The Real Estate Paparazzi #2

Some updates on much-anticipated Chicago downtown developments:

Trump International Hotel and Tower: Today's opening of the 92 story luxury development on the Chicago River at Wabash may be picketed by the hotel workers' union Local 1 of UNITE HERE. Five floors of the building will be staffed by 300 workers. Hotel officials and Local 1 have failed to come to agreement on whether the hotel's workers will be allowed to decide if they'll be a part of the union.

The Spire: Just two weeks ago sales opened on the over-1000 unit, 150 story building expected to be completed in 2012 at 400 N Lake Shore Dr. Prices range from $750,000 to $15 million, starting at about $1400/square foot. Expectations are that nearly half of the buyers will be from overseas. The low value of the U.S. dollar to many foreign currencies is sure to help meet that expectation. Construction of the building is still in a sub-ground phase where workers are drilling foundational supports into the ground.

The Real Estate Paparazzi #1

Today's blog post is going to be the first of a group of posts titled "The Real Estate Paparazzi". Real estate is in the news so often these days that we almost seem to know what's going on in the market at all hours of the day, similar to how the paparazzi allow us to keep tabs on the daily lives of almost any celebrity we wish. I'd like to cover these topics and point out anything relevant to the Chicago market, as well as break them down into organized explanations. If you read any of today's headlines, you're sure to have noticed that they were chock-full of articles about how the housing market has plunged and has hit record lows and so-on. This was due to reports released by a few sources:

1) The Census Bureau report showed that 68.7% of all occupied homes were occupied by homeowners (versus renters). Last year, the number was 69.8%. This was the largest one-year drop on record. Not-so-good news for those unable to obtain a mortgage and are stuck renting, but not-so-bad news for landlords.

2) The SP/Case Schiller Index reported that this was the 11th consecutive month of negative annual home price returns nationally. This data is through Nov 2007. However, of the 20 major metropolitan areas surveyed, Chicago posted the 7th best annual return of -3.9%. Leading the pack was Charlotte who experienced a positive 2.9% annual return. Most hard-hit were Miami (-15.1%), San Diego (-13.4%), and Vegas (-13.2%).

3) Realtytrac, a real estate website which I subscribe to, reported that total foreclosure filings in 2007 increased by 75%. I just closed a bank owned foreclosure property last week which I got for my buyers at 18% below list price PLUS a $10,000 closing credit to them. If you're thinking about purchasing real estate right now for any reason, foreclosures might be the place for you to start looking. I have access to foreclosure listings; contact me so I can find you a great buy.

FOMC Emergency!

Early this morning the outlook was gloomy for stocks, with the Dow expected to end the day down 600 or more points on global fears of a U.S. recession. Enter the Fed. For the first time in 7 years, the Fed voted for a non-meeting rate cut. They slashed the overnight rate by 75 basis points to 3.5% and signalled that a further rate cut was likely and could potentially occur at the next meeting, scheduled for just next week. Not only was this the first mid-meeting cut in 7 years, but it was the largest one-time cut in 17 years. The Dow ended the day down a "mere" 130 points.

What does this mean for you? While mortgage rates - long term rates - aren't specifically tied to the Fed Funds rate - a short term rate - we'll still see some effects on the costs of home ownership.

1) Those with adjustable rate mortgages (ARMs) due to reset soon will benefit from a slightly lower reset rate. It won't be sufficient to bail out anyone in serious trouble, but it will help them stretch their dollar a little further.

2) Banks dropped their prime rate after the Fed cut, which will benefit consumers with home equity loans, credit card debt, and auto loans.

3) The market has already priced in a rate cut, so mortgage rates are already very low!

4) The rate cut is likely to increase mortgage applications as buyers attempt to find the best rate possible and more people begin to consider home ownership as a possibility.

5) The down side is... don't expect your savings to grow as fast as it was before! Banks lower the interest rates they offer on savings and CDs at the same time they lower the rates at which they lend to you.

Is Now The Time To Buy?

I've gotten this concern very frequently from hesitant buyers. "I don't want to buy now because I'm afraid prices will drop even more in the coming months." Here are two things to consider:

1. Real estate is a long-term investment. If you plan to buy a place and then sell it in a year, then yes, you should be concerned about where prices are heading soon. However, if you are like most buyers and expect to hold onto your property for 3-5 or more years, there are sure to be natural ups and downs to the value of your property anyway. There is nothing you can do about that and you'll NEVER know when the price is at its absolute lowest. Waiting for prices to drop and drop and drop could potentially leave you in a situation where prices suddenly skyrocket, and where does that leave you?

2. Home prices are not the only thing to consider. Mortgage rates change just like home prices change. What if you KNEW that home prices will drop in 6 months? Well, then you might wait 6 months to buy your home. But what if you also KNEW that mortgage rates would rise in 6 months? Then what would you do? For instance, a P&I payment on a mortgage for a $300,000 home at 5.5% interest would be $1703/month. However, if the price of the home FALLS 3% but at the same time, mortgage rates go up 0.5 percentage points to 6%, your monthly P&I payment would be $1744. So, you'd actually be paying MORE per month for a home that cost less.

View this blog from a respected mortgage industry leader for more insight to the mortgage market and where rates might be headed. And this article from NAR will help you understand how the real estate market is predicted to fare this year.

New Years REVOLUTION

It's the first full week of 2008 and I'm sure many of us have already given into our cravings to eat junk food, sleep in and skip the workout, or wait another day to quit that bad habit. Of course, if you're a trying-to-quit smoker, Chicago's new smoking ban will help you out a bit by keeping you from lighting up in public places.

Since I am not a big fan of New Years Resolutions (who really keeps them anyway?), I'd instead like to talk about something else - Chicago's New Years Revolutions - not the things we resolve to do in our lives, but the changes that we'll witness over the course of the next year.

1. Green home ownership on the rise. As oil prices spike (last week it actually hit $100/barrel), even those less-concerned with the environment will begin to adopt more environmentally-friendly concepts for their homes such as energy-saving light bulbs. If anything, it will at least save some "green" on the utility bills as gasoline costs cut into the budget.

2. Increased celebrity sightings. With the increase in paparazzi trailing celebs and the explosion of TMZ TV and such over the last couple years, those who aren't currently working on a Hollywood project are likely to want to find a summer getaway. Chicago is a relatively undiscovered hub for shopping, attractions, fine dining, business, and night life. The only thing we are lacking in the Windy City are the exorbitant housing costs of Manhattan and the environmental disasters of Cali. And we have the Lake - how many of them do you really think are swimming in the Pacific Ocean? We've got sand and we've got sun; isn't that all they really need? Not to mention that just last year there were at least 2 major motion pictures shot in Chicago.

3. Southward movement. The South Loop is growing at an unbelievable rate considering the serious market constraints other parts of the U.S. are experiencing. Driving down Roosevelt Rd. you'll see more than 15 cranes putting up new buildings all in one 360 degree view through your car windows. And you thought developers were having problems? That wouldn't explain why Donald Trump is currently putting up a 92 story Trump International Hotel & Tower right downtown. Its close proximity to the lake, museums, Soldier Field, Columbia College, School of the Art Institute, Grant Park, McCormick Building, the Loop, 3 CTA trains, and major highways promises a thriving South Loop economy.

I wish everyone the best in keeping their New Year's resolutions. However, if all else fails, at least you still know you live in the best city in the world!