“The Big Picture”

Considering what has transpired in our economy and with the real estate market the last several years,  it is no surprise that the real estate buying public has questioned whether real estate  is (still) a good investment.

We have all heard many horror stories of property owners who are underwater, “lost” a lot of money because of a need to sell or have even lost their home to foreclosure.   This has been the news of the day, month and year.  Though unemployment has had a terrible impact on some property owner’s income, many of these underwater cases are examples of all the equity (or profits) refinanced out of the property.   We can get much deeper into all the reasons this happened but that is for another day.

It is human nature to clearly remember the short term pain and forget the long term gains or rewards.

The fact of the matter is that real estate has been and will continue to be the best investment when compared with other alternatives.

If we compare the return over last 10 years from January 1, 2000 to December 31, 2009 for both the stock market and real estate, there is no comparison.

Below is a graph that really drives this home….no pun intended!

On January 1, 2000, the DOW was at 11,522.  As this post is being written, the DOW is slightly over 10,000 which indicates an even further decline in stock values from the graph since Dec 31, 2009.

Where I believe we all become confused is that what we all remember is the peak of our property values in 2006-2007 and believed that’s how much money we had in the “Bank of House”.  We saw double digit appreciation in many years and we felt like all of a sudden, we were rich.

The fact is that from the year 2000 thru 2006, our properties appreciated an astounding 89% or close to 15% per year average.  This was just incredible since the average appreciation over the previous 20 year time frame in 5 year increments was about 25%, or 5% per year.

I have often spoken with sellers that lament about what their property was “worth” and how much less it is worth today.  Of course, we will never know what their property would have sold for as it never really was put on the market and sold.

Here is the simple way I look at the stock market (and real estat market) to keep my personal sanity:

If I bought Microsoft Stock at $25 per share and it rose to $45 per share at it’s peak, but I was ready to sell it later when it was valued by the market at $35 per share, did I make $10 per share or lose $10 per share?  Any logical investor would state, I made $10 per share or a 40% return on my investment.  The IRS would look at it as a purchase (or basis) at $25 per share, and a sale at $35 per share with a taxable profit of $10 per share.

When compared with any other investment available, whether you consider the stock market, CD’s, saving accounts (at .2%), no other investment, even after adjusting for the current real estate down turn has over the last ten years, performed as well as real estate.

In addition, we need to reminded that there is a major difference between the word “investment” and the word “speculation”.  An investment is a low risk, good steady return over time.  Speculation is a high risk, great win or great loss over a short term….some call it gambling, day trading or flipping.

Real estate certainly performs over the long term but if you speculate on anything, including real estate, you can win or loss big.

Aside from the slow steady increase in values over time,  real estate ownership has a number of additional advantages over any other investments.

Real estate ownership advantages include:

• You can live in your real estate and your kids can play in the yard….tough to live in stock or a savings account.

• Home ownership is a income tax benefit as you can deduct the interest and the real estate taxes on your income tax return.  Try to deduct the interest on a loan to buy stock and Mr. IRS will be knocking at your door.

You pay taxes on the first dollar of interest you earn on a savings account.

And remember, if you are a renter, you can’t deduct a thing.  You are making the landlord’s payment and he gets all the income tax deductions.

• When you sell your home and have a profit, you are exempt from paying federal income taxes on the first $500,000 of profit or gain as a married couple ($250,000 as a single person).  If you make a profit on the sale of stock, you pay capital gains taxes starting at the first dollar of gain.

• If you own a rental property, you can not only deduct the interest and the real estate taxes but also take additional income tax benefits as depreciation of a property.  There is no depreciation benefit as you hold stocks.

There is a lot of feeling that we have hit or are very close to the bottom of prices.  We certainly are at the bottom of interest rates with historic lows probably not to be seen again in our lifetimes.

If you want to buy your first home or investment property, there is no better time.  A monthly payment is affected by two factors: purchase price and interest rates.

If you are a current homeowner and you want to move to a different location, school system or larger home, you may sell for less…but will buy for less as well.  That’s a wash.  But, you will probably never see these low interest rates again.

Look at real estate as an investment over time and it can’t be beat.  Look at real estate as a speculation and take your chances.

What can we expect in 2010? And what should I do about it?

As an active member of the real estate community and as a member of the Board of Directors for the National Association of Realtors and the Illinois Association of Realtors, I am exposed to a plethora of opinions and insights from state and local real estate economists.

