Chicago Realty Guy

“Cashing In” on a Refinance

jlconner — Fri, 21 May 2010 16:51:05 +0000

As European sovereign debt concerns send Markets churning and U.S. mortgage rates lower and lower, one type of refinancing has been at an all time high. However, not in the way we have been used to over the last decade.

“One in three borrowers, 33 percent, who refinanced their loan in the fourth quarter of 2009, lowered their principal balance, the highest “cash-in” share since Freddie Mac’s quarterly Refinance Report began tracking the refinance data.” Broderick Perkins-RealtyTimes.com

Moreover, the number of borrowers who increased their loan balances by cashing out is at an all time low.

Click here for more on the national “Cash in” refinance story

National numbers can sometimes be misleading when applied to local markets, so I chose to confirm these findings with local Chicago mortgage lenders. They report about 20 percent doing “cash in” refinances which is “definitely higher than it has ever been.” – Joe Burke of YourChicagoMortgageGuy. This compares to a negligible percentage doing “cash out” refinances. While the numbers did not line up exactly, the trend is certainly in tact and has continued into 2010.

It is important to note that it would be impossible for a country to get its’ financial house in order if the individual citizens refuse to do so. In light of the increase in personal savings rate last year, credit card delinquencies coming off of their peak, and the refinancing statistics above, it seems the american public has taken major steps in rectifying household balance sheets. Good news in a still deleveraging, but slowly stabilizing economy.

Please leave a comment if you have questions about what you read here or would like me to post on a specific topic. Whether or not you are currently a client of mine, I am happy to open this forum for discussion or to answer individual questions.

Best,

JLC

Filed under: Current Homeowners, Real Estate Investment

European Debt Crisis a Boost for US Consumers

jlconner — Mon, 10 May 2010 20:39:36 +0000

Despite numerous national economic factors looking better over the last couple months, the FED has maintained its’ stance to keep interest rates low for an extended period. Assuming the economic outlook in the US continues to improve and job growth is sustained, the FED will abandon this extremely accommodative monetary policy over time.

Interestingly, the most recent impetus to maintain low rates stems from the international community. Concerns over European debt, Greece specifically, triggered last week’s sell off in the financial markets. Grand scheme, if the European Union is able to effectively deal with the debt crisis in Greece and reassure markets that Europe’s banks are solvent, we should see very little effect here on US soil. European policy makers took major steps in that direction today by announcing a 500 billion euro loan package.

However, in the interim it is quite logical that the FED had no reason to rock the boat and maintained its’ position.

How does this relate to real estate you ask…

With a recovering economy, the end of the FED MBS purchase program, and the end of the home buying tax credit, it would make sense to see interest rates start to move higher. Any sustained or significant move in interest rates does more to alter housing affordability than an $8,000 credit could ever hope to. Conversely, interest rates have moved lower in response to the fears abroad. This can be explained by the natural flight to safer assets when stocks are thought to be too volatile or risky. i.e. US Treasuries and MBS.

As I have discussed before, buying demand for MBS lowers interest rates. Mortgage rates are at their lowest level of the year to date. While these levels may not last, anyone buying or refinancing over the next month or so owes thanks to Greece.

The Current National Average for a 30 yr fixed is 5.0%.

Please leave a comment if you have questions about what you read here or would like me to post on a specific topic. Whether or not you are a client of mine, I am happy to open this forum for discussion or to answer individual questions.

Best,

JLC

Filed under: Current Homeowners, First Time Buyers, Real Estate Investment

Behind the Strong Pending Sales Numbers

jlconner — Tue, 13 Apr 2010 14:34:52 +0000

Last week the Pending Home Sales Index (PHSI) reported a healthy gain of 8.2% from January to February and sits 17.3% higher than February 2009. The Midwest had the strongest regional move with 21.8% jump from January to February and sits 18.7% higher year over year.

There are a couple things to highlight about the PHSI and then I will move into specifics about the Midwest numbers. Pending home sales are not yet finalized, the homes are under contract and should close in the following month or two. Additionally, the same month, year over year numbers are much more indicative of the market trend than the month to month comparisons. Real Estate is a cyclical business. When it comes to pending sales it is never a surprise to see the numbers rise as you move from January to March as the spring market picks up. The opposite is true as you move from September to December. These effects are exacerbated in regions where the seasons, specifically cold weather, influence consumers purchasing behavior. For more on the PHSI click here.

