Sue Fox, @Properties. Direct 773.816.1788
Subscribe to Site
- FHA loans
- Market conditions
- Tax credits
Real Estate radio
Archive for the 'Sellers' Category
Buyers know a good deal when they see one. In October, they barreled into the housing market, driving up sales in Chicago by 28.5% over last year, according to a report today from the Illinois Association of Realtors.
It seems that the government’s $8,000 tax credit for first-time buyers — along with relatively low interest rates — is working. In the city of Chicago, there were 2,012 sales of single-family houses and condos in October, compared to just 1,566 homes sold in October 2008. This is good news for sellers, because it means our bloated inventory of homes is actually beginning to shrink as buyers snap up deals.
“October’s extraordinary sales totals reflect home purchases by many buyers who were sitting on the sidelines of the housing market, waiting out the economic downturn, as well as more home sellers coming to terms with accurate pricing given the market conditions,” said Mike Onorato, president of the Illinois Association of Realtors.
But even though more properties are changing hands, prices have not recovered. The median home price in Chicago fell 18% since last October, from $262,250 to $215,000.
For sellers, it is critically important to acknowledge the shifting terrain and price your home accordingly. There is no room in this market for an overpriced property you’re trying to sell for what your neighbor got last summer. Don’t even bother. Buyers are smart, and as today’s report shows, they are out there in droves, willing to buy when they find a good deal.
The federal home buyer’s credit has now been extended (and expanded to other buyers) for the next five months. Don’t waste this chance to sell by sticking last year’s price tag on your home!
Uh-oh. There’s more bad news on the job front today — and, by extension, the housing front. Unemployment in Illinois hit 11% in October, the state Department of Employment Security announced today. That’s worse than the national rate and the most dismal figure we’ve seen here in 26 years. At this point, almost all Chicagoans can probably name friends or family members who have been laid off (or had their hours or pay or health insurance benefits cut).
Considering that the unemployment rate in Illinois was only 6.8% a year ago, it’s obvious that the erosion of jobs is a huge weight slung around the housing market’s neck. No job means no income means no loan, which spells more trouble ahead for Chicago home sales and prices.
Unless employment starts to climb, fewer would-be buyers will be able to qualify for home loans. And more homeowners will struggle to pay their existing loans, leading to more short sales and foreclosures. This dastardly combination — lower demand and greater supply — could push prices down further in the Chicago area, just as we are starting to see signs of stability.
Another ominous sign this week: Home construction slowed unexpectedly in October, according to the Commerce Department. The rate of single-family and multi-family home building dropped 10.6% over the previous month, surprising analysts who had expected better.
It’s official: The $8,000 tax credit for first-time home buyers has been extended for five more months. This is great news for anyone hoping to buy or sell a home soon, particularly in sluggish markets like Chicago!
On Friday, President Barack Obama signed a $24-billion stimulus bill that — among other things — extends the tax credit for first-time buyers until April 30, 2010. Buyers must sign a contract on a home by then, and close the deal by the end of June, to qualify. The new measure also provides a $6,500 credit for those who have lived in their current home for at least five years and are selling it to buy another home.
The income limits for the new program are also significantly higher, which will allow more people to take advantage of the government money. To qualify, a single person can earn up to $125,000 annually (or $225,000 for a couple). The law also extends unemployment benefits and provides and tax credits for some businesses.
The Senate approved the measure Wednesday and the House followed suit the next day. Compared to the contentious health care debate, this bill sailed through: The Senate vote was unanimous while the House voted 403 to 12 in favor.
There have been a lot of rumors and news reports flying around in the last couple days, suggesting that the government — yippee! — has decided to extend the $8,000 tax credit for first-time home buyers. However, it seems some people have forgotten the little jingle that explains how a bill becomes a law (“I’m just a bill… sitting here on Capitol Hill” see the video here, for old time’s sake.)
So far, only a group of Senate negotiators has agreed to extend, and slightly expand, the $8,000 tax credit. The program would give buyers until April 30, 2010 to sign a contract to purchase a home, and another 60 days to close. It would also allow other buyers who have lived in their home for at least 5 years to qualify for a $6,500 tax credit if they sell it and buy another home. Income limits for the program would increase, and the credit would only apply to homes that cost less than $800,000.
But remember, the bill still needs to be approved by the full Senate and the House. President Barack Obama has already indicated his support for the extension, which many housing analysts believe has helped stabilize the market. Some 400,000 home sales this year were spurred by the current credit, economists say, which is set to expire on Nov. 30.
“It is imperative that we retain the momentum we have gained as a result of the current credit,” said Sen. Johnny Isakson (R-Ga.), a former realtor who co-sponsored the measure, “and go into the spring market with the increased consumer confidence necessary for establishing a viable market.” Go, Johnny, go!
