Market Conditions: Nearly 2 Years of Shadow Inventory in the Chicagoland Area
I’ve been saying for awhile that I am seeing more short sales appearing. Too many people are underwater, even in the best neighborhoods of Chicago.
The Tribune discusses the large shadow inventory hanging over the market and how it means prices will continue to go lower.
In the eight-county Chicago area, 19 percent of mortgages — representing nearly 1 in 5 residential properties with a loan — are delinquent by at least one month, helping create an inventory of almost 204,000 homes at risk of reverting back to lenders, according to data provided to the Chicago Tribune by John Burns Real Estate Consulting in Irvine, Calif. That “shadow inventory,” as experts define distressed homes not yet put up for sale, is the largest in absolute terms for any metropolitan area in the country.
Based on its calculations, the firm believes that 80 percent of those homeowners eventually will lose their property, either through foreclosure or a short sale, in which the lender permits the home to be sold for less than the value of the loan.
For Cook, DeKalb, DuPage, Grundy, Kane, Kendall, McHenry and Will counties, the shadow inventory number translates to 22 months of distressed housing supply. The combined shadow inventory for Lake County and Kenosha County, Wis., where the delinquency rate is 18.4 percent, is more than 22,000 homes, or a 23-month supply.
“A fifth of people (in the Chicago area) aren’t paying their mortgage,” said Wayne Yamano, a vice president at John Burns. “Next year is when you’re going to have the most competition in the market and the proportion of distressed sales will be the highest.”
The Tribune provides some specific examples of distress in certain zip codes.
•In Evanston’s 60202 ZIP code, for example, only 0.55 percent of homes were foreclosed upon and reclaimed by lenders in June. However, almost 7 percent of mortgages were at least 90 days delinquent, putting the future of those homes at risk.
•In Chicago’s 60611 ZIP code, part of Chicago’s affluent Streeterville and Gold Coast neighborhood, only 0.52 percent of properties were bank-owned in June, but 5.31 percent of homeowners hadn’t paid their mortgages for 90 days.
And what about all those homeowners who want to sell and are “waiting” for the market to improve (which many are assuming will be “next spring” now)?
Some real estate agents say they’re seeing an increase in the number of financially strapped homeowners interested in listing their home as a short sale. They’re also fielding questions from traditional sellers who held their homes off the market this year with the expectation that their home will fetch a better price in 2011.
“I’m not sure that’s going to happen,” said Mary Ann Manna, an agent at American National Real Estate in West Chicago. “I know what’s out there and I know the pipeline is pretty full, and banks aren’t even putting all the properties they have on (the market). This is not over.”
More mortgage distress in the air [Chicago Tribune, Mary Ellen Podmolik, September 30, 2010]
So the green zone is holding up better than the greater Chicago land area?
5% in 60611 area code 90 days w/o paying mortgage
about 20% in the greater Chicago land area not paying their mortgage
Uptown is going down…
“5% in 60611 area code 90 days w/o paying mortgage
about 20% in the greater Chicago land area not paying their mortgage”
Not clear the data are from the same source. The eight county number is clearly from John Burns Real Estate Consulting. The zip code number appears to be from Corelogic (the foreclosed number by zip is clearly attributed to Corelogic, the delinquent numbers seems to be but is not completely clear in the article).
Anyone have any idea how these data are compiled?
so these delinquent owners will soon be non owners and not able to owners again in 7 years (or more)
so really theses owners will soon be renters, which inturn will benefit the Tom (ufo)’s, Westloopelo’s, and Clio’s.
i think i revise my strategy and start looking into two and three flats?
There are multiple reasons why the green zone has held up better. I pointed out the first and probably most important reason the other day when we talked about the U of C professor. He is completely underwater and mired in debt, yet, he can afford the monthly payments so he continues to do so. There’s no game plan to pay off the debt, and he can’t actually do it either (without severe austerity). So like financial zombies, they float along.
However, the mere fact that most can afford the monthly payments in one area is not enough to save the market because unless you believe in a truly bi-modal market (the best properties hold most of their values and then the rest just sink to the bottom), just as a rising market raises all home prices, a declining market lowers all home prices.
Things are only going to get worse too. GMAC and Chase have stopped foreclosing on all previously filed foreclosures due to affidavit problems. Yet another reason to trickle foreclosures into the marketplace for years to come.
Oh did I mention the HAMP properties that will all eventually return to the market?
At the end of the day, when this is all said and done, housing will be cheap and affordable for everyone. Property prices will be in a tight band relative to occupants income. It may be possible to buy a decent SFH on the NW side west of Cicero for less than $200k, or for some of those residents, 2x – 3x incomes. We should embrace the coming affordability.
Yes, some will suffer, those who bought between 2000 – 2008, but should an entire generation future home owners suffer and pay inflated prices because a small minority of homeowners choose to buy during a bubble? I think not.
wait… 80% of people that are one month late will eventually lose their property?
that seems to be a bit of a stretch…
Except that everybody and their mother is thinking the same thing as clio and wle and Tom; so with the deluge of new rentals, rental prices go down.
My rent has been the same since 2006 and most people I know who have moved pay less rent than they were before.
It’s amazing to think that the rentier class will have to live off less income. Too bad for them!
“#Groove77 on September 30th, 2010 at 8:11 am
so these delinquent owners will soon be non owners and not able to owners again in 7 years (or more)
so really theses owners will soon be renters, which inturn will benefit the Tom (ufo)’s, Westloopelo’s, and Clio’s.
i think i revise my strategy and start looking into two and three flats?’
