What the Fannie Mae/Freddie Mac Takeover Means for You

As you may have heard by now, the Federal government, through the newly created Federal Housing Finance Agency, has taken over Fannie Mae (FNMA - The Federal National Mortgage Association) and Freddie Mac (FHLMC - The Federal Home Loan Mortgage Corporation). This was done to try to shore up confidence in Fannie and Freddie, which together have lost over $14 Billion in the last 4 quarters.

Why does this matter? Fannie Mae and Freddie Mac own or guarantee almost half of the $12 Trillion in outstanding mortgage debt in this country. Financial markets have lost confidence in Fannie and Freddie as a result of their huge losses. Their stock values have dropped by over 90%, and foreign banks and other investors have been unloading their holdings of FNMA and FHLMC stock. This has caused FNMA and FHLMC to have to raise capital by selling bonds at "higher than treasury" market prices. So, while long term treasury interest rates have been dropping, rates on mortgage bonds have been going in the opposite direction. This move by the Federal government, and the full backing of the U.S. Treasury that comes with it, should help to bring FNMA and FHLMC's borrowing costs down which will ultimately lead to lower mortgage rates.

Who wins and who loses? If it goes as planned, the winners will be the embattled housing industry. With lower borrowing costs and lower mortgage rates, mortgage lenders may loosen up some of the tighter underwriting rules that they are forcing on the system. Hopefully this will reduce the backlog of inventory of both new and existing homes on the market. Obviously this would be good for both buyers (who would continue to have access to low interest rates and helpful mortgage programs,) and sellers (who will see prices level off--or even climb again--with the decrease of inventory and more buyer activity.) The losers are likely to be the current stockholders of FNMA and FHLMC stock, which may be worthless after its all said and done.

Will this work? It certainly should! What we know for sure is that the status-quo with FNMA and FHLMC would certainly not work. They could not have continued on with their viability in question, their stock prices continuing to plummet on every bit of bad news, and their borrowing costs continuing to rise.

Should I get excited about this? Yes! You should get excited because this will definitely boost confidence in the credit system. Greater confidence from first time home buyers--combined with lower interest rates--should serve to get the market moving from it's current stagnant state. Hopefully bad news in the mainstream media of the pending demise of FNMA, FHLMC and the whole mortgage industry will now be replaced by positive news on lower interest rates, rising home sales and increasing consumer confidence.

Chicago homes becoming more affordable

One of the upsides to the slow housing market is the degree to which homes are affordable.
This from Crain's :
An index of home affordability rose to 92.0 in fourth-quarter 2007, up from 87.2 in the third quarter, according to a report by Moody’s Economy.com and Homes for Working Families, a Washington D.C.-based non-profit group that promotes affordability. Falling home prices have helped nudge the index higher, but it has yet to cross the 100 mark — the point at which the market is considered affordable again.

Unfortunately, falling home prices have been offset by the woes in the economy as a whole. Lower rates of income growth and rising unemployment serve to make would be buyers skittish about investing. More importantly, however, tightened lending restrictions are making it harder for buyers to qualify for a loan. Banks “have tightened loan qualifications and imposed increased fees, mortgage rates are higher than they were at the peak of the housing boom and banks have substantially reduced loan-to-price ratios,” the report says.

Chicago's affordability tracks just about equally when compared to 40 other major metropolitan cities.

Schools in the City

Check out the great article in Sunday's Tribune Real Estate section on Chicago schools.

Inner city schools have historically taken a beating (admittedly, with good reason,) for their lack of innovation, poor attendance, security and many other issues. I have often felt that the true test of any "urban renewal" would be the school system. It's one thing to lure 20 something singles to live in the city but to get those people who, 10 years later are married with a kid starting kindergarten, to stay in the city will be the true challenge.

I'm happy to say that Chicago seems to be rising to that challenge--at least in some neighborhoods. As the parent of a 1st grader in Chicago Public Schools, I applaud all those who buck the trend and actually stay in the city to raise their children. Most of us do so with a sense of commitment and the understanding that a school system needs active, involved parents to make it really thrive.

