Sue Fox, @Properties. Direct 773.816.1788
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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.
I recently represented a buyer who was looking for a condo in Edgewater. We found a good option, and even though my buyer made a cash offer within a few thousand dollars of the asking price, the seller’s agent kept insisting that there was “a great deal of interest” in this property and that we’d better come up to list price or it would be gone. But the days went by, and despite the alleged tide of interest, no one else actually emerged with a better offer. The seller eventually accepted my buyer’s offer and we are scheduled to close shortly.
A year ago, I wouldn’t have been surprised if, in fact, there were at least 2 or 3 other interested buyers. Inventory was quite tight as sellers held off listing their homes, hoping for prices to climb — and they did. Chicago home prices jumped dramatically in 2013, by more than 11%, and multiple-offer situations became quite common.
But in the last few months, buyers again seem to be gaining advantage as inventory increases. The number of homes on the market is now up more than 5% over last fall, according to MLS data. And new listings have increased each month since March.
This means we are now close to a balanced market in Chicago, in which supply and demand meet in the middle and neither buyers nor sellers have the upper hand. There is now almost a 5-month supply of homes on the market, and most experts consider a 6-month supply to be the critical balance point.
So if you weren’t able to find the home of your dreams this year, don’t give up! A bigger selection of homes for sale, and possibly a slowdown in prices, may be ahead in 2015.
It’s official: Home prices are at last on the rebound in Chicago, and around the nation as a whole. After a relentless six-year downturn that shaved about 30% off local prices, we have now seen three months of steady increases in the Chicago area, according to the latest S&P/Case-Shiller housing index.
Here’s what this means on a practical level, for ordinary Chicago buyers and sellers: Prices have stopped falling, and started to rise slightly. There is more competition now than in recent years, especially for nice properties in desirable neighborhoods, and we’re seeing more multiple offers and homes going under contract at a faster pace (sometimes in a matter of days or weeks). Sellers now have a good chance of finding a qualified buyer IF they price their property in line with recent sales.
But the price increases have been small — especially when compared to the steep declines that preceded it. For example, the Case-Shiller data shows single-family home prices climbing 2.7% from June to July, on top of a 4.6% jump from May to June and a 4.5% increase from April to May.
Overall, home prices in Chicago stand about where they were a year ago. Sellers need to remember this when pricing their homes; a “housing recovery” doesn’t mean that prices have shot back up to 2006 levels. Check out the graph above to see what I mean!
Still, the market is getting healthier. The summer home-buying season was so busy I barely had time to blog about it. Attracted by the lowest interest rates ever seen on mortgages — rates on 30-year fixed loans just hit 3.4% this week! — buyers are now flocking back into the market.
I’m especially encouraged to see young buyers decide to stop renting and buy their first homes. Many of my buyers this year have been in their 20s or early 30s, a key home-buying demographic which will power the market forward. After all, with mortgage rates so low and Chicago rents on the rise, buying is now making more financial sense than renting in many cases. A recent report by Trulia showed that buying a home in Chicago is now 50% more affordable than renting a similar home here, making Chicago a better deal for buyers here than in most other cities (72 out of 100) surveyed.
The home-buying season is now cooling off as the winter approaches, but I expect the spring of 2013 to be very active as more Chicago buyers take advantage of this unprecedented combination of low prices and low interest rates.
In another hopeful sign for Chicago’s real estate market, the sales of downtown condos recently hit a two-year high. It seems as though buyers are finally starting to absorb the excess inventory that has shadowed the downtown market ever since the downturn, holding down prices and forcing some newer buildings to turn to renters.
In April, there were 360 condo sales pending in the downtown area, up 55% from a year earlier. While this is good news, prices have yet to recover in downtown Chicago, making this summer an especially good time to buy a condo in the heart of the city.
Over the past two years, according to MLS data, median prices for condos in the Loop have fallen almost 8%, from $352,500 to $325,000. Developers of many downtown condos have had to slash prices to attract interest. Interest rates, too, have dropped and are now at record lows — around 3.75% for a 30-year loan for people with the best credit and sizable down payments.
