Sue Fox, @Properties. Direct 773.816.1788
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Archive for January, 2015
Interested in snapping up a foreclosed home, a tarnished gem that you can make gleam with a little elbow grease? So, unfortunately, are a lot of others – including many large institutional investors who buy Chicago-area homes by the hundreds, often outbidding regular home buyers with cash.
Over the past three years, large companies like Blackstone Group and American Homes 4 Rent have bought roughly 10,000 distressed properties in the Chicago area and converted them into rentals, a buy-and-hold strategy that has helped drive up the prices of such homes by about 30%, according to a recent analysis by Realty Trac. But with houses that once sold for an average of about $161,000 now going for $210,000, it’s gotten much harder to find a good deal.
Meanwhile, there are fewer foreclosed homes to choose from. Chicago still has one of the highest foreclosure rates in the country, but total foreclosure activity has declined about 25% over the last year. It’s down almost 80% from 2009 levels, when the city’s real estate recession was in full swing.
So what’s a determined buyer to do? In 2014, I helped my buyers purchase more than 20 foreclosed homes, and there is definitely a method to the madness. Here are a few tips to make the process easier:
1) Be Ready to Pounce: The market for foreclosed homes in Chicago is very competitive. Many of them will attract multiple offers and sell within days, so it’s vital that you are prepared to act quickly. This means having a pre-approval letter from your lender or proof of funds from your bank, showing you have the financing in place to complete the purchase. It means visiting the home as soon as it hits the market to assess its condition. And, in most cases, it means making a strong offer. Unless the property has been sitting on the market for months, chances are other buyers will be interested. So do your homework, have your realtor run the comps and prepare a solid offer that can stand up against the competition (which often includes cash offers from investors.)
2) Hire a Great Inspector: Foreclosures are usually left vacant – sometimes for months – and by definition their last owners were in financial trouble. So these homes are often in poor condition, with battered floors and missing appliances. Mold and water damage are common. In general, houses and 2-flats are in worse shape than many foreclosed condos, which can be relatively new depending upon the building. When buying a foreclosure, it’s important to know exactly what you are getting into in terms of repairs and maintenance. A top-notch home inspector will provide what is likely to be a long list of all the home’s problems, along with guidance about which repairs are critical and which can probably wait a few years.
3) Amass Your Cash: Many foreclosed properties need work. And with Chicago’s 100-year-old housing stock, they often need A LOT of work, sometimes more than $100,000 worth of it. These rehab jobs are not for the faint of heart (which is why so much of the flipping business is now dominated by institutional investors.) If you don’t have the cash of your own, you’ll need some type of construction loan, and they are not always easy to obtain. Fannie Mae recently ended its HomePath mortgage program, which provided loans to rehab rundown foreclosures owned by Fannie. But there are still options like FHA’s 203K renovation loan (designed for owner-occupants) and Fannie’s HomeStyle renovation loan (which can also be used by investors who plan to rent out the home.)
One last tip: If you do intend to live in the home, keep an eye out for foreclosures owned by Fannie Mae or Freddie Mac. Both offer First Look programs that are designed to give regular home buyers an edge over investors when a home hits the market, by allowing owner-occupants a period of 15-20 days to make an offer – before offers from investors will be considered. This may be the single best way for an ordinary buyer to turn a boarded-up foreclosure back into a home.
The new year is off to a bitterly cold start, with temps hitting 5 below zero this morning and Chicago public schools closed for the second day in a row. While the brutal weather is never ideal for house-hunting, Chicago’s real estate market nonetheless is on the upswing, with prices increasing a whopping 15% in 2014, according to the latest sales figures from the Illinois Assn. of Realtors.
Home price appreciation in the city was more than double that in the state of Illinois as a whole, where prices rose 6.9% from November 2013 to November 2104. But fewer homes were changing hands — a mark of the low inventory that continues to flummox buyers who enter the market with high hopes only to discover how few homes are actually for sale.
“As we round out the year, higher median sales prices and low inventory continue to be the market pattern,” said Hugh Rider, president of the Chicago Assn. of Realtors.
Home sales in Chicago dropped 11.5% over the past year, and the scarcity of homes listed for sale helped push up prices. The median home price increased to $230,000 in November, the latest month for which data is available.
Some analysts also said that a spate of freezing weather in November (which has gotten even worse in January!) was to blame for driving down sales. It was the state’s “fourth-coldest November on record,” pointed out Geoffrey Hewings, director of the Regional Economics Applications Lab at the University of Illinois. “While prices continue to improve, the sales forecast for the next three months indicates declines,” he said. Foreclosures sales are also on the decline, leading to fewer investor purchases.
All of which points to 2015 as a bright year for home sellers, who may be able to finally sell their home at an acceptable price — which for most people means they won’t have to bring any money to closing. If the Chicago market continues to recover, more and more fortunate sellers could even reap a profit.
It’s getting harder to find an affordable house in Lincoln Square, a lovely, low-key neighborhood just north of North Center and west of Andersonville. In the last year, single-family home prices in Lincoln Square have climbed 8.2%, pushing the average house price here to $630,000. The gain comes on top of a huge run-up in prices in 2013, making the once-sleepy Lincoln Square one of the hottest areas in the city.
What’s driving the boom? The neighborhood has long appealed to Northsiders looking for a less expensive, quieter alternative to Lincoln Park and Lakeview. With plenty of good restaurants to be found along Lincoln Avenue, tree-lined streets filled with quaint A-frame houses, acres of green space and ball fields at Winnemac Park — not to mention easy access to the Brown line, Lincoln Square became a natural destination for buyers priced out of neighborhoods closer to the city core.
But as Chicago’s housing market recovered, this area exploded in popularity – and its home prices quickly followed suit. Two years ago, the average price was $475,000 for a house here, according to MLS data. The average condo price was $199,000. Now both of those figures are up about 32% — and the demand has led to bidding wars for even the lowliest foreclosures. Local schools have improved, too. In recent years, Chappell Elementary School went from the middle of the pack to earning a 9 out of 10 rating from Great Schools, a nonprofit that provides school information nationwide.
Cash buyers are snapping up rundown Lincoln Square homes, particularly in the Bowmanville area north of Foster Avenue, where even a mold-ridden house lacking a working kitchen will likely attract multiple offers. Six months later, you may see the same address — now featuring a brand-new house or a gut-rehab renovation — back on the market for upwards of $700,000 or even $800,000.
Consider, for example, the fate of 2200 W Farragut Avenue, a dilapidated, century-old house that sold in early 2013 for $250,000. The listing described it as “very dark and dangerous” and warned that the buyer “must be ready for a project.” Indeed, the cash buyer tore down the house and promptly replaced it with a five-bedroom house complete with three and a half baths, a finished basement, and a roof deck over the garage. It sold in less than two weeks, for $889,000.
So if you’re looking to buy in Lincoln Square, or any city neighborhood, contact me. I have the resources to get you the down-low on the best deals (and steals) in Chicago.
(Note to readers: This blog post originally appeared on Dec. 29 the @properties blog, where I am one of the regular agent bloggers.)
- Sizzle is back in the South Loop
- How to Buy a Chicago Foreclosure (as Supply Steadily Shrinks)
- Home prices jump 15% in 2014, but cold weather chills sales
- Lincoln Square on a Tear as Average House Price Tops $600,000
- More choices ahead for Chicago buyers as rally cools