Sue Fox, @Properties. Direct 773.816.1788
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Has the Chicago market hit bottom? This week, a national home index showed Chicago prices increased more in August than most other cities in the country — a welcome sign that our market has finally found its footing after five years of sinking prices.
The Standard & Poor’s/Case-Shiller index showed that August home prices rose in half of the 20 cities tracked. The biggest price increases were in Chicago — which was up 1.4% over the previous month — as well as in Washington and Detroit. It was the fifth consecutive month that Chicago notched a monthly gain. (Year over year, however, Chicago prices were still down 5.8%, bringing us back to median Chicago home prices last seen in 2002.)
Right now, the inventory of homes for sale is rather low in Chicago. Many would-be sellers are keeping their homes off the market for the time being, because they are unwilling (and often unable financially) to sell at today’s prices. Inventory in the Chicago area has plunged almost 50% from a year ago, according to a recent story in the Chicago Tribune. The short supply of homes may be helping to firm up prices.
This week I’ve already met with two potential buyers who are looking for a 3-bedroom home — one hopes to find a condo near Little Italy and the other either a single-family house or a condo somewhere along the Red line from Lakeview to Edgewater. Even as the weather turns chilly, Chicago buyers are getting the message that 2002 prices and 1960s interest rates make 2011 a great time to buy property.
The Illinois Assn.of Realtors released its latest data today, showing that Chicago home prices and sales both rose somewhat in September, compared to the same month a year ago. On the face of it, that’s good news. It seems that prices — and the number of homes changing hands — are finally starting to stabilize in Chicago.
There were 1,498 home sales (single family and condominiums) in September, up 6.8% from the previous year. Chicago’s median home price rose 5.6%, from $180,000 to $190,000.
Okay, $190,000 is better than $180,000. But it’s much worse than $225,000, which is where Chicago’s median price stood just two years ago, or $268,600, where it was three years ago. Check out the dramatic decline — in both prices and sales — over the past four years in Chicago:
- 2007: $267,750
- 2008: $268,600
- 2009: $225,000
- 2010: $180,000
- 2011: $190,000
- 2007: 2172 sales
- 2008: 1816 sales
- 2009: 1918 sales
- 2010: 1403 sales
- 2011: 1498 sales
So it’s a little premature to break out the hallelujah chorus. Even though things seem to be improving a bit, Chicago home prices are down 29% and sales have fallen 31% in just four years. The drop in sales volume was particularly steep in the autumn of 2010, after the federal tax credits for home buyers expired and demand dried up. Now Chicago’s market has recovered slightly from that abysmal season, giving us a pretty good idea of what the new normal looks like.
“September home sales in the city of Chicago show signs of stabilization, with an increase in the units sold for both single family and condominiums,” said Bob Floss, president of the Chicago Association of Realtors. “While interest rates remain historically low and prices compelling, we remain concerned about the overall economic stability of our marketplace with unemployment numbers and job creation still top of mind for so many buyers and homeowners, alike.”
It’s quite rare to find a house for sale in Andersonville’s beautiful Lakewood-Balmoral historic district for under $1 million. But every real estate downturn has an upside, and today there are several homes — including a genuine fixer-upper — priced closer to the half-million mark here.
The handyman’s special, a dilapidated three-story, turn-of-the-century Victorian complete with a turret, is in such lousy shape that the realtor didn’t bother to post any interior photos. “Not in move-in condition,” the listing advises. “Ideal for complete rehab or build new.” Located at 5453 N Magnolia, this 5-bedroom home has already been on the market for five months and is currently priced at $580,000 (a screaming deal for Lakewood-Balmoral, where a similar home in restored condition would fetch perhaps $1.4 million.)
On the same block, another faded beauty — this one with a third-floor ballroom in need of major work — is for sale at $675,000. Located at 5426 N Magnolia, this 1901 house retains some of its original splendor (the photos depict gorgeous wainscoting and stained glass in the dining room) but, again, the listing warns off casual house hunters. “House needs work, serious investors only,” it says. This home recently went under contract, after more than 6 months on the market.
And right across the street (what is it with this block?) there’s another home for sale, this one a brick 1906 house that looks a bit like a 2-flat from the outside. Priced at $720,000, it has just 3 bedrooms (plus one in the basement), but it also boasts the original staircase, leaded glass windows and built-in cabinetry. It’s been updated, with a newer kitchen and partially finished basement, and it’s been on the market since June.