Experts and economists like to predict the future……

However, we know that there is no prediction that is certain until it happens – and by then it is history

One principle that all economists agree on is that prices, on anything are controlled by SUPPLY versus DEMAND. From 2000-2006, DEMAND for homes dramatically increased because of relaxed lending practices. Because there was not enough supply to fulfill the DEMAND, home prices skyrocketed an astounding 87%. In the last 3 years there has been far more supply than demand, and home prices have plummeted from from the highs of 2006.

Below are some of the market factors that many feel will have an impact on 2010’s Real Estate markets.

GOOD NEWS:
In the Chicagoland Metropolitan Area, year-over-year home sales were positive for the third consecutive month, up 5.9 percent to 6,862 total home sales (single-family and condominiums) sold in September 2009 compared to 6,477 homes sold in September 2008 with first-time buyers driving the rebound in sales. However, the median home sale price for the Chicagoland PMSA was $199,000 in September 2009, down 10.8 percent from $223,000 in September 2008.
Though there has been increase in number of sales, prices continue to decline because of too much supply. Until the supply and demand for homes gets back into balance, we will continue to see a decline home prices.

DELINQUENCIES, FORECLOSURES AND SHORT SALES:
All experts seem to agree that foreclosures will continue to be a challenge to home prices in 2010. According to RealtyTrac, Illinois delinquencies and foreclosures have continued to rise to a point that in the 3rd quarter 2009 report, Illinois has risen to the number 5 national spot for distressed properties behind California, Florida, Arizona and Nevada. This continues to add more inventory or supply of homes on the market and at lower prices which equates to additional pressure on non-foreclosure home prices.
According to the Mortgage Bankers Association, second quarter 2009 statistics reveal that more than 13.16% of home mortgages in the United States are 30 days or more delinquent or are in some stage in the process of foreclosure. This means that one out of every eight homeowners are now in a distressed position on their mortgages. These startling statistics reflect the reality of today’s housing market and economic downturn. This will take some time to work through the market before we will experience a bottom to real estate prices.

There is a growing opinion that lenders in the future will prefer to work through distressed mortgages with short sales as a first step before proceeding to the foreclosure process. Statistically, it has been found that short sale prices are higher than sale prices of foreclosures and will cost the bank far less.

This is a good thing since home appraisals will have higher short sale prices to use rather than lower foreclosure prices. Distressed homeowners credit scores and ability to buy in the future is impacted far less in the short sale scenario than a foreclosure.

Shadow Inventory:
Shadow inventory is housing inventory that has stayed off the market either because the seller believed that market (and prices) would be better in the spring. In addition, many former sellers became disenchanted with the response they were getting when they went on the market and therefore decided to pull their homes off the market and may be planning to list or relist in Spring 2010.

Zillow.com conducted a “Homeowner Confidence Survey” earlier this year,which asked the question:

“If you saw signs of real estate market turnaround in the next 12 months, how likely would you be to put your home up for sale?” 12% of all homeowners said VERY LIKELY, 8% answered Likely and 12% answered somewhat likely. This equates to a total of 32% of all homeowners would probably put their homes on the market if they felt the market was improving.

The news media has generally moved from a negative position on real estate sales to a positive position. They really only addresses the number of homes sold. They do not spend much time on the fact that most of these homes are low priced foreclosures, short sales and entry level homes for first time homebuyers.

If all or part of these homeowners actually do put their homes on the market, additional inventory or supply will be added to the current or future inventory putting more downward pressure on prices at all levels.

UNEMPLOYMENT (and UNDEREMPLOYMENT):
It’s no secret to any of us that unemployment in Illinois is 10.5%, higher than the National average. According to the Wall street Journal (7/3/09), unemployment has become a major cause of mortgage delinquencies and foreclosures.
This does not address underemployment, which is basically a reduction of income (less hours or a salary cut) without a loss of job. An employee’s hours may be cut and/or they may no longer receive bonuses that they have counted on in the past and they can no longer pay their bills.

In order to revive the housing market, unemployment and underemployment must get back into check. We will not see people upgrade to larger homes or be comfortable buying new homes until they are secure with their jobs.

Negative equity, Refinances and Mortgage Modification Programs:
According to First American CoreLogic (08/09), 22% of Illinois home mortgages are underwater. This means that the homeowner owes more on the property than it can now be sold for on the market. It has gotten to the point that homeowners with high (FICO) scores when they applied for a loan are now 50% more likely to intentionally pull the plug and abandon the mortgage compared with lower-scoring borrowers. (L.A Times 9/19/09).

Many of these homeowners, originally with higher credit scores and substantial down payment cannot refinance because the new appraisal is less than the current value of the mortgage.