“wait… 80% of people that are one month late will eventually lose their property?”
The claim is that 80 percent of those that are one month or more, so a lower percentage for those that are exactly one month late. I’d raise the issue of whether 1 month late includes those that are a few days late by accident, but I suspect these numbers are pretty made up.
“without severe austerity”
By which you mean without forgoing some combination of: retirement savings, the second car, private school for 3 kids, maid, gardener, and (I would bet) some fairly decent vacations.
Sonies, 80% is a conservative nunber. I’ve seen stats that say 95% of defaulted mortgages failed to cure.
2 years ago about a 1/3rd used to cure or sell prior to foreclosure. But now, who wants to keep a severely underwater property?
HD,
Sorry if I am confusing you with Bob…
So is your feeling that the green zone will be just as hard hit as Chicago is overall?
of that the green zone prices will go down too as part of the contagion but perhaps not as much? for example: green zone slow goes down but with not as much depth vs. say the south loop which will fall off a cliff (large drop and steep sharp downwards)
if your in the hole that bad where your a month behind on your $2500+ mortgage you are pretty screwed. i can get with the 80% default rate it seems like a nice round number
“And what about all those homeowners who want to sell and are “waiting” for the market to improve (which many are assuming will be “next spring” now)?”
Looks like I’m doomed
Depends on where your property is located…
but personally, I sold a property this year and am glad I got out on that property.
I don’t think next year (2011) will be a very good year for sellers.
now on the other hand 2012 is when I see less haircuts happening, but that of course depends on when you picked up your property
This is setting up brilliantly for me, because I should have saved a sufficient down payment to purchase one of these places in another year or so.
“So the green zone is holding up better than the greater Chicago land area?
5% in 60611 area code 90 days w/o paying mortgage
about 20% in the greater Chicago land area not paying their mortgage”
Apple and oranges. Nevermind the different data suppliers.
The 5% is 90+ days delinquent; the 20% is 30+ delinquent.
Incur one late penalty and don’t pay it (ie, don’t change your auto-pay amount), you’re 30 days late, perpetually, but never more, as your payment pays the past due amounts first, but creates a new past due every month.
anon (tfo)
How would you incur one late payment if you use auto-pay?
Yeah, but that’s a plausible scenario but that’s not what happens. 30 day+ late means that you’re really more than two months behind….i.e. the debtor sends in a payment on August 15th, due on September 1st. He misses the October 1st payment. The October 1st payment becomes 30 days late on November 1st (or technically 10/31). So on November 1st, the last payment the creditor actually received was on August 15 (8/15 – 11/1 yet only counted as 30 days + late). If you haven’t send in a payment in 2.5 months, you probably aren’t going to send in many more payments, unless you can come up with a lump sum and cure….
“Incur one late penalty and don’t pay it (ie, don’t change your auto-pay amount), you’re 30 days late, perpetually, but never more, as your payment pays the past due amounts first, but creates a new past due every month.”
anon(tfo):
all true and it is the fabulous post-Zell Chicago Tribune reporting…
Would you have stats for the flip side for 90+ or 30+ days?
Ok so, check out the heat map.
http://www.chicagotribune.com/business/ct-biz-0930-distressed-properties-gfx20100930,0,5307390.graphic
Don’t even try to tell me those highest distress areas on the west side and south sides (Austin, Garfield Park, Lawndale, Englewood, Marquette Park) should even have homes, let alone home prices. The land underneath those buildings is basically worthless. These areas are warzones, always have been (ok, since the 1960s), and do not reflect an opportunity for “cheap and plentiful” housing as HD argues. Whole blocks should be bulldozed and planted with trees. Or put in more high quality rental housing.
The fact that the lakeshore areas are dramatically well off in comparison is not surprising. Incomes tend to match the home prices, at least current prices. That’s why I would guess green zone prices will remain largely flat.
“At the end of the day, when this is all said and done, housing will be cheap and affordable for everyone.”
No, it won’t. If you actually believe that, your perspective is almost as skewed as clio’s.
“Property prices will be in a tight band relative to occupants income.”
This is all about interest rates and lending standards.
“It may be possible to buy a decent SFH on the NW side west of Cicero for less than $200k”
There are 70+ 3+/2+ SFHs in Portage Park listed for under $200k right now. Most of them are probably half wrecked, but some of them undoubtedly qualify as “decent”.
I’m feeling pretty good about my plan. Purchased a multi-unit in 2002, we’re saying adieu to our 8 year renter this weekend, will be converting to a proper SFH next spring.
plan on staying put at least until retirement – which apparently is not for another 30 years at the rate they keep raising the age. this means I’ll get at least 10 years of no-mortgage living as we paid off extra principal until we had our kid.
“plan on staying put at least until retirement – which apparently is not for another 30 years at the rate they keep raising the age. this means I’ll get at least 10 years of no-mortgage living as we paid off extra principal until we had our kid.”
skeptic, what are your school plans, if you are willing to say? I seem to recall you’re around Logan-ish (as I am).
Skeptic — that is the only way to do it. We paid our mortgage off in 7 years. You cannot put a price on financial flexibility.
“How would you incur one late payment if you use auto-pay?”
You stop the payment b/c you’re b/t jobs or need to pay the loan shark or whatever and then turn it back on. Stuff happens, tho it wasn’t the best example, just a plausible one (I’ve run afoul of autopay-related problems, so it was based in experience).
