So many people have been asking me this question lately: Is this REALLY the time to buy real estate?
The answer is, overwhelmingly, YES! At least that's the case in the Chicago area, but I believe there hasn't been a universally better time to buy in a very long time.
There area a number of reasons for this and I think they can be broken down to a variety of key components:
1) Interest rates: Let's face it kids, you can't argue with the fact that the cost of borrowing money continues to get lower. For those of you who are planning on hanging tough in your current home, then this is the time to refinance into a fixed loan program and get out of any ARM or Option ARM product you might have. These recent rate cuts by the Federal Reserve are a gimme to you ARM holders out there so do yourselves a favor and refinance. For buyers there is a double decker goodness in the rate cuts because it dovetails directly into...
2) Moderating and receding home prices: OK so the rates are about what they were when they were at their best, BUT, the houses are actually going DOWN in value. This is a rare situation historically and the combination of low race and moderating home values is about the best opportunity many of you have had, particularly among first time buyers. Even if it takes another full year or more for us to pull out of the housing slump, buying now is not going to hurt you. As the market recovers, the FED is likely to raise rates and while prices slide up and rates slide up the opportunity to really get in low is not going to be there the way it is right now.
3) There are a lot of homes on the market for a variety of reasons: It isn't JUST because of foreclosures and bad mortgages that there are a lot of homes to choose from out there. It is, after all, the Spring market and that said, people are had planned to sell or move anyway are going to be putting their homes up for sale. It's part of a normal market environment. BECAUSE of the foreclosed properties, they may be forced to accept a lower price on their home. In this environment, no matter what your price point, you can afford to be picky and look for the home that has the MOST of what you are looking for. That's an added bonus to this current market.
4) The law of incremental percentage savings: What? What is he talking about? I'm glad you asked! I know there are many of you out there who are concerned about selling your homes and the fact that you might have to take a loss, but you recognize that you can now afford to move up to that larger home. We call people like yourselves, "move ups." As a move up, you are facing having to take a lower price for your current home but take heart, that's where the law of incremental percentage savings applies, (and yes, I made up this law). Here's an example of how it works:
Let's say your current home is 250k
Now let's say the home you want to upgrade to is 500k
In the previous "hot market" you would have been able to get your asking price, but so would the other party in the home you wanted to buy.
NOW, let's say both sides are going to have to back off their prices by 10%.
This means that your 250k home will now sell for 225k.
This ALSO means your "move up" home priced at 500k can now be purchased for 450k!
So although your "loss" on your home is 25k, your net gain on the purchase of your move up home is 25k even after your loss. This is the law of incremental percentage savings! The basic concept is the higher the price of the home, the higher incremental loss even if the relative percentage is the same!!!!!
Smart money has already figured this out and based on information I have from a variety of real estate attorneys, there are a large number of contracts on higher priced homes, or move ups, that also happen to have home sale contingencies, (meaning the people who are looking to do the move up often can only do so if they sell their current home).
You know what that means? First time buyers get your butts out there and start buying. The next 6 months will be full of opportunities to get homes cheaper than you've been able to for several years, at interest rates that are some of the most favorable in history.
5) Stock market investment: Again, you're probably saying, "what is he talking about?" but it isn't as crazy as it sounds. Here's why: I have a number of friends in the industry who, now that the banks and REITs, (real estate investment trusts), have taken a beating in the stock market, have been quietly buying stock in banks and REITs. Why? Their answers have been simple bits of genius. They have said that because of public perception and all of the negative media attention, these stocks have lost significant amounts of value but the value lost has been beyond realistic proportions. Sure there have been losses in banking and real estate, but my experts do not feel the actual losses justify the devaluation of these stocks.
Translation: There's still gas in the real estate tank and the current slump cannot and will not last forever. In fact, the statistics are firmly stacked against it.
My best advice:
If you have been thinking of buying, do it and do it now. Now is when there are more options, you can be choosy and hold out for a property that has as much of what you want and need in a home for your budget and when you find a place that matches your criteria, don't hesitate; go for it!
If you have been thinking of upgrading but have been concerned about the loss on your current home: Consider the law of incremental percentage savings and take the plunge.
If you are struggling: try to stay calm and stick it out. The market will improve and even if it doesn't improve quickly enough to keep you in your home, don't panic. Stay in contact with your bank, they may be able to help you before the federal government steps in, (which there is no guarantee of).
The market is certainly bumpy, but it isn't as scary as you think.
Rick
Tuesday, January 29, 2008
Thursday, January 17, 2008
House Hunters. . .it's a wrap!
Hello from Hollywood...I mean Chicagoland!
So you may recall a couple months back I was talking about the relation I developed with the good people at HGTV's House Hunters. Well I want everyone to know that they haven't let me down. Although we ran into some slight scheduling issues with my clients who had previously agreed to do the show, we were fortunate that the network equally adored another couple from the area and, in fact, we wrapped the shoot just a day or so ago.
