Market Conditions: NYT: Can Housing Still Be a Nest Egg?

Maybe the New York Times has been reading this blog because today it is talking about what to expect from housing over the next few years and decades- a topic we’ve been bandying about recently:

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”

Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.

“People shouldn’t look at a home as a way to make money because it won’t,” Mr. Baker said.

We’ve also been chattering about accidental landlords, many of whom are waiting for prices to “come back.”

How long will they be waiting? According to this article, a long, long time.

“The experience we had from the late 1970s to the late 1990s was an aberration,” said Barry Ritholtz of the equity research firm Fusion IQ. “People shouldn’t be holding their breath waiting for it to happen again.”

Set against this dismal present and a bleak future, buying a home is a willful act of optimism. That explains why Adam and Allison Lyons are waiting to close on a $417,500 house in Deerfield, Ill.

“We’re trying not to think too far ahead,” said Ms. Lyons, 35, an information technology manager.

The couple’s first venture into real estate came in 2003 when they bought a condo in a 17-unit building under construction in Chicago. By the time they moved in two years later, it was already worth $50,000 more than they had paid. “We were thinking, great!” said Mr. Lyons, 34.

That quick appreciation started them on the same track as their parents, who watched the value of their houses ascend for decades. The real estate crash interrupted that pleasant dream. The couple cannot sell their condo. Unwillingly, they are becoming landlords.

“I don’t think we’re ever going to see the prosperity our parents did, but I don’t think it’s all doom and gloom either,” said Mr. Lyons, a manager at I.B.M. “At some point, you just have to say what the heck and go for it.”

Your Home as a Sure Nest Egg? That Era is Over, Analysts Say [New York Times, David Streitfeld, Aug 22, 2010]

137 Responses to “Market Conditions: NYT: Can Housing Still Be a Nest Egg?”

  1. Macromarkets surveys 109 economists every month for their home price outlook. The mean prediction is a cumulative 9.5% over the 5 year period ending in 2014: http://www.macromarkets.com/recent_news/press_releases/2010/20100720_housing-survey.pdf And most of that is to happen in the last 2 years. Seems realistic to me. Waiting for the market to make some big comeback is going to lead to some serious disappointments.

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  2. Economists sure are an optimistic bunch. If I had to predict id probably say that 9.5% appreciation between now and 2014 is not realistic. If the market ends up wigh a -19:t% depreciation in the next four years I think that’s an acceptable and reasonable position to be in. Hell; we’re going to be down 9.5% by this time next year! Wait until sales stats get released later this week. Some are predicitng double digit months of inventory and 10-15 year sales volume lows now that the tax credit has expired. What is that going to do to prices? Factor in the 50% of HAMP modifications that fail and we’re looking at years of inventory still not even released into the pipeline.

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  3. And we all know how accurate those “economists” typically are, Gary. How many of them spotted the housing bubble? None. How many of them called for the 2008 market crash? None. How many of them have been saying we are well into a recovery? Loads. Most are paid shills – complete hacks.

    9.5% is a pipe dream.

    Most Boomers are broke and are downsizing. We are also in a long term period of global wage arbitration.

    Housing will not outpace inflation until it reverts to it’s 100 year average – and we are a long way from that.

    http://www.ritholtz.com/blog/2009/07/update-case-shiller-100-year-chart/

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  4. Chicago sales for July were down about 6.1% from last year. The vacuum left by the tax credit is finally revealing itself. I have no idea why they wait so long to “release” them.

    Anyway, a lot of people saw a housing bubble. I think more economists are now more realistic. Home prices are well within the historic trend line and in Chicago 14% below the trend line. 9.5% nominal increase over 5 years is not that rosy of a picture.

    Home prices in Chicago have only fallen 1.4% in the last year, having recently rebounded in the last month or two.

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  5. I live in a River North high rise with my rent being subsidized to the tune of $1,000 a month by an accidental landlord. He closed on this place a few years ago, probably hoping to flip, but rents it out in hope of waiting out this “temporary” slowdown.

    Meanwhile, nearby just-completed high-rises have slashed their prices 30-40% from their pre-build prices in 2008. If I would have bought a similar unit there to what I rent now, I’d be $120,000 upside down already.

    Yep, a renter like me is just throwing money away. I need to be more SAVVY.

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  6. “People shouldn’t look at a home as a way to make money because it won’t,”
    Unless you are able to buy a distressed unit with cash, (no mortgage or loan) that is in need of a complete rehab/remodel AND you have sufficient capital to take this huge risk, as a sale is NEVER guaranteed, it has always been a very risky position to take. This has always been my thoughts on this matter even when the market was stable. Since I stated posting here on CC, this has been exactly my thoughts and I have always stated this.
    Even during the height of the market when everyone and their mother claimed to be making money in this industry, it was simply not worth the risk. It has taken a disaster of this magnitude to make people finally realize how true this thought is.
    Buy ONLY for the purpose of long term shelter and nothing more.

    “A home will return the money an owner puts in each month, but will not multiply the investment.”
    This too has always been my thought even if the only return on the investment comes in the form of the security that comes from owning your own home.

    With the total disaster that has transpired in the past year +, and the financial ruin that has happened to both lending institutions and owners/buyers themselves, we hopefully will see the entire house buying process (and housing prices) returning to a more simplified and basic one as it was during the 50’s and 60’s. Of course it has been a painful lesson to learn, I am happy about the ‘back to basics’ outcome that has emerged.

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  7. What do you all think of new owners who are currently underwater going to rent to own scenario with the owners providing the financing for the first three – five years?
    This has been brought up to me by a few of my long term tenants who are hesitant to enter the market in the traditional way. A portion of their rent (or an additional amount being charged by the owner) would go towards the downpayment. Another thought that I have been playing with is that after an initial downpayment and a showing of their solid financial standing, I would provide the entire financing leaving lending institutions out of the picture entirely. I know in the past I have financed three homes for lower income families and they all turned out to have a positive outcome.
    Will this idea grow in popularity?

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  8. The Schiller chart is interesting. I’m not sure a 100 year average is appropriate as you see a major shift starting in the 50’s. Even using the 1950-1980 time period as the modern norm, the index should average out around 110 vs. the 140 we’re at now, which would indicate a 27% further drop to come. That combined with a soft economy generally makes for a dismal short term outlook. However once that all stabilizes, home values keeping up with inflation still makes housing an excellent investment. At 20% down, making 5x the inflation rate as a return on equity is a good deal. Peopl just got greedy and the pendulum swung in the opposite direction. The question is when does “normal” return.