If approved, the tax credit extension would be seamless, with buyers noticing no disruption as November passes into December. For now, we are definitely getting closer, but it’s not a done deal yet!
Is our local housing market finally on the mend? Prices rose in Chicago for the fourth month in a row, suggesting that we’ve hit a bottom and are starting to bounce back.
According to the Standard & Poor’s/Case-Shiller home price index, Chicago prices inched up 1.7% in August compared to July. This doesn’t mean we’ve completely recovered; home prices citywide are still down 12.7% over the previous year… But that’s better than the 18-20% decreases we were seeing earlier this year!
Nationally, home prices appear to be rising as well. The Case-Shiller report, which covers 20 large cities, showed a 1.2% price jump between July and August. Prices are up in 17 cities since June. Chicago’s performance was among the best, after Minneapolis, San Francisco and Detroit.
But local economists warn that the rebound could be snuffed out by a wave of foreclosures expected next year, coupled with rising unemployment in Chicago. Unemployment in the metro area is now 10.1%, a sharp increase from 6.2% last September, according to the Illinois Department of Employment Security. That’s the worst we’ve seen it in 26 years.
Still, some housing analysts are optimistic. “Housing is as affordable as it’s been in 20 years,” Karl Case, the economics professor at Wellesley College who helped create the Case-Shiller index, told the New York Times. “I don’t see a very rapid recovery, but I think we’ve seen the bottom.”
In my opinion: No.
I tell my buyers that trying to buy a property listed as a short sale is like falling for someone who’s already married. Short sales often lead to frustration and heartbreak, no matter how attractive the price might seem up front. Try to remember that in many cases it’s an imaginary price, with little relation to what the seller actually owes on the property.
With a short sale, the seller is no longer calling the shots. It’s up to the bank that holds the mortgage whether to accept an offer, and most lenders don’t want to accept less than what they are owed. If you submit an offer, it could be months before you receive an answer from the bank. In many cases, there are two mortgages on the property, which means you’re waiting for a response from two banks.
The answer, when it finally comes, is often no. In fact, two out of three short sales never close, according to a recent article in the Chicago Tribune (read the full story here). I’ve seen other reports suggesting that some lenders actually prefer to let homes slide into foreclosure, because that postpones the day they must record a loss on their books.
Many sellers are trying short sales these days because they believe it won’t hurt their credit as much as a foreclosure. But short sales are a massive headache for everyone involved, and in most cases they won’t work anyway. If the seller can’t afford to resume paying the mortgage, the property is likely to wind up in foreclosure.
Lincoln Square, one of the more desirable neighborhoods on the North Side, is now growing more affordable as well. Prices of single-family houses here have tumbled considerably in the last year, making the area a great buy for bargain-hunters.
In June 2008, for example, six houses sold in Lincoln Square, with a median price of $664,500. This June, eight houses found buyers, but the median price had fallen to $532,500 — a 20% drop in just a year.
I think part of the problem was the rash of small-time investors who started buying up old A-frame houses here in 2007 and 2008. Some were contractors, some were real estate agents, some were just starry-eyed dreamers, but they all shared a hope of fixing and flipping these houses for a tidy profit, particularly in the Bowmanville area north of Foster and west of Damen.
Now, unfortunately, Lincoln Square is speckled with lovely, newly-rehabbed houses that can’t find buyers. There’s 2130 W Summerdale, which has been on the market since March, for $645,900. There’s 2110 W Berwyn, also for sale since March, now listed at $650,000. Or 5324 N Leavitt, which has been on and off the market since 2007 and is now a short sale for $650,000. Or 5148 N Oakley, which has been on the market all year and is now priced at $539,900.
All of these homes have endured multiple price reductions of tens of thousands of dollars, sometimes even $100,000. And yet here it is, heading into our sluggish winter season, and they remain unsold.
Why do so many people like two-flats? If you live in one, it’s usually not much different from living in one of Chicago’s multitude of narrow, vintage rental apartments… but somehow many buyers have this fantasy that a two-flat is a great investment because it provides rental income.
What they don’t realize is that, in many cases, you can’t charge anywhere near enough rent to cover your mortgage. And that, in a nutshell, is why prices for two-flats in Chicago have completely nose-dived in the last two years. There are now hundreds of two-flat owners, particularly on the North Side, who have almost no hope of selling for the price — often $500,000 to $800,000 — that they paid for their homes.
In late September 2007, the median price paid for a 2 to 4-unit building in the city of Chicago was $315,000. During that same week in September of 2009, the median price COMPLETELY PLUMMETED to $49,000, according to figures collected by Midwest Real Estate Data LLC.
Of course, this is citywide data, which includes all sorts of distressed, boarded-up buildings in ravaged neighborhoods. Many areas like Edgewater, Lincoln Square, Andersonville, Lakeview and Lincoln Park still have plenty of two-flats for sale for half a million and up. The problem is, virtually nobody is buying them.
