from Local Attorney, Michael H. Wasserman

Tuesday, March 31, 2009

More on Current Market Conditions - not there yet

I have been thinking - and reading - a lot lately about the price disparities between REO transactions and "conventional" closings. To recap, even with overall declining market prices, sellers (and the professionals they hire to help them sell) need to recognize the gap in prices between sales of bank-owned properties and sales for everyone else.

Here are two more indicators of where we are and how far we may still need to travel.

First, the monthly bad news report from Standard & Poors; the monthly Case-Schiller index. You will see this one in all the newspapers, and broadcast news reports. No doubt scores of bloggers will talk this one too death too.
Prices were down from a year ago January in all 20 metro areas tracked by the S&P/Case-Shiller Home Price Indices, with 13 of those markets seeing the steepest rates of decline since the downturn began. The three worst-performing markets in terms of annual declines were Phoenix (down 35 percent), Las Vegas (down 32.5 percent) and San Francisco (down 32.4 percent)

Listed below are the changes in home value from December 2008 to January 2009 , as well as changes from January '08 to January '09:

Chicago home values:

  • Month-to-month: -4.6 percent (-4.3 percent)
  • Year-over-year: -16.4 percent

Chicago condo values:

  • Month-to-month: -2.4 percent (-2 percent)
  • Year-over-year: -8.6 percent
So we have clearly established that prices are still trending downward. But have we gone far enough? Consider this data provided by @ Properties agent Steve McEwen.

Steve's data points cover a different time frame, but are illuminating. He has been tracking the stats on Chicago area closings, comparing short-sales & REOs against conventional deals. During the week March14- 20, he counted 333 transactions. Of these, 157 (47%) were either short-sales or REO sales. Stop and think on that one for a moment, nearly half of all transactions were distressed. Measuring the sales prices, the median sales price of the REO sold condos & townhomes was just 25% of the median price of of the conventional sales. The median price for single family REO homes was an eye-popping 15% of the median for conventional sales.

To be sure, these numbers are probably skewed by the likelihood that more of the REO sales involved properties that were of less value than those that are not yet distressed to begin with. Also, there is a strong likelihood that seasonality is playing some part in the variances (fewer conventional sales during the early spring, anyway). Still and all, look at the graphical representations of this data below, and tell me whether you think that home prices are not being dragged down by the number of bank-owned properties on the market.

Sellers who really want to sell, are going to have to suck it up and price their homes more realistically, in order to compete with the banks. Or, they are going to have to wait this market out.

Somebody (anybody) tell me I am reading this all wrong.

Tuesday, March 24, 2009


Three interesting reports from three different sources this week might be of particular interest to local real estate agents. Here is a quick recap of the data, followed by my impressions.

FIRST, The Illinois Association of Realtors February market statistics show that, in the city of Chicago, sales fell 40.4% in February, to 841 compared with 1,412 in February 2008, and median price in Chicago also sank to $218,250 from $290,000 in February 2008.

The overall sales trends for the larger, nine county region are shown graphically in the second chart on this page posted by Lucid Realty.

THEN, the National Association of Realtors, released data yesterday, as summarized in Kelly Evans and Justin Linhart's story in today's Wall Street Journal, that aggregate resales of single-family homes and condominiums climbed 5.1% in February versus January, to an annualized 4.72 Million Units. Roughly 45% of these sales were foreclosures and short sales - distressed properties selling at a substantially discounted amount. The median price of homes sold fell 15.5% between February, 2008 and this past February

MEANWHILE, Move Inc., released a study that suggests 23% of adults plan to purchase a home in the next five years, and more than half of them (53.5%) are first time home buyers. The Move survey found the housing downturn, now entering its third year, has created significant demand for home ownership especially among first-time home buyers. While 5.8% plan to purchase a home in the next 12 months, 12.8% of Americans say they plan to buy a home in the next two years and 11% plan to purchase a home in two to five years.

AND THEN, consider Gary Lucido's look at the membership at the Chicago Association of Realtors. Lucido reports that the number of realtor members plummeted by over 4,000 between December, 2007 and January, 2009 (13,051), a drop of nearly 25%.

So what does this tell us?
Most significantly these studies show that buyers and sellers are not seeing eye to eye on current market valuations. Buyer demand is increasing, but Buyers just do not seem willing to pay current ask prices. As such, many homes lingering on the MLS or being de-listed as Sellers try to wait the market out. At the same time, properties being released from REO inventories are selling, at prices significantly lower than other "conventional" listings. That pressure on prices will only worsen as "shadow" inventory held by REO managers is released back into the markets.

