Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Market conditions' Category
Trying to buy a foreclosed Chicago home, as I’ve written before, is usually a huge mess requiring saintly patience on the part of buyers trying to deal with the clueless, overwhelmed and unresponsive bank selling the property. And now (surprise!) we’re learning that the banks were equally messy on the front end as they filed for foreclosure, taking homes by the thousand from delinquent borrowers without verifying the necessary legal paperwork.
So far, three major lenders — J.P. Morgan Chase, Bank of America, and Ally Financial (GMAC) — have imposed temporary moratoriums on foreclosures in Illinois and other states that require a judge’s order, called “judicial foreclosure” states. This move came after lenders admitted that employees were signing thousands of false foreclosure affidavits without confirming the underlying loan information.
Now Illinois Attorney General Lisa Madigan is demanding that 23 more loan servicers immediately halt all pending foreclosures in Illinois, including post-foreclosure sales and evictions, unless they can prove their affidavits and other foreclosure documents are legitimate.
What does this massive muddle of misinformation mean for our Chicago home market, you ask? Well, for now, far fewer homes are going to be re-possessed by banks, at least until the legalities can be straightened out. This should give the market a chance to catch its breath by temporarily stemming the flood of supply (houses and condos) and allowing the trickle of demand (qualified buyers) to build a bit.
Chicago has been swamped with a rising tide of foreclosures this year. According to a recent report by Realty Trac, a company that analyzes foreclosure data, Chicago foreclosure activity soared 69% in September compared to a year ago.
To help struggling homeowners, the Circuit Court of Cook County recently launched a $3.5-million Foreclosure Mediation Program, an attempt to push lenders and borrowers to the negotiating table to hash out a loan modification, short sale agreement, deed in lieu of foreclosure, or some other resolution. Will it work? The jury is still out, but the county says that 2,000 homeowners have already received this free assistance.
In the meantime, any break in Chicago’s foreclosure frenzy is probably a welcome time-out.
It always amazes me when I compare today’s cautious home buyers to the buyers of 3 or 4 or 5 years ago, who were willing to spend top dollar, at interest rates of perhaps 6 and 6.5%, to buy a home. Buying Chicago real estate is a MUCH better deal now, with prices down 20-30% in some neighborhoods, and banks offering rock-bottom mortgage rates of 4.5% or less for a 30-year, fixed loan.
Basically, if you buy today, you could get the same property at a huge discount compared to what you would have spent on it a few years ago. Yet buyers seem to be sitting on their hands during one of the best buyer’s markets ever, afraid to make a move.
So I was glad to see that Karl Case, an economics professor who was one of the creators of the widely-read Case-Shiller housing index, wrote an op-ed piece yesterday in the New York Times explaining that real estate was still a good investment, especially given today’s low prices and interest rates.
“This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market,” Case wrote. “But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again.”
Case explained that the advantages of today’s lower home prices and interest rates translated into savings of hundreds of dollars per month on an ordinary house. He also pointed out that home owners can deduct the interest they pay on their mortgage, a tax break unavailable to renters.
This is, quite simply, an extraordinarily good time to buy a house. That’s what I try to tell my skittish buyers, emphasizing to them that if they plan to stay in the home for years (which I recommend), in all likelihood they will be making a sound investment.
But perhaps all optimistic realtors sound like… optimistic realtors. Maybe Karl Case says it better. To read Case’s piece, click here.
Ouch. Once the tax credit expired, so did interest in buying homes. That’s the gist of the data released this week showing that home sales plunged in July, both in Chicago and nationwide.
Nationwide, the annual sales rate fell 25.5% in July over the previous year, according to the National Association of Realtors. The numbers were a little better in Chicago, where July home sales (single-family houses and condos) slid 19.5%. There were only 1,589 sales last month, compared to 1,975 homes sold in July 2009.
All the foreclosures clogging the Chicago market also helped to yank down prices. Chicago’s median home price was $196,500 in July, according to the Illinois Association of Realtors. That’s a drop of 19.8% over last July, when the median price was $245,000.
Genie Birch, president of the Chicago Association of Realtors, said that the abrupt drop in July home sales “seems consistent with what Chicago realtors anticipated for the summer, as buyers on the fence moved up their purchases to earlier in the season in order to qualify for the federal tax credits then offered to move-up or first-time home buyers. While it still remains a great time to buy, buyers are guarded as they consider their own financial stability and job security in the current market, hindering many from making a purchase.”
Statewide, homes sales fared even worse but prices held up better than in the city. Sales were down 29.7% in July compared to last year, and the median home price in Illinois fell 4.3% to $160,000. Illinois has been one of the hardest-hit regions in terms of both unemployment and foreclosures.
