Understanding Real Estate News

Posted by John Plepel in News, Uncategorized | Leave a comment
17May2011

If you own a television you know that there are a lot of reports about the national real estate market.  While these reports make good headlines, it can be difficult to understand what they mean for your home or purchasing decisions.

Here is a list of the most common news reports about the real estate market:

  1. “Real Estate sales were down (or up) last month”
  2. “Real Estate values were down (or up) last month”
  3. “Foreclosures were down (or up) last month”
  4. “Home starts were down (or up) last month”

REAL ESTATE SALES AND REAL ESTATE VALUES

The first two headlines deal with “Real Estate Sales” and “Real Estate Values.”  While these sound the same, they are not.  Real Estate Sales have to do with the number of properties that sold.  “Real Estate Values” have to do with the average price for all sales that took place in a particular time period verses another time period. 

In both cases, the report is usually the number of sales or average sales price of the most recent month.  What varies is the month being compared to:  It can be compared to the previous month or the same month from the previous year.

Either way, the results can be misleading without proper context.  For example, last year at this time there was a massive federal stimulus that artificially increased both Real Estate Sales and Real Estate Values because buyers were offered $6,000 to $8,000 tax credits for home purchases.  When we compare April or May 2011 sales/value figures to April or May 2010 sales/value, we will likely see a downward trend since our current market is “unsubsidized” from a tax incentive standpoint. 

Later this year we will have the opposite issue when looking at real estate sales information:  I expect to see year over year sales and value data in the 3rd and 4th quarters to look very favorable.  This is because after the Stimulus expired last year, the second half of the year was much slower in terms of number of sales and property values dropped as sellers had to lower prices further attract a smaller pool of buyers.

The other way we compare real estate sales/values is month over month.  So when you see a headline that says “Real Estate Sales Down in January”, it could because sales are almost always at their lowest in January.  Think about it, who wants to look for a home in the middle of the holiday season and who wants to move when there is a foot of snow on the ground? 

FORCLOSURE DATA

Foreclosure data can be some of the most confusing, and at times contradictory, data that is discussed in the news.  The most confusing issue about foreclosure data is that the data has two different definitions:  1) Number of delinquencies – homeowners that are 90 days or more late on their payments (sometimes referred to as “pre-foreclosures”), and 2) Foreclosure Sales, meaning the bank has completed the foreclosure process and has taken ownership of the property (sometimes referred to “bank owned” or REO “Real Estate Owned”).

Near the end of 2010 it was common to see contradictory headlines on the same day that would says something like “Foreclosures rise in November” and “November foreclosures at lowest levels in 12 months.”  This was because one news report would focus on the raising number of homeowner delinquencies while the other would report that new “bank owned” properties decreased.  The decrease was due to the “robo-signing” controversy that delayed the completion of the foreclosure process for thousands of distressed properties. 

Below is a chart that tracks percentage of foreclosure activity since 1995

Foreclosure Activity Since 1995

NEW HOUSING STARTS

This one is a pet peeve of mine.  It doesn’t impact our local market here in Oak Park or the near west suburbs as much the “collar counties” where new construction is a larger part of the overall market.  However, it drives me crazy when I’m driving in my car and hear “More bad news for the real estate market, housing starts were down to their lowest level in 2 years.” 

What this really means is that large housing developers are not adding more inventory to a market that already has too much inventory.  To me, that is good news.  Until real estate market stabilizes, we do not need more houses to be built.

If you would like more information about the real estate market or would like more detail about what the market means to you, please feel free to call me, John Plepel, at (708) 790-8705 or email me at John.Plepel@bairdwarner.com.  I would love to assist you in any way I can.

The Cost of Waiting For Prices To Fall

Posted by John Plepel in Uncategorized | Leave a comment
12February2011

I came across this article from another Real Estate Blog that I read and thought it was well written.  It is written from a national I feel this all applies to our Oak Park and River Forest real estate market as well.

Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices. They should be concerned about cost.

The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point.

PRICES

The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.

A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.

INTEREST RATES

The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:

“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”

So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?

The price is the same. It just costs more.

Let’s show you what the news means:

By sitting on the sidelines for the last 90 days a purchaser lost:

  • $89.44 a month
  • $1,073.28 a year
  • $32,198.40 over the thirty year life of the mortgage

If you buy a $340,000 home, double all these numbers.

Bottom Line

Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.

2010 Average Real Estate Sales Price Up in Oak Park

Posted by John Plepel in Market Reports, News, Oak Park | Tagged , , , | Leave a comment
20January2011

Historical Real Estate Sales - Oak Park

For the first time since 2007, the average sale price for single-family homes increased in 2010.  Before we declare the housing slump over, however, we do need to acknowledge that at least a portion of the sales strength was due to the economic stimulus that gave an incentive to many buyers.  Additional concern comes from the low sales volume of 293 homes, down from 335 homes in 2009 and over 500 homes at the height of the previous real estate boom.