Recent sales indicate that Lakewood-Balmoral bargains are often quickly snapped up. An updated 4-bedroom at 5410 N Wayne sold for $665,000 in May, while another updated 4-bedroom — this one at 5441 N Wayne on an extra-wide lot with a finished basement — sold for $750,000.
So if you’re in the market for a historic home in one of Chicago’s nicest neighborhoods, now is an uncommonly good time to make your move.
This has been an odd and uncertain year for Chicago real estate. Deals are still getting done, but absolutely every element has to be in place in order to get to the closing table. As a realtor on the ground day in and day out, I have seen some strange standoffs unfolding this year, with both buyers and sellers hesitating at crucial moments and sometimes deciding to stay put. No wonder sales are so scarce!
Here is what I’m observing from buyers: There is little urgency. With mortgage rates hovering at a record low of 4% and home prices in the gutter, most would-be buyers realize this is a golden moment to buy a home. However, they are also somewhat casual about the opportunity, since from their perspective this has been going on for at least a couple years. Neither interest rates nor home prices seem to be in any danger of quickly shooting up, so what’s the hurry?
In the last few months, I have witnessed at least five buyers wade halfway into a deal, only to change their minds. I have had some buyers who are pretty sure they want to make an offer, only to reconsider and decide against it. Others look around for a couple months and then opt to keep renting for another year. I have even seen two buyers (neither of whom I was representing; in both cases I was the seller’s agent) who wrote up offers and then, for lack of a better word, freaked out. One went so far as to negotiate a price and then refused to sign the contract, while the other actually did sign the contract — and then a day later changed his mind. Under the attorney review period, he was still able to withdraw from the deal.
Things look mighty different, on the other hand, from the point of view of many sellers. I can’t tell you how many listing appointments I’ve gone on this year where — once I explained the recent comps and showed the owners what their home was likely to sell for — they suddenly realized just how bleak their situation was. I met with one lovely woman last week who exclaimed, “Oh my god, Sue! I knew the market was bad. But I had no idea how bad it was.”
Yes, it really is bad. As in, your home is probably worth 10-35% LESS than what you paid for it, depending on what year you bought it and where it is located. In real terms, this means that sellers who paid $330,000 in 2007 can’t even sell for $285,000. Sellers who bought for $230,000 in 2005 (and put $15,000 in upgrades) would likely have to list their condo for less than $200,000 to get a bite. Owners who paid $450,000 in 2005 sold the same place this year for $95,000 less. I just checked the comps for someone who paid more than $220,000 six years ago in a building where similar units are now selling for $100,000 to $160,000, depending on the condition.
It is routine for sellers to be faced with a diabolical choice such as: Do you want to stay in the cramped two-bedroom condo you have outgrown now that you have a new baby, or do you want to bring $50,000 to closing in order to pay off your lender and closing costs? Many, many people do not have the tens of thousands it would take to close the deal. So they stay put, they decide to rent out their place, they attempt a short sale with their lender, or they overprice their home and stick it on the market anyway, hoping someone out there will pay them not what it’s worth, but what they owe.
Thus, as the winter season approaches, we have a standoff. Many Chicago sellers desperately want to sell, but they simply can’t afford to lower their asking prices to the point where a buyer would be interested. Many buyers theoretically want to buy, but only if they find a place they adore at a price that can’t be beat.
Unfortunately for all Chicago homeowners, the median Chicago home price has plunged over the past four years. According to data just released by the Illinois Assn. of Realtors, the median price was just $192,500 in August, a drop of nearly 4% since last August. Now, a 4% drop doesn’t sound so terrible… but remember, this decrease comes on top of several years worth of steeper declines. Chicago home prices have fallen an astounding 37% since August 2007.
Check out the median price decline:
- August 2007: $305,000
- August 2008: $297,500
- August 2009: $229,900
- August 2010: $200,000
- August 2011: $192,500
Like most realtors, I encounter a lot of sellers who know that “the market is bad” but somehow cling to the hope that maybe their home is still worth what they paid for it, or at least what they still owe. They want to price their Chicago condo or house based on whatever number they calculate will protect them from financial harm.
But if you bought your home anytime in the last five years chances are very good that it is worth considerably less than you paid for it. A realtor can look up the recent sales in your neighborhood and give you a decent idea of just how much less. But even in North Side communities like Uptown, Andersonville and Edgewater, prices overall are down at least 20%. Irving Park, Albany Park, Logan Square, the South Loop and Rogers Park are in even worse shape (particularly Rogers Park, an area decimated by foreclosures where sale prices have dropped more than 60% in recent years). Lincoln Square, Bucktown, Wicker Park, and Lakeview have generally held up better, but they have still taken a haircut.
