Fewer homeowners drowning in debt as prices rise


The percentage of Chicago-area residents whose homes are worth less than their mortgages continues to drop amid a recovering residential market.

In the third quarter, 32.3 percent of homes here were “underwater” or had “negative equity,” meaning their owners’ equity was completely wiped out, according to a report from Zillow Inc. That’s down from 36.6 percent a year earlier and a peak of 41.1 percent in first-quarter 2012.

Nationally, 21 percent of homes were underwater, down from 28.2 percent a year earlier and a peak of 31.4 percent in first-quarter 2012, according to Zillow, a Seattle-based online home marketplace.

“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter. We should feel good that we’re moving in the right direction and at a fast clip,” Zillow Chief Economist Stan Humphries said in a statement. “But negative equity will remain a factor for years to come, and must be considered part of the new normal in the housing market. Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help.”

Single-family home prices have risen in the Chicago area for 10 months in a row, according to another report released last month.

 The Chicago area had the fourth-highest negative equity rate among major U.S. metropolitan areas, according to the Zillow report. Las Vegas had the highest, 39.6 percent, followed by Atlanta, 38.2 percent, and Orlando, Fla., 34.2 percent.


(Source: Crain’s Chicago Business)

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Buyers and renters find opportunities in tight market


Still sitting on the sidelines, waiting for the right time to buy or rent? Your patience might finally be rewarded. Despite the ups and downs in the Chicago real estate market, there are opportunities to find a home tailored for your needs and lifestyle.

Just ask Dana and Jim Metz, who recently moved into a new house after looking for three years. They were motivated by low mortgage rates, finding the right property in their price range and discovering that they had to make a fast decision.

“We both work in the Loop and love the city, so that’s where we wanted to buy,” Dana said. “It took a long time to find the right home. While renting, we worked the MLS (multiple listing service), looking mainly on the North Side. Finally, we stumbled on a new development by Lexington Homes in Bridgeport on the South Side.”

During their lengthy search, they found that there is a severe lack of inventory, and a buyer’s market had turned into a seller’s market. As a result, they had to make a quick decision because of competition from other buyers.

“Five days after we first saw Lexington Place, seven of the nine homes had been sold,” she said.

Under pressure, they immediately decided to buy a 3,600-square-foot plan with five bedrooms — one of them for their baby daughter.

Their decision to buy reflects the desire of many who have been waiting to make a move but have been stalled by the effects of the recession.

The rebound has been sparked by increased confidence in the real estate market. The future looked bright enough for Chip Cornelius to launch a real estate brokerage firm. He opened Chicagoland Realty Services in May in the West Loop.

“People have been waiting to buy for three to five years. We’re seeing multiple offers for properties, and sales in the first seven days after listing,” Cornelius said.

“Sales are on a solid return to normal. People want to buy a home; it’s in their DNA. The reality today is that it’s cheaper to own than rent. But inventory remains short, especially in entry-level housing,” he said.

Signs of a residential revival are most visible in downtown Chicago, where new apartment towers are sprouting almost as fast as the high-rise condos of the past.

“The recovery is underway and the numbers favor the rental market,” said Gail Lissner, vice president of Appraisal Research Counselors in Chicago. “This year there are 2,895 downtown apartment units that will be delivered or are under construction. In 2014, the projection is for 2,071 new apartments,” Lissner said.

“As for the future of large new condo buildings, developers are cautious, just testing the water, maybe with a baby toe,” she said.

A prime example of the switch from condos to apartments in downtown Chicago is the recent topping out of 60-story 111 West Wacker with 504 rental units on a prominent site overlooking the Chicago River.

Before the recession, it was planned as a mixed hotel and condo project. The bad economy stalled it at the 28th floor in 2008. Revived by Chicago-based Related Midwest, it is planned to open next year.

New apartment buildings also are rising in the suburbs. Ground was broken in early October for E2, a 16-story, 368-unit project of Fifield Cos. and Carroll Properties in downtown Evanston.

The resale market is another housing sector on the upswing.

Re/Max reports that sales in the seven-county Chicago metropolitan area rose 31 percent in the third quarter compared with the same period last year. The median price gained 16 percent, to $210,000. The price increase reflects greater home values and a decline in the sales of distressed properties, according to Re/Max.

“The rebound was unleashed about a year ago. The economy stabilized, confidence in employment increased and mortgage rates still are low by historic standards,” said Jim Votanek, president of the North Shore Barrington Association of Realtors.

That region has posted a 28 percent increase in sold properties in the past year.

Votanek noted that prices are strong in the $100,000 to $500,000 range but taper off after that except in the luxury markets in the Gold Coast, Lake Forest and Hinsdale.

“The glut of bank-owned distressed properties has almost been worked through. Now, though, we have low inventory because of the lack of new construction,” he said.