A closer look at 2010 sales by fiscal quarter supports the theory that sales were influenced by the 2010 Quartly Sales and Transcaction Volume - Oak ParkStimulus that expired in April of 2010.  The graph to the side here shows that both number of transactions and average sales price spiked in the Second Quarter as buyers took advantage of Stimulus.  As expected, volume fell sharply in the 3rd and 4th Quarters and average price followed as sellers found fewer buyers to sell to and had to compromise on price in order to sell their homes.

The number of sales in the 4th Quarter was the biggest surprise to me.  As an active agent, I hosted open houses and had buyers that were actively looking during the 4th Quarter.  I was very encouraged at the activity and discussions with other local real estate agents indicated that there was a strong pool of buyers looking during that time.  Due to this, I am optimistic that buyers that were looking in late 2010 will create strong demand for homes during the first half of 2011.

The bottom line is that I expect sales volumes to increase in 2011, which is good news if you are trying to sell a home.  The increased volume should provide a stabilizing force to property values, which I expect to be flat to slightly downward trending as we continue to work through the excess inventory that our market has built up over that past couple years.

River Forest Property Declines May Be Misleading

Posted by John Plepel in Market Reports, News, River Forest, Uncategorized | Tagged , , , | Leave a comment
13January2011

At first glance, it appears that property values in River Forest Real Estate Home Sales and Transaction Volumes in River Forestrealized another significant loss in 2010.  A closer look at the numbers, however, indicates that the largest factor in the 9.44% decrease in the Average Sales Price for River Forest Single-Family homes may be due to statistical anomaly called “adverse selection.”

There is no doubt that there has been downward pressure on local property values.  However, it appears that the decrease in Average Sales Price in 2010 has more to do with the mix of homes that sold than a change in the overall value of River Forest real estate.  In 2010, only 11.7% of the homes that sold in River Forest had five or more bedrooms, down from 19% the year before.  Conversely, 39% of 2010 sales were homes with three or fewer homes compared to 29% in 2009.

Another encouraging sign is the success rate of 2010 listings.  As of the date of this report, 42%Pie Chart of Current Listing Status of 2010 Real Estate Lisings in River Forest of the new listings from 2010 either sold or are under contract and only 24% would be home sellers discontinued marketing all together.  This success rate is significantly higher than other nearby communities, including Oak Park, Forest Park and Riverside.

So what does this mean for 2011?  I believe that property values are stabilizing as buyers are slowly returning to the market.  Due to continued competition from distressed properties (both bank owned and pre-foreclosure “short sales”), property values project to be flat or slightly downward trending.  Although there have been distressed properties even in the upper-end of our market, the competition is greater among 2- and 3-bedroom homes.  Accordingly, I expect transaction volume to remain slanted towards the lower segment of the market, possibly skewing the Average Sales Price downward again, even if overall values remain generally stable.

Average Home Sales Continue to Fall in Forest Park

Posted by John Plepel in Forest Park, Market Reports, News | Tagged , , , , , | Leave a comment
12January2011

The Forest Park Real Estate Market was a little late to the overall real estate market downturn, holding property values steady in 2007 and 2008 when many communities were showing significant losses. Unfortunately for local homeowners, like myself, we more than made up for lost time with a 24% decrease in the average sales price for a single-family home in 2009 and have followed that up with another 12% decrease in 2010. What is more worrisome is that transaction volume (the number of homes that sold in the year) decreased to just 38 homes, a 24% decrease over 2009 and approximately 1/3 of the volume that were experienced at the height of the market in 2004 & 2005.

The following graph shows the Average Sales Price and Transaction Volume for single-family homes in Forest Park since 1995:
Historical Sales in Forest Park

Downward pressure on property values has come from several sources, including increased bank owned and pre-foreclosure “Short Sale” properties and property taxes that have increased at a faster rate than other surrounding communities. Additionally, more affordable home prices in communities such as Oak Park means that buyers who in the past have increased their search parameters have not had to.

With property values down to 2002/2003 levels, I anticipate that the catastrophic decreases in value should be at or near an end. It does appear, however, that the inflated values we experienced between 2005 and 2008 will not return in the foreseeable future.

Average Sales Price in Riverside Up 6.3% in 2010

Posted by John Plepel in Market Reports, News, Riverside | Tagged , , , , | Leave a comment
11January2011

After two years of falling property values, the average sale price for a single-family home in Riverside rose 6.3% to $430,108.  Additionally, the number of homes that sold in the 2010, which has decreased every year since 2004, also increased.  This is welcome news for homeowners that have seen their home’s equity vanish since the Real Estate boom that peaked in 2007.

