Renting vs. Buying

[almagest]

There's always Jefferson Park/Portage Park. It's right on the Kennedy and the blue line to take you downtown. You are still in the city and can make it downtown real quick. And it's not quite as expensive. Just a thought.

 

That's one of the areas I'm looking in as well. My friend lives in Portage Park now and likes it a lot. The only problem is it takes over an hour to get downtown on the Blue Line sometimes. They really need to fix that thing.

[CanOfCorn]

That's one of the areas I'm looking in as well. My friend lives in Portage Park now and likes it a lot. The only problem is it takes over an hour to get downtown on the Blue Line sometimes. They really need to fix that thing.

 

Actually, they are.

[RockRaines]

Actually, they are.

they need to, that thing is garbage.

[RockRaines]

Absolutely. If at all possible, one thing EVERYONE should do is live in the City for a year or two. It's unlike anything the suburbs can offer, and it's probably one of the best cities to live in in the entire world.

 

I moved there for a year while I was in law school, and absolutely loved it. Moved back to the burbs to sort of help a friend out (he bought his own place and needed a renter he could trust), and to save a little money myself, but I am 100% intending to move back for at least a few years before I get married and have some sort of actual responsibilities.

I agree more than anything. I traveled around 140k miles last year all around the country, and regardless of where I was I still feel that Chicago is the best city ive ever been to. its really an experience that I feel everyone should experience.

[almagest]

Actually, they are.

 

Like the proposed "Express Section" that goes around the normal tracks for passengers headed up to O'Hare? I doubt that happens, especially with the budget issues the CTA has right now. Even the other repairs they've been making haven't introduced much of an improvement, and they've been working for a while now.

 

I agree more than anything. I traveled around 140k miles last year all around the country, and regardless of where I was I still feel that Chicago is the best city ive ever been to. its really an experience that I feel everyone should experience.

 

Wholeheartedly agreed, and I've traveled a fair amount around the US, Canada, and Mexico. The only place I've been to that's even come close is San Diego, and that's mostly due to the weather. I'm headed to San Fran this year to catch the Sox in May, and I've heard good things about that city, so perhaps there'll be a new #1 contender.

[GoodAsGould]

Seriously, not to be down or disrespect any of the people that live in the burbs, or love the burbs, but the best life decision I EVER made was living in Chicago from my early 20's and now moving from my middle to my late 20's. If I had to do it all over again, I would do it twice.

 

Lol Idonno... Ive lived in the suburbs all my life and dont think I could do the city. I think my entire life Ill probably live in a town like Schaumburg... or If I go to the east coast maybe somewhere like Daytona or Virginia beach

[StrangeSox]

On the other side of that token though is the fact that you would expect his rent to be significantly lower out there. Hence, I'm paying more in rent than what some people here are paying in mortgages. If, for example, he were to pay $500 a month, that's a $6000 bill for 1 year. If $15k is the potential drop (I think that's maybe in the middle, I think 30% is entirely possible in many areas and 15% could well be the nationwide average, although it's hard to say anything more without knowing that specific market...but I'd still say there's a solid chance of bigger drops than that)...then that's nearly $10,000 in price that you could save by renting for a year and then buying after further drops, and that's not even considering a higher end home or bigger price drops.

 

Like I've said, Chicago seems to be somewhat insulated from the big swings, up or down. Just watching the condos in our complex (100k-130k), the prices haven't dropped a dollar and the units aren't sitting on the market for too long. Sub-200k properties aren't the ones that are going to be affected by this as much, imo.

 

Seriously, not to be down or disrespect any of the people that live in the burbs, or love the burbs, but the best life decision I EVER made was living in Chicago from my early 20's and now moving from my middle to my late 20's. If I had to do it all over again, I would do it twice.

 

Different strokes for different folks. Personally, I'd never want to live in the city. I love being 20 minutes away -- I can go there when I want, but I don't have to stay.

Edited January 23, 2008 by StrangeSox

[iamshack]

Lol Idonno... Ive lived in the suburbs all my life and dont think I could do the city. I think my entire life Ill probably live in a town like Schaumburg... or If I go to the east coast maybe somewhere like Daytona or Virginia beach

 

I was the same way....A tried and true suburbanite. Then I was forced to move to the City because a job I took. And it was absolutely amazing. You'd never realize how nice it is to not even have to own a car. To be in walking distance of just about anything you could possibly need. To never have to worry about whose driving home from the bar at 1 am...

 

Obviously there are a few disadvantages to City life- but it's just one of those things you can never really understand it until you experience it.

