Fixing the Housing Market

If you've read some of my previous posts you'll know that I'm not a big fan of some of the government's programs because they do not help enough buyers or homeowners. Some problems they do not control, like why does it take up to 4 months or even longer sometimes to get a negotiator assigned to a short sale? Why are these same banks being unreasonable? Why does is it sometimes makes more sense for these lenders to just let properties go into foreclosure?

But there is a lot they can control. Currently they are offering home buyers money if they purchase a home. So if you happen to be in the market for a home, this is certainly a nice incentive, but by no means should this be the deciding factor when purchasing a home. In addition, how many of these people would have bought a home anyway? Maybe not as soon, but most likely within 6-12 months. And what happens when these incentives go away?

Now, I'm not one of those people who just complain and don't have a solution (I don't like those people) and my solutions were not all my ideas, but ideas I've seen or heard from other people as well.

First, eliminate the current incentives being offered. Our country has a big enough deficit, there is no need to print more money because of the housing market.

Second, make down payments tax deductible and make it available to all purchasers. This would encourage home buyers to save a little more money prior to purchasing which would benefit them as well as lenders who lend them the money. Better loans should also allow for lenders more willing to lend more money as well. It would also be an incentive for investors.

Third, raise the limits on FHA loans. If the government insists on throwing money into the housing market then this would be the place to do it. Being that the government owns Fannie Mae and Freddie Mac and are basically just using them as an additional finance arm of the US government, they could increase the loan amount limits. It was recently announced there would be stricter loan qualifications for FHA loans (which I agree with), but take it a step further and raise the limits as well for qualified buyers.,br>
Fourth, offer investors a tax incentive. I already said I think they should make down payments tax deductible so that would qualify as a tax incentive for investors. But another option is to offer a lower capital gains tax for as long as they own the property or at least 5-10 years. I wouldn't offer both incentives, the investor would get to choose the option.

I'm hopeful over the next couple of months some of these ideas will make their way to Congress and we can start to stabilize this housing market. I've listed my ideas, what do you think?

Chicago Area Housing Numbers

So is the housing market really turning around? I think that depends on which numbers you deem more important. Are year-over-year numbers the ones you look at or month-to-month? If it's the year-over-year numbers you believe provides a better picture then things are certainly looking up.

December was the fourth consecutive month of sales increases year-over-year, 8,197 total homes sold (sinlge family and condos) vs. 6,823 from the same time period a year earlier. That's almost a 20% increase!!!! In addition the median home price was only down 1.9% ($155,000 December 2008 vs. $152,000 December 2009

However, if you believe month-to-month is a better indicator of the market, then the news wasn't as good. The total number of homes sold in December 2009 was 8,197 compared to 10,361 in November 2009. That's more than a 20% decrease!!!! And the median home price fell the same 1.9% ($155,000 November 2009 vs. December 2009).

Both of these numbers are a bit scewed because of the first-time home buyer tax credit. The reason for the large increase in November was due to the first-time home buyer credit expiring and buyers tried to beat the deadline. Thus, the numbers in December are probably a better reflection of the actual market.

I'll be be curious to see the upcoming housing numbers and whether or not the current incentives are extended or replaced with new ones. With the large number of mortgages set to adjust this year, the high unemployment and continued high number of foreclosures, we are not nearly out of the woods yet with this housing market.

Recent Home Sales, What's Next????

The most recent home sales data showed that sales increased over the past couple of months, but that prices are either stagnant or still falling. I believe the first-time home buyer tax credit certainly helped the sales numbers, but I think these buyers would have purchased a home anyway in the next 3-6 months.

So what happens now? I think the next couple of months will slow down as usual, but potential buyers will be out in full force for the first quarter of 2010 since the extended tax credit requires purchasers to have a signed contract by April 30, 2010 and must close by June 30, 2010. The new tax credit was also extended for existing homeowners, granted they've lived in their home five of the past eight years. They do not need to purchase a more expensive home and they do not need to sell their existing one in order to be eligible for the credit. However, they can only receive up to a credit of $6500 vs. $8,000 for the first-time home buyers.

Once the credit expires, it's anyone's guess as to what might happen, but I think further incentives will still be needed to stimulate the housing market. One idea from a fellow Realtor that caught my attention was making down payments tax deductible. I like this idea because the government doesn't need to print any more money, it encourages home buyers to save a little more, it's an incentive for purchasers of higher priced homes and it should make for more qualified loans.

If you would like more information regarding these tax credits and whether or not you might qualify I can be contacted at scott@illinoisrealestate.com or by calling 847-829-0130.

