Crain’s: Buying a New Home Before You Sell Your Last One
Crain’s reports on homesellers who have already moved into a new property and haven’t been able to sell the first.
They are paying two mortgage payments- sometimes for months.
Ryan and Lynda Hamilton aren’t sweating the five months of construction delays slowing completion of their $690,000, 3,900-square-foot home in Elgin. They have bigger problems. Namely, their 2,700-square-foot, single-family home in the Old Irving Park neighborhood, which has languished on the market since May 2007, leaving them carrying two sizable mortgages.
“I thought for sure it would sell in two or three months,” says Ms. Hamilton, 39, regional director in Chicago with HelmsBriscoe Inc., an international meeting-site procurement company. She and her husband, Ryan Hamilton, 35, owner of Chicago-based software developer Bluebuzzard Technology Group Inc., originally listed the four-bedroom, 3.1-bath home for just $640,000 — which they viewed as a deal for a potential buyer. They had watched homes on their street sell for closer to $700,000 within a few months of listing.
But those were different times.
The couple has now dropped the price twice, first to $619,000 and recently to $599,000, upon the advice of their real estate agent, Cindy Risch of the Lincoln Park office of @properties Inc. “She said it would bring in more traffic,” Ms. Hamilton explains.
It didn’t.
“I just lost another $20,000 for nothing,” she adds. “We’ve shown it once in the last two months.”
Now faced with paying their old mortgage, new mortgage and a home-equity loan they used to buy their lot, the Hamiltons, who have three daughters, are trying to find a renter with an interest in buying. This, they say, was a worst-case scenario.
“We definitely needed the equity in the home,” says Ms. Hamilton. Renting, she adds, won’t cover all their home-related expenses.
But they weighed the alternatives — dipping into their children’s education fund, borrowing against their retirement accounts, taking out a bridge loan — and found them even less attractive. Ms. Hamilton knows the family can’t hold on financially for another eight months. “There’s only a certain amount of time that we can pay all three,” she says. “Our savings are only so thick.”
Several sellers are trying to sell condos in a market with a ton of inventory. The average time buyers live in a downtown loft is two years. As all the professionals decide to move to other cities or have other lifestyle changes (marriage, children etc.) they are finding its not so easy to just pick up and move in this type of housing market.
Renting out condos isn’t really much of an option. As we’ve chattered about, the rents aren’t covering the costs of ownership.
Eric Fontaine, 37, and Colleen Borkowski, 28, are eager to begin their new life together in Boston, where Mr. Fontaine relocated last fall to take a product marketing management position with Setra Systems Inc., a manufacturer and designer of pressure measurement instrumentation in suburban Boxborough. The couple is getting married on May 3 in South Bend, Ind., but their dream home is on hold.
That’s because when they moved, each still owned a condo in Chicago.
“My hopes were high, but when the market info started coming in, that started making me a little more skeptical,” says Mr. Fontaine, who placed his 2001 two-bedroom, two-bathroom condo in east Ukrainian Village on the market with Prudential Preferred Properties in September. He dropped his asking price to $359,000 — $30,000 less than the original asking price — and at press time had found a buyer after six months of carrying the mortgage.
His fiancée’s condo, built in 2005 and fully upgraded, is situated among a glut of newer construction in the Lincoln Square neighborhood. Ms. Borkowski put it on the market in November with Keller Williams Lincoln Park and “would love for somebody to like it as much as I did.”
“To know that nobody else wants it is hard,” she says.
Ms. Borkowski, a paralegal with law firm Wilmer Hale’s Boston office, has already lowered the price once, from $375,000 to $369,900.
While the couple debated renting out one of the places, they have no desire to be long-distance landlords.
“The tough part is you can’t really do both,” Mr. Fontaine says. “You have to make a choice. If you do rent it, you can’t sell it. For us, we’d rather just get out from under it.” Plus, Mr. Fontaine doubted rental income would cover either property’s mortgage, property taxes and assessment.
How long can these sellers hold on?
We’ll know by the end of this summer. As one seller of a Bucktown townhouse said:
“We still have quite a bit of equity,” he says. “It’s something we can withstand a couple of months. I’m hoping I don’t have to see where things are at come August and September.”
Stuck With Two Mortgages [Crain’s]
Those people are Scr*wed. Feel a little sorry for them.
I actually do feel sorry for some of them, not many but some.