Whatever the reason for the lack of sales, Sellers are not selling and agents are not making commissions. I think we can all reasonably expect that the flow of agents away from the industry will continue. There may be fewer deals to be made, but fewer fish will be competing in the realtor pond.

How are those remaining agents going to survive?

On the sales side, its going to take some extra effort to help sellers understand the dynamic of the current marketplace and the importance of pricing homes realistically. That will be a tough sell for many seller who still measure their home values by their initial purchase price and not against current saleability. Sellers are going to have to be much more patient or they are going to have to lower prices further to find willing and able buyers.

On the buy side, Real estate agents will be wise to focus on first time buyers. But merely targeting those buyers will not be enough.

Consider these following additional facts gleaned from the Move, Inc. report:
  • nearly half (47.6%) of the home buyers surveyed said they didn't know anything about the first time home buyers credit!

  • Potential buyers are watching real estate prices more closely today than 12 months ago. Half of all Americans (49.6%) are paying more attention to home values today than they were a year ago,

  • The average buyer researches properties online for 10 months before contacting a Realtor.

  • About two-thirds (62.5%) now consider their home primarily a place to live as opposed to an investment.

Wise agents are re-thinking the value and the service they can provide to first time buyers to help them navigate the dual minefields of declining market valuations and toughening mortgage markets. First Time Buyers take longer to decide, and need much, much, more hand holding, explanation, and guidance as they pursue home purchases.

The old-school way of doing things has been to line a buyer's attorney up after the offer is accepted, perhaps as the offer is being presented. I'd like to suggest that perhaps it is time to start introducing buyers to attorneys earlier in the process.

Timely consultations with an attorney should help assuage first time home buyers fears and worries about the process and the legal ramifications of contracting to buy a home. An attorney can help craft offers on terms that are more protective of "newbies." An attorney can help answer the myriad of questions that first time buyers want (and need) to ask. Bringing a competent & service-oriented attorney into the process early will help build your credibility and social standing with your clients. A suitable attorney will also ease your work load, as you can now refer all those questions and worries for the lawyer to deal with. Such real estate agents are able to better focus their time on finding the right home, at the right price, for the right client.

I have been helping first time home buyers close their contracts successfully for more than 18 years now. I find this aspect of my work especially rewarding, and I have developed a fairly comprehensive system of letters and tools that help prepare and educate buyers as they move from offer thru closing.

Let me know if you would like to know more about pre-contract legal consultations for first time home-buyers.

Friday, March 20, 2009

MORE GOOD NEWS FOR (well qualified) BUYERS

The first day of spring offers new opportunities for well qualified, upper bracket buyers:

Bank of America has announced that it is re-entering the Jumbo Loan markets. As reported in the Daily Herald, they will be offering loans of $730,000 to $1,500,000 on 30 year amortizations and interest rates below 6.00%. Borrowers will have to make 20% down payments, have proofs of income, hold cash reserves of six months of monthly payments (principal, interest, taxes and insurance) and have golden credit ratings.

Jumbo loans are too big to be insured by Fannie Mae or Freddie Mac. They are typically only funded if private mortgage insurance is available. Those PMI companies took a pounding when loan default rates exploded. Consequently, they started charging prohibitive premiums to meet the increasing risks associated with such large loans. For a while there it was nearly impossible to fund Jumbos for a while.

But it stands to reason that there are great rewards out there for lenders who will make these loans, and there has been a steadily growing demand for funding, particularly in affluent suburban areas and some of the elite City neighborhoods (to say nothing of other high price markets like in California and New York City).

To my knowledge ING and Astoria are also making Jumbo loans right now.

The more competition, the better.

Thursday, March 19, 2009


The U.S. Treasury and HUD have teamed up to launch a new website for consumers seeking information about the Obama Administration's Making Home Affordable loan modification and refinancing program.

The site features interactive self-assessment tools that can help you determine if you are eligible to participate in the program and to calculate the monthly mortgage payment reductions you might realize under the program.

Making Home Affordable is projected to help 7 to 9 million homeowners making good-faith efforts to make their mortgage payments.

Wednesday, March 18, 2009


According to Inman this morning,

"Fannie Mae and Freddie Mac boosted loan modifications by 76 percent in the last three months of 2008, but nearly doubled their inventories of real estate-owned properties over the course of the year as the companies eschewed short sales and seized properties faster than they could sell them."