Here is a graph showing the Average Sales Price and Number of Transactions in Riverside since 2004:

Historical Single-Family Home Sales - Riverside

The only significant concern from the year-end numbers is that the Average Market Time (the amount of time it takes to sell a home) increased by over two months to 7.8 months, the highest Market Time on record.  As homes sit on the market longer, sellers tend to more likely to accept less or even lower their asking price, which puts downward pressure on overall property values.

Additionally, a look at Listings that entered the market in 2010 sho2010 Listings - Current Statusws that only 36% sold, with 17% still for sale and 47% expired or canceled.  The real questions is “how many of the Expired/Canceled listings will be re-entering the market in 2011?”  If the majority of these homes are re-listed, an oversupply may put further downward pressure on property values.

All factors considered, the recent market data for Riverside is encouraging.  After a two-year period that offered nothing but bad news, the local real estate market seems to be stabilizing.  While I do not expect significant increases in property values, the double digit loses that we experienced in 2008 and 2009 appear to be behind us.  I expect values to be relatively flat in 2011 and transactions volumes to continue to increase as the market works its way through the excess inventory that has built up over the past couple years.

2011 – The Year Real Estate Returns to Normal??

Posted by John Plepel in News | Tagged , , | Leave a comment
29December2010

The following is a repost of an article posted on a “Keeping Current Matters” a.k.a “the KCM Crew.”  Their website is www.kcmblog.com.   I found it very interesting because it reflects what I have been experiencing with buyers that I have working with over the past several months:

For almost a decade now, every time we talked about real estate we immediately discussed money. We didn’t talk about the value of a home but instead about the price of the house. We didn’t worry about a roof over our heads but instead the ceiling on our interest rate. We didn’t care as much about where we raised our family as we cared about how much we increased our family’s net worth.

That will change in 2011. The KCM Crew believes very strongly that real estate will return to what it has been for the 200+ year history of this country: a place for us and our families to live comfortably. It will also prove to be a great long term investment as it always has been.

Our parents and our grandparents didn’t buy their homes as a short term financial investment. They bought it so they had a place of their own to come home to at the end of the day; a place to raise their family; a place they could feel safe.

Sure they dreamed of a ‘mortgage-burning’ party. They realized it was a form of forced savings. They were taught that, if they paid their mortgage every month, they would wind up with a little retirement account decades later.

And, they realized that wouldn’t happen if they rented.

However, in the last decade, we somehow forgot that the financial aspect was the serendipity not the major reason to buy. We believe that 2011 will be the year that people return to the historic reasons families purchased a home. This is the year when we again remember that homeownership is a major part of the American Dream.

What about the challenges to a housing recovery? Let’s look at them.

The Economy

Most reports are showing that the economy is doing better than expected. This shopping season provided additional proof of this point. As the economy recovers, so will consumer confidence. This will be great news for housing.
Unemployment

There is much talk about a ‘jobless recovery’. We agree that unemployment will continue to be a challenge. However, when you talk about housing, it is not the unemployment rate that is all telling. Instead, it is the change in the rate. As unemployment skyrocketed, people started to worry about their own job. Any change creates concern. Unabated concern turns to fear. Fear causes paralysis. The spike in unemployment has plateaued. People no longer have the feeling that ‘they are next’. The fear will diminish and people will start moving on with their lives. This too will be great news for housing.

Interest Rates

It seems the bottomless pit in which rates have been falling does have a floor after all. And it seems we have found it. Those purchasers who had been waiting for the best interest rate may have already missed it.

Prices

Economists are projecting that prices will not see any appreciation in 2011. Sellers who had been waiting for 2006 to return will come to the realization that waiting any longer makes little sense. They will instead decide to get on with their lives and sell this year.

Prices probably will soften further. However, the possible savings to potential buyers will be minimized by a rise in interest rates.

Bottom Line

This is the year that normalcy returns to real estate. People will buy and sell based on the desire for a better life for themselves and their families. They will realize that is the true value of homeownership and they will be willing to pay for that value.

Attention Sellers: Welcome to the Spring Market

Posted by John Plepel in News | Tagged , , , , , , | Leave a comment
23December2010

With Christmas less than two weeks away and temperatures outside near zero, the last thing most people are thinking about is the 2011 Spring Real Estate Market.  However, NOW is the time if you are plan to sell your home next year and here are the reasons why:

Most people make at least minor modifications to their home before listing it for sale.  If you start the process of getting your house ready for sale now, you can get a step up on your competition.  Most good real estate agents (yes, that includes me) are willing to spend time with you and give their professional advice on what projects are likely to have the biggest bang for the buck.  My listing partner and I have even made arrangements with a local architect to provide a free one-hour consultation to advise on anything from home additions to providing color advice.

