Why is ANYONE considering buying a house right now in this market unless you have to? (Chicago: bank owned, apartment)

[chet everett]

FMV -- important point about 'expectations'. Too many people give themselves a ticket to the fast train into "buyer's remorse-ville" by doing EXACTLY what described: looking WAY above OR BELOW their core price comfort range. While rongoe seems "smarter than the average bear" and has some valid reasons for consider three WILDLY different areas my gut says he (or his spouse) really really really wants the granite swathed manse of Frankfort, in a great walkable not-crazy-expensive town like LaGrange, with the schools of Kennilworth/Winnetka -- NOT GONNA HAPPEN. Every 4 bedroom house that I found in the NT district under $800K has a kitchen that Laura & Rob Petrie would feel at home in!

When people do look/buy in south Naperville/Plainfield there is just about a certainty that they are gettting the granite & SS package. They are going to be miles from trains. If they broaden their search region they are going to encounter a whole bunch of different trade-offs and probably kicking themselves for not getting a place that was cheaper and more convenient, especially when 5-7 years down the road their granite & SS kitchen is going to look about as "not so new" as somebody else corian does today. If they banked that money that they are spending to move from the 5's to the 7's they would have A LOT more flexibility down the road.
It is real real real hard to "twist the arm" of an buyer, and it flat out stupid for a Realtor to risk losing a client/potential sale with a greater commision to suggest going for the cheaper house...

Given the DIRE mood some folks have I might pull what I called the "Chinese Rug Bankrutpcy Scam". Pull your listing. Stop cutting the lawn. Let the weeds grow. In July hang the adjacent streets with balloons, used car flags, and gaudy sign. Take an ad out in the local papers: BEAT FORECLOSURE. EXTREME DISCOUNT. NO REASONABLE REFUSED. ALL BUYERS WELCOME. MUST SELL BY OWNER IMMEADIATELY...

You only have to fool one person...

[team_evans]

FMV,

I can see why you would be frustrated if people look at your house with all its other attributes, dismiss the kitchen which could be brought nicely up to date for probably $10-$15K, then go spend another $100 on another house.

I can also understand why you're frustrated with the ominous talk out there that's scaring people into not wanting to buy (or in your case, trade up). I'll be there in a year or two--we live overseas in government housing with our house back in Washington rented; when we (we hope) move to the Chicagoland area we'll be in the position of having to get our house sold so we can buy. I'm already worried about the market not recovering, people being afraid to make the jump from renting to owning (my house is a starter), etc...

Such a bitter pill to swallow when we're making the largest financial transactions of our lives, in which so much of our wealth is tied up, and the other party (i.e. buyers) aren't behaving the way we need them too.

Best of luck and let us know how things turn out.

[fairmarketvalue]

team evans,

Thanks very much and thanks for ending this on a good note. I will let this post know what happens. chett everett, thanks, once again, for the fantastic posts, with ALL sides addressed, one time or another. You bring a wise opinion to this topic.
Hopefully, I'll post some good news soon.
FMV

[fairmarketvalue]

Originally Posted by Humboldt1

FMV,

Prices in the Chicago area have not bottomed. Please tell who tells you this. How can you say prices are not dropping in Chicago? They are down 10% from April 2007-08. This is a fact.

$140 oil today, forecasted to go to $150 by July 4th. Unemployment at 5.5% up highest amount since 1986.

We are not in good economic times. Prices have certainly dropped off their peaks in 2005 and 2006, but I believe there are more price drops coming in the next few months.

Now is certainly a much better time to buy than 1 year ago but I believe 1 year from now when be an even better time to buy.

Rongoe,

Oak Park is all east of Harlem. West of Ridgeland tends to be nicer and many of those homes sells for in excess of $1MM. I think most of the crime you are seeing in Oak Park is spillover from the Austin community to the east. Most of Oak Park is a fabulous community. I would look at those crime stats more carefully. Sukwoo may be able to help you with this as they reside in Oak Park.