How exciting!
For those of you who don't know, House Hunters airs regularly on HGTV. The show chronicles a buyer and their real estate agent through the buying process once the buyer has narrowed down their selection to 3 choices. The fun part of the show is that no one knows which home the buyers actually chose until the end of the show and then, they follow up a month to several months later so they can see how the buyer is settling in and enjoying their new home.
My clients for this show were absolutely fantastic. They did a great job both on and off camera and were so cooperative and wonderful to work with I can say enough good stuff about them. And the crew sent here by Pietown Productions was totally amazing. They were beyond professional. The crew was efficient, courteous and hard working and I'm convinced we're going ot have an amazing episode once it airs.
This episode is going to be great for a couple of reasons. One because it takes place right here in Chicago area, two because that area specifically is right in Brookfield Illinois where I live and raise my family.
Stay tuned and I'll keep you posted as to when the show will air.
Cheers!
Rick
So you may recall a couple months back I was talking about the relation I developed with the good people at HGTV's House Hunters. Well I want everyone to know that they haven't let me down. Although we ran into some slight scheduling issues with my clients who had previously agreed to do the show, we were fortunate that the network equally adored another couple from the area and, in fact, we wrapped the shoot just a day or so ago.
How exciting!
For those of you who don't know, House Hunters airs regularly on HGTV. The show chronicles a buyer and their real estate agent through the buying process once the buyer has narrowed down their selection to 3 choices. The fun part of the show is that no one knows which home the buyers actually chose until the end of the show and then, they follow up a month to several months later so they can see how the buyer is settling in and enjoying their new home.
My clients for this show were absolutely fantastic. They did a great job both on and off camera and were so cooperative and wonderful to work with I can say enough good stuff about them. And the crew sent here by Pietown Productions was totally amazing. They were beyond professional. The crew was efficient, courteous and hard working and I'm convinced we're going ot have an amazing episode once it airs.
This episode is going to be great for a couple of reasons. One because it takes place right here in Chicago area, two because that area specifically is right in Brookfield Illinois where I live and raise my family.
Stay tuned and I'll keep you posted as to when the show will air.
Cheers!
Rick
Wednesday, January 09, 2008
Real Estate Opportunities in 2008
2008 is here!
But so many of the issues from 2007 are still haunting us.
In Q1 of 2008 I'm certain we'll start to see the greater picture of how the massive write downs from 2007 will effect the greater market as a whole. Then again, there are people that I know within the banking and finance industries who believe that, perhaps, these write downs may have been calculated overestimations on the part of the banking industry; an attempt to write off bad debt and bad loans without cutting into bank profits which, in many cases, are still at a pretty robust 6-8 percent. I know several people who are buying up bank stocks because they strongly feel that the beatings the market gave the banks last year have actually left the bank stocks significantly undervalued. Let's see if that play is right.
But what about real estate? What about the golden child of years past that has suddenly become the diseased bastard child?
Well, it seems that there is a lot of interest and opportunity within the real estate market, it just depends on where, what, and how you look at it. My friends who are in land acquisition and development have whispered that they are scaling back their actual development plans. That conversions of condos or the building of new residential units, has been intentionally scaled back to allow for absorption by the market. Let's face it, these guys didn't become rich by being stupid! On the other hand, they have no intention of slowing their purchase of land for future development. In fact, a friend of mine at a largely diversified development firm who does residential and commercial development has also confided that he has been diversifying the company's assets further by purchasing interest in REITs (Real Estate Investment Trusts), which have been pummelled in the market for the last year or more. In his opinion, this is the land of opportunity because these large real estate holding companies have been bludgeoned more by a perceived loss of value rather than any losses to hard assets, (meaning to the real estate itself).
But what about losses to and of "hard assets" like real estate? As much as real estate may have over inflated over the last several years, the recession of these prices in all but a few extreme cases seems to be fairly moderate or is moderating. Many of us have acted like unruly children and the banks were more than happy to help us out, by allowing us to use our homes as ATMs so that we could live the lives we thought we needed to.
Life now, must return to more conservative and realistic choices. We have been living above our means for too long and there is going to be a consumer backlash. Over consumption will, in the coming years, give weigh to moderation and conscious consumerism. We will work on controlling our impulses. We will emulate those who are truly wealthy. I'm not talking about the neaveau riche who opitimize the overconsumption and gluttony of the last several years; I'm talking about "old money." Old money prefers quality over quantity, substance that still exudes style, and old money makes a conscious effort to live comfortably within their means. The goal of "old money" is to avoid waste so that wealth is perpetuated. After all, it is easy to make money but it isn't so easy to keep it.
So what are smart people doing with their real estate dollars these days? Why moving UP of course!
