Has Chicago Real Estate Hit Bottom?

Here is a great article from the New York Times

Under 5%, Mortgages May Be Near The Bottom
By JAMES R. HAGERTY

The Federal Reserve is going to extraordinary lengths to push down long-term interest rates, including home-mortgage rates. But those hoping mortgage rates will fall sharply from current levels, already historically low, may be disappointed.

Mortgage firms Thursday were quoting rates averaging 4.75% on 30-year fixed-rate mortgages, according to Zillow.com, a real-estate information service. That is down from more than 5% two days ago and about 6% in mid-November. But further big declines will be hard to achieve, partly because the mortgage-lending market has grown less competitive in the past year as hundreds of small banks and independent mortgage lenders have collapsed. The big banks that dominate the market are eager to boost their profits margins, not give deeper bargains to consumers.

Rates for borrowers with the strongest credit are likely to be in a range of roughly 4.5% to 4.75% for the rest of this year, says Mahesh Swaminathan, a mortgage strategist at Credit Suisse in New York.

Others say that is too optimistic. Assuming no big change in government policy, Walter Schmidt, an analyst at FTN Financial Capital Markets, sees a range of 4.75% to 5.5% for most of this year.
The Fed began driving mortgage rates down in late November when it announced plans to buy as much as $500 billion of mortgage securities this year. On Wednesday, the Fed expanded that program, saying it will spend as much as $1.25 trillion on such securities in 2009. That is enough to provide funding for more than half of all home-mortgage loans likely to be made in the U.S. this year.

The Fed also is buying long-term Treasury bonds to drive down rates on those securities, whose pricing affects mortgage rates.

By historical standards, rates look incredibly low. Until recently, 30-year fixed-rate mortgages hadn't been below 5% since the 1950s. For the past couple of months, rates have been bobbing between about 5% and 5.25%. The 30-year rate averaged 4.98% in the week ended March 19, down from 5.03% the prior week, according to Freddie Mac's survey. Fifteen-year fixed-rate mortgages averaged 4.61%, down from 4.64%.

One reason mortgage rates often tick back up after a decline is that a rush of people seeking to refinance quickly causes backlogs at lenders, which frequently don't have enough employees to process all of the applications.

"If lenders are working people overtime to close loans, they don't have an incentive to compete too hard on price," says Arthur Frank, who heads research on mortgage securities at Deutsche Bank in New York.

The situation highlights a conundrum for the government. It wants low rates to spur the housing market, but also wants the banks to make profits on loans so they can return to financial health.

Many of the small mortgage banks that remain are struggling. Mortgage banks, often small, family-owned companies, aren't licensed to take deposits and so lack that source of money for their loans. Instead, they typically borrow money for short periods from so-called warehouse lenders. They use this short-term credit to make loans to their customers and then pay back the warehouse lenders after selling the loans to bigger banks or to government-backed mortgage investors Fannie Mae and Freddie Mac.

But this warehouse credit is much harder to obtain than it was a year or two ago because many of the big banks and Wall Street firms that used to provide it have exited that business.

Despite these constraints, the Fed's action is "going to be a plus" for the housing market, says Thomas Lawler, an economist in Leesburg, Va. Lower rates make it more likely that home prices will hit bottom in many parts of the country later this year, Mr. Lawler says. The recovery, though, is likely to be gradual, partly because rising unemployment reduces housing demand.

Christopher J. Mayer, a real-estate professor at Columbia Business School in New York, says the Fed's moves to cut rates are "helping to put a floor under the housing market." But he worries that the Fed could face huge losses on the mortgage securities if inflation fears eventually push interest rates much higher.

Still, the consumers who need these low rates the most aren't likely to get much help. Many people can't qualify for these low rates because their credit scores aren't high enough or they can't afford a down payment of 20% or more on a home purchase. Such people will be socked with fees that can drive up their housing costs considerably. Banks also have become far pickier about appraisals and are nixing many purchases as a result.

Others can't qualify for a refinancing because they owe far more on their homes than the estimated current market values. Fannie Mae and Freddie Mac have new refinancing programs that will let some borrowers refinance into lower rates even if they owe as much as 105% of the home value, but only for current loans owned or guaranteed by Fannie or Freddie.

Find out what home prices are in the Chicago Neighborhoods you are considering. Get your free weekly market watch report and see what pricing trends are and how much supply and demand there is before you buy or sell your next Chicago house or Chicago condo.

Avoid Choosing The Wrong Chicago Neighborhood

If you are buying a Chicago home, one of the first things your Chicago real estate agent will do before taking you on home tours is interview you to determine the type of Chicago house you want and any specific criteria the Chicago home needs to meet. But just as important is the type of community you want to live in. Knowing what your requirements are will help narrow your home search and save time.