The Treasury Assistant Secretary stated in Housing Wire, 09/09/09 that “Even if HAMP (mortgage modification program) is a total success, we should expect millions of foreclosures, as President Obama noted when he launched the program in February”.
Turn Around?

According to the Mortgage Bankers Association as stated in the Housing Wire 5/28/09, “The housing market may not stabilize until first quarter of 2011” after the release of its

National Delinquency Rates.

According to Seeking Alpha, which used data from Moody’s Economy and Fiserv, Illinois prices will not will rebound to 2006 peaks until at least 2018 and possibly not until 2022. Moody’s analyist Celia Chen believes the national price level will not regain 2006 high until 2020. But remember, ,there is no prediction that is certain until it is history.
If I was a MOVE UP Seller who was looking to upgrade and could afford to do so because I had equity in my home, I would take advantage of the low rates and upgrade. You will have to sell for less than 2006 prices, but,you will be able to buy more for much less.
Higher priced homes have had greater percentage price adjustments than mid or lower priced houses but even if the adjustment was the same percentage, you will be financially better off. As an example, a 20% price decline of a $400,000 home is $40,000 but a 20% decline of a $600,000 home is $60,000…or a $20,000 difference.

Remember, we will probably never see these interest rates again in our lifetimes.

If I was a DOWNSIZE Seller who was going to buy something smaller or not buy at all, there are two choices:

1. If I was counting on 2006 prices, I would have to ask myself the question:

“Can I wait until 2020 to sell and make this move?” If the answer is YES, then I would stay.

2. If I cannot wait a number of years for prices to stabilize and to go back up, I would put my home on the market with a very knowledgeable, aggressive Realtor as soon as possible.

I would:
#1- Prepare the home so it showed very well,
#2- Price it very competitively
#3 – Make sure my Realtor promoted it very aggressively.

The prices are likely going to continue a decline through next year so the sooner the better.

If I was a FIRST TIME Homebuyer, I would buy now Again, the rates for a 30 year fixed mortgage will never be this low and the now affordable choices are great.
According to the New York Times, “If prices come down another 10% but interest rates increase by 1% point, the monthly payment would be the same.” Interest rates will not stay this low so the time to take action is NOW.

If I was an investor, I would buy now and hold for 5 to 10 years. The home prices have adjusted to a point that once again, the property can create a positive rental cash flow. There are many foreclosures that are in disrepair that can be purchased at bargain prices and rehabbed. So now is the time for investors.

If I was a DISTRESSED Homeowner, I would speak to my lender immediately and ask if I qualified for a loan modification. There is an online tool that you can use in the privacy of your own home to see if you qualify: MortgageReliefOnline.com. I would stay away from a Loan Modification brokers or companies that make promises for an upfront fee. There are many scams and these companies are being outlawed in many states.
If I did not qualify for a Loan Modification and could not make my payments, I would contact a Realtor that is trained, experienced and knowledgeable in the short sale process. I would stick with a trained and certified Realtor in short sales.A short sale is not a typical real estate transaction. You must be able to qualify for a short sale in order to have your lender consider it so make sure the Realtor qualifies you.
I would NEVER allow myself to go into FORECLOSURE. It is far more damaging to credit scores, can substantially change your timeline to get a future mortgage and can certainly impair your ability to rent a residence.

This is a temporary, but severe setback for all of us.

As Bankrate.com stated in August of 2009, despite all the bad news in the media about homeownership and mortgages, most Americans still believe that buying a home is a great investment for the future.

The Wall Street Journal reported in September, 2009, “Real Estate has always been and always will be the foundation of wealth in this country”.

If you are a first time homebuyer, you can still qualify to obtain the First Time Home Buyer Credit up to $8,000. You must close on your first home on or before November 30, 2009. December 1st will be too late.
Here are some steps that could insure that you can get your home closed on or before November 30th:
1. CREATE GAME PLAN AND TIMELINE: Meet with your Realtor and prepare a reverse timeline that includes each step in the buying process up to closing day. Remember you must close before Dec 1.

2. ASSEMBLE YOUR TEAM: Ask your Realtor now for recommendations for a good lender they have worked with in the past, an attorney, and home inspectors so there is no delay when you do find your property. Determine now what home inspections you will want including general, radon and/or termite.

3. FINANCING: Make sure you have your mortgage ready to go. Check with your lender in advance about what paperwork they will need from you and get it done now. Ask your lender to insure that your property can close by the deadline. Many good lenders can get a conventional mortgage closed with in 2-3 weeks. FHA can take longer. Make sure you check with your lender about timing. TIP: There are both conventional and FHA lenders that can underwrite and fund mortgages out of their own offices. Most lenders cannot and therefore the process before closing can often take twice as much time. If you are going to use an FHA mortgage, make sure your lender is an FHA Designated Endorsement lender.