It’s a matter of math: If you take out a mortgage for $500,000, you’re going to be on the hook for at least $4,000 a month, including taxes and insurance. And since you’re probably only collecting $1,200 or $1,300 in rent on your second unit, you’re stuck with a big, cash-swallowing alligator.
Two-flats are only a good investment when they can be had for far less money. Which is why their prices are now falling and falling.
A few months ago, the Chicago Tribune ran a story heralding a “Two-flat comeback.” That’s because two-flats are now getting so cheap that the numbers actually make sense again… in some neighborhoods. One of the buyers mentioned in the story, for example, paid $265,000 for a Logan Square two-flat that he is rehabbing himself (read the full story here.)
It’s relatively easy to figure out whether buying a two-flat makes sense. Just do the math, calculating how much the mortgage, taxes and insurance will cost each month and how much you can likely charge in rent. If you can’t cover the total costs by renting out both units, don’t buy it.
Please check out my other blog posts at www.hometochicago.com!
The data on August home sales is out, and the picture isn’t pretty for condo sellers. The gap between single-family homes and condos widened dramatically, with sales of houses up 22.6% and sales of condos down 19.1% over last year, according to the Chicago Association of Realtors.
As prices have fallen citywide, it’s become more affordable for buyers — many of whom would prefer a house anyway — to reach for a single-family house instead of a condo. In fact, Chicago is so clock-full of rundown bungalows, ranches, and other houses whose owners are in trouble that the median price of a single-family house is now just $154,000, a 30% drop from last August. Many of these homes wind up in foreclosure, or sell for less than what is owed (a short sale), which further drags down prices.
Meanwhile, condo prices have also taken a hit, but a lighter one. They’re down 15.3% this year, with a median sales price of $271,000. “Condo sales, until the beginning of this year, were the best part of our market,” David Hanna, president of the Chicago Association of Realtors, told the Chicago Tribune. “There aren’t any buyers for this stuff because the lending process is tortuous.”
That’s true: Most lenders now require at least 10% down on a condo, unless you’re using a government-backed FHA or VA loan. But those loans come with a thicket of red tape. Meanwhile, in a big city like Chicago, the $8,000 first-time homebuyers tax credit has less impact, because so many people here earn more than the income limit. I have a buyer who just inked a deal for an Andersonville condo, but he makes more than $75,000 (the point at which the credit, for single people, starts to phase out.) He’s not eligible for any of the credit.
All of this means that condo sellers must be very realistic about pricing their homes. There are not enough buyers to absorb all the granite countertops, stainless steel under-mount sinks, and stackable washer/dryers now clogging the market in Chicago.
It’s hard out there for a seller. At the moment, there are way more of you than there are buyers, which means that thousands of homes for sale in Chicago will not actually sell this year.
Consider this, one little stat plucked from the Chicago Association of Realtors’ weekly report: In the third week of August, just 206 condo sales closed citywide — a 55% plunge over that same week two years ago.
So if you want your property to be among the lucky ones, it’s time to be realistic. Extremely realistic, as in flinty-eyed, steely-spined, flat-out ruthlessly business-minded about the sale of an asset that you — but not your prospective buyers — may have invested with an emotional value. It’s time to look strictly at the numbers.
If you don’t, buyers will. Market information is easily available these days, and any competent realtor can run the comps to determine the average sales price and market time of homes in your neighborhood. Every buyer will know that the condo upstairs sold for $30,000 less than you are asking, or that it took your neighbor across the street eight months to sell his house.
Sellers often say things like: I don’t want to lose money. I need to sell it for at least (insert desired price here). Let’s just test the market. If someone likes my house, won’t they just offer less if they think the price is too high? I’m not desperate; I don’t have to sell it. My house is special.
And then they price the house based on factors that, when you get right down to it, have nothing to do with its current market value. Honestly, the market truly doesn’t care that you bought it three years ago for $425,000. In today’s slumping economy, similar houses may be selling for $350,000.
The longer a house languishes on the market, the harder it becomes to sell. I often see homes that have endured multiple price reductions over many months. Once a property gets sucked into this sad spiral, the seller usually winds up with an offer well below what he might have commanded if he’d just priced it properly to start.
I sold my last two listings in about five weeks, at 96 to 98% of the asking price. That’s far better than average, and it’s because I was working with realistic sellers who carefully sized up the current market before deciding on a price.
So, as I advise all my sellers, take a long look at those comps. Try to forget about how much you like your house, or what you paid for it, or how much money you hope to walk away with. Pretend you’re a business analyst coolly assessing a deal. Consider what similar assets have recently sold for, and price accordingly.
If the price is right, a willing buyer may be closer than you think.
- 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