“the debtor sends in a payment on August 15th, due on September 1st.”
Does anyone do this? My mortgage payments have always been due on the 1st, delinquent on the 16th, and I always auto-pay them on the 2d/3d/4th, depending on banking days, out of end of month pay deposit. 30+ for me would most likely be 2 missed payments (as 9/1 due isn’t 30+ until 10/16, when I would have skipped a 2d payment), but if I skipped one and made the 2d, I’d be rolling forward my 30+, until the accumulated late fees equaled a full payment, when I’d then be 60+, and so on.
“Would you have stats for the flip side for 90+ or 30+ days?”
Nope.
Anon(tfo) we’re already on our way there. No point in denying it.
“anon (tfo) on September 30th, 2010 at 10:18 am
“At the end of the day, when this is all said and done, housing will be cheap and affordable for everyone.”
No, it won’t. If you actually believe that, your perspective is almost as skewed as clio’s.”
@JMM,
Its not the only way to do it. I also admit that I am a serial re-fi.
If the bank is willing to loan me money so cheap, why shouldn’t I take advantage of it?
Just because you have a mortgage doesn’t mean you don’t have financial flexibility
Does anyone do this? i.e. does anyone pay their mortgage early?
Yes. Think about people who are paid weekly or bi-weekly as opposed to twice a month…
And not everyone’s mortgage is due on the first, … is your credit card statement due on the first?
Mine is due on the 22nd; my student loans are due on the 16th and on the 25th; my car payment was due the 10th….
I just laid out a plausible situation where a 30 day + is really 2.0 or 2.5 months since the last payment. And if you think about it that way, that’s why the cure rate on the 30 day + is so low. It used to be higher, much higher, before home prices fell, but now people aren’t even bothering to try and catch up or cure because they’re so far underwater. At least that’s what I see in my experience, and I have experience with 30+ day plus debtors 10 hours a day five days a week.
“Anon(tfo) we’re already on our way there. No point in denying it. ”
So, we won’t need public housing, because folks living on SS disability will be able to afford to buy houses? Everyone means *everyone*, to me. 5 BR houses, in decent shape, for under $20k. Huzzah!
“At least that’s what I see in my experience, and I have experience with 30+ day plus debtors 10 hours a day five days a week.”
Might your sample be a little skewed? Also, HD, do you believe that housing was “cheap and affordable for everyone” before the bubble?
My view is not skewed, its representative of debtors who have fallen behind on their mortgage. That’s wgat we are talking about, debtors who are 30 days plus late, right?
housing was a hell of a lot cheaper before the bubble. How else do you explain a less than 1% foreclosure rate, even during the worst recessions, andf with high unemployment? Because monthly payments, even with high interest rates, were smaller and it was easier to cure. Like groove said, fall behind on a 2500 a month mortgage and you’ll have a hell of time catching up.
Anon I said housing, not houses. Huge dif! I know you’re being sarcastic. Thoiugh
“My view is not skewed, its representative of debtors who have fallen behind on their mortgage.”
It is representative of those that have come to avail themselves of your services. It is not necessarily representative of all debtors who have fallen behind. Do you think the two groups are the same in terms of whether they are likely to be so far behind they do not bother to try to catch up?
“housing was a hell of a lot cheaper before the bubble.”
I don’t think you will find too much disagreement on this (although how much cheaper depends on the area etc.). Indeed, it almost follows directly from the existence of a bubble. BUT, that’s not what you said.
“Anon I said housing, not houses. Huge dif! I know you’re being sarcastic. ”
Still requires 5 BR houses selling for $20k, because that’s how you make rental housing “cheap and affordable” for someone with multiple kids living on $800/month + food stamps. And, yes, I realize you were being hyperbolic.
Yes, I know I’m being hyperbolic.
Sfh in bad areas for welfare reciupiebts is cheap. Ask jmm!
Will apply to a bunch of magnet/gifted schools like most I know, but even if we get in one we like, might go with St Luke’s (lutheran) anyway.
I’m not lutheran but went to St James in LP, and it was a solid education/upbringing. I really prefer the small school model, and they’re good people (they let us use their gym for b-ball games), and it’s logistically preferable to all but maybe Disney II.
“skeptic, what are your school plans, if you are willing to say? I seem to recall you’re around Logan-ish (as I am).”
“Sfh in bad areas for welfare reciupiebts is cheap. Ask jmm!”
Those foreclosure rocked areas are total warzones and there is no denying that. Housing prices are the least of the worries there. Lol.
“Its not the only way to do it. I also admit that I am a serial re-fi.”
Have you checked your risk free rates of return? Paying off your mortgage gives you the highest risk free return you can earn by leaps and bounds. Plus it also amounts to savings.
Never met a homeowner who owned his house outright and was worried about home prices.
“Will apply to a bunch of magnet/gifted schools like most I know, but even if we get in one we like, might go with St Luke’s (lutheran) anyway.”
Thanks! Know a couple of people with kids in Berchmanns. They seem happy enough. Rest is a mix of private/testing/lottery into other neighborhood schools. Heard ok things about Goethe but don’t actually know any middle class and above families (i.e., people who have options) who send their kids there.
Wasn’t that aware of St Luke’s as elem. Had heard of their kiddie music programs.
I was thinking of selling my property because it has gone down in value. Then I realized that to get a place as nice as mine, I would have to pay 50% more than my mortgage in rent. Why would I do such a thing? Its cheaper to own if you put down the proper downpayment and with the current low interest rates.