If you have (or are planning on having,) children and you live in the city, you definitely should read this story. Check it out here.

Chicago Median Sales Price Goes Up

New figures released by the Illinois Association of Realtors continue to show a discrepancy between city and suburban home sales.

Area-wide, home sales were down 29% for the month of March. In the nine-county Chicago Primary Metropolitan Statistical Area, home and condominium sales in March totaled 5,753, compared with 8,101 in March 2007, the association said Tuesday in a news release.

However, totals from the city were more forgiving. Sales fell only 11.5% in March in the city of Chicago, to 2,045 from 2,311.

The degree to which the prolonged winter weather effected these totals can't be accurately counted but should not be ignored either.

On the bright side, for those home that are selling, the median sales price is actually rising. The median sale price in the Chicago area rose to $248,000 in March, up 1.2% compared with March 2007. The median price in the city rose 5.3% to $300,000.

Two New Upscale Boutiques in Bucktown

The hip just keep hipper.

Bucktown is getting not one but two new upscale clothing stores this summer. California based Joe's Jeans Inc will open a 1890 sq. ft. storefront at 1715 N Damen avenue in August. Just down the street, New York based clothier Intermix just leased a 2350 sq. ft. storefront at 1633 N Damen ave.

It would seem that this further cements the reputation of Bucktown--a drug and gang infested neighborhood just 15 years ago--as being the boutique capital of world...or at least Chicago.

Energy Efficient Home Electronic Tips

Between cell phones, iPods, computers, DVR's and everything else that we use in our tech savvy lives, we use a lot of energy. Over the course of a year that can really add up to some bucks! Here are a few tips you can use to reduce your energy consumption at home and save you and your family money.

• Look for the Energy Star® label. It can help you identify products that use less energy.

• Unplug mobile phone or PDA chargers when batteries are fully charged or when the chargers are not in use.

• When available, use personal and laptop computers' power management features to control energy consumption.

• When you're finished watching a movie or playing a video game, don't forget to turn off your DVD player or video game console as well as the television or monitor.

• Plug electronics, such as TVs, DVD players and audio systems, into power strips, and turn the power strips off when the equipment is not in use especially for long periods of time.

• Investigate home-networking and automation products and services that let you control heating, lighting and cooling from a central location in the home.

• When in the market for home office products, consider multifunction units combining, say printing, copying, scanning and faxing, instead of a single device for each function.

• Use technology to save money. For example, save fuel by shopping and banking from home on your computer.

"One Book, One Chicago" Goes Noir

The city of Chicago's One Book, One Chicago program has announced it's selection for the spring 2008: The Long Goodbye by Raymond Chandler.

This is a worthy initiative by the city to try to not only spur reading among all citizens but also foster discussion of literature throughout our city. I'm looking forward to reading this classic mystery from one of the 20th century's most celebrated writers.

You can hear a great expose from WBEZ's new magazine Eight Forty Eight by clicking here.

What You Need to Know About Mortgage Modifications

In the wake of the current mortgage crisis, many homeowners are seeking relief from adjustable rate mortgages by working with their banks to modify their loan terms. If you find yourself in this predicament and are attempting to work out a modification with the bank there are a few things you need to know.

1. Get a phone with a speaker or a headset. You will be spending a lot of time on the phone with your bank.
   
2. Take careful notes of every conversation you have with various representatives. Get their names and, if they will give them, their direct phone numbers or extensions.
   
3. Get confirmation when sending faxes. If you are sending documents through the mail, send them registered mail.
   

If you need more information--or even inspiration--check out this article from Newsweek.com. It details the trials of one family who went through this process with a major lender--Countrywide.

Who is Chicago's Best Broadcast Team?

I'm going to veer slightly off the standard real estate course today and talk about another of my favorite subjects: baseball. Ok, so it's Chicago baseball so technically it falls under the general heading of "what's happening in Chicago and why you would want to buy a house here."

