Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Foreclosures' Category
Chicago home prices rose slightly — 1.2% — in May, according to Case-Shiller Home Price Index data released this week. Chicago condos fared even better, with prices jumping 2.7% in May as many first-time buyers rushed to close on their home purchases so they could claim their $8,000 tax credit.
Ah, memories. While it’s good (and relatively rare) news to see Chicago home prices halt their four-year downward spiral, this uptick probably can’t be sustained. Not with the expiration of the tax credit and the flood of foreclosed properties poised to hit the market over the coming year. Illinois has one of the highest foreclosure rates in the nation, and Chicago ranks in the top fifth of foreclosure filings among more than 200 American cities.
Chicago prices are already down 1.5% over the last year. If you survey the real estate carnage of the last five years, you will see that single-family home prices have now plummeted almost 28% from their September 2006 peak while condo prices have sunk 20% since their high in September 2007. That basically wipes out most of the last decade in home appreciation, bringing us back to prices last seen in 2002.
Even as the job picture brightens slightly in Illinois, the number of homes facing foreclosure continues to soar. The Illinois unemployment rate is now 10.4% — still one of the worst in the country, but better than the 11% we saw earlier this year. The scarcity of jobs has left thousands of local homeowners in trouble, and they are continuing to default on their mortgages in record numbers.
Nearly 24% more Illinois properties received a foreclosure-related notice in the first six months of 2010 than during the same period last year, according to RealtyTrac Inc., a real estate listing service that tracks distressed properties. This means more than 85,000 properties statewide — most of them residential, and many of them in the Chicago region — got a notice. Illinois had the 9th-highest rate of foreclosure notices in the nation.
Nationwide, the rate rose slightly more than 8%, RealtyTrac reported. More than 1 million homeowners will likely lose their homes to foreclosure this year.
What does this mean for our Chicago housing market? Nothing good, I’m afraid. Are you noticing more “For Sale” signs sprouting in your neighborhood lately? Now that the government’s tax credits for home buyers have expired, the inventory of Chicago homes for sale is starting to rise again. There were 4,259 listings in the Chicago area last week, according to Midwest Real Estate Data LLC, but only 855 closings.
This is an ominous sign. Last year the inventory was roughly the same (it was 5% higher then) but the number of closings during the same week last year was 31% higher.
In other words… there is a lot more pain to come in the Chicago real estate market. I predict more foreclosures, fewer qualified buyers to absorb increasing inventory, and further price drops. Anyone looking to buy will have plenty of homes at attractive prices to choose from, and anyone looking to sell will have an increasingly tough time.
ChaNell Marshall, a 31-year-old urban planner in Chicago, didn’t have her heart set on a foreclosure when she contacted me earlier this year about buying a condo. She just wanted to find a 2-bedroom home, preferably with a dining room, that fit her budget: $150,000 or less. We focused on Rogers Park and Albany Park, two North side neighborhoods where 2-bedroom units can be found in this price range, but it soon became apparent that many condo buildings here had been bruised (if not maimed) by the housing bust.
Every other condo, it seemed, was either a short sale or a foreclosed property. Because ChaNell was hoping to qualify for the first-time home buyer’s tax credit, she needed to get a property under contract by April 30 — which did not leave enough time to navigate a short sale. Some of the foreclosures were attractively priced, but many were in disrepair and more than a few were missing all the kitchen appliances. Finally we found a large, almost new 2-bedroom, 2-bath condo (with an intact kitchen and even a washer and dryer) on Hermitage Ave. in Rogers Park, a foreclosure priced below market value at $121,500.
Then the fun really began. For the next two months, the seller — an affiliate of Chase bank — and its attorney proceeded to delay, deny, fail to respond, and otherwise not lift a finger to help get this deal closed. “There were a lot of things that stalled the process,” said ChaNell. “Dealing with a seller that’s a bank means you’re dealing with a whole bureaucracy. You want to get an answer but there’s nobody who can provide it.”
For those of you out there contemplating buying a foreclosure (particularly a condo, which involves more extensive requirements that the building must meet in order to secure a loan), take note: Foreclosures are not for the faint-hearted. Not only do they require much patience and persistence to prod the deal forward, but they can be riskier as well. Extra costs for repairs, attorney fees or unpaid special assessments can spring up, and buyers do not receive the standard disclosures about the property from the seller, an absentee bank who knows nothing about the home.
For ChaNell, the challenges included a seller who took nine days to accept her offer, but then refused to extend the closing date by nine days, forcing her to cancel the original contract and start over; a seller’s attorney who often refused to negotiate or even respond to her attorney’s requests; a condo board that never produced many of the documents a buyer would typically receive; and about $1300 in unpaid assessments that the seller was supposed to pay, but the condo board had no record of receiving, an impasse which delayed closing by nearly three weeks.
