The signs are out there that the market is about to take a turn for the better. Offices are busier and more and more houses are being sold. The following pages highlight thoughts, opinions and tips from industry leaders on the current state of the market.
The Wait Could Be Over
By Steve Baird
President/CEO, Baird & Warner
After a long wait, it appears the market has generally stabilized and we have even begun to see some improvement, albeit modest. We are not out of the woods, but things look much better than they did six months or a year ago. Real estate declined before the general economy, and now we are leading the recovery – first in, first out.
That said, it will most likely take a couple more years for our current inventory to fully work its way through the market. There is no doubt that foreclosures will continue to play a role and put additional pressures on home prices. The situation will vary significantly market to market, but we won’t be totally immune here in the Midwest. The good news is that it appears we are at or near the bottom of the decrease in home prices already.
The government has been trying to do its part, although its response has been a little uneven. On one hand there has been a significant tightening of regulations on the mortgage side, but at the same time the Fed has realized it needs to open up in order to stimulate the housing market. For instance, there is currently talk about extending or increasing the first-time homebuyer tax credit. And while it’s still unclear at this point how effective the tax credit has been, we will continue to see these types of initiatives coming out of Washington.
In terms of residential brokerage, it’s fair to say that this economy is affecting everyone. In other times size could help you, but now that’s not the case. Many companies have been slow to react, and that has hurt them more than anything else. Baird & Warner has used this period to sharpen our focus on the value we offer to agents, mainly in the form of training, marketing and technology tools and administrative support. We are carefully evaluating every process to make sure it is efficient, effective and helps our agents to deliver superior customer service and differentiate themselves in this market. We have also worked hard to ensure our operations remain healthy, because ultimately our goal is to come out of this a stronger company.
And as is the case with all real estate companies, while there are fewer agents in the business today than there were three or four years ago, the healthy ones — the strong ones — are getting even stronger. Those who have adapted their business to the market will continue to pull through and thrive. Even though the economic downturn has been difficult, in a way it has been positive for the real estate business as a whole by ensuring only the very best agents and brokerages survive.
Steve Baird is the president/CEO of Baird & Warner. He can be reached at 312.368.1855, or by e-mail at [email protected].
The Residential For-Sale Multi-family City Market
By Alan Lev
President, Belgravia Group
Starting in October of 2008 through spring 2009, the outlook was bleak. Traffic was way down and sales were almost non-existent. Obviously, this coincided with the financial meltdown, increasing unemployment and oversupply of inventory. To top it off, standards for mortgages were made tighter, making it more difficult to get approved or close on a loan. The secondary market that buys loans made by a bank or other lender shrunk to only Fannie Mae for condominiums. Fannie then proceeded to tighten its guidelines for approving a condominium building by requiring that 70 percent be sold, at least 51 percent be owner occupied and the entire building be completed as a precondition to buying a loan.
A few buildings announced that they would have rentals instead of condominiums, and others defaulted and went into foreclosure with some units already closed. Buyers refused to close or couldn’t close in numbers not seen before. Townhomes, while not over supplied and not subject to the new Fannie guidelines, suffered as these move-up buyers had trouble selling their existing homes, preventing them from buying or closing.
Starting in June 2009, traffic and sales have picked up slightly, and cancellations by buyers 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. A new pressure has recently arrived: Buildings that are distressed have drastically slashed prices. This seems to arise when a lender forecloses on a building or requires the developer to liquidate its remaining units. While this may present buying opportunities, it makes it harder for other buildings to sell at market prices and may have other consequences. The prior buyers and owners in a building that have slashed prices may see their values immediately reduced below the prices they paid. Units that haven’t closed may find it hard to appraise out at the price under contract. Prices may get slashed further to sell out the building.
Our outlook is a little brighter than the immediate past. Lending standards may slightly loosen and FHA loans will become more readily available. FHA recently published new rules that should help new construction condominiums get FHA project approval late in 2009 or early in 2010. As the resale market loosens up, the small number of townhomes in the market will sell. 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. The oversupply will burn off over the next two to three years, after which time the rentals will be converted to condominiums.
The balance of 2009 will be similar to that of the last couple of months, and traffic and sales will be a little better than the lows. With more buildings expected to fail, the road will be difficult for non-troubled buildings. Developers that can hang on will benefit from decreased competition and supply. Hopefully, buyers and prospects will flock to the quality to ensure the good projects succeed.
Alan Lev is the president of Belgravia group. He can be reached at 312.751.2777, or by e-mail at [email protected].
