But all of these factors, which make selling a condominium or single-family home today so challenging, make this a great time to buy a home in Chicago.

The Illinois Association of REALTORS® reported that the median sales price of Chicago homes stood at $230,000 in the second quarter of this year. That’s an extremely affordable price for Chicago. And by taking out an FHA loan, buyers here only have to come up with a down payment of 3.5 percent of a home’s purchase price.

At the same time, inventory levels are high. Buyers have a lot from which to choose when it comes to buying condominiums or single-family homes in some of the city’s top neighborhoods, like Lincoln Park, Ravenswood, Lakeview, Lincoln Square and Streeterville.

Then there’s the news regarding mortgage interest rates. According to the latest numbers from Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage loan stood at an amazing 4.42 percent for the week ended Aug. 19. The rate for the average 15-year fixed-rate loan hit 3.90 percent. Both rates were down from the previous week, and down from the same period one year earlier. This means that buyers today can get more home for their dollars.

Even the high number of foreclosures in Chicago and the rest of the country can mean good news for buyers. When banks and other lending institutions have to re-sell their foreclosures, they usually do so at a greatly reduced price. Again, this gives buyers the opportunity to purchase homes for fewer dollars. Some buyers might purchase a foreclosure to be able to get into a neighborhood that they otherwise could not have afforded.

No one’s arguing that this is a difficult time in which to sell a home. But for first-time buyers and any others who don’t have to first sell a residence, this is a great time to buy.

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And, increasingly, they want green homes.

This search for environmentally friendly homes is finally getting a bit easier. CLTV’s Web site recently ran a story on the changes being made by Chicago’s MRED, a local multiple listing service of homes for sale.

Late last year, the MRED listing service gave REALTORS® the ability to add nearly two dozen green or energy efficient features with their property listings. According to the CLTV story, these features can include anything from drought-resistant landscaping to low-flow plumbing fixtures to bamboo flooring.

This is good news for Chicago buyers who are looking for green features. They can now find these environmentally friendly amenities listed prominently on many of the home listings they view online.

This move is something that officials from the National Association of REALORS® are happy to see. The CLTV story says that they’d like to see all the nation’s multiple listing services do this. Currently, according to one association official quoted in the story, from 30 to 40 of the services allow their REALTORS® to enter green and energy efficiency data in their home listings. That’s not a lot of services when you consider how many dot the country.

I don’t think it will be much longer, though, before we see an increase in green information on home listings. The reason is a simple one: It’s something more buyers are looking for.

I’m not naïve enough to believe that environmentally friendly features will trump price, location and construction quality. But a growing number of my clients are interested in living in homes that are environmentally friendly. If they’re looking at two houses that are mostly equal, these clients will go with the home that boasts the greener features.

Here’s some advice to the sellers out there: If your home does have some nice green features, advertise them prominently. In today’s tough residential real estate market, sellers need every advantage that they can get. Green features are just one more tool they can use to help move their homes.

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REALTORS®, in fact, have embraced technology as much as have any sales professionals. Search the Web and you’ll find pages of blogs written by REALTORS®. Search the MLS online and you’ll find a growing number of condominium and single-family home listings that have virtual tours attached to them.

And if you ever see a REALTOR® hustling to a showing, you’ll undoubtedly notice a smart phone clutched in this professional’s hand.

REALTORS® are married to technology. Of course, this was inevitable; home buyers and sellers are the same way.

The Chicago Tribune recently ran a feature story on the changing ways in which consumers buy and sell houses.

The most interesting fact in the Tribune story is this: 90 percent of consumers are going online to help find their homes, according to the National Association of REALTORS®.

For sellers, this is an important stat. They absolutely have to list their homes prominently online if they want to compete for buyers in today’s market. And it’s not just about listing a home on the Multiple Listing Service any more. Sellers need to showcase their homes with virtual tours. They need the written copy describing their homes to contain the right keywords to attract potential buyers. And they need lots of photos to accompany their online listings.

It makes sense, then, for sellers to work with tech-savvy REALTORS® who boast busy Web sites and who write well-trafficked blogs. These are the REALTORS® in today’s online marketplace who will attract the most potential buyers for sellers’ homes.

I still remember the days when online marketing was in its infancy. At that time, no one was quite sure how to best spotlight residential real estate on the Web. Today, it’s amazing how far we’ve all come. Just count how many “FOR SALE” signs boast a separate Web site address that’s unique to that particular property being sold.

It’s a new world today. And in a slow market like this one, it’s crucial for sellers to take full advantage of all the marketing opportunities that the Internet provides them.

Both the first-time homebuyers’ credit – which provided first-time buyers a tax credit of up to $8,000 – and the move-up buyers’ credit – which gavemost other buyers a tax credit of up to $6,500 – expired at midnight on April 30. This has led economists and housing experts to wonder if buyers across the nation were in a race to beat this deadline.

And if that’s the case, they add, the housing sales numbers in May and beyond might suffer with no tax credit to inspire buyers.

Personally, I can’t deny that both tax credits have played a large role in encouraging buyers to enter the Chicago market. But I think that the city’s affordable housing prices have played as important a role. Buyers know that they can purchase a condominium or single-family home in even the best neighborhoods of Chicago, places like Lakeview, Lincoln Square or Lincoln Park, at extremely reasonable prices.

