Bucktown and Lakeview markets are begining to Twitch

We are nearly half way through this year, and the real estate market has started to twitch with activity. The neighborhood market reports reflect some of the lowest sales volumes most of us have ever seen, even for a first quarter. The reports speak for themselves, but I’ll add that I was impressed by the sales volume for Bucktown/Wicker Park. Our local market has started to see some activity, which will begin to show up in the second, third and fourth quarter reports.

Posted here are the sales statistics for condominiums and town homes listed on the Multiple Listing Service in Lakeview, Lincoln Park, Bucktown and Wicker Park. Additionally, you will find data from CAR (Chicago Association Realtors) which includes buildings of all ages and sizes.

While regulations on lending have gotten more rigorous, loans are still available and interest rates continue to be great, hovering around five percent. Some qualified buyers are contemplating FHA financing, especially first time buyers with low down payments. It is by far a buyer's market which will likely continue through the year or 18 months, as this 'market correction' settles in.

Home sellers are on the market for many of the same reasons they usually are: job change, marriage/divorce and birth/death. Those who are considering upgrading to their next home (well positioned financially in their current home, or not), are smart to recognize the value of buying a home for far less, and acknowledge that they may not sell their home for as much as they would like. They will benefit from a nicer home that they can live in longer with relatively lower property taxes and closing costs, as those are impacted by the sale price.

While at this point there aren't many foreclosures in these areas, short sales are a bit more common. Great deals can be found. In the new construction realm, some builders are faced with high interest rates on their construction loans and high carrying costs. Many builders are willing to do more 'soft cost' upgrades, in addition to taking less than they are asking.

Contact me for your own market analysis or comprehensive statistics throughout the city for single family homes, multi-unit buildings, condominiums and town homes.

If you are looking to buy, sell or debating which direction to go, give me a call 800-561-2242 or 312-953-7811.

Part 4: The Market from the Eyes of a Loan Officer

Part 4 of this series of interviews with respected professionals working in the Chicago real estate market is from the perspective of loan officer, Ken Dickerson of RWF Mortgage.

Ken Dickerson has been in the sales profession since 1984 in a variety of sales, sales training, and management positions mostly in the printing industry. In 2001 he turned to the mortgage profession as a loan officer, with RWF Mortgage, an affiliate of Wells Fargo, for over 3 years.

Q. Depending on who you talk to, the Chicago real estate market is in a state of flux or a total standstill. Where is most of your business coming from now? Refinance? Job Relocation companies? New purchase? Banks?

A: From mid November until late January a majority of my business has been refinance business. Beginning late January 90% of the business is new purchase business.

Q: What are today's biggest challenges? Have you seen any positive changes as a result of this market correction?

A: The biggest challenge is keeping up with all of the guideline changes and trying to communicate the changes to clients that had previously been pre-approved. The changes have been a reality check for prospective purchase and refinance customers. It's hard to go backwards after borrowing money was so easy for several years and some clients really struggle with it.

Q: We've been going through a huge new construction boom here. Thoughts on the Spire, Trump Tower and other big ticket projects? Do you think the hotel/condo format will be sustainable in Chicago? How long do you think it will take to all be absorbed?

A: With the tightening of lending guidelines the new construction developments will take a hit until they are complete. It will be very difficult to obtain financing on the industry identified higher risk structures such as uncompleted developments or hotel/condo combinations.

Q: With new regulations, what has changed with lending? How much are buyers required to put down? How do you see the new stimulus package taking effect with regard to new loans and existing loans? With this week's news, have you seen a bump in purchase loan applications?

A: I'm afraid to answer this string of questions because as soon as I do the guidelines could change. While credit rating has always been a key component of the financing picture it is now a major factor in interest rate and obtaining a loan. No longer can you secure no income, no asset loans as everything is full documentation. Even with the full documentation you could be required to show an audit trail of any large deposits in any of your asset accounts, and explain and credit check activity that shows on a credit report over the past 90 days. You still have low down payment options with FHA at 3 1/2% however; FHA can be restrictive when it comes to condominiums. Other than that for conventional conforming loans you currently need a minimum of 10% down payment. Just recently a majority of banks are requiring a 30% down payment and a minimum credit score of 720 to obtain a jumbo loan.

I have seen an increase in purchase applications but it's more to do with the time of year than anything else at this point.

Q: With new construction what hurdles are you encountering? How have investors been affected? How are commercial loans affected?

A: New construction guidelines are changing to 70% units either sold or under contract to obtain financing. Again, this reflects the high risk associated with new construction condos by the banking community. Investors will need a substantial down payment and the guidelines are also becoming more restrictive on the % of units in the development that can be investor owned.


Q: Real estate is local. Which neighborhoods are you busiest in? Are you writing more loans for single family homes doing better than condos?

A: In the Chicago market we will always be writing a large number of condo loans. In Chicago single family homes usually require a jumbo loan and until lately the only rate that was worth considering was the 5 year ARM. Just recently the 30 year fixed has dropped and with a 30% down payment and a 720+ FICO score you can get a very good rate. I have always been busiest with the Lincoln Park and Lakeview neighborhoods and that hasn't changed. I have seen more activity in the Lincoln Square, Ravenswood, and Roscoe Village neighborhoods as well.

