Many People About to be Schooled

A return to old school standards for lending

January 18, 2008

BY SALLY DUROS Real Estate Editor, Sun-Times

James D. Shilling is a professor in the Department of Finance in DePaul College of Commerce and the Michael J. Horne Chair in Real Estate Studies at DePaul University.

The lenders today are going back to the old school and old standards. The old standards say that you cannot buy more than four times your income. So I believe the current lending standards are going to force prices down.

Four times income is too high. Talk to your parents. Real Old School is THREE times income. But ofcourse that will drive prices even further down. And NOBODY wants that do they??

Why are housing prices in Chicago so high?

They are so high in part because of zoning and in part because of tougher permit laws; the increased regulation causes prices to be higher. That is coupled with a substantial increase in income over time that has caused the run-up in housing prices.

All of these fees in lieu of property taxes have caused prices in general in Chicago to increase.

No, prices are high because people are crazy. Some people, many people really thought that a 900 sq ft shoebox ranch was worth $450,000. Or that a Northside 1 bedroom condo is worth $250,000. People were bidding against each other driving prices up to get stuck in a loan thay cannot afford in a house they cannot fit in.

Mabye they learned something by now.

Ah ....... the Truth Rings Out

This article might be the most significant housing article to come out of a Chicago news outlet. It seems that if "now is a good time to buy", then tomorrow will be better.

Silver lining: Good credit can earn home savings

January 13, 2008
BY J.W. ELPHINS Associated Press

The upside to a housing slump is cheaper homes. But many prospective buyers don't see bargains yet, especially as stricter lending standards qualify only the cream of the credit crop.

Read that first sentence over. Ok, one more time. CHEAPER HOMES ARE GOOD! It's a HOUSE PEOPLE! It is not an investment vehicle. An investment vehicle does not need new roofs, new hot water heaters, and upgraded electricity in fear or burning down the investment vehicle. A houses is a depreciating asset. They get old and break down. Then you have to spend money on fixes.

''The apartment dwellers and those just looking for a change are holding back, either afraid to buy right now, or are waiting for prices to drop,'' he said. ''Few are looking to upgrade until this whole thing shakes out.''

Renters Italo and Alexandra Subbarao are biding their time in what they call a pricey Chicago market. They want to buy a two-bedroom condo close to downtown by next summer, but are torn about what to do.

''If the prices came down a little bit more we'd certainly be more apt to go for it without hesitation,'' said Italo, a physician. ''But we know it's a significant investment. There is uncertainty in the market and that gives us uncertainty.''

It's good to know that there are a few people that are still smart with their money.

Read the rest of the article. It has a lot of good points.

Eat It!

Target 5: Could Housing Incentives Harm Some Customers?

PLAINFIELD, Ill. -- The drooping housing market is forcing some homebuilders to offer huge incentives just to get customers in the door.

It's a much different housing market than in years past.

When profits were high, builders would offer some free upgrades, or maybe a new television.

But hard times call for desperate measures and the incentive game is like never before.

But these incentives can come at the cost of other customers, like Bill and Meredith Rogers, who left Chicago for a bigger piece of the pie in suburbia.

They began building nearly one year ago with Gladstone builders in a new Plainfield neighborhood.

Just several months after moving in, the Rogers found an ad offering $100,000 off the base price of homes in their neighborhood.

The couple was shocked -- and immediately worried about their huge investment.

...

The Rogerses understand the struggle, but still want an explanation from the builder with whom they trusted their biggest investment.

"That $100,000 is a lot of money to take from us. It may not be in paper, but it's taken the value from what we put in here," said Meredith Rogers.

Worried about what? That they are fools for overpaying for a house. Tough bananas. You have not seen anything yet!

I don't know how important THIS couple is to warrant a news story about THEM. But, I do know they are not even smart enough to keep their mouths shut. Look people, just sit there and look smart. Can you handle that? Probably not.

Not So Fast!

Pretty interesting development.

A court in Buffalo is trying to make the banks responsible for the physical maintenance of foreclosed properties that revert back to the lender. There is noway a former owner of a now foreclosed property would be responsible with what happens to a house after he was forced out. But it does not surprise me that the banks are trying to change the rules.


