Sue Fox, @Properties. Direct 773.816.1788
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A quiet May as Chicago buyers return to sidelines
OPEN, BUT MOSTLY EMPTY: Despite low interest rates and a large inventory of homes for sale in Chicago, buyers seem to be taking a break after a surge in spring sales fueled by the government tax credits.
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.
Delinquent mortgages on the rise; more Chicago foreclosures ahead
UPTOWN UPSIDE: Among the foreclosed properties now for sale is a 1-bedroom condo for $143,900 in this building, located at 811 W Eastwood. In recent years many of these units have sold for $160,000 or higher.
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.
Chicago for sale: Great houses for under $500,000 in Lincoln Square
A HOUSE FOR THE PRICE OF A CONDO: This adorable turn-of-the-century home in the Bowmanville section of Lincoln Square is now priced at $389,000. Chris Sears of Keller Williams has the listing.
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!
Chicago foreclosures still rising steadily; 3,500 homes lost citywide in Q1
EVEN IN EDGEWATER: Foreclosures are starting to creep into stable Chicago neighborhoods, driving down home prices. This bank-owned foreclosure, a 3-bedroom Victorian at 1248 W Ardmore that used to be a bed & breakfast, is now listed at $497,999. Its former owner paid $720,000 in early 2007.
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.
A last-minute frenzy as buyer’s tax credit ends
SELLING LIKE HOTCAKES: My sellers sold this lovely 2-bedroom, 2.5 bath duplex in Lincoln Square in just 12 days. The buyer was a first-timer who pushed to sign the deal by April 30, just in time to claim her $8,000 tax credit.
April 2010 was one of the busiest months I’ve ever seen as a realtor! Even though the government’s home buyer tax credits (in one form or another) have been in place for more than a year, there were plenty of Chicago home buyers who waited until the last minute to buy.
April 30 was the deadline for signing a home purchase contract; buyers now have until June 30 to close the deal.
I had four different buyers or sellers go under contract in the last 10 days of April alone. In one deal, the buyer made an offer on my seller’s Lincoln Square condo around 9 pm on April 29. Her realtor and I negotiated the deal until slightly after midnight, and everyone signed the contract the next morning… thereby just making the April 30 deadline. Whew!
Plenty of other real estate agents in my office, and across Chicago, witnessed the same eleventh-hour mania. Now hopefully we can all get the inspections, attorney review periods, and mortgage loans completed in time to close by June 30! Expect a similar frenzy at title companies in June as everyone piles in to close before the deadline.
We should see healthy home sales throughout the Chicago region for April, just like the 50% leap over the previous year we witnessed in March. But now that the government’s home-buying stimulus is a thing of the past, the question on everyone’s mind is… Now what?
Chicago home sales skyrocket 50% in March
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.
THREE YEARS NEW: After three years on the market, this new luxury home in Lincoln Square finally sold in March for $1.2 million. It was priced at nearly $1.6 million in 2007.
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.
In Chicago, buying a home now beats renting
CHICAGO ON SALE: A new report on home prices shows that buying is a better bargain than renting in Chicago. Home buyers seem to realize this, if the surge in recent sales is any indication.
Looks like home prices in Chicago have declined to the point that buying is now a better financial deal than renting, according to a front-page story in the New York Times that analyzed home prices in various cities.
“In some once bubbly markets, prices have fallen so far that buying a home appears to be a bargain,” the newspaper reported (read the full story here). Chicago — along with New York, Los Angeles, Houston, Dallas, Atlanta and south Florida — is among the major metropolitan areas where buying now makes more economic sense than renting a similar home.
A simple method for comparing buying vs. renting is called the rent ratio: the price of a home divided by the annual cost of renting a similar one. If the rent ratio falls below 20, buying becomes a better option. In Chicago, the rent ratio is now just 15.9, according to the Times analysis, lower than most of the other major cities surveyed. (In fact, only a handful of cities have ratios below 14, including such hard-hit cities as Las Vegas, Detroit and Pittsburgh.)
“In most markets, you’re better off buying,” Thomas Lys, an accounting professor at Northwestern, told the Times. “But once the ratio gets to 25 or 30,I’d say, ‘You know what? There may be a bubble.’”
In Chicago, whatever housing bubble we saw here never inflated as fast or as far as what coastal cities like Los Angeles or Miami experienced. Still, prices have fallen considerably. Chicago’s rent ratio was 24.3 in 2005.
This report backs up what Chicago real estate agents have been seeing on the ground: Plenty of smart buyers snapping up properties at great prices, and locking in low interest rates to boot.
Under $200,000 in Chicago? The 2-bedroom condo hunt moves north
A HAPPY MEDIUM: Rather than give up the Andersonville area they love, my buyers chose a large 1-bedroom condo there instead of a 2-bedroom further north to stick to their $200,000 price limit.