We are blessed to not only have 2 pro teams in this city but also 4 great broadcast duos: t.v. and radio teams for both the Cubs and Sox.

While much is made of the Northsider's beloved radio team of Ron Santo and Pat Hughes, I have to say I am really enjoying the Sox radio team of Ed Farmer and Steve Stone. This is remarkable because I am not a big Ed Farmer fan. In the past I've found him to be arrogant and downright annoying. When he partnered with the less-experienced Chris Singleton a few years ago, his domination of the microphone became too much for me. I really couldn't even listen to the broadcast.

Steve Stone on the other hand is one of the best in the game, period. He knows the game inside and out--not just the Sox but all of baseball past and present. He has a great sense of humor but he's not a ham. What's more he's just a class guy. I recently heard him on the radio talking glowingly about the man whom he replaced--Singleton. That kind of humility is in short supply these days. He has actually made it possible for me to stomach Ed Farmer. It's as if Farmer knows that Stone is every bit his equal and has elevated his own game.

Next time you're near a radio tune in for a Sox game on 670 am WSCR. If you want to more of Steve Stone's baseball musings, check out his podcasts & interviews here.

Thanks for indulging me. Tomorrow it's back to real estate...although baseball is a lot more fun to blog about...

How to Appeal Your Property Tax Bill

In response to a comment on yesterday's post, here are a couple of links for those of you interested in appealing the assessed value of your home.

The Cook county assessor's website has an entire series of pages on appealing your residential property assessment. It contains a petition for appeal, the option to track an existing appeal and other useful information.

Mondays broadcast of Eight Forty Eight--Chicago Public Radio's excellent local news journal--featured a story on appealing your property assessment. Granted, the appeal deadline for the 2007 tax year was March 31st but it's not too early to start the process for next year.

Your Tax Exemption Booklet is in the Mail

Cook county has mailed out it's annual tax exemption application booklet. If you own a home you should see it in your mailbox in the next few days. The two most common property tax exemptions are:

1. The Homeowner Exemption, which entitles all Cook county homeowners who occupy their property to a portion off of their tax bill
2. The Senior Citizen Exemption which entitles Cook county senior homeowners (born prior to 1942,) who occupy their homes to a portion off of their tax bill.

This is especially important if you purchases a home in 2007 as you will need to re-apply for the exemption.

If you are entitled to either of these exemptions, simply fill out and return the form before April 23rd. If you have applied for the exemption in previous years and have not moved, you do not need to re-apply for either exemption.

For more information, you can visit the Cook county assessor's website.

Transfer taxes going up...now

You may remember that the city council voted last month to increase transfer taxes on the sale of property in the city of Chicago. Initially those increases were to be absorbed by the buyer but the council later voted to assign those increases to the seller. This increase will go into effect April 1st.

Here is a breakdown of transfer taxes as of April 1:
Sellers pay:
State and Cook County Transfer Taxes of $1.50 per $1,000 of PP
City of Chicago Transfer Tax of $3.00 per $1,000 of PP

Buyers pay:
City of Chicago Transfer Tax of $7.50 per $1,000 of PP
No State and County Transfer Tax

The Problem with McCain's Rhetoric

Republican senator and presidential contender John McCain weighed in yesterday on the economy in general and particularly the housing slump in particular. Most of this speech is standard stump speech material but I took issue with some of his comments, in particular how he characterized the millions of Americans that are facing foreclosure.

"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," McCain said.

It is easy to just right off those individuals and families in trouble as being "irresponsible," but the truth is not that simple. Many were sold a bill of good by their overzealous lenders promising loan programs that were literally too good to be true. I realize that some point, the consumer must exercise due diligence before signing but make no mistake about it: banks go through great trouble fine tuning their message to gloss over the ugly details behind some of their programs. When a crooked bank pressures the appraiser to inflate the value of a home so they can "get the deal done," most homeowners are none the wiser.

Government response to the housing slump must include tighter scrutiny of the lending industry.

Is the Chicago Market Stabilizing?

Today's Tribune article, "A Glimmer of Relief in Housing" does indeed offer some good news about the housing market.