For more information about Ken, questions about mortgages or to hire him as your lender, contact him directly at kenneth.b.dickerson@rwfmortgage.com or 773-572-6540.

Part 3: The Market from the Eyes of a Real Estate Appraiser

The series continues with a broader perspective than just my own, I have interviewed other respected professionals working in the Chicago real estate market. Part 3 of this series is reflecting the market from the eyes of an appraiser, Kevin Maloney.

Maloney Appraisal has been located in Lincoln Park since 1963 and Kevin Maloney has been president since 1987. The firm provides over 1,500 appraisals a year. These appraisals are typically on behalf of lending institutions such as the Northern Trust and JP Morgan Chase. The firm has particular expertise on the City’s north side neighborhoods.

Q: Depending on who you talk to, the Chicago real estate market is in a state of flux or a total standstill. Where is most of your business coming from now? Refinance? Job Relocation companies? New purchase? Banks?

A: The majority of our business has always come from Banks. The recent work has been dominated by residential refinance activity and unfortunately from appraisals associated with troubled commercial loans.

Q: What are the toughest challenges today? Have you seen any positive changes as a result of this market correction?

A: The biggest challenge on a broader, national scale is to end the slide in property valuations and stabilize of employment. Virtually all market sectors have seen price reductions of varying magnitude. What this unfortunately signals to a rational purchaser is that if they wait, they are likely to be able to secure a property for less than if they act now. This is what is at the heart of a buyer’s reluctance to “pull the trigger” and has helped to contribute to the massive drop in transaction volumes seen throughout the City of Chicago. Sellers must realize that unrealistic pricing has a devastating effect in a declining market as the market often continues to “move away” from the price during the prolonged exposure time. The risk of overexposure is always present even in a strong market as homes begin to be viewed as stale but in a declining market these risks are compounded. The positive change as a result of the market correction (decline) has been an increase in affordability.

Q: We've been going through a huge new construction boom here. Thoughts on the Spire, Trump Tower and other big ticket projects? Do you think the hotel/condo format will be sustainable in Chicago? How long do you think it will take to all be absorbed?

A: 2009 will be the last year we will see a number of major condominium projects delivered for quite some time. These projects were approved prior to the credit crunch. Obviously, they will simply add to the oversupply of units. We have seen a number of projects with direct views of Millennium Park continue to outperform the market in terms of absorption and resale. We have also seen some projects with a highly refined and modern architectural ascetic outperform the market. The biggest challenge/risk is for commodity units with no differentiating qualities. I am a bit reluctant to talk about specific projects but will say that any project that does not have committed construction financing is highly unlikely to be built in this environment. I will also say that in any project with a significant number of unsold units requires far more due diligence on the part of the broker. The developer should answer questions such as how many have contracted over the past 30 days, 90 days and 180 days. Have any discounts been offered? Are these sales at full list price? An unwillingness to offer answers, particularly regarding recent sales volume should be a big red flag, and I would avoid any project that has lost all sales momentum. Regarding the hotel/condo format, I do not appraise this type of unit. I have always been skeptical of this concept. Regarding the time it will take to absorb all the new construction, it will be over two years. A huge number of units are still investor owned and are leased at a net loss after taxes, assessment and debt service. This is a shadow market of units that still needs to be transferred to owner/users at some point.

Q: With new regulations, what has changed with appraising? How is square footage determined? Can you include basements? How many months back can you go to have a solid comparable property? How close to the subject property do you need to be? One mile? Do you have to revise appraisals after the underwriter reviews them?

A: The general guidelines regarding appraisals have not changed. What has changed is the level of scrutiny. The basic Fannie Mae guidelines have said for years that comparables within six months and one mile should be used and if they are not some explanation must be given. The guidelines anticipate that at certain times, appraisers must go beyond a mile and perhaps use at least some comparable sales that are older than six months. Many lenders are now adding additional requirements to the base Fannie Mae standards. The most common is the demand that two of the comparables have closed within the past 60 days and that one pending sale comparable and one listing comparable be used. I would recommend that you provide what you think are the two most similar comparable sales in the past 60 days, the most similar pending and the most similar active. If there are significant differences between the subject property and these comparables, point them out. However, since some underwriters are rigidly demanding this data you should at least have your say of providing what might be the “best of the worst”. We deal primarily with portfolio lenders and have had very little difficulty getting appraisals approved. The “credit issues” are another story and have northing to do directly with the appraisal. Regarding basements (any part below lot grade) the rule for appraising has been and remains that the square footage should be listed separately and not included in the gross living area. What brokers do is another matter as you are not bound by the same Fannie Mae guidelines.

Q: With new construction what hurdles are you encountering? Are you allowed to give credit for upgrades? The cost for some energy efficient options costs exponentially more than the counterparts. With single family homes, are you allowed to give credit for energy efficient upgrades and 'going green?'