For many first-time buyers on Chicago’s North Side, $200,000 seems to be a popular price point for their first home. Each year I have several clients — many of them renters in neighborhoods like Lakeview, Lincoln Park, Andersonville or Lincoln Square — who have been pre-approved for a mortgage and hope to find at least a 2-bedroom home.
So what can you get for $200,000 these days? The reality is, despite the downturn in Chicago home prices, most of the aforementioned neighborhoods will be well out of reach (at least for a 2-bedroom unit). Buyers will find themselves steadily drawn further north, to Uptown, Edgewater and Rogers Park, where prices are lower and there are more 2-bedroom condos available for $200,000 or less. (Even in Edgewater, though, there aren’t too many condos in this price range, unless you comb through the high-rises near the lake, where monthly assessments tend to be quite high.)
There are also neighborhoods further west, such as Albany Park or Irving Park, where 2-bedroom condos priced below $200,000 can be easily found.
But if you are determined to live in, say, Andersonville or Edgewater, there are certain compromises that buyers can make. In the last month, I’ve helped two sets of couples with their 2-bedroom condo search in these neighborhoods, and both came up with strategies for staying under $200,000 that involved some trade-offs.
One couple, who had lived in a rental apartment in Andersonville for several years, decided after seeing about a dozen 2-bedrooms in Uptown and Edgewater that their priority was staying in the neighborhood they loved. So they compromised on size and decided to check out 1-bedroom units that featured some kind of extra space, like a dining room or sunroom. Within a couple weeks, they found a sunny 1-bedroom condo in the heart of Andersonville that was actually bigger than some of the 2-bedrooms we’d seen, complete with a large living room and separate dining room, a good-sized kitchen, a laundry room (in-unit!) and a deck.
The other couple compromised in a different way, deciding to look at garden units that would still offer the 2-bedrooms they sought, but would be slightly below ground. We’ve seen several “English gardens” in Edgewater, Andersonville, and Uptown, which are condos only two or three feet below grade that still offer plenty of light through the windows.
Both of these buyers have managed to stay just under $200,000. But if you really want a 2-bedroom condo in this price range, and you don’t want to consider a garden unit or a high-rise, I would suggest heading further north to Rogers Park. There are lots of newly-rehabbed condos — many of them with a second bathroom — at this price point, and Rogers Park is a cool lakeside neighborhood that’s easily accessible to downtown through the Red Line or the Metra.
Happy hunting!
Can you afford to sell? The new Chicago condo conundrum
THE CONDO CONUNDRUM: Chicago condos were rather easy to buy in years past, but for many owners today they are increasingly hard to sell. Even if they find a qualified buyer, many sellers will be forced to bring $10,000 or more to the closing table to complete the transaction.
When it came to real estate, for many years the more relevant question was: Can you afford to buy? These days, however, that question has been abruptly turned on its head, and unfortunately I’m seeing more and more Chicago residents asking themselves whether they can truly afford the thousands of dollars it will take to sell their homes.
This is especially true of Chicago condo owners, many of whom bought their condos within the last five years and now want to move on. I’ve talked to several condo owners in the last month who really want to sell, but upon closer inspection of the numbers, realize they may be facing insurmountable costs to do so.
Here’s the problem: Prices have fallen so sharply in recent years that even if they can sell their condo at a price that will pay off the mortgage, they often can’t afford the closing costs and commissions involved. Closing costs can be 1-2% of the sale price, and real estate commissions are generally 5-6%. Even people who try to wing it without a realtor and do everything themselves are facing at least 4-5% in expenses, because they still have to pay the buyer’s realtor and the closing costs.
Prospective sellers need to take a hard look at the math, paying close attention to what they still owe on the loan and what the property is currently worth (an estimate best left to a seasoned realtor or appraiser.) If they bought a $300,000 condo four years ago and now it’s worth about $270,000, and they owe $270,000 — well, at least they can cover the loan. But can they also afford the roughly $14,000 to $19,000 in closing costs and commissions that they’ll need to bring to the table to close the deal?
Not many people want to (or are able to) bring thousands of dollars to a closing just to get out of their home. And so they are stuck. The only alternatives are to wait, to try to rent out their home at a price that will cover most of the expenses, or to attempt a short sale that probably will not work and will destroy their credit in the meantime.
It’s a terrible situation. And with housing prices continuing to wilt throughout Chicago, more and more would-be sellers are realizing they can’t afford to leave their current homes.
If you are thinking about selling your condo this year, please contact me for a free CMA (comprehensive market analysis). This will give you a solid estimate of your home’s current value, and I’m always happy to sit down with you and review all the numbers, so you will have a clear idea of your financial picture before you decide whether to put your home on the market.
Obama steps up effort to fight foreclosures
HOPE FOR HOMEOWNERS? Having failed to modify enough loans to stem the tide of foreclosures, the Obama administration is now trying a more aggressive strategy.
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.
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