[RockRaines]

Lol Idonno... Ive lived in the suburbs all my life and dont think I could do the city. I think my entire life Ill probably live in a town like Schaumburg... or If I go to the east coast maybe somewhere like Daytona or Virginia beach

I grew up in DG and always thought I was a more spread out suburbanite, or maybe even the country, until I moved down here. Now I dont think I could move farther away than Oak Park.

[RockRaines]

Like the proposed "Express Section" that goes around the normal tracks for passengers headed up to O'Hare? I doubt that happens, especially with the budget issues the CTA has right now. Even the other repairs they've been making haven't introduced much of an improvement, and they've been working for a while now.

Wholeheartedly agreed, and I've traveled a fair amount around the US, Canada, and Mexico. The only place I've been to that's even come close is San Diego, and that's mostly due to the weather. I'm headed to San Fran this year to catch the Sox in May, and I've heard good things about that city, so perhaps there'll be a new #1 contender.

San Diego is one of my favs, and SF is freaking awesome. Both are good. SD is becoming sort of a minor league LA which sucks but the burbs like OB and PB are freaking cool. SF is really really in a class of its own and unique. The food is amazing.

[bigruss]

I grew up in DG and always thought I was a more spread out suburbanite, or maybe even the country, until I moved down here. Now I dont think I could move farther away than Oak Park.

One of the greatest places ever, man I hate that I had to move from there. Great place to raise a kid if anybody is interested, I know that I had a blast growing up there compared to Ann Arbor.

[iamshack]

One of the greatest places ever, man I hate that I had to move from there. Great place to raise a kid if anybody is interested, I know that I had a blast growing up there compared to Ann Arbor.

 

I went to high school in Oak Park, at Fenwick. I learned a lot going to school as culturally diverse as that.

[Balta1701]

Worth tossing into the mix is Merrill Lynch's latest evaluation of the housing market. It ain't pretty.

The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.

 

The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

 

By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.

 

"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."

 

The current housing crisis and the depreciation in home prices have pummeled the economy, with businesses and consumers cutting back on spending, raising the specter of a recession. "Lower sales and higher inventory for sales are lowering the velocity of transactions," said Fritz Siebel, Director of US Property Derivatives for Tradition Financial Services. "That cannot be a sign of good health for the economy."

 

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.

 

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.

 

The report says that the inventory situation only continues to worsen, as homebuilders are now looking at more than a nine months' supply. "The current supply/demand environment does not favor a swift recovery in the housing market, in our view," according to the report.

[RockRaines]

Lynch's report has been called overly negative and not realistic by several other sources. Also the chicago market, like LA, SF and NY do not neccessarily follow the rules.

[Controlled Chaos]

Lynch's report has been called overly negative and not realistic by several other sources. Also the chicago market, like LA, SF and NY do not neccessarily follow the rules.

As someone who has been house hunting...I can tell you midsized homes in the burbs have not dropped their prices much and as for new construction they haven't even budged for most builders.

[Pants Rowland]

Worth tossing into the mix is Merrill Lynch's latest evaluation of the housing market. It ain't pretty.

 

Balta. I just read through this thread and you are spot on with your comments.

 

I work in commercial real estate and the overriding message I hear from investors is that things are not getting better any time soon. In particular, that applies to the multi-family housing market. Many markets are either overbuilt or overconverted to condos. In particular, South Florida, Phoenix and L.A. MSAs, and many Texas markets have been hit hard in the housing sector. I do not know how the variables will hit the Chicago MSA, but I think now is the perfect time to wait and do your homework, not rush into a purchase or a mortgage.

 

First of all, the subprime crisis is going to have a much more significant impact on liquidity in the short term. The Federal Reserve Board's recent actions will not immediately translate into lower rates for someone looking to leverage their investment. Many lenders are still reeling from the rash of foreclosures and have really not started offering the most competitive rates as of yet, even if they are at a four year low as of this AM.

 

Further, in many markets, foreclosures are expected to peak this spring. This is going to force a lot of homeowners struggling meet their mortgage payments to sell at a loss on their investment. The combination of desperate homeowners who need to get out from under a mortgage along with those who end up giving the note back to the bank is going to put considerable downward pressure on pricing. Banks do not want to carry housing inventory and are more likely to sell the house at a loss than have to carry the real estate tax and insurance costs indefinitely.

 

All the while, some homeowners are going to try for a compromise and offer their houses and condos for rent. This will increase the options for renters and give them an advantage when negotiating lease terms.

 

To me the time to target is about 6 months from now. In the mean time, I would identify the neighborhoods that fit your needs the most and hook up with a local agent who will help you start to look at product. By the time you are ready to buy a good deal with attractive financing, you will be educated as to the quality of what is available and reasonable pricing for the current state of the economy.