The combination of low prices and rock-bottom interest rates make this year the best time to buy a Chicago home in at least the last 12 years. Will prices downtown continue to slump, or are we at the bottom? We have seen a recent uptick in prices (and sales) citywide, suggesting that a recovery, however faint, may finally be taking hold.
With home buyers streaming through Chicago neighborhoods this spring in search of a bargain, I’m beginning to see a phenomenon that hasn’t reared its head much in recent years: the “multiple offer situation.”
Dreaded by home buyers but embraced by sellers, this pulse-racing affair occurs when more than one buyer makes an offer on a property at the same time, sometimes within the space of hours (or even minutes). The seller’s realtor will then advise all parties of the “multiple offer situation” and often ask everyone to submit their so-called “best and final offers.” Sometimes, however, one offer is so outstanding that the sellers will decide to negotiate further with only that buyer, leaving the others by the wayside.
I have been extremely busy during the last month, taking various buyers out to see properties as soon as they hit the market and helping submit dozens of offers (hence my recent lack of blog posts!) Many of our offers have been negotiated and accepted, but I can think of at least five that wound up competing against stronger offers and losing out. The bidding wars weren’t confined to a single price range, either; I saw them cropping up anywhere from a $130,000 condo in Edgewater to a $650,000 house in Ravenswood. In two situations, I was representing an investor who was bidding against five to ten other offers (often cash offers) for houses in Irving Park or Portage Park.
It is becoming commonplace to run into other buyers looking at the same property, and to hear the seller’s realtor mention that he/she has showed the home seven or eight times in one day. By the end of March, I was advising my buyers to move quickly if they really liked a home — especially if it was priced well and in good condition. It’s always better to be the first one in and get the property under contract than to wind up paying more because someone else wants it too.
This is the time of year when most buyers begin the search for their next home. Many of them will start by sitting down at a computer and browsing through property listings online, which is a great way to become familiar with the pricing, size and condition of homes in a given neighborhood. Going to open houses is another time-honored way to start testing the waters.
But if you are serious about buying a home this year, there are several concrete steps you can take now — before you even contact a realtor or visit a single property — that will greatly simplify your search and improve your chances of finding a home that truly suits your needs.
1) Get pre-approved for a mortgage: Unless you can pay cash for a home, this is the most important step to take. It’s not as daunting as it may sound. All you have to do is call or visit your local bank, and chances are they have a mortgage division that will be happy to help. Otherwise, Guaranteed Rate and Wintrust Mortgage are both solid lenders who offer competitive rates in Chicago. The lender will run your credit and ask about your income, assets, and debt. Within a day or so, you’ll know whether you can qualify for a loan and how much you can borrow. This is a critical step, because lending standards are tight these days and buyers often need to improve their credit scores or ask family members to co-sign the loan (or give them cash for a down payment) in order to qualify. It is also vital to know how much you can afford, since there is a huge difference between what you can get for $200,000 or $300,000 or $400,000 in this market. The lender can also help you crunch the numbers to figure out what your monthly payment is likely to be.
2) Visit neighborhoods in person: Once you are pre-approved for a mortgage of, say, $300,000, you are ready to consider what that could buy in various neighborhoods. Some buyers already know exactly where they want to live, but many people are open to new neighborhoods or suburbs. This is where house-hunting online starts to break down. If you don’t know the area, you’re just looking at random homes on a screen without the context that will tell you whether there are any coffeehouses or shops or restaurants nearby or whether you will feel safe walking your dog at night. If your budget seems to be pointing you towards neighborhoods you don’t really know, it’s a great time to actually visit these areas for a few hours. Walk or drive around and see if you like what you find. If so, that may be a place to keep on your list as your search gains more focus.