A: The answer always is found in the market. If the market is showing value for upgrades or green items than we will give value. The unfortunate experience I have seen for single family homes is that the return is very low for energy efficient items. I hope this will change as the market becomes more aware of the technology and as the cost for green items comes down through economies of scale.


Q: Real estate is local. Which neighborhoods are faring better or worse? Are single family homes doing better than condos?

A: It is impossible to generalize with complete accuracy. Typically, the areas most significantly impacted have been locations with a very high percentage of subprime loans. Value drops as much as 50% or more have been seen in many of these areas. The value impact in these locations has been seen in all property types. For example in many areas of Rogers Park a three flat that once sold at $600,000 now can be bought for $350,000. Areas such as Lincoln Park and the Gold Coast typically have seen far lower value declines. However, what is dangerous with generalizations is that within a area like the Gold Coast, some high rise condominium buildings have seen a 20% decline in value off the peak while other have seen very little roll back in value. In general, single family homes have done better. However, this again is a generalization with many exceptions.

For more information about Kevin or to hire him for a real estate appraisal, contact him directly at maloney1@megapathdsl.net or 773-281-6013.

Part 2: The Market from the Eyes of a Real Estate Attorney

As part of the continued series on offering broader perspective than just my own, I have interviewed other respected professionals working in the Chicago real estate market. Part 2 of this series is reflecting the market from the eyes of a real estate attorney, Kent Novit.

Kent has been practicing law since 1984: currently, First Ward Alderman in Lake Forest, Illinois: Member of the Public Works and Finance Committees for the City of Lake Forest, Illinois: Liaison to the Lake Forest Real Estate Coalition for the City of Lake Forest, Illinois; formerly the chairman of the Zoning Board of Appeals for the City of Lake Forest, Illinois. Kent has represented a good number of my clients as buyers and sellers.

Q: Depending on who you talk to, the Chicago real estate market is in a state of flux or a total standstill. Where is most of your business coming from now? New construction/re-sale or 1st time buyers or relocations?

A: In regard to residential real estate transactions the majority of the new contracts that I am assisting clients with are for the resale of existing homes at sales prices that are at or under $417,000.00. It seems to me that the existing market for properties that have asking prices between $600,000.00 to $1,500,000.00 is very slow.

Q: What are the toughest challenges today? Have you seen any positive changes as a result of this market correction?

A: I believe that the biggest challenge facing the Chicago area market is having Sellers list their homes at prices that realistically reflect the deflated market. While some Sellers are reluctant to reduce prior listing prices others face the dilemma of having outstanding mortgage balances that exceed the current market value of their home. Until the market truly adjusts to reflect the deflated values it is going to be slow going.

Q: I advise all my clients to get hire an attorney, even if they are one. How are real estate transactions different in Illinois and in Chicago? Can a buyer or seller work without an attorney? What is the benefit to hiring an attorney? Can the title company close the deal, as in other areas? Are new construction contracts different from re-sales? Are your rates flat or hourly? Benefit?

A: As an attorney it is, of course, my opinion that an attorney's assistance is needed for clients that are purchasing or selling homes in the Chicago area. I normally charge a flat-fee of $450.00 for residential closings. In areas that involve attorneys in the closing process the number of claims made under title insurance policies is dramatically lower. I believe that actual number of title claims for transactions in the Chicago area is among the lowest for metropolitan areas nationally, which results in lower title insurance costs in the Chicago area. That savings is offset by the cost of using an attorney in relation to a purchase or sale. Normally attorneys are used to review the contract for a transaction; negotiate inspection provision issues; protect contingency dates; review the title record for the subject property; attend closing to verify that the documents and figures are correct; and to act as a contact to work through issues quickly and with as little stress as possible

Q: With new construction what hurdles are you encountering? Are closings happening on time? Are buyers able to get their financing?

A: The developers that I am working with have encountered tremendous hurdles in gaining financing that is needed to acquire properties and to construct new residences. Existing developments face difficulties with getting units closed when they have been purchased by investors who cannot obtain financing. I have been contacted by a number of Purchasers that are hoping to get out of contracts to purchase units in new high-rise developments.

Q: In the past, I've had clients that had to bring money to the closing because they over financed their home by borrowing more than the home was worth. Now it's worse. Have you dealt with many foreclosures or short sales? Is it different working with institutions and banks, as opposed to a sellers?

A: Short sales and purchasers of foreclosed properties now compose a large percentage of transactions. Short sale purchases are for clients that either are buying for investment or that have fluid housing needs as they are usually very slow...usually taking 5 or 6 months to achieve, but with no guaranty that they will be approved by the mortgage holders. My advice in regard to short sales is to determine the number of mortgages that a seller has on an offered property as well as there amounts before entering into a contract. That information can be gained by using the Cook County Recorder of Deeds website. Sellers that have more then one mortgage will have an increased difficulty in gaining a successful short sale. Also a sales price that under the appraised value can make a successful transaction not likely. Buying properties that have been foreclosed upon is less of a problem and can be a bargain so long as a Purchaser has that property professionally inspected so to be well aware of its condition.

For more information about Kent or to hire him as your real estate attorney, contact him directly at novitlaw@covad.net or 312-332-2407 x 2.