The summer of 2010 was a particularly slow season for Chicago real estate, beginning in May when the federal tax credits for home buyers expired. But now, as summer heads into autumn, house hunting seems to be picking up again.
Super-low mortgage rates are certainly part of the allure. Many Chicago lenders are now offering rates well below 5%… This week I saw that Guaranteed Rate was dangling a 4.375% interest rate on a 30-year fixed loan, which is the lowest I’ve ever seen. These rock-bottom rates make borrowing money quite cheap, meaning that buyers can get considerably more house for the same monthly payment than they would have a few years ago when rates were between 6 and 7%.
At one of my listings, a 2-bedroom condo with parking in the heart of Andersonville, I’ve had three showing requests in the last three days. One of the prospective buyers told me she and her husband just sold their previous home. My theory is that now we’re going to see more buyers like her, people who managed to sell their existing property (perhaps thanks to the tax credits earlier this year) and are now in a position to buy again.
It looks like the wind has once again been knocked out of the sails for Chicago’s downtown condo market. Sales of new construction condos plunged 52% in the second quarter of 2010 compared to the same period last year, according to a new report from Appraisal Research, a real estate research firm based in Chicago.
Even compared to the first quarter of 2010 — when the federal government’s tax credits for home buyers were still in force — the numbers look pretty weak. There were 256 downtown Chicago condo sales in Q1, but only 150 sales — a 41% drop — in Q2 this year.
“With the tax credit expired, continued concerns about the economy and job market, worries about the stability of housing prices, and the difficulty in selling an existing residence and securing financing, many buyers continue to remain on the sidelines for the near term,” said the report.
It’s been a rather rude awakening for downtown developers, who once feasted on thousands of sales of glittering high-rise condos each year. In 2005, for example, developers sold more than 8,000 units in downtown Chicago. Last year they only sold 572. But the collapse means it’s a very attractive time to buy a new condo downtown, many of them with sweeping lake or city views, sleek gyms and swimming pools.
For the past few weeks, I’ve been taking out a pair of buyers to see many of the new 2-bedroom, 2-bath condos with lake views in Streeterville, and we’ve been pleasantly surprised by the prices. At 505 N McClurg, a snazzy building built in 2008 with floor-to-ceiling windows and beautiful finishes, a 2-bedroom, 2-bath unit that was priced at $554,500 last summer recently sold for $473,500. And with sales slumping, I expect to see even greater discounts ahead this fall.
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.
In the last week, I’ve had inquiries from two potential sellers who would like to sell their condos. Both have well-maintained units in popular Chicago neighborhoods (Lincoln Square and Andersonville) but, as I advised the owners, there are at least three good reasons to wait until the new year to list their homes.
1) Demand right now is extremely low. Chicago is a seasonal market, and the best time to put your property on the market is between January and May. That’s when the majority of buyers are out in force, and in a sluggish market like this one, well-priced homes in good condition stand their best chance of selling during the spring season. This year, demand is even lower than usual as we head into the fall, thanks to the government’s tax credits for home buyers. The credits were offered throughout 2009 and into the first four months of 2010, and they did the trick: Hundreds of thousands of homes sold nationwide, pushing up sales figures throughout Chicago and other wounded markets. But now that the tax credits have expired, much of the demand from buyers has also evaporated. Mortgage applications have plunged more than 30% in recent weeks (despite stunningly low interest rates.) Many people who wanted to buy this year have already done so — and this is especially true of first-time buyers looking in the $300,000-or-less range, which is where many Chicago condos reside.
2) Inventory is already climbing. More than 400 Chicago condos continue to hit the market each week, but nowhere near that many people are buying them. As demand stagnates, the number of unsold units will rise, adding to the competition your property would face if you listed it now. Will the picture be any better for sellers in the spring? It’s hard to say, since so much depends on Chicago’s job market. Some of the condos that don’t sell this year — and there will be thousands — may instead be rented out in the next six months, or their owners may give up and decide to wait a couple years.
3) Market time will add up. The number of days on the market is an important indicator of how well the property is priced and how much people like it. Most buyers would rather go see a new listing that just hit the market than a home that’s been languishing for 189 days (especially if the price hasn’t been reduced.) But if you put your home on the market in August or September, when many people are immersed in back-to-school activities or other fall commitments, you may be unveiling it to a relatively sparse audience. Market time often accrues during the fall and winter months with little to show for it, and then by the time the demand picks up in the new year, your property will already feel a little stale after six months on the market.
Waiting may be hard to do, but in my opinion many Chicago condo sellers have already missed the boat for 2010. Better to be ready to sail in early 2011 than to swim against this particular tide.
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.
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.
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