Dirty deeds

As housing crisis deepens, cities fight lenders over abandoned homes

By Michael Orey

updated 8:21 a.m. CT, Mon., Jan. 7, 2008

On Dec. 17 in a windowless Buffalo courtroom, Cindy T. Cooper, a prosecutor for the city, buzzes among a dozen men in suits, cutting deals. "You've got to unboard [the house], go in, and clean it out," she tells one. "If all the repairs are done quickly, I wouldn't ask for any fines." To another, she says, "the gutters weren't done right," and asks to see receipts for the work. It's "Bank Day" in Judge Henry J. Nowak's housing courtroom, more typically a venue where landlords and tenants duke it out over evictions and back rent. Instead, Cooper is asking lawyers for CitiFinancial, JPMorgan Chase, and Countrywide Financial to fix problems like peeling paint, broken masonry, and overgrown or trash-filled yards at houses the city says the banks are responsible for maintaining. It may be surprising to find these financial-services giants hauled before this obscure local tribunal.

This next part REALLY scares me.

That opens up a dispute over who is responsible for taxes and maintenance. Even when lenders do complete the foreclosure, they may walk away from the property, leaving it to be taken by a city for unpaid taxes, a process that can take years.

Anyone who has personal dealing with the City of Chicago or Cook County bureaucracy knows that this would be a terrible disaster! I could not imagine trying to negotiate with some city or county pawn over the price of some run-down ranch. Ugh.

This is good too.

Those charged with violations by Cooper include participants all along the complex mortgage-industry food chain, from loan originators to servicers to the Wall Street trusts that buy up the vast majority of home loans and then securitize them. A similar initiative is under way in Cleveland, where Judge Raymond L. Pianka puts lenders on trial in absentia when they fail to respond to charges.

Do they want to totally destroy the MBS market?? Imagine that you are holding a MBS. You are hoping beyond all hope that the market will turn around next spring. Many of the investment vehic...er i mean homes go into foreclosure. And now the originating lender points its finger at YOU! Because YOU are the owner of the property now.

Wow, rough times ahead.

Happy New Year!

Reality check for prices

Reality check for prices

COMMENTARY

Fed gives market its lump of coal

December 23, 2007

BY JOHN F. WASIK

The Federal Reserve's quarter-point cut of its benchmark rate to 4.25 percent last week looks like a big lump of coal in the stocking of the U.S. housing market.

While some buyers and refinancers might benefit, home prices could be headed for more declines in the most overheated markets, no matter what the Fed does.

It is more to do with housing prices way to high in comparison with wages. Period.

Bad News for Some...Good News for Some

Home prices take biggest dive

Survey finds 6.7% falloff in U.S.; 3.2% Chicago-area decline

By Susan Diesenhouse | Tribune staff reporter

December 27, 2007

With fewer buyers and a bulging supply of newly built houses, residential sale prices fell nationwide in October for the 10th consecutive month, posting the biggest monthly decline since these numbers were first compiled in 1988, according to the Standard & Poor's/Case-Shiller home price index.

The record 6.7 percent drop marked the worst falloff in same-house sale prices since the 6.3 percent decline during the real estate recession of April 1991.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," Robert Shiller, who helped create the index, said in a statement Wednesday.

Chicago was late to the bubble game, so late she will be to the burst. But burst she will. Chicago has the same bad fundamentals as the rest of the country. Home prices too high for average incomes, and over-supply. Chicago is suffering from the same valuation crisis as everyone else.

Chicago Condo Market in Trouble

Foreclosures on condo projects rise

Is conversion crush an ominous sign?

The condo slump has put developer Liviu Mihulet in a tight spot.

His lender, Northside Community Bank, filed a lawsuit in August to foreclose on a 32-unit condominium conversion the developer launched in January in West Rogers Park. The bank asserted that the property, at 6500 N. Claremont Ave., had declined in value and demanded that Mr. Mihulet put another $500,000 of equity into the project. When he refused, he says, Northside demanded he repay the $3.1-million loan.

"This was an insult," says Mr. Mihulet, who is trying to refinance the project.

It's an indignity more developers are facing. As weak condo sales make it harder to pay off construction loans and skittish banks try to reduce their exposure to the depressed market, condo developers are increasingly facing a fate similar to that of the thousands of Chicagoans who may lose their homes to foreclosure.

That's what happens once most of everybody buys something and the rest of the population cannot afford what's left over.