Suzannah Martin\’s Blog

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D’oh! If it weren’t for the fact that our literal lives are on the line, the fact that the government TARP bailout is backfiring might actually be amusing. Wait, wait: I have a good idea! Let’s throw hundreds of billions of dollars at struggling financial institutions with very few strings attached and then expect them to do the right thing. Puh-leeez. So no, instead of dissolving the credit clog, our hard-earned tax dollars are going instead toward shareholder dividends, corporate acquisitions, and my personal pet peeve: executive compensation. And while the next serial payout on the bailout will probably include some spending restrictions (they learn but OH so slowly), it™s still not getting better.

In fact, it’s getting worse–and chances are, it’s going to stay worse for, by some estimates, another 18 months. I recently attended an excellent presentation by former Labor Secretary Robert Reich to an audience of banking professionals. In that presentation, Reich covered a lot of ground, explaining at length some Economics 101 principles and as confusing as the details were to a financial naïf like myself, the takeaways were pretty clear cut: because it is led by deflation, this recession is different from all others since the Great Depression and therefore is anticipated to be “much deeper and longer” than those previous. While there’s no indication that we’re going to see unemployment rates nearing that of the GD, he feels that unemployment is still likely to continue to rise and that the value of the dollar will remain low, devaluing our export power. Since consumers are maxed out, and we can’t rely on inflation or exporting, what’s left to save us is, of course, Government. Which can’t find its way out of a paper bag. But hope springs eternal and it is, indeed, Time for a Change.

With respect to housing in specific, Reich suggests that the new administration is likely to address the fallout by offering structured refis at very low rates (4-5%) for troubled loans. This will be a great help those who both already own homes AND are in arrears, which is by no means a small population. While I certainly applaud the effort to keep people in their current homes, there are a few troubling points that I fear will not be addressed by such a plan.

For one, it will only save those who still have their jobs, which unfortunately, is a shrinking population. Secondly, it will not address the fact that many struggling homeowners don™t have much, if any, equity in their properties and therefore don™t have œskin in the game to commit them to a repayment program. Lastly, it does nothing to increase the number of entry-level buyers who, in this great Ponzi scheme we call our economy, are the driving force of the real estate market without whom, there is no opportunity for “roll-up” for current home-owners and grinds the entire market to a halt. The trick, naturally, is to find ways to increase the number of entry-level buyers by offering affordable, RESPONSIBLE, loan products offering low down payments AND low rates. Making these loans attractive to the securities market requires yet more magic, and I’ll admit that I just don’t have that silver bullet, but it is, IMHO, the only way to get the gears grinding again.

Our local market however is holding its own. Surprisingly, single family homes are faring a little bit better than last year, although condos continue to languish. Expireds/cancellations negated both condos and houses in October, which caused inventory to fall yet again. Absorption rates are still in the respectable zone for houses (between 4-7 months of inventory, except for a glut at the entry level) and condos are in the 6-11 month zone except for everything over $450,000. Market times fell for condos, against all odds, but rose for houses. As we are on the brink of the holiday season, I don’t expect anything to improve for a couple months yet: in fact, November is looking to be abysmal so we won’t speak of it until we have to. Until next month….

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Regardless of terminology, the federal attempt at unclogging the credit market has been a dismal failure.   Marketed as a “bailout”, the measure failed in the Congress and the Dow immediately plummetted.   Repackaged (with a few eyebrow-raising additions, such as a record Pentagon budget) as a “rescue”, the bill passed with flying colors.   And the Dow proceeded to tank yet again.   Clearly, our collective confidence has been shaken and no amount of government intervention appears to be loosening investor’s pursestrings.Even a recent attempt  by Bernanke to stimulate the economy by reducing the prime rate (and another predicted cut coming this Wednesday) have fallen flat.   Hopes of a fall rally in the dead-as-a-doornail real estate market vaporized quickly  with the  gut-wrenchingly  wild rollercoaster ride of the stock market.   People are resorting to what I would consider drastic measures as they pull cash out of credit lines (before their banks reduce them or, in some cases, take them away–which, I promise you, is really happening) and take pains to safeguarde their cash across multiple institutions.   Which seems like a good idea, assuming two things: one, that you have faith in the FDIC (hahahahahaha) and two, that you can juggle the very real possbility of bank failures/mergers/buyouts resulting in only a few institutions left standing amongst the rubble exposing, potentially,  your money to risk.

So where, other than those roomy pillowtop mattresses,  does the savvy investor put his or her money?   As long as things don’t cesspool with our stock market (like it has in Asia), stocks are arguably not a bad investment right now–considering the market is down something like 25% overall–but then again, consider the  global  ripples of our market crisis.   Me, I would argue while we may not have reached the “bottom” yet, real estate remains a solid long-term investment and certainly market conditions, as well as the financial benefits of home ownership, make real estate investing (by which I mean homes, not investment properties) more attractive and affordable than ever.  