Whatever the case, you can’t deny that April’s sales numbers were strong ones. The sales of single-family homes and condominiums rose 41.1 percent in April when compared to the same month one year earlier. The city saw 1,985 housing sales in the month compared to 1,407 in April of 2009.

The best news is that housing sales have been trending up for quite some time now. April marked the eighth consecutive month in which housing sales showed a year-over-year sales gain.

At the same time, there was a glimmer of good news regarding Chicago housing prices. The city median sales price in April stood at $225,000. That’s up 3.2 percent from a year ago, when the median sales price had fallen to $218,000.

These are all solid numbers, and I’m glad to see them. I’m sure the tax credits did play a role in them. But I also think that buyers recognize just how good a value Chicago homes are today.

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The Journal’s most recent quarterly survey of housing-market conditions in 28 metropolitan areas found that inventories of homes for sale remain quite high in many big cities, including in Chicago. At the same time, the number of distressed buyers who face potential foreclosures also remains high in many cities.

This combination is a perfect recipe for keeping housing prices at their current affordable levels. When buyers have many homes from which to choose, they don’t have to overpay to land their dream home. When more homes fall into foreclosure, it tends to drag down the asking prices of other residences in the surrounding neighborhood. After all, it’s not easy to ask $300,000 for a condo when the neighbor’s place, in foreclosure, is selling for $220,000.

While this is bad news for sellers, it’s the opposite for buyers. They can still find high-quality homes in Chicago for prices that are more than fair.

The Wall Street Journal forecast specifically mentions Chicago, saying that our city is similar to places like Charlotte, N.C.; Jacksonville, Fla.; Nashville; and Philadelphia: The supply of homes already on the market is far higher than the national average.

Again, this is good news for buyers. It means that they have plenty of good homes to chose from in Chicago.

The local housing market is in a solid recovery. But the number of sales is increasing faster than is the median sales price of homes. This means that sellers have a choice to make: If they don’t have to sell, they might want to wait a year or more in the hope that housing prices will rise. If they do need to sell, they have to commit to working with their REALTORS® to find the right price for their home in this market.

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Look at all the factors that have been in buyers’ favor in the last year and a half: Because they bought during the long national housing slump, they dealt with sellers who were often desperate to move their condos or single-family homes. They bought at a time in which sales prices were falling. And, even better, they had plenty of high-quality homes on the market from which to choose; they rarely had to worry about getting into bidding wars with other buyers.

But what about today? Is Chicago still in the middle of a strong buyers’ market?

Yes, it most certainly is. You only have to look at the median sales prices of Chicago homes to prove this.

According to the latest sales data released by the Illinois Association of REALTORS®, the median sales price of existing homes in Chicago stood at $209,000 in March. That’s a solid figure, but it’s down 4.6 percent from the $219,000 median sales price of March of 2009.

For January through March of this year, the median sales price hit $196,000. That’s down 8.8 percent from the $215,000 median sales price the city saw for the first three months of 2009.

This means that buyers shopping for homes in Lincoln Park, Lakeview, Lincoln Square, Ravenswood and other top Chicago neighborhoods can buy more home for their dollar this year than last. And they can certainly afford more home for the same amount of money than they could even 2 years ago.

To me, that’s the definition of a buyers’ market. And while home sales in Chicago have increased for seven consecutive months, there is still a lot of inventory in the city for buyers to choose from.

If you want to buy a home in Chicago, then, don’t put it off. This is a still a great buyers’ market, and it’s still possible to get a terrific city home for a solid price.

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By this logic, people should be investing their money in Chicago real estate.

Bloomberg News reported that the property brokerage of Berkshire Hathaway Inc. – the company owned by investing guru Warren Buffett – in April bought a local Chicago real estate brokerage. This isn’t the first foray into Chicago housing for Buffett, either. Berkshire Hathaway purchased another Chicago brokerage last year.

The move makes sense for Buffett. Chicago housing sales have risen for six straight months, according to the latest sales data from the Illinois Association of REALTORS®. And top neighborhoods in the city, places like Lincoln Park, Lincoln Square, Ravenswood and Lakeview, have survived the housing slump in solid condition. These neighborhoods are still highly desired by buyers.

Yes, housing prices here have fallen since their peak in 2006. But the market is still strong in these top neighborhoods. Buffett obviously realizes the strength of Chicago’s housing market, and isn’t afraid to put his money on the line.

Buffett’s buy actually supports my contention that this is a great time to buy property in Chicago. Any good investor knows how important it is to buy low. In Chicago, housing prices have dropped since the start of the recession. Today, buyers can purchase more Chicago home for their dollars. For some buyers, this means the opportunity to buy into a top city neighborhood that might have been out of their financial reach just two or three years ago.

So if you’ve been considering buying a Chicago home, this is the time to make a move. Follow the example of Berkshire Hathaway and invest your money in Chicago residential real estate. After all, it makes sense to Warren Buffett, and he knows a thing or two about investing.

