Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'First-time buyers' Category
Well, Johnny Isakson may be talking, but it doesn’t look as if Congress is listening.
Isakson, a Republican senator from Georgia, gave a speech on the Senate floor Friday urging lawmakers to extend and expand the $8,000 first-time home buyer tax credit, which is slated to expire Nov. 30. He has proposed increasing the credit to $15,000 and opening it to all home buyers, regardless of income.
“If we do this, home values will return, unemployment will go down, our economy will turn, and consumer price confidence will go up,” Isakson said. “I would submit it is a part of the main solution. We need to take an economy that is on the bottom and move it back toward equilibrium and prosperity for America.”
The tax credit has undoubtedly boosted the troubled housing market. According to a recent New York Times article, up to 40% of all home buyers this year will qualify for the credit. This would cost the government $15 billion — more than double what lawmakers expected when they approved the stimulus bill in February.
Congress may yet act to extend the measure… but then again, with the housing market showing modest signs of recovery, lawmakers may decide to hold off. In any case, if you are a first-time buyer still hoping to scoop up your $8,000 bonus prize, you must act now! Really, because attorneys and title companies are going to be swamped as the deadline approaches.
In order to close by Nov. 30, buyers now have about two weeks left to find a home, make an offer and get it under contract. Luckily, summer seems to have finally arrived in Chicago, making house-hunting nothing short of a sun-dappled dream…
Over the weekend, one of my buyers asked me whether I thought the government’s $8,ooo tax credit would really expire on November 30 as scheduled. There’s been talk of extending it, and even a few proposals in Congress to do so, but here we are at the end of August with only three months to go!
For would-be homebuyers, this is no small question. It can take 30 to 60 days to close on a home, meaning that if you plan to squeak in under the deadline, you need to find a home and get it under contract sometime in the next five weeks.
Some buyers may gamble that Congress will extend the program. But look what happened with “Cash for Clunkers,” the government cash incentive to get people to trade in their old gas-guzzling cars for a rebate of up to $4,500. The money ran out this weekend, despite the program’s popularity.
Sen. Johnny Isakson, a Georgia Republican, has introduced a bill that would dramatically expand the home-buying credit, boosting it to $15,000 and opening it to everyone purchasing a home, not just first-time buyers. There would also be no income limits. Sen. Chris Dodd, a Connecticut Democrat who chairs the Senate Banking Committee, is co-sponsoring the bill.
Meanwhile, the housing industry is pushing hard for some sort of extension, pointing out that home sales have begun to recover nationwide as first-time buyers snapped up the government’s $8,000 giveaways. The National Association of Realtors and the National Association of Home Builders are both mounting lobbying campaigns to extend the credit, and perhaps expand it, through 2010.
Congress, of course, has bigger fish to fry at the moment, including health care reform. But I would say chances are fair that at some point, the housing credit will be given a new lease on life. After all, housing is to blame for much of our economic malaise, so why kill a program that is actually boosting home sales?
Home sales and prices are on the rebound both nationally and locally, thanks to a wave of buyers taking advantage of low interest rates, attractive prices and the $8,000 tax credit for first-time buyers.
In the city of Chicago, prices in July inched up 1.1% over the previous month, continuing a positive trend. The median price in the city now stands at $245,000, according to a report today from the Chicago Association of Realtors.
Buyers, it seems, are finally jumping off the fence. Part of the allure, of course, is that home prices citywide are down 18.3% over last year, making this summer’s pricing look like a bargain.
“Chicago continues to show a leveling of the marketplace as we see distressed properties being absorbed,” said David Hanna, president of the Chicago Association of Realtors.
Some economic analysts are beginning to call a bottom. In an upbeat speech today to central bankers and economists, Federal Reserve Chairman Ben S. Bernancke asserted that “the prospects for a return to growth in the near term appear good.”
The stock market jumped more than 150 points, buoyed by Bernancke’s optimism and a better-than-expected report on the national housing market. According to the National Association of Realtors, existing home sales jumped 7.2% from June to July, the largest monthly gain since the group began tracking these sales a decade ago. Even more encouraging, sales were 5% higher than in July 2008.