How do we know that Mr. Fontaine didn’t buy his unit in 2001? Those are the ones I feel sorry for as if so he was a long-term owner and who could’ve expected this situation seven years ago? Its tough to feel too bad though as he will still make a profit…eventually.
Another great sign of the bubble: how in the hell did a paralegal qualify for a $300+k mortgage?
The best part yes a lot of these people are going to lose their shirts in this and thats not worth cheering, but ultimately the banks are going to take the rest of the hit. They are indeed also going to pay for their loose lending practices.
There was an interesting article over the weekend in the Chicago Tribune about lenders tightening their standards for a condo (down payment and review of HOA financials). That said, I heard a real estate professor speak last week and he said Bernanke essentially gave a silent subsidy to home owners with rate cuts. The professor went on to say subprime mortgages are usually LIBOR (~2.7%) plus 5 or 6%. I believe 3 year arms could be found as low as 5% during the peak of the housing boom. If this is the case, how does the media find people with mortgages that reset and have a monthly payment double?
Bob:
“how in the hell did a paralegal qualify for a $300+k mortgage?”
I have worked with a number of paralegals who make over $100k in Chicago. $60-75k is readily obtainable w/o obscene amounts of overtime.
Besides, she’s still trying to turn a profit. A $5,100 price reduction is a bad joke.
Quick theory….notice where all these people live: Bucktown, Old Irving, Ukrainian Village, etc. These were less-desirable neighborhoods 5-10 years ago. Suddenly, they became priced at the same level as Streeterville and Gold Coast properties. I’m thinking that Bucktown, Wicker Park, etc. areas will see the most dramatic drop.
I draw a parallel with the stock market (No trading arguments!). In tumultuous times, people tend to make flights to quality – favoring well-recognized blue chips over small startups. Stainless steel appliances ain’t going to save Ukrainian Village, just like Super Bowl ads didn’t save Pets.com.
Meanwhile, spacious, full-amenity units with lake views that used to command premium prices will get those premiums back – even if it’s just in the form of not digressing as much as the rest of the market.
Notice too the way she phrases the price drop from $619K to $599. She says she “lost another $20K for nothing.” Come on! She’ll be lucky to get the $599K. “Losing” “another” $20K means she thinks she was somehow entitled to the “bargain” price of $640K in the first place. I’d love to see what they initially paid–I suspect it was well below $599K. I don’t feel sorry for people who feel entitled to speculative profits that accomplished nothing other than trashing our economy and making it hard for hard working people to buy at reasonable prices.
Bob, I wonder if you will still feel sorry for Mr. Fontaine after reading the following?
Mr. Fontaine bought 825 N. Marshfield #2 on 4/20/06 for $350,000 with a mortgage for $355,250 from Navy Fed CU. He originally listed the unit for sale 9/14/07 for $389,900 then lowered to $359,000. A greater fool did indeed come along with a contract on 3/25/08 and the mls shows it currently pending. I wonder if it will close, or will financing be a tad more difficult than it was for the seller?
What about his claim of “We still have quite a bit of equity”?
Ms. Borkowski purchased 4917 N Lincoln #3 on 11/21/05 for $361,400 with two mortgages totaling $311,400 from Wells Fargo. She originally listed on 11/6/07 for $375,000 and has reduced to the current price of $359,900 (with pkg.)
I guess by “equity” he meant his fiancee’s down payment? Or, more precisely, what is left of it.
Ouch!
Well okay I don’t feel as sorry for them. I guess we’ll never know the whole story, chiefly how a paralegal was able to come up with a $50,000 downpayment. Methinks she may have had parental help or this wasn’t her first property and she flipped her first one. I’m leaning toward she was a previously successful flipper due to her fiance’s equity remark (flippers wouldn’t refer to a cash downpayment in such a non-plussed manner as ‘equity’).
It takes a long time to save $50k at any reasonable wage (remember thats $75k before taxes) from a working job, not from property appreciation.
Ken take heart: most of the flippers will wind up like these examples if they must move in the next 18+ months. Due to the tax laws everyone paid a heavy penalty for ever taking their chips off the table, so most just rolled their equity gains into another inflated property. Imagine a casino that charges 30% at the cashier..yes they messed it up temporarily for the prudent among us, but at the end of the day unless they can find a greater fool they’re up the creek.
There are always greater fools lurking about, unfortunately for the flippers banker’s now recognize that fact about potential borrowers. I just can’t comprehend 100% LTV or 105% LTV loans..the bank gives you money back for taking out a loan. The writing was definitely on the wall for this mess.