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  9. “Chicago sales for July were down about 6.1% from last year. The vacuum left by the tax credit is finally revealing itself. I have no idea why they wait so long to “release” them.”

    The “official” numbers are out tomorrow from the IAR. If it’s down only 6.1% that’s not too bad given what has been going on in other areas around the country (such as the Bay Area being down 20% year over year and the slowest July in 15 years.)

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  10. Westloopelo, I currently rent and I would be receptive to the rent-to-own or seller financing as a buyer. Not sure what the upside is for you as a seller, other than being able to get out of a long-term accidental landlord situation, but as a buyer, the lower risk is appealing.

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  11. The upside for me as a seller would be one less rental property that I would have to maintain as all maintainence costs would be shared or would be the responsibility of the tenants/owners. I entered this industry years ago with regentrification of neglected urban neighborhoods as my focus. After years of this very risky side of the industry, I left it to do only rehabs in already established and solid neighborhoods after realizing all of the obstacles put in place that worked against us…landmarking properties being the leading cause of so much frustration.
    If I were to do owner based financing again, I definately would not be making the same profit margins I do as a renovator who sells in a healthy market, but I would return to a position of assisting individuals who otherwise would not be able to buy in a conventional manner.
    To me, I view it as a win – win situation. I would unload rentals that were ‘supposed’ to sell and at the same time I would be assisting families realize the dream and security of home ownership. Of course it would be a lower profit set up, but I would be returning to my ‘roots’ of improving neglected hoods while assisting families obtain affordable housing.
    I had semi-retired a year ago, then we realized the market for renovations on higher priced properties for buyers who did not want to or could not sell their present homes, but who still wanted a ‘new home’ feel.
    While I still enjoy the work we are doing now, I feel as though there are other ways to occupy myself while maintaining a positive cash flow and helping families to realize their dream.
    So yes, this is something I am seriously considering doing on the many rentals I have now…I just don’t know if many buyers would be interested in going this route.

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  12. I agree with the sentiment regarding housing tracking inflation. If you look at the CPI (http://www.bls.gov/cpi/), we have hit a period of low or non-existent inflation. Record low mortgage rates, high unemployment, and huge debt overhang means we have very little housing upside.

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  13. I’d like to throw something out to the readers on this site. I am a recently graduated professional with a live-in girlfriend (who graduated at the same time with the same professional degree) whom is likely to get married in the next few years. I currently rent but have a strong desire to get into the market while prices are low and interest rates are favorable. I’ve furiously saving (although I’m generally a frugal person) for a down payment for a few months and have been actively monitoring sites like this and researching on sites like Zillow and Redfin to get perspective on neighborhoods and comparables so that when the time comes, I have an eye for value. I’m curious what the readers here think will be a good time to get into the market? I recently re-upped my lease at the beginning of August but am not sure if I’ll have enough down payment at that point (I imagine having about $30k at that point between myself and my girlfriend). Do you think that will be a good time to get into the market?

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  14. “the index should average out around 110 vs. the 140 we’re at now”

    Who’s at 140 now?*

    As of May, Chicago was at 121.9 (off a Mar-10 low of 119.7) for SFH and 128.16 (off 118.6 in March) for condos. and the National q1-10 number was 131.8.

    *Yeah, LA, SD, DC, NY, Sea, PDX. SF and MIA (!) are still ~145.

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  15. I recall someone posting a graph that showed a line chart that plotted the value of US housing debt outstanding vs the value of US residential equity, which basically showed that Banks own more housing than people do. Does anyone have that link handy?

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  16. Kevin – get in sooner than later but do not exceed your limits and plan to stay for at least 3 years. There are many deals to be had.

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  17. I think 3 isn’t long enough, I’d suggest 5 years, minimum – or at least be prepared to eat some closing costs if your goal is to “upsize” due to having kids, etc.

    btw, the *only* guy who accurately called the bubble bursting was Kevin Philips:

    http://www.latimes.com/entertainment/la-et-rutten16apr16,0,4634814.story

    And his book barely made into print in time to be ahead of the curve.

    “And we all know how accurate those “economists” typically are, Gary. How many of them spotted the housing bubble? None. How many of them called for the 2008 market crash? None. How many of them have been saying we are well into a recovery? Loads. Most are paid shills – complete hacks.”

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  18. “plan to stay for at least 3 years”

    I’d say plan to stay 5-7 years, not just 3 – especially if you buy witin the next 9-12 months

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  19. IMHO realestate will be dead for years…. I think you need to stay at least 10-15 years. Also Kevin if you and your future wife are planning on having children, make sure the place you buy is family ready.

    If you are really looking for a return on capital, I would place your money somewhere else.

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  20. Don’t listen to them Kevin, plan to stay for 3. It’s extremely difficult to plan for 3 (let alone 5 or 15). Start by searhing REO’s and short sales – allow yourself time – but if you find a good one, pull the trigger.

    Only you can decide what a place is worth. Don’t pay attention to any estimates or BS like that, a place is worth what you are willing to pay — and of course, what the guy after you is willing to pay (hopefully more than you!).

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  21. “we have very little housing upside”

    9.5%–nominal–over 5 years is very little upside. It’s 1.83166% per year, which would be the lowest 5-year run of inflation since 61-65.

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  22. Kevin, buying and holding for 3 years will almost guarantee you a loss at closing. If you can’t plan for a 10 year period then you probably should not buy a place.

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  23. Kevin,

    The biggest factor right now is mortgage rates are at stupid levels not seen in decades. That’s what you’re trying to time more than anything. I don’t think housing prices are going to move much in the next 12 months up or down. However, mortgage rates could move a lot. For the first time there is a real possibility they will dismantle Fannie and Freddie – not soon enough in my opinion. That could really spike mortgage rates as well as just a general increase in interest rates.

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  24. Gary, you are correct regarding mortgage rates, but if your not going to live there for an extended period of time it doesn’t matter.

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  25. Diversify your investments… your home certainly should not be your only or main nest egg, just like Social Security shouldn’t be your only nest egg. Good luck boomers

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  26. I appreciate all the input. You guys have had some interesting thoughts, which is why I decided to ask this forum in the first place. To address a couple of the issues that have been brought up. I feel confident in my ability to minimize the closing costs on any place I purchase (except for perhaps the banks fees); my girlfriend and I are both recently graduated attorneys, with her doing real estate work. She has several contacts with title search agencies, banks, inspectors, etc. that are willing to do things for cheap in order to continue getting business from their firm (at least, they’ve done so with other attorneys who work there). In addition, because of our careers, we do not plan on having kids any time soon or even getting married for about another 2 years. In addition, she has access to MLS so we may try to avoid using a realtor. My ideal place is in an established neighborhood that is large but has room for improvements (i.e. kitchens, baths) that I can do as our incomes grow (I’ve done a condo renovation before law school and have restored several cars, so I’m pretty good with my hands/tools). Just a little more background. I appreciate the advice thus far.