The volume of home sales is up over last summer, but that number is deceptive because last summer — right after the home buyer’s tax credit had expired — few people were buying homes. In the city of Chicago, home sales totaled 1,787 for August 2011, an increase of 20.3% over last August. But when you look at the number of homes sold each August since 2007, you’ll see sales have fallen too — by about 39%.
- August 2007: 2923 sales
- August 2008: 2078 sales
- August 2009: 1927 sales
- August 2010: 1486 sales
- August 2011: 1787 sales
All things considered, the Chicago market is in pretty dreadful shape, with both sales and prices down nearly 40% in four years. Sellers need to be ruthless in their home pricing and spotless in their home staging to attract a buyer, and for most people who bought their home in recent years it’s useless to imagine selling for what they paid or what they owe. Those numbers have no bearing on what their home is actually worth in today’s crippled market.
Another wave of Chicago-area foreclosures may be ahead, according to recent data gathered by RealtyTrac. The number of homes that received notices of mortgage default in the metro area spiked 30% in August over the previous month.
Some 6,239 delinquent homeowners received notices — the first step in the foreclosure process — in Cook County and the surrounding areas (DuPage, Kane, Kendall, Lake, McHenry and Will counties). The vast majority of the troubled properties, however, were in Cook, the nation’s second-largest county. Foreclosure filings jumped 24% in Cook County.
I see plenty of foreclosures, and most of them need at least a little work (and some of them require a total rehab). Missing or broken kitchen appliances are routine, as are floors that need refinishing and walls that need repainting. Because many foreclosures have been vacant for months, there are frequently leaks that have damaged the floors or drywall (I have seen more than one foreclosed condo where the refrigerator had leaked onto the hardwood floor.)
But for homebuyers seeking a bargain — especially if they have a little cash to put into repairing the property — foreclosures can be a good opportunity. There are a lot of good deals out there right now, and mortgage interest rates are super low.
Chicago’s foreclosure crisis has been uneven, devastating some communities while barely touching others. Even in the more affluent neighborhoods like Lakeview, they tend to be clustered in certain buildings like 655 W Irving Park Road or 3660 N Lake Shore Drive. And in the poorer areas, such as South Shore, you’ll find some blocks — even blocks right by the lake — where it seems that every other house is a boarded-up foreclosure.
What’s harder to find is a single foreclosed property in the middle of an otherwise stable, desirable neighborhood. Those homes tend to sell quickly, especially if they are priced below market value, and they often attract multiple offers.
There are 28 houses, many of them new construction, currently for sale at prices above $1 million in Bucktown, Wicker Park and Ukrainian Village. But despite many months — sometimes more than a year — on the market, the majority of these sellers seem reluctant to lower their prices. Some are surely developers who built spec houses and now don’t want to face the fact that the depressed market has sliced deeply into their hoped-for profits.
Only 13 of the 28 have cut their prices, a ratio far less than the local average. Two-thirds of home sellers in Illinois reduce their asking prices, according to data collected by the Illinois Assn. of Realtors. Home sellers in Chicago, a region hit hard by foreclosures, typically post the largest price reductions in the state.
But at the top of the market in popular Bucktown and its neighboring areas, you’ll find houses like 2556 W Huron Street, a 4-bedroom renovated greystone for $1.3 million that’s been on the market for two and a half years without a price reduction. Or 2032 W Ohio Street, a 7000-square-foot mansion with 5 bedrooms, 20-foot ceilings and a huge roof deck, all spread over two city lots. It’s been stubbornly priced at $1,685,000 for a whole year.
Others are more recent listings, with no price reductions all summer and into the fall. Or there are homes like 1232 N Hoyne Avenue, a modern 6-bedroom with an elevator, two playrooms and a screening room, which has been priced at $1,699,000 for more than nine months (it did have one price cut before that, from $1,749,000.)
While I agree that Bucktown and Wicker Park are wonderful, hip places to live, it’s simply not realistic to leave these overpriced luxury homes languishing on the market. If they are not selling after months online, by definition they are priced too high. And over the past four months, only three of these million-plus houses have closed. Three out of 28… That’s a pretty low ratio.
So if you are shopping for a high-end house in Bucktown and its environs, I wouldn’t put too much stock in these lofty price tags. All three of the homes that actually sold, after all, went for $175,000 to $650,000 less than their original prices.
The latest Chicago housing data is out, covering the month of July, and it looks like both sales volume and prices have climbed slightly compared to last July. (But before you imagine a real estate rebound, remember that last summer Chicago home sales were in the gutter, once the federal tax credit for buyers expired. So things can only go up from there!)
