Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'First-time buyers' Category
I live in Andersonville, and I love it here. It’s a friendly, easygoing neighborhood nestled away from the Wrigleyville-Lakeview-Lincoln Park bustle a few miles south, it’s got great restaurants and bars, there are plenty of cool antique shops and clothing boutiques, and you can walk everywhere — including the lake.
And lately, you can find dozens of 2-bedroom condos in the $250,000 to $300,000 range in the heart of Andersonville, which was not the case even a couple years ago. This weekend I was out house-hunting with some buyers, and we saw a smattering of recent rehabs in vintage buildings a stone’s throw from Clark Street. All of them had updated kitchens and baths, and some boasted sunrooms and ample rear decks as well.
But as we visited each condo, I noticed that many of these units — for example, 1408 W Foster #3, 5204 W Glenwood #3, and 1476 W Carmen #2 — looked very familiar, because they had all been on the market for 8 or 9 months and I’d shown them before to other buyers.
It looks like a classic case of overpricing in a popular neighborhood, hoping that buyers will pay 2006 prices even in a struggling market. All of these condos had been originally priced $15,000 to $25,000 higher when they hit the market last spring and summer, and they did not sell.
As the spring market begins to unfold, I’m now seeing at least 30 Andersonville condos competing for attention in this price range. Most of them are vintage rehabs that were converted maybe 5-10 years ago, but there are also a few new conversions in the mix. Some even boast second bathrooms or a parking space.
All this competition will hold prices down, making it possible to find a nice 2-bedroom condo in Andersonville for perhaps $270,000 — what you would have paid five years ago. Buyers who until recently had to settle for the surrounding areas like Uptown or Edgewater because they were priced out of Andersonville can now find plenty of affordable condos to choose from in Andersonville proper.
Alarmed by rising loan defaults, the Federal Housing Administration this week announced that it was clamping down on the cash that is now financing a quarter of all U.S. home purchases. In the Chicago area, already gripped by high unemployment, this means it will be even harder to buy and sell property in the coming months, especially for people with spotty credit or little cash available for a down payment and closing costs.
Here are some of the changes:
* Buyers with credit scores of 580 or lower will now have to put down at least 10% of the home’s purchase price. People with better credit can put just 3.5 % down.
* FHA’s mortgage insurance premium, which buyers are required to pay, is going up from 1.75% to 2.25% of the loan amount.
* Sellers can now credit buyers 3% or less of the purchase price towards closing costs, down from 6%.
From where I stand, the mortgage insurance premium increase will be the most significant for most buyers. For loans of $200,000 and above, for instance, the new rules will add another $1,000 or more to their costs. It’s just one more hurdle to overcome, and for people who are scraping together every last penny, cashing in 401(k) accounts and borrowing cash from parents to buy their first home, it may mean the difference between buying and renting for another year.
I spent the weekend wedging my car into dubious parking spots and wading through the snow to show condos in Rogers Park, Lincoln Park and Old Town. Once again, I am mildly astounded by some of the deals I’m seeing, particularly in affordable neighborhoods like Rogers Park.
Not even a year ago, I was helping some other buyers find a 2-bedroom, 2-bath unit in Rogers Park in the $200K range. At the time, there were a zillion condos with one bath that made the cut, but adding that second bathroom dramatically narrowed the field. There were only about six or seven places to see.
Now, however, there are 69 listings on the MLS that match this criteria! And many of them can be had for a good bit less than $200K. We saw a 3rd-floor unit at 7465 N Seeley, a new conversion where the 2nd-floor unit sold for $204,900 in June 2008, for just $169,900. When you consider that the 3rd-floor tier is more desirable and usually priced slightly higher than the lower floors, this means we’re looking at roughly a 20% price cut over 18 months ago.
Rogers Park is full of great deals for the cost-conscious buyer. It’s also speckled with a lot of foreclosures and short sales, and investors are now coming in and buying some of these distressed properties, polishing them up and popping them back on the market. This phenomenon can result in sweet deals for the end buyer, because the investor is often willing to sell them below market value because he/she got them at such a steep discount.
I took my buyer to see one such property on Touhy, now priced at $125,000. That’s right, $125,000 for a 2-bedroom, 2-bath in fairly good condition just blocks from the lake.
As with any property, the trick these days is getting a mortgage. Some of the Rogers Park condos might not work with FHA loans, because they have strict requirements for the building’s condo association. And condos in mostly vacant buildings — and unfortunately there are a good deal of them — will be tough to finance at all, FHA or otherwise. Cash buyers will have the upper-hand in those situations.
I know it’s a snowy mess outside, but Chicago’s “spring” home-buying season has already begun. This usually happens the week after the Super Bowl in early February, but this year everything is gearing up a month earlier because many buyers are trying to take advantage of the federal home buyers tax credits, which expire in April. Mortgage rates aren’t waiting either, and if you plan to buy this spring it’s time to lock your rate now. Here’s why:
1) The federal government is about to let rates rise. For much of the last year, the mortgage market has been on government life support, and it’s been working. The Federal Reserve has been buying $1.25 trillion in mortgage-backed securities to help keep credit flowing, pushing rates to historic lows of below 5%. But it has announced it will wind down this program by March 31. Without this massive government aid, rates will rise.