“Attorney review was a mess,” she recalled. “We never got direct responses to anything.” But ChaNell had an ideal temperament for dealing with all the hurdles a foreclosed condo presents. She always stayed calm and didn’t let the seller’s lack of cooperation rattle her, because at the end of the day she knew she would get the condo she loved at a fantastic price. And eventually, she did.
For other buyers who might be considering a foreclosure, ChaNell cautioned: “It’s not going to be a quick sale. It can be time-consuming. There’s a lot of risk involved.”
Not to mention inconvenience. Because the seller delayed closing for weeks, ChaNell’s lease ended and she had to move out of her apartment and put her furniture in storage while she waited for the deal to close.
This week, I went to visit ChaNell in her new condo. It looked great, with the floors redone and the walls freshly painted. With a full living room and dining room, she had plenty of space to spread out, and she was getting ready to set up her entertainment center, complete with the Wii, in the second bedroom.
All things considered, ChaNell said, “I think you can get a great deal on a foreclosure.”
Looking to buy a Chicago home in foreclosure? Your selection keeps getting better and better, as more homeowners continue to default on their loans.
Take a look at the recent first-quarter report from Freddie Mac, the giant government-supported mortgage company. It posted a $6.7 billion loss and asked for an additional $10.6 billion (from taxpayers!) to help stabilize its finances. The federal government has already poured $130 billion into both Freddie Mac and its sister company Fannie Mae to keep the country’s mortgage market breathing.
Unfortunately, all this government largess doesn’t seem to be stopping the tidal wave of foreclosures. Illinois — and its largest housing market, Chicago — are some of the hardest-hit regions in the country. Chicago homeowners lost 3,500 homes to foreclosure and the city had roughly 365,000 underwater borrowers in the first quarter of 2010, the fifth-highest among the nation’s major cities, according to to a recent report by CoreLogic, a firm that analyzes real estate data.
In the meantime, Freddie Mac’s inventory of foreclosed homes has soared from about 29,000 units in March 2009 to almost 54,000 this year, and its non-performing assets have nearly doubled.
This is an ominous sign for Chicago homeowners, many of whom are still struggling to afford their mortgage payments amid 11.5% unemployment in Illinois. Even those homeowners who can pay the bills are indirectly hurt, as local housing prices continue to wilt under pressure from waves of foreclosed properties.
When will it end? No time soon, according to Freddie Mac. The company forecasts rising losses throughout 2010.
While home sales have jumped significantly in the Chicago area, another less hopeful housing indicator — home foreclosures — is also on the rise. During the first quarter, more Chicago-area homeowners lost their homes to foreclosure than in any other quarter in the past five years.
Nearly 3,500 homes in the city of Chicago went through a court-ordered auction, the final step in a foreclosure, and 95 percent of them were reclaimed by lenders, according to a recent report by the Woodstock Institute, a Chicago-based think tank. In the six-county Chicago region as a whole, 9,302 homes went to auction during the first quarter.
It looks like the Obama administration’s Making Home Affordable program and other government efforts to stem the foreclosure crisis aren’t working. Loan modification often fails for people who simply can’t afford their homes. Illinois, one of the hardest-hit states in terms of foreclosures, now faces 11.7% unemployment — far worse than the national average. If people are out of work, it becomes pretty hard for them to pay their mortgages.
So what does all this portend for our local market? I see two trends that I expect to continue in Chicago through 2010 and perhaps beyond:
1) The surge in foreclosed homes will continue to push Chicago home prices down across the board, particularly in neighborhoods with lots of distressed properties. In the North side neighborhoods I cover, this would mean falling prices in Rogers Park, Albany Park and perhaps Uptown and Edgewater, and continuing pressure that holds down prices in more affluent areas like Lakeview, Lincoln Square and Andersonville.
2) The foreclosures — at least the ones in decent shape — will present an attractive buying opportunity for both first-time buyers who couldn’t afford a home in years past, and investors who are taking advantage of the bargain prices. I’m even seeing investors who buy foreclosed houses and condos, spruce them up a little, and then flip them back onto the market. Often the end buyer, who still gets a deal on the price, is a first-time home buyer.
The home buyer’s tax credit — which expires tomorrow — has certainly helped light a fire under Chicago home buyers. Home sales shot up again in March compared to March 2009, making this the seventh month in a row of year-over-year gains.
In the city of Chicago, March total home sales (single-family and condos) rose 49.7% to 1,814 sales compared to 1,212 sales a year ago, according to the Illinois Association of Realtors. For the entire first quarter, home sales were also up considerably, by 41.6% citywide.