Here is another new report that helps quantify how many properties are being held "bank-owned" following foreclosure. Among the findings:

  • The companies were saddled with real estate-owned (REO) inventory of 92,884 homes at year end, 2008 -- nearly twice the 48,123 properties on hand at the end of 2007.
  • During the last three months of 2008, loan modifications were approved for 23,777 loans owned or guaranteed by Fannie and Freddie, a 76 percent increase from the previous three months.
  • But over the course of the year, the mortgage giants repossessed about eight homes for every short sale they conducted.
  • Fannie and Freddie's loan servicers agreed to 16,718 short sales in 2008, while the companies repossessed 145,183 homes, their annual reports showed.
  • Although Fannie Mae was able to sell 64,843 repossessed homes in 2008, it acquired 94,652 through foreclosure, leaving it with REO inventory of 63,538 homes at year end -- an increase of 152 percent from the end of 2006.
  • Freddie Mac sold 35,579 homes in 2008, but repossessed 50,531. The company's REO inventory ballooned from 14,394 homes at the beginning of the year to 29,346 homes by year end -- a 334 percent increase from the end of 2006.
Sellers better think seriously about any reasonable offer that comes in this spring. I still think that these properties are going to start coming back on the market soon, in large numbers. When they do, I expect that prices will deflate and everyone is going to have to re-set expectations for market pricing once again.

Buyer should definitely continue to shop NOW for already attractive real estate values. I am seeing some pretty sweet (buyer) deals in the contracts I have been reviewing of late. But, to be sure, if you don't see something you like right now, all those REO properties out there are going to give you a whole lot more options....

(EVEN) Tougher Sledding for New Construction Condo Projects

According to today's Wall Street Journal (subscription required)

Fannie Mae has tightened credit for buyers of condominiums. The new rules are going to hit new construction condo buildings especially hard.

Effective as of March 1:

  1. Has stopped guaranteeing mortgages in condo buildings where fewer than 70% of the units have sold (previously it was guaranteeing the loans as long as at least 51% had sold)
  2. Won’t back loans for sales in buildings where 15% of current owners are deliniquent on HOA fees
  3. Won’t back loans where more than 10% of units in the building are owned by a single entity

Freddie Mac has apparently not tightened its lending standards- yet.

Both Freddie and Fannie, however, are going to increase fees.

Starting in April, buyers without at least a 25% down payment will have to pay closing-cost fees equal to 0.75% of their loan even if the buyer has an outstanding credit score.

Tuesday, March 10, 2009


An important note for anyone you know who purchased a new home in 2007 or 2008.

The Cook County Assessor mailed out 2008 Taxpayer Exemption Applications last week. Exemptions reduce a property's "equalized value", which in turn lowers the overall property tax bill. More details about the various exemptions can be found on my web site, and on the County Assessor's site.

Forms were mailed to anyone who purchased a home in 2007 or 2008, or who did not claim exemptions for 2007. Applications can also be down-loaded here.

Please contact me if you have any questions about claiming these tax exemptions or filing "certificates of error" to correct mistakes on older tax bills.

Monday, March 9, 2009

still more changes in store for Condos in Foreclosure

The speculative opportunities for condo investors abound. Many come in the guise of REO purchases; buying properties that have already been foreclosed upon. I have written of several over the last weeks. Such opportunities are not without their risks. Now more than ever, anyone even remotely considering buying a condominium ought to speak to a lawyer well before the ink dries on the offer sheet.

One such problem relates the the treatment of those monthly association assessments. Who pays the bill when a unit goes delinquent, then is lost to foreclosure? Conventional wisdom might have it that the seller / bank must pay off the balance before closing. At least that is what you might think
if your expectations are based on what happens in "conventional" condo sales.

NOT SO, for foreclosures. The bank only has to pay for the association bills for the time that they actually own the unit.

Current Illinois Law allows, in some but not all cases, for an association to demand payment of up to six months of assessments and costs from the buyer of a foreclosed property. That can come as quite a shock to unsuspecting Buyers. Inquiry must be made at the outset, to avoid surprises and assess the true transaction costs before it is too late.

NEWLY PROPOSED Illinois law makes this even more important. Sen. Ira I. Silverstein recently introduced SB2102, for consideration. If enacted, this bill proposes to eliminate the six month limitation. In other words, Buyers of REO condominiums would face the prospect of having to pay ALL delinquent condo assessments up to the date of foreclosure.

Alert Buyers and their attorneys might be able to use these situations to either negotiate a concession from their sellers or to renegotiate a transaction price to offset this "added" cost. Dillatory or unprepared buyers will simply have to be prepared to pay more to complete their deals.