2) Mortgage rates are already creeping up. Long-term interest rates (like a 30-year fixed mortgage) are already rising in anticipation of this move. One of my buyers (with excellent credit and solid income) just told me he was being quoted a 5.25% rate from various lenders, which is still a darned good deal. Many economists are predicting mortgage rates could soon jump a half point to a full point.
3) Acting now can save you thousands of dollars each year. If you’ve never had a long-term loan, and many first-time buyers haven’t, you might not realize the huge difference just a percentage point can make when it comes to interest rates. An example: Say you borrow $300,000 to buy a house. At today’s 5.25% rate, your mortgage would cost $1656 per month (before taxes and insurance). At a 6.25% rate, however, that loan would cost $1847 per month — or $2,292 MORE each year.
It’s the end of the month, time for the Standard & Poor’s/Case-Schiller Home Value Index to tell us how prices are faring in 20 major cities. In a word, the answer is: flat.
But flat is okay; flat means prices have stopped plunging. In Chicago, after five months of steady but small increases, prices fell 1% in October over the previous month.
If you look at the entire third quarter, local home prices actually rose slightly — 1.9 % — between July and October 2009. For Chicago condos alone, the price increased 1.1% during the late summer/early autumn months.
Month over month, Chicago is pretty much standing still, according to Case-Shiller. Up a point here, down a point there, indicating that our market seems to have found some equilibrium, at least for now.
So, savvy home buyers, have we hit a bottom? Perhaps. Chicago homes are still 10% cheaper now than they were a year ago, according to Case-Shiller’s figures, so early 2010 may be the sweet spot. Especially if you qualify for the $6,500 or $8,000 tax credit for home buyers. Interest rates are also quite low right now. I’ve been selling real estate in Chicago for five years, and I’ve never seen the stars align quite so well for buyers.
Yow. Chicago has just witnessed a full-on stampede of buyers, all racing to close on their new homes. November sales numbers were off the charts, with buyers snapping up 1,859 homes in the city, compared to just 1,094 last November, according to the Illinois Association of Realtors. That’s a 70% jump in a single year!
I am impressed. This just shows how many smart buyers there are, and I bet the majority of them were first-time buyers taking advantage of their free $8,000 from the federal tax credit (which was set to expire Nov. 30.) Interest rates were also super-low this fall, and home prices were quite reasonable as well.
The November numbers look more like what we generally see in the busy summer months. Even better, this horde of buyers seems to have built a floor under prices as well.
Check out this new stat: The median home price in Chicago is now $215,000, down 3.4% from November 2008. On the face of it, that’s not so great; prices have slipped a bit since last fall. But when you consider that ALL YEAR we’ve been looking at year-over-year citywide price drops of 10-18%, a 3.4% decline looks rather rosy!
In other words, home prices are recovering. They may not be what they were three years ago, but they have stopped declining each month and now they are starting to tick back up. It’s not too late for buyers to catch this wave, either. The $8,000 tax credit has been extended, so you have until April 30 to qualify. And if you’re already a homeowner who has lived in your home for at least five years, you could qualify for $6,500 if you buy a new place.
Even the Gold Coast is showing a little tarnish these days. Prices have fallen sharply at 1400 Lake Shore Drive, a 391-unit condo conversion project where many units remain unsold despite the sales team’s prediction back in February that they would “close it out” by the end of 2009.
Well, here we are in December 2009, and buyers still have plenty to choose from here. “Massive Price Reductions @ Prime Lake Shore Drive Location,” promises a recent 1-bedroom listing in the building. Massive, indeed. This second-floor unit was originally priced at $261,400 — in February 2006, when the market was much healthier. Now it’s listed at $159,900. Another 1-bedroom (touted on the MLS as a “highly upgraded ultra luxury unit” on the 20th floor) has gone from $299,900 in early 2008 to $189,900 today, a 37% price cut. A 2-bedroom on the 3rd floor is now priced at $299,900, down from $360,900 in March 2007.
Meanwhile, owners in the building also appear to be hurting. A 2-bedroom unit that sold for $417,900 in early 2006 is now for sale at $374,900. It’s been on the market since June. There are also two short sales in the building, including a 21st-floor unit now listed at $275,900. That one has been on and off the market for two years, starting at $398,800.
There have only been 6 sales in the building in the last 6 months, according to the MLS. This is a pretty poor track record for a building this large, especially considering that the $8,000 first-time buyer’s tax credit pushed up sales in Chicago during this period and most units at 1400 N Lake Shore are in a price range that appeals to first-timers.
