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Do Buyers Really Need a 20% Down Payment To Buy a House?

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Many homeowners may remember setting aside money each month in order to save the 20% down payment necessary to purchase a home, especially to avoid having to pay PMI (Private Mortgage Insurance.)  However, more and more first time home buyers are deciding to purchase a home before they have saved the 20% down payment.

According to an article published by Business Insider, reporter Liz Knueven states, “For many young Americans struggling with student-loan payments, higher rent costs, and relatively stagnant salaries, saving a fifth of a home’s value to get a mortgage simply isn’t on the radar.” 

Real estate professionals aren’t against the idea either.  For first time home buyers, especially near large cities where home values are steep, saving the 20% down payment can take many years.  Instead of saving the cash, buyers can purchase a home and begin building equity, even while paying the PMI of .3%-1.2%.  As the home builds in value, homeowners may be able to drop the PMI, once the mortgage value reaches 78%-80%.

Despite the decrease in home buyers waiting to have the 20% down payment, there are still advantages to a larger down payment if its possible.  It can help edge out competition in a multiple offer situation on a home, can help secure a lower interest rate and save the cost of the PMI each month. 

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Harry J. Fournier Recognized by Super Lawyers

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Harry J. Fournier was selected by Super Lawyers as the “Top Rated Real Estate Attorney” for 2020! Only 5% of the attorneys in Illinois are selected to Super Lawyers each year.

Harry was selected due to his high-degree of peer recognition and professional achievement. Super Lawyers performs a multi-factor selection process that includes independent research, peer nominations, and evaluations, as well as professional achievement in legal practice.

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The 2019 Real Estate Market Saw Growth from 2018

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Despite the fact that, according to survey data released by The Mortgage Bankers Association (MBA), December 2019 home sale activity lagged in comparison to November 2019, over all 2019 saw growth when compared to 2018.

New single family home sales only increased .1 percent from November to December of 2019, but without the seasonally-rate, numbers actually came in with about 3000 less new home sales in December compared to November. Yet, average loan sized increased by close to $10,000 for December 2019. A recap of the entire year, however, shows an increase of new mortgage applications almost 40 percent higher than 2018.

According to an article published by NationalMortgageProfessional.com, Joel Kan, MBA’s associate vice president of economic and industry forecasting  is quoted, “The housing market is seeing signs of a more significant recovery in new residential construction, which is a promising sign for prospective homebuyers. Even though supply continues to lag, we expect to see another year of gradual growth in new home sales, supported by rising household formation and the healthy job market.”

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Home Mortgage Applications Soar into the New Year

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2020 has been good to the home mortgage industry so far.  According to an article published last week by CNBC.com, “Total mortgage application volume surged 30.2% last week from the previous week”.  Mortgage companies not only saw an influx of refinance applications, but also an unseasonably high number of home purchase applications.

Interest rates dropped to the lowest level since fall of 2019 and, as a result, refinance applications surged.  In fact, according to the article written by Diana Olick, “Those applications jumped 43% for the week and were 109% higher than a year ago. The refinance share of mortgage activity increased to 62.9% of total applications from 58.9% the previous week.”

However, home purchase applications pulled in some impressive numbers, especially considering the housing market typically doesn’t pick up until February.  The volume of home purchase applications came in at the highest tally since October of 2009. 

Unfortunately, this high demand for homes is met with a very low supply of homes. With a continued supply and demand mismatch, prices could soar and leave some prospective home buyers priced out of the market.

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Photo Credit: Gerd Altmann

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Cook County Property Tax Assessments Shock Commercial Property Owners

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Cook County commercial, industrial and apartment properties owners may have noticed some significant changes in their property assessments that were recently released by Assessor Fritz Kaegi.  A shocking increase of more than 74% in valuations have caught the attention of area business owners.

According to an article published by the Chicago Tribune,  “…the result may be a significant shift in how the property tax burden is divided up — with homeowners paying less and business owners paying more. A Tribune analysis shows that if Kaegi’s initial property values stand, businesses would pick up 44% of the combined taxes in those suburbs next year, up from 34% this year. That would shift 10 percent of the property tax burden from homeowners to businesses.”

However, business owners are concerned that the result will cause a slowdown in the sales of these types of properties in Cook County.  In fact, some business owners have threatened, if the assessments stand, to relocate out of Cook County.  “Even as business owners experience assessment sticker shock, Kaegi explained that it’s his job to accurately determine the current market value of properties so each owner is facing his or her fair share of taxes, under rules set by the state and county” according to reporter Hal Dardick,

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Experts Make Predictions for the 2020 Real Estate Market

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As 2019 comes to a close, the trends of the real estate market for the past year are being reviewed an analyzed.  However, just as it is with all new beginnings, there is also much anticipation and speculation about what 2020 will bring for real estate professionals, home owners and potential homeowners.  Unfortunately, some real estate experts are not seeing much change in the low housing inventory trend in the coming year.