“The housing market has decisively turned for the better,” said Lawrence Yun, the group’s chief economist.
Earlier this summer, I was contacted by a young couple who said they were ready to buy their first home. We met in a coffee shop to discuss their criteria, and the challenge quickly emerged: They hoped to stay on the North Side, spend around $250,000 … and they wanted a single-family house, not a condo. “Is this even possible?” they asked, somewhat apprehensively.
The good news for buyers is that, yes, in the city of Chicago there are now THOUSANDS of single-family houses for sale in the mid-$200s, even on the pricier North Side. But after a month of searching, in which we’ve visited about 50 properties, several caveats are becoming clear.
One is that many of the neighborhoods that feature such properties — Irving Park, Albany Park, Portage Park, Avondale, Logan Square — are a little further west than many young would-be buyers are accustomed to living. Many of these areas boast parks, family-run restaurants and corner pubs, but they don’t necessarily have the trendy boutiques and coffeehouses common to lakeside neighborhoods like Lincoln Park and Lakeview. There often aren’t as many places within walking distance, and the neighborhoods have a quieter, more residential feel.
Secondly, some of the more affordable areas are also rife with distressed properties. In Portage Park, for example, it seems that every other house listed on the MLS is a foreclosure or a short sale. Many of the foreclosures we’ve seen are in miserable condition, with holes in the walls or mold creeping through the basement. And with only a few months to go before the government’s $8,000 tax credit expires, my buyers don’t want to pursue a short sale, in which bank approval could take months (or be denied).
So, taking only the properties that aren’t under some sort of financial cloud, we have noticed a few things: Many of them are outdated, with kitchens and bathrooms from the 1960s. Wiring, plumbing, and other mechanical systems may be decades old. Central air is a rarity. The homes tend to be small, with less than 1,400 square feet of living space. Many of them are bungalows or ranches, and if there is a second floor it is almost always cramped, with scant head room and makeshift bedrooms that only seem big enough to fit children.
BUT THESE ARE STILL SINGLE-FAMILY HOUSES! That means they have backyards, garages, basements with plenty of room for storage (and sometimes even laundry rooms). You can start a garden. Mow the lawn. String decorations from the front porch for each holiday. These houses are the sole domain of their owners, with no condo board to contend with and no monthly assessments.
So if you can handle an older home, perhaps one in need of a few repairs, you too can find a house for the price of a condo!
As summer draws to an end, we are seeing more large developers cut prices in an effort to spur sales. The latest example is an FHA-approved building at 2930 N Sheridan, a rehabbed tower that looks a bit drab from the outside. Sales here have been sluggish for two years, and this week the sales center is announcing substantial price cuts.
One-bedroom units now start at $209,900, rather than $249,900. Two-bedroom condos are $229,900 (a $40,000 drop) and three bedrooms can be had for $299,900 (a $50,000 cut).
A new three-bedroom condo in Lakeview for under $300,000? This really is a buyer’s market. Inside the building, the units are bright and modern. But they don’t have balconies, and the brownish mid-century facade outside doesn’t offer much curb appeal. Still, FHA approval means that buyers only have to put 3.5% down, and if they close before Nov. 30 first-time buyers can take advantage of the government’s $8000 tax credit.
Has the housing market finally hit a bottom? Only time will tell, but several recent signs point to a small but significant upturn in both prices and sales.
Nationally, home sales in 20 metro areas posted their first month-to-month increase in almost three years, according to the S&P/Case-Schiller Home Price Index. In Chicago, that spelled a 1.1% rise in prices from April to May 2009, the most recent month for which data is available. (As mentioned in my previous posts, however, the overall picture is much less rosy. Prices are down 17.5% in Chicago since May of last year, according to Case-Schiller. In other words, it’s still very much a buyer’s market.)