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  27. Kevin,
    As said before, figure out how long you think you’ll living in the new place, how much is that wedding going to cost if you’re paying, when are kids coming, job stability for both of you and how much savings you have. No doubt that you’ll need to be in your new home for years to come so make sure the changes in your future allow that. Also no doubt that now is a good time to find some nicely priced places throughout Chicago with great mortgage rates but I don’t think it’s worth it unless you’re staying put for a while.

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  28. Gary, you bring up a point that noone seems to mention. Interest rates are so low that it is providing support for housing prices. If, and when, rates rise, homes will be less affordable, by definition. This could keep prices from appreciating for a while, all things being equal.

    I too am looking to buy in the next 12 months (26 yo finance professional) but realize that it must be a place I can live in for 10 years if need be. Thus, it needs to be big enough for a wife, kids, etc.

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  29. let’s all be honest here, as long as we’re past the “I’m looking to buy a place and flip it, pocketing some of the profit and upgrading to a larger place with the rest” mentality, folks doing their homework like Kevin will be fine.

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  30. Kevin,

    Before you even think about buying:

    1) Get married; don’t buy with a SO, because if that goes south you’ll be fighting over who gets stuck with the condo;

    2) Pay off some student loans first. Why in the hell would you want to increase your DTI?

    3) $30k isn’t even 10% down a decent SFH within most safe northside areas; you need at least $75k to buy a $350k house. And as of today, $350k listing are mostly dumps in areas where an attorney wuold wnat to live. most of the associates in my office rent. The older ones own of course but the 35 and younger all rent and i’m the only who whose even thinking of buying in the next 24 months.

    4) Unless you’re a big firm attorney (and it doesn’t like it) don’t count on income rising for a good while. Mine hasn’t and most attorneys I know outside of big firms have salary freezes. I work for a mid size busy firm with plenty of work and in the last few years we’ve even hired a few big firm associates who were laid off; but they’re not giving rises to anyone.

    5) Especially if you’re wife is in real estate. DOn’t count on income going up anytime.

    6) Closing costs are negligible, a few grand here or there, compared to a $350k house. saving a few bucks on title insurance or an attorney is totally irrelevant if you can save $50k on a house by waiting a year.

    7) Your law license is not a license to print money . YOu will have a very middle class income for a few yeras. There 3,500 to 4,000 more people behind you, graduating every year between now and 2013, who will work 55 hours a week for $50,000 a year until they get burnt out and find something else to do. It’s a tough tough industry. The legal market is shrinking, daily, and yet there are more and more lawyers. It’s a shame that the ABA has allowed this to happen.

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  31. Hey Kevin-

    Do you remember the joke about the pro se attorney with the fool for a client?

    My advice is to be careful doing RE legal and title work for yourself. . . if you have a good mortgage broker and RE atty, in my experience the closing costs are worth the peace of mind. When a closing gets delayed / falls through, it’s much better to be able to blame (and, if necessary, sue) someone other than yourself.

    Otherwise, I’m with you Skeptic. If you’re a smart, conservative buyer with $, you’ll be fine.

    But if the $30k is the extent of your savings, I would save longer. Remember it’s a horrible idea to put 100% of your savings into a DP– homes cost money, and so does life.

    I’d save up till you can afford to buy and still have plenty of liquidity. . . I agree with others here, your worst case scenario over the next 12 months is high rates, not higher prices. You’ll probably get additional inventor, too. . .

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  32. “let’s all be honest here, as long as we’re past the “I’m looking to buy a place and flip it, pocketing some of the profit and upgrading to a larger place with the rest” mentality, folks doing their homework like Kevin will be fine.”

    But, for anyone younger than mid-30s, the last time that was *not* the mentality, they weren’t thinking about buying real estate. And the conventional wisdom of that long-ago time isn’t as ingrained as it was–my baseline is still the idea that you need to live in a house for ~7 years to break even on the entrance/exit/financing/moving costs. Anything less, you should expect to lose money, at least in real dollar terms.

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  33. Kevin:

    You can’t get around transfer taxes title insurance, etc.

    I also think it is very difficult to time peaks and bottoms.

    I personally was looking to purchase a property, but opt’ed not to because the type of property and the market in general combined — I personally thought I was looking at a 15 year commitment and I didn’t want to tie up that capital and put down the roots for 15 years.

    On the plus side as Gary says: mortgage rates are Insanely low. I’ve taken advantage with a re-fi.

    On the neg side: housing (IMHO) isn’t going to go anywhere for a while. So whereas some may say 3-5 years is ok to hold onto a property, I am thinking 8+ years to hold onto a property.

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  34. Kevin:

    How would you like to be these people? they’re in the same business and you and I. just a few years out of school and they had to get the expensive fancy house in a hip area; now two years later they’re totally underwater and listing the big fancy house for less than what they owe.

    And trying to sell two years later too. Wow that must suck. They can kiss most if not all of their hard earned $80,000 down payment good bye.

    http://cribchatter.com/?p=9012

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  35. “now two years later they’re totally underwater and listing the big fancy house for less than what they owe. ”

    Dude, check your facts–they owe somewhat less than $750k and it’s listed for $829. No need to make it worse than it is; it’s already bad enough for them.

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  36. Kevin:

    Great advice. I’ll repeat what HD said: do not purchase until you are married. Much too chancy. I can’t believe the number of young couples on HGTV purchasing before marriage. At least many of them are engaged,

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  37. anon(Tfo)

    ZIllow and eappraisal, provided at the links at teh bottom of the redfin listing, show a value between $600 and $650.

    Now I take those with a grain of salt, however, that’s a huge discrepancy between what they paid.

    I’m just saying. It’s a lesson to be learned for these folks. Don’t start living like a lawyer until you have lawyer money.