In an article published by Forbes, written by Aly J Yale, Yale states, “…According to the 2020 National Housing Forecast from Realtor.com, the national housing shortage will continue in the New Year, possibly reaching “a historic low level.”  Inventory growth is absent in nine out of ten markets, down from a much more optimistic two of three markets seeing growth at the beginning of 2019.

Contributing to the problem, homeowners are remaining in their homes longer, averaging 13 years.  Additionally, although home construction has seen growth, most of the new homes are “upper-tier” homes.  This leaves entry home buyers little supply in contrast to the large demand.  With homes for sale in the lowest price tier down 10 percent through 2019.

Some positive news to look forward to are the anticipation of mortgage rates remaining low and home prices remaining steady, maybe declining in some markets. 

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Home Prices are Increasing- Are Homes Less Affordable?

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Real Estate professionals and publications have recently began to educate home owners and potential home buyers with current market trends.  The common message is that there is an increase in home buyers but the supply of homes for sale is declining.  The natural consequence of this low supply and high demand situation is for home prices to increase.   The projected home values are continuing to increase, in fact experts have even adjusted their projections based on current market reports.  According to an article published in The Patch, “CoreLogic increased their 12-month projection for home values from 4.5% to 5.6% over the last few months.”

Naturally, buyers become concerned that home prices are causing them to be priced out of a home or a neighborhood.  However, the increase in home prices can’t be analyzed in a bubble.  Other factors must be taken into account to determine whether or not increasing home prices are really making homes unaffordable. 

In the article, written by Keith Kreis, other factors that should also be taken into consideration are discussed.  For example, mortgage interest rates have dropped since the beginning of 2019 which has increased home affordability by almost 10 percent.  Additionally, American workers are seeing wage growth by as much as 1.5% since last fall.  By taking these additional economic factors into consideration, one might argue that, at this point in time, buying a home is more affordable than its been.

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Real Estate Experts Weigh In on Cause of Low Housing Inventory

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Real Estate professionals and analysts have continued to look into why there continues to be a decrease in housing inventory along with rising home prices.  Redfin has determined that more Americans are deciding to stay exactly where they are instead of moving on to another home.  In fact, they have found that, “the typical American homeowner is now staying in their home for five years longer than they did just nine years ago.”

In an article published by Housing Wire, reporter Julia Falcon states that the average homeowner in the U.S. is staying in their home for about 13 years instead of only 8 years as they did in 2010.  There are U.S. cities that blow those statistics out of the water with homeowners deciding to stay in their homes for 20 years or more.  Cities such as Salt Lake City, Houston, San Antonio, and Dallas are in Texas see home owners that have stayed in their homes since the 1950s. 

According to the article, “Redfin agent Christopher Dillard states ‘Because prices have been going up, and folks are gaining more and more equity, it’s hard to justify selling when there aren’t many if any affordable options.’”

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How Do Homeowners Really Feel About Trying To Sell?

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The idea of moving to a new house can be exciting.  Perhaps its to a new town full of possibilities, maybe it’s a bigger house in the suburbs allowing kids to play in a big back yard and have their own bedrooms, it may even be a smaller, easier to maintain house allowing more free time to do the things people love instead of home repairs and yard work.  However, for many Americans, they must first sell their current home before moving on to their next dream home. This phase of the real estate process is the source of angst for many homeowners.

The 2019 Zillow Group Consumer Housing Trend Report revealed many aspects of the home selling process cause stress for the homeowner trying to sell their home.  In an article published by MBA Newslink, it was summarized that, “not knowing if a home will sell within the desired time frame is the largest source of stress for sellers, with 56% calling it a stressful experience. Meanwhile, 53% of sellers worry about not being able to sell their home for the price they want; and 52% were stressed about an offer falling through.”

Sellers worry that they won’t sell their current home in time to comfortably purchase their next home, while others worry that they won’t be able to keep the house in the desired condition to sell the home, and still other homeowners find the idea of leaving their home for showings and open houses a stressful situation.  Home buyers can be so overwhelmed, their stress matches or exceeds the prospect of planning a wedding or getting fired from a job. 

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Real Estate Expert’s Grim Outlook on the Housing Market

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Some real estate experts are concerned about the future of the real estate market and their conclusions about the real estate market may make some homeowners take pause.

In an article published by DSNews.com, titled “Residential Real Estate on ‘Shaky Ground’”, an interview with real estate analyst Keith Jurow is summarized.  The article states he doesn’t believe there was really any real estate recovery, In fact, according to Jurow, “the “illusion” stems from lenders and mortgage services not putting foreclosed properties on the market.” 

The market is at risk of due to factors such as subprime mortgages, poor home sales and mortgage defaults, despite many mortgages being modified.  Shockingly, the article notes, “There are currently $800 billion of subprime mortgages still outstanding, many of which have not been paid at all in the last five years.”

Jurow’s alarming conclusion is homeowners considering selling before the market gets much worse.  Read the entire article.

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