Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Buyers' 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.
You can really see the impact of the $8,000 tax credit for first-time buyers. In June, the final month buyers could claim the credit, Chicago home sales shot up nearly 28% over the previous June, according to data released today by the Illinois Association of Realtors. That marks the 1oth consecutive month of year-over-year increases in Chicago.
But just because more properties are changing hands doesn’t mean home prices are recovering. In fact, the opposite is true in Chicago. The median home price, now $234,250, is down 3.2% compared to a year ago.
Genie Birch, president of the Chicago Association of Realtors, pointed out that the year-to-date number of homes sold in Chicago is up 41% for the first half of 2010 versus 2009. “We believe this is a positive indicator that Chicago’s housing market is stabilizing,” she said. “Motivated buyers and sellers are working toward realistically closing deals at current market values.”
I have my doubts about whether our market is truly stabilizing, or whether we are just witnessing a final surge of home sales fueled by a government stimulus program that no longer exists. Congress has since extended the date to close on a home purchase through September (provided you were already under contract by April 30) to help people seeking the tax credit who were unable to close by June 30, the original deadline.
So we may yet see a slight swell of closings in July, August and September that were actually spurred by the tax credit. But that doesn’t mean our local housing market is healthy enough to stand on its own.
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.”
Thanks to the federal home buyer’s tax credits, Chicago buyers turned out in droves to snap up properties in May, according to data released this week by the Illinois Association of Realtors.
In the city of Chicago, May home sales (single-family and condominiums) skyrocketed 32.1% to 2,057 sales, compared to 1,557 homes sold in May 2009. The increase marks the the ninth consecutive month of year-over-year sales gains. Sales are now almost back to where they were two years ago in May 2008, when 2119 homes were sold in Chicago.
Even more impressive, the median home price — which has been falling and falling in Chicago for several years now — actually ticked up 2.2% in May over the previous year. Chicago’s median price is now $230,000, up from $225,000 in May 2009.
“The tax credit created a more positive impact on the Chicago marketplace than the movement we saw in 2009,” said Mabel Guzman, the incoming president of the Chicago Association of Realtors. “Additionally, the credit afforded buyers the opportunity to look at higher-priced homes, helping keep their options more affordable.”
I expect that we’ll see more of the same — dramatically increased sales, and possibly slightly higher prices — when the June numbers are released. But home-buying demand has certainly slipped in Chicago since the tax credits expired April 30 (the date by which buyers had to have a home under contract in order to qualify.) They have until June 30 to close the deal.
The Senate has approved a proposal that would give home buyers trying to claim the $8,000 tax credit an extra three months to close on their purchases, provided they have already met the April 30 deadline to get their home under contract.
Basically this would help clear the huge backlog of people who are all desperately trying to close their deals by June 30 in order to qualify for the tax credit, as the law now requires. Real estate deals often don’t close on time — they can be delayed by problems with the appraisal, lengthy turn-around times in lender underwriting or other wrinkles in the loan process — and right now many lenders are backed up with a swell of loans that all need to close in the next two weeks. I have one Chicago buyer who has been practically doing back-flips to get his loan approved in time, but when we asked the lender yesterday whether it would close by June 30, she said bluntly, “I have no idea.”
To take the pressure off, the Senate voted 60-37 yesterday to extend the closing deadline to Sept. 30, 2010. The extension would also apply to “move-up” buyers trying to claim a $6,500 tax credit for purchasing a home they intend to live in.
The new deadline would help an estimated 180,000 home buyers now racing the clock to close on time, several thousand of whom undoubtedly live in the Chicago area.
But the extension, if approved by Congress and the president, will only apply to people already in the home-buying pipeline. To qualify for the tax credit, you must have already signed the contract to buy your home on or before April 30.
Mortgage interest rates recently fell to 50-year lows, in spite of the fact that there aren’t too many buyers left to appreciate them. Most Chicago-area home buyers who took advantage of the government’s $8,000 or 6,500 tax credit have already closed (or will in June), but for those folks still out house-hunting: It’s time to lock in your interest rate!
Average 30-year mortgage rates dropped to 4.8% last week, according to the Mortgage Bankers Association. This is stunningly cheap money, but unfortunately home-buying applications also plunged to their lowest level in more than a decade. That’s because “anybody that wanted to buy a house probably did last month,” Jay Brinkmann, the MBA’s chief economist, told the Wall Street Journal.
The low interest rates come as something of a surprise, because all year economists have been predicting rates would rise after the Federal Reserve halted its $1.25 trillion in purchases of mortgage securities in March. Instead, Europe began to unravel.
The debt crisis gripping Greece, Spain, Portugal and other over-extended European countries has prompted a wave of international investors to seek safe harbor … in the United States. Investors have poured a flood of money into safe-haven assets such as mortgage-backed securities guaranteed by the government and U.S. Treasury bonds, which are closely tied to mortgage rates.
So instead of mortgage rates rising to 6%, as many economists had forecast, they now look like they could settle as low as 4.5% this summer.
There are more than four dozen Lakeview townhouses with at least 3 bedrooms to choose from right now, a wide selection of homes ranging from the drab to the dazzling. There are even a handful of units priced in the low $300,00 range.