 

Don't trust a lot of these experts who slam Merrill Lynch for being pessimistic. The National Association of Realtors is an association of brokers. It is in their best interest to dismiss negative housing reports and try to keep things from spiraling out of control.

 

Finally, when you do decide to buy and finance, take a close look at the 5 and 7 year ARM options. If this really is your first place, odds are you are not planning on staying there more than 5 years. The ARMs that have raised all kinds of trouble are the shorter term options, not the 5 and 7 variety. The spread between a 30 year fixed rate mortgage and a 5 year ARM is roughly half a percent. On a $200K loan, that is another grand in your pocket every year to build equity toward your next purchase.

 

Good luck.

Edited January 25, 2008 by Pants Rowland

[almagest]

Balta. I just read through this thread and you are spot on with your comments.

 

I work in commercial real estate and the overriding message I hear from investors is that things are not getting better any time soon. In particular, that applies to the multi-family housing market. Many markets are either overbuilt or overconverted to condos. In particular, South Florida, Phoenix and L.A. MSAs, and many Texas markets have been hit hard in the housing sector. I do not know how the variables will hit the Chicago MSA, but I think now is the perfect time to wait and do your homework, not rush into a purchase or a mortgage.

 

First of all, the subprime crisis is going to have a much more significant impact on liquidity in the short term. The Federal Reserve Board's recent actions will not immediately translate into lower rates for someone looking to leverage their investment. Many lenders are still reeling from the rash of foreclosures and have really not started offering the most competitive rates as of yet, even if they are at a four year low as of this AM.

 

Further, in many markets, foreclosures are expected to peak this spring. This is going to force a lot of homeowners struggling meet their mortgage payments to sell at a loss on their investment. The combination of desperate homeowners who need to get out from under a mortgage along with those who end up giving the note back to the bank is going to put considerable downward pressure on pricing. Banks do not want to carry housing inventory and are more likely to sell the house at a loss than have to carry the real estate tax and insurance costs indefinitely.

 

All the while, some homeowners are going to try for a compromise and offer their houses and condos for rent. This will increase the options for renters and give them an advantage when negotiating lease terms.

 

To me the time to target is about 6 months from now. In the mean time, I would identify the neighborhoods that fit your needs the most and hook up with a local agent who will help you start to look at product. By the time you are ready to buy a good deal with attractive financing, you will be educated as to the quality of what is available and reasonable pricing for the current state of the economy.

 

Don't trust a lot of these experts who slam Merrill Lynch for being pessimistic. The National Association of Realtors is an association of brokers. It is in their best interest to dismiss negative housing reports and try to keep things from spiraling out of control.

 

Finally, when you do decide to buy and finance, take a close look at the 5 and 7 year ARM options. If this really is your first place, odds are you are not planning on staying there more than 5 years. The ARMs that have raised all kinds of trouble are the shorter term options, not the 5 and 7 variety. The spread between a 30 year fixed rate mortgage and a 5 year ARM is roughly half a percent. On a $200K loan, that is another grand in your pocket every year to build equity toward your next purchase.

 

Good luck.

 

Fantastic advice. Thank you!

[SoxFanForever]

Fantastic advice. Thank you!

Agreed, great information there. I suppose it isn't terrible to take a few more months to save up towards a down payment and look around at what I really want.

[Pants Rowland]

Agreed, great information there. I suppose it isn't terrible to take a few more months to save up towards a down payment and look around at what I really want.

 

Not terrible at all.

 

Owning is a wise decision in the long run, but there is also a significant element of independence that goes with renting. Once you buy a place, you give up a portion of that independence. You need to pay a mortgage, insurance, real estate taxes, and maintenance. In addition, the maintenance reduces your free time. Further, the down payment effectively takes your liquid cushion of funds and places it in a very illiquid asset. All these variable make it tougher to change jobs, go out of town on the weekends, throw parties, etc. The bigger the mortgage, the more magnified the loss of certain freedoms become.

 

There is no need to rush anything until you are comfortable with the decision you are about to make. I hope I am not scaring you with this laundry list, but it is always better to go into these things with eyes wide open. Taking your time will help educate and prepare you to make a sound decision on your ultimate investment

 

At risk of droning on and lecturing too much, remember to run away from a deal when someone tries to pressure you into signing any type of contract before you are ready. When they tell you that there are three more buyers that are ready to make offers on a place, the best response is to say 'no thanks, I can't compete with that type of demand'. The owner of the first house we nearly bought was playing hardball with us during the initial price negotiation. Once we agreed on price and were in the inspection period, we found some problems with the roof and decided to terminate the contract. It was eye-opening to see how much $$ the seller was willing to give up once we did not want it anymore. If you can fake indifference all the time, you will be well-served.

[RockRaines]

Pants, do you generally do real estate in the burbs or in the city?

