4 Reasons Why We Are Not Heading Toward Another Housing Bubble

Real Estate News

4 Reasons Why We Are Not Heading Toward Another Housing Bubble | Keeping Current Matters

With home prices continuing to appreciate above historic levels, some are concerned that we may be heading for another housing ‘boom & bust.’ It is important to remember, however, that today’s market is quite different than the bubble market of twelve years ago.

Here are four key metrics that will explain why:

    1. Home Prices
    2. Mortgage Standards
    3. Foreclosure Rates
    4. Housing Affordability

1. HOME PRICES

There is no doubt that home prices have reached 2006 levels in many markets across the country. However, after more than a decade, home prices should be much higher based on inflation alone.

Last week, CoreLogic reported that,

“The inflation-adjusted U.S. median sale price in June 2006 was $247,110 (or $199,899 in 2006 dollars), compared with $213,400 in March 2018.” (This is the latest data available.)

2. MORTGAGE STANDARDS

Many are concerned that lending institutions are again easing standards to a level that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash.

The Urban Institute’s Housing Finance Policy Center issues a monthly index which,

“…measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”

Their July Housing Credit Availability Index revealed:

“Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

3. FORECLOSURE RATES

A major cause of the housing crash last decade was the number of foreclosures that hit the market. They not only increased the supply of homes for sale but were also being sold at 20-50% discounts. Foreclosures helped drive down all home values.

Today, foreclosure numbers are lower than they were before the housing boom. Here are the number of consumers with new foreclosures according to the Federal Reserve’s most recent Household Debt and Credit Report:

  • 2003: 203,320 (earliest reported numbers)
  • 2009: 566,180 (at the valley of the crash)
  • Today: 76,480

Foreclosures today are less than 40% of what they were in 2003.

4. HOUSING AFFORDABILITY

Contrary to many headlines, home affordability is better now than it was prior to the last housing boom. In the same article referenced in #1, CoreLogic revealed that in the vast majority of markets, “the inflation-adjusted, principal-and-interest mortgage payments that homebuyers have committed to this year remain much lower than their pre-crisis peaks.”

They went on to explain:

“The main reason the typical mortgage payment remains well below record levels in most of the country is that the average mortgage rate back in June 2006, when the U.S. typical mortgage payment peaked, was about 6.7 percent, compared with an average mortgage rate of about 4.4 percent in March 2018.”

The “price” of a home may be higher, but the “cost” is still below historic norms.

Bottom Line

After using these four key housing metrics to compare today to last decade, we can see that the current market is not anything like that bubble market.

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

Interest Rates & Costs Across Time

Real Estate News

Cost Across Time [INFOGRAPHIC] | Keeping Current Matters

Some Highlights:

  • With interest rates still around 4.5%, now is a great time to look back at where rates have been over the last 40 years.
  • Rates are projected to climb to 5.1% by this time next year according to Freddie Mac.
  • The impact your interest rate makes on your monthly mortgage cost is significant!
  • Lock in a low rate now while you can!

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

July Chicago Real Estate Newsletter

Real Estate News

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Does Tight Inventory Mean Offers Need To Be Over Asking?

I get asked this question all the time, and it’s not an easy answer. Whether you’re a buyer or a seller, it can be hard to know exactly how to gain an edge when inventory’s limited.

To read the full newsletter including what to do to survive in today’s frenzied market, the history of Printer’s Row neighborhood and featured properties, click here .

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

You DO NOT Need 20% Down to Buy Your Home NOW!

Real Estate News

You DO NOT Need 20% Down to Buy Your Home NOW! | Keeping Current Matters

The Aspiring Home Buyers Profile from the National Association of Realtors (NAR) found that the American public is still somewhat confused about what is required to qualify for a home mortgage loan in today’s housing market. The results of the survey show that the main reason why non-homeowners do not own their own homes is because they believe that they cannot afford them.

This brings us to two major misconceptions that we want to address today.

1. Down Payment

A recent survey by Laurel Road, the National Online Lender and FDIC-Insured Bank, revealed that consumers overestimate the down payment funds needed to qualify for a home loan.

According to the survey, 53% of Americans who plan to buy or have already bought a home admit to their concerns about their ability to afford a home in the current market. In addition, 46% are currently unfamiliar with alternative down payment options, and 46% of millennials do not feel confident that they could currently afford a 20% down payment.