Then again, this is a golden opportunity for buyers looking to spend under $150,000 for a Gold Coast location. There are now 9 units at 1400 N Lake Shore that meet that criteria.
I love this statistic: 25% of first-time home buyers are single women, according to the National Association of Realtors. That’s more than double the number for single men (12%), and a powerful indicator that women are now propelling the housing market forward.
I like to think we know a good deal when we see one. It reminds me of the time my friend Ben counseled me not to buy a house (eight years ago in California) because he really thought I should find someone to share it with first. “I just don’t think you should buy a house alone,” he said. Long story short, I bought an old house, restored it and sold it three years later for a tidy profit. Good thing I didn’t listen to Ben!
Ok, so we’re not likely to see a repeat of the insane California real estate boom of the early 2000s anytime soon. But what we are seeing are thousands of women choosing to become homeowners whether or not they have a husband. The New York Times just ran a great article (“A Home Without Prince Charming“) about this trend. Quoting from a 2008 nationwide census survey, the Times reported that there are 163 single female homeowners for every 100 single male homeowners.
Various observers point to the women of today’s workforce as better educated, better at saving money, and more likely to want to “nest” than men. I think women, in general, are also very good long-range planners. Buying a home is once again a long-term investment, and many single woman can see how a home of their own will provide them with shelter, stability, and hopefully equity for years to come. And then there’s the bargain-shopping factor: Many single women are experts in this department, and the $8,000 tax credit for first-time buyers is certainly a fabulous deal!
It seems like just yesterday that we were watching that colorful new mid-rise development go up east of Broadway and Catalpa in Edgewater, promising modern kitchens and green rooftops, a cool urban oasis just a few blocks from the lake. Built in 2007, this 126-unit complex is already faltering, with some initial buyers clamoring to get out even as the developer struggles to sell the remaining units.
In the course of researching short sales in the neighborhood, I came across 13 units at 1122 W Catalpa (Catalpa Gardens) where the owner is attempting to sell for less than what he/she owes on the mortgage. There’s a 4th-floor, 1-bedroom condo, which that owner bought in January 2008 for $155,900, now being offered for $129,500. Or a 2-bedroom, 2-bath unit on the 7th floor that went for nearly $440,000 in July 2008 — and is now for sale for $192,000, according to the MLS.
This is a shocking, sad destruction of equity in a very short amount of time! No wonder the building’s developer, Catalpa Partners LLC, recently slashed prices by $50,000 to $150,000 to sell the remaining 14 units. But selling at such steep reductions badly hurts the value for existing owners, probably pushing more of them into short sales or foreclosures.
If you are a buyer, I would be extremely cautious about buying in a troubled building with so many short sales, even if the price seems sweet. Unfortunately, some buyers today are winging it themselves without realtors, negotiating directly with developers (or other sellers) without any information about what similar properties have sold for, how long they have been on the market, what the seller paid for the home, how many short sales or foreclosures there have been in the building, etc.
They may think they are getting a great deal, but they can easily wind up owning something that quickly loses value, making it nearly impossible to sell. Condos can be risky investments, because your fate is linked to that of your fellow residents. If too many of them start to sell short, or fall into foreclosure, it can rapidly wipe out the value of your investment as well.
Please visit Sue Fox’s other blog posts at www.hometochicago.com!
About a year and a half ago, I had a buyer named Laura who wanted a 2-bedroom condo in Lakview for less than $300,000. She didn’t want to be in a highrise building or a garden unit, AND she insisted on having a parking space. All very reasonable requests… but in Lakeview at that price point, it was like hunting for a needle in a haystack. As I recall, there were only a handful of condos that fit the bill, and she bought one on Oakdale.
How times have changed! There are now 32 condos for sale in Lakeview that match Laura’s criteria (and this is excluding short sales, which I generally think are a waste of a buyer’s time because they so rarely close.) So what can you get these days for under $300K in one of the city’s most popular neighborhoods?
* For $240,000, there is a cute unit with exposed brick, an updated kitchen and bath, a large deck and rental parking across the street. It’s located at 3950 N Clarendon St. #3S, a top-floor condo in an FHA-approved building with 12 units.
* For $259,900, you can enjoy a great location off Roscoe and Southport. The 1st-floor unit at 1438 W Roscoe St #1 is a recent rehab with granite and stainless steel in the kitchen, a marble bath, custom paint and a parking space (paid for one year by the seller) a block away.
* For $279,900, there’s a funky vintage top-floor condo just blocks from the lake in Wrigleyville. This one is at 942 W Sheridan Rd. #3A, featuring a spacious layout, a separate dining room, a fireplace and a deck.
* For $289,900, check out a rare 2-bedroom loft at 1645 W School #309 in the 60657 Lofts building. This unit has high ceilings, lots of light, and a fabulous location right near the Whole Foods on Ashland. Parking is $20K extra, but this unit was originally priced at $329,900 in August, so it looks like its owners are rarin’ to go.
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