While the number of sales has fallen by about 27% from last year, the prices were essentially unchanged. And a flat market is better than a declining market.

Sellers are getting the picture: if they want to sell, they have to price appropriately. That means they can say goodbye to the 6% or greater appreciation we have become accustomed to, at least for the time being. If you bought within the last few years, you might sell it for about what you paid for it but you will sell it.

So the "drop" in prices in Chicago is really just "not an increase," but it has the same effect. Buyers are starting to get motivated by homes that are more affordable.

There is a ray of sunshine in the market. Are you ready to move?

They're out there...

An article recently published by the Los Angeles Times states that, despite the housing slump, visits to real estate websites are actually up compared to a year ago.

"ComScore Media Metrix, which measures the digital world, reported that real estate Internet sites had almost 42 million unique visitors in January, a traffic increase of about 5% over January 2007. The audience for the entire Internet was estimated at about 184 million visitors, meaning those who visit real estate sites online made up almost 23%."

This would seem to substantiate that we are in what I have referred to as a "procrastinator's market." People are still interested in buying homes--even more than they were a year ago--they are just weary of what the market is doing. It's not just home prices either. The economy, the war, the election...all of these issues are contributing to the haze surrounding the decision to buy a house.

...but they are looking. Buyers are window shopping more than in the past and that's a good start. Let's hope that the ones that really are ready and qualified to buy decide to get off the fence.

The Best Time to Buy in Four Years

Finally some good news...

An article out today on CNN.com points out what appears to be a light at the end of the housing tunnel.  Simply put, because of falling home prices and favorable mortgage conditions, it is the best time to buy a house since 2004.   Key points of interest:

• "The Cleveland-based bank National City Corp. (NCC, Fortune 500), together with financial analysis firm Global Insight, revealed Tuesday that more than 88% of the 330 housing markets surveyed showed price declines and improved affordability during the last three months of 2007."
  

This is determination is based on measuring the ratio of a home's value (what it should cost,) to what the actual price is.   Also,

• "Soaring foreclosure rates have added inventory to many housing markets, depressing home prices further."

Just as--in the boom market--new construction homes will push prices upward for resales, the high rate of foreclosures & bank owned properties are having a slowing affect on all home in any given area.  While I wouldn't recommend a first time buyer target foreclosures necessarily (more on why later,) they will still see an advantage in lower prices all around. 

The Value of Granite

I know that the granite/stainless steel/cherry cabinet trend is really just a phase in kitchen design. Like all popular styles, its day will end and I'm curious to see what takes its place. I have heard some say the "white kitchens are coming back." Maybe, maybe not, we'll have to wait and see.

I for one hope the ad men in charge of selling a new product don't dissuade people from granite counters. Beyond being just a fad, they are a truly wonderful surface to have in the kitchen. In addition to being hard as, well, stone, they are extremely functional. Because they will absorb heat and cold, they are hand when dealing with a "just out of the oven pot" without leaving a burn mark. They are also a great surface to thaw frozen foods on. The stone will absorb the cold temperature thus cutting your thawing time in half! Also, unlike laminate tops which have a core of wood, stone tops are impervious to water--something to consider in a "plumbing rich" room like the kitchen.

The value of many trends may very well be dubious but granite counter tops are an upgrade that one should seriously consider. If you spend much time in the kitchen, the price will be well worth it.

Reading into today's Tribune article

Perhaps you read today's front page article in the Chicago Tribune about the "Plunging Chicago Home Sales." It's important to note right off the bat that this article exchanges "Chicago" and "Chicago area" quite liberally. More on that later.

While I won't be so bold as to refute the article on a whole, I would like to comment on a few of the main points.

• "The median price throughout the Chicago region dropped 2.2 percent, year-over-year, to $239,700. January sales of single-family homes and condos in the Chicago area were off 34 percent from January 2007."