I met a guy a few months back buying foreclosure sfh for 20k cash in the south suburbs and renting them for 900 after some cosmetic repairs.
Cal city is a great place to pick up cheap foreclosures. Safe, stable, diverse, nice, cheap, well kept, suburbs, ok schools, lots of foreclosures but a relatively stable decent residents. Too far away for me, though.
DZ: to be clear, I’m not looking at St Luke’s Berchmanns, there’s a St. Luke’s on Belmont just east of Ashland. Not saying anything is wrong with the Berchmanns, but I’m just south of Belmont, and the idea that in middle school my daughter could get to school with a single bus ride would be a contributing factor.
I would definitely consider Goethe if I was in the area – I know of quite a few middle class folks sending their kids there, they all seem pretty happy with it (Darwin, otoh…).
“Cal city is a great place”
LOL no its not… there’s a reason homes are cheap, and I sure as hell wouldn’t want to be cashing checks from your typical renter in calumet city… they’ll probably bounce 50% of the time. not worth the hassle and their corrupt city government will screw the city over. Cal city is the next Gary indiana
“to be clear, I’m not looking at St Luke’s Berchmanns, there’s a St. Luke’s on Belmont just east of Ashland”
Sorry, my post was a little convoluted. I was referring to St John Berchmans, catholic church and school on south side of logan, just west of kennedy.
“I would definitely consider Goethe if I was in the area – I know of quite a few middle class folks sending their kids there, they all seem pretty happy with it (Darwin, otoh…).”
Yeah, I’ve heard ok things. Certainly worth looking into further.
“Have you checked your risk free rates of return? Paying off your mortgage gives you the highest risk free return you can earn by leaps and bounds. Plus it also amounts to savings.”
Not really. By my count the cheapest 30yr you can get is 3.875%. Sure thats tax advantaged down to what…3%ish?
These days you can get reward checking accounts for 4%…similarly after paying taxes on that earnings its down to what…3%? They’re about equal, but you get the liquidity with the reward checking. We live in strange times indeed.
where exactly can you get a checking account at 3%… and what do you need to do have 50k minimum on deposit there? LOL
Its called a reward checking account and you can get them up to 5%. And actually they don’t have any minimum limits but they all have maximum limits, typically 10 or 25k (with local Chicagoland banks like MB financial and Devon bank you can get up to 4%).
Yeah they have dumb rules like you need a direct deposit once/month and 10-15 debit card transactions per billing cycle. But as long as you’re willing to jump through the hoops its a guaranteed high APY.
http://www.money-rates.com/rewardschecking.htm
“my car payment was due the 10th….”
HD, you had a car payment??? 🙂
I’m surprised. I thought you would buy second hand and just pay cash. I don’t drive, but I would totally buy second hand and pay in cash if I did.
Btw, “And not everyone’s mortgage is due on the first, … is your credit card statement due on the first?”
is absurd.
I am perfectly aware that not all mortgages necessarily bill on the same cycle, but basing the conclusion on when other companies bill for other products is like examining a chicken to determine the internal structure of a pig.
“Yeah they have dumb rules like you need a direct deposit once/month and 10-15 debit card transactions per billing cycle. But as long as you’re willing to jump through the hoops its a guaranteed high APY.”
That just sounds like arbitrage to me
First, they get to take your “direct deposit” every month and use it as “reserves” to then loan money to charge interest to people
Second, they make you have 10-15 transactions per month probably so the APY is probably based upon a certain “average daily balance” or somecrap so your APY isn’t actually 3% its probably less than 1% on money you actually put into your account.
not even worth the hassle IMO… i’ll take my penny a month from chase and have everything set up on autopay and i’ll be happy 🙂
“Second, they make you have 10-15 transactions per month probably so the APY is probably based upon a certain “average daily balance””
They get the vig on the debit card transactions. I doubt it’s about ADB manipulation.
“They get the vig on the debit card transactions. I doubt it’s about ADB manipulation.”
Also a way to disqualify you from qualifying for the higher rate. Also probably to make customers stickier. The bank fee from debit transactions is worth something but not like it covers the majority of interest paid.
whatever, its still not even close to a “4% risk free rate of return”
I had a car note for about four months until I got my share of a referral from a large plaintiff’s injury settlement and paid off my car note in full. Ambulance chasing has no street creed but in certain instances it can be extremely lucrative and thank goodness IL is one of the few states left that still allows attorney referral fees 😉
“#Milkster on September 30th, 2010 at 12:58 pm
“my car payment was due the 10th….”
HD, you had a car payment??? 🙂
I’m surprised. I thought you would buy second hand and just pay cash. I don’t drive, but I would totally buy second hand and pay in cash if I did.”
street cred, not street creed, typo.
“not even worth the hassle IMO… i’ll take my penny a month from chase and have everything set up on autopay and i’ll be happy ”
I’m about to open up an MB red account soon (their 4% reward checking). Think about it: if you have 20k in excess cash sitting around that’s an extra 2%, or $400/yr over a 2% CD. Yes you can arb these reward accounts vs. prepaying a mortgage but remember the account limits are low so its really for the little guys starting out building wealth.
They blow away any other FDIC guaranteed rate of return that I’m aware of so something to consider if your willing to jump through the hoops for the APY. You gonna pre-pay a 4% mortgage with a 3% effective rate or gonna stash it in a reward checking for slightly more after tax earnings but _vastly more_ liquidity?