3) Be specific: Now that you have a general idea of two major criteria — price and location — you are ready to drill down even further into specifics. What would your ideal home look like? Is it a condo or a townhouse or a single-family house? How many bedrooms and baths? Do your prefer a new or rehabbed home, or an older home with vintage charm (that perhaps needs some updating)? What else really matters to you? The school district? Parking? Being near public transportation? Living in a walkable neighborhood? The more specific you can be, the better. As a realtor, I always appreciate when buyers present a list of must-haves. Sometimes they fear they are being too picky, but being clear about your priorities actually is a major step in the search process. Of course, buying a home almost always involves some trade-offs, as you discover that the house with the fabulous kitchen is also on a busy street, or the place in the great school district isn’t as big as you would prefer. But if you can figure out the things that most matter to you in a home, it will spare you a lot of frustration and wasted time once you are out there looking.
I work with a lot of buyers, especially first-time buyers, and I know that many of these questions about neighborhoods, types of homes, and amenities can’t be fully explored until we jump in the car and actually go see some properties. But buyers who have done their preliminary homework tend to have an easier, more successful search. The spring house-hunting season is a bustling time, with lots of new properties hitting the market each week and thousands of buyers out looking, so being prepared can give you an edge when it comes to finding a great property. When the right house hits the market in an area you like, you will be ready to pounce … while another buyer who isn’t pre-approved and doesn’t really know the area will hesitate.
I’ve witnessed an interesting trend emerging in recent months, just by watching my own buyers as they move through the home-hunting process. And now I have some hard data to prove it: Chicago buyers are increasingly buying single-family houses, often skipping right past the condo stage that was once the point of entry for first-time buyers.
Five to ten years ago, if you were a North side buyer approved for a loan of $200,000 to $400,000, your best option was often to buy a condo if you wanted to live in a lively neighborhood with plenty of restaurants and shops (and sometimes even the lake) within walking distance. The Loop, South Loop, River North, Bucktown, Wicker Park, Lincoln Park, Lakeview, North Center, Roscoe Village, Lincoln Square, Andersonville, Uptown, Edgewater — all of these areas were bursting with new condo developments that made the most of city living at prices that were affordable for first-time buyers. Most of these folks never even considered buying a single-family house.
But today, Chicago housing prices have fallen so far that decent 3-bedroom houses can now be had for the price of a condo. The demand for single-family houses has climbed rapidly, with 37 percent of Chicago buyers choosing a house in 2011, according to data gathered by the National Assn. of Realtors. Two years ago, only 27 percent of buyers made a similar choice.
Likewise, the appetite for condos has waned. Just 39 percent of Chicago buyers opted for a condo in a building with at least five units in 2011, compared with 54 percent in 2009. (The rest presumably bought townhouses, two-flats or some other type of residential property.)
Among my buyers, the shift seems to be happening because they realize that by compromising a bit on the neighborhood, they are able to find a house for $200,000 to $300,000. These houses generally are neither large nor new. They tend to be around 1200 to 1600 square feet (often a bungalow, a ranch house, or an A-frame home) and they often need some cosmetic updating, especially things like refinishing the floors and renovating the kitchen and baths. But they usually offer all the appeal of a single-family house — including a backyard, garage, and basement, while NOT including a condo association, upstairs or downstairs neighbors, or monthly assessments.
“I never dreamed we would be able to afford a house,” one of my buyers recently told me. But more and more buyers can — particularly if they are willing to look a bit further west than they may have lived previously. Instead of the neighborhoods mentioned above, areas like Irving Park, Albany Park, Avondale, Logan Square, Portage Park and Jefferson Park are now attracting Northsiders who want a house but may only have $250,000 or so to spend. At price points around $300,000 and above, you can sometimes find newly rehabbed houses with finished basements in these neighborhoods. There is literally nothing to do but move in (which, in years past, was often the appeal of many new and gut-rehabbed condos.)
At last, housing prices will finally hit bottom and begin to increase in 2012, according to a group of 54 economists surveyed by the Wall Street Journal.
The increase will be slight, probably less than 2.5% a year — not enough to keep up with inflation, the economists said. Yet the rebound will still be a welcome relief for homeowners across the country, who saw prices slip again this year. The economists predicted that home prices, as tracked by the Federal Housing Finance Administration, will fall 2.7% in 2011.