But prices have continues to slip. Chicago’s median home price in March was $209,000, a 4.6% drop compared to $219,000 last year.
Dr. Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory (REAL) of the University of Illinois, pointed to the latest figures as evidence of an “upward trend.” He told the Realtor’s association that “there is increasing evidence that the housing market is stabilizing; in many parts of the country sales have increased but prices remain stubborn. In places where there have been increases, they are modest; there is no doubt that the downward pressure on prices can be traced to the volume of distressed properties on the market.”
Meanwhile, foreclosures have continued to climb across Chicago and the metropolitan region. Nearly 3,500 Chicago homes went through a court-ordered auction in the first quarter, and 95% of them were acquired by the bank, according to a story in today’s Chicago Tribune.
This flood of bank-owned homes, which I’m now seeing popping up even in trendy neighborhoods like Lakeview and Lincoln Park, is depressing home prices across the board. But at last, homes are finally changing hands again at a healthy pace, and some stability is returning to our Chicago market.
Check out this new listing in West Ridge: A studio condo for $28,500. Which is less than some people pay for their cars!
So , what kind of a home can you buy on Chicago’s North Side for less than $30,000? A foreclosure, for one. This condo, located at 6148 N Ravenswood in West Ridge, is also a garden unit consisting of just two rooms: a 14×10 “living room,” which appears to double as the dining room and bedroom, and a 10×10 kitchen. It’s tiny, but hey, it’s still a condo.
The building is apparently in some financial trouble. Another foreclosed condo there, a 2-bedroom, 2-bath unit, just closed for $81,ooo.
The studio is a Fannie Mae Homepath property, meaning that a buyer could enjoy special financing terms such as putting just 3% down. (Which, in this case, would be under $1000.)
And if you act fast, you could even qualify for the first-time home buyer’s credit! This is normally $8,000, but that’s only for properties priced at $80,ooo or higher (pretty much everything on Chicago’s North Side.) But for cheaper homes, the tax credit would be equal to 10% of the purchase price.
With about 7 million homes facing foreclosure nationwide, the Obama administration has announced a new strategy to head off this tsunami of bad debt and keep more people in their homes. The idea is to refinance troubled homeowners into new government-backed FHA mortgages with lower payments.
The government will also push lenders to write down the value of loans held by borrowers in loan modification programs. But this could touch off a wave of opposition from people who have faithfully paid their mortgages. The government’s plan to refinance loans for people who owe more than their house is worth risks rewarding people who weren’t as financially responsible over those who were.
Imagine this scenario: Three years ago, Borrower A bought a $300,000 house with 20% down, a $60,000 down payment. Borrower B bought a similar house on the same block, also for $300,000, but used a no-money-down loan. Both have since paid off about $10,000 of their mortgage, so Borrower A now owes $230,000 while B owes $290,000. Prices in the neighborhood have tumbled, however, leaving each house worth about $250,000.
Under the government’s plan, Borrower B could potentially see tens of thousands of dollars in mortgage debt forgiven, so that now he/she would owe closer to what the home is actually worth ($250,000 in this example.) But is this fair to Borrower A, who probably saved for years to come up with such a hefty down payment? Is it fair to everyone else?
Right now there are roughly 11 million homeowners nationwide who are underwater on their mortgages. Several million of them could potentially slide into foreclosure in the coming year, which would destabilize the entire market and drive prices down further. We’re already seeing this phenomenon in Chicago, with prices down nearly 20% over the past 12 months.
It remains to be see just how the government can help — and how taxpayers will react to footing the foreclosure bill.
Things have been super busy lately, with Chicago homes selling left and right as buyers submit offers in a rush to beat the April 30 deadline for the home buyer’s tax credit. I haven’t had a day off in more than two weeks, and yesterday I submitted three offers on behalf of different buyers.
But here’s the interesting part: Two of them were trying to buy foreclosures. Sales of distressed properties (such as foreclosures and short sales) are becoming a huge portion of the Chicago housing market, and this phenomenon is driving down prices across the board. About 40% of the condos and single-family houses sold last month were distressed properties, according to new data from the Illinois Association of Realtors.
And prices? The median home price in Chicago is now just $176,500, down nearly 22% from $225,000 in just the last six months. This is a huge drop, reflecting just how busy buyers have been at the lower end of the market, where many of the troubled properties tend to congregate. Chicago home sales, meanwhile, are up sharply, increasing almost 42% in February compared to the prior year.