One really annoying thing about them is the rates aren’t guaranteed for any specific period of time so you have to constantly yield chase.
“Second, they make you have 10-15 transactions per month probably so the APY is probably based upon a certain “average daily balance” or somecrap so your APY isn’t actually 3% its probably less than 1% on money you actually put into your account.”
Program requirements vary. The bank I’m with (Royal Banks of Missouri) requires 15 debit transactions monthly and one automatic bill payment. No monthly deposits required. I put $40K in the account and set up autopayment of my smallest monthly bill (landline phone). They give you a debit card which I use for my daily McDonald’s coffee. I ring up $50 a month on the card and in return get 3.5% interest on $40K. The rate beats most CD’s and the money is liquid. Totally worth the minimal hassle involved.
“One really annoying thing about them is the rates aren’t guaranteed for any specific period of time so you have to constantly yield chase.”
Yeah, my account started out paying 4.33% then after about six months the rate dropped to 3.5%….still a very good deal.
We will also have our condo paid off within a few years… anyone else doing this by paying extra every month? I don’t see why more people don’t do this (if they can of course), because every penny goes right to the principle and you wouldn’t believe how it adds up over time.
“These days you can get reward checking accounts for 4%…”
Total BS.
Those max out at like 5k or 10k total deposit.
Read the fine print.
Paying down your mortgage is the best risk free return available to a consumer. And you can put more than 5,000 to work doing so.
Don’t both tax effecting it because anyone who is playing small ball with a teaser checking account is taking the standard deduction.
“Think about it: if you have 20k in excess cash sitting around that’s an extra 2%, or $400/yr over a 2% CD.”
Again read the fine print (you aren’t getting $400 over anything):
MB Financial Bank is offering a high yield reward checking account called MB Red Checking. The account has the following rates if certain monthly requirements are met:
•4.00% APY on balances up to $10,000
•1.00% APY on portion of balance over $10,000
•0.05% on all balances if requirements are not met
“Total BS.
Those max out at like 5k or 10k total deposit.
Read the fine print.”
My account pays 3.5% on up to $40K. No BS. Every bank doing this has a different deal.
“My account pays 3.5% on up to $40K. No BS. Every bank doing this has a different deal.”
Yeah some up to 25k but then what?
So you take a teaser rate for 1 year, when in fact you pay down your mortgage and earn that return for the tenor of your ownership (10 years or more).
“the tenor of your ownership”
But I thought you were proposing paying off the note, not having a balloon?
Yes, so what is your point?
You pay on top of normal amortization and that is interest forgone for as long as the loan is outstanding. In addition, your payment which is fixed now contributes more amortization each successive month. Do the math.
JMM I disagree. Some of these accounts go up to 40k. And yes bother with tax affecting.
“Don’t both tax effecting it because anyone who is playing small ball with a teaser checking account is taking the standard deduction.”
Not sure where you came up with this. Lots of owners play with “small ball with a teaser” checking accounts, called high reward accounts. It only makes sense with mortgage rates as low as 3.375% on 15yrs and 3.875% on 30yrs.
Yes tax effecting on both sides. You pay tax on your interest income, which does have something to do with the size of your checking account, and you save tax maybe, on your mortgage, the size of which determines your interest savings.
Especially given the incremental mortgage interest tax savings only kicks in on larger balance mortgages, it makes sense to carry a larger mortgage balance and instead keep your savings in a high-APY reward checking account. (Provided you do see tax savings from the mortgage interest).
This situation only applies once you have the most favorable financing terms already for your mortgage (ie: 20% or 25% down to eliminate PMI and other fees for houses and condos, respectively). Before you get there, liquidity issues aside, it makes the most sense to get to the 20/25% equity threshold.
Payoff of a mortgage lasts for a lot longer time than you will earn interest in these teaser accounts. It is unecomomic for banks to carry a COF at 400bps right now. These rates will go away and are of course subsidized by forgone customer acquisition costs.
3.375% on 15yrs is basically the same as paying it off on the side, so that rate really doesn’t apply.
Not sure where you are looking but I see at 4.25% for 30 years conforming with excellent credit, 20% down, etc. Tax effect at 28% (generous) and you are at 3% and change. That is a very good after tax risk free return.
I disagree with your liquidity comment. The smaller the mortgage, the more flexible you are if you had to sell, rent or otherwise restructure your personal balance sheet. In addition, if you equitize, you could refi the smaller principal amount and instantly lower your payments without interest rates having to change. If you are stuck with a larger balance, you are just that, stuck.
Yeah you can’t use the equity in your house as an ATM, but isn’t that what got people into the mess in the first place?
“Yeah you can’t use the equity in your house as an ATM, but isn’t that what got people into the mess in the first place?”
You likely still can, to the extent that your mortgage balance is less than 75-80% LTV to market pricing.
“Payoff of a mortgage lasts for a lot longer time than you will earn interest in these teaser accounts.”
If you have a fixed rate mortgage prepayment is always an open option as there are no prepayment penalties here in the US. So there is no net benefit from applying to the mortgage vs. bps arbitrage.
Bob and JMM, you both are talking about small returns on large amounts of money. The differences are so small that they are not worth talking about.