What these people don’t realize, however, is that there are many loans written with down payments of 3% or less.

Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

2. FICO®Scores

An Ipsos survey revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a “good credit score” is over 780. In actuality, the average FICO® scores for approved conventional and FHA mortgages are much lower.

The average conventional loan closed in May had a credit score of 753, while FHA mortgages closed with an average score of 676. The average across all loans closed in May was 724. The chart below shows the distribution of FICO® Scores for all loans approved in May.

You DO NOT Need 20% Down to Buy Your Home NOW! | Keeping Current Matters

Bottom Line

If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but you are not sure if you are ‘able’ to, sit down with a professional who can help you understand your true options today.

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

Tips for Buying Your First Rental Property

Real Estate News

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After watching HGTV programming, you may have thought about buying your first rental property.  They make it look easy on TV but there are several things that you need to think about before jumping into owning a rental property.

How Handy are you?

When you become a landlord of a rental property, you will be getting calls from your tenant with requests to fix things from a running toilet to a broken dishwasher.  You could call your local handy man to make these repairs but, it will eat into your profits.

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Photo by suntorn somtong on Pexels.com

Don’t Buy A Fixer Upper

You may be thinking that you could purchase a bargain property and quickly upgrade the property and turn it into a rental property. But if this is your first rental property, that’s probably a bad idea. Unless you have a contractor who does quality work on the cheap – or you’re skilled at large-scale home improvements – you’re likely to pay too much to renovate. Instead, look to buy a home that is priced below the market and that needs mostly minor repairs.

Calculate Operating Expenses

Overall, operating expenses on your new property will be between 35% and 80% percent of your gross operating income. If you charge $1,500 for rent and your expenses come in at $600 per month, you’re at 40%.

Determine Your ROI

For every dollar you invest, what is your return on that dollar?  A 6% return in your first year as a landlord is considered healthy, especially given that your ROI number should rise over time.

Purchase Low-Cost Rental Property

The more expensive and larger the property, the higher your ongoing expenses will be. Some experts recommend starting with a $150,000 home.  In some real estate markets, you may think that it would be hard to find a rental property at that price. You might want to consider a studio condo or an up and coming neighborhood to find an affordable first-time rental property.

Location, Location, Location

Look for low property taxes, a neighborhood with low crime rates, an area with a growing job market and plenty of amenities like parks, malls, restaurants and movie theaters. Another area to consider for your rental property, would be near a college or University where there is a demand for rental properties.

Your first rental property isn’t going to produce a large monthly paycheck for a while and picking the wrong property could be a costly mistake. If you are interested in searching for a great investment property, I can help you with finding the right property from a single condo purchase to a multi-unit building. Curious what is currently available in your desired neighborhood? Start your first-rental income property search today.

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

 

 

4 Steps to Follow When Presenting an Offer in Today’s Market

Real Estate News

4 Steps to Follow When Presenting an Offer in Today’s Market! | Keeping Current Matters

So, you’ve been searching for that perfect house to call a ‘home,’ and you’ve finally found it! The price is right, and in such a competitive market, you want to make sure that you make a great offer so that you can guarantee that your dream of making this house yours comes true!

Below are 4 steps provided by Freddie Mac to help buyers make offers, along with some additional information for your consideration:

1. Determine Your Price

“You’ve found the perfect home and you’re ready to buy. Now what? Your real estate agent will be by your side, helping you determine an offer price that is fair.”

Based on your agent’s experience and key considerations (like similar homes recently sold in the same neighborhood or the condition of the house and what you can afford), your agent will help you to determine the offer that you are going to present.

Getting pre-approved will not only show home-sellers that you are serious about buying, but it will also allow you to make your offer with confidence because you’ll know that you have already been approved for a mortgage in that amount.

2. Submit an Offer

“Once you’ve determined your price, your agent will draw up an offer, or purchase agreement, to submit to the seller’s real estate agent. This offer will include the purchase price and terms and conditions of the purchase.”

Talk with your agent to find out if there are any ways in which you can make your offer stand out in this competitive market! A licensed real estate agent who is active in the neighborhoods you are considering will be instrumental in helping you put in a solid offer.