  1. The Spring Market is an unknown.  No one seems very sure what the Spring Market is going to bring in terms of property values.  Accordingly, we are advising clients to be on the market as early as possible so that if some new sales show further weakness we have a chance to get your home sold before those transactions become public.
  2. Speaking of market weakness, there are three factors that we will be watching closely over the next month or two: 1) Foreclosure activity – Everyone from CoreLogic to Realty Trac are reporting that large amounts of “shadow inventory” are expected to be released to the market in 2011.  Since bank owned properties typically sell from 20% to 40% below market value, this competition and the resulting market data can put downward pressure on property values; 2) Interest rates dropped to new historical lows about a month ago.  Since then, they have been rising steadily.  Higher interest rates require either lower purchase prices to achieve the same monthly payment or for a buyer to accept a higher payment at the same purchase price; and 3) 2010 has been a tough year for many home sellers.  As such, many people that need to sell their home were unable.  As is typical, many sellers took their homes off of the market in November and December but plan to relist in the spring.  These sellers may even be motivated to reduce their asking price since they have already tried, unsuccessfully, at higher prices already. 

The bottom line is that although the Spring may seem far away it will be here much faster than you think.  In most years I usually say that the unofficial start of the Spring Real Estate market is basically Valentine’s Day (mid February).  With all of the uncertainty of how things will play out, I am recommending that serious sellers have their homes on the market in mid-January.

New Tax Policy Impacting Mortgage Rates?

Posted by John Plepel in Mortgage Rates, News | Tagged , , , , | Leave a comment
7December2010

What is good for the economy is not always good for mortgage rates.  According to Charles Jones, Mortgage Consultant with Baird & Warner Financial, “Mortgage Bonds are trading sharply lower on news that our present income rates… will now be extended for an additional two years.”  The price of Mortgage Bonds moves inversely to mortgage rates.

As of yesterday, 30-year mortgage rates were at 4.625% (4.659% APR) and 3.25% (2.650% APR) for a 5-Year ARM.  FHA rates were basically the same as conventional rates and Jumbo loans were about 88 basis points higher than conventional rates for 30-year rates but essentially equal for 5-Year ARMs.

It is important to note that interest rates are well below historical averages and even with nominal increases will likely remain low by historical standards.   However, Mr. Jones recommends that “if you… are floating (your) interest rate, I will recommend locking in today.”

From a market standpoint, higher interest rates could, depending on the magnitude, put downward pressure on property values as higher rates lead to higher monthly payments at the same purchase price or equal monthly payments at a lower purchase price.  It is always important to remember that buyers don’t choose a purchase price and calculate a payment in order to create a budget.  Buyers typically figure out what their monthly budget is and then calculate what purchase price will result in that monthly payment/budget.

If you have further questions regarding the mortgage market, you can reach Charles Jones at (708) 697-5981 or charles.jones@bairdwarner.com.  If you have further questions about anything related to real estate, you may contact me at John.Plepel@EscrowRE.com or (708) 790-8705

Is this the best to Buy AND Sell?

Posted by John Plepel in News | Tagged , , , , , , | Leave a comment
29October2010

According to Steve Harney of “Keeping Current Matters,” now is the right time whether you are are a buyer or a seller.  Here is his entire article:

If you know a great real estate professional, you might be questioning them right now. They may tell a friend of yours in the afternoon that this is a great time to buy a home and in the evening tell another friend that they have to lower their price in order to sell their home. Wait a minute. How can it be a great time to buy if prices are falling? Is the real estate agent just saying this to make a sale? Actually, the agent is 100% correct. Perhaps for the first time in American real estate history, you must buy now and you must sell now. How can this be? Because what is important to the buyer is different than what is important to the seller. Let us explain.

The most important thing to the seller: PRICE

Every seller is most concerned with trying to get the best price possible for their home. In order to do that, they must sell now. Banks repossessed the highest number of foreclosed homes in history last month. These houses will come to market at dramatically discounted prices. This is the main reason analysts are calling for another dip in prices over the next eighteen months. The best advice a seller can receive is to sell their home now before these foreclosures come to market.

The most important thing to the buyer: COST

Price plays a part in the buyer’s decision. However, the most important thing to most buyers is the cost – the mortgage payment they must pay every month. That payment is determined by the price of the home AND THE INTEREST RATE ON THE MORTGAGE. Rates are artificially low because of government intervention. That will not last forever.

The National Association of Realtors (NAR) has projected that rates will rise over the next seven quarters. What will that do to the cost? Here are NAR’s projections and what impact it will have on a $100,000 mortgage:

As we can see, the interest rate has a major impact on the COST of the home. Even if prices continue to fall, the cost may not go down if interest rates increase.

Bottom Line

Your real estate agent is trying to give the best advice they can to every family they work with – even if that advice seems to be counter intuitive.