Alto Realty

Condo Prices Slip...

2009-02-26T15:36:00.002-06:00

...but don't slide as much as single family homes.

On Tuesday, Crain's Chicago Business, the Tribune, and the New York Times all reported on the dismal S&P Case Shiller housing index values for December. The New York Times wins for coolest and most informative graphic, comparing each of 20 cities to the national average. Chicago (-14.3% over the last year for single family homes) doesn't come out as good as Denver (-4%), but we sure look a lot better than Phoenix (-34%!).

What's lost in the headlines and in these numbers is that condos are NOT INCLUDED. Crain's wins for pointing this out. S&P actually now has index values for condos which go back to 1995, but they cover only 5 metropolitan areas and so are less comprehensive than their 20-city index for single-family houses.

Chicago is one of the metropolitan areas that the condo index tracks. In Chicagoland, condo values in December were down 1.5% from November and down 7.2% from a year earlier. Not great news to be sure, but only about half as bad as the declines here for single family dwellings. And, condo prices are "only" 8.8% off their peak in December of 2006, reaching levels last seen 4 years ago.

Compare this with metro Chicago single-family housing values, which are 18.6% off their peak in September of 2006 and are at 5 year lows.

One big caveat to all of this is that these are aggregate numbers for quite large geographic areas. As they say, "individual results may vary." My professional experience indicates that Lakeview, which didn't experience much of a building boom, is seeing comparatively modest declines, but declines nonetheless.

Sellers should understand that there has been no net price appreciation in recent years, and buyers need to grasp that though it is a buyers' market, there are not Phoenix-level fire sale prices on Chicago condos.

Loving Landlords

2008-09-17T00:01:00.002-05:00

It’s possible that no one loves a landlord (though Mr. Farley in Three’s Company was a good “straight man” for Jack’s comedy). But owning rental property has its benefits, especially when it comes to paying taxes. In addition to deducting mortgage interest, real estate taxes, and other property expenses (including assessments, if the property is a condo), you can also deduct depreciation from your taxes. This can be a significant benefit. The math can get a bit complicated, and of course you’ll need to review your own tax situation, but here’s an example.

Say I buy a one-bedroom condo for 275,000 with 20% down and rent it out for $1950 per month. The assessments are $400. The property taxes are $2750. The mortgage payment (for a $220,000 at 6% for 30 years) is $1,319 per month, of which $2702 is applied to principle in the first year.

At the end of the year, I’ve collected $23,400 in income. And paid $5,828 in mortgage payments, $4800 in assessments, and $2,750 in taxes. My net cash flow the first year is basically zero. But, I deduct long-term depreciation, which in this case is $10,000 ($275,000 divided by 27.5 years). That means for tax purposes, I have a loss of $7,298 (that’s $10,000 in depreciation minus the $2,702 in principle payments, since only mortgage interest, not the full mortgage payment is deductible as an expense.) If I’m in the 28% tax bracket, the value of that deduction is $2,043.

Bottom line, my after-tax first year profit is $2,043 in addition to which I’ve paid down the mortgage by $2,702 for a total benefit of $4,745 on an investment of $55,000, an 8.6% first year total return after taxes.

There are a fair number of variables, but even (perhaps especially) in today’s environment, where Chicago lakefront condo prices are flat, and rents are on the increase, investing in real estate for the long term can be a smart move.

An even smarter move is hiring Alto to manage your investment properties.

This little piggy went to market…

2008-09-02T18:14:00.001-05:00

For homeowners trying to sell, the present market can be trying. For a variety of reasons, buyers are fewer than they were a year ago, and much fewer than they were before that. Some buyers are having difficulty getting financing. Some are sitting on the sidelines, waiting to see if prices will drop in Chicago. And others are waiting for their own homes to sell.

Sellers have to learn to be patient in this environment. An over-priced condo will definitely not sell, but a well-priced condo doesn’t guarantee a buyer either. Currently, in Lakeview, there are 1077 condos listed for sale. In the last month, 176 condos sold. That means there’s more than a 6 month supply of condos on the market. This is actually an improvement over figures from a year ago. There simply are too few buyers.

