Sue Fox, @Properties. Direct 773.816.1788
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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.
If super-low home prices and interest rates aren’t enough to persuade you to make the jump from renting to owning, maybe this will: Rents are climbing throughout the Chicago area.
The average rent for a Chicago one-bedroom apartment has increased nearly 9% in 2011 while two-bedroom rents have jumped more than 5%, according to ApartmentRatings.com, a website where renters exchange information about apartments. Meanwhile, an article in today’s Chicago Tribune reported that “a stew of factors, including the foreclosure rate, uncertainty about jobs and sheer demographics, have driven rental demand (and rents) to levels not seen in years.”
The average asking price of a Chicago one-bedroom apartment is now $1,236; a two-bedroom is $1,736; and a three-bedroom is $2,204. According to the Tribune, some of the most expensive neighborhoods were those closest to downtown: the West Loop, with an average rental price of $1,991; Streeterville ($1,981); River West ($1,954); the Loop ($1,935); and the South Loop ($1,875).
“You see it all across the board,” said David Vivero, chief executive of RentJuice, a company that provides services for landlords in Chicago, New York, Miami and Boston. “You have prices circling up. We’re seeing fewer incentives being given. Fewer brokerages are working (to market) some of the high-rises because they’re filling up more. The supply hasn’t moved as much as demand has increased,” he told the Tribune.
I sometimes see prospective buyers wavering about whether to buy a home or continue to rent. Buyers certainly need to be sure that their jobs are stable, that they have some savings and that they plan to stay in Chicago for a good while (I recommend five years, at a minimum.) But with home prices now at a 10-year low, I can certainly find you a condo to buy that will cost the same — or less — than it would to rent a similar apartment.
With financing for development so tight, it’s gotten quite hard to find new condos under construction throughout Chicago’s North side. What you can find, however, are hundreds of condos built in the last five years — where the value has fallen so far from what the original owner paid that many of them are nearing or already in foreclosure.
That means there are plenty of almost new condos in almost new buildings, many of them being sold at bargain prices. In Lincoln Square and North Center, two popular areas that include Ravenswood and Roscoe Village, there are more than 50 condos with at least 2-bedrooms that fit this description — all for sale at prices under $400,000.
At the lower end of the scale you have distressed (meaning financially troubled, not necessarily physically damaged) properties like 2472 W Foster Ave. #206, a 2-bedroom, 2-bath unit with garage parking for only $194,000. This empty unit is a short sale, which requires bank approval (and patience on the part of a buyer). The 1300-square-foot condo boasts limestone baths and a balcony, and it is located in a 5-year-old building where similar units sold for $280,000 to $335,000 in late 2006 and early 2007.
Meanwhile, there are several properties for sale in the $300,000 range with considerably more space. Consider 4809 N California Ave. #2W, also in Lincoln Square, a 3-bedroom, 2-bath with Brazilian cherry floors, a master bath with a steam shower and jacuzzi tub, and a large deck. Parking is $20,000 extra. Or 4313 N Western Ave. #2 in North Center, a 3-bedroom, 2-bath unit with parking. It features cherry cabinets and granite counters, stone baths and hardwood floors, located in an intimate 3-unit building built in 2008.
At the upper end of the range, there’s a 3-bedroom, 2-bath Roscoe Village condo with two parking spaces, a large deck and a balcony. Located at 2332 W Belmont Ave. #2, this is a 1700-square-feet unit featuring a separate dining room, gourmet kitchen, limestone baths and custom closets. It is priced at $398,500.
So if you’re looking for new construction in this age of scant construction, don’t despair. There are some wonderful, slightly used condos out there, available for much less than the first owner paid.
These days, selling a Chicago condo is almost all about pricing. I was doing a search recently for some Bucktown buyers when I came across some interesting data for the neighborhood, suggesting that there is a sweet spot for Bucktown (and Wicker Park) condo pricing: between $300,000 and $350,000.
Over the past year, more condos in West Town (the MLS area that includes Bucktown, Wicker Park, and River West) — 137 of them, to be exact — sold in this price range than at any other price point. Another 109 condos sold at prices between $350,000 and $400,000.
Since a total of 691 condos were sold here over the last 12 months, that means more than a third of them went for somewhere between $300,000 and $400,000.Why does this matter? Every property is different, of course, but the price distribution gives you a pretty good idea of the competition. In a relatively cool market, it helps to know that the hottest action is happening in the low $300s. If you want to sell in Bucktown or Wicker Park, it may make sense to price your condo at $349,000 and aim for a quick sale rather than starting at $400,000 and waiting for buyers to materialize.
