A Math Problem

Currently 30 year fixed mortgage interest rates are at about 5.000%. I’m pretty sure that we will see interest rates rise this year to the 6.000% range. So I did the math and this is what I found out what could be purchased at Marina Towers.

$1,000.00 per month will get you $186,281.62 in purchase money at 5.000%
$1,000.00 per month will get you $166,791.61 in purchase money at 6.000%

This equates to a net loss of $19,489.99 in purchase power. That’s 10.5%!

I don’t think we will see housing prices drop an additional 10.5% from now. It’s time to get in while the getting is good.

We cannot predict when condo prices at Marina City will hit bottom or if they already have, but most can agree that interest rates are steadily going up from here. Think about how rising interest rates limit your home buying power.

Robust rental market on the horizon?

Prospecting for new landlord clients today, I was surprised by the lack of FOR RENT signs on the two & three flats in North Center and Roscoe Village in Chicago. Usually this is a great time to prospect for new rentals because landlords are much more motivated to work with agents to get their places rented.

Perhaps the premise behind this article has something to do with it.

It is looking more and more like the rental market is starting to see a turnaround. I think that is good news for landlords throughout Chicago. This should also inspire those prospective buyers to consider purchasing. With the availability of bargain priced properties and historic low mortgage rates, now is the time.

The difference 1% makes

Although it may seem small when first mentioned, one percent can result in a big change. This came to mind recently when speaking with a buyer about mortgage rates. She was concerned that home prices had not bottomed out yet and wanted to make sure she waited until the right time.

The question of when is the bottom of market or when is the best time to purchase are hard to answer. The following example about mortgage rates really provides something to think about. Specifically, buyers do not ultimately live with their purchase price. The only time purchase price comes into question again is when the buyer sells their property.

I am not advocating that buyers be unconcerned with their purchase price. I am saying that mortgage rates play a much more important role in housing affordability and what qualifies as a great deal.

Take these three mortgage rate examples. All are based on a loan amount of $250,000 and a 30 year conventional mortgage.



$250,000 @ 5% = $1,342/month payment
$250,000 @ 6% = $1,498/month payment
$250,000 @ 7% = $1,663/month payment

Consider this payment over five or ten years and you really have some significant savings. If you add in the possibility of inflation in that time, you are really ahead. With the way the US government is printing money and taking on debt, the buyer is going to be paying back that mortgage with dollars that are only worth 80% what they are worth today several years from now.

How is Chicago's real estate market shaping up? It depends on who you ask

A recent Chicago Skyline article titled "Housing market rising from ashes of the great recession" paints a positive picture.

The article mentions appreciation from the Case-Shiller home price index over the past three years. Additionally historically low mortgage rates and very favorable housing affordability rates are very positive factors in this market.

The article goes on to quote several new construction sales agents. They are bullish about the past 12 months sales in their buildings and their sales forecasts. These must be taken with a grain of salt. Perhaps things are selling briskly where they are at, but when I hear about new construction I always consider that some of it may be puffery on the part of agents.

My experience in the market is that downtown homes are selling, buyers are just looking for that very very good deal. More specifically, buyers in this market feel like they are still taking quite a risk buying and want to feel they are getting something special. With the large amount of available inventory, sellers best tools are the the marketing their agent is doing and price.


In Marina Towers, there is one big factor at work now. Homeowners in the building recently received their tax bills. These differed wildly from what they have been paying. The last few installments were 25% to 30% less than this installment. This will affect home values in Marina City for the short term until the building or individual building residents file an appeal to have property taxes reduced.

Why buy real estate now?

Going to and from appointments I am often asked many questions. “Are people buying?” “Is it a good time to buy?” People hear the news and are genuinely curious.

Here are two great articles about the state of the market. In the Forbes article, it explains the role of demographics and housing affordability in different markets that will be shifting our market upward.

In this Marketwatch article, there are 10 great points for buying a home. My two favorites are low mortgage rates (less than 4 3/8 % on 30 year fixed loan) and very good home prices. Never in our lifetimes will we have low home prices AND low mortgage rates. There have been times when we have had one, but never both together. I’ll guarantee you’ll never see it again while you’re alive. We’ll be kicking ourselves in five or ten years saying, “why didn’t I buy that place in 2010…”

On July 15, 1979, President Jimmy Carter gave a nationally-televised address in which he identified what he believed to be a "crisis of confidence" among the American people. At that time as well as now, the confidence index was the same. With more people believing that their children would be worse off than they were. During Carter's administration, the economy suffered double-digit inflation, coupled with very high interest rates, oil shortages, high unemployment and slow economic growth. Does that sound familiar? If we take a moment to ponder what the US economy & real estate did through the 80s & 90s, we can see what a tremendous opportunity that time period was.

That is the kind of opportunity we are presented with now.

Two new additions to downtown

A recent Crain's article reported that upscale grocer Fox & Obel has signed a lease for the ground level commercial space at the new Greenway Self-Park. The parking garage at the corner of Clark & Kinzie incorporates several sustainable features in its design.



The article also reports a 49 story apartment tower is being planned for the southeast corner of Clark & Hubbard just north the Greenway Self-Park. Property records show the developer has signed a 100 year lease for the site and plans a 427-unit building.

Not all high rises are created equal & other financing challenges

With all the recent financing changes, I have had to become very aware of each condo building’s financing considerations. I specialize in condominiums in Downtown Chicago and the Near North Side. When showing buyers around it has been very handy to know each building’s profile with respect to financing. It goes beyond the basic question of “is this condominium building FHA approved?”

As recently as last year, many banks and Fannie Mae & Freddie Mac have changed their policy on what types of buildings they will underwrite. It has started to be like peeling back the layers of an onion.

My recent issues have been:

1. Condotel or hotel components of a building.

You will have a very difficult time finding financing for your buyer at the new Trump Tower or Aqua. Both buildings have a hotel component and most lenders will not lend in this type of building. A survey of the listings that have closed in the last six months at 401 N. Wabash (Trump) shows that almost all closed with the CASH flag highlighted.

My lender contact stated that one might be able to get financing through their credit union or local bank, but would likely need to have a significant portion of their net worth on deposit.

2. Number of homeowners delinquent on their assessments.

Banks are now very conscious of the number of homeowners who are not paying their condominium monthly assessments. On the 22.1 disclosure form (bank questionnaire), there is a question for the number of delinquencies. Above a certain threshold and the property will be very difficult to finance. According to my mortgage banker, this is a problem at several recent condo conversions downtown. All of these buildings had sold briskly during the real estate bubble at higher than average prices for the square footage. Many investors had purchased in this developer’s buildings and had taken advantage of a two year incentive program that offered guaranteed rent and no taxes & assessments during that time. When the music stopped and prices slid, those investors were unable to keep up the payments. There are now many foreclosures and many short sales in these buildings.

3. Litigation

The third issue that has complicated the financing picture is litigation. Depending on the extent of the litigation that the condo association is involved in, a mortgage may be difficult.

For example, a new development in the loop near Macy’s has had a litigation issue for some time now. The mechanic’s liens that two subcontractors filed when the building was complete are being litigated. These subcontractors have filed suit to collect on what they are owed. They have sued the developer AND the homeowner’s directly. At this property, the condo association is suing the developer to complete several warranty items for the building. These two issues should be worked out in the near future, but provide a snag for buyers and sellers in the building.

Make sure that your agent checks the high rise before completing an offer to avoid any financing hangups.