More importantly, does anyone realize how frickin expensive real estate still is in L.A. – I know this doesn’t pertain to Chicago’s market, but it IS extremely interesting. Being the real estate aficionado that I am, I went to a local real estate office today to look at properties in the area (Beverly Hills, West Hollywood, Brentwood). I told the agent I was interested in a 2bed/2bath- about 1500 square feet and he said that if I didn’t have at least 1.5 million to spend, I should look elsewhere. This goes back to our discussion about how so many people out there REALLY DO have a LOT of money. It is unbelievable – we are talking about thousands of houses. So maybe the economy isnt as bad as we thought.
JMM – I’m essentially in a position to chose between going down either of the two paths recommended here: yours, to pay down mortgage or Bob’s, to save cash while making min (P&I) payments. I’m choosing at this point to go Bob’s route due to time horizon of moving being under 24 months though I’m struggling. I’m underwater and would need to bring cash (that I have) to the table upon selling the ol 2/2 I’m in. It would be satisfying to pay that down, but at the moment I’m happy slowly whittling it away with each month’s payment while accumulating in a separate account.
To Bob’s point – I’d rather have the liquidity (above my normal rainy day account which I just keep rolling in a few CD’s) for the unknown until I commit to selling the condo and putting down roots for another 10-15 yrs. For those keeping score at home, I’ll have been in the 2/2 for over 7 years when moving.
I’ll most likely accelerate mortgage payments on the new place though. I’m simply waiting for DZ to purchase so I have one less family to compete with for a green zone, good school, nice place property.
Woah I need to proofread before I hit submit. It should say “I’m struggling with the decision (to pay down or not to).” not that I’m struggling! woops.
Clio – yeah LA property is nuts but you have to drive everywhere, and you’re dealing/competing with a good deal of well off folks even outside of the entertainment industry. I’m looking forward to your next visit to Hong Kong to relate back on a 1500 sq ft 2/2 price there.
Jmm, for once I agree with you, and not bob. Paying off a mortgage is so financially prudent. Some people think that because the money is so cheap there is no sense in paying it off, but debt is debt. You can’t build wealth with debt.
Clio for a primer on souther cali real estate spend an hour reading. Doctor housing bubble. Great hilariuos resource.
“debt is debt.”
Yeah and its debt with a contractually defined interest rate over the life of the debt. Its a quantifiable liability with no uncertainty. Just as the reward checking account is a quantifiable asset with a yield: the account is FDIC guaranteed. Its only a mathematical exercise.
The thing is the paperwork shuffle makes it not worthwhile for most people. Check out Fatwallet.com though a lot of the regulars there make it a side job to yield and deal chase. The returns are very real to them.
“So you take a teaser rate for 1 year, when in fact you pay down your mortgage and earn that return for the tenor of your ownership (10 years or more).”
You’re very determined to trash reward accounts aren’t you? Fine, if you can only do one thing or the other, pay off the mortgage. But many people can do both. I did — and I’ve benefitted from my so-called “teaser” rate for nearly two years now.
And in other news I am seeing killer deals in the burbs come onto the market.
Just today a 4 bedroom, 3.5 bath, 3 car garage home of relative recent construction (past 12 years) came out listed in Naperville at 350k. Significantly below current comps.
Methinks if volume is low and the only things selling are at big discounts to what people think their home is worth, then maybe their home isn’t worth what they think afterall.
“I told the agent I was interested in a 2bed/2bath- about 1500 square feet and he said that if I didn’t have at least 1.5 million to spend, I should look elsewhere. This goes back to our discussion about how so many people out there REALLY DO have a LOT of money. It is unbelievable – we are talking about thousands of houses. So maybe the economy isnt as bad as we thought.”
Yeah- no offense- but you looked in 3 neighborhoods that are fairly small and are among the most expensive zip codes in that entire region. Did you see the thousands of homes in South Central LA too Clio? I don’t think so. The percentage of people who can afford those homes is incredibly small.
It’s like going into Tiffany’s or whatnot on Rodeo Drive and saying, “wow- there are shoppers in here. The economy is humming right along.”
And, actually, if you ever watched that reality tv show on Bravo about the 3 LA real estate agents- you would see what the recession was doing even out there. Sure- the prices were still high- but they had several people on that show last season who HAD to sell (could no longer afford it), were taking massive losses and at least one guy who was about to be foreclosed on in his multi-million dollar home.
Just as many people in debt in the Hollywood Hills as everywhere else.
O.K., hold on a second, I was just in a Clio-induced thought of L.A. And then Bob goes and references Naperville.
Good grief. I try to limit my miserable trips west (other than to the airport) to no farther than Bucktown/Wicker Park, and that’s just for the dining. Naperville? Either buy in a decent part of the city or move to Oak Park, Evanston or the north shore burbs (and if you’ve landed some great deal on a near-mansion in the likes of LaGrange, etc., good for you – but you’re an outlier). Otherwise…well, there is no otherwise. There are quite simply many other places in the country to put down roots.
And Clio: L.A. is, as much as I hate to say it (as a former NYer), awesome.
Anonny: I’ve honestly never heard LA described as awesome, even by folks that live there, except for the weather. Wow is that awesome by itself. So, I’m sorry that I’ve missed the cool aspects when I’ve been there for work or fun.
“Otherwise…well, there is no otherwise. There are quite simply many other places in the country to put down roots.”
What’s the difference between Naperville and, say, Lincoln Square if you live in the historic Naperville downtown area?