Buyers are scarce these days, especially for big-ticket items. For example, only 80 condos sold for more than $500,000 in the past year in all of West Town. It makes sense; these days you can find a single-family house for that price in many desirable Chicago neighborhoods.
Chicago two-flats are back… as a good investment option, that is. For much of the last decade, their price had climbed so high as to no longer make sense for many owners. As I had warned in previous posts, it is ludicrous to pay $500,000 or $600,000 (or more) for a two-flat when each unit will only rent for $1,200 or $1,300 a month.
And once the recession hit, this obvious math finally caught up with many two-flat owners. Suddenly people were scrambling to unload these properties, and the price of multi-unit buildings plunged. Now that they are priced more realistically — meaning that if an owner were to rent out both units, it would come close to covering the mortgage and other expenses — Chicago two-flats are suddenly in demand once more.
In Edgewater, for instance, a classic red brick two-flat located at 1300 W Norwood Street recently sold for $370,500. The math here makes sense: Assuming the buyer put down 10% and got a 30-year loan at a 4.5% interest rate, the monthly payment (including property taxes and insurance) would be about $2,525. Each unit has 3 bedrooms and a bath, which in Edgewater would rent for around $1,400 per month, giving the owner $2,800 in income. That’s enough to cover the expenses… which indicates that this purchase is a sound investment. (And in my example, the buyer didn’t even put down 20 percent! The numbers would work even better if he/she had.)
What wouldn’t make any sense at all is paying $600,000 for the same property, which is where it was originally priced in January 2010. The seller had to reduce the price seven times over the next year, finally settling at $429,000. Still, this two-flat closed for nearly $60,000 less when it sold in April 2011.
In Chicago, people sometimes buy two-flats with the intention of converting them into a single-family house. But even then, the property must be obtained for a reasonable price to make financial sense. These days, dozens of affordable two-flats can be found in appealing neighborhoods. I just searched the MLS in four North side neighborhoods relatively close to the lake — Edgewater, Uptown, Lincoln Square and North Center — and found 29 two-flats for sale from $149,000 (a foreclosure in Lincoln Square) to $400,000.
Is it time to jump back into the two-flat market? If the numbers make sense, I say yes.
Recently I helped one of my clients find a 2-bedroom condo in downtown Chicago. But this wasn’t just any 2-bedroom unit she was after; it had to be above the 15th floor with a fabulous, unobstructed view of Lake Michigan. Two baths, a balcony, and parking were also on the list.
We searched on and off for months, exploring high-rise buildings along the lake like 1212 Lake Shore Drive and 1300 Lake Shore Drive. Then we moved further south, where we saw plenty of units in newer luxury buildings such as 225 N Columbus Drive (“Aqua”); 420 E Waterside Drive; 340 E Randolph Street; 130 N Garland Court; and 60 E Monroe Street, among others. One of the nice upsides to our prolonged real estate downturn is that the Chicago Loop is now swimming in condos, many of them still owned by developers — and this oversupply means buyers can now get a piece of prime downtown property for a reasonable price.
Take 130 N Garland, a high-rise built in 2005 that directly overlooks Millenium Park, with the lake shimmering behind the grassy expanse and the Pritzker Pavilion. In 2007, several 2-bedroom/2-bath units sold in the building at prices between $800,000 and $850,000. But this summer, my buyer was able to find an east-facing condo on the 23rd floor for substantially less. It had been on the market for two long years, originally priced at $795,000 (with parking sold separately for another $40,000.)
My buyer closed last week… for $690,000, including parking. Just in time to watch the Fourth of July fireworks from her new balcony overlooking the lake!
These are the kind of deals people are now finding in downtown Chicago. Almost new units in almost new buildings, in the heart of the city with a true lake view. Many of these 2-bedroom units can now be had for less than $700,000. Call me at 773-816-1788 if you’d like to see some.
The Chicago area now has the largest inventory of foreclosed homes in the nation, and these abandoned properties take longer to sell here than in most other cities.
With 118,776 homes that are either bank-owned or in the midst of being seized by lenders, Chicago ranks first in foreclosures among the 20 biggest metro areas, according to RealtyTrac, a company that compiles housing data. Even the cities that were hit hardest by the housing bust, such as Los Angeles, Miami, Las Vegas, and Phoenix, had tens of thousands fewer homes in foreclosure when the data was collected in May. Los Angeles, for example, was #2 with 86,745 foreclosed homes.
