Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Foreclosures' Category
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.
A pair of new statistics caught my eye this week, both suggesting that the era of rock-bottom real estate in Chicago is rapidly becoming a thing of the past.
First, the number of local homes (in the Chicago-Naperville-Joilet metro area) in foreclosure dropped 31.3% over the same time last year, according to the data firm CoreLogic. This stands to reason: With home prices climbing throughout the year, homeowners now stand a better chance of being able to sell or refinance their homes — instead of defaulting on their mortgages.
At the same time, thousands of cheap Chicago homes in need of repair — many of them foreclosures or short sales — are quickly being snapped up by investors, who usually pay cash. They are fixing them up (with new kitchens, baths, finished basements and sometimes new roofs and mechanical systems) and popping them back onto the market again just a few months later. And these renovated homes are selling quickly to buyers who don’t want to (or can’t afford to) do all that work themselves.
There were 2,235 single-family houses that were sold and then sold again within six months in the Chicago area from January to September, according to a new Realty Trac report, more than double the 1,086 homes flipped in the same period in 2012. This doesn’t even include the homes that took a bit longer than six months to renovate and sell.
Home prices have been falling — plunging, really — in Chicago for the better part of a decade now, declining about 30% since the city’s housing market peaked in 2006. But 2012 was supposed to be different. And for most of the year, it was.
Chicago prices finally stopped their downward slide and began to turn up, little by little, as the spring and summer buying season progressed. With inventory tight, many buyers found themselves competing for available homes, especially properties in good condition in coveted neighborhoods. Multiple offers became more common and homes sold more quickly than in previous years.
But a recent survey of home prices in 20 major U.S. cities — the monthly S&P/Case-Shiller report — shows that Chicago was one of only two cities where prices actually fell over the past year. The report (which covers the most recent data, through October 2012) found that Chicago home prices slipped 1.3% over the past year. The other city where prices fell, New York, saw a 1.2% decline.
Chicago prices also fell on a monthly basis, dropping 1.5% in October over September, the weakest result among all the cities surveyed.
So what’s ahead for our local real estate market? I read these numbers, which always vary slightly from those compiled by the Illinois Assn. of Realtors, as a sign of stability. Prices are pretty much flat over last year. But after years of large declines, this is a marked change in direction. The market has now reached a turning point. It’s no longer in free fall, but prices are not appreciating yet, either.
Is this what the bottom looks like? Probably, although we may bump along here for awhile longer before prices really start to climb.
A sustained recovery depends on strong employment in the Chicago area and a decline in the thousands of foreclosures seen annually here, both of which the city has yet to achieve.
After falling amid an outcry over improper bank behavior, foreclosures are once again rising sharply in Chicago and Illinois as a whole.
Last week, RealtyTrac reported that foreclosure activity in the Chicago region jumped 34% from the third quarter of 2011. Notices of default, the first step in a foreclosure action, were filed against nearly 19,000 local homes.
Chicago, which has been one of the hardest-hit cities nationally in terms of foreclosures, is now doing much worse than the rest of the country — where foreclosure activity dropped 16% in the last year. Foreclosures are now at their lowest level nationwide in more than five years, according to RealtyTrac. In Illinois, however, foreclosures shot up 31% over last year.
The real estate website Zillow just started displaying information on homes that are in foreclosure but not yet for sale, and it showed 11,000 such condos and single-family houses in city of Chicago alone. Many of them are clustered in ravaged neighborhoods on the South side, but the distressed properties extend into even the city’s priciest zip codes as homeowners struggle to hold onto homes whose value has fallen about 30% in recent years.
According to RealtyTrac, it takes about two years on average for a lender to foreclose on a Chicago home, so a troubled address listed on Zillow could be a long way from being offered for sale. Still, look for increasing waves of foreclosures to hit the local market in 2013, a trend that could help hold down prices.
Hundreds of investors, it seems, are now spotting opportunity in Chicago’s rejuvenated housing market.
House-flipping, a practice where someone buys a house (presumably at a discount) and quickly resells it for a profit, is once again on the rise. According to RealtyTrac, a real estate data firm, there were 1,067 homes flipped in the seven-county Chicago area during the first half of 2012 — a 30% jump from the previous year.
Investors often buy these homes as foreclosures and then fix them up, sometimes with cosmetic improvements like new paint, but often by gutting and replacing much of the interior and mechanicals. In many Chicago neighborhoods, the houses look almost new by the time they hit the market again three to six months later.
Over the past year, I’ve seen a good deal of flipping in areas like Irving Park, Logan Square, and Portage Park. These aren’t necessarily the hottest North side neighborhoods, but they are solid middle-class enclaves close to public transit and full of houses in the affordable $250,000 to $350,000 range.