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  38. roscoevillager on August 23rd, 2010 at 9:55 am

    Hey Kevin – The way I look at it for my wife and I is that if we rent we have something that fills our immediate space needs, ie we don’t have to look too far down the road and think about if the apt will be big enough. Now if we buy we have to do a little more thinking, like when we want kids etc. It came down to the idea that on some cases a one bedroom condo would be cheaper than rening a one bedroom apt but buying a 3 bed condo was SIGNIFICANTLY more expensive than renting the one bed. My thought was that we would stay in the one bed an buy when we start trying to have a family that way there would be no huge surprises like not being able to sell and we could build an investment portfolio that would be a cushion in addition to a down payment.

    Bottom line is that if your goal is to have a place to live that you can stay in and you aren’t overspending e best time to get in the market is whenever you’re ready.

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  39. If you do purchase before getting married you will want to legally document what percenatge each of you contributed, should one need to buy out the other or sell when/if the relationship doesn’t make it. You should also agree what your manual labor is worth for any repairs and upgrades. Basically, its a prenup. Hate to be pessimistic – but it happens and its not worth making a break up worse by arguing about how much each of you deserves from the place.

    And all the young lawyers I know are renting – even if they have 20% plus to put down right now (unless they are married and planing for kids soon). Between the market uncertainty for your jobs and school debt, they don’t think its worth the risk at this point.

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  40. “ZIllow and eappraisal, provided at the links at teh bottom of the redfin listing, show a value between $600 and $650.”

    If those are garbage estimates on the way up, they’re also garbage on the way down.

    Also, you wrote that they have it *listed* for less than they owe, which is demonstrably untrue, what I quoted and what I was talking about.

    “Don’t start living like a lawyer until you have lawyer money.”

    They have lawyer money; they want to start living like they have *client* money (maybe not Kev and his so specifically, but the generic “them”).

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  41. “No need to make it worse than it is; it’s already bad enough for them.”

    Sorry I can’t feel too sorry for someone wanting to keep up with the Joneses and buying a cottage in a “hip” hood like Bucktown. Their finances deserve to be crucified. Sorry.

    That’s life: in real capitalism (not the USSA which we have devolved into since 3Q08) the winners and losers are separated by their actions. What I see are two W2 attorneys wanting to live high on the hog and now their life plans of “trading up” their RE aren’t going to pan out. They completely, 100% deserve whatever comes their way.

    Chicago RE prices are going to collapse once the general economy goes into decline. It most certainly will be because its been on government life support for almost two years now. Its easy to see these $1.4T deficits can’t go on forever, or even much longer.

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  42. All the lawyers are renting, all the financial guys are buying.

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  43. I generally agree with Gary, but I not this: “they will dismantle Fannie and Freddie.”

    While the merits of dismantling the two are debatable, doing so in the short term may cause a real problem in the mortgage market. Fixing them might be the best thing to do in the long term, but I doubt any politician would want to be behind this right now. If they were deconstructed it could become difficult to get a mortgage (even more so than right now). That would likely create more downward pressure on prices and reduce short term stability.

    While it’s a reasonable argument to say that Freddie and Fannie should undergo changes for long term progress it seems unlikely to happen with the financial markets running out of steam, a weak housing market, and fears of deflation.

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  44. “Sorry I can’t feel too sorry for someone”

    Dude, I’m not asking anyone to feel sorry for them, just pointing out that saying “they have it listed for more than they owe” is unnecessary because the real facts are bad enough–like why would someone say that the Illinois state deficit for the current fiscal year is $100 billion (a total falsehood) when the actual facts are bad enough without any exaggeration?

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  45. What happened to all the financial guys who bought in 2006 and 2007?

    I say save up as much as you can – make sure you put at least 10% down and have at least a 4-6 month cushion for mortgage payments and assessments.

    Fannie and Freddie need to go away. Who cares if rates go up because of it? It will be for the good of the long-run US economy.

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  46. Rates would shoot up in the short term without Freddie/Fannie, but I am pretty sure it would be better for the overall mortgage market. The free market would drive rates down quite a bit for well qualified buyers in the midterm and underwriting would get much simpler and streamlined over time.

    Banks would start competing fiercely over the most qualified borrowers – high credit, high down payments, income. In additionl underwriting would reflect the qualify of borrowers instead of the overly analytical BS minutae that is now mortgage underwriting since everything is sold the Fannie/Freddie. The market would in fact go back to a community lending model where every file is looked at individually and within the overall context of the credit risk, not simply whether or not a loan can be sold to Fannie/Freddie.

    The least qualified borrowers without larger down payments would be stuck with FHA. However, over time the free market would bring back lower down payment loans.

    If you have any serious dings on your credit, you won’t be buying a house for a long time without Fannie/Freddie or FHA.

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  47. ANo(tfo), sorry, they have it listed for less than the purchase price – not what they owe – i don’t edit my posts much and it’s just comes off the top of my head when I have a moment to post. I didn’t serious mean “less than they owe” because that is obviously wrong, I apologize, I misspoke. If I had reread my post I woudl have caught that. sorry.

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  48. danny (lower case D) on August 23rd, 2010 at 11:22 am

    I agree with SquareD. Even if you are a newly graduated real-estate attorney, you still want to hire someone else to be a third party counsel. Don’t scrimp money for this important task.

    A good doctor will not give himself a physical. He will seek out another doctor for that task. The same should apply to such an important task like buying property. There is too much emotion involved to be your own attorney.

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  49. Anyone bullish on housing ought to be bearish on interest-rates, so they ought to short long-dated treasuries (or get long shares of TBT, an inverse-bond ETF).

    IMHO the private sector has just about “right-sized” their staffing needs, but state & local governments, which comprise 16% of GDP, have only just begun to reduce their headcount.

    http://blogs.wsj.com/economics/2010/08/06/economists-react-the-great-stall-takes-hold/

    So, in reply to the original question, I’d guess that housing prices will turn up at around the same time that unemployment rates have turned lower.

    When will that happen? Not in the foreseeable future.

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  50. What’s a real estate lawyer charge for a typical residential closing, $500? That’s not much more than the home inspection.

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  51. The real estate lawyer will get a taste of the Title Insurance

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  52. Most RE attorney’s charge $500… but some as high as $1000, particularly if you are buying new construction which may involve a little more work on the attorney’s part.

    The absolute worst RE transactions are when the buyer tries to save money by hiring an attorney whose main focus isn’t residential real estate transactions (usually a cousin or uncle). Even worse are when the buyer is a recent law graduate or works at a XYZ Big Law firm and thinks they can do it themselves.

    Most transactions without a buyer’s agent also wind up being a disaster too. Along with getting your mortgage from some random call center at 1(800)mortgage.

