Chitownproperty

A sampling of news articles on the real estate market this week. In a word: sellers, bad; buyers, good:

• So what’s the incentive? Builders ask – Mary Umberger says builders are cutting back on some of the more ridiculous $70-80,000 incentives they had been throwing in to entice buyers. Builders are more likely now to tailor incentives to a potential buyer’s needs, like financing or home sale contingency options.
• Realty group says it’s time to get off sidelines and seek bargains – Buyers market, right? Sort of. There are deals to be had in this market, but the looming recession means that fewer people are willing to buy anyway.
• Housing: No room for bulls – Unfortunately, the Wall Street suits aren’t optimistic about the market picking up anytime soon either. Again, good news for buyers, if you’re in the market, but seller might face another few tough months.

We know calling the current tough real estate market a “buyer’s market” sounds like rationalization, Realtors trying their best to put a shine on something that isn’t there, but there are solid reasons for why new buyers can find a good deal now more than ever:

“It’s no secret that home buyers can grab real-estate bargains during an economic down cycle. Even in many prime neighborhoods, homeowners who wouldn’t budge on price just a few months ago are now willing to negotiate in earnest, says Mark Nash, a real estate broker and author of ’1001 Tips for Buying and Selling a Home.’”

Before you catch yourself thinking that today’s tough housing market is an unprecedented event, read Mary Umberger’s column this week. She reminds us that real estate markets in every part of the country have suffered through tough times before that lasted much longer than the current market correction is expected to last. Remember, the latest housing boom took five years to reach its peak.

The recent downturn in the local condo market has opened up new opportunities for first-time buyers, the Tribune says. Some owners anxious to sell in today’s tough market are more willing to negotiate, and developers are throwing in more amenities as part of the base price to entice purchasers.

With the current environment of stagnant or even falling home prices, coupled with a tightening of the mortgage market, buying a home can seem like a risky proposition right now. But it carries the same risk it always has, provided you are realistic about what you can afford, says a marketing professor in this week’s Tribune. “We tend to over-react [to news],” [Univ. of California, San Diego professor On Amir] observed. “Which in this environment means that we will over-concentrate on the financial aspects of home buying and maybe not enough on what type of home we really want.” Read more on how to assess how much risk you can afford in a mortgage.

The big real estate news of the week of course was the median price of American homes will fall this year for the first time since the government started keeping such statistics in the 1950s. This is more proof of the long slowdown in the housing market, and further underscores what we’ve been saying about treating your home first as a place to live, and secondly as an investment. All home owners and prospective buyers should know by now that home values aren’t guaranteed to rise, and carry the same kind of risk as any investment. That’s why it’s so important to choose a home based on how you will enjoy living there, not how much money you think you can make by selling it in a few years. If a home is to be viewed as an investment, it is in the long-term.

$1 million is a lot of money for a house, but what exactly does that get you? CNN/Money has a tour of $1 million homes around the country, incluing this woodframe single-family home near Wrigley Field. No offense to those Cubbie fans, but if we had a $1 million to spend, we’d take this floating home in Seattle.

Those of you who can remember your economics class in high school will be happy to know that the basic laws of supply and demand still apply to the real world, especially to the real estate market right now. The general slowdown in the market means that inventory, i.e. supply, is up, meaning that now is a great time to buy. This piece in the Tribune points out that buyers have a distinct bargaining advantage with both individual sellers and builders, and shouldn’t be afraid to leverage it. Sellers will be more flexible on their asking prices and builders will entertain more requests for additional upgrades if it means they can finally make a sale.

A reader at CNN/Money asks the question whether they should buy now and take advantage of low interest rates, or wait and see if prices are going to fall even more. The answer, of course, isn’t as simple as they would probably like. You could take advantage of falling prices to bargain your way into more concessions from a seller. And you should always base the decision on how long you think you will stay in that home. Even if the market value continued to decline after the purchase, if you plan on staying there over five years, you’ll recover and likely see the modest 6 percent gains that have been the historical norm in this country. Also, don’t take on a risky, short-term adjustable mortgage right now, because when prices do rise, your monthly payments might increase to uncomfortable levels.