Votanek added that the inventory also is low because some homeowners are still underwater and don’t want to sell until prices rise more.

New-home construction in the suburbs still lags. Large publicly held building firms are doing well, some with sales up 100 percent in the past two years, according to Erik Doersching, vice president of Tracy Cross & Associates in Schaumburg. “But the new-home market as a whole is up only marginally this year. That is because there is very little supply. Few small and medium-size builders are ready to put a shovel in the ground,” he said.

Doersching noted that there were 1,300 subdivisions under construction in the Chicago area in 2007, but only 350 now.

One of the survivors is Paul Bertsche, vice president of Chicago-based C.A. Development, which is building Edgebrook Glen on the Northwest Side.

He adjusted to the housing market collapse by redesigning and substantially downsizing the square footage and prices of his single-family homes.

“From 2008 to 2011, we sold only eight houses a year. But this year we’ve sold 24 so far. The market has come back substantially,” Bertsche said.


(Source: Chicago Tribune)

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New mortgage rules may mean less choice


New rules launching early next year designed to make mortgages safer may result in less choice for borrowers.

The problem: small banks may drop out of the business because of the cost of tougher regulations.

Beginning Jan. 10, banks have to ensure that monthly mortgage payments are affordable, a result of the Dodd Frank law passed in 2010. The failure to do so carries strict penalties.

“My concern is that we’re going to be in an environment where some lenders are too small to comply,” said David Stevens, CEO of the Mortgage Bankers Association

During the housing bubble, some banks issued loans without even checking applicants’ income or assets.

Under the new rules, lenders must carefully determine that borrowers have the ability to repay their loans. That means, for example, that the banks can’t lend to anyone whose total debt payments would exceed 43% of their income. Lenders must carefully examine and double check pay statements, bank records, tax returns and other paperwork provided by borrowers.

Banks will have to make three main changes, according to Anthony Hsieh, CEO of loanDepot, an online mortgage bank.

They will have to update their underwriting policies and procedures, change their technology and retrain staff.

Already, lending had become more complicated.

Five years ago, Total Mortgage, a mid-sized lender in Connecticut, had a single attorney on retainer to handle compliance issues, according to its president John Walsh.

Today, Total Mortgage has three full-time workers who work exclusively on compliance in addition to the outside counsel, even though his business has not grown.

“I expended a lot of effort to stay ahead of the new regulations,” Walsh said. “You just can’t make mistakes these days.”

Banks large and small are hiring outside companies to handle a share of their mortgage underwriting to ensure the quality, according to Jeff Taylor, co-founder of Digital Risk, a provider of risk, compliance and transaction management services.

Big banks can handle the cost, but small lenders may not be able to afford all the extra manpower.

The changes are coming at an already challenging time. Fewer homeowners have been refinancing their old, high interest mortgages. “Now that the refi boom is over, we’ll see a lot of small banks fading away,” said Taylor.

It’s possible that bankers, never receptive to regulation, may be overstating the impact of the new rules, according to Ellen Schloemer, spokeswoman for the Center for Responsible Lending, a consumer advocacy group.

She points to an October report from CoreLogic that asserted that lenders should be able to meet the requirements. The report was written by Margarita Brose, a consultant on lender risks, and Faith Schwartz, who ran Hope Now, a coalition of lenders, consumer groups and government organizations that fights foreclosure.

Lenders will “figure out a way to deliver . . . mortgages in a way that meets all the regulatory requirements, incorporates sound lending and consumer protections — and makes a profit,” according to the report’s authors.


(Source: CNN Money)

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Home Buying Season Isn’t Over


The U.S. housing market is in a completely different position than this time last year, with solid price increases, steady inventory and strong demand continuing well into the fall season, according to realtor.com’s National Housing Trend Report for October 2013.

Median U.S. home prices in October were relatively unaffected by the usual seasonal patterns, with a 7.57 percent increase year over year. National inventory is stabilizing after the dramatic declines seen earlier this year, although the nation still is experiencing significant supply shortages. Most notably, median age of inventory – a leading indicator of demand – is down 11.32 percent from last year, demonstrating resilience to seasonal changes and stabilized inventory.

“Instead of the usual seasonal slowdown, October data show the 2013 fall market moving at a fast pace,” said Errol Samuelson, president of realtor.com. “Inventory has returned to last year’s levels, but prices continue to strengthen and homes are moving significantly faster compared to this time last year.”

“This demonstrates that the overall strength of the national housing market is determined partly by inventory availability,” said National Association of Realtors Chief Economist Lawrence Yun.  “We expect rising home price conditions to continue through the balance of the year.”

