So many questions, and so little time–at least on television. But here in print, there’s a little extra space to deal with some viewer concerns.
Q–Is there any correlation between existing home sales and new home sales?
A–Absolutely. Because many buyers of newly constructed homes are exiting existing houses, the ability of those buyers to sell their current residences, and to sell at a good price, is integral to their decision on a new house.
For home builders who cater to these buyers, especially those moving up from a starter home or those moving down to empty nester units, a strong resale market means more potential customers who can afford more expensive houses with lots of extra options.
And while builders who serve the first-time buyer market with lower-cost, entry-level houses are not as tied to what goes on with existing house sales, many of the factors that make resales hum–including low interest rates, positive price appreciation and a good job climate–contribute just as powerfully to new-home sales gains.
Q–Can you get a mortgage with a co-op?
A–Yes. Although co-op owners technically buy shares in their cooperatives as opposed to buying the title to a piece of property, there are lenders who will loan money for co-op purchases–secured by the value of the unit–in what amounts to a conventional mortgage transaction.
But the choice can be a narrow one. In a typical week of the Tribune’s Housing Pulse, which shows representative samples of available mortgages, only one or two of the lenders are likely to be offering co-op loans. That’s because the cooperative form of ownership never really caught on in most areas.
Lenders who work in neighborhoods and suburbs where there is a concentration of co-ops–the Gold Coast, Park Forest and Evanston, to name a few–are more likely to be familiar with the property type and thus more likely to make the loans.
Q–When would be a good time for a buyer to look into buying real estate?
A–That all depends on the buyer, and the type of real estate involved.
For residential real estate, most Realtors will tell you that yesterday was the best time to buy. The thinking behind that logic is that a home is a great investment at any time, both in the economic sense and as a matter of citizenship in a country in which homeowners are believed to have stronger community ties and more stabilizing effects on neighborhoods.
In fact, there is no time like the present if you’re contemplating buying a home. Interest rates are near 20-year lows, mortgage money is plentiful, the resale market is in pretty good balance in most areas and competition in the home building industry has produced more choice and more bargains there. Appreciation is predicted to beat inflation, even if only by a little bit, for the foreseeable future.
Whether this is a good time for you hinges on your ability to make a down payment (although you may need as little as 3 percent of the purchase price), your wherewithal to handle mortgage, tax and insurance payments and your feelings of job security.
For buyers/investors of commercial real estate, the markets are so cyclical and so complex that no answer could substitute for due diligence–the process of investigating a property’s worth and potential. Real estate investment trusts offer investors a way to dabble in the markets without doing too much legwork themselves. You can select a fund that specializes in the type of property you’re interested in–hotels and downtown offices have been in a rebound mode of late–and buy in. Or you can do like most big time real estate investors do and wait until super successful turnaround artist Sam Zell or one of his many ventures enters an arena, and quickly follow suit.
Q–What is the average appreciation of Chicago residential real estate?
A–Statistics, statistics, statistics. And none that really show the average appreciation of residential real estate in Chicago over time.
Figures from the Illinois Association of Realtors show that the median price for existing homes in the Chicago metropolitan area rose 2.6 percent from 1994 to 1995 and 3.1 percent from 1995 to 1996. At the end of the third quarter of 1997, the median price was $160,100, 3.1 percent ahead of what it was at the end of the third quarter of 1996.
In the city of Chicago itself, prices have been rising at a slightly slower pace over that time, while prices statewide in Illinois have been going up just a little faster. These patterns have held for most of the last five years.
To get a longer term perspective, look at the Office of Federal Housing Enterprise Oversight’s price index for the state of Illinois. From a base of 100 in 1980, it has risen to 213.4 at the end of the third quarter of 1997. By my simple math, that is a 113.4 percent rise in just over 17 years, or just above 5 percent on average.
But this caveat: Past performance is no indication of future returns.
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Chicago Tribune real estate editor Steve Kerch reviews realty news and answers your questions on housing and other topics on The Real Estate Show every Friday from 9:40 to 10 a.m. on Channel 26-WCIU.