I could be wrong, but it appears that they paid $452k for it in July 2003. They purchased it from the first owner who had paid $291k for it in August 2000. She must figure that they are entitled to the same amount of gain as the prior owners.
It also appears that they owned a second property in the development and sold it in Oct ’05 (or Feb ’06, date v. recording) for a $130k profit.
As to the nonsense about other houses on the street selling for $700k–From google streetview, it appears to be much smaller than it’s neighbors–look at the back from along Kenton, and it appears much less deep. The assessor thinks that it is 1807 sq ft (not including basement level). One of the immediate neighbors is 2234 sq ft. It’s a little hard to sort out exactly, as 11 houses have one assessment “address”.
Finally, the house isn’t really in Old Irving–it isn’t even technically in Irving Park (altho the development was called “Old Irving Pointe”). It’s just west of the railroad tracks and therefore (technically) in Portage Park. Both Portage Park and Irving Park have always been reasonably desireable–but as affordable city neighborhoods–i.e., places you could buy a house on sub $100k (2008 dollars) in family income. So the $291k paid in 2000, adjusted for inflation, would make it fit well with the ‘hood–that’s $383k. Round it off to $400k, just to be nice. They really overpaid in ’03 and should be happy to sell
Nice analysis, anon. Thanks! I feel vindicated in my instinctive churlishness towards the people profiled in this article.
Bob:
“Due to the tax laws everyone paid a heavy penalty for ever taking their chips off the table”
That hasn’t been the law since 1997. Since then, there’s been an exclusion (w/o requirement to buy again) for $250k of gain every two years ($500k for married couples). So long as you hold for 2 years, no tax on the first $250k of gain; if you hold for less than two years, you get (time held)/730 days * $250k of exclusion.
And even if you do have to pay tax on the gain, only flippers (and teh very foolish/unlucky) need to worry about a rate of over 20%, b/c if you hold for 12 months, it’s long term gain.
As for the Hamiltons, anon appears to have it covered. The records are not easy to follow on Milwaukee Ct. I did locate the high sales as #5 for $555K on 9/19/05, #9 for $690K on 5/12/06 and #4 for $631K on 8/30/06.
Also, the Hamiltons originally listed on 5/16/07 for $649K, then lowered to $639K before expiring 9/18/07. It was relisted 9/17/07 for $619K and since lowered to the current $599K. It has also been listed for rent since 3/24/08 for $2950/month.
Anon:
Thanks! I was just remembering the law from my undergrad days, obviously it changes and taxes have never been an area of strong interest. I guess the shrewd and/or lucky did indeed get out while they could.
No wonder it was a mania. You had extraordinary leverage provided by high (even >100%) LTV loans, rapidly appreciating property values and no or little tax liability on the gains.
Thanks G for tracking down the address of the condos the couple purchased. My husband and I were looking in the Lincoln Square area a few months ago (you know, because “It’s a Great Time to Buy a Home” and we went into 4917 N Lincoln – there is nothing appealing about that unit. It’s a walkup off of a dark entryway and the unit itself is pretty dark inside. The exterior of the building has zero curb appeal. If you’re going to live in Lincoln Square you could find something much more charming, or there are brand new condos going up right on the other side of that building with elevator, storage, and all new finishes for about the same price – which, by the way, has now dropped to $349k.
Good luck…
That’s a really unappealing stretch of Lincoln. It’s one of the last blocks of Lincoln that I would chose to live on.
Great information G.
Crain’s also has a video segment with the Hamiltons where they say they are dipping into “equity” from other “properties”- so I’m assuming its the property that they flipped a few years back and made $130k.
Oh, sure, compliment G and then reference MY research. Hmph!
Sorry Anon. Your research was outstanding. How’s that?
I DO think it’s helpful to see the complete story on these properties and not everyone has access to all the information as some of you do. Thanks for sharing the data.
Sabrina:
Anytime I post details, I actually only use publicly available, internet-accessible data (and maybe some educated guesswork). Combine the city’s GIS maps, the Cook County recorder’s and assessor’s websites and occasionally the treasure’s website and it’s all there except the listing history.
Anon: What I meant is that most people aren’t going to bother looking at the various public websites to piece together the story on a property so we appreciate it when someone else does the “work” for us.
Oh, well that’s true. I just wanted to be clear that any inteprid person posting here could find everything I do.