Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Buyers' Category
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only the properties that aren’t under some sort of financial cloud, we have noticed a few things: Many of them are outdated, with kitchens and bathrooms from the 1960s.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.
For the third straight month, home sales nationwide have increased, rising 3.6% in June. This three-month streak marks the first time this has happened since 2004, according to the National Assn. of Realtors. The news was even better in the Chicago metropolitan area, where sales were up nearly 26% over May.
“Overall, the news is positive,” Lawrence Yun, the NAR chief economist, said at a press conference. “We have increasing home sales for the third straight month, declining inventory and although prices fell, they declined at a less steep pace.”
“The housing market is healing after four years of recession,” he said. Now, I wouldn’t go so far as to say healing (or four years of recession, for that matter.) But the housing market is definitely perking up in 2009, as buyers snatch up bargains amid the marked-down prices and snag low interest rates on mortgages.
In the city of Chicago, home sales were up 27.2% since May. Prices were up, too, by about 7.7% for the month. Yet all these rising numbers are just a one-month snapshot, and if you pull the camera back and survey the past year, it’s clear that our local market remains distressed.
Since June 2008, sales have fallen 13.1% and prices have plunged 21.8 percent, according to figures from the Chicago Assn. of Realtors. As the group’s president, David Hanna, pointed out, “It is clear from the pricing we are seeing distressed property sales continuing to lead the market.”
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.
Developers around town are slashing prices this summer in an effort to move their inventory before the sluggish winter months return. Even brand-new highrise buildings with modern finishes can now be found in the bargain bin, at prices significantly lower than they stood just a month ago.
At SoNo, a stylish pair of new towers near North and Halsted developed by Smithfield Properties, prices plunged this week. One-bedroom units originally priced at $316,750 are now being sold at $275,900. Spacious two-bedroom units, with 1650 square feet, have dropped more than $100,000 — from $579,900 to $475,900. Even parking spaces are now on sale, for $9,000 rather than the $30,000 they once cost. The new prices are certain to irritate exisiting owners who spent more, but it’s a good deal for newcomers. Sales have reportedly been brisk, with at least ten units going under contract over the weekend. (Disclosure: The property is being marketed by @properties, but I have nothing to do with it.)
While SoNo is a particulary visible example, the story is much the same all over Chicago. Developers who planned projects two or three years ago are hurting, facing tough lending climates and far fewer qualified buyers than they expected. With profit margins shrinking — and many of them pressed to pay back their construction loans — some builders are now swallowing the medicine and cutting prices to levels that will actually attract buyers.
Among the deals my buyers have snagged in the last 3 months:
* A Bucktown 3-bedroom, 3-bath duplex for $399,000, in a building where the developer expected to sell each unit in the mid-$500s.
*A Rogers Park 2-bedroom, 2-bath condo for $200,000, in a building where similar units sold for about $245,000 two years ago.
* A Logan Square 3-bedroom, 2 and a half-bath condo for $380,000, on a block where smaller units sold for $50,000 more in 2006.
Such deals are no longer the exception in Chicago. For buyers with good credit, verifiable income, and some money saved for a down payment, the whole city is basically on sale.
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