[CanOfCorn]

Not terrible at all.

 

Owning is a wise decision in the long run, but there is also a significant element of independence that goes with renting. Once you buy a place, you give up a portion of that independence. You need to pay a mortgage, insurance, real estate taxes, and maintenance. In addition, the maintenance reduces your free time. Further, the down payment effectively takes your liquid cushion of funds and places it in a very illiquid asset. All these variable make it tougher to change jobs, go out of town on the weekends, throw parties, etc. The bigger the mortgage, the more magnified the loss of certain freedoms become.

 

There is no need to rush anything until you are comfortable with the decision you are about to make. I hope I am not scaring you with this laundry list, but it is always better to go into these things with eyes wide open. Taking your time will help educate and prepare you to make a sound decision on your ultimate investment

 

At risk of droning on and lecturing too much, remember to run away from a deal when someone tries to pressure you into signing any type of contract before you are ready. When they tell you that there are three more buyers that are ready to make offers on a place, the best response is to say 'no thanks, I can't compete with that type of demand'. The owner of the first house we nearly bought was playing hardball with us during the initial price negotiation. Once we agreed on price and were in the inspection period, we found some problems with the roof and decided to terminate the contract. It was eye-opening to see how much $$ the seller was willing to give up once we did not want it anymore. If you can fake indifference all the time, you will be well-served.

 

Just like buying a car...be prepared to walk away. If they want to sell it that bad...they will come to you. Thanks for the advice, Pants.

 

[RockRaines]

Just like buying a car...be prepared to walk away. If they want to sell it that bad...they will come to you. Thanks for the advice, Pants.

You have even more leverage in housing I think. From a personal standpoint, when I bought my house I got a great deal because 1. I knew the couple had just purchased another place and couldnt afford the dual mortgages, 2. I offered to close in 10 days, and 3. the winter is a lousy housing market. I walked away at least 10 times before we reached an agreement, and still had some trouble when the docs had to be signed, but eventually they did what their only option was to do, sell it to me.

[Pants Rowland]

Pants, do you generally do real estate in the burbs or in the city?

 

Nationwide. I work for a real estate investment firm that acquires, develops and loans on various property types. I am responsible for selling the product when the time is right so I frequently talk with commercial brokers and investors from all over who look at various types of commercial real estate investments.

 

Although I do not necessarily focus on residential product, the housing industry and the subprime lending crisis has been at the forefront of most discussions and continues to impact all real estate in one way or another. I have been hearing the same thing over and over recently that many condo developments or conversions are sucking wind. Many investors are already willing to get out at 60 to 80 cents on the dollar in some markets with many more holdouts likely to capitulate as the economy continues to plod along. The consensus is if you have some funds stashed away, you can pick up some nice product later this year and next at significantly reduced prices.

[Pants Rowland]

You have even more leverage in housing I think. From a personal standpoint, when I bought my house I got a great deal because 1. I knew the couple had just purchased another place and couldnt afford the dual mortgages, 2. I offered to close in 10 days, and 3. the winter is a lousy housing market. I walked away at least 10 times before we reached an agreement, and still had some trouble when the docs had to be signed, but eventually they did what their only option was to do, sell it to me.

 

I agree. With cars, the market is typically more patient. With housing, however, the sellers are typically far less sophisticated (even with broker representation) and constrained by personal deadlines. That is a great point on a short term closing. If you have the means to close on a deal in 2 weeks or less, you possess a significant advantage over many other buyers. There is a good chance you can knock more off the price by eliminating that extra 3-4 weeks of uncertainty associated with a conventional closing timeline.

 

When did you close on your home, Rock?

[RockRaines]

Nationwide. I work for a real estate investment firm that acquires, develops and loans on various property types. I am responsible for selling the product when the time is right so I frequently talk with commercial brokers and investors from all over who look at various types of commercial real estate investments.

 

Although I do not necessarily focus on residential product, the housing industry and the subprime lending crisis has been at the forefront of most discussions and continues to impact all real estate in one way or another. I have been hearing the same thing over and over recently that many condo developments or conversions are sucking wind. Many investors are already willing to get out at 60 to 80 cents on the dollar in some markets with many more holdouts likely to capitulate as the economy continues to plod along. The consensus is if you have some funds stashed away, you can pick up some nice product later this year and next at significantly reduced prices.

Ah ok, i understand. Yeah some of the large commercial developments especially in the south loop have been basically stalled by bankruptcy, and lack of buyers. Its pretty brutal, but not as bad as other areas in the nation. I saw some of the larger cities in Texas and some of the devs in Fla have been dropped dramatically. Even in the commercial market, I know my company is looking to eliminate office space and build a mobile workforce.