Chicago Relocation

The 2014 Investment Crystal Ball….

May 12, 2014

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John D’Ambrogio

What is on the horizon for investors?

As an investor in Chicago real estate – single family homes, multi unit, and condos – it has been a great run for investors. Rents outpaced mortgage payments, those paying cash saw double digit cash on cash returns, and things were pretty great (assuming you could get a loan).  But how does the new normal effect that segment?

Well, interest rates, even for investors, are still at historic rates. We’re still at under 4% for the 15 years, and in the modest 4%s for a 30. Rates never really did rise as much as conservative economists had feared.  They thought the Fed cutting back on asset-purchase programs would have more of an effect than it did.

But what about pricing? We all know how the bubble caused unsustainable price increases across the board, and how loose lending gave us the push we needed to blow up the market. Specifically those for one and three year balloons did what balloons often do – pop. And with a mighty loud bang. Hey, if almost half of all subprime loans were auto-approved dirtying the height of the boom, what could we really expect?

Then came the 2012 mini bubble. Supply and demand finally evened out enough that the tables turned, and homes started to sell fast at a steep increase. 2013 saw an incredible amount of multiple offers and over-list price deals. Much to many investors chagrin. But it has evened out a bit since then.

Cash is still king. Many recent months have seen all-cash deals taking up over 40% of the market. While prices have gone up, cash deals still trump traditional mortgaged deals.

Personally I have not bought anything in a year (unless you count the under contract short sale that I have been working on for that entire amount of time). I do not see the returns in my price range. In addition, both Fannie and Freddie have been doing much more to their properties (first look opportunities for owner occupants and extensive repair work) that make the properties less appealing (profitable) to investors. And I hesitate to say most of the ‘good stuff’ has been taken, but returns are not what they were three years ago.

So keep investing if you have the funds and the patience. But the go-go days are over……if only for a while.