No Renewal of 1st Time Buyer Tax Credit

Chicago Market Pricing Trends are Solid

According to the Case Shiller Home Price Index, home prices in the Chicago market reached their peak in September 2006. Since that magical month, pricing has either declined or moved sideways.  The May 2009 index shows that prices increased by over 1.1% over the previous month.  Are these signs of things to come?

 One thing is for certain, the slow and steady increase in prices from January 2000 to the peak in September 2006 resulted in less declines compared to other “boom or bust” markets.  From January 2000 to the peak, the Chicago market saw a 69% increase in pricing.  That increase was an equivalent of 10.2%  per year.  Most sane analysts in the business predicted that the pricing could not be sustained….and it wasn’t sustained as we have experienced.

 The encouraging Chicago statistic is the average annual appreciation since the January 2000 benchmark.  Through the last reported month of May 2009, the annualized yearly appreciation is 2.5%.  Since the experienced real estate professional would have factored an annual appreciation of 3.0% to 3.5% when looking at a house purchase, the current 2.5% doesn’t appear that bad.  It is only those who purchased either right before or right after the peak that have seen their annualized home values decrease.  So while there are many home owners who have suffered by purchasing at the peak, there are many others who have experienced near normal appreciation gains if they purchased prior to January 2000. 

How did the Chicago market compare with say Phoenix or Las Vegas?  If you purchased a residence in January 2000 in Phoenix, you would have had an annualized appreciation in the June 2006 peak month of 19.6% per year.  However, due to the dramatic drop in prices since the peak month,  your annualized appreciation if you sold in May 2009 would have dropped to .4%.  In Las Vegas, you would have experienced your peak appreciation of 20.2% in August 2006.  If you sold in May 2009, your annual appreciation would drop to barely 1.0%. 

Fortunately, Chicago has never really had the dramatic swings in property values that other metro areas have experienced and has consistently shown that there can be steady appreciation in housing in this market.  Despite the current housing issues reported on the local and national levels, it appears that purchasing a residence in the Chicago market is a prudent decision.

No Renewal of 1st Time Buyer Tax Credit

 First time buyers beware!  There appears to be little chance that the First Time Purchaser tax credit will be extended beyond the November 30, 2009 end date.  If you are looking to purchase a new home rather than a re-sale, you will probably have to choose a home that is already under construction or already completed.  The home must be closed by the last day in November.

 There has been talk in Washington about extending the tax credit since it has had success.  There have even been bills in committee for the tax credit to be extended to anyone purchasing a home whether you are a first time buyer or not.  So why not extend the credit if it has been a success?

 First, since housing appears to have stabilized, the current administration is banking on there being less demand for federal assistance to get the housing sector moving.  There appears to be a prevailing thought that housing will take years to regain an average pace of sales.  Therefore, fewer complaints made to our representatives and senators results in less action in Congress.

 Second, it is all about the money.  The “pet” project that has been publicized is the health care system.  At a projected cost of $1.5 Trillion, the administration is not going to push dollars for a healthier housing market when the pet project may use all our tax dollars for the next three generations.

 So if you are a first time buyer and if you have the capacity to purchase a new or used home or townhome, move quickly to capture the $8,000 tax credit.

Well, I fired off a letter essentially saying that I thought it was outrageous that she had such a negative tone.  The sales offices of both realtors and home builders have people each week that are needing a different type of residence or a residence in a different location.  They are concerned about selling their current residence and are concerned about the prospects of their continuing employment.  Not everyone, but maybe 50% on a given week share these concerns.   And guess what, some want new construction because they do not have the ability or time to maintain an older home.  And some even like the newer features like nine foot ceilings, loft, new appliances, modern baths, and energy efficiency that just are not available in re-sales homes.

There are two sides of the real estate development and home construction businesses.  The personal side involves determining what needs the potential clients have and designing the most efficient and beautiful product that both the builder/developer can possibly offer at the most affordable price.  The attempt is to purvey a product that both the client and the builder/developer can be proud of.

The other side of the builder/developer calling is the business side.  For many, they had success in the past offering at least good product to meet the demand for product.  While some have had to flee the business, many have remained with the hope of maintaining their organizations so that they can provide smart and thoughtful housing for those clients who want or need something new and special.  To do this, you cannot sell homes at 2006 prices because there are no buyers at those prices.  Yet, you cannot sell everything at a 40% discount and compete with the foreclosure market.  You will be out of business in months.  The business is challenging, but many fight and claw to remain in their “calling” of providing for the housing needs of their clientele.

In future editions, GroundedThoughts will explore all aspects that are relevant to real estate development, home design, construction, mortgage lending, sales, and governmental policies.  Our interest is to provide a balanced look at an industry that has been brutalized by the banking problems for over three years, yet has received virtually no effective help from any current legislation to jump start new construction, housing resales, or stabilize the personal wealth of the citizens.

Despite the rough times, home design, development, and construction are dynamic industries that will flourish in the future and we will write about it often.  So while some legislators may have some misguided thoughts about the housing crisis, GroundedThoughts wants you to remember –  housing and real estate are not nasty words.