To expedite the house-hunting process, start by making a list of the dream home factors that are most important to you and best meet your family's lifestyle. Consider style, location, proximity to work and schools, yard size, children in the community, and of course, price.

Price and location generally are the key factors you'll use to identify the Chicago Neighborhoods that best suit you. If you are moving within the city limits, you may want to start your Chicago neighborhood search by getting in your car and exploring. There are also resources on the Internet that let you compare Chicago neighborhoods.

You'll want to ask yourself critical questions, such as:
Do you dream of something quaint and charming that can only be found in an older area?
Or, do you prefer everything new?
Are you willing to sacrifice size and space for architectural detailing?
What about drive and commute time to the office and schools?
Will you forgo the number of bedrooms and a big yard for proximity to a lake or other recreational areas?

Whether you have children or not, buying a home in a community with good schools is important. It not only adds value to your Chicago property, but also is an attractive feature when and if you decide to sell. There are plenty of resources available to get information about schools within the Chicago neighborhoods you are considering. Various Internet sites offer school reports and profiles. They provide statistical data such as graduation rates, college-bound percentages, and standardized test scores. You can also learn about special programs the schools offer. In addition to these reports, many schools have their own websites you can peruse. And of course you can always talk to people in the area or take a tour of the school.

Additional factors you'll want to consider during your Chicago neighborhood search are crime, recreational activities, proximity to shopping and restaurants, and other specific family needs.

Once you've narrowed your search to two or three neighborhoods that fit your price range and lifestyle, make comparisons of price and sales activity. Your real estate professional can help you determine which communities are most sales-worthy at present, and which are more likely to continue to be.

There are many factors involved in selecting the right Chicago community for you and your family. Discuss your options with your Chicago real estate agent. This will provide the information he or she needs to help you find property listings to tour.

Remember, a targeted approach to house hunting is less time consuming, less expensive and more efficient.

Find out what home prices are in the Chicago neighborhood you are considering. Get your free weekly market watch report and see what pricing trends are and how much supply and demand there is before you buy or sell your next Chicago house or Chicago condo.

Your Chicago Real Estate and Mortgage News for March 9th

Interest rates fell slightly last week on some rather dismal news on employment and the economy as a whole. In addition, the bond markets were helped by the stock market, which continued its free-fall into territories we haven't seen in over 12 years. This week is a "slow news" week on the economy, so the bond market will mainly be watching the stock markets for direction. Keep in mind that as the stock market falls, that is usually good news for interest rates, as investors pull their money out of the stock market and put it into bonds, which are considered to be a safe haven.

Here's a look at the news that came out last week:
On Monday, Personal Income and Spending both came in better than expected, while the Fed's favorite inflation gauge - the Personal Consumption Expenditures index came in as expected. The Industrial Supply Manager's (ISM) Manufacturing Index came in better than expected, but still "not so good". Wednesday brought us the ADP employment report, that estimated 697,000 jobs were lost in February, compared to the street estimate of 630,000. The ISM Services Index came in slightly better than expected. We also heard more of the details of the "Making Home Affordable" housing plan that was announced a couple of weeks ago. If you or your past clients have tried refinancing recently, but were unable to due to the changes in the mortgage industry, please call us to see if the "Making Home Affordable" plan will help with your situation. Thursday we learned that first time Unemployment Claims came in slightly better than expected, but still at 639,000 new claims. Also, Productivity at the nation's factories fell in the 4th quarter of 2008 more than anticipated. Friday was the big day of the week and month, as the U.S. Labor Department released employment numbers for February. We learned that the we lost 651,000 jobs, close to expectations, but the unemployment rate jumped to 8.1% - the largest number in over 25 years. December and January's employment numbers were revised to show an additional 161,000 jobs lost, giving December the largest number of jobs lost in the post war (WWII) era. When it was all said and done for the week, bad news prevailed, and interest rates declined.

The week ahead will bring us the following:

Thursday - First Time Unemployment claims are expected to remain steady from last week. Thursday - Retail Sales are expected to show a large decrease from January to February.
Friday - The U.S. Trade Balance is anticipated to show an improvement
Friday - Consumer Sentiment will probably show a decrease from the last reported, considering all of the dismal news released lately.

Homeowner Affordability and Stability Plan

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes. The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. Many of the plan's details are still being worked out and will not be announced until March 4.

Here is an overview of the plan's main components.

Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, "credit-worthy" or "responsible" homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date--including what, if any, credit score requirements will be included.

Stability Initiative
This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: "reduce the amount homeowners owe per month to sustainable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31% of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

This initiative also includes a number of additional elements and incentives, including an extra incentive for borrowers to keep paying on time. The initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.