In Chicago, we’ve seen home prices drop about 5% this year, according to the most recent data from the Case-Shiller home price index. Prices started to recover here over the summer, only to dip ever so slightly (less than 1%) between August and September.
What’s next for the Chicago market? With interest rates at record lows — local lenders like Guaranteed Rate are now offering 30-year fixed mortgages at 3.85% — it’s still a stunningly cheap time to buy a home. But unemployment remains stubbornly high in the Chicago-Joliet-Naperville area, a factor that is likely to keep a lid on home prices. Even though Illinois led the nation in job growth in October, unemployment jumped from 8.8% a year ago to 9.7% in the Chicago area.
Every year, I have a sizable number of buyers who want to live in Lakeview. They may already rent an apartment there, or perhaps in Lincoln Park, and they draw the line at Addison (or sometimes Irving Park Rd.) and refuse to go any further north, where housing prices drop considerably. And now, they don’t have to.
Like other hot neighborhoods in Chicago, Lakeview has become increasingly affordable. A nice 2-bedroom/2-bath condo, often including parking, is now within reach of many first-time buyers. There are now 53 such condos for sale at prices under $250,000, and 45 of them come with parking.
At the low end (under $200,000), many of the units are shorts sales, which will require some time and patience on the part of buyers to close the deal. These tend to be in high-rise buildings with vintage features, and some updating of kitchens, bathrooms, and outdated carpets is often needed.
In the $200K to $250K price range, the majority of these condos are also in high-rise buildings, but they are often larger and more updated, sometimes with lake views. Occasionally I’ll come across a Lakeview condo in a small building, but these are few and far between in Lakeview, and are typically snatched up quickly — if they are priced right.
Take a look at 634 W Roscoe St. #2N, a recent rehab in a 22-unit courtyard building in a prime east Lakeview location. It was initially (over)priced at $275,000 and has now lingered on the market for almost a year. But in that time, the seller slashed the asking price to $225,000. The unit is on the small side, with bedrooms that measure 14×10 and 10×9, but it is updated and includes a rental parking spot across the street for $185/month. It’s also in the coveted Nettlehorst elementary school district.
There are several other short sales in small buildings that are already under contract. Whether they will actually close is anyone’s guess. But if you want a sure thing, check out 1645 W School St. #401 in the popular 60657 Lofts building, right beside Whole Foods, Caribou coffee, and the Wishbone restaurant. It’s a loft with 2 bedrooms, 2 baths, nearly new kitchen appliances, a fireplace and a balcony for $249,900. This one, too, has been on the market awhile (since February) because it was initially priced $75,000 higher. The owner is asking an additional $25,000 for parking. But in this market, everything is negotiable.
There will certainly be more condos hitting the market as soon as the new year begins. So if Lakeview is your preferred neighborhood, 2012 should bring plenty of affordable condos to choose from — a rare opportunity in one of Chicago’s most desirable areas.
Check out my listing at 5400 N Sheridan, a low-rise building located a block from the lake in Edgewater. It’s hard to find a 2-bedroom, 2-bath condo — with parking included — in this area for less than $150,000, especially one that’s not in a high-rise building with high monthly assessments.
The assessments here are just $368 per month, and that includes heat, gas, and basic cable TV. And the unit is big, with 2 large bedrooms, including a master bedroom with a huge walk-in closet, an in-suite bath, and a full laundry room. There are newly-refinished hardwood floors throughout, an updated kitchen, a gas fireplace, and plenty of closet space. It also comes with a parking space and extra storage in the basement.
Best of all, this condo is just a block from the lake and three blocks from Andersonville’s shops and restaurants. It’s also close to the Red line, the Bryn Mawr historic district, and the new Dominick’s store at Foster and Sheridan.
We just reduced the price $10,000 to $149,900 — a great deal for this neighborhood — so give me a call at 773-816-1788 if you want to come see it!
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- More choices ahead for Chicago buyers as rally cools