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How Would a Recession Affect the Housing Market?

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The stock market has taken some big hits over the past weeks as a result of the global pandemic of COVID-19.  Many Americans are wondering if the next recession is around the corner.  Some may be wondering if the housing market will also see declines that parallel stock market drops.

MarketWatch.com published an article, written by Jacob Passy, that may put real estate owners at ease when it comes to the value of their property. According to the article, experts don’t necessarily believe that a potential recession will significantly impact the housing market.  “While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”

Nevertheless, homeowners should stay informed and aware of the climate of the economy because different economic factors can have an impact on the housing market.  As we see declines in the stock market, consumers may feel more hesitant to move forward with a home purchase, therefore impacting home sales.  Another economic change that could influence the real estate market are the loss of jobs.  Increased unemployment could, in turn, lead to foreclosures if the homeowner can’t keep up with their mortgage payments.  Foreclosures, according to the article, “can have a ripple effect through a local market, causing other homes to drop in value. “

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How Does the Shelter-in-Place Order Affect Your Real Estate Transaction?

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On Saturday, March 21, 2020 at 5:00 p.m., Governor, J.B. Pritzker issued a public order (“Order”) directing Illinois residents to shelter-in-place. The shelter-in-place is, for now, effective through April 7, 2020. During this time frame, how is your real estate transaction going to be affected?

The short answer is that real estate transactions will proceed as planned. Under the Order, there are several exceptions or permissible activities that may still be performed. These are called “Essential Businesses and Operations.” Under this category, Financial Institutions (i.e. banks, title companies) and Professional Services (i.e. legal services, accounting, appraisals) are allowed to continue operating. As such, real estate transactions can proceed as planned and deals can still close during this period.

However, as an added precaution and based on recommendations from the title companies in our area, the following procedures will be followed:

Cash Transactions

All cash transactions will be closed electronically via e-mail and/or DocuSign. Any funds to be provided at the closing will need to be sent via wire transfer to the title company. Documents required by the title company to be an original (i.e. Deed) should be dropped off or sent via overnight courier to the title company prior to closing. Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company. 

Transaction with a Lender

Seller(s): It is very common for sellers to sign their closing documents in advance, give their attorney a power of attorney for closing day and not attend the closing.  Our office has always offered this service and will continue to do so during this time period.  Moreover, title companies are encouraging sellers not attend closing and send their documentation prior to closing.  Therefore, for our seller clients, our office will coordinate with you to get your signature on the necessary documents in advance of closing.  The few documents requiring signing on the day of closing we will execute on your behalf under a power of attorney.

Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company.  

Buyer(s): Due to the fact that many loan documents are required to be wet signed and notarized, buyers must still attend the closing. Title companies are requesting that only the buyers required to sign the loan documents and their attorney attend the closing, so as to limit the number of people at the title company. The title companies have implemented some safety measures to ensure a safe and clean environment.  All closing rooms will be cleaned with disinfectant after every closing. The pens used will be new and disposed of after closing.  Also, they will limit the number of people allowed in the facility and practice social distancing recommendations when possible.  Some title companies are also offering drive by closings, where buyers can pull up, sign the documents in their car, and hand them back to the title representative. 

Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company if you choose to wait after signing.

Conclusion

In short, your real estate transaction should proceed as planned with just some slight modifications for the closing. Lenders, attorneys and title companies are still working during the shelter-in-place period. Fournier Law Firm, Ltd. is committed to assisting our clients in making your closing as smooth as possible. As your closing nears, our office will be in contact with you to coordinate the necessary steps to get your deal closed.

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Buyers, Sellers and Realtors Responding to COVID-19

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The real estate market, like most areas of business world-wide, are adjusting to social distancing recommendations while trying to anticipate how the global pandemic will affect the economics of their business.

Economically, the mortgage rates are still low which, normally, would result in more buyers looking to secure a low rate and purchase a home.  However, the economic uncertainty might keep some buyers from moving forward with a large purchase such as a home, and may keep sellers from listing their home if not necessary.

An article published by OCRegister.com indicates that some areas of the country are already seeing how the concerns about the economy are impacting both sellers’ and buyers’ decisions.  “I am hearing (of) buyers and sellers cancel (deals) due to fear of job security and, really, just the unknown,” said Dilbeck Real Estate agent Lisa Kaul from the Santa Clarita area. “One seller canceled their new purchase even though their home was already sold.”

Of course, there are plenty of homes on the real estate market and many buyers who are still planning on purchasing a new home.  However, the social distancing recommendations has impacted the way buyers are viewing homes for sale.  Many owners are asking that their realtor not hold open houses.  Guidelines for screening potential buyers for diseases, requiring those visiting homes to sanitize their hands are top discussions among sellers and their realtors.  In this age of technology, however, virtual tours are becoming more and more common and are an ideal alterntative.

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Will Coronavirus Affect the Real Estate Market?

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News of the coronavirus is a constant in all mainstream media lately.  Its impact is far reaching, not only as Americans and citizens of the world take precautions to stay healthy, but economically and on a global level.  As a result, last Tuesday, the Federal Reserve made a decision to make a rate cut, in anticipation of recession concerns.

According to a Realtor Magazine article published last week, the rate cut was significant, the largest one time cut since 2008.  The impact of this decision could, in time, affect the real estate markets.  According to Lawrence Yun, chief economist at the National Association of Realtors, “The real estate sector will hold up very well because of the rate cut. Hesitant home buyers will be enticed to take advantage of low interest rates. Commercial property prices will rise due to higher returns that can be had from the bond market after adjusting for risks.”

Some experts believe that rates which are now averaging 3.45% could drop even lower before the economy rebounds from the effects of coronavirus.  Mortgage rates low as 3% have not been ruled out by Rick Sharga, president and CEO or CJ Patrick Company.

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Photo Credit Sergio Santos

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Unmarried Couple Purchasing a Home? Important Conversations to Have Before Taking the Leap

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One of the biggest decisions adults will make in their lifetime involves purchasing a home.  It’s a long term commitment and, for many, one of the most expensive purchases they will make.  Another commitment a number of adults will make in their lifetime is to live with their significant other and purchase a home together.  Yet, it isn’t always a married couple that is deciding to make a home purchase together.  In fact, the number of unwed couples living together has increased almost 30% since 2007, according to the U.S. Census Bureau.

According to an article, published by Bankrate.com, there can be some considerations that unmarried couples should account for as they decide to purchase a home together since property laws don’t protect the individuals if the couple separates or one person passes away.  In the article, journalist Natalie Campisi states, “Because the law treats unmarried couples like individuals when it comes to assets like real estate, it’s up to the couple to write their own rules that will dictate how their property is handled in the event of separation or death.”

The article suggests couples agree to a “cohabitation property agreement” which touches on areas such as the percentage of the house each party owns, a buyout agreement, and exit strategy among others. It may be a difficult conversation to have in the midst of the excitement that comes along with an momentous life decision.  Yet, its financially wise to plan for the unexpected, even if it seems unlikely or impossible. 

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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.

Photo credit: Convey Digital Marketing

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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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Photo Credit: Mark Moz

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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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