Key Market Indicators for October 2013

October 2013 Year-over-Year Percentage Change Month-over-Month Percentage Change
Number of Listings 1,905,064 -1.51 percent -0.71 percent
Median Age of Inventory 94 days -11.32 percent 1.08 percent
Median List Price $199,000 7.57 percent -0.25 percent

National Perspective:

  • After six months of steady improvement, housing supplies are now just 1.51 percent lower than they were one year ago, which signals a greater balance between demand and supply.
  • Median age of inventory is down 11.32 percent from last year, and rose slightly from 93 days last month to 94 days in October. This suggests that properties continue to turn over quickly in contrast to the usual seasonal patterns, and despite increasing prices and stabilizing inventory.
    • Median list prices are 7.57 percent higher than where they were one year ago. Monthly prices fell slightly in October, but remained resilient against the usual seasonal patterns and stabilizing inventory.

Market Highlights:

  • The report’s October figures identified several markets with rapid turnover, some at roughly half of the national median “days on market” figure of 94 days. Oakland remains the national leader at just 30 days. Only Washington, DC has shortened its age of inventory from September; the rest have increased time on market, while Phoenix remained flat.

The report also highlighted two other sectors of individual market health.

  • Widespread Price Increases  ­– Detroit continues to lead the country in year-over-year list price increases, followed by markets in California and Nevada.  Eighty-five percent of the 146 markets covered by realtor.com reported year-over year increases in list price, with just 19 markets showing price declines in October.
  • Market Inventories Shift – Decreases are steady and increases are on the rise. The number of markets where inventories were down by 5 percent or more on a year-over-year basis continued its steady decline, dropping from 102 markets in June to 65 markets in October. At the same time, inventory grew in more than twice the number of markets in October (49) compared to June (22), and the number of markets with inventories that are up by at least 5 percent over the year rose from 15 markets in June to 30 markets in October.

(Source: Realtor.com)

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Mortgage Rules Changes Are Coming in 2014


The world of mortgage lending has changed significantly since the housing bubble burst. Mortgage lenders have returned to traditional loan standards that require extensive documentation of income and assets for a loan approval.

Government regulatory agencies also continue to react to the housing crisis, with more adjustments to mortgage requirements set to go into effect in 2014:

Qualified Mortgage Rules

Whether you’re thinking of buying a home or mulling over refinancing your mortgage, Jan. 10, 2014, could be an important date for you to remember. The Consumer Financial Protection Bureau is in the process of implementing regulations to meet goals set forth by the Dodd-Frank Act in Congress, which was meant to correct the errors that led to the housing crisis. The CFPB’s “Qualified Mortgage,” or QM, rules go into effect in January. Essentially, these rules require lenders to prove borrowers’ ability to repay a loan by meeting several guidelines, including a maximum debt-to-income ratio of 43 percent. While many lenders already limit borrowers to a similar maximum debt-to-income ratio, the new rules won’t allow for any compensating circumstances such as significant cash reserves or a large down payment to be considered in order to offset a higher debt ratio.

If you have credit problems or a high debt-to-income ratio, you may want to push through your loan application for a refinance or home purchase to make sure you close your loan before the new rules go into effect. However, many lenders are already using QM standards in order to make sure they’re in compliance with the regulation. Mortgages that don’t meet QM standards will have to be held by the lender rather than sold to Fannie Mae and Freddie Mac, so most lenders are careful to meet the new standards.

The 3 Percent Rule

The new QM requirements also limit fees for originating a loan to no more than 3 percent of the loan amount. If you’re financing a more costly home, such as a $400,000 home or more, the lender can easily keep fees under 3 percent, which in this case would be $12,000. However, if you’re refinancing a smaller loan balance or purchasing a less expensive home — for example, for $80,000 — the lender might find it more difficult to keep all fees under $2,400. Mortgage lenders are less likely to offer loans for smaller amounts since they won’t always recoup their costs and make enough profit to pay their staff. If you need a small loan, you may want to push to get it closed before Jan. 10, 2014.

Self-Employed Borrowers

One particular group of borrowers will most likely be impacted by the QM rules: self-employed borrowers. These borrowers already are heavily scrutinized and find it more difficult to obtain a mortgage because they must prove their income based on tax returns and profit-and-loss statements, rather than standard paystubs and W2 forms. The “ability-to-repay” feature of QM rules requires all borrowers to prove they have the cash flow to make payments on their mortgage. Self-employed borrowers often have fluctuating income and rely on cash reserves to pay bills in-between payments, but the emphasis on cash flow can make it harder for lenders to approve a loan even for someone with significant funds in the bank.

Potential Lower Loan Limits

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced in October that plans to reduce the maximum loan limits for conventional conforming loans will be delayed until later in 2014. Typically, loan limits are adjusted on Jan. 1 of each year, but the agency decided to wait to see the impact of the introduction of QM rules before making changes. Currently, the limits are $417,000 in most housing markets and rise to $625,500 in high cost areas. If you need a mortgage near these limits, it would be wise to close your loan earlier in 2014 rather than later in case limits are lowered.


(Source: Realtor.com)


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