UNDERSTANDING QE3! WHAT IS QE3 AND HOW WILL THE HOUSING MARKET REACT?

What is QE3? What is the Fed doing? How will QE3 affect the housing market or mortgage interest rates?

Lets start with the basics and explain what QE is. QE stands for Quantitative Easing. It is a tool used by the Federal Reserve Bank when their traditional monetary tools are ineffective or have been exhausted. When the Fed engages in QE they purchase financial assets from banks. The goal of QE is to put a specific amount of money on the balance sheets of banks, more specifically around a certain asset. Why is the Fed doing this? The Fed has already brought their target rate down to Zero by purchasing large quantities of treasuries. With a target rate of zero already in place the Fed needs to step outside the box of traditional monetary policy in order to inject money into the system.

How is QE3 different from QE1, QE2 and Operation Twist? With the previous quantitative easing the Fed had a predetermined amount of money that they were going to inject into the system (700billion, etc). The best way to put this into perspective would be to compare it to a doctor shocking the heart of a patient to get it beating again. Typically QE is a large sum of money that has been predetermined and is injected into the economy over a specified period of time (3 months, 6 months, etc). What is unique with QE3 is that it is open ended. The Fed said that they will be buying $40 Billion in MBS (Mortgage Backed Securities) each month until they see employment numbers return. Again the best way to explain this is it is similar to a doctor giving you medication until they see the symptoms of your illness go away.

Will QE3 have an affect on mortgage prices or the housing market? It is difficult to say. The HOPE behind QE3 is that it will push interest rates lower for mortgages and therefore help spur the housing market further. How or why would this work? If the government purchases Mortgage Back Securities the idea is that prices of the average MBS will rise. This in theory will encourage banks to lend more money so they can package the mortgages and sell them making quicker profits. The banks will say “hey we need more loans to sell off and we have all this cash, lets lower rates to make more loans.”

Problem #1: There is no one telling the banks to loan lower or to loan more. The basic forces of supply and demand may encourage them to but there is no definite answer.

Problem #2: The underwriting departments of many banks are currently backlogged. Lender let much of their underwriting staff go and shrunk the size of their mortgage departments during the recession. If the banks cannot handle the increased business then they simply cannot increase their output of lending unless they hire more staff. The question is will the minor increase in profits from QE3 be enough to encourage banks to hire more staff? We don’t know, we will have to wait and see.

Problem & Benefit: The Fed has said that QE3 has no deadline. They said they will continue QE3 until they see improvement in the economy, specially in jobs numbers. If you’re a lender and you need to hire increased staff to handle the increased business from QE3 you’re going to be hesitant to do so because you don’t know how long the Fed will continue with the program. While you can look at economic forecasts and estimate you still don’t have a definitive answer.

Will mortgage rates go lower because of QE3: The answer to this is clearly dependent on how the above problems I posed work themselves out. There have been a few different estimates. Currently 30yr fixed conventional mortgages are hovering around 3.8% APR. Some analysts have said that we could see mortgage rates drop to 3.5% while other see them going even lower to just above 3%. We saw results from Operation Twist push interest rates down roughly half a percent. No matter what it is that we will see, it will definitely happen slowly over time as the money (40 billion a month) is being injected into the economy slowly, over a period of time.

TRUMP TOWER CHICAGO RENTALS AND SALES UPDATE – 401 N. WABASH

Trump Tower Chicago at 401 N. Wabash always has a handful for rentals available. Below is a list of what is currently on the market for rent at Trump Tower Chicago along with a list of Condos Recently Sold at Trump Tower Residences in Chicago.

Studios for Rent in Trump Tower Chicago:

#33F    $2,700/mo

One Bedrooms for Rent in Trump Tower Chicago:

48D    $3,400/mo

55B      $3,450/mo

64C     $3,500/mo

34E      $3,500/mo

32E     $3,600/mo

66B      $3,800/mo

32I        $4,000/mo

Two Bedrooms for Rent at Trump Tower Chicago:

76B      $7,500/mo

60F     $7,850/mo

Three Bedrooms for Rent at Trump Tower Chicago:

74BC    $9,000/mo

77A      $13,500/mo

86D      $14,000/mo

Prices on all units vary depending on owner, view and square footage.

RECENT SALES IN TRUMP TOWER CHICAGO  401 N. WABASH

60B closed from the sales center at $535,000/mo. 60B is a One Bedroom with 923 square feet. Parking was not included in the sale.

82B closed at $1,180,000 which is a high floor 2 Bedroom unit with 1,839sf. The B unit on this floor faces North West.

36H closed for $1,700,000 which is a large 2 Bed / 3 Bath unit with 2,742sf. This unit faces south, east and west. Living room views are great. Master Bedroom views, however, are blocked by the IBM building.

Paul Blackburn is a licensed Illinois Realtor and Associate Broker with @ Properties in Chicago. He can always be reached with questions or to schedule showings via e-mail at Paul@PKBlackburn.com 

 

PARK PLACE TOWER RENTALS AND SALES – 655 W. IRVING PARK

What is currently available for rent at Park Place Tower, 655 W. Irving Park? What has recently sold at Park Place Tower? Below is a list of current available rentals as well as some information on recent sales at 655 W. Irving Park.

One Bedrooms at Park Place Tower for Rent:

#4215  –  $1,550

#2412  –   $1,550

#5414  –   $1,700

#5511  –   $1,725

Two Bedrooms at Park Place Tower for Rent:

#2401  –   $2,150

 

RECENT SALES AT PARK PLACE TOWER

Cheapest unit to recently sell at Park Place tower was unit #4509 (studio) which closed for $87,000. The buyer however was also responsible for the special assessment which continued for roughly 10 years at just over $100/mo

The cheapest Two Bedroom to sell was unit 1902 which sold for $199,900 with 1 garage parking spot. Not bad! In this deal the seller was a private owner (not a bank and not a short sale) who advertised that they were willing to pay for the special assessment. The details for this aren’t available on the MLS.

Currently all the reasonable priced 2 Bedrooms are under contract. There are a few well over 300k still on the market. The 2 Bedrooms under contract are priced between 200 and 270. The cheapest unit is a studio priced at $135,000, #405. #611 is currently under contract. It is a studio and the asking price when it went under contract is $69,000.

How many units are for sale in Park Place Tower, 655 W. Irving Park?

Currently there are only 14 units on the market in Park Place Tower that are available to be shown and NOT under contract. Priced from $135,000 to $399,000.