4. LOOK FOR YOUR HOME: Define your criteria and start looking with a Realtor right away. Narrow down to search to price range, neighborhoods and size. Schedule blocks of time with your Realtor for showings times now.
Do not look at short sales. You do not have enough time.
Ask your Realtor when making appointments to ask the listing agent if the sellers are willing to move before Dec 1. If they cannot, ask if they would consider closing before Dec 1 but renting back for a week or two.

5. OFFER and CONTRACT: Once you have successfully negotiated a contract on your new property, be ready to SNAP your plan into action for loan applications and inspections. It will be critical to give the lender everything he needs immediately and to stay on schedule. Again, your Realtor will help you with this.

Click here to watch me discuss the credit on WGN Money Matters.

From the time you get a contract, the expedited mortgage/inspection process can take 2 ½ – 3 weeks so act now.

If you have any questions, please contact
Dean Rouso, Broker, ABR, CRS, GRI, Certified Negotiation Consultant at
Prime Property Partners.
Office 708-354-7355
Dean@PrimeAnytime.com

Important News Flash for First Time homebuyers

I am attending the Real Estate Summit in Washington D.C. Shaun Donovan, U.S. Secretary of Housing and Urban development has just spoken to our group. Secretary Donovan just stated that HUD will make a announce in the next several weeks that the $8,000 first time homebuyer credit will be allowed to be used as the down payment on a home purchase using a new program that HUD will launch. The program will essentially be a short term bridge loan program for use with Fannie Mae/Freddie Mac (FHS) loans.

This would be a great assistance tool for First Time Homebuyers.

Dean Rouso, Broker-Owner of Prime Property Partners, LaGrange, IL
National Association of REALTORS Director

For many people it seems too overwhelming a task to go through their belongings and furniture with the goal of getting rid of some of it. Unfortunately when moving to a smaller house, it often becomes absolutely necessary to do this. Here are some ways to make the process more manageable.

• Plan Ahead – Don’t wait to start culling until someone has agreed to purchase the home you have had on the market. This could leave you with as little as a couple of weeks to sort through decades of belongings. Start going through your things and getting rid of stuff a month or two before you even put your house on the market. Not only will this give you ample time to decide what you really love and want to keep, but it will also make your house more appealing to potential buyers.
• Include the entire family – Certain objects and possessions mean different things to different family members. Holding onto an old piano that no one ever plays, only means more moving cost and excess unwanted furniture in your new home.
• Photos – Give yourself several days for the task of digitizing all of your family’s photos. Since they are one of our most valued possessions, why not take them out of those giant boxes, scan them and make a CD? This will cut down on a tremendous amount of clutter and it will keep your memories safe forever.
• Shedding basement objects first- Many people put things away in their basements, attics and sheds assuming that someday they may find a need for it again. Seriously consider which items you can live without and start getting rid of them by donating them or selling them.
• “Furnished Home For Sale” – If you are not emotionally attached to your furniture, consider selling them along with the house. This way you save on moving costs and you get to buy all new things for your new home. Not bad!

If you are interested in carpeting your home or just specific areas in your home, it pays to know what is available and what will work best for your home before you go to the store. This way you can narrow down your search and save time, as there are nearly limitless choices when it comes to carpeting. Before we list carpet types and their attributes, be aware that carpeting your stairway will generally cost between six and nine dollars per step. If you prefer a carpet runner, this cost will be significantly higher. In regards to padding, it does extend the life of your carpeting and increases the overall comfort factor. It is completely worth the investment! Always replace your old padding with a new one, because carpeting manufacturers will not honor their warranty with an old pad underneath their new carpeting.

• Plush/Cut-Pile Carpet – Saxony plush is very popular because it is soft with short tufts. It does not wear as well as berber or other high level loop carpets.
• Berber – Has a high-level loop with a nubby texture. It wears very well, although is harder to clean.
• Wool – The most expensive type, but it is comfortable, durable and resistant to dirt. Direct sunlight can fade it.
• Synthetic fiber – It is made of artificial materials. Mostly made of nylon, it is cheaper than wool and is durable. Sunlight can damage it.
• Olefin – Cheap, but less durable than nylon. It is pre-treated to resist fading, but can be damaged by heat and sun. It is a very good choice for basements.
• Acrylics – More expensive than nylon, but more closely resembles wool and it resists fading.
• Sisal – A natural fiber derived from the cactus plant. It is very strong and durable, but is extremely rough in texture.