A 21.8% jump in Midwest pending sales from January to February seems like a drastic increase, but let us take a look at the factors behind this number. Snow storms in the east and midwest undoubtedly were reflected in the low January numbers. That positioned February to see the kind of jump in pending sales that was reported last week. The weather, coupled with the understanding that interest rates would be moving higher, and the home buying tax credit all chip away at the idea that the february numbers are a sign of a surge in home buying.

The year over year numbers for the midwest (up 18.7% over February 2009) show signs of recovery. However, it remains to be seen if the recovery in housing will sustain after the expiration of the home buying tax credit and the End of the FED MBS Program. I expect that as interest rates slowly move higher there will be additional downward pressure on home prices. The deeper question is whether or not the housing market can establish an equilibrium between sellers asking prices, buyers overall purchasing power, and the interest rate consumers must pay for a mortgage loan.

Best,

JLC

Filed under: Current Homeowners, First Time Buyers, Real Estate Investment

Interest Rates Heading Higher as FED Ends MBS Purchases

jlconner — Wed, 31 Mar 2010 23:19:50 +0000

We have all heard someone say “they’re printing money in Washington” or “the FED is printing money” what these people are referring to is a process called Quantitative Easing. That is much too broad a topic to discuss here, but here is the wikipedia entry: Quantitative Easing. Today marks the end of that process…Maybe.

The Federal Reserve previously announced that they would end their 1.25 trillion worth of Mortgage Backed Security purchases at the end of March. I discussed the goals and outlined this process in a post a couple of weeks ago: FED MBS Purchase Program.

The purpose was two-fold, added price stability and a ceiling on interest rates for mortgage loans. In anticipation of the end of this program, interest rates began to move higher last week. This was not a surprise. If the biggest buyer for any bond was leaving the market the bond’s price would naturally fall slightly pushing the rate higher. The rate move does however, lead us to a couple major questions:

1. If rates climb high enough (6%-6.5%) will the FED step back in with more easing?

These comments from the March 16th Federal Open Market Committee (FOMC) commentary seem to indicate they would if deemed necessary:

“the committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.” Full FOMC Commentary March 16th, 2010

Since a home is the largest investment most americans make, I read “price stability” as “Home price stability”.

Overall, the FED has handled the financial crisis better than most central banks around the world. Along that line, they are not moving from purchases directly to sales which would send rates higher in a hurry. That leads us to the next question.

2. Will private buyers step in to replace what the FED was doing?

It was estimated that 100 billion a month in MBS purchases would be needed to fill the void left by the FED program. There will be demand for MBS as PIMCO, the world’s largest bond fund, and many others have been underweight the securities.

“They did make MBS become expensive (they probably didn’t need to buy the last $400 billion), but money managers and others are now underweighted and will repurchase if MBS underperform,” – Scott Simon, head of mortgage-backed securities at PIMCO. Full Business Week Article

Still the void left is large and the following weeks will be telling.

Current 30 year fixed: 5.125% Direction: slowly higher

Check back in April for a Rate Update.

Best,

JLC

Filed under: Current Homeowners, First Time Buyers, Real Estate Investment

Pricing Premium – 2 Bedrooms 1 Bath vs. 2 Bedroom 2 Bath

jlconner — Tue, 23 Mar 2010 19:53:27 +0000

When it comes to 2 bedroom condos I have often had clients ask about the value of a second bathroom in resale. While these units sell at a premium to units with a solo bathroom, they are also purchased at a premium. What is dynamic is that the premium varies dramatically depending on the neighborhood. Point of clarity, the extra bathroom is not the soul difference between these types of units. Often a 2/2 is somewhat larger than a 2/1. Other confounding factors could be a dearth or abundance of one type of unit in a specific neighborhood, however, the discrepency from neighborhood to neighborhood is still worth noting.

2 bedroom 1 and 2 baths - median prices in 2009 by neighborhood

Click here for the original post by Fran Bailey over at: http://www.chicagometroarearealestate.com/2-bedroom-1-bath-vs-2-bedroom-2-bath-condos-for-sale-in-chicago/

The greatest premium is paid in the loop and on the Near North side at 48% and 44% respectively. The lowest premiums were found in Lincoln Park and Edgewater at 20% and 17%. Lakeview, Uptown and Rogers Park fill in the middle at 33%, 28%, and 26%.

Not depicted here is wicker park and bucktown which I calculated at 38% premium, placing it third highest.

Best,

JLC

Filed under: Current Homeowners, First Time Buyers, Neighborhood Updates