submarkets have been virtually flat.

But now, as mortgage rates keep climbing and some jittery sellers in places like Miami and Los Angeles begin to slash their asking prices as the spring home-buying season begins, many forecasters say that the Heartland will weather housing's downturn -- whenever it may come -- better than most other parts of the country.

"The Midwest hasn't seen the big type of run-up in prices that some other parts of the U.S. have seen, so now it's got some 'built-in' protection against a nationwide slowdown," says Lawrence Yun, an economist and managing director at NAR in Washington, D.C.

"Basically, if you have a job in the Midwest, you can still afford to buy a home even though mortgage rates have risen," Yun adds. "It's the only place in the country where we expect [both] prices and sales to rise this year."

Some parts of the region will certainly fare better than others this spring, and perhaps in years to come.

In Chicago, values are expected to rise between 5 percent and 10 percent this year as the area's diversified economy continues churning out jobs at a steady rate. Prices in St. Louis and Kansas City are also expected to increase about 5 percent, most analysts say.

Indeed, while a record 72 of the 145 metropolitan U.S. markets tracked by NAR saw double-digit price gains in the fourth quarter of last year, five of the six areas that saw actual price declines were in the Midwest.


By Dave Myers
Inman News
(edited)

Google Craigslist to Find Property

While their real estate ventures are small, sites like Google and Craigslist are reshaping how real estate professionals reach potential buyers and sellers.

Listings of real estate for sale on Craigslist, which features free classified ads, rose to 335,126 in March, triple the level a year earlier. Google is testing a tool that helps users sort through the proliferation of real estate sites, including Trulia.com, Oodle.com, and Propsmart.com. Google had 89 million visitors in February.

Observers say that the biggest change will be the increasing availability of real estate information. Unlike other online-driven retail, buying and selling property is complex so people will continue to need help. But the increasing ease with which the availability of property can be advertised may encourage buyers and sellers to use real estate professionals differently and more selectively, which would have an impact on commissions, says Abdullah Yavas, a professor of real estate at Pennsylvania State University.

Source: The Wall Street Journal, James R. Hagerty and Kevin J. Delaney (04/06/06)

Edison Park Podcast

Here is the Edison Park featured podcast.

Now offered for sale, this beautifully updated, sunny Edison Park home has FIVE BEDROOMS (four upstairs)) and THREE BATHROOMS (one on each level). Upon entering the front foyer are formal, separate living and dining rooms. The large, sunny family room in the rear of this home is located off of the updated, eat-in kitchen which includes new stainless steel appliances such as the super quiet Bosch dishwasher and new stainless steel refrigerator. The main level also includes a guest bedroom (or office) with a full bathroom.

Upstairs there are four bedrooms including the large master bedroom with its own private, full bathroom. There are several large, full closets in the master bedroom as well as tall cathedral ceilings. There is a separate furnace on the second level for a more efficient heating and cooling system. The basement level includes a partially finished rec room with a full bath as well as a large storage area and walk-out stairs to the beautifully landscaped rear and side yards. Also included is a new 2 1/2 car garage with lots of storage on the side and above. This home is just a few blocks from the Edison Park Metra stop and is conveniently located between downtown Edison Park and Park Ridge where you can enjoy all of the amenities of both towns including its restaurants, parks, schools, festivals and the Pickwick Theatre.

Call toll free 888-877-8705 ext. 2018 for updated pricing and recorded property information (24/7)
Property characteristics

5 Bedrooms
3 Bathrooms
Formal Dining Room
Eat-in Kitchen
Family Room
Large Master Suite
Separate Master Bath
Partially Finished Walk-out basement
Recently Updated
New 2 1/2 car garage
Beautifully landscaped
Metra Stop very close
Excellent schools nearby
Downtown Edison Park & Park Ridge
Restaurants

Chicago Home Buzz Featured Property

Here is our latest podcast of our featured property located at 6954 N Owen in Chicago's Edison Park neighborhood.

Now offered for sale, this beautifully updated, sunny Edison Park home has FIVE BEDROOMS (four upstairs)) and THREE BATHROOMS (one on each level). Upon entering the front foyer are formal, separate living and dining rooms. The large, sunny family room in the rear of this home is located off of the updated, eat-in kitchen which includes new stainless steel appliances such as the super quiet Bosch dishwasher and new stainless steel refrigerator. The main level also includes a guest bedroom (or office) with a full bathroom.

Upstairs there are four bedrooms including the large master bedroom with its own private, full bathroom. There are several large, full closets in the master bedroom as well as tall cathedral ceilings. There is a separate furnace on the second level for a more efficient heating and cooling system. The basement level includes a partially finished rec room with a full bath as well as a large storage area and walk-out stairs to the beautifully landscaped rear and side yards. Also included is a new 2 1/2 car garage with lots of storage on the side and above. This home is just a few blocks from the Edison Park Metra stop and is conveniently located between downtown Edison Park and Park Ridge where you can enjoy all of the amenities of both towns including its restaurants, parks, schools, festivals and the Pickwick Theatre.