    Money is better saved focusing on buying the right property at the right price. All the ancillary services don’t save you much money and often times skimping on them can cost you more.

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  53. “ANo(tfo), sorry, they have it listed for less than the purchase price – not what they owe – i don’t edit my posts much and it’s just comes off the top of my head when I have a moment to post. I didn’t serious mean “less than they owe” because that is obviously wrong, I apologize, I misspoke. If I had reread my post I woudl have caught that. sorry.”

    Just trying to clear the facts–you do have a penchant for exaggerating the bad stuff when it supports the point you’re making (even when it’s unnecessary).

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  54. with anon 100% here. I think how people get sucked into the “game” is that the seller traditionally has paid all the realtor fees – sounds great when you’re a first-time buyer, but if you’re needing to unload, not so great.

    “my baseline is still the idea that you need to live in a house for ~7 years to break even on the entrance/exit/financing/moving costs. Anything less, you should expect to lose money, at least in real dollar terms.”

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  55. “my baseline is still the idea that you need to live in a house for ~7 years to break even on the entrance/exit/financing/moving costs. Anything less, you should expect to lose money, at least in real dollar terms.”

    Though this is completely subjective, your baseline applies only to the average home, at best, and does not include any outliers such as an REO that may already be underpriced by 10% or the buyer who brings more than 20% to the closing.

    The only hard requirement is that if you were lucky enough to receive the 8k Obama credit, then you cannot sell for two years.

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  56. So I haven’t asked a really OT question for a while. Here goes.

    I’m thinking about talking to a developer that has bought a gut rehab place. If I were to reach agreement with him before he has finished rehab, what kind of agreement would I reach with him? A fully spec’d out list of absolutely everything that will be done to the place? (I think that was the suggestion when I asked this in the context of new construction.) How does that deal with contingencies that come up during the rehab and when would I close on the property? Or is some other type/form of agreement more sensible?

    As should be obvious, I know nothing about this. I’m far from reaching agreement with the developer but would like to know where I’m trying to end up and would like to avoid sounding like an idiot.

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  57. @jfmiii:

    “I too am looking to buy in the next 12 months (26 yo finance professional) but realize that it must be a place I can live in for 10 years if need be. Thus, it needs to be big enough for a wife, kids, etc.”

    Have you met your future wife yet? If not, how do you know she won’t hate the place you bought? Some of the features you love may be a deal breaker for her.

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  58. My future wife hates the place I bought. I told her to go back in the kitchen that she hates with the thought that we will make a killer profit when it’s time to sell and then for the next house, it can be a little pink house.

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  59. “Have you met your future wife yet? If not, how do you know she won’t hate the place you bought? Some of the features you love may be a deal breaker for her.”

    Just another reason to rent until you are in family formation mode. Only during the bubble was it feasible for people to trade up their bachelor/bachelorette pads on their way to family living after spending a few years there.

    RENT the bachelor/bachelorette pad. BUY the house when kids come along.

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  60. Orrr….buy the bachelor/bachelorette pad, sell whenever your feel the time is right, make a profit, invest the profit and put the kids through college.

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  61. @A-Fed:

    “I told her to go back in the kitchen that she hates with the thought that we will make a killer profit when it’s time to sell and then for the next house, it can be a little pink house.”

    Killer profit? Uh-oh, something tells me that she will be stuck in that kitchen for a very long time.

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  62. Linda – please tell me that was humor-based? Absolutely hilarious. 🙂

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  63. “Do you think that will be a good time to get into the market?”

    No one has a crystal ball. Only buy if your time horizon is 7+ years. Otherwise rent.

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  64. Stop giving bad advice like that you must stay in your place for 7 years or else. If you have a decent job, money, etc…BUY BUY BUY and you will make plenty of profit.

    IT IS A VERY GOOD TIME TO GET IN THE MARKET.

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  65. Additionally, renting at 2k/mo for 7 years is a great idea!

    A great idea to piss away more than 150k… when you could buy right now and have that place paid off in 10 years.

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  66. “BUY BUY BUY and you will make plenty of profit.”

    I think most of us just have to respectfully disagree. I don’t think that anyone buying right now will guarantee a profit in 3yrs.

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  67. 7 years ago, in 2003, who would have guessed that property prices would (generally) be the same today as they were then?

    I’ve seen homes bought in 2003, listed in 2010 for the 2003 purchase price – and no sales.

    They mostly delist on the MLS after 6 months of no interest.

    Think about that for a second…..7 years ago people bought and cannot sell for the same price today.

    What in the world makes anyone here believe that things will be different during the next 7 year period?

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  68. I can guarantee a profit in two years. I know several people who can GUARANTEE that they will make at least 50k on the place in two years. Why? Because they were patient enough until they found an REO suitable for their needs to turn a profit and did not exceed their limitations.

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  69. Homedelete – I think things will be different so I’m willing to take the chance. If it pays off, it will pay off big. That offset is enough for me to take the chance instead of definitely loosing while renting.

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  70. Actually, I see lots of homes selling for the 2003 price. The ones that aren’t selling were generally not well maintained over that time period or the neighborhoods were marginal. Depreciation can be a real killer can’t it?

    But the “+” in there is meant to assuage doubters such as yourself. Besides, unlike someone with a stagnant chancery lawyer salary, these kids will probably be making doubt what they do today in 7 years.

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  71. danny (lower case D) on August 23rd, 2010 at 1:43 pm

    No one can guarantee anything. That’s silly talk.

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  72. silly talk is giving advice to rent for 7 years.

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  73. DUH, buying an REO, fixing it up and reselling in a few years is probably the only way to make a profit lately. That’s like saying the sky is blue.

    JMM: Off the meds again? Hung over from a rough night of Sunday drinking? What’s your problem again? Did your father withhold your trust fund payment again this month?

    “#A-Fed on August 23rd, 2010 at 1:33 pm

    I can guarantee a profit in two years. I know several people who can GUARANTEE that they will make at least 50k on the place in two years. Why? Because they were patient enough until they found an REO suitable for their needs to turn a profit and did not exceed their limitations.”

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  74. “these kids will probably be making doubt what they do today in 7 years.”

    Talk about a Freudian slip!

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  75. Who said anything about fixing it up? Everyone always associates an REO with damaged property…keep renting you people.

    And no, that is not the only way to turn a profit. Look at the the post around this where the buyer sold for 166k over pruchase price. Look at the post from last week with the condo that sold for 50k or something above orig purchase price.

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  76. Who said anything about fixing it up? Everyone always associates an REO with damaged property…keep renting you people.