For anyone facing a foreclosure life can become extremely stressful, as there are so many new issues that you will be faced with. In this time of change and uncertainty, there are actually people out there that are preying on others going into foreclosure. Scam artists are coming out of the woodwork and are offering homeowners facing foreclosure a “deal” to renegotiate their loans for a fee. What people need to know is that in many states it is illegal for a person to ask homeowners for an upfront payment to renegotiate a mortgage – unless the Department of Real Estate holds record of them meeting license and registration requirements. You can verify this information and also check to make sure that your real estate broker and attorneys have valid licenses at www.dre.ca.gov.

Always be skeptical and remember to never give anyone money in advance of any services they are offering. There are many non-profit groups that offer legal aid for free of charge to homeowners that are having trouble making their monthly payments. See more information at this avoiding mortgage foreclosure website.

Insuring your home with the proper coverage is so incredibly important since your home is almost always your biggest investment – and it is where you stay dry and warm. Following are some things every person who is looking to purchase a policy should know:

• Always insure your home for 100% of the cost to rebuild. To figure out that number you can go to buildingcost.net to use their free calculator.
• Flood, earthquake, war and nuclear accident coverage is extra beyond what your basic policy will cover.
• The contents of your house is usually covered at 50% of what the value of the structure is. You must make sure this is adequate coverage for all of your belongings by making an inventory. Use knowyourstuff.org’s free home inventory software to determine this number.
• Take pictures of all of your valuables in case you do need to file a claim. Pictures make the process so much easier.
• Make sure you buy enough liability coverage – you need enough to match your assets.
• Always buy “riders” for any expensive artwork or jewelry that you own. If it is worth more than $2,000, you may consider buying a separate policy for it.
• Shop around as prices vary dramatically. Start with your car insurance company, because they often give discounts to multiple policy owners. You may also go to insure.com to compare prices. 
• Keep your deductible high. Starting with a $1,000 deductible is wise, as most people do not make claims for less than this amount as there are insurance companies that will drop you if you make more than two claims per year.
• Always ask about discounts. Many insurers have them, but you must ask for them. Discounts for installing smoke detectors, an alarm system or a fire-retardant roof are common. Also, if you are 55 years of age or older, mention that as you are considered low-risk – and can get a price reduction.
• Keep your policy up-to-date! Changes to your home, such as a re-model, need to be covered.

Seminar Series Presents…
Real Estate Property Tax Reduction

Real Estate Tax Attorney
Anastasia Poulopoulos

State Certified Appraiser
Nicholas Masella

Property Values Are Down ↓
Property Taxes Are Up ↑

What Can You Do About It?

Come to our FREE SEMINAR on Real Estate Property Tax Reduction

Get Answers to Your Questions:

• Learn How To Appeal Your Own Real Estate Property Taxes
• Learn How Declining Home Values Affect Your Tax Bill
• Learn 6-Ways To Save Money On Your Tax Bill Without Appealing
• Learn the 4-Reasons Why Most People Fail When They Appeal
• Learn What to Know and Look for When Choosing an Attorney

Come Join Us For This FREE Informative
And Potentially Money-Saving Seminar.

When: Tuesday February 3, 2009

Where: Prime Property Partners
114 Calendar Avenue, 2nd Flr.
LaGrange, IL 60525

Time: 7:00 p.m. to 8:30 p.m.

Refreshments Will Be Served.
Seating is limited. Call Prime Property Partners at 708.354.7355
Or e-mail me us GreatInfo@PrimeAnytime.com and reserve your seat today.

Baby boomers are making the reverse mortgage more popular than ever, but just know the potential pitfalls before you consider one.

1. 1. Repayment Rule: If you sell your home or for some reason must live at a hospice, a nursing home or you simply plan to use the home as your second home, you will have to repay the cash you received from the reverse mortgage as well as interest and other fees back to the lender.
2. High Closing Cost and Interest: Don’t forget to shop around and compare prices. Many seniors fail to do this, as they are not as familiar with the reverse mortgage as they are with a traditional mortgage. If offered, reject the adjustable interest rate option. There are many fixed rate reverse mortgage programs available to choose from.
3. Maintenance and Taxes: Always ask the bank to be clear what your monthly payment will be per month, less your escrow payment. Make sure you know the lender’s policy on the home’s maintenance. You might consider taking enough money up front to have for future repairs, so that your monthly payment will always be the same.