But for most buyers, a basic entry-level townhouse built on a narrow footprint (perhaps 14-feet wide), can be had for about $400,000 to $450,ooo in Lakeview. There are several homes for sale at Fremont Place, a courtyard development built in 1993 just south of Irving Park Road. For instance, 3910 N Fremont Unit A, priced at $439,000, is an end-unit 3 bedroom, 2 bath townhouse with a renovated kitchen and baths, a woodburning fireplace, two outdoor patios and garage parking. But at this price point, Lakeview townhomes are not huge; they are usually around 1600 to 1700 square feet and can feel a bit tight inside.
So what can a buyer expect in the $500,000 range? Basically, a larger, newer townhome with more amenities, such as a fourth floor, a roof deck and a two-car garage. Such is 2928 N Wood Unit D, which also features floor-to-ceiling windows, high ceilings, a double oven and breakfast bar, surround sound and a custom home theater on the fourth floor. It’s priced at $514,900, and a few others are also for sale in this 110-unit development built in 2001.
At the upper end of the Lakeview townhouse spectrum are highly upgraded units that live more like single-family homes. There are two units currently for sale at Columbia Place on Surf Street, next to a new city park. Listed at $699,000, 1727 W Surf Street is a 3 bedroom plus den, 2 and a half bath home with a gourmet kitchen and walk-in pantry, upgraded appliances, family room, separate living room and dining room, natural stone baths, surround sound, a roof deck, front yard and balcony, and an attached two-car garage.
If you’re wondering why buyers would choose an attached townhome when they could afford a single-family house, remember that Lakeview is one of Chicago’s most desirable neighborhoods (where a comparable single-family house would cost over $1 million). The townhome on Surf, which is located in the well-regarded Burley Elementary school district, is already under contract after just one month on the market.
And now for some good news… After several years of sluggish sales, condos in downtown Chicago are finally selling at a healthy clip, according to a recent report.
Downtown builders sold 256 condos and townhomes in the first quarter of 2010, up from 148 in the previous quarter and just 55 in the same period a year ago, according to Appraisal Research Counselors, a real estate consulting firm. Just to be clear, that’s nearly five times as many condos sold as compared to a year ago!
Of course, this glut of unsold units didn’t just miraculously begin to mesmerize buyers. Chicago developers chopped tens of thousands of dollars — sometimes hundreds of thousands — off their prices to attract buyers.
“If you discount, they will come,” Gail Lissner, vice president at Appraisal Research, told Crain’s Chicago Business.
For example, at 565 W. Quincy St. in the West Loop, developer Belgravia Group Ltd. slashed prices on some units by as much as 30%, sparking dozens of sales. The 241-unit project sold 59 condos in the first quarter (a period that coincided with the $8,000 first-time home buyer’s tax credit.)
Other Chicago projects also relied heavily on price discounts to attract buyers, including those at 200 N. Dearborn St., 222 E. Pearson St., the R+D359 development in the West Loop and the 38-story Silver Tower in River North.
Still, Chicago developers are climbing out of a very deep hole (Chicago Spire, anyone?) Crain’s reports that developers sold only 572 condos and townhomes in 2009 and 592 in 2008, a tiny sliver of the 8,162 they sold at the peak in 2005.
No one was quite sure how the April 30 expiration of the federal home buyers’ tax credits would affect the Chicago market, but two weeks later, I’m ready to call it: Things have definitely and dramatically slowed down.
As one agent put it (anonymously) to the Yo Chicago real estate website, “Between agents, the water-cooler talk is kind of dead. Showings seem to be dwindling, which isn’t a good sign going into June and July.” This agent confided that he (or she?) hasn’t had a closing all year.
I was fortunate to have a pretty busy spring selling real estate, with plenty of buyers and sellers going under contract throughout March and April on a wide range of homes priced from $120,000 to $600,000. But in the last two weeks, I would agree that showing requests have abruptly declined. I was chatting with another realtor I know in Andersonville recently, and he mentioned that despite having 16 listings not a single person had called to see any of these properties on a recent weekend in May.
It will be at least a month until we start to see actual sales data for May, which is usually an active month for home-buying in Chicago. But some data is emerging that shows that many realtors were already disappointed by buyers in April.
According to the Credit Suisse monthly survey of real estate agents, the buyer traffic index fell from 34 in March to 26 in April, indicating traffic levels below agents’ expectations (any reading below 50 shows traffic below expectations).
“Agents noted they expected to see a pickup in sales activity in April ahead of the April 30th tax credit expiration, but saw an underwhelming response from buyers throughout most of the month,” the Credit Suisse report said. “One agent commented, “We may have exhausted the buyer pool – not sure, but demand is not there like last year.” …One agent saw a delayed response to the tax credit expiration, commenting that, “Demand for the tax credit deadline kicked in LATE April.”
Home buyers who are now out and about seem to be kicking the tires rather than actively hunting for a property to buy. One couple I took out this weekend said that if they couldn’t find a house they liked at a price they could afford, they may wait a year or two to buy.
When the sales numbers for May arrive, I suspect we may find that hundreds of other potential buyers in Chicago feel the same way.
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