Wednesday, July 02, 2008

What's Going On In Our Real Estate Market

First of all, let's talk rates. Here's a graph of the National Average Contract Mortgage Rates for the last 45 years.
Copyright © 2008
Reprinted with permission

If someone tells you that "rates are kinda high these days", just grin and nod. Many of my friends , family members, and clients have purchased and financed their homes in the last 3-5 years. That's great for them, you can see that rates were at an all-time low during that window. It's no coincidence that they bought and re-financed then, is it?!

Before 2003, when were rates lower than they are today? Scanning our graph, we see that the answer to that question is sometime around 1966. Remember how great we thought rates were then!? Yeah, me neither....

There's all sorts of talk about "stagflation", that's when economic growth is close to zero, or negative, and yet we have inflation. A Reuter's article yesterday sited domestic manufacturing and U.S. construction data adding "to concerns the United States is in a period of weak growth accompanied by high inflation."

All of this is pointing to this month and this season and this year being strong opportunities to getting your dollar to stretch farther than it has historically, and farther than it may be able to in years to come. Unless the U.S. and Global economies can find an opportunity to resurrect steady growth, or the Fed can find a way to slow inflation, we should expect to see interest rates continue their ascent.

July and August are traditionally slow for the Chicago market, and this year is not an exception. That said, you can see from the statistics in the right margin (provided by that the median condo price in Chicago is $320,000, up 10% from the beginning of the year. On the other hand, new listings and closed listings are down notably, and average market time has increased by 4%.

There continue to be people that need to move or that are simply ready to move. For those homeowners looking to upgrade, or for first-time homebuyers, there are some real opportunities on the market. Taking advantage of deeper inventory, and acting while interest rates are still low will be in your best interest.

On the other hand, there are homeowners who are looking to move into a smaller home who will find this a challenging time. Selling a bigger home and buying a smaller one at a time when home values have not seen appreciation will limit the investment upside of your transactions. That said, if it's time to move, your best bet is finding a skilled and experienced agent to help you navigate this tricky market.

Monday, April 21, 2008

Remodeling - Cost and Value

Lately many of my clients have been thinking about taking on small home projects, updates, and general remodeling. Most of them ask me if the project will increase the value of their home - whether they be homeowners considering marketing their home for sale, or be they home shoppers wondering if they should purchase and improve.

The answer - yes, home improvement will increase the value of your home. But the real question is, by how much?

Home improvement projects generally will not return the full amount of your investment, but will improve the marketability of your home. If you spend $20,000 on your bathroom, for example, you may only increase the value of your home by $12,000 - $15,000, depending on the project. If the project addresses real concerns - aesthetic or functional - that investment may garner a $12,000 return, but may also sell your home two months earlier, saving you a couple mortgage payments and the stress that comes with having your home on display seven days a week for months at a time.

To determine what a project will return requires a bit of artful estimation and a little science in the form of general statistics. Every year Remodeling Magazine releases their Cost vs Value Report. This is a must read if you're contemplating improving your home. The basic data can be downloaded for a region or major city by completing their form here.

You should consider a home project - remodel or addition - under the following circumstances:
  1. You are looking to market your home now or in the near future and a particular room's limitations or condition will turn off prospective buyers, making it difficult to sell your home. This is especially true if you are in a hurry to sell.

  2. The improvement is required to sell your home. In some cases, building code requires that something be improved in order to simply meet the local code. Some localities in Chicago's western suburbs, for example, require a city or village inspection before a home can be conveyed. In these instances, it may be required that you improve a home system (like a furnace or garbage disposal) in order for the transaction to take place. Another example would be the improvement of a deck or porch to meet city code. Chicago substantially upped the requirements for attached decks in 2004. If your deck isn't up to code, many inspectors will point this out to home buyers. If the city makes the discovery, they will condemn the porch immediately, requiring the homeowner or condo association to take (expensive) action.