New home sales are also showing signs of traction. Yesterday the government reported that single-family home sales shot up 11% in June — well over the 3% increase economists were expecting. It was the largest monthly jump in almost eight years. And last week, resales of existing homes also rose, for the third month in a row.
Economists are sounding notes of caution, calling the uptick a modest recovery at best and pointing out that much of the activity appears to be at the lower end of the market, where first-time buyers are taking advantage of discounted prices, low interest rates and the $8,000 tax credit.
At a time when most lenders require home buyers to put at least 10% down, Federal Housing Administration (FHA) loans are looking increasingly attractive. They only require 3.5% down, they often boast good interest rates, and with no income limits, even affluent borrowers can use these federally-insured mortgages to complete their home purchases. What’s not to like?
In short, FHA loans come with a lot of strings attached, particularly for condo buyers. Because the loan is backed by the government, each property must meet a long list of requirements — everything from “no peeling paint” on a house to “no special assessments” on a condo. For houses, the requirements can usually be met because the buyer and seller arrange to have any mandated repair work done before the loan closes. But with condos, the deals often hinge on factors that neither the buyer or seller can control.
For example, if you want to buy a condo using FHA, you need to pick a place where construction is complete. The condo association must have been in existence for at least a year. There can’t be any special assessments. The building must be at least 51% owner-occupied. And so on.
In my experience, this rules out many new developments — and in Chicago, that’s a real drawback. Many of my condo buyers want new or gut-rehabbed units. Using FHA may spare them a hefty down-payment, but it also dramatically restricts their choices.
Another problem is that even if the seller’s realtor says “FHA should be no problem!” (and they all say that), getting FHA spot approval (the term for approving an individual unit in the building) often requires buyers to jump through a frustrating series of hoops, with no guarantee that FHA will actually agree to the loan.
“Going through the government was harder than I thought,” said LaTonya Wilkins, one of my buyers who recently used FHA to buy a two-bedroom condo in Edgewater. “What was most frustrating was I didn’t feel like I had control of the process, even though I had good credit and a good job.”
In Wilkins’ case, the deal hit a snag when — three weeks into the loan approval process — the lender learned that there was still a special assessment lingering over some units in the building, but not the one Wilkins was buying. The building had replaced its rear porches, and some owners who didn’t have the cash to pay their share in full were still paying the debt off monthly. A perfect example of a willing seller, a qualified buyer — and some FHA rule that neither could control!
After appeals from the lender to various FHA bureaucrats, an exception was granted and the deal closed as planned. But like all things FHA, it required a great deal of patience (and tons of paperwork), especially for the buyer.
Was it worth it? At the end of the day, Wilkins ended up getting a great interest rate and a low down-payment. If you are a buyer who doesn’t need a brand-new condo, and who is willing to deal with all the hurdles, FHA may have a deal for you.
The $8,000 tax credit Congress approved earlier this year probably helped jumpstart the housing market more than anything else the government has tried. The credit is available to first-time homebuyers (and those who haven’t owned a home for at least three years) who close on their purchase before Dec. 1, 2009. There are income caps and other restrictions, so for a full account please consult the IRS rules at
Combined with sagging home prices and low interest rates this spring, the tax incentive seemed to pull many buyers off the fence. According to some estimates by the National Association of Realtors, more than half of recent home sales involved first-time buyers. Nearly all of my buyers this spring, now that I think about it, have been first-timers.
If you’re thinking about buying this year, think hard. It may be time to start looking, because if you plan to take advantage of the tax credit you only have a few more months to find a home, get it inspected, apply for a loan and close. This process usually takes at least a couple months, depending on how long you house-hunt.
In the meantime, lawmakers are now exploring whether to increase the tax credit. Rep. Johnny Isakson (R-Ga.) just introduced a bill that would nearly double the credit to $15,000. It would also expand the program to ALL buyers, not just first-timers, and remove the income limits so that even affluent people could benefit. If approved, this would be a shot of pure adreneline to the housing market… but it would also cost the federal government about ten times as much as the current measure.
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