1. Potbellys: check
2. Hugo’s Frog Bar: only in Naperville (though the city location is, of course, on Rush Street)
3. Starbucks: check
4. Mia Francesca: numerous city locations and Naperville: check
5. Rosebud: (just had a fire in Naperville but there for years) and also numerous locations throughout the city: check
6: Lou Malnati’s: naperville and River North: check
7. Sullivan’s Steakhouse: Naperville and River North
8. Catch 35: Naperville and the Loop
What about these?
Five Guys and a Burger
Bar Louie
Flat Top Grill
Don’t know which neighborhood has those? Yes- downtown Naperville!
Oh- don’t like “chains”- then there are plenty of homegrown restaurants in downtown Naperville same as in Lincoln Square or any other Chicago neighborhood, Oak Park, Evanston, or LaGrange.
True- if you’re not in the downtown area- THEN it’s a different story. But plenty of homes to choose from downtown – and you might be able to walk to the Metra too (just 25 minutes or so on the express train.)
Naperville is the fifth largest city in Illinois. It’s easy to say it’s ALL devoid of culture. That’s absolutely not true.
“Culture,” sure (and given the places you’ve cited – Potbelly’s! – who could doubt its cosmopolitan charms?).
But I would submit that what makes Chicago a true contender against the likes of (i) NYC or LA, (ii) DC or SF, (iii) or Denver, Atlanta, Seattle, San Diego or Boston (I’m roughly categorizing the other three general groups of larger cities worth living in throughout this country; it’s debatable whether Chicago belongs in the first or second), is the lake. Period. The Loop, M. Park, the Mag Mile, the near north, and the north shore – basically everything from Hyde Park to Lake Forest – are all punching at or above the international weight class of awesomeness, and that’s largely due to their proximity to the lake. Once you stray beyond those areas, well, I realize there are plenty of nice communities and certainly worse places on the planet, but count me out as a potential 30+ minute commuter from such places just to eek out a living and then die.
That’s different then. So you would rule out Wicker Park, Bucktown, Lincoln Square, Wildwood, West Lakeview or West Lincoln Park etc. etc. None of those locations are anywhere near the lake.
And if you’re only within a few blocks of the lake- then that is your own preference. But most people don’t live within that radius – same with those in San Francisco or in LA (how many have views of the water or of anything remotely interesting in, say, San Francisco? They do not.)
But yes, if your life revolves around the lake, then there are plenty of miles of shoreline in which to live.
The lake in the winter totally sucks and the bitter cold winds that flow henceforth frreeze the soul. The first frosts arrives in two weeks folks!
The lake in the winter is awesome and inspiring. The best sunrises take place in the winter, especially when there is a fog coming off the water. I’d post some pictures if I could.
I nordic (x-country) ski whenever there is snow on the ground. Only rarely is it too cold or windy to be out at the lake.
Totally agree about the lake… we’ve had friends from Europe (Croatia, Belgium, France) visit who were absolutely amazed (“This is not lake! How this is lake?! This must be sea. Beautiful! Beautiful!” Haha)
And yes downtown Naperville is cute, but augh, the sub-divisions, I HATE subdivisions! Every single house is khaki, and looks exactly the same. I had a friend move there who told everyone she was moving to Chicago… um, that is not Chicago in my opinion. If you can drive in a town and it could literally be anytown, USA… well, it’s not for me. I do see however that for someone who works in the city, wants a big house/yard and good schools could live there. Someone who doesn’t really care about character or charm, but it does make sense for some.
Sad day for Streeterville: No more Boston Blakies
What makes Chicago unique is the Lake. Period.
That’s not to say that Logan Square and other neighborhoods don’t have their own appeal just like the boroughs in NYC or the different areas in Boston DC Philly, et. all
I love the lakefront trail and the beaches, but I was in Chicago all last week and I have to tell you, I never made it out to the lake once, but I was never bored AND I didn’t have enough time to do everything on my list.
Chicago is unique to me because of all the different neighborhoods, the architecture, the el, the city’s walkability and its friendly, mellow residents. You don’t have that poseur factor to the extent that NY or LA does. You have amazing street style and music and people watching. House music came from Chicago! A lot of hip hop and indie bands come from Chicago. The city is their inspiration. You’ve got all the sports you want. You’ve got a ton of cool bars, clubs and restaurants. Plus you’ve got that juxtaposition of pretty victorian homes next to heavy, gritty industrial areas. I like and appreciate both. It makes me nostalgic for my childhood in Toronto. Toronto has a similar setting, but Chicago is just so much sweeter than Toronto, you know? It’s diverse, but unlike NY, it’s very American in its underlying flavor, whereas NY has a more “international” feel. The Eastern European influence is also undeniable. I think your history is so interesting, and you can feel the ghosts from the stockyards and the abandoned factories when you walk around the Southside. It’s romantic to me.
What can I say? I LOVE Chicago! I even like it in the winter. The winter is not bad as long as you dress for it. You absolutely need a warm hat, warm waterproof boots and a down jacket and you are fine.
chichow on October 1st, 2010 at 5:03 am
Sad day for Streeterville: No more Boston Blakies
______________________________________________________
Oh the humanity! First CND Gyros and now this? NOOOOO!!!
“House music came from Chicago!”
house born in the chi, but left when it became a teenager 🙁
well at least our mayor recognized it and gave us a day plus i think frankie knuckles has a honorary street somewhere.
I guess its cool to be jaded about Chicago if you live here.
This city does suck (in the winter), until you move somewhere else and realize just how awesome it really is.
