Sue Fox, @Properties. Direct 773.816.1788
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Archive for the 'Sellers' Category
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.
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.
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.
I have some clients looking for a townhome in the $700,000 range in Wicker Park, Bucktown, or Lincoln Park, and lately we have run across several impressive homes with a least three bedrooms, garage parking and a roof deck. Because Wicker Park and Bucktown tend to boast newer construction than other areas of the city closer to the lake, their selection of mid-range townhomes has been more attractive than that of, say, Lincoln Park, where many townhomes were built in the 1980s.
Take, for example, the 4-bedroom, 2-and-a-half bath townhouse at 1757 N Paulina, Unit O in the heart of Bucktown. Tucked away in a narrow courtyard off a nondescript street, these brick townhomes aren’t much to look at from the outside. (This is often the case with Chicago townhome developments; you’ll find an expanse of brick broken up by an occasional bay window jutting out, usually framed in metallic cladding or limestone as an accent. Nothing too exciting, generally, but once you step inside some homes rapidly distinguish themselves from the masses.)
Here on Paulina, the home immediately opens up into a soaring living room bathed in light, anchored by a dramatic floor-to-ceiling stone fireplace. The kitchen –which has seen some $60,000 in upgrades — was truly beautiful, with custom Brookhaven cabinetry and white Brazilian granite. There was a huge island and room for a large table (or a built-in banquette, in this case.)
This elegant home was priced at $669,000 — and it’s not alone. We have seen several at this price point that are worth consideration, a welcome change from the lofty prices such upgraded homes used to command. There was a similar unit in this development that sold for $800,000 in 2008.
Even in this market, a lovely home in a good location that is well-priced is likely to sell. People still value beauty (and location). And while this Bucktown townhome wasn’t quite right for my buyers, it sold quickly — just three weeks after hitting the market.
For a building that is only four years old, Catalpa Gardens has seen more than its fair share of trouble. This colorful complex had the misfortune to be built and unveiled to the public just as the Chicago condo market was beginning a steep decline. This plunge not only caught off guard the developers — who were forced to slash their asking prices by as much as $150,000 on some 2-bedroom units — but it pretty much trapped dozens of buyers who purchased their units here before the massive price cuts in 2009.
I’ve written about the problems here before; in fact, in late 2009 I warned potential buyers to beware of this 126-unit building, a virtual ticking time bomb since so many owners were deeply underwater. Now we are seeing the fallout.
Over the past year, there have been 12 sales in the building, including 9 short sales. One was a foreclosure, and the last two were the developer’s “liquidation” of the final units. One of those, a sixth-floor unit with 2 bedrooms, 2 baths and garage parking, sold for $230,000 — the highest price in the building all year. It had previously been priced as high as $417,301 (with parking an additional $31,900.)
But the real losers in the Catalpa Gardens debacle are the regular folks who paid top dollar for a new building whose value was sinking by the day. Like the owner of #703, who paid a whopping $439,661 for a 1200-square-foot 2-bedroom, 2-bath condo in the summer of 2008. The housing market was already crippled then, and a year later this owner was trying to get out. But Catalpa Gardens was in serious trouble, and unit #703 (priced at $399,900) did not sell. The owner was forced to cut the price seven times, to $189,000, before it finally sold as a short sale last spring.
That’s right. This poor homeowner owned the place for less than two years, sold it for an appalling 57% less than he paid for it, and destroyed his credit in a short sale. And consider the fate of a similar sixth-floor unit, #603, whose owner paid $435,061 in 2008. That one has been for sale now for almost two years, currently priced at $175,900. It’s also a short sale.
Today there are six units for sale at Catalpa Gardens, and five of them are short sales or foreclosures. The cheapest is a 1-bedroom, one-bath condo priced at $103,500. More distressed sales are certainly ahead for this star-crossed building, but prices are now so low that these units are beginning to seem like a deal.
