Sue Fox, @Properties. Direct 773.816.1788
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This has been an odd and uncertain year for Chicago real estate. Deals are still getting done, but absolutely every element has to be in place in order to get to the closing table. As a realtor on the ground day in and day out, I have seen some strange standoffs unfolding this year, with both buyers and sellers hesitating at crucial moments and sometimes deciding to stay put. No wonder sales are so scarce!
Here is what I’m observing from buyers: There is little urgency. With mortgage rates hovering at a record low of 4% and home prices in the gutter, most would-be buyers realize this is a golden moment to buy a home. However, they are also somewhat casual about the opportunity, since from their perspective this has been going on for at least a couple years. Neither interest rates nor home prices seem to be in any danger of quickly shooting up, so what’s the hurry?
In the last few months, I have witnessed at least five buyers wade halfway into a deal, only to change their minds. I have had some buyers who are pretty sure they want to make an offer, only to reconsider and decide against it. Others look around for a couple months and then opt to keep renting for another year. I have even seen two buyers (neither of whom I was representing; in both cases I was the seller’s agent) who wrote up offers and then, for lack of a better word, freaked out. One went so far as to negotiate a price and then refused to sign the contract, while the other actually did sign the contract — and then a day later changed his mind. Under the attorney review period, he was still able to withdraw from the deal.
Things look mighty different, on the other hand, from the point of view of many sellers. I can’t tell you how many listing appointments I’ve gone on this year where — once I explained the recent comps and showed the owners what their home was likely to sell for — they suddenly realized just how bleak their situation was. I met with one lovely woman last week who exclaimed, “Oh my god, Sue! I knew the market was bad. But I had no idea how bad it was.”
Yes, it really is bad. As in, your home is probably worth 10-35% LESS than what you paid for it, depending on what year you bought it and where it is located. In real terms, this means that sellers who paid $330,000 in 2007 can’t even sell for $285,000. Sellers who bought for $230,000 in 2005 (and put $15,000 in upgrades) would likely have to list their condo for less than $200,000 to get a bite. Owners who paid $450,000 in 2005 sold the same place this year for $95,000 less. I just checked the comps for someone who paid more than $220,000 six years ago in a building where similar units are now selling for $100,000 to $160,000, depending on the condition.
It is routine for sellers to be faced with a diabolical choice such as: Do you want to stay in the cramped two-bedroom condo you have outgrown now that you have a new baby, or do you want to bring $50,000 to closing in order to pay off your lender and closing costs? Many, many people do not have the tens of thousands it would take to close the deal. So they stay put, they decide to rent out their place, they attempt a short sale with their lender, or they overprice their home and stick it on the market anyway, hoping someone out there will pay them not what it’s worth, but what they owe.
Thus, as the winter season approaches, we have a standoff. Many Chicago sellers desperately want to sell, but they simply can’t afford to lower their asking prices to the point where a buyer would be interested. Many buyers theoretically want to buy, but only if they find a place they adore at a price that can’t be beat.
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