The New York Times ran a great piece this weekend about the thought process that goes into setting a market price. The number are huge because they’re talking about New York, but whatever the market, an asking price isn’t so much a flat statement of how much the seller would like to get for their property. It’s a complex calculation of value, strategy,and pride:

The asking price of a property is rarely a straightforward reflection of comparable values. While comparables may be a starting point, the price at which a seller offers a property is often also based on wishful thinking, propaganda and ploy.

Buyers, in turn, parry by deconstructing the price. They aim not merely to assess a dwelling’s fair value but also to plumb a seller’s bottom line and vulnerabilities. How a price tracks with similar properties, how large and hasty any reduction is, and even how parsed or rounded a number is — all these are grist for concluding, rightly or not, whether a price is firm, desperate or a sign of painful dealings to come.

It may seem silly on the surface, but the Super Bowl typically marks the kickoff of the annual “spring market” in real estate, when sellers finally put their homes on the market and buyers hit the pavement in earnest. It makes more sense in Chicago this year with the Bears playing in the big game, but nationally the Super Bowl has pretty much become part of the extended holiday season, the last excuse real estate procrastinators could hold on to before making a move. So if you’re in the market, expect some more action, and competition, starting today.

If you own real estate or are in the market for a new home, no doubt you’ve paid attention to — and been slightly frightened by — the recent news that median prices and sales numbers have dropped significantly for the first time in years. But as this Tribune editorial by Kenneth Harney points out, a closer look at what the numbers mean reveals a different picture, particularly in Chicago.

First of all, Harney emphasizes, is that in light of the spectacular gains in real estate prices in the past few years, a 1.2 percent decline in the national median price isn’t all that surprising. Secondly, since that number is a national figure, it doesn’t reveal discrepancies in local markets. For instance, the median price of a home in Chicago actually rose 1.7 percent over the last year. That national figure is brought down by larger decreases in areas that saw the greatest investor speculation.

As a home buyer, the second piece of news, falling sales volume, means that you’ll have more homes to choose from as local inventories increase. And for sellers, it means that you need to think about adjusting your asking price, or be willing to wait a little longer to sell. Either way, it’s not the dreaded crash that the most strident critics predicted, rather a return to what we used to call a normal housing market.

Pricing your home in a cooling real estate market can be tricky, because you can no longer rely solely on the sales prices of comparable properties in your neighborhood. When all was going well, sellers and their agents could count on finding recent sales data, adding a time-appropriate increase to that price, and getting offers at or near that level. But now with increasing inventories, homes sit longer on the market, and some people are looking for more creative ways to entice buyers (and no, we’re not talking about offering a free H2 Hummer).

The recent housing market boom is winding down, but that means now it’s time for someone to take the fall. Who’s to blame for creating the irrational exuberance about real estate? Well, pretty much everyone. As the Tribune’s Mary Umberger explains, the finger can be pointed at just about anyone involved in the real estate markets, from economists to the media to brokers, lenders and customers themselves. The National Association of Realtor’s chief economist David Lareah was surprisingly candid in his assessment.

We’re in transition from a seller’s market to a buyer’s market, and that transition is costly. When that happens, there’s always a big drop in sales volume because the seller is stubborn.
…
I’ve been wrong for three years in a row. I’ve said we’re about to get a correction. For three years, I’ve said, `This is the year that sales will come down.’ But now, it’s not because mortgage rates went up, it’s because of the psychology of the marketplace. The prices just got too high.

Popular sentiment seems to be that the hot real estate market of the past few years is going to end with a “soft landing,” no drastic price drops, but a gradual settling of home values back down from the stratospheric appreciation rates. This week, the New York Times examines what would happen to the housing market and the economy as a whole if the real estate bubble were to pop instead of letting its air out gradually. The two are inextricably tied, and the fate of the economy may be just as dependent on a healthy real estate market as housing is to purchasing power and consumer sentiment.