Call toll free 888-877-8705 ext. 2018 for updated pricing and recorded property information (24/7)
Property characteristics

5 Bedrooms
3 Bathrooms
Formal Dining Room
Eat-in Kitchen
Family Room
Large Master Suite
Separate Master Bath
Partially Finished Walk-out basement
Recently Updated
New 2 1/2 car garage
Beautifully landscaped
Metra Stop very close
Excellent schools nearby
Downtown Edison Park & Park Ridge
Restaurants, Parks, and Theater close

Who's Your Condo Neighbor?

With condo sales reaching record levels for new construction and second market sales in Chicago, condo buyers should be aware of some potential investment pitfalls that may arise from the condo investors who are purchasing condo units as investments. There is a development in Edgewater where condo sales are being purchased for over 30% of market value for the square footage and people are continuing to buy pre-construction.

Aside from the speculator-induced risk, there are many reasons for buying a condominium instead of a detached single-family house. Primary benefits and reasons for buying a condominium include (1) usually less expensive than purchasing an equivalent square footage house; (2) exterior maintenance is the responsibility of the condo homeowner's association (the condo owner monthly fees pay this expense); (3) security of being able to leave your condo for an extended period without worry (called "lock and leave"); (4) tax benefits similar to single-family houses; (5) security (and pride) of ownership rather than being a renter; and (6) potential resale profit as the condo appreciates in market value.

In the past, as soon as a local condo market started appreciating in market value, developers would often quickly flood the condo market with lots of brand-new condominiums and apartment building condo conversions, thus depressing condo sales prices and market value appreciation due to an oversupply.

Supply and demand is what causes houses and condos to appreciate in market value and there is usually a much lower number of prospective condo buyers than potential purchasers of single-family houses. Most prospective home buyers prefer houses and will look at condos only if they realize that is all they can afford, or they are unable to maintain a house, thus limiting potential market value appreciation.

There are, however, many potential drawbacks to buying a condominium. They are (1) a homeowner association (HOA) board of directors, which makes decisions you might not like, including expenditures for "improvements" you think are not necessary; (2) unexpected increases in monthly fees and/or special assessments for surprise costs such as a leaky roof or an elevator needing major repairs; (3) policies and rules you don't like (such as no pets or no rentals); (4) poor quality maintenance and/or management that hurts condo enjoyment and resale values; (5) noise from adjoining units (the number one complaint of condo owners); (6) lack of freedom to do as you wish, such as having noisy parties or turning up your TV as loud as you want; and (7) neighbors you don't like or who don't like you.

When you are looking to purchase a condo don't forget to ask the listing agent or homeowner what percentage of ownership (or sales in a new construction development) are investors seeking a quick gain. It could save you in the long run.

5BR 3BA Edison Park Single Family Home

Now offered for sale, this beautifully updated, sunny Edison Park home has FIVE BEDROOMS (four upstairs)) and THREE BATHROOMS (one on each level). Upon entering the front foyer are formal, separate living and dining rooms. The large, sunny family room in the rear of this home is located off of the updated, eat-in kitchen which includes new stainless steel appliances such as the super quiet Bosch dishwasher and new stainless steel refrigerator. The main level also includes a guest bedroom (or office) with a full bathroom.

Upstairs there are four bedrooms including the large master bedroom with its own private, full bathroom. There are several large, full closets in the master bedroom as well as tall cathedral ceilings. There is a separate furnace on the second level for a more efficient heating and cooling system. The basement level includes a partially finished rec room with a full bath as well as a large storage area and walk-out stairs to the beautifully landscaped rear and side yards. Also included is a new 2 1/2 car garage with lots of storage on the side and above. This home is just a few blocks from the Edison Park Metra stop and is conveniently located between downtown Edison Park and Park Ridge where you can enjoy all of the amenities of both towns including its restaurants, parks, schools, festivals and the Pickwick Theatre.

Call toll free 888-877-8705 ext. 2018 for updated pricing and recorded property information (24/7)
Property characteristics

5 Bedrooms
3 Bathrooms
Formal Dining Room
Eat-in Kitchen
Family Room
Large Master Suite
Separate Master Bath
Partially Finished Walk-out basement
Recently Updated
New 2 1/2 car garage
Beautifully landscaped
Metra Stop very close
Excellent schools nearby
Downtown Edison Park & Park Ridge
Restaurants, Parks, and Theater close

Start Spreadin the News

Many real estate agents avoid marketing their homes using open houses for many reasons. Some don’t believe they attract buyers, some think only “nosy neighbors” show up and many are just too lazy and prefer to let the yatd sign do most of the work.
There's no way to know in what way a listing will sell before it goes on the market. A real estate agent might introduce the buyer to the property. Or, the buyer might find the listing on the Internet, in a newspaper ad, or at an open house.
That's why it's important that your marketing plan covers it all. A plan that relies solely on the Internet won't reach people who aren't tech-savvy. A plan that relies only on open houses won't reach buyers who are gone every weekend.
Broad-based exposure will make more buyers aware that your home is for sale. Generally, the more interest your agent can generate for your home, the higher the ultimate selling price.
Also, don’t rely on one medium to target your marketing towards. Diversify your marketing strategies and create a broad exposure to all market segments. That’s what I like to do because you never know who is looking and when or where they are looking.
Start spreading the news….


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