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.