Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Market conditions' Category
Doesn’t it feel like wherever your money is invested, it hasn’t really grown over the last decade? Much like the stock market, the Chicago-area real estate market seems caught in rewind mode, with home prices now similar to what they were back in 2001.
It’s as if the boom, and the subsequent bust, never happened — that is, if you’ve owned property this whole time. If you were unfortunate enough to buy mid-decade at the top of the market, you may be out tens of thousands of dollars if you sell now. Recent data from the Case-Shiller Home Price Index shows that Chicago single-family home prices have plunged 29% from their peak in September 2006, while condo prices have dropped 26.3% from their high point in September 2007.
This means condo prices are now back to where they stood in the summer of 2001… before September 11th, when the Dow was hovering around 11,000 (it’s at 10,172 today) and Barack Obama was a little-known Illinois State Senator from the 13th District. Chicago’s single family home prices, meanwhile, are now back at spring 2002 levels.
As a Chicago homeowner, it’s hard not to get a little depressed. On the other hand, you’d probably be in the same boat if you’d skipped buying a house and invested your cash in the stock market instead.
But what about the next 10 years? Today’s buyers now have a chance to buy Chicago-area property at prices unseen for the last decade. Where will prices stand in 2020? Will we look back at 2010 as the bottom of the market, and spend the next 10 years griping that we should have bought then, when homes were affordable?
With some of the priciest real estate in the Chicago region, the North Shore has definitely been pummeled along with everybody else. In the last couple years, the high end of the market (homes over $1 million) especially took a beating, as buyers became much more cautious about value and jumbo loans became costlier to obtain.
But a recent survey in the Chicago Tribune suggests that the North Shore is partly recovering — although somewhat unevenly, with prices in some towns bouncing back more quickly than others. Overall, prices in most north Cook County towns are still down over the same period a year earlier.
Wilmette, home to the esteemed New Trier school district, is doing much better than most of its neighboring areas. In the fall of 2009, 77 homes closed in Wilmette with a median price of $639,000 — a 9% increase over the same September to November period a year earlier, when 84 homes closed at a median price of $582,500. The autumn closings tend to reflect deals actually signed in the summer.
Winnetka is also faring well. In the fall of 2009, 46 Winnetka homes closed at a median price of $1,065,000. That’s almost 14% higher than the median price of $921,000 a year earlier, when 41 homes closed during the same three-month period.
Neighboring North Shore communities, however, have seen median price drops — perhaps the result of more properties changing hands at the lower (or middle) end of the market. That is certainly the case in Glencoe, where the median home price plunged 36% in a year. But that’s probably because Glencoe buyers were focusing on less expensive houses, whereas the more expensive properties simply weren’t selling. There were 37 homes sales in Glencoe in the fall of 2009 at a median price of $650,000, while a year earlier 27 homes closed at a median of $1,020,000.
Buyers, meanwhile, are enjoying a rare chance to get into nice homes in sought-after communities that once seemed out of reach. One of my buyers, a young couple with two children, closed last week on a lovely historic 3-bedroom home with a large yard in desirable east Wilmette. The house, priced at $630,000 when it was listed in February, sold for $571,000.
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.
Finally someone has added up just how many Chicago homeowners are taking a bath on their property when they sell it, and the numbers aren’t pretty. According to Zillow.com, 40% of Chicago-area home sellers in March sold their home for less than they paid for it.
In the city of Chicago alone, the picture was slightly brighter, particularly for condos. In March, about 30% of Chicago condo sellers sold for less than they paid, compared to 38% of all sellers citywide.
I suspect that the true number of people losing money on their real estate transactions is closer to 50% when you factor in the commissions and closing costs that a seller owes, which can be 6-7% of the sale price. That means even Chicago owners who sell for exactly what they paid wind up in the red — often by more than $10,000.
Even more ominously, the Zillow study also found that almost 32% of Chicago homeowners who own single-family houses are now underwater (meaning that they owe more than the property is worth). This is much worse than the national figure of 23%, an indication of how troubled our local market has become.
Sigh. It’s grim out there, especially for people who already own a home. I personally know at least a dozen would-be sellers who can’t afford to sell their home, and have decided to keep if off the market for now in the hopes that prices will recover.
But for every discouraged seller, there’s an opportunity for a fortunate buyer. Real estate prices are now at their lowest point in the last seven years, interest rates are hovering below 5%, and there are tons of properties to choose from.
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.
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.
The buyer’s market lives on! Four years into Chicago’s real estate slump, I’m now seeing a handful of historic single-family homes, in generally good condition, on the market in desirable neighborhoods like Lincoln Square, Edgewater and even Andersonville for less than $500,000.
I have some new buyers looking in Lincoln Square, particularly the Bowmanville area north of Foster, between Damen and Western avenues. This is a sweet little pocket of century-old A-frame houses, many of them with porches out front and decks in the backyard.
There are several affordable 3-bedroom homes currently for sale there, including 2209 W Farragut, a handsome house with hardwood floors and an updated kitchen and bath, now priced at $389,000. This house has been on the market since the beginning of February, when it was priced at $435,000.
Then there is 2139 W Berwyn, a pretty Cape Cod house whose roof and mechanicals have been updated and interior has been renovated, including a full finished basement with a family room. Just to give you an idea of how much prices have fallen in recent years, this 3-bedroom home was listed at $589,000 in the summer of 2008. It’s been on and off the market since then, and is now priced at $459,000.
A few of the Lincoln Square houses look like they’ll require a good bit of work, such as 2575 W Argyle, a 4-bedroom house listed just under $400,000. But this house makes up for it with a huge 45 x 160-foot lot, which is 20 feet wider and 35 feet deeper than the standard Chicago lot.
With interest rates still hovering around the 5 to 5.25% mark, this a great time for buyers to take a step up from condo (or apartment) living and find an affordable house with the extra space, grassy yard and a garage that they’ve been missing. Just in time for a summer barbecue!
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.
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