  3. You will get enjoyment out of the home improvement, and aren't necessarily looking to recoup the full investment. That is to say, if you are moving into a new home, or you are not planning to sell your home in the immediate future, and the improvement is something you can enjoy for some time before moving again.
The projects with the greatest return on investment are exterior ones, like replacing siding or adding a deck. If you are a single-family homeowner, these may be worth improving. On average, the full cost of siding replacement is recouped in the home sale. If you're a condo owner, I don't recommend improving the exterior of the building out of your own pocket! However, the Association may want to consider these improvements.

Interior to your home, the kitchen and bath have the greatest potential of increased value, while the home office has the least. According to the report, a major kitchen remodel can recoup approximately 80-90% of your investment. Interestingly, a mid-range kitchen remodel recoups more of its cost than a high-end remodel. This certainly has to do with material costs.

Keep in mind, however, that if your market competition has high-end kitchen finishes, you may not want to do a mid-range improvement. You may expect a higher rate of return, but your neighbors with gorgeous kitchens will increase expectations for your prospective buyers, and they will count your new kitchen as a negative, not a positive.

Home office remodels should be done only if the homeowner needs it for his/her own function, or if it is an obvious and significant detriment to selling the home. These projects tend to return less than 60% of the money invested.

Cost versus Value citation: “© 2007 Hanley Wood, LLC. Reproduced by permission. Complete city data from the Remodeling 2007 Cost vs. Value Report can be downloaded for free at”

Thursday, February 14, 2008

February 2008 - Things Are Happening; Make Haste!

The media has been broadcasting all sorts of depressing news having to do with real estate and the economy overall. Foreclosures and short sales are all too common in many markets around the nation - Detroit, Cleveland, Florida, the west coast, the east coast... they're all struggling. Right?

All of the newspapers, including the New York Times this morning, have made reference to the "housing correction".

"What a bad time for real estate", some people have said to me. "You must be wishing you were still in consulting!" others have shared.

I'm busy. Things are happening. I'm really busy! And its not just me.

I helped a client negotiate a contract over the weekend in a multiple bid situation. Multiple bid?! What is this, 2004?!? People are looking for well-priced homes in their price range, and when they find them, they're buying them.

I have thirty-one active housing searches for buyers running right now. Some buyers have more than one, and some aren't looking aggressively, and may not even buy, but thirty-one!?! That's more than a few people looking for homes.

And it isn't just me. My office is teeming with activity. People are taking new listings, people are selling homes. People are buying homes.

February, March, and April are great times to be transacting real estate, and this year is no exception. There is latent demand from November and December, during the holiday season when no one wants to shop for a home. There are New Year's resolutions, spring cleaning, and "it's time to sell" fever.

Mortgage rates are incredibly low, and that makes a difference. A 30-year conforming loan can be had for less than 6% at the time of this article. 5-year ARMs and 7-year ARMs are making a resurgence, because they now present a spread that makes sense. 5 1/8% on a 5-year ARM, wow!

Copyright © 2008
Reprinted with permission

The President signed the economic stimulus package into law yesterday, providing a tax rebate to American individuals and families. The law also changes the definition of conforming loan limits, which will help consumers in parts of the country to get larger loans at conforming loan rates (currently .75 to 1% lower than Jumbo loan rates). This may not have an impact on Chicago-area home buyers as the law is currently written.

What does this mean for the economy for this year? According to the WSJ, Benjamin Bernanke says that his
“baseline” forecast is for the economy to experience “sluggish” growth for the next several months but to regain some speed later in the year.
What about us Chicagoans and our real estate market?

The future is not 100% clear, of course, but I can tell you that things are looking pretty good from where I stand. Home buyers are out there, in droves, and they are looking for nice homes, but they are also looking for good deals. There is still a lot of inventory, so buyers can afford to be choosy, but there's also a great deal of over-pricing. There has never been a more important time to price your home correctly and competitively. With the depth of the current inventory and the buzz of home buyers, a well-priced home can sell very quickly, while an over priced home is almost sure to collect dust.

Home buyers are wondering why some homes have such long market times, and are steering clear. They are swarming to newly listed and freshly marketed places.

If you want to sell your home, don't wait until summer. Summer and winter are traditionally slow in Chicago. The mortgage rate future is unclear. The market conditions are unclear. What is clear is that things are happening now, and they're happening fast.