According to the latest home sales numbers from the Illinois Association of REALTORS®, December, 2011, existing-home sales in Chicago hit 1,536, up 6.4 percent from the 1,444 homes sold in the same month one year earlier.

The news wasn’t as good when it came to the median sales prices of these homes. According to the association’s numbers, the median home sale price for Chicago stood at $156,000 in December of last year. That’s down 6.2 percent when compared to the same month in 2010. Back then, the median sales price of Chicago homes came in at $166,250.

Bob Floss, president of the Chicago Association of REALTORS®, was quoted in the press release accompanying the December numbers as saying that the December rally was a good sign for the future of Chicago housing sales. The numbers give hope that Chicago’s winter and spring home-selling seasons will be strong ones, he said.

Floss, though, expressed concerns about the median sales price of Chicago condominiums and single-family homes. This number shows no sign of rising, and, in fact, continues to fall. Floss pointed to the large number of distressed residential properties on the market: Foreclosures tend to drag down the median sales prices of homes near them.

Until the number of foreclosures falls, don’t expect the median sales price of Chicago residential properties to rise.

The association press release also quotes Loretta Alonzo, president of the Illinois Association of REALTORS®. She says that buyers in December simply found too many good housing deals to pass up.

That’s good news, of course, for sellers trying to move their properties. It’s not great news, though, for sellers trying to get top dollar for their homes. Buyers today simply expect to find bargains on the condos and single-family homes that they purchase.

It’s little surprise, then, that many buyers — especially first-time buyers — are getting help from family members or friends to cover their down payment requirements.

A story by the Wall Street Journal reported that 27 percent of first-time buyers in 2010 received a financial gift from a friend or family member to use toward their down payments. That figure is up from 22 percent in 2009 and 23 percent in 2005, according to numbers from the National Association of REALTORS®.

The Wall Street Journal story quoted a mortgage adviser from Chicago who explained that a 10 percent down payment on a modest Chicago condominium or single-family home could come to $30,000 to $40,000. That’s a lot of money for first-time home buyers to scrape together.

Of course, there are options for buyers seeking lower down payments. Buyers with solid credit can qualify for FHA mortgage loans that come with down payment requirements of just 3.5 percent.

Those working with traditional mortgage loans, though, will often have to make a down payment of 10 percent to 20 percent of a home’s purchase price. Again, in big cities such as Chicago, that’s hardly a small sum of money.

The Wall Street Journal story provided some good advice for buyers who are relying partly on gifts to finance their down payment. Freddie Mac requires buyers to provide at closing funds equal to at least 5 percent of the home’s purchase price if the loan-to-value ratio is greater than 80 percent and a relative or friend provides a gift to help with the cost of the down payment.

The Journal story also says that buyers must properly document their down payment gifts. For instance, if a buyer’s bank account suddenly jumps from $10,000 to $15,000 thanks to a gift from a family member, the loan officer handling the loan will want to see a gift letter. This letter should provide the giver’s name, address and telephone number. The Journal also reported that the letter should spell out the relationship between the buyer and the person providing the gift.

The Chicago singer and Oscar-winning actress has a contract pending on a 12,000-square-foot home in the Chicago suburb of Burr Ridge, according to the Chicago Tribune. The home is listed at $2.795 million.

It’s not certain yet just what Hudson will pay for the house. But Hudson’s purchase, even if it’s a full-price offer, provides a quick lesson on the state of the housing market in the Chicago area today. And for Chicago home sellers, the message is clear: Price reductions are still the order of the day for many city condominiums and single-family homes.

If Hudson pays $2.795 million for the home, she will nab it for a price that is more than 33 percent lower than the residence’s original listing price, according to the Chicago Tribune story. That original list price stood at $4.2 million before falling to the current price that attracted Hudson’s offer.

This is happening on a smaller scale to home listings across the Chicago area. Sellers still are frequently dropping their asking prices as their only way to attract buyers. There’s a reason for this: Home buyers today are savvy. They know that the housing market, both in Chicago and across the country, is down. They know, too, that many sellers are eager to move their condominiums and single-family homes, and are willing to drop their asking prices to do it.