I gues as they say, all markets are different, depending on the area. But if there is anything I truly believe something that even you would have a hard time argueing, it's that it would be a mistake to wait until next year, for that occasional "good deal" as interest rates will most certainly rise and the banking/mortgage industry is making it harder and harder to get approved for any reasonable, conventinal loan. So those that are still able to buy now, will not be able to next year, based on these 2 facts alone.

Whatever predictions you "believe" about the market going lower, as chett everett put it, what crystal ball do you pocesss that we all do not have? It's a true shame that people are not rising above this very concentrated data, and if interested in moving up, buying for the first time, or just any other reason that up until now, has prevented them from buying, they really are missing the boat, at least here in our area. Builders are still doing fine, around here, and continue to build more and more expensive homes (over 1mil), and they are selling at pre-construction prices. So the wealth seems to still be speading- somewhere.
FMV

[Humboldt1]

I work in commercial banking and have banked a number of construction companies, from tract builders to custom tear down builders.

The individual looking to buy and stay put for 5 years will be fine buying. For those who are in a position to wait I would advise them to wait a bit longer. I understand they need to buy and am not advising them to not buy.

Can someone please run the numbers for if rates go to 7 percent (5.90 now for 30 year prime borrrower) and prices drop 10 percent and what the monthly payment would be?

I am not in the office or I would run an amortization schedule which you can get at bankrate.com.

This is not an argument you will win from a numbers perspective.

By the way, there is a huge liquidity crisis going on in the commercial banking sector. Basically, we (big banks) don't want to do loans and are focusing more on building our balance sheets through deposits. I can go more depth if you wish and have some analysts weigh in if you like but things are bad and not getting better, though much of the bear sterns buyout has alleviated many of our concerns on wall street.

People will still be able to get home loans next year so long as they have good credit. Those with credit scores below 680 will have more problems.

Please explain your rationale behind why you see prices at bottom and that loans will be harder to get in 1 year than now.

[chet everett]

As far a rates, I really want that crystal ball.

There are an awful lot of people that would like to see the Fed raise its benchmark rates to help make US dollars more valued on the world markets.

On the other side there are an awful lot of people that see lenders as being too tight fisted. I do agree with Humbolt1 that firms engaged in construction of all sorts of homes and condos are NOT on the "come right in" list of any banks...

While I don't think anyone is going to predict a return to the huge year-over-year gains in nearly ALL real estate prices that we went through for nearly 10 years, there is the possibility of some price increases. The Chicago market is in MUCH better shape with regard to transportation and job stability compared to nearly every other regions. Again, I have no crystal ball...


Homes are NOT commodities. No real estate investor, large or small, just buys up stuff willy-nilly. Quality is always a factor. Loans generally USED TO be tightly correlated with borrow quality. As the large number of defaults/foreclosures show, something broke in that chain. The process is still evolving, but for individuals that RIGHT NOW have the ability to borrow and have found a quality house I think this IS a appropriate time to buy. Who knows what events (job change, personal health issues, legal settlements) that are somewhat outside of one's control will effect one's credit. Who knows what changes may be coming down the pike to more accurately reflect the 'risk premium' for borrowers with even mostly good scores. Could lenders charge an additional tenth of point for every 10 points below 800 one's FICO is?? Again, I want my crystal ball...

Are prices universally "at bottom"? I have no idea, and I honestly don't care. I maintain that the key is NOT some magic "call the bottom" but a rational, supportable "fair price" AND a strategy that discourages ANYONE from holding any real estate for an unreasonable short time frame. Unlike financial instruments where volatility, trading volume and technolgy have combined to make it feasible to reap profits from positions held for MICROSECONDS there should NEVER be a mindset that volatility is desirable in housing. Finding a property, arranging financing, planning a move should all be deliberative long term decisions. As an aside, I also advocate arranging fixed terms for a long as practical, prefering 30 yr fixed to any other, and using an excess cash as you see fit, either to retire the loan early, or invest in more speculative instruments...