As I've watched the housing market bounce around like a rowboat in a hurricane, I've noticed a trend: a "stealth recovery," of sorts. One aspect is the people who were reluctant to purchase before. The first time buyers who, having good credit histories and a bit of saved money, were reluctant to jump into the frenzied highs of the markets last few years. They quietly, (and it would appear very shrewdly), recognized that the market was too rich for their blood. Now, with receding prices and desperate sellers, these buyers are making the most of this market which is loaded with opportunity.
The second group, ironically, has been the "move up" crowd. Whatever their financial situation, one of the strongest group of buyers at this very moment seems to be the group that is looking to upgrade from their current home. In general, this group has, for some time, been looking to make that move to a larger or more posh home, but often found the price too steep for the upgrade in the hot market of the past. For example: if the client has a $500k home and is looking to upgrade to that $1mil home in a nicer area, even though they could sell their home for top dollar in the hot market, they would pay top dollar for the upgrade.
Now look where we are:
Say we take the same client with the same home valued at $500k. Now let's say because of price recession the home now could only command $450k or 10% less than at the top of the hot market. Most of us would say OUCH! That's a $50k loss that really hurts. But the smart money sees it as an opportunity.
Here's why:
Let's now take the upgrade house that was valued at $1mil. Now let's apply the same percentage of price recession to this home and now, in the cooler market, the home has a top value of $900k. The value and potential for gain lies within the incrimental loss to this property.
Where at the top of the market the swap of the $500k home would cost the buyer an additional $500k, the swap NOW only costs them $450k or a savings of $50k over an upgrade in the hotter market. And that is despite the loss on their current home.
It seems that folks are really starting to wake up to this and, in fact, a lot of the people who I'm dealing with right now are in that 700k plus price range. They are taking their time and being very particular because of the amount of homes out there, but they recognize the opportunity and are ready to take it.
I predict we see a surprising spike in the Spring market, particularly in the Chicagoland area, in the sale of homes priced 500k and above.
The by product of this is that there will be a solid number of homes for new buyers that will be relative bargains. Once the "move up" crowd spots an opportunity, look for them to make more aggressive deals on the homes they are leaving.
2008 will be full of opportunites in Real Estate and this is the tip of the iceberg.
Rick
But so many of the issues from 2007 are still haunting us.
In Q1 of 2008 I'm certain we'll start to see the greater picture of how the massive write downs from 2007 will effect the greater market as a whole. Then again, there are people that I know within the banking and finance industries who believe that, perhaps, these write downs may have been calculated overestimations on the part of the banking industry; an attempt to write off bad debt and bad loans without cutting into bank profits which, in many cases, are still at a pretty robust 6-8 percent. I know several people who are buying up bank stocks because they strongly feel that the beatings the market gave the banks last year have actually left the bank stocks significantly undervalued. Let's see if that play is right.
But what about real estate? What about the golden child of years past that has suddenly become the diseased bastard child?
Well, it seems that there is a lot of interest and opportunity within the real estate market, it just depends on where, what, and how you look at it. My friends who are in land acquisition and development have whispered that they are scaling back their actual development plans. That conversions of condos or the building of new residential units, has been intentionally scaled back to allow for absorption by the market. Let's face it, these guys didn't become rich by being stupid! On the other hand, they have no intention of slowing their purchase of land for future development. In fact, a friend of mine at a largely diversified development firm who does residential and commercial development has also confided that he has been diversifying the company's assets further by purchasing interest in REITs (Real Estate Investment Trusts), which have been pummelled in the market for the last year or more. In his opinion, this is the land of opportunity because these large real estate holding companies have been bludgeoned more by a perceived loss of value rather than any losses to hard assets, (meaning to the real estate itself).
But what about losses to and of "hard assets" like real estate? As much as real estate may have over inflated over the last several years, the recession of these prices in all but a few extreme cases seems to be fairly moderate or is moderating. Many of us have acted like unruly children and the banks were more than happy to help us out, by allowing us to use our homes as ATMs so that we could live the lives we thought we needed to.
Life now, must return to more conservative and realistic choices. We have been living above our means for too long and there is going to be a consumer backlash. Over consumption will, in the coming years, give weigh to moderation and conscious consumerism. We will work on controlling our impulses. We will emulate those who are truly wealthy. I'm not talking about the neaveau riche who opitimize the overconsumption and gluttony of the last several years; I'm talking about "old money." Old money prefers quality over quantity, substance that still exudes style, and old money makes a conscious effort to live comfortably within their means. The goal of "old money" is to avoid waste so that wealth is perpetuated. After all, it is easy to make money but it isn't so easy to keep it.
So what are smart people doing with their real estate dollars these days? Why moving UP of course!