This would seem to support the notion that while some sellers are getting realistic about the market and lowering their expectations to attract buyers (thus the 2.2% decline,) many are not--and buyers aren't having it. Would-be sellers will have to adjust accordingly if they want to sell. What the article doesn't talk about is the ability of sellers to lower their price. I suspect that many of those who haven't been able to sell have very little equity in their homes and thus will be "up-side down" if they sell below a certain price.

• "Nationwide, the median price of a home sold in January fell 4.6 percent, according to a report issued Monday by the National Association of Realtors, which said the month's sales were off 23.4 percent from the year earlier."

This is an important point to keep perspective. One should take "national" media reports with a grain of salt. Chicago has traditionally been a much more stable market than many other big cities. We didn't experience the ridiculous appreciation that, say, southern Florida did in the "boom" years, but we also aren't seeing the tremendous declines either. As this stat shows, Chicago has faired better than many other regions.

• "The Illinois Realtors report said that in the Chicago area prices fell the most in McHenry County, where the median was down 9.6 percent, to $194,500 from $215,250 a year earlier. In second and third place in the region were Lake and DuPage Counties, which year-over-year saw prices drop 9.4 percent and 8.2 percent, respectively. On the upside, Grundy County prices rose 8.6 percent. Cook's and Kendall's grew by less than 1 percent."

Say what? This is huge! All real estate is local--I mean really local--and this really gets to the heart of the matter. Cook county (read, the city of Chicago,) has actually seen a 1% increase in median sales price. I realize the Trib has readers throughout all of northern Illinois. However, McHenry county's stats mean nothing to a homeowner in, say, Bucktown. They might as well be considering home prices on Mars.

Bottom line, if you really care about the market (and if you are considering selling or buying, you should,) you need to be looking at your specific area--even your specific neighborhood. The news might not always be rosy but at least you will be getting meaningful numbers. And if you are serious about selling your home, get the opinion and advice of a professional who knows your area.

Market Timing Simply Doesn't Work

Mortgage rates shot up last week rather unexpectedly.  By week's end, they were up almost a full 1/4%.  For a $250,000 condo, this equals an increase of $40 in the monthly payment.  Buyers who were waiting for rates to come down even more than they already had are kicking themselves right now.  

The lesson here is simple:  don't try to time the market.  It just doesn't work.  Mortgage rates are still at historically low levels but they are always fluctuating.  Serious buyers should be concerned with these questions:

1. Is this the house you want in the location you prefer? 
2. Is the price appropriate and is it affordable to you?
3. Does your lender have you in the best possible loan for your needs? 

If the answers to these questions are "yes," you should buy, plain and simple.  Betting on whether the price will come down in 6 months or whether rates will be lower in March will only have you chasing your tail.  

Spring Thaw?

Well, not literally, at least not in Chicago yet. However, amidst all the doom and gloom surrounding the housing market, we see a ray of warmth. Mortgage applications for purchases rose 12% last week.

What does this mean for the long term outlook? Well, maybe nothing--it could just be a coincidental spike. On the other hand, it could be a sign that buyers--who recently have been too scared off by media reports to even consider buying a home--are finally starting to get off the fence. As Realty Time columnist Kenneth R Harvey states,

"You can't simply ignore all those new mortgage applications. They're real. Something's going on -- and it could be that the word is finally getting out to consumers that home loan rates at an average 5.6 percent for a 30-year fixed-rate mortgage -- are close to 40-year lows.

Money for home purchases right now is cheap, no question. And we all know housing prices are lower this year than they were last -- sometimes by 10 and 15 percent or more, depending on local market conditions."

It certainly bears watching. I have said for a while now that if mortgage rates remain low, buyers will begin to come out of hiding. Let's hope this is a sign that is finally happening.

How to fight property tax increases.

It's that time of year again. Cook County homeowners will be getting the first installment of our 2007 taxes over the next few weeks. Some of you might be shocked to see that your assessed value of your home has actually risen (despite reports of stagnant growth in the Chicago home market.) This increase will result in a higher tax bill.

