October 2008

Dear Friends, As a real estate consultant my job is to analyze the present real estate market conditions and provide you with specific data and insights. This is my primary objective in addition to specifically advising you about your particular real estate wants and needs. In this incredibly volatile and confusing economic environment being an important resource to you is most challenging. The complexity of these issues before our country and the world is enormous. As you know there is an almost unlimited number of articles, books, and videos to peruse concerning our present economic state. Having attended a five-hour seminar and follow-up discussion group on Wednesday of last week I am able to provide you with the following information and insights that I hope are of value to you. Michael S. Miller, an Associate Professor of Economics at DePaul University presented the following analysis that he capsuled in the following slide: “From uncertainty to certainty: a recession is upon us •

The Fed has taken extreme measures to prevent collapse of financial markets

•

They have been successful in preventing catastrophe, but not preventing a recession (not that they can stop a recession!)

•

Credit quality and availability, real estate, oil prices, and creation of new jobs have been the center of attention throughout”

Dr. Miller provided graphs to support his points that showed the ups and downs of the GDP that are relatively moderate, the steep decline of industrial production in this country in the last year, and the recent downturn of payrolls and retail sales. Interestingly, the personal income of people in this country has only tapered off a small amount. And, not surprisingly, consumer sentiment is extremely low from an historic perspective. In fact, the downturn now is comparable to the opinions held during The Great Depression. And, what provided this downturn? Dr. Miller identified a multitude of factors including, of course, the sub prime mortgages, the Alt-A mortgages (ones that require less documentation and are riskier than conventional loans), the Fannie Mae and Freddie Mac debacle, credit default swaps and the general housing bubble. In conclusion Dr. Miller stated that the federal government’s extreme actions in buying up banks and moving into the commercial paper markets were essential and stopped a total collapse of the financial markets. On a hopeful note Dr. Miller feels that with credit flowing again between banks and customers, eventual reductions in the housing inventory, and with the stabilization of equity markets that will allow banks to get capital from private sources, household wealth will increase and help stimulate the economy.

Dr. Miller provided the following for his sources: Bureau of Economic Analysis: bea.gov Bureau of Labor Statistics: bis.gov Federal Reserve Beige Book: http://www.federalreserve.gov/fomc/beigebook/2008/20080903/default.htm FRED: http://research.stlouisfed.org/fred2 For an additional source, here is the site for the recent testimony by Fed Chairman Ben Bernanke. http://www.federalreserve.gov/newsevents/testimony/bernanke20081020a.htm The panel discussion that I attended also included two mortgage lenders from different companies and, David Hanna, the President of the Chicago Association of Realtors. There was a similar perspective articulated by all three of these presenters. In summary their views dealt with the following topics: FHA FHA is providing a third to 40% of all loans now. In 2007 there were 2,411 applications accounting for $362 million, and for year-to-date October 2008 there are 5,491 applications for a total of $932 million. The reason for this increase has to do with the FHA guidelines that allow for lower credit scores and lower down payments. Therefore, many condo sellers will want to consider putting their homes on the market with an FHA approval of their building or unit. I am familiar with the guidelines and will be happy to assist you in evaluating if your property can be sold to an FHA buyer. Please call me if I can answer any questions in this regard. Credit Scores in general More than ever your credit score is paramount in evaluating your ability to purchase property. The first step is determining your credit score; the second step is taking steps to improve your score if it is below 680. I am available to meet with you to discuss a plan of action. Rates Rates are presently at historic lows. Conventional ones are hovering around 5-3/4% and even jumbos are from 6-1/4% to 6-1/2%. (These rates are subject to daily changes.) Both of the mortgage lenders believe that rates should be below 6% for the next six months (subject to unexpected circumstances).

Down Payments Despite information to the contrary about down payments, mortgage loans can be obtained still with very small down payments if you have excellent credit and an adequate, substantiated income. Yes, there are even 100% loans available although putting down 5% to 10% is more likely and, perhaps, more desirable. Foreclosures All members of the panel discussed the myriad of issues related to these phenomena. It is a complex house of cards that has set off this financial crisis throughout the world. Municipalities in small European towns are facing financial collapse because of securities that they had purchased that held toxic sub prime mortgage loans. It is an international problem that is most apparent when viewed in the international stock markets. In regards to purchasing foreclosure properties it is most often a long, tedious process. At a minimum the closing time takes four months. Because the foreclosed property may be owned by several entities it takes an inordinate amount of time to get approval for the sale. Sometimes the terms of the sale are changed before it closes. A good alternative to purchasing a foreclosed property is to buy from a motivated seller. Many sellers are willing to take less than market value for their property, and the ability to close is more certain. In this difficult economic and political climate I am convinced that that the conclusion of this long presidential campaign and the stabilization of the financial markets will bring optimism and hope to all of our citizenry. With the foreclosures occurring throughout the country, jobs being lost, and uncertainly being the current trend we can look to our country’s history of overcoming tremendous obstacles, and conclude with optimism and hope that better times are, indeed, ahead for us. On another note, if you didn’t see this compliment to our fair city, Chicago, please read this recent article from the Chicago Tribune. http://www.chicagotribune.com/business/chi-tue-chicago-image-jul29,0,7252900.story

Please email or call me if I can provide additional information for you regarding the above topics. More than ever, having an advocate who is willing to act on your behalf is an asset in these turbulent times. And, despite the current economic downturn I agree with Warren Buffett that sometimes the best opportunities exist when times are uncertain. Specifically, see his statements here. http://www.comcast.net/data/fan/html/popup.html? launchpoint=Search&repeat_search_query=warren%20buffett&v=894211341

In particular, I believe that there are wonderful buying opportunities in Chicago right now. If you would like to discuss the possibilities or have friends that are in need of our services please contact David and me. With warm regards, Pat Spaulding cell: 312-909-8298 David Kaplan cell: 773-401-2657 P.S. If you were forwarded this email and would like to receive it directly or if you know anyone who would like to receive my monthly emails, please contact me with their email addresses at [email protected]. And, to be removed from future emails, please reply UNSUBSCRIBE in the subject heading.