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Handley’s story focused on the importance of this group of buyers. It quoted Chicago-area real estate experts who predicted that Gen Y buyers will lead Chicago and the nation out of their long housing slumps.

There are several reasons that the experts cited for this. First, there are simply a lot of Gen Y buyers. According to the Tribune story, there were 75 million people born between 1982 and 1995. These are the members of the Gen Y generation, and they are now in their 20s. They’re entering, or are already in, their home-buying years. Simply put, this means that there are more potential buyers now entering the market, which should lead to an increase in housing sales.

The story also mentions that Gen Y buyers purchase homes at earlier ages, and that they tend to spend more money on these first residences.

And once Gen Y buyers purchase their first homes, they become future buyers of larger, more expensive residences. Like other generations before them, they’ll buy first homes, live in them for a certain number of years and then upgrade. This should all equal a significant number of future home sales.

What impact have the Generation Y buyers had on the housing market today? Builders are creating homes designed to appeal to these younger buyers. This means smaller, more-efficient homes. It also means more home that are high-tech, homes that are wired for high-speed Internet connections.

If the Generation Y buyers behave as the housing-market experts predict, it will mean good things for the future of both the residential real estate industry in Chicago and across the nation.

For instance, there was this news from the Mortgage Bankers Association: Mortgage applications in the United States rose in late March for the first time in three weeks. In fact, demand for home-purchase loans reached their highest levels since October, according to a story on the Web site of Fox Business.

This is definitely a good sign for both the national and local housing markets. As the Fox Business story rightly points out, if this figure continues to rise, it will indicate good things for the busy spring home-selling season.

According to the Bankers’ numbers, the seasonally adjusted index of mortgage applications – a figure that includes both purchase and refinance mortgage loans – jumped 1.3 percent for the week that ended on March 26. The trade group also reported that the four-week moving average of mortgage applications was up 2.2 percent.

Again, this is good news for spring. As the weather warms, especially in cities like Chicago that experience harsh winters, home sales tend to rise. If homebuyers are preparing for spring by getting pre-approved for mortgage loans, it’s a good sign that they are serious about buying homes during this season. And as more homes sell, the odds increase that sale prices will stabilize, too. This, of course, would be great news for sellers.

Of course, the Mortgage Bankers study is just one indicator. But the more I search for news from the real estate industry, the more I find that there are plenty of encouraging signs out there. It’s a nice change of pace from the days of real estate gloom-and-doom. We’re certainly not back to a thriving housing market, yet. But there are signs that we’re heading in the right direction.

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First-time home buyers and move-up buyers must be under contract by April 30th in order to receive their respective $8000 and $6500 tax credits.  A lot of people are taking advantage of this and it has stirred up a lot of activity, particularly in the first-time buyer category.  Prices have dropped over the last few years, rates are at historic lows and the government wants to give buyers a big check. It’s a perfect scenario for buyers right? But there are still some people out there sitting on the fence and wondering if buying in the current economy and real estate market is a good idea. I’ve crunched the numbers on what I consider to be 6 likely scenarios.

The Cost of Waiting

Let’s look a pretty typical first-time buyer scenario. $250,000 condo purchase using the popular 3.5% down payment FHA 30 year fixed mortgage at 5.125%. The monthly mortgage payment would be $1314 per month, the down payment would be $8750 and Uncle Sam would be sending a check for $8000. Let’s also assume that the buyer remains in the home for 5 years.

What if #1 -   1 year from now real estate prices remain the same and mortgage rates remain the same

Cost of waiting = $8,000…no check from Uncle Sam.

What if #2 -  1 year from now real estate prices remain the same but mortgage rates are 1% higher

Cost of waiting = $17,120. The mortgage payment would be $1466 per month. Over 5 years this is an additional $9120 in payments and the $8000 check is missing.

What if #3 -  1 year from now real estate prices are 5% lower and mortgage rates are the same

Cost of waiting = $3603. The mortgage payment would be $1248. Over 5 years this saves $3960 in payments. The down payment is $438 less. But the missing $8000 still makes the cost of waiting an expensive decision.

What if #4 -  1 year from now real estate prices are 5% lower and mortgage rates are 1% higher

Cost of waiting = $12,302. Even with a smaller loan amount, the increase in rate would increase the monthly mortgage to $1393. Over 5 years this adds up to $4740 more in payments. The down payment would be reduced, but only by $438. Add in the loss of the $8000 and again the cost of waiting is not good.

What if #5 -  1 year from now real estate prices are 5% higher and mortgage rates are the same

Cost of waiting = $12,338. The loan amount would be larger resulting in a monthly payment of $1379. Over 5 years this adds to $3900 more in payments. The down payment is $438 higher and the $8000 is not in the picture.

What if #6 – 1 year from now real estate prices are 5% higher and mortgage rates are 1% higher

Cost of waiting = $21,938. The higher loan amount and higher interest rate result in a monthly payment of $1539. Over 5 years this adds up to $13,500 more in payments. Add the missing $8000 and the $438 more in down payment and this becomes quite costly.

Written by Michael Wallace 03/27/2010

Contact Michael Wallace
(312)738-6051
michaelw@chicagobancorp.com

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