Anyway, there were 1,655 home sales in the city of Chicago (single-family houses and condos) in July, an increase of 4.2% over the previous year. And the median home price in July 2011 was $210,000 — up 6.9% compared to the previous year.
“This is the first month, year-over-year, where we are without a federal tax credit and are encouraged by July’s sales, hopefully a positive outlook for the remainder of 2011,” said Mabel Guzman, president of the Chicago Association of Realtors. “There is an ongoing absorption of units throughout the city, specifically in the performance of the condo market over 2010, as well as compared to 2009.”
Some neighborhoods are obviously selling better than others. In Lakeview, for example, a popular area that is home to Wrigley Field and close to both the lake and downtown, there are now 260 condos for sale with 2 bedrooms and 2 baths. Another 64 of these condos are under contract (pending sale), and 122 have closed in the past three months. That’s a pretty good ratio in this market, with closed sales at roughly half the number of active listings. Condos in Lakeview, in other words, are selling.
Now consider Edgewater, another lakeside neighborhood just a couple miles north. There are 137 condos for sale right now that feature 2 bedrooms and 2 baths. Another 28 are under contract. But just 45 have closed in the past three months — a much worse ratio than in Lakeview. The closed sales don’t even amount to a third of the number of active listings in Edgewater.
Unfortunately, I’ve been witnessing sluggish condo sales in other northern neighborhoods, like Lincoln Square, Andersonville and Uptown. With condo buyers scarce in 2011, many of them seem to be opting to live in areas that are closer to the Loop. For first-time home buyers (or anyone else with cash or good credit), this is an excellent time to snag a great deal in the most coveted, central parts of Chicago.
Despite all the volatility in the stock and bond markets, mortgage rates are now at their lowest point in more than 50 years. The average 30-year fixed rate mortgage fell to 4.15% last week, according to Freddie Mac’s Primary Mortgage Market Survey. Rates have been below 5% for awhile now; previously, the record low (set last November) was 4.17%.
The extra-low interest rates make home buying more affordable than ever, particularly in Chicago, where home prices have dropped more than 30% in recent years. If you’re wondering where to find these rates locally, Guaranteed Rate is one Chicago lender now offering a 4.15% rate on a 30-year fixed loan, while a 15-year fixed mortgage can be had even cheaper: 3.525%. The rate for 5-year adjustable rate mortgage is just 3.125%.
Money to buy a home — if you can qualify for the loan! — is now incredibly cheap. It’s hard to find even a car loan or a student loan with such rock-bottom rates, let alone a mortgage. Mortgage rates closely track yields on U.S. Treasury bonds, which have also dipped. The 10-year note hit a record low on Thursday, falling below 2 percent to 1.99 percent.
If you’ve been considering buying a home (whether to live in yourself, as a second home, a home for your child or as an investment property to fix up and sell — all of which I’ve had buyers recently searching for) now may be the time to act. It is rare to find both interest rates and prices simultaneously so low.
Home sales are down all over Chicago — they fell 27% citywide over the past year — but things have really fallen off a cliff in the once-hot South Loop. The area is now flooded with glassy condo units, many of them in relatively new high-rises or mid-rise complexes, and it looks like this decade-long binge of overbuilding has left the South Loop with quite the condo hangover.
I was just there showing 2 bedroom/2 bath condos to buyers this week, and I was struck by how small many of them are. Even at the $300,000 price point (including parking), the living rooms tend to be so compact that it’s hard to imagine fitting in a dining table. The new kitchens may look flashy, but eating dinner scrunched over the breakfast bar can get old. Many of these condos do not even measure 1,000 square feet.
While they may be sufficient for one or even two people, such small spaces are often quickly outgrown. But there are so many condos in the South Loop that selling one can be tricky. Over the past year, the number of 2 bedroom/2 bath condos sold throughout the Near South Side (the MLS area that encompasses the South Loop) has dropped a stunning 39 percent, from 318 units to 194.
Sales have held pretty steady in the popular $200,000 to $300,000 range. But they have plummeted more than 50% for higher price points. The median condo price, meanwhile, has dropped about 7% year over year.
For buyers, the South Loop offers one of the only Chicago neighborhoods that is both so close to downtown and so affordable. But with sales slowing this dramatically, prices are likely to follow. As I advised my buyers, if you’re going to invest here, be prepared to stay awhile. With the glut of similar homes in the South Loop, it may be tough to sell if you outgrow your sleek 900-square-foot condo in three years.
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- 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