The turbulent market spells tough times ahead for ordinary Chicago homeowners who hope to sell, because their home values are also being beaten down by the rash of foreclosures and short sales (particularly in neighborhoods with lots of distressed homes.) Even in affluent areas, many owners who bought their homes within the last five years are now facing the gloomy scenario of either owing more than their home is worth, or not being able to sell for enough money to cover their closing costs as well as their loan.
Buyers, too, face new hurdles involving these distressed properties — especially if they want to buy a condo. Lenders have strict requirements these days for condo loans, and many of the distressed condos that look like good deals may in fact be impossible to finance through a mortgage, because the condo building itself is financially unstable. Others may be short sales that will never close (most short sales don’t), sliding instead into foreclosure.
This week, I’ve invited Joe Burke, VP of Mortgage Lending at Guaranteed Rate, to share his thoughts on short sales. A short sale involves a homeowner who wants to sell but owes more on his/her mortgage than the property is now worth. In order to complete the sale, the homeowner must obtain approval from his lender to “short” the bank. As you can imagine, banks are less than thrilled at this prospect, and they generally take months to respond to a short sale offer — and they often say no.
Here’s Joe’s take on short sales:
So, do you want to make a Buyer’s Agent cringe? Wince? Run screaming for the hills? Just repeat the following to them at your first meeting: “I would like to start my search with Short Sales.”
Now, do you want to hear them laugh out loud? Follow up with “I also want to take advantage of the First Time Home Buyer Credit.”
I’m not kidding here. If you want to see a bunch of frustrated Realtors, just mention working with buyers interested in buying a Short Sale. It’s brutal out there and nobody seems to have the answers. It’s not that they aren’t trying. Every Realtor I know is actively trying to become an expert in working with Lenders and Servicing Agents so they can help potential buyers in the Short Sale and Foreclosure market. But, the obstacles are many and real.
You can search the web for an unlimited amount of information regarding how the Short Sale process is supposed to work, but truthfully, no two transactions are anywhere near the same. Every Lender has their own process for agreeing to a price and closing on a Short Sale. Even more frustrating is that each individual process does not always seem to work the same way twice.
So why all the fuss? Are you really getting a deal if you purchase a Short Sale? Are you really getting a property under market value? The answer varies from Yes to No and all points in between.
Let’s start with Yes. Yes, I have seen some buyers get a “deal” on a Short Sale. But, that’s a deal as defined by me, the lender. I have seen Buyers close on a property and the appraisal come in above the purchase price. I have also seen this take anywhere from six to ten months from offer to close. No kidding, no exaggeration.
Now, No. In most cases, the end Lender or Servicer is working with the same exact data that the Buyer and Listing agent are (and would be working with regardless of whether the Bank was being shorted.) The individual Lender or Servicer has a fixed process and percentage of the loan amount for which they will allow the loan to be shorted. When the Listing agent presents an offer to the Lender/Servicer, they are presenting that offer with a CMA (Comparable Market Analysis) to support the purchase price. If that fits into the percentage for which they will allow the loan to be shorted, in theory at least, the Short Sale is approved. Well, how is that any different from making an offer on a property where the bank isn’t involved? It isn’t any different. The fair market value of the property is still determined by the comparable properties presented, regardless of whether the decision maker is the property owner or the bank.
Now, the Sort Of answer. This is the part that most people don’t understand when it comes to Real Estate. Real Estate is not a fixed or constant market; rather, pricing is fluid. Every time someone gets a “steal” on a property, it affects every other property in the surrounding area, even properties that are not necessarily comparables, by decreasing the price per square foot in a market. This is the same rationale that pushed prices ever higher during the bubble, working in reverse. So, you get a deal and set a new value for properties in your market. The next buyer, for better or worse, will likely do the same to you. The current market is fickle when it comes to value. I have seen the same property appraise out higher and lower than the purchase price in a 12-month period over the last year. That was unheard of until now. There are so few comparables and there is no baseline for pricing, so the fluctuations are exaggerated in a way that we have never seen before.
So, should you look at Short Sales? Foreclosures? Yes, absolutely. I just don’t think you should think of them as being any different as any other property on the market when it comes to pricing. I also think that as a buyer, you need to sit down and put together a very specific plan in terms of time line and expectations. For instance, if you are trying to close in time to qualify for the soon-to-expire tax credit, I think it’s basically out of the question to start looking at Short Sales right now.
If your desire is to play the market and look for that once-in-a-lifetime investment opportunity, then frankly, the tax credit shouldn’t even matter. You are looking for your savings on the purchase price or the opportunity to get into a property that you wouldn’t be able to get in any other market.
— Joe Burke, Guaranteed Rate
Joe can be reached at 773-742-6707 or [email protected]
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