number crunching and making an offer to buy a chicago home
Busy.
I just penned a lengthy message to a listing agent whose property my clients have directed me to make an offer. Actually it’s a counter-offer. And due to the utter lack of relevant comps we are left to surmise the home’s value on a catch-as catch-can basis.
Be that as it may, what we know is that the home was purchased in 2006 and given that market analytics reflect a Chicago real estate market akin to 2003-2004, we know straight away that the home’s value is less than its original purchase price.
But what does that mean exactly?
That’s where the debate begins
Its value today is less than what it originally sold for so we commence the process trying to triangulate values on a geographic and calendar basis. Given that third party appraisers establish a safety net of about a half mile and back some 90-120 days, that’s where we begin.
But for this specific Chicago condo there’s nothing to be gleaned via this approach, yielding a round shiny goose egg. So then we consider macro and local statistics that suggest today’s market mirroring the numbers of 2003-2004 and so we establish a regressive model plugging hypothetical numbers in to derive an assumptive analysis.
Meaning? Just as the market advanced in quantitative terms on a single-digit basis year after year until it didn’t we simply reverse the process. Toward this end I plugged in 3-5 point declines leaning against the 2006 purchase amount to establish a range of annual decline to 2004. This is one portal through which we enter the realm of what we will pay.
Another portal is to consider that the extended metropolitan area declined 12.1% in 2009. Multiplying this number against the purchase price and subtracting it traces a quick path to a roughly comparable figure that we will pay
Blah blah blah.
Bottom line? Sellers want to get as much as possible while buyers are very cognizant of the egg mentioned above and said egg’s innards and their (buyers, that is) absolute reticence to wind up with yolk on their faces. Meaning nobody wants to and nobody (especially when working with trusted real estate professionals) will.
Where will it end up? Time will tell. One interesting thing that I shared with the agent representing the seller of the property my clients like (but not so much that they will overpay) is that as rates rise, buying capacity shortens.
To wrap it in a tight little hard-to-swallow pill, consider this from the National Association of Realtors:
The announcement has been made that the purchase of mortgage backed securities will continue until June of this year. After that point we expect that market rates will increase. The difference between 5% and 6% rates on a $250,000 loan would mean that payments would rise from $1,041 to $1,342.
That’s a $300 per month spike on loans of $250,000. That doesn’t even consider he egregious and usurious rates of jumbo loans.
Think that will trigger some degree of atrophication of property sales?
Can you say uh-huh?
So what it begets is an environment where sellers are well-served to consider the prospective suitors before them as they arrive or run the risk of remaining transactionally celibate.
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