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Sean Agnew
Realtor
IllinoisRealEstate.com
Cell/Text: (708) 772-2542
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sean.agnew@illinoisrealestate.com

March 2009 Housing Numbers cont.

For the second month in a row existing homes sold increased in Chicago and the surrounding suburbs.

In the Chicago Metropolitan (nine-county) Area, home sales were up 38.3 percent (4,260 homes sold in March 2009 vs. 3,081 home sales in February 2009).

The median home sale price for the Chicago area was up 5.7 percent ($194,000 in March 2009 vs. $183,500 in February 2009)

For the city of Chicago, March 2009 home sales (single-family and condos) were up 40.6 percent (1,181 sales vs. 840).

The median price for homes in the City of Chicago also rose 0.8 percent ($220,000 in March 2009 vs. $218,125 in February 2009)

State of the Real Estate Market

Nothing really surprising with the new housing numbers. Being that short sales and foreclosures continue to make up more than half of the housing sales I fully expect the median sales prices to continue to fall. Short sales and foreclosures present the best opportnity to purchase properties at a discount and most of these sales are $300,000 or less. This is great if you are a first-time home buyer or do not need to sell your home in order to purchase one. Unfortunately that is not the majority of would-be home buyers.

You can also expect the number of foreclosures to rise once the 90 day reprive expires (the amount of time given to homeowners to negotiate with their lenders before their lender begins the foreclosure process). I know the government meant well granting this 90 day window, but if someone lost their job, how are they going to pay for their mortgage anyway?

March 2009 Housing Numbers

According to the Illinois Association of Realtors the nine-county Chicago region saw home sales fall by 26% and a decrease of 42% in housing sales in the city of Chicago vs. the same period last year.

Housing prices continue to fall as well. For the nine-county Chicago region, the median home price (where half the homes sold for more and half sold for less) was $194,000 vs. $248,000, a decrease of 21.8% for the same period a year ago. The news was even worse for the city of Chicago where the median price fell to $220,000 from $300,980 last March.

The nine-county Chicago region consists of the following counties: Cook County, DeKalb County, DuPage County, Grundy County, Kane County, Kendall County, Lake County, McHenry County and Will County.

Will These Government Programs Help The Housing Market?

Housing is about supply and demand and the government is trying their best to help in both areas. With the Fed buying (A LOT) of US Treasuries bonds they are artifically lowering interest rates on mortgages, which should make housing even more affordable, which should create more demand, but who is buying? The problem is that so many people have been foreclosed or have negotiated short sales and now their credit is so bad they can't get a mortgage, so the pool of potential buyers is greatly reduced. I also know there are plenty of people that are current on their existing mortgages that would love to take advantage of these lower prices, but can not because either they can not sell their current home or the price they would receive would not be sufficient to payoff their current mortgage.

As for the supply aspect, the government is trying to keep as many people as possible in their homes. Obama's refinance and loan modification program is definitely a step in the right direction, but is it too late? Probably not, but what happens to the people who just got laid off and can't find a new job? I believe the government could have a greater impact on the supply side than demand.

The government announced today that they will be purchasing/leveraging up to $1 TRILLION in bad (toxic)assets. There are some interesting aspects of this plan, but I'll concentrate on the real estate part. Assuming most of these bad assets are foreclosures, the government could play a major role with the supply of homes on the market. I would first take at least 50% of foreclosures currently listed off the market. Then for every 3 foreclosure that sell, put another 2 on the market (I wanted to keep the numbers simple). I believe this would help stabilize prices and balance supply and demand.

February 2009 Housing Numbers

According to the Illinois Association of Realtors Chicago-area home sales in the month of February fell about 29%. There were 3,082 single family homes and condos sold in the nine-county (Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will) Chicago region vs. 4,326 single family homes and condos sold for the same period last year.

The median price of homes in the Chicago-area (same nine county region) fell 23.5%, $183,625 vs. $240,000 for the same period last year.

The news was even worse in the city of Chicago where sales were down 40% (841 units vs. 1412) for the same period a year ago and the median price was down about 24.7% ($218,250 vs. $290,000).

Chicago home prices drop 14.3 percent in 2008

IllinoisRealEstate.com In The News From Medill Money Mavens (medillmoneymavens.com)

BY INYOUNG HWANG - MEDILL NEWS SERVICE (medillnewsservice.com)

“There’s no doubt we’ve seen a softening of prices throughout Chicagoland,” said Brian Nygard, a Chicago-based realtor who runs the website IllinoisRealEstate.com and writes regularly on the site’s blog. “There’s just not as much demand.”

Read Full Article: http://medillmoneymavens.com/2009/02/24/chicago-home-prices-drop-143-percent-in-2008/ (copy & paste)