Evanston’s real estate market continues to see fallout correction as properties cancel and expire off the market at a faster rate than ever.   In the case of condos, the number of callcellations and expirations EXCEEDED that of new listings by about 20%, and this was the first time since October of 2007 I’ve seen that happen.   Houses expired and cancelled at a greater rate than last year as well, but far less dramatically.   New listings for both types of housing increased in September from August, though I expected that as things tend to pick up from the slower summer months.  

Contracts written dropped alarmingly for condos from August (eek) but was down only a little from September ’07, which no one would argue was a good year.  For single family homes, September made a slight improvement from the rate of contracts in August, but was almost three times better than abysmal September ’07.   So go figure. For the umpteenth month in a row, the overall effect was a drop in inventory and that, my friends, is never a bad thing.

Correspondingly, absorption rates have reached a more acceptable level.   Most condos under $450,000 are virtually “in balance” hovering around 6-7 months worth of inventory except for the $250,000-$299,000 price point, which pushes a year.   Luxury condos remain oversupplied.   For houses, we’re still strong and balanced in most price points except the very entry level (up to $400,000).   Hooray!   Market times are still creeping up but again, that’s expected this time of year.

And now for some  fascinating local news: virtually all of the new condo construction that I’m aware of in Evanston is either stalled out or in serious financial trouble.   The ignominious Tower was lopped off (which will probably kill the project, though no official word yet), the asking price of the formal Kendall College site has dropped from $12M to $8.9M (what a deal!), the final two phases of the Sienna project at Oak & Ridge is on the market for $9.5M (remember, this is the one that creatively switched tacks to propose one rental building and one hotel), the Main Street Station project at Chicago & Main is officially on hold for a year or two, the Arcadia Green on Green Bay has been foreclosed on, on and on ad inifinitum.   Other than Winthrop club, which sources tell me is only about 40% sold, the Church Street Village townhomes, and this crazy new project on Custer & Oakton, there’s not going to be a lot of new construction condos in Evanston in the coming years.   Amen.

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Things are nutzoid out there, my friends.   With the stock market in freefall, unemployment at all-time highs and the government working hard to socialize–oops, I mean “stabilize”–our financial system (yes, I realize this is a hot button issue, but let’s call it like it is, shall we?), it’s hard to imagine a happy ending to it all.

So far, September is holding with August which is better than bad, it’s good.   But not as good as I hoped.   Words to the wise: Buy! Buy! Buy!   Don’t sell!   Don’t sell!   Don’t sell! Could it be any nuttier?!

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Well, folks, **it is really hitting the fan in the mortgage market (not to mention the stock market).   Pardon my French. In a startling and generally unforeseen escalation of the recent sub-prime lending implosion, Wall Street investors have literally pulled the rug out from under jumbo (over $417,000) and non-conforming (no-doc, low-doc, etc.) loan products, causing several high-profile mortgage houses to halt financing virtually overnight, including ABC, American Home Mortgage (which filed for bankruptcy and closed its doors last Friday), mTeam Financial (which is rumored to be in serious trouble), and HLB.

Due to the flattening-to-decreasing nationwide real estate market, homeowners struggling with mortgage adjustments are unable to rely on an increasing market to support them through a refinance or sale and many find themselves unable to pay their bills which makes investors understandably leery about buying these loans. Lenders still willing to take on these products are offsetting their risk with jacked-up rates at or approaching 8% and no one knows where or when the insanity will stop.

Amazingly enough, however, rates on conforming loans (those under the $417,000 cap) have gone DOWN, and there doesn™t seem to be any speculation that funding these loans in the near future is in any jeopardy.   BUT these buyers may still be squeezed by the significant tightening-up of minimum lending requirements as non-conforming loans drop out of play.   Common practices such as combining loans (80/10/10s for example) are disappearing and the word on the street is that ANY buyer needs a really good credit score (660 or higher) and 10% down payment on a property to get a rate under 7%.

With the average national home price in the low $200,000 range, much of the country is barely affected by all of this.   However, the Chicago and Evanston markets certainly see a fair number of affected loans. If you™re a buyer with a contract on a property or expecting to make an offer anytime soon, CALL YOUR MORTGAGE BROKER RIGHT AWAY.   You do NOT want to discover, as many people have in the last two weeks, that the funds are simply œnot there as you™re sitting at the closing table.

“But how’s the market?” you ask.   Well, July was far busier than I expected!   Some people speculate that it’s the weather, but I think it’s that people see the end of the low mortgage rates looming. In any case, while  the rate of contracts written dropped a little from June–it wasn’t by much!   In additional good news, market times for both types of housing continues to trend down, and, in a related statistic, absoprtion rates  are in the very healthy 4-6 month range except at the bookends price points for houses (7+ months for the $200k-$300k range and about a year for $1M+), and for condos over $350k, which range from 8 to 16 months. The best news of all is that inventory has for the first time in what feels like forever REDUCED for single family homes and condos alike!

Welcome to Suzannah Martin’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Evanston.