If you’re trying to sell today, it’s important that you work with a REALTOR(R) who knows your market. This professional can help you set the right price for your listing, and can boost your odds of moving your residence in the shortest amount of time possible.

Simply put, too much holiday cheer can turn off potential buyers. It can also make your home look cluttered and small. And those are two adjectives you don’t want buyers to associate with your condo or single-family home.

Remember, selling a home is a very different process than is living in it. When you’re selling, your home must also look its best. And you must always have it decorated to showcase its most positive features. When potential buyers tour your residence, you want them to remember the size of your generous master bedroom, the modern appliances in your updated kitchen and the open space in your living room.

You don’t want them remembering that 10-foot-tall Santa waving to them from your front lawn.

Tasteful decorating is even more important today. The number of home buyers shrinks during the holidays and winter months even in the strongest of residential housing markets. It’s not as much fun to tour homes when the temperature plunges below the freezing mark.

But in today’s challenging housing market, one in which it’s difficult to even move condos and single-family homes in top neighborhoods such as Lincoln Park, Lakeview and Lincoln Square, it’s more important than ever to showcase your home to its fullest. The number of buyers out there is low. And they have plenty of homes from which to choose when they’re finally ready to purchase.

Don’t give these buyers a reason to bypass your residence. It’s OK to decorate. No one will hold your holiday cheer against you. But when you overdo it, and when your home looks more like an amusement park ride than a residence, you run the real risk of turning way those elusive buyers that are actually out there today.

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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This is big news. It’s further evidence that the housing market here has stabilized. We’re in a recovery now, and there’s no denying it.

Overall, home sales throughout the state of Illinois rose 3.3 percent in September of this year when compared to one year earlier. This marks the first time that we’ve seen a year-over-year increase in local home sales since March of 2006.

In the city, 1,918 homes sold in September. That compares to 1,813 sold during the same month one year earlier.

I can point to several reasons for this sales increase. First-time buyers, encouraged by the federal government’s $8,000 tax credit, hit the market hard in the late summer and early fall months. They know that the tax credit is due to expire at midnight on Nov. 30, and they didn’t want to miss their chance to qualify for it.  Add historically low interest rates to the mix and one sees why sales have begun to show a spike upward.

Secondly, it seems that Chicago sellers are now pricing their condominiums and single-family homes at prices that are attracting the attention of buyers. Smart buyers know that Chicago housing today is a great bargain. They’re taking advantage of these terrific sales prices.

Finally, you can’t discount the overall strength and resiliency of the Chicago housing market. Sure, even the city’s top neighborhoods have seen home sales decline during the housing slump. But these markets, neighborhoods like Old Town, Lincoln Park, Wicker Park, Lakeview, Lincoln Square and Roscoe Village, are so attractive, and offer so many amenities, that I knew they’d rebound quickly from the residential real estate slowdown.

And that’s just what is happening now.

I’m particularly impressed that Chicago outperformed the rest of the state, seeing its home sales increase 5.8 percent in September while sales in the state as a whole only jumped a bit more than 3 percent.

To me that says one thing: Chicago remains a great place to buy a home.

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Earlier this month, the National Association of REALTORS® reported that the number of pending home sales rose again in July. This marks the sixth straight month that this figure has risen.

That’s significant because it’s a record. This is the first time this figure has risen for so many consecutive months since the REALTORS® association first began tracking pending home sales in 2001.

The pending home sales index is a bit complicated. It’s based on sales contracts signed each month. In July, then, the number of housing contracts that consumers signed rose again. This, of course, is a good sign that the housing market is regaining its strength.

Lawrence Yun, the chief economist for the National Association of REALTORS®, said that the housing recovery is now gaining momentum across the country. We’ve seen signs of it here, too, in Chicago, as housing sales in the city continue to rise month after month. At the same time, the prices of condominiums and single-family homes in Chicago are slowly, but steadily, rising again.

Yun points to first-time homebuyers as one of the main catalysts for the current recovery. The REALTORS® association estimates that from 1.8 million to 2 million first-time buyers will take advantage of the federal government’s $8,000 first-time homebuyer tax credit this year. The association also says that about 350,000 home sales that will take place this year would not have happened without the tax credit.