Patience is Key
By Tamara O’Connor
Broker/Owner, Premier Living Properties
There is a common saying: “Good things come to those who wait.” Well, the waiting is over for buyers in the Northwest suburbs. Interest rates are low, home prices are at a level not seen in five to 10 years — depending on price range and area — and inventory levels are ample. Right now is a great time to be a buyer.
Having sold real estate for 20-plus years in the Fox Valley area, I have experienced many up and down cycles in the market. The current opportunities out there for those willing to buy a home is one of the best I have seen. The job market and fear of unemployment/underemployment has kept many would-be buyers on the sideline. Tightening lending/appraiser laws have been an obstacle as well throughout 2009.
The appraisal process is what is keeping home prices from rebounding. Most bank appraisals are indicating a declining market in their reports and using bank foreclosures in their comparables. This is keeping the appraised value down over the last year more than ever. If a home sells in an area that has only had two other sales and they are both bank foreclosures, then that is the comparison the appraiser uses, which oftentimes leads to an deflated value.
I believe that as unemployment numbers improve, the pent up demand of the last few years will be unleashed and we will see a boom in the number of homes sold. This is a current window of opportunity that I believe is starting to close. I think by late 2010 you will start to see a true rebound in pricing and number of sales. Land prices are going to be much more affordable as well. This will help home building starts in 2010 and 2011 as well.
In life, the ones who choose to look for opportunity will be the ones who reap the benefits. This market is definitely full of opportunities for all!
Tamara O’Connor is the broker/owner of Premier Living Properties in South Elgin. She can be reached at 847.888.4991, or by e-mail at [email protected].
Current Market Outlook
By Pat Callan
President, Illinois Association of Realtors
Broker/Owner, Realty Executives Premiere, Wheaton
As we look ahead, we see opportunities remain for buyers in the Illinois housing market. The $8,000 first-time homebuyer tax credit (which expires December 1), historically low mortgage interest rates and more affordable home prices are motivating factors for taking that step into homeownership now. Trade-up buyers and investors also have a unique opportunity to take advantage of these market conditions.
Yet clouds remain for a quick recovery in the housing market when you consider the big-picture implications from jobs and the overall economy. Illinois’ official unemployment rate reached 10.3 percent in June, the highest rate in the last 25 years. Consumer confidence has weakened and concerns about foreclosures have dampened recovery prospects. According to the latest IAR forecast prepared by economists from the University of Illinois Regional Economics Applications Laboratory, sales and median prices will continue to trend downward from a year ago as we close out 2009.
Illinois Realtors are working with leaders in state and national government to promote further stimulus measures for the housing market as well as assist families facing foreclosures. A new Illinois law grants up to a 90-day grace period for struggling homeowners that bars foreclosure proceedings for 30 days and additional time for homeowners to seek credit counseling and work
toward development of a loan payment plan. Also, this year Congress passed legislation to increase FHA loan limits to their 2008 levels to benefit more homebuyers as this government-insured loan has become increasingly popular — now 36 percent of the market share compared to 5.8 percent in August 2008.
Consumers and real estate professionals can look to YourIllinoisHome.com for resources on foreclosure (steps to avoid, the short sale option, refinancing programs, etc.), plus the $8,000 first-time homebuyer tax credit and FHA and state mortgage loan programs that can help buyers with less-than-perfect credit.
Pat Callan is the president of the Illinois Association of Realtors. He is also broker/owner of Realty Executives premiere in Wheaton. For more information, visit Illinoisrealtor.org, or contact Callan at 630. 668.1199.
Realtors Add Value
By Doug Horwich
City Realtors have seen more deals made in the first and second quarter of 2009 individually than the fourth quarter of last year. This increased deal volume — unlike the more severely impacted areas of as Las Vegas, Miami and Detroit — is not foreclosure specific. Prices seem to have stabilized in many product classes and several recent sales could make the argument that we have already reached our bottom. With that said, a continued decline in commercial real estate, coupled with a lack of improved credit markets, would not fare well for either the general economy or the residential market.
Today’s market comes coupled with more lender restrictions, which has many developers shying away from new construction developments. This isn’t solely due to an overall lack of funding; rather, the buyer’s lender can and often requires that more than 70 percent of the units be already under contract or sold before they will fund an individual loan.
A buyer in today’s Chicago market has a great selection with many opportunities to purchase a home at a price much more attractive than in recent years past. With inventories remaining high it remains critical that sellers remain “in the market” instead of just “on the market,” which means pricing realistically as well as maximizing showing potential by making necessary cosmetic renovations. Buyers will continue to be selective, and a home that is incorrectly priced or shows poorly will most likely be overlooked.