Can you fight it? You certainly can. Joe Light of Money Magazine writes of 7 ways to lower your property taxes. They include:

1. Learn your system

Taxing authorities use different methods to calculate home values. Some look at recent sales of similar homes. In rural areas where sales are few, they might estimate the cost to rebuild. Others use some combination of methods. Call your assessor's office and ask how it pegs values. In some locales your tax liability is based on a percentage of your property's estimated value. You'll want to know what that percentage is so you can figure out whether the actual value the assessor is assigning to your home is fair.

2. Get your assessor's evidence

The assessor didn't pull his estimate out of a hat, even if it seems that way to you. Visit the tax man's office and ask for the evidence used to value your home. Get your home's property card, which lists basic details like lot size, square footage and number of bathrooms.

3. Make sure the description is right

When municipalities or counties re-assess property values, they typically hire an outside contractor who looks at hundreds or thousands of homes in a tight time period. The appraiser has to come up with shortcuts. Three vent stacks on the roof? That must mean three full baths. Never mind that an upstairs laundry room could be the culprit.

The assessor's file should contain a worksheet that the appraiser filled out during inspection with addresses of homes he compared with yours. That was a key to Crane's success. The appraisal that was done on her 1960s house (still with vinyl siding and pink bathroom fixtures) valued it as though it were comparable to one of the area's new brick-and-stone McMansions. In the end her assessment was lowered by $20,000, saving her around $200 a year.

4. Build your case

You won't have much time to file an appeal, generally 60 days or less from the time your annual tax assessment was mailed. (That typically occurs between late spring and late summer.) And you can't just march into an appeals board with a newspaper article showing price declines and expect to win.

If the issue isn't a simple error on your property card, you'll need to arm yourself with recent comparable sales or assessments that show your house has been valued too high. You can look up your neighbors' home valuations at the assessor's office. The easiest way to come up with comparable sales is to ask a real estate agent for help.

If you're in a new community, she might find homes with an identical floor plan that sold for thousands under your appraised value. Your ideal comparable homes will be of the same square footage and age as yours and sit on almost the same size lot. To make your case you'll need at least five sales - 10 is better - from around the time of your assessment. Your agent might charge you a $50 to $100 fee, but the expertise is worth it.

Take a critical eye to the homes and make sure there aren't circumstances that an assessor could use to explain a huge difference. Is one of your comps next to the railroad tracks? Did you just replace the roof on your 25-year-old home?

Put together a spreadsheet listing the addresses of the comparables, the sales prices and dates, the price per square foot and a description of what makes the homes similar to or different from yours. Finally, to complete your homework, drive out to the properties and take photographs of the exteriors.

If you can't find comparable homes that sold for at least 10% less than your property's assessed value, throw in the towel. Some areas require the valuation to be off by even more than that to win an appeal.

5. Meet the assessor informally

Go over the evidence you found in support of a lower value. This meeting might be hard to arrange in larger towns, but it's worth trying. If the assessor more or less agrees with you, the rest of the process will be a lot faster and smoother.

Attitude is important. You're showing the assessor how his appraiser messed up. Don't add to his defensiveness by tossing verbal grenades like "I pay your salary." If the assessor won't budge, make him explain why. Take notes: He's handing you his battle plan for the formal appeal.

6. File the appeal

Usually this is with a county board. Hand deliver it and get a receipt or use certified mail. Within a couple of weeks you should get a notice acknowledging receipt, but depending on your county's size, you could have a long wait for a hearing. David Jantzen, an IT consultant in Atlanta, filed an appeal last summer, but he still doesn't have a date. "The wait time is crazy," he says.

Most appeals are heard over the course of a couple of weeks. Before your day arrives, attend a hearing to get accustomed to the proceedings. Certain board members might raise the same objections all the time. So make sure you're ready to answer those questions.

Prepare visuals with photos of your home and the comparable homes, then write out and rehearse your presentation. Keep it to eight minutes or less. Brevity will score you points and leave time for the board to ask questions.

