Great News on the Housing Front

Well, it is official. Home values are getting better. According to the S&P/Case-Shiller 20-city index, home prices moved up 0.6% year-over-year, with nine of the 20 cities in the index showing gains. Much of this was likely fueled by the Homebuyer's Tax Credit, but psychology is a major variable in any recovery. If you believe, as many economists do, that people are generally driven by fear and greed then there is a good chance that this recovery could continue as the greed to get the best deal on a property is replaced by the fear of lost opportunities to get a good deal.

Chicago faired fairly in the report. While our metro area is still showing decreasing prices at -3.0%, it was far from the bottom of the barrel. Additionally, historical data shows that areas hardest hit by a contraction usually emerge the soonest. Coastal cities, which had reached unsustainable values before the crash, performed best. The good news for current shoppers is that this is the canary in the coalmine. It gives them a unique advantage of knowing that increases could be around the corner in our market and that good deals are still to be had.

Demystifying Underwriting

Your loan is in underwriting. This term often strikes fear and confusion into the hearts of borrowers and REALTORS®. Multiple manifestations can come to mind. Some envision a great and powerful wizard, the Oz of lending, who shapes an arcane process where the future of a buyer’s dreams face a whimsical decision. Others see in their mind’s eye a sadistic torturer who devises endless lists of seemingly Herculean stipulations to make the process seem impossible. In reality, it is just a person like you and I doing their job.

Underwriting is simply matching up a borrower’s financial situation with the specific guidelines or requirements of a particular loan program. The aim of this process is, in fact, very simple. It is almost like working down a checklist. The execution of the process, however, can be anything but simple.

To begin with, there is not a single set of guidelines. The risk management groups of the banks who issue the loans create guidelines for each individual program. These guidelines are very specific requirements and they define what degree of creditworthiness is acceptable for the level of risk for the loans. They usually number from 20 – 40 specific requirements and each requirement must be met for the loan to be approved.

To add to the complexity, each client file is different. I have been in the business since 2002 and have yet to feel that I have seen the same deal twice. Granted there are similarities in the assets, employment or credit rating of individuals, but each client is the sum of their individual parts. When aggregated, these variables create an infinite number of combinations that must, in turn, be mapped onto the aforementioned program guidelines.

The Week That Was - 4/23/10

This week did not bring a huge amount of economic data save sale of existing homes, which blew away expectations. At 6.8%, this surge coupled with a slew of positive earnings reports on Wall Street was again a source of optimism among investors. This continued good news has done a great deal to shape the general market opinion providing continued fuel for an economic rally and potentially a recovery.

With good news on Wall Street, mortgage rates tend to suffer and this week was no different. Rates increased mildly, but data is pointing to an upward trend. Whether this trend will continue is the big question. People are looking for good news and they seem to be getting more and more of it every day.

What to expect 4/20/10

Equities futures looking a bit weak today on expectations of earnings for Wells Fargo and Morgan Stanley. Investors are a bit cautious of potential tax policy from the IMF to build reserves to fund future financial crisis. There are no major economic announcements today. With regard to mortgage rates, we will have to see how the day unfold as earnings are released.

Two Dougs Are Better Than One!

I am pleased to announce that I am partnering with Doug Fox to provide buyers looking in the Lincoln Park, Lakeview, Bucktown, Wicker Park, and markets with exceptional real estate and mortgage solutions.

Doug Fox became an apparent presence in the Chicago real estate industry with his entrance onto the scene in 1995. Even before the advent of his professional career he was somewhat of a real estate aficionado, having always enjoyed both the process and product. Doug's acumen in the realm of marketing has been his distinction in the field.

His website LincolnParkLiving.com is the premier location to begin a search for a residence in Chicago's most desirable neighborhoods. Additionally, Doug keeps his past, present and perspective clients informed on changes in the Chicago real estate market place through his blog LivingInLincolnPark.com. These sites coupled with Doug's exceptional real estate and service skills make for a second to none client experience.

A long time homeowner in Lincoln Park, Doug is especially involved in the mid-north areas of Chicago. He is a member of the Lincoln Park Chamber of Commerce, the Lincoln Park Conservation Association, and the Mid-North Neighborhood Association. Staying active in the community is just one more way Doug keeps a local focus for his clients, while also providing a global reach with his marketing initiatives.

I thoroughly look forward to working closely with Doug and in helping buyers realize their home ownership dreams.

Chutes and Ladders

So, I was playing Chutes and Ladders with my son the other day and it occurred to me that this analogy might help prospective buyers currently looking to buy a home in Chicago understand the mortgage rate market. So here goes. For those not familiar, Chutes and Ladders is a kid’s game where you simply try to get to the end of the game board by moving your game piece based on the spin of a wheel. The chutes and ladders referred to in the name are arrayed about the game board and, as you land on certain points, you either move ahead or fall back. As I bounced back and forth on the board, I realized that I am watching a colossal game of Chutes and Ladders everyday in the mortgage marketplace as rates swing back and forth based upon economic data.

Homebuyers move ahead by getting their documents to the lender and meeting their requirements for a loan approval and hoping for a good rate. Then bang, unemployment drops and consumer confidence rises. The buyer hits a chute on their rate game board and is now looking at a higher rate than originally expected, but they keep chugging along. Then boom, housing data shows weak sales and Greece nears default on their debt and rates plunge. The same buyer is now looking at lower rates. Eventually, they, like the players in the children’s game will happily reach the end and rejoice in their purchase, but throughout the journey they will face fluctuations. Like the chutes and ladders in the game, they are beyond any control and they can only react the best they can to make the most of the situation at any given time.

So to all those exasperated buyers, I say take a step back. When you have hit the point of near maddening frustration with the direction of the rates and when to lock, think in terms of the children’s game many of know and love. Remember that like the game, you have very little control over which way rates go and there is no foolproof way to predict what rates will be from day-to-day. By accepting this and by making the best decision that you can with the information that you do have, you will greatly reduce your angst and frustration. Be assured, that you will eventually reach the finish. So if you want to see what the interest rates are doing today or see how much home you can afford, just let me know, I’m happy to help!