David Stiff, chief economist of Fiserv–a Boston-based financial data firm anticipates Chicago will experience a price decline of 0.3 percent at the end of 2011, and a 3.4 percent increase at the end of 2012, with stabilization in sight, according to the Chicago Tribune.
Despite strong consumer belief that the housing market will not recover until 2014, Stiff is adapting a slightly more optimistic outlook.
Fiserv believes we are currently in the darkest period of the housing market, saying prices will go “pretty much nowhere” for three to four years, with stabilization on the horizon within two years for the majority of the country.
In the past, the firm strayed from the pack, with other economists claiming market stabilization within the past couple of years, but, now, the firm, noting widespread housing affordability, expects the end is near.
However, Stiff remarks that the job market still has a great weight on the potential stabilization. Without employment growth, or even worse, with worsening unemployment, buyers may lose interest–even with rock-bottom house prices.
However, this process is not expected to be easy, as the hardest hit markets are estimated to remain weak for another year and a half at minimum, Stiff said. Markets with heavy foreclosure activity are also expected to struggle.
Tacoma, Wash. is projected as the best faring housing market according to the firm’s data. Other well-off areas were: Memphis, Tenn., Pittsburgh, Boise, Idaho, and Rochester, N.Y.
Orlando, Fla., Detroit, Miami, Riverside, Calif, and West Palm Beach, Fla. are expected to struggle the most, stabilizing behind most of the country in the end of 2012.
Though I hope he is correct, I do not agree with Mr. Stiff’s assessment regarding the Chicago market. I do not characterize myself as a doomsayer, just a realist and based on our marketplace, there are a few reasons why Mr. Stiff is not correct. First, there could be 70,000 new foreclosures dumped into the market this year (2011). Should this occur prices will be driven down further than Mr. Stiff thinks they will.
Second, seller’s who do NOT have to sell their home, still have their property on the market. Until the inventory lessens, the market will continue to be a buyer’s market. The supply side of inventory needs to be closer to the demand side for this slide to level off.
Last, I hope the market recovers by 2014, but I fear that we are only looking at a flattening out of prices by that year. It could take a couple of more years to see any rise in prices and when it does happen, do not expect to see any great increase in values on a yearly basis.
Where there is great downturn is in the multi-family market, especially in the condo market. Lenders are not lending on any complex that is above their limit in the number of rentals units found in that complex. Lenders have also increased requirements of documentation before they will approve a loan for these properties.
Also in the far out suburbs, there are so many short sales and foreclosures currently available, prices have suffered terribly. In addition, it appears buyers do not want to make a long commute, especially with gas prices above $4.25 per gallon.
Speaking of short sales, lenders need to wake up and make the process of getting a short sale closed in a reasonable time. This is a huge segment of the market but, the process is grueling and laborious. Many times it does not even come to fruition either because the buyer gets tired of waiting for an answer from the bank, or, the bank after many months does not even counter or accept the offer.
Speeding up the short sale process will remove many homes from the current market inventory as buyers will be more inclined to make offers on these properties. In my opinion, much of this problem was caused by the lenders and they still appear to be part of the problem.
On a brighter note, the Chicago area is a huge marketplace and it does have pockets where prices have stabilized or even risen slightly. The upper bracket homes on the North Shore and in the City of Chicago are selling. Those upper bracket buyer’s who could not afford to buy