[rongoe]

Originally Posted by chet everett

FMV -- important point about 'expectations'. Too many people give themselves a ticket to the fast train into "buyer's remorse-ville" by doing EXACTLY what described: looking WAY above OR BELOW their core price comfort range. While rongoe seems "smarter than the average bear" and has some valid reasons for consider three WILDLY different areas my gut says he (or his spouse) really really really wants the granite swathed manse of Frankfort, in a great walkable not-crazy-expensive town like LaGrange, with the schools of Kennilworth/Winnetka -- NOT GONNA HAPPEN. Every 4 bedroom house that I found in the NT district under $800K has a kitchen that Laura & Rob Petrie would feel at home in!

Chet nailed it. That's exactly what we're looking for, and we'll just have to figure out which dimensions we want to compromise on. We're spending one day in each of the 3 areas mentioned starting tomorrow, which should give us a better sense of which overall package we like best.

I think the Wilmette homes (that we'd be interested in living in) are about 100-150k too high. It's amazing how quickly the desirabliity drops off below 800k. The other thing I notice is that, according to the Baird & Warner website, very few homes are under contract. If accurate, this indicates sellers not being willing to lower price to reflect current market conditions. Unfortunately, that doesn't bode well for us.

[loghome]

Now is the BEST time to buy!!! Pick up a "short sale property" Lots of money to be made in these...

[Humboldt1]

There is lots of money to be made in short sales. I think we will be seeing even more short sales over the next 6 months as banks are forced to liquidate inventories. I am not quite ready to pull the trigger but am definitely on the lookout for the right property, which I expect to find within the next 12 months.

The only thing I disagree with is saying now is the best time to buy. I genuinely feel in the next 3-6 months will be the best time to buy a short sale as banks liquidate inventories at fire sale prices. For non-foreclosure and non-short sale properties I would think in the next 12-18 months would be the best time to buy. Basically, I see short sales bottoming before non-distressed properties. Time will tell.

[chet everett]

I have already gotten calls from contacts in the real estate and lending biz about properties that are in default/foreclosure. Lot of junk, little bit of stuff that is "interesting" but I agree with Humbolt1 that this stuff will likely get blown out before Christmas -- nobody LIKES to have a ugly balance sheet going into a new administration. Honestly there are lots of decent to excellent properties that are fairly priced at many price points, right along lots and lots and lots of overpriced stuff that I have no idea who would have the money to through away on cheap re-dos and run-of-the-mill ugly non-functional houses in crummy locations that sellers are deluding themselves into thinking are desired by anyone... There may NEVER be a good time/price to buy such properties.

I do not see any huge pent-up dam o' demand bursting that would make me want to "flip" overpriced short sales, and these deals are long and not easy. I do think that if any lender can "streamline" the process they might win some friends in the real estate offices, as my contact that are agents whining about "waste of time" when it comes to short sales and there are still some lenders that have really slick loan platforms that COULD simplfy this ALOT, but I suppose they are still hoping Barney Frank will save them from their past errors -- that sort of thinking has to stop. These lenders have to swallow the medicine. If THAT is what Humbolt1 is talking about then I can see that, BUT that is a SPECULATOR'S view NOT one that will serve MOST traditional home buyers. Just as speculation drove the market too hard/fast UP, too much aggressive speculation/"reverse cheerleading" will whipsaw ALL property owners AND the whole damned economy into the weeds!

There may be a wee bit of "distress driven re-pricing" but honestly I have not seen that in most of communities/price points that I really watch. No reputable appraiser is going to "hard ball" a top-quality house with a solid title history with some disaster that was owned by a flipper until he found some speculator to own it who defaulted on it then the lender sold it at fire sale. Frankly I don't wanna even look at areas where THOSE are going to be comps. Sure there will be some communities where that is going to be A LOT of the comps, but no way is that going to be the case EVERYWHERE, employment is still awfully solid. If that changes, look for the panic-y types in the House, Senate and even White House to ratchet up "stimulus check part deux" or maybe even SOMETHING like changes in the corporate tax policies that MIGHT make people wake the heck up about the loss of productive capacity...