    And no, that is not the only way to turn a profit. Look at the the post around this where the buyer sold for 166k over pruchase price. Look at the post from last week with the condo that sold for 50k or something above orig purchase price.

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  77. I would agree that buying an REO would be a good way to turn a profit, but you must accept the risks of such a purchase going in. Also, you will need to be comfortable doing the renovations, which most likely would be necessary. Need to be cautious with these purchases and know what you are doing. I wouldn’t advise just anyone to buy one of these.

    Absent an REO, where would a good opportunity be? I’m at a loss for ideas, as things seem to continue to spiral downwards.

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  78. What renovations? There are soo many freakin places that the banks have on the back burner in absolute perfect condition as well as plenty on the MLS.

    Maybe YOU may want to re-do the kitchen or whatever because you will save a bunch on the REO and have cash left over, but it is not needed by any means for some places.

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  79. In fact, if you do put money in, you are probably going to increase the value of the home anyways so it’s win-win.

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  80. So you are saying a good proportion of REO’s are in move-in condition? I just want to caution potential buyers that a decent amount of REO’s will require some rehabbing/renovations. It does help that the price is lower, but the buyer would need to come 100% out of pocket potentially.

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  81. All of the REOs we’ve seen in out target area were in terrible shape. Even some of the short sales were not worth considering

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  82. “Actually, I see lots of homes selling for the 2003 price. The ones that aren’t selling were generally not well maintained over that time period or the neighborhoods were marginal. Depreciation can be a real killer can’t it?”

    I think there is something to this, definitely. I’d bet there are a lot of people who are just now awakening to the reality that their fantastic house without central air and in need of major repairs isn’t going to be bought as a tear-down/purchased by someone with deep pockets who wants to rehab and flip it.

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  83. Maybe not a good proportion but rather, the good REO’s are in move in cond’t.

    The buyer will not have to come 100% of out pocket btw, that is a false statement its completely up to the agreement with the bank. I will agree to be very carfeul when purchasing REO’s, do your homework and you will be fine. Remember, banks cannot sell you an REO if it is not inhabitial condition unless they clearly disclose it.

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  84. Duh, Gary said the buyers put $300k into the property yet it’s listed for only $166k over purchase.

    How is that a profit?

    Is this new math or something?

    “And no, that is not the only way to turn a profit. Look at the the post around this where the buyer sold for 166k over pruchase price.”

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  85. “All of the REOs we’ve seen in out target area were in terrible shape. Even some of the short sales were not worth considering”

    Curious as to what your target area is? Is it the brown line corridor like everyone else? If so it would reinforce my belief that while much of the city is becoming more affordable, the “hot” areas aren’t, for the most part.

    People aren’t going to get a turnkey SFH on the brown line corridor with all modern amenities for under 500k, I just don’t see it happening, except near the Kimball stop.

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  86. Again, that’s like saying the sun will rise tomorrow. Tell me something I don’t know. That’s why they’re called “GOOD REO’S” because the BAD REO’S are not in move in condition.

    “Maybe not a good proportion but rather, the good REO’s are in move in cond’t.”

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  87. I meant the renovations could be 100% out of pocket, not the purchase of the REO.

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  88. “Curious as to what your target area is?”

    SFH in Wicker Park or Bucktown, ideally. We aren’t specially looking for a REO or short sale, but have looked at the ones that have the layout we want.

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  89. The hippest ares will not be affordable for regular folks. Not while doctors choose to live in the City rather than Barrington or the north shore, and collectively they leverage their $200k down payment into a $1,000,000+ home with ARM. Happens all the time. Behind every expensive house is an equally large mortgage. HOWMUCHAMONTH.

    “People aren’t going to get a turnkey SFH on the brown line corridor with all modern amenities for under 500k, I just don’t see it happening, except near the Kimball stop.”

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  90. “Behind every expensive house is an equally large mortgage.”

    More pointless exaggeration, HD.

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  91. “SFH in Wicker Park or Bucktown, ideally.”

    This might as well be the brownline corridor for hipsters or those who watch MTV2, so its the blueline corridor. And curiously enough almost all on here are chasing after the same few neighborhoods and want the same thing.

    When you’re talking about the green zone, you just need to realize that certain properties might not fall that much because there appears to be such ample demand for them vs. other hoods that would never even be considered.

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  92. Not pointless or exaggeration. But generally true.

    “anon (tfo) on August 23rd, 2010 at 2:18 pm

    “Behind every expensive house is an equally large mortgage.”

    More pointless exaggeration, HD.”

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  93. I can guarantee a profit in two years. I know several people who can GUARANTEE that they will make at least 50k on the place in two years. Why? Because they were patient enough until they found an REO suitable for their needs to turn a profit and did not exceed their limitation

    A-Fed should change your name to A-Crystal ball-Fed

    There are no guarantees in life. Wait I’ll give you one…..

    I guarantee that buying real estate with your significant other while still in your mid-twenties has a much higher likely hood of failure than if you were buying it by yourself!

    Take that advice seriously and buy it yourself or RENT until you get contractually hitched up. Remember that one of her friends could also handle the other R.E. case. If you ever decide to back out of marriage and want her to just move along.

    If you want to buy something together get a puppy!

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  94. agree with anon. Only in your world HomeAccrue, does the sun never come up and no one ever makes money. Have you ever, just even once, contributed an uplifting comment to this site?

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  95. “Not pointless or exaggeration. But generally true. ”

    Hilarious!

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  96. “Duh, Gary said the buyers put $300k into the property yet it’s listed for only $166k over purchase.

    How is that a profit?”

    maybe its this craaaaaaaazy thing called financing? Damn dude for a lawyer you sure don’t have the ability to think outside of the box very much.

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  97. JP3 – past few propertities did pretty well on with my crystal ball. Making a killing in the stock market too. I heart my crystal ball.

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  98. You’re right to a point, Bob. Prices will remain elevated in desirable areas, just like prime real estate has been expensive all throughout history. A little house within the city walls always sold for far greater money than larger house in the fields.

    However, prices will be reflective of larger down payments and higher incomes. The stratospheric pricing of today will most certainly return to earth, although it will still be out of reach for the proletariat class.

    “#Bob on August 23rd, 2010 at 2:19 pm

    “SFH in Wicker Park or Bucktown, ideally.”

    This might as well be the brownline corridor for hipsters or those who watch MTV2, so its the blueline corridor. And curiously enough almost all on here are chasing after the same few neighborhoods and want the same thing.