However, this situation is guaranteed not to last. At some point, as the market returns to equilibrium, the number of sellers and buyers will return to balance. When that happens, sellers who already have their homes on the market will be the first to benefit.

To read more on the current market, check out this Chicago Tribune article.

Price it Right!

2008-08-25T22:48:00.003-05:00

Attracting a buyer for your home begins with pricing it correctly for the market. But oftentimes, that is easier said than done. Why? Well, putting a dollar value on a home involves a number of subjective judgments, not least of which is comparing it and its features to a number of nearby properties ("comparables"). And comparing our stuff to others’ stuff is fraught with bias.

Conveniently, economists have a name for this: the endowment effect, which states that people tend to value things they already own more highly than things they do not (yet) own. In the case of real estate, it means that you probably think your home is worth more than it is, just because it's YOUR home.

In a bubble market (like Miami or Las Vegas a few years ago), this effect is masked by rapidly rising prices, but in most markets (like Chicago now), there can be a definite impact.

Homeowners and their agents can easily overprice a home and consequently waste time and money until it is apparent that the price needs to be lowered to attract a buyer. I’m not sure how much a typical home overvaluation might be, but I can tell you I did it myself years ago (before I became a realtor) to the tune of about 8% of my bachelor pad’s final sale price. The consequence was 3 price drops and quite a delay in selling.

I learned my lesson the hard way, but you don’t have to. I’d be glad to help you determine the most appropriate asking price for your home. Just contact me at brian@altorealtychicago.com.

And if you’re interested in reading more about the endowment effect, check out Wikipedia or the Freakonomics blog!

Greener Housing

2008-07-29T16:46:00.003-05:00

There are all sorts of green products, and green information, and what I've read referred to as "greenwash"--that is, the misrepresentation of something as environmentally friendly. When it comes to housing, the information is so complex many of us who would like to live green simply give up. This is partly due to the difficulty of 'scoring' homes. Homes aren't mass produced, so there isn't some metric you can look at, like auto emissions or gas mileage, to compare one home's green-ness to another.

But what about the green-ness of a home's location? Generally speaking, living in the city is a greener option than living in the suburbs or, god forbid, the exurbs (or Peoria, where I grew up). That's partly because cities are chock full of amenities around every corner, minimizing the need to drive, or drive as far, for anything.

Walkscore.com assigns a walkability score, from 1 to 100, for any US address. That is, how likely are you to be able to walk to the things you need (for me, that is the drugstore, the grocery store, and an ice cream shop in August). Living where you can walk lots of places, is of course greener than living someplace where you have to drive everywhere.

If you're curious about the your neighborhood's walk score, check out walkscore.com. And if you're interested in how walkscore.com does it, check out this article. I know, it's another New York Times article. It's my Wikipedia, but written by professionals!

The Luxury of Second Opinions

2008-04-16T00:20:00.005-05:00

Whose advice do you ask when you're searching for a condo?

I bought the very first condo I looked at. Granted, this was quite some time ago. My parents were helping me out, and we had a tight budget. After looking through all the newspaper listings (remember those?), I found exactly one condo in my price range. I looked at it with my parents, we put in an offer and bought it--before anyone else could. We didn't look at comparable sales. We didn't think to ask about the condo association's finances. We didn't take time to consult with anyone. It all worked out for the best, but it just as easily could have been a disaster.

Buyers now have a luxury that buyers haven't had in a while--time. Time to truly analyze options; time for due diligence; time to ask for second opinions. While your agent should be someone whose advice you trust, it doesn't hurt to have a gut check before signing on the dotted line. And your agent shouldn't discourage you from being diligent in making a decision. In my opinion, the job of an agent is to help the client make a good decision--even if it means not closing a deal.

A recent New York Times article cites an estimate that up to 25% of buyers seek second opinions and that 10-25% of those deals don't close. Check it out. It's a good read. And if you're interested in Chicago and Lakeview-specific market data, check out my website.