Competition for distressed homes, which often sell below $150,000 in these neighborhoods, can be very fierce, and many ordinary buyers are outbid by investors willing to pay cash. But once the homes are rehabbed and offered for sale, they can be appealing deals for the end buyer. After all, it’s not easy to find a 3 or 4-bedroom house with a finished basement and new plumbing, electric, roof, paint, kitchen, baths etc. for $300,000 on Chicago’s North side.
I helped some first-time buyers find just such a house this year in Portage Park. This particular couple started out looking at condos in Uptown, but once they discovered they could afford a house if they were willing to move a few miles west, the house search was on. We looked at dozens of old and often rundown bungalows, Victorians, and ranch houses until we finally came across a lovely, fully rehabbed 4-bedroom Portage Park house for $279,000.
It was a great deal for my buyers, who knew how difficult it was to find a renovated house in their price range, and they snapped it up quickly. And it was apparently a great deal for the investor who flipped it as well. He bought it as a short sale for $115,000, renovated it, and sold it about five months later for more than double the price.
This morning I was interviewed by WBEZ housing reporter Ashley Gross about the low prices of foreclosures in Chicago. Buyers can expect about a 50% discount off regular market prices when buying a foreclosure in the Chicago area, according to data gathered in the fourth quarter of 2011 by RealtyTrac.
But, as I cautioned WBEZ listeners, that’s often because foreclosed homes are in lousy shape and need work. Single-family houses that have been seized by lenders sometimes have leaks, mold, damaged floors and other problems. Many of them are missing kitchen appliances, and occasionally they’ve even been stripped of copper plumbing (which thieves find valuable). No one is living there — often for months — and the neglect takes its toll. Foreclosed condos, too, can spring leaks (I have seen two where the refrigerator leaked in the vacant unit, damaging the condo downstairs as well.) And they often are found in buildings with other distressed condos, which can mean the building itself is financially unstable and thus it will be difficult to get a mortgage there.
Remember how a home winds up in foreclosure to begin with: its owner couldn’t afford it. That usually means the owner couldn’t afford to maintain the home, either. Rare is the foreclosed property that is in sparkly new condition.
The latest figures are in for December home sales, and once again, prices have slipped in Chicago as distressed properties gobble up nearly half the market.
The median sale price is now $156,000 in Chicago — a 6.2% drop from December 2010, when it was $166,250. Back in the robust days of 2005, 2006 and 2007 before the housing market crashed, Chicago’s median price stood between $279,000 and $287,000 each December. So you can see how dramatically local prices have fallen.
But the price plunge is deepened by the kind of properties now selling. Nearly half the homes trading hands, about 45%, are foreclosures or short sales. Many people may imagine that these homes are fabulous deals, attractive houses or condos sold well below market value. But as a realtor who actually tromps through these distressed properties on a regular basis, let me assure you that a lot of them are in crummy shape.
Foreclosed homes are vacant, and vacant homes invite leaks, mold, animals, vandalism and occasionally even squatters. They are often missing their kitchen appliances. An angry former owner may have damaged the home on the way out. Stained carpets, holes in the drywall, buckled floors and other maladies are common. Short sales, on the other hand, are still owned by a financially-strapped homeowner, so while they are often occupied, they may have been the victim of deferred maintenance for years. Sometimes tenants live there, and many times these homes are not in great shape by the time a short sale is finally completed.
Every once in a while you do run across a distressed property that is in good condition, but I would say that is the exception in most Chicago neighborhoods. The point is, with so many foreclosures and short sales now in the mix, Chicago’s home prices have been dragged down by the sheer weight of all these lower-end properties.
This phenomenon has made it very tough for ordinary sellers (who aren’t in foreclosure or attempting a short sale) to compete on price, particularly in areas with a lot of distressed homes like Rogers Park, Uptown, or Albany Park. Many people are opting to stay put (or try to rent out their homes) rather than sell in this environment.
In his State of the Union speech last night, President Barack Obama proposed a new plan to let all underwater homeowners refinance at today’s super-low mortgage rates — a proposal that could help heal the housing market and inject fresh cash into the economy.
If Congress approves it, that is. And with a Republican-controlled House that continues to block many of Obama’s initiatives, that is a big if.
The Obama administration has already offered a variety of programs aimed at stemming the tide of foreclosures, helping people modify their loans, and promoting refinancing for government-backed mortgages. But so far, the impact has been minimal and more than 3 million homes have been repossessed since the housing boom ended in 2006.