    When you’re talking about the green zone, you just need to realize that certain properties might not fall that much because there appears to be such ample demand for them vs. other hoods that would never even be considered.”

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  99. “maybe its this craaaaaaaazy thing called financing? Damn dude for a lawyer you sure don’t have the ability to think outside of the box very much.”

    So, if I borrow $300k, put it in a box and sell you the box (with the $$ inside) for $166k, less transfer taxes and a 5% commission for some jagoff, I’ve made money? If so, I’ll be retiring by the end of the month!

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  100. Kevin, I think HD has made some really good points worth taking into consideration. I am in a similar dating situation. Last year, I decided that that it was best if I just purchased a place on my own, so a lot of potential future problems mentioned would be avoided. Linda made the point that some features of the house I like might be deal breakers for her, and made me laugh because that was true in my case. However, there are more important things in life than walk in closets and tubs. I did work, save, and pay of my student loans credit cards for 8yrs before buying. That being said I do feel now is as good of time as ever to purchase a place with the recent pull back in prices and rates this low, but you need to ask yourself is it the right time for YOU to buy?

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  101. yeah assuming your 166k+transfer taxes + 5% cover your carrying costs of the 300k you borrowed… but then again you already knew that

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  102. New math again.

    1) buy house
    2) spend $300k in upgrades
    3) Sell for less than the cost of purchase price + upgrades
    4) ???
    5) Profit!!!!

    “Sonies on August 23rd, 2010 at 2:25 pm

    “Duh, Gary said the buyers put $300k into the property yet it’s listed for only $166k over purchase.

    How is that a profit?”

    maybe its this craaaaaaaazy thing called financing? Damn dude for a lawyer you sure don’t have the ability to think outside of the box very much.”

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  103. lololol

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  104. I like you Sonies, I do. I’m too much of a smart ass today and I’ve got other things to do.

    Off to the beach, I’ve had enough office face time for today 😉

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  105. But HD your actually right today =)

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  106. “yeah assuming your 166k+transfer taxes + 5% cover your carrying costs of the 300k you borrowed… but then again you already knew that”

    Is the debt fairy paying back that $300k? b/c (assuming Gary was told the truth) I get this:

    Investment = $734k purchase + $300k upgrade = $1,034k
    Return = $900k
    Net gain/(loss) = ($134k), before transaction costs.

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  107. I was joking/being sarcastic… jeez even HD got it

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  108. Heh, I’ve used the Step 1 – Underpants | Step 2 – ??? | Step 3 – Profit! screen grab in presentations before (usually with Step 1 modified, and always to question the projects’ viability).

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  109. “You’re right to a point, Bob. Prices will remain elevated in desirable areas, just like prime real estate has been expensive all throughout history. A little house within the city walls always sold for far greater money than larger house in the fields. ”

    Everyone seems focused on the same pieces of cheese. I’ve found that broadening your criteria just a little and you can have near identical cheese for far less, or double the size of the piece, etc. They key is to not let the cribchatter rats seeking the same pieces of cheese find out about your alternate’s, lest they start bidding up these hidden areas as well.

    There will also be plenty of pain in the green zone areas where the pieces of cheese aren’t the grade A Bavarian ones (ie: SFHs in turnkey condition in undisputed green zone proper).

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  110. “I was joking/being sarcastic… jeez even HD got it”

    Little off today. sorry.

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  111. Bob, The green zone is like the Palatine Hill, in the middle of Rome, far within the city walls of Rome; everywhere else outside may as well be a frontier town subject to the whims of the barbarians. And there is some truth to that. Even where I live I’ve got Avondale and Portgage Park directly next door and every so often a stray bullet or wandering gangfight makes into my area. The green zone is a little more insulated than that. ANd it costs more too and always will. But it will not continue to cost most than the inhabitants can afford to pay. NOt everyone resident who can afford a $650k mortgage on a frame house.

    “#Bob on August 23rd, 2010 at 2:48 pm

    “You’re right to a point, Bob. Prices will remain elevated in desirable areas, just like prime real estate has been expensive all throughout history. A little house within the city walls always sold for far greater money than larger house in the fields. ”

    Everyone seems focused on the same pieces of cheese. I’ve found that broadening your criteria just a little and you can have near identical cheese for far less, or double the size of the piece, etc. They key is to not let the cribchatter rats seeking the same pieces of cheese find out about your alternate’s, lest they start bidding up these hidden areas as well.

    There will also be plenty of pain in the green zone areas where the pieces of cheese aren’t the grade A Bavarian ones (ie: SFHs in turnkey condition in undisputed green zone proper).”

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  112. I dunno dude. On the other thread some bozo just dropped at least 800k on a vinyl sided house. This is the kind of house, where unrenovated, went for around 60k in a former midwest city that I lived in. Yet here, somebody with the means is interested in paying at least 800k for it. Its a strong counterpoint that there is still activity out there, at valuations both you and I consider insane.

    But the market is the market, so..

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  113. all the mathematics are assuming the buyer actually paid 300k of upgrades. Not sure the last time any of ya’ll re-fin’d a house, but 300k??? Not out of pocket. Maybe the reno was worth 300k that the buyer paid 100k for….

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  114. at the risk of sounding like an ignoramous, what is “the green zone” that everyone keeps talking about?

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  115. Neighborhoods that generally are fully gentrified and not really affected by major crime – Lincoln Park, Lakeview, Bucktown, Lincoln Square, etc. Basically, it is the areas where most young yuppies want to live. The term comes from the Iraq war where the media would say Green Zone in reference to the relatively safe areas without insurgents. Can’t remember who on the board coined it, but it stuck.

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  116. “Not sure the last time any of ya’ll re-fin’d a house, but 300k???”

    Depends what they did with the basement space. It’s easy to throw $100k into a hole in a basement and still have a space you can’t live in. They claim “totally redone”, so, maybe. Assessor’s photo shows exterior work being done (rigid insulation) in 2008, so the siding was redone. Appears to have a conforming first and a $125k second.

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  117. “The term comes from the Iraq war where the media would say Green Zone in reference to the relatively safe areas without insurgents.”

    Green Zone was/is the area of Baghdad within the US blast walls. Essentially HD’s city within the walls analogy, which would be why he used it, I suspect.

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  118. thanks for the clarification, russ!!!

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  119. jg,

    Just to be clear, ‘Green Zone’ doesn’t really have to do with crime. It’s yuppie neighborhoods with a preponderance of college-educated white people, who feel most comfortable being around the same.