3. Negotiate the Offer

“Oftentimes, the seller will counter the offer, typically asking for a higher purchase price or to adjust the closing date. In these cases, the seller’s agent will submit a counteroffer to your agent, detailing their desired changes, at this time, you can either accept the offer or decide if you want to counter.

Each time changes are made through a counteroffer, you or the seller have the option to accept, reject or counter it again. The contract is considered final when both parties sign the written offer.”

If your offer is approved, Freddie Mac urges you to “always get an independent home inspection, so you know the true condition of the home.” If the inspector uncovers undisclosed problems or issues, you can discuss any repairs that may need to be made with the seller or even cancel the contract altogether.

4. Act Fast

The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a ‘normal’ market. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete with each other for their dream homes.

Make sure that as soon as you decide that you want to make an offer, you work with your agent to present it as quickly as possible.

Bottom Line 

Whether you’re buying your first home or your fifth, having a local professional on your side who is an expert in his or her market is your best bet in making sure the process goes smoothly. Happy house hunting!

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

June Chicago Real Estate Newsletter

Real Estate News

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Quick and Inexpensive Fixes for a Good Showing 

Getting your home ready for market doesn’t necessarily have to break the bank. Here are some inexpensive and easy improvements to make your home more enticing to potential buyers.

To read the full newsletter including information on Chicago’s best beaches and featured properties, click here .

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

Cook County Property Taxes Getting too High?

Real Estate News
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Photo by Pixabay on Pexels.com

Every year it seems as though your Cook County property taxes keep getting higher and higher each year.  When you first bought your condo or home, the property taxes may have been lower and easier to manage but after time your property taxes may have climbed much higher over the years.

You may be thinking there is nothing that I can do about the increase amount in my property taxes. Or that if I were to appeal my taxes, it would be too difficult to navigate.  Appealmytaxes is a company that can help you with the process of appealing your Cook County property taxes.  The best thing about this company is that there is also no cost to you if you do not receive a reduction in your property taxes.

 

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

 

 

April Real Estate Market Report for West Town & Chicago

Real Estate News

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The April real estate market was heating up in West Town along the the warm weather finally arriving in Chicago.  New listings in the West Town neighborhood increased 2.6% for detached homes and increased 14.6% for attached properties. Listings under contract decreased 3.1% for detached homes and increased 2.3% for attached properties.

The median sales price in West Town was $897,550 for detached homes and $456,000 for attached properties. Months supply of inventory for detached units is at 4.9 months and 2 months supply for attached units.

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Chicago Real Estate Report

New listings in the City of Chicago were down 22.5% for detached homes and down 44% for attached properties. Listings under contract decreased 35% for detached homes and decreased 45% for attached properties.

The Median Sales Price in the City of Chicago was $159,900 for detached homes and were $89,250 for attached properties. Months Supply of Inventory is 1.6 months for detached units and .7 months for attached units.

There still continues to be very low inventory in Chicago.  For sellers, this means it’s a great time to sell and for buyers they need to act quickly if they find a property that they love since there is a low supply of condos and houses. For buyers in the West Town neighborhood, there growing amount of inventory because the single family home supply is near 5 months.

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

amy.pearson@bairdwarner.com

How Much Has Your Home Increased in Value Over the Last Year?

Real Estate News

How Much Has Your Home Increased in Value Over the Last Year? | Keeping Current Matters

Home values have risen dramatically over the last twelve months. In CoreLogic’s most recent Home Price Index Report, they revealed that national home prices have increased by 6.7% year-over-year.

CoreLogic broke down appreciation even further into four price ranges, giving us a more detailed view than if we had simply looked at the year-over-year increases in national median home price.

The chart below shows the four price ranges from the report, as well as each one’s year-over-year growth from February 2017 to February 2018 (the latest data available).

How Much Has Your Home Increased in Value Over the Last Year? | Keeping Current Matters

It is important to pay attention to how prices are changing in your local market. The location of your home is not the only factor that determines how much your home has appreciated over the course of the last year.

Lower-priced homes have appreciated at greater rates than homes at the upper ends of the spectrum due to demand from first-time home buyers and baby boomers looking to downsize.

Bottom Line

If you are planning to list your home for sale in today’s market, find a local agent who can explain exactly what’s going on in your area and your price range.

Amy Pearson

Real Estate Broker

Baird & Warner – Gold Coast

Amy.pearson@bairdwarner.com