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from Local Attorney, Michael H. Wasserman

Friday, July 23, 2010

Fallin' & Flying

I really enjoyed watching  Crazy Heart on the Netflix with Susan last week. A whole lot more than I expected to.  The scenery and music were really nicely captured. A fair mix or sweet/sappy romance and fortune re-gained. Nice show, with one significant problem - every time Bad Blake hit the chorus on Fallin' & Flyin'  my mind kept wandering from whatever west Texas bowling alley or honky-tonks he was singing in to that other Southwester icon, Wile E. Coyote. More specifically, the look on Wiley's face every time he ran off a cliff while chasing road runner, just after he lost all forward momentum, and looked down. In terms of Chicago area real estate transactions, I wonder - where are we on the falling/flying continuum?

This weeks' Illinois Association of Realtors news release certainly has a lot of  pundits feeling lighter than air. The headline says it all really: Illinois Home Sales Up 10 Months in a Row, Chicago Region a Full Year, Statewide Home Prices Stabilizing. In Chicago, June closings this year bested last year by 27.5%. Comparing the first six months of 2010 to 2009, the numbers increase by 41%. Since then? Well the story seems to be changing. Dramatically. Preliminary numbers suggest that closings are down more than 40% over the first weeks of July. See here  and here

Is the market changing? Over the last six months, the market has been driven by three types of buyers: all-cash buyers, little or no cash buyers (using FHA 95% or 96.5% loans) and buyers who capitalized on the (now expired)  federal first time home buyer tax credit. Those channels all seem to be drying up. There are only a finite number of buyers who have the financial strength to make all cash purchases. Those ranks must be dwindling. The tax credit? sure buyers who missed the "close-by" deadline got a three month reprieve, but that pipeline dried up on May 1 when the "contract-by" deadline passed. That ship has sailed.

Which leaves our hopes for a continued  real estate recovery pinned squarely placed on the backs of buyers using  FHA guaranteed mortgage loans. - Folks who cannot (or do not want to) put much of any money into transactions. Folk who, in many cases, are making the down payments with gifts from families, withdrawals from retirement funds, and seller concessions. Folks who (I suggest) are going to be least able to stay afloat in their mortgages if things go from bad to worse - the most vulnerable of all buyers

FHA, for its part, recognizes that the loans it is guarantying are risky - and they are tightening up. FHA Reform Act H.R. 5072 will increase the annual mortgage insurance premium for an FHA loan from .55% of the total loan amount to up to 1.25%, which is paid monthly throughout the year. Additionally, proposed changes in lending guidelines will further limit seller concessions, mandate higher down payments and credit scores for loan eligibility. All these steps, taken together will likely deter use of FHA loans, and this will in turn, slow home sales further.  

What will bring more buyers into the market? The Coyote, I suspect wants us to call his friends over at Acme to get some sort of  price eroder or tax incentivisor or perhaps their new, easy, no cost financing kit. Perhaps we just need to find the right gadget to keep us from crashing back to earth. If we go that route, I hope we find one that will do the trick, but for the life of me, I just cannot recall a single cartoon episode where Acme products worked out as intended.

Bad Blake on the other hand was falling hard, but he fought back and flew again - certainly higher that he was at the start of the show. He did it using hard work, and discipline, with a healthy dose of help from some supportive friends.

These past few months, closing real estate has felt like flying (just a little bit). Deals may get harder, and harder to come by, but my aim in the coming months - as always - remains the same. Work hard to help clients soar or to at least keep from falling as they make and close real estate contracts... Let me know how I can help you do the same