Monday, August 17, 2009

REAL ESTATE EXPERTS ANALYZE THE CHICAGO-AREA HOUSING MARKET

These days, Realtors and residential real estate developers are like doctors taking the patient’s pulse.

With 2009’s third quarter already close at hand, a wide number of real estate veterans and trying to diagnose the current condition of the residential real estate market.

Four facts are clear, according to Jim Merrion, regional director of RE/MAX, the real estate network in Northern Illinois:

• Mortgage interest rates are in the low-5-percent range, near the 40-year historical bottom. In early August, 30-year fixed-rate mortgages averaged 5.22 percent, according to Freddie Mac. Last year at this time, 30-year loans averaged 6.52 percent.

• With thousands of homes, townhomes and condos listed for sale, selection of available inventory residences in the Chicago area is huge. • Home prices have declined generally, though more significantly in some areas than in others, and bargains can be had especially for buyers with the guts to shop foreclosures.

• Best of all, the federal government is offering first-time buyers an income-tax credit of up to $8,000 for homes purchased before December 1.

Homes in foreclosure and those offered as “short sales,” where the likely sales price won’t cover the outstanding mortgage balance, now account for nearly half of total sales, Merrion said. And, these properties obviously are attractive to buyers looking for the deal of a lifetime.

“Many young buyers are eager to look at foreclosures because they think they can get a great bargain, and, yes, there are real deals out there,” said Vicki Geiger of RE/MAX Top Properties in Morris. “Buyers who want a home in excellent condition probably will be happier purchasing an owner-occupied home. Those usually aren’t as sharply priced as distressed properties, but there still are excellent values to be found.”

Foreclosures often have been vacant for months and may not have been carefully maintained, noted Armando Zires of RE/MAX Northwest in Des Plaines. “That’s why many buyers of foreclosures are experienced investors. They’re prepared for the fix-up costs that may be involved,” he said.

Chicago developer Alan Lev, president, Belgravia Group, noted that buyer traffic and sales have picked up slightly since June, and cancellations by worried purchasers have seemed to taper off. “While the $8,000 first-time buyer credit is helpful to that segment of the market, it doesn’t appear to be spurring sales that wouldn’t have otherwise occurred,” he said.

Lev’s outlook for housing is brighter than the immediate past. “Lending standards may slightly loosen and Federal Housing Administration-insured loans will become more readily available,” said Lev, noting that the FHA recently published new rules that should help new construction condominiums get FHA project approval late in 2009 or early in 2010.

However, Lev gloomily predicted that there will be no new condominium buildings started or built in the city for at least three to five years.

“Broken condominium buildings will be turned entirely or partially to rental,” he said. “The oversupply will burn off over the next two to three years, after which time the rentals will be converted to condominiums.”

Appraiser Gail Lissner, vice president of Appraisal Research Counselors, noted an uptick in condominium sales activity in the 75 downtown Chicago projects she surveyed. Sales are sparked by re-pricing of units, the first-time home-buyer tax credit and attractive interest rates.

“Since spring, there has been an improvement in sales activity, primarily being driven by projects where the developers are offering discounted pricing,” said Lissner, noting that pricing is critical and price discounting sparked a dramatic improvement in sales in May and June.

Some 4,500 new construction condominium units are being completed downtown in 2009, and half already are sold, Lissner noted that only 600 units will be completed in 2010 and less than 100 units are on the radar for 2011.

“By the end of 2009, the downtown Chicago market will be returning to construction levels reminiscent of the early to mid 1990s when there was very little new condo development activity,” Lissner predicted.