In Chicago, where the median home price has dropped about 30% since the downturn began, thousands of underwater homeowners have either lost their homes to foreclosure or been forced to sell in a short sale. Nearly half of the recent sales here now involve distressed properties. Each year, I meet dozens of people who would like to sell, if only they could get enough to pay off their mortgage.
Obama’s plan would at least help these folks hang onto their homes. Each homeowner could save an estimated $3,000 per year if he/she could refi and take advantage of the lowest rates (around 4% for a 30-year fixed mortgage) in half a century. Then they could pump those savings back into the economy, whose lifeblood is consumer spending. The Obama administration estimates that the program could benefit two to three million homeowners, according to the New York Times.
It’s a sensible plan all around, but some financial analysts are already proclaiming it dead on arrival, saying it won’t get through Congress. The sticking point seems to be a “small fee” that would be imposed on large banks to help fund the plan. Will this prove to be another instance of Congress protecting Wall Street profits at the expense of Main Street homeowners?
Happy 2012! Especially if you’re a home buyer.
From what I’ve been seeing over the past few weeks, Chicago buyers are already out shopping for their next home. Even during the height of the holiday season, I witnessed: One of my condo listings go under contract two days before Christmas, two separate buyers (in the Loop and Uptown) who are preparing to make offers this week, and another three new buyers who are starting their single-family home searches (in Bucktown, Irving Park, and Andersonville).
Home sales are on the rise throughout Chicago… but home prices are not. And neither, for the time being, are mortgage rates. That’s why it’s such an incredible time to be a home buyer. At no other moment in the past decade could you find home prices so low in Chicago (the median is now $160,000, nearly back to the levels of 1999), nor interest rates hovering below 4% for a 30-year fixed mortgage. Savvy buyers with solid income and credit scores are seizing the moment — and many people are simply paying cash for their properties these days, if they can afford it.
A major trend in 2012 will undoubtedly be the flood of foreclosed and short sale properties hitting the market; they already make up almost half of Chicago’s home sales. Illinois now ranks fourth in the nation for foreclosure activity, with 12,398 properties receiving foreclosure filings in November alone. In Cook County, foreclosure activity jumped 20% in November, according to a recent story in the Chicago Tribune, which attributed the rise to a 57% increase in homes sent to court-ordered auctions.
Buyers are out there, but they are definitely looking for bargains in 2012. And with homes now selling for about 30% less than what they commanded just a few years ago, bargains are not hard to find. It’s much harder to find home sellers — particularly the traditional kind who aren’t in foreclosure or attempting a short sale — willing to accept the new market reality and price their properties accordingly.
With so many foreclosed homes and short sales on the market, I’m sometimes contacted by home buyers hoping to scoop up a distressed property in one of Chicago’s most affluent neighborhoods. Trouble is, these areas have held their value better than most, and often there aren’t many foreclosures or short sales to choose from.
But in Lincoln Park, I have seen distress sales steadily rising over the last couple years — to the point that more than 1 in 8 condo sales in Lincoln Park in 2011 involved a foreclosure or short sale. So far, there have been 658 condo sales this year; 45 were short sales and 42 were foreclosures, meaning that 13.2% were distress sales. The majority of them involved homes that sold for $250,000 or less.
The bargains included 20 condos, all studios or one-bedroom units, that sold for $100,000 or less — a price range once virtually unheard of in Lincoln Park.
If you’re hoping to find a single-family house being sold under a financial cloud, however, your choices are fewer. Only 13 out of 135 Lincoln Park houses sold in 2011 were short sales or foreclosures. That’s less than 10%.
Most of these single-family houses sold for less than $1 million, but there were a handful of high-end luxury homes that also slid towards foreclosure. In some cases, it looks like a developer overestimated the market and got caught with a new home he/she couldn’t sell. At 2664 N Greenview, which the listing describes a 6-bedroom “designed mansion” built in 2008, the developer originally listed it for sale four years ago at $2.4 million. But as the market tanked, no buyer stepped forward, and the price was steadily chopped until the house finally sold this June (as a short sale) for $1.5 million.
Even a millionaire likes a bargain, after all. The most expensive distress sale in Lincoln Park was a new 15-room mansion at 2461 N Geneva Terrace “designed by a European architect for himself,” according to the listing, that sold in September for $2,725,000. Apparently the European architect couldn’t afford the grand home, which hit the market in early 2009 with a $6.25 million price tag. By 2010, it was being marketed as a short sale, and it eventually was seized by the bank and sold as a foreclosure.
It was still one of the most expensive homes sold in Lincoln Park this year.
Please see my other blog posts at www.hometochicago.com
- 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