As a realtor who regularly shows homes throughout Chicago, particularly on the North side, I can testify that many of the foreclosures here are: 1) concentrated in poorer, less desirable neighborhoods with older housing stock 2) in lousy condition, often missing kitchen appliances or pockmarked by signs of neglect, such as water leaks and mold 3) if they are condos, located in buildings that may have other foreclosures, short sales, units not paying their assessments or financial problems that make lenders unlikely to give a buyer a mortgage there 4) owned by banks that are disorganized, unresponsive, and even idiotic in their approach to selling the home.
In a story today in the New York Times, the glut of Chicago foreclosures is also blamed on Illinois law that protects delinquent borrowers by requiring lenders to go to court to foreclose, creating a backlog of cases. Meanwhile, Attorney General Lisa Madigan is investigating banks’ “robo-signing” practices, involving the creation of false loan documents.
Also slowing down the sale of distressed properties is the reluctance of banks to lose money. Banks will be banks, of course, and they don’t want to sell foreclosed homes for substantially less than what the borrower owed on the mortgage. (I also see this mindset slowing down and often thwarting short sales, which is why I generally discourage buyers from even pursuing them until the banks get their acts together.)
The bottom line is that Chicago and its suburbs, especially the poor neighborhoods, are full of foreclosures. Buying one requires lots of patience and the acceptance of more risk than you’d encounter in a normal sale. But there are still some good deals out there, and I have helped several of my buyers pursue foreclosed homes that they now happily own.
Will 2011 prove to be the bottom for Chicago home prices? The jury is still out, but on a national level, many housing experts believe that the worst will soon be behind us.
In June, MacroMarkets LLC polled more than 100 economists, real estate experts and investment strategists with a wide range of viewpoints, including the National Association of Realtors Chief Economist Lawrence Yun, Moody’s Analytics economists Mark Zandi and Cecilia Chen, FusionIQ CEO Barry Ritholtz, and Freddie Mac Chief Economist Frank Nothaft. More than half of the panel said they expect U.S. home prices to hit bottom sometime this year and then remain stable through 2015.
“A significant majority of our panelists believe that the bottom for home prices arrived in the first quarter or will arrive sometime before year end,” said Robert Shiller, co-founder of the Standard & Poor’s/ Case-Shiller National Home Price Index and Macro Markets’ chief economist and co-founder. “Despite persistent macroeconomic uncertainly and unprecedented housing market dysfunction, almost two-thirds of the panelists see the U.S. residential real estate market as at an historic turning point.”
To be sure, I still see plenty of homes that aren’t selling. But those that do sell tend to be either distressed properties at bargain prices or handsome homes with plenty of amenities in solid neighborhoods. Put it all together, and it seems home prices in Chicago are finally starting to touch bottom.
Buyers often ask me for advice about a key question: Is it better to buy a smaller place in a nicer neighborhood, or a bigger home in a slightly less-desirable area? Real estate always involves a series of trade-offs (regarding price, location, size of the home, age of the home, amenities, school district, etc. etc. etc.) but this Location Vs. Size debate is one of the central decisions that buyers must make. In other words, is it a better investment to buy a 2-bedroom condo in, say, a stable, affluent area like Lincoln Park… or maybe a 3-bedroom condo a little further north, perhaps in Uptown or Edgewater?
These days, my vote would have to go with Location. That’s because we are now in Year 5 of a brutal and unrelenting real estate downturn, and I’ve watched homes in many fine North Side neighborhoods lose their value as buyers increasingly turned away from up-and-coming, less central areas in favor of those that were already quite popular. A bird in the hand is probably worth at least five in the bush in these uncertain times, and if you buy in an established, thriving community like Lincoln Park, you will likely come out ahead no matter what.
Consider the prices of condos and townhomes in Lincoln Park over the past two years. While other Chicago communities (and the city as a whole) saw home prices drop, the median sale price for Lincoln Park condos and townhomes increased 14.2% since June 2009, according to MLS data. And the climb has been relatively steady. Two years ago, the median sale price was $530,000. A year later, it was $557,500. And this June, it had jumped to $605,000.
Chicago home buyers are voting with their feet. Every day, they are choosing where to invest, live, and raise families — and they aren’t in a mood to gamble on a neighborhood that seems to be struggling or battered by foreclosures or lacking a strong commercial center or too far from the action. Lately I’m seeing more buyers opting for places like Lincoln Park, Lakeview, Bucktown, and the Gold Coast over areas like Logan Square, Irving Park, Albany Park, Uptown, Edgewater and Rogers Park — even if it means less space.
- Sizzle is back in the South Loop
- 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