As I've watched the housing market bounce around like a rowboat in a hurricane, I've noticed a trend: a "stealth recovery," of sorts. One aspect is the people who were reluctant to purchase before. The first time buyers who, having good credit histories and a bit of saved money, were reluctant to jump into the frenzied highs of the markets last few years. They quietly, (and it would appear very shrewdly), recognized that the market was too rich for their blood. Now, with receding prices and desperate sellers, these buyers are making the most of this market which is loaded with opportunity.
The second group, ironically, has been the "move up" crowd. Whatever their financial situation, one of the strongest group of buyers at this very moment seems to be the group that is looking to upgrade from their current home. In general, this group has, for some time, been looking to make that move to a larger or more posh home, but often found the price too steep for the upgrade in the hot market of the past. For example: if the client has a $500k home and is looking to upgrade to that $1mil home in a nicer area, even though they could sell their home for top dollar in the hot market, they would pay top dollar for the upgrade.
Now look where we are:
Say we take the same client with the same home valued at $500k. Now let's say because of price recession the home now could only command $450k or 10% less than at the top of the hot market. Most of us would say OUCH! That's a $50k loss that really hurts. But the smart money sees it as an opportunity.
Here's why:
Let's now take the upgrade house that was valued at $1mil. Now let's apply the same percentage of price recession to this home and now, in the cooler market, the home has a top value of $900k. The value and potential for gain lies within the incrimental loss to this property.
Where at the top of the market the swap of the $500k home would cost the buyer an additional $500k, the swap NOW only costs them $450k or a savings of $50k over an upgrade in the hotter market. And that is despite the loss on their current home.
It seems that folks are really starting to wake up to this and, in fact, a lot of the people who I'm dealing with right now are in that 700k plus price range. They are taking their time and being very particular because of the amount of homes out there, but they recognize the opportunity and are ready to take it.
I predict we see a surprising spike in the Spring market, particularly in the Chicagoland area, in the sale of homes priced 500k and above.
The by product of this is that there will be a solid number of homes for new buyers that will be relative bargains. Once the "move up" crowd spots an opportunity, look for them to make more aggressive deals on the homes they are leaving.
2008 will be full of opportunites in Real Estate and this is the tip of the iceberg.
Rick
A New Year's Resolution
I've come to the conclusion that I am a bad blogger.
It really isn't an intentional thing mind you, it has been more of an oversight on my part. Sure things get away from us during the holiday season. No matter what your particular creed or what you celebrate, the last couple of weeks of any given year, not to mention the weeks leading up to them, tend to be surrounded by chaos and tension. That goes for most of us, whatever our profession. And heaven forbid you have a blog or something you might need to update on a regular basis! Things like this can easily fall by the wayside.
It is easy to consider that people aren't reading your posts but, any of us who look at the stats know better: we know that somewhere out there, SOMEONE is reading. Someone cares enough to take time out of their day to look at your words and your opinions.
So let this serve as an open apology for all of those who care: I'm sorry if I've left anyone hanging and I'm sorry for any disrespect.
Aside from the standard resolutions that we all make, (eat healthier, get fit, get a handle on our finances, etc), I have decided that one of my resolutions for 2008 is to be a better and more consistent blogger.
And why not? 2008 is already shaping up to be a very interesting year indeed. We're about to see what any remaining fallout from sub-prime might have in store for us. We're about to choose candidates and, ultimately a new president to help guide our country through these perilous times. We're going to see so many changes and opportunities, particularly within the real estate markets, that you guys are going to need people like me for insight and as a guide through these murky waters.
Our lives are changing. Our country is changing. This blog is changing!
May it all be for the better.
Happy 2008!
Rick
It really isn't an intentional thing mind you, it has been more of an oversight on my part. Sure things get away from us during the holiday season. No matter what your particular creed or what you celebrate, the last couple of weeks of any given year, not to mention the weeks leading up to them, tend to be surrounded by chaos and tension. That goes for most of us, whatever our profession. And heaven forbid you have a blog or something you might need to update on a regular basis! Things like this can easily fall by the wayside.
It is easy to consider that people aren't reading your posts but, any of us who look at the stats know better: we know that somewhere out there, SOMEONE is reading. Someone cares enough to take time out of their day to look at your words and your opinions.
So let this serve as an open apology for all of those who care: I'm sorry if I've left anyone hanging and I'm sorry for any disrespect.
Aside from the standard resolutions that we all make, (eat healthier, get fit, get a handle on our finances, etc), I have decided that one of my resolutions for 2008 is to be a better and more consistent blogger.
And why not? 2008 is already shaping up to be a very interesting year indeed. We're about to see what any remaining fallout from sub-prime might have in store for us. We're about to choose candidates and, ultimately a new president to help guide our country through these perilous times. We're going to see so many changes and opportunities, particularly within the real estate markets, that you guys are going to need people like me for insight and as a guide through these murky waters.
Our lives are changing. Our country is changing. This blog is changing!
May it all be for the better.
Happy 2008!
Rick
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