I was going to write about my latest listing, a 2000-sq-ft luxury condo with three bedrooms, two baths, garage parking and a roof deck with a great view of the lake. But it’s already been snapped up by a buyer, after just a week on the market.
So what’s the secret? Yes, it was a lovely unit with plenty of space and high-end finishes, in a snazzy building built just a few years ago. But the reason is sold so quickly, which I see time and again in Chicago, is that it was priced right. My sellers were realistic, asking $359,000 for a unit they purchased new from the developer in 2006 for nearly $90,000 more.
No one likes to take such a loss. But consider the fate of two similar luxury units in the same little lakeside stretch of Edgewater, just south of Loyola: One condo, at 5722 N Winthrop #3S, was on the market for a tragic 1,134 days. The price started at a lofty $489,500 and finally fell to… $359,000. But it didn’t sell. The owner, probably beaten down by three years of relentless price reductions, finally gave up and took it off the market a month ago. Another similar condo, at 6121 N Winthrop #2N, was originally priced at $359,000 in January, and it went under contract in less than two months.
So when it came time to list their unit, my sellers carefully considered the recent comps, listened to my take on market trends and priced their unit accordingly. Within a week, we had a buyer!
And that is really the point. What good is listing your home if you don’t sell it? We’re now seeing thousands of Chicago home sellers each year that — despite months on the market and multiple price cuts — ultimately fail to attract buyers. If you price your home correctly, you needn’t be one of them.
The monthly sales data is out for February, and the median home price in Chicago — now $177,500 — appears to be pretty much what it was a year ago. It’s actually a tad higher (by $1,000). Perhaps prices have finally stopped their relentless downward slide in the Windy City.
Yet sales volume continued to plummet, meaning that fewer properties are actually changing hands. A year ago in February, there were 1,225 single-family homes and condos sold in Chicago, according to the Illinois Association of Realtors. But in February 2011, only 1,056 homes were sold, nearly a 14% drop. This is not encouraging news for sellers who are hoping to attract buyers during this year’s spring market.
And prices are way down from where they were even in 2008, which was well after the downturn began. Take a look at Chicago’s median home prices in February over the past four years:
- February 2011: $177,500
- February 2010: $176,500
- February 2009: $218,625
- February 2008: $290,000
This simple chart shows the devastating impact of the thousands of Chicago homes that have fallen into foreclosure or are being marketed as short sales. All these distressed properties have pushed the year-over-year median price down nearly 40% in just a few years.
This spring, it seems that Chicago homeowners have gotten the message that housing prices have dropped considerably — and they’re not coming back anytime soon. As I meet with prospective sellers this month, I’m sensing a sober new attitude towards selling their homes. People are being realistic, thoughtful, even calm as they digest the latest sales figures in their neighborhood and decide on a reasonable price.
It’s a noticeable change from recent years, when sellers were apt to be more skeptical of the comps, and more insistent that their home must be worth more. Chicago home prices have been falling steadily for about five years now, with each year worse than the last, and at this point many of those folks who wanted to sell in 2007 and 2008 but kept waiting until the market recovered have finally concluded that a rebound could be years off. Do they want to keep waiting?
Some of them, the ones who really need to sell, are deciding to bite the bullet. I have four new listings on or about to hit the market, and all of the sellers know that they are not going to make any money on their sale. Three of them are listing their homes for less than what they paid four or five years ago.
While the circumstances vary, it’s not uncommon these days for people selling an ordinary, run-of-the-mill condo to lose $50,000 on their sale, when you factor in the commissions and closing costs. That’s why inventory in Chicago is so low right now — the month’s supply in January was 30% lower than it was a year ago. People who can’t afford to sell simply aren’t selling (or else they are attempting a short sale.) People who can afford to sell are, it seems, finally pricing their homes to actually sell them.
And deals are getting done. I just sold a house in Evanston last week… for about 10% less than the seller paid for it in 2004.
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