    Plenty of Chicago neighborhoods have lower crime rates than Lincoln park, but are not considered ‘Green Zone’ because they are very diverse.

    Perhaps “Green Zone’ was originally a tongue-in-cheek nod to the provincialism of people who can’t see beyond 5 or 6 neighborhoods in Chicago.

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  120. “Perhaps “Green Zone’ was originally a tongue-in-cheek nod to the provincialism of people who can’t see beyond 5 or 6 neighborhoods in Chicago.”

    I don’t know if I’d call it a nod to provincialism, but I think the discussion which would ensue from spelling out the alternative would be (a) unproductive and (b) likely to be deleted.

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  121. Suffice it to say that I find the ‘Green Zone’ analogy to some Chicago neighborhoods to be weak at best.

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  122. “Suffice it to say that I find the ‘Green Zone’ analogy to some Chicago neighborhoods to be weak at best.”

    Noted. And I think you got my drift, as well.

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  123. “NOt everyone resident who can afford a $650k mortgage on a frame house.”

    What is the point of mentioning a frame house with an implication it is somehow low end? What makes you think a frame house with cement fiber board is any less well constructed than a cinder block with a masonry facade? Truth is, it’s probably better constructed.

    In most areas of CA, there are only frame houses which are luxurious and very well built, but of course I wouldn’t expect a local lawyer who has never spent any substantive time outside of Chicago to know that.

    Solid masonry construction doesn’t exist anymore, what you see on the outside is ornamental and cinder block is about as low end as you get (i.e., commercial guys won’t touch it for premium builds). It is a death trap in earthquakes, but good thing we don’t have those very often here. But boy if we did…

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  124. Regarding the house on the next post that people started posting about here: I believe it was an unfinished basement originally. It had to be dug out. Now it’s totally finished.

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  125. “If, and when, rates rise, homes will be less affordable, by definition. This could keep prices from appreciating for a while, all things being equal.”

    Curiously, there has been little correlation found between mortgage rates and home prices. You would definitely expect there to be though. Perhaps people figure higher mortgage rates are just a temporary thing. Let’s face it…mortgage rates have been coming down for several years now and it hasn’t really helped prices.

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  126. Gary is correct. And higher interest rates mean wage inflation is present which neutralizes the nominal effect.

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  127. Except when Fannie and Freddie are taken off life support and deconstructed, rates will go up without much wage inflation. That’s when local lending will take over, and banks will get competitive again on rates (within 9-12 months) and eventually drive them down for highly qualified buyers with significant assets, income, and good credit scores. However, there will be a lot of issues when rates go up, and prices and volume will suffer significantly. It would help things in the long-run though.

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  128. “Except when Fannie and Freddie are taken off life support and deconstructed, rates will go up without much wage inflation.”

    LOL a bit idealistic aren’t we? The middle class loves their government teets such as Fannie, Freddie and the mortgage interest deduction. Do you think any politician is going to touch Fannie and Freddie with a 10ft pole, election year or not?

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  129. “This is the kind of house, where unrenovated, went for around 60k in a former midwest city that I lived in.”

    Bob, Thats because living in Ohio is like an automatic -$750k to land value

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  130. SO TRUE! Same as I said months ago, when others claimed that rising mortgage interest rates would cause housing prices to fall. I was royally flamed for asking for proof of a correlation even though I knew that it could not be backed up with historical data. And no, I am still NOT THAT POSTER nor have I ever met him. I do hope he pops in from time to time to buffer the gloom and doom on this site. And I miss Clio……

    “Curiously, there has been little correlation found between mortgage rates and home prices.”

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  131. Since when did bucktown become part of the green zone. I’d rather live in the west loop than there. At least from the west loop you can walk to work. I find bucktown to be very “block by block”

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  132. “Curiously, there has been little correlation found between mortgage rates and home prices.”

    Sparky is right- we HAVE talked about this correlation – or lack thereof- in the past.

    What higher mortgage rates means is that you can simply afford less house. So if you were looking at the $500k bungalow, you now look at the $400k bungalow instead. It doesn’t necessarily mean prices fall, it just means buyers go down a step in what kind of home they can still purchase.

    The interesting thing for me, however, is that there is so much inventory on the higher end because of the boom, I wonder if it still doesn’t mean prices will fall in order to meet the demand as rates go up (otherwise, there simply will be NO buyers for the higher end properties as buyers trade down.)

    We may soon find out…

    So, yes, in the past, higher mortgage rates didn’t mean falling prices. It just meant you bought a different kind of property.

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  133. “Bob, Thats because living in Ohio is like an automatic -$750k to land value”

    That house was in Newport, KY and wasn’t renovated. But same size and basically looked the same from the outside. Walking distance to downtown Cincinnati. An ugly POS just like that 900k ask price house.

    Incomes are a bit lower in Newport, but I don’t think anywhere near the magnitude to justify the differential for that property.

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  134. Ah – so THAT’S what “Green Zone” meant. All this time I thought folks were talking about being inside the boulevard system here in Chicago.

    I think this term here is revealing about the audience of this blog, which seems to mostly just focus on real estate in the Green Zone, and also to focus on housing from a real estate business perspective. There’s more to life (and housing) than north of Cermak …

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  135. “Curiously, there has been little correlation found between mortgage rates and home prices.”

    I don’t think it’s this clear cut. I posted links to some studies the last time we discussed this. The results were mixed. If you think a bit from both the seller and buyer’s perspectives, you can fairly quickly convince yourself that the relationship, if any, cannot be that straightforward. Which is not to say that the relationship doesn’t exist.

    Also, I think people generally focus on real interest rates when they study this (but expectations of inflation are obviously important too).

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  136. Now that’s an interesting point. It could be that when interest rates are high inflation expectations are also high and then people are willing to stretch more to buy a place because owning a home is a great inflation hedge.

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  137. “Now that’s an interesting point. It could be that when interest rates are high inflation expectations are also high and then people are willing to stretch more to buy a place because owning a home is a great inflation hedge.”

    It’s also probable that those who have houses that are unaffordable at the desired sales price for the likely buyers with prevailing interest rates hold them off the market (at least in the past). And, to whatever extent the data is based on average and median sales prices (as opposed to C-S paired sale type data), it’s really not very illuminating about whether sales prices of individual homes are dropping/rising/flat.

    Gary–on the “studios are most of the foreclosures” topic–I finally signed up and noted another fact that makes the studio count improbable at best–the breakdown by square footage–unless you think there are a bunch of 1800+ sf studios, the bedroom count stats are certified garbage for Cook County.

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