A lot of my city friends have moved and they all hate where they live now (San Diego, LA, Orlando, KC, STL, Charlotte, da burbs.. etc.) and then theres my friends from college who moved back to palatine or mt. prospect (ewwww) and are freaking miserable. I feel bad for them honestly.
and also the underground hip hop scene in my day was really sad, seriously how did E.C. Illa get a contract?
My boyfriend lived in Chicago temporarily for work last year. I tried to sell him on the idea of a permanent move for both of us, but he said no. He is from Green Bay originally and all he thought about growing up was escaping the Midwest. He lumps Chicago in the same category as rural Iowa. It has negative connotations for him and I think he writes it off without really giving himself a chance to like it. Added to that, some of his NY friends are poseur DBs who when they visit CHI just talk about how it doesn’t measure up to NY. He feels like moving from NY to Chicago would be akin to failure. He doesn’t understand my enthusiasm. He’s like, “It’s not like we live somewhere boring. I don’t know why you like it there so much.” But I fell for CHI quite hard the first time I ever saw it! I love NY, but I’m from the Midwest too and I have no issues about it and I would love living in CHI too.
I like NYC. I liked working in NYC when I had a per diem and/or expense account and was commuting from Chicago – short flights that leave every hour
NYC has so much more than Chicago in terms of Arts, Sports, people of all ethnicities mingling et. al, but the HASSLE quotient is sooooooo much higher.
I liked working in NYC. I prefer living in Chicago.
And that whole living with new yorkers thing… thats a huge negative in my book. As big of DB’s as some Chicagoans are, that’s like the minimum level of DBaggery you’ll find in NYC
“To Bob’s point – I’d rather have the liquidity (above my normal rainy day account which I just keep rolling in a few CD’s) for the unknown until I commit to selling the condo and putting down roots for another 10-15 yrs. For those keeping score at home, I’ll have been in the 2/2 for over 7 years when moving.”
Liquidity = spendable cash. People are weak and will spend what they have in the bank. Granted everyone posting here is a financial wizard and the smartest real estate investor of all time, but for most people, its forced savings and a very nice return.
It depends where you live in NY. Manhattan? OK, maybe. upper east side overlooking the park? Sure. Williamburg with the hipsters – hell no. Live in ossining with betty draper? I may as well move to st charles – same town, different river.
New York is a great place if you are making Jamie Dimon money. My bro’s $770k one BR in Brooklyn is nice, but with City taxes and 6% state income tax, it just doesn’t make sense living there unless you are raking in serious coin. chichow – I disagree on NY sports. NY’s pro football teams play in Jersey and it’s a pain to get to the games. Plus, NY is very far from the heart of the Big Ten, nothing beats being a few hours drive from many historic Big Ten football venues. College football >>>>> pro football. Maybe if you consider the Nathan’s hot dog eating challenge a sport, NY is better for sports.
“Maybe if you consider the Nathan’s hot dog eating challenge a sport, NY is better for sports.”
But who can pass up the Rangers and Knicks and Isles and Nets and Mets? Okay, you’ve got the Yankees, but if you didn’t grow up as a Yanks fan, it’s like rooting for Microsoft w/o owning stock in the company.
Ny has this air/vibe/over all awesome magic about it absolutely wonderful until you talk to more than one NYer and realize these would be your neighbors, your kids friends parents, coworkers and these people you would have to be around 24/7.
and that why i love the midwest, the fat overweight friendly family oriented people.
“the fat overweight friendly family oriented people”
This is the biggest smile of my day – thanks! I always say that if we moved to LA or NY I’d never be able to eat real food again.
chichow: “NYC has so much more than Chicago in terms of Arts, Sports, people of all ethnicities mingling et. al, …”
I disagree with that statement, particularly regarding the performing arts. In the summertime, I have the option of seeing 2 world class orchestras perform in outdoor venues: Chicago Symphony Orchestra at Ravinia and the Grant Park Orchestra at Pritzker Pavilion. The first costs $10 for lawn and the second is free.
Meanwhile, the New York Philharmonic spends their summers in Aspen. There is no comparable venue to Pritzker Pavilion in NYC.
Let me add that I’m torn about my plans for tonight. It’s either the season opening of the Lyric Opera (Verdi’s “MacBeth”) and the CSO (Mozart/Haydn).
I lived in NY (East Village). I actually spent a couple years working as a real estate broker, so I got to know the various parts of Manhattan fairly well.
The biggest mistake I would make after living there was to compare it to wherever I was, which is something I think a lot of New Yorkers do (because they think NY is the center of the universe). The fact is, there’s nothing like it anywhere, especially in this country. But once one stops comparing NY to Chi, and realizes it really is apples to oranges, I feel that Chi beats NY as a place to live for the long haul, for all of the reasons stated by others in this thread (though I’d encourage anyone to live in NY for at least a short while).
That said, NY does win on a few specific points: (i) the subway beats the el; (ii) one needn’t go more than a block or so to get a good slice of pizza; and (iii) there are so many great places within train/driving distance, e.g., the ocean, VT ski areas (by no means the Rockies, etc., but certainly better than the midwest), etc.
I’ve been to NYC about a dozen times, and have always had a great time. I’ve walked the entire length of Manhattan down Broadway (from the Cloisters to Battery Park), and have biked in all the boroughs (except Staten Island).
I love it there and will always find a reason to visit.
It is just too difficult to live there on a middle class salary. The prevalence of the financial industry in NYC, with their distorted wages and benefits, would make it impossible for a salaried professional to compete for spouses or real estate.