Chalk up the increase in pending home sales as yet one more sign that the housing market is in the midst of a much-awaited recovery. Remember, as the housing market regains its strength, it will exert a positive influence on the rest of the economy. A strong housing market usually equals a strong economy, too.

Each month, the National Association of Home Builders releases its Housing Market Index report, a survey geared at taking “the pulse of the single-family housing market”.

Respondents report on three facets of their business, each series weighted and averaged:

1. How are market conditions today?
2. How do market conditions look 6 months from now?
3. How is the traffic of prospective buyers of new homes?

For the 3rd straight month, the Housing Market Index improved.  It’s now at its highest level since May 2008.

The housing market has shown signs of life since March.  Both Existing Home Sales and New Homes Sales have soared and home values are up in a lot of towns.  Builders showing confidence is another positive signal.

Fed Chairman Ben Bernanke said that the recession is “very likely over” and strong housing data corroborates that statement.

As the economy strengthens and housing does, too, home sellers will start to regain the upper-hand in contract negotiations.  If you’re an active home buyer, therefore, and looking for “a deal”, be aware that time is close to running out.

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An “existing home” is a home sold by an existing owner as opposed to a developer.  It’s non-new construction property.

The data on Existing Home Sales was noteworthy for its trends:

1. Sales volume rose over four straight months for the first time in 5 years
2. Sales volume rose year-to-year for the first time in 4 years
3. Median home prices fell for the first time since April

Furthermore, first-time home buyers and buyers of “distressed” homes accounted for nearly one-third of the market activity each.

But, before we declare a bottom in housing, it’s important that we remember the First Rule of Real Estate — All Real Estate Is Local.

The Existing Home Sales report is not neighborhood-specific.  It lumps cities like San Diego and Saint Paul into a giant sample set and fails to account for regional differences in real estate, let alone neighborhood ones.

This is the primary reason why on-the-ground real estate agents are better sources for a market pulse versus a report from a national trade group.  The national group can’t know the happenings of every street and every home in a market.

That said, however, the national data isn’t completely useless.

Looking at the long-term patterns in the Existing Home Sales report, we can infer that ample supplies, low mortgage rates and tax credits are spurring home sales in a lot of U.S. markets.

Eventually, this will lead home prices higher.

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It’s natural to be nervous about this decision. After all, a mortgage loan officer is handling what will be one of the largest financial transactions of your life. It’s also harder to trust mortgage lending companies  these days. After all, the newspapers have been filled with stories about deceptive lending practices ever since the housing boom began. Then there was the news last week, as reported here in the Wall Street Journal, that Illinois Attorney General Lisa Madigan has filed a lawsuit against Wells Fargo & Co. The lawsuit alleges that Wells Fargo illegally discriminated against minority borrowers.

Yes, there are bad loan officers out there. The truth, though, is that there are many more good, dedicated loan officers in the mortgage industry. The bad press tars even those loan officers who always act in the best interests of their clients. It’s an unfortunate situation.

There is one way to ease your nerves, though, when selecting a mortgage lender: Ask your REALTOR® for his or her recommendation.

Experienced REALTORS® have built up relationships with industry professionals whom they know work hard for their clients. That includes mortgage loan officers. Your REALTOR® wants you to have the smoothest home-buying experience possible, so you know he or she is going to recommend only hard-working, ethical loan officers to you.

Of course, this doesn’t mean that you shouldn’t do your due diligence. Make sure to ask any loan officer, even one recommended by your REALTOR®, for a list of references. Then call those references. Ask them if the loan officer was good about returning phone calls. Ask if the loan officer guided them to a mortgage loan product with which they were comfortable. And ask if everything went smoothly at the closing table.

Remember, your REALTOR® isn’t only someone who chauffeurs you from home to home. A REALTOR® is also an advisor, one who can help you navigate the process of making the biggest financial decision of your life. Tap your REALTORS’® expertise when it comes to finding the right mortgage loan officer.

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