The expertise of a Realtor is needed now more than ever. In today’s market, pricing is sporadic and some homes are significantly overpriced. A buyer needs guidance to assess a home’s true value and avoid unnecessary expenditures. What an unrepresented buyer might consider a low-ball offer may, in fact, still be too high. Likewise, there are some homes priced way under the market and an agent is needed to keep the buyer cognizant of the true value of the home instead of focusing solely on how much the seller has come down from his/her original asking price.
At the end of the day, a strong agent who can provide thorough market knowledge and properly assess concrete data will always add value and continue to make deals.
Doug Horwich is a realtor with Rubloff, and has spent more than 16 years in real estate. Horwich can be reached at 773.687.4651, or by e-mail at [email protected].
Downtown Chicago Condominium Market Trends
By Gail Lissner, CRE, SRA
Vice President, Appraisal Research Counselors
2009 has been a challenging year for everyone in the real estate industry, but it has also created some excellent buying opportunities. While many potential buyers remain on the sidelines, we are seeing evidence of an uptick in sales activity due to a number of factors, including re-pricing of units, the first-time homebuyer tax credit and attractive interest rates. The availability of financing continues to be an issue for many buyers as conventional lenders have tightened lending standards, although FHA financing has become an increasingly important component in the market.
Appraisal Research Counselors tracks prospective buyer traffic and new sales activity on a weekly basis at approximately 75 new condominium developments throughout the city of Chicago. During the first three months of the year, sales volume fell below 2008 levels. However, since the spring, there has been an improvement in sales activity, primarily being driven by projects where the developers are offering discounted pricing. As shown below, the 2009 sales activity in these developments during May and June actually outpaced 2008.
This increase in sales volume clearly confirms that there are buyers in the market who are willing to commit to purchases. Pricing is critical in this process and price discounting has been the main driver behind this improvement in market activity. The increase in sales has been primarily achieved by projects which have publicly advertised price reductions, although other projects have also gained more limited sales results with price discounts negotiated on an individual basis.
Once the current inventory of new unsold units is absorbed, opportunities to purchase newly constructed units will be extremely limited. The pipeline of proposed projects has evaporated, with developers postponing plans for future developments not already under construction. While approximately 4,500 new construction condominium units are being completed during 2009 in the Downtown Chicago market with approximately half already sold, only 600 units will be completed in 2010 and less than 100 units are anticipated for completion in 2011 as shown below.
At the conclusion 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. The resale market will be the only alternative for buyers once the inventory of new units is sold out. Before new condo development activity begins again, unit pricing, market demand and the employment figures for the city will first need to strengthen. Meanwhile, the unsold inventory in the market will ultimately get absorbed as the economy improves and this lull in development activity will set the stage for a new development cycle to occur within the next several years.
Gail Lissner, is the vice president of Appraisal Research Counselors. She can be reached at 312.565.3423, or by e-mail at [email protected].
By Rosemary West
Realtor, RE/MAX Northern Illinois, Joliet
While the current real estate market is certainly challenging, there are still buyers looking and properties selling; the process is just taking longer. Bankers and brokers continue to be challenged with over regulation and tightening guidelines, and with declining home prices, appraisals create additional challenges. We as real estate agents need to be the “lighthouse” and trusted advisors to help consumers in the uncharted waters of today. I want to not only make a difference, but break new ground for our industry. Real estate is reinventing itself and we have an obligation to stay ahead of this curve. We have to welcome the “next generation” of real estate with open arms!
We need to create a road map designed to enable broker/owners to become more profitable and assist agents in becoming more productive. This may be accomplished by taking advantage of forward-thinking tools that we have not previously utilized or have even been aware of at this time. We need to not only accept change, but embrace it.
The agents of today need to be knowledgeable about short sales, foreclosures and bank owned homes. They need to be willing to go the extra mile and devote the time needed to help both buyers and sellers understand the process involved.
The other arena is first-time homebuyers. Agents need to work closely with experienced lenders who understand the government incentives offered and how to implement them with the first-time homebuyer to get them to the closing table.
Regarding the government incentives, I would hope they would not only get extended, but broadened to include all purchasers and not just first-time buyers.
I believe one of the biggest obstacles we are facing is reports in the national media that have damaged consumer confidence in the housing market. It is our duty to educate the consumer that the market is not the same in all areas and they really need to get the statistics in the local market where they work. Materials are available through the MLS and appraisal company reports that can be obtained easily.
In closing, there have been challenging markets in the past and we have been resilient and have come back stronger than ever! I believe this is the time that the strong will survive.
Rosemary West is a Realtor with RE/MAX Northern Illinois, covering the western suburbs/Naperville, who specializes in relocation, short sales and foreclosures. She can be reached at 630.807.9700 or by e-mail at [email protected].