7. You lost?

First, you'll likely appeal to a state agency. If that fails, you'll probably have to go to court. At this stage of the game you'll need help from a lawyer and probably an appraiser, says Cathy Steele, a property tax attorney in St. Louis. That needn't cost a fortune. You can retain a lawyer for a contingency fee that varies based on your potential tax relief. An independent appraisal will cost $400 or so.

The state, which will be handling hundreds of such appeals, wants to end the dispute as quickly as you do. "Before trial, these offices knock out as many settlements as they can. They're going to voluntarily give at least some relief in 95% of cases," says Melinda Blackwell, chairwoman of the American Bar Association's property tax committee.

For information about how to appeal your property's assessed value, you can contact the Cook County Assessors office and begin the process.

Good news for Chicago buyers & sellers

The economic stimulus package--proposed last week by congress and the President--would seek to raise the limit on loans available for purchase by the government (Fannie May & Freddie Mac.) The current limit for such loans is $417,ooo. The plan seeks to raise that cap to $625,000.

This is important in a high priced market like Chicago's. Loans that can't be backed by the federal government (those currently above the $417K cap,) carry a higher interest rate than those that can--often more than a 1% difference. This move will make it easier and cheaper for Chicago buyers to get affordable loans. In a city where a 2 bedroom condo can easily run at $400 and above, this should help get buyers buying again. That, of course, if great news for sellers in those markets.

Monthly To-Do Checklist

The Tribune ran a wonderful article in Thursday's Your Place section. It featured a monthly "to-do" list for homeowners. Staying on top of the regular maintenance is so critical to protecting your investment.

Click here to view the entire calendar of routine, easy maintenance items.

Timing the market

I've had a number of people--both active clients and casual acquaintances--express an interest in buying but also trepidation about purchasing a home in an unstable market. Their reasoning is centered around two ideas: 1) housing prices may continue to fall so they will lose money on their investment and 2) if they wait just a while longer, prices will fall and they could get a better "deal." On the surface, this line of thought might appear sound, if not prudent. However, there are several holes in these theories--at least as they apply to the Chicago market.

First, for those concerned about their investment: real estate is a flexible market and while we are currently seeing a dip in yearly appreciation, the long term prospects of investing in a home are good. Neighborhoods throughout the city have seen wonderful appreciation rates over the past 5 and 10 year periods. Unless you are planning on selling your new home in the next 1-3 years, you will most likely see it appreciate a respectable amount: at least enough to not lose money on your initial investment.

Secondly, trying to "time" the market can be a risky proposition. Remember that your monthly mortgage amount is determined by your interest rates as much--or more than--the purchase price. If rates begin to rise in the spring (as they typically do,) they could offset any price reductions offered by sellers. Quite literally, a seller might decrease his asking price by $10,000 but if rates rise even 1/2 a point the buyer's monthly payment actually increases. It can be a lose/lose proposition that leaves neither party happy.

When does remodeling make sense?

Many of today's homeowners are choosing to stay in their homes for a few more years rather than try to sell in a slower market. Quite a few of those homeowners are considering remodeling their current home with two goals in mind: make the home more accommodating for the next few years and add value that will be recouped when they do sell down the road. An extensive survey from Remodeling Magazine offers some insight as to which remodeling projects reap the most reward in resale value.

The survey is broken down regionally so, for our purposes I will look at the East North Central region where Chicago sits.

Here are some of the most common additions in a mid-range price, along with the percentage of cost recouped in a resale of the home:

Bathroom 68.2%
Deck (wood) 85.6
2nd story 78.3

As for remodeling, here is how some of the most popular projects recouped their expenses:

Bathroom 80.9%
Major Kitchen 79.3
Minor Kitchen 82.7
Basement 80.9

And finally, here are some numbers for replacement projects:
New Roof 61.9%
Siding 85.5
Windows 77.8

The old adage is that home buyers look at "kitchens and bathrooms." This evidence suggests that the cost of updating these rooms tends to be money well spent. Of course, each situation is different and professional consultation is highly recommended. If you have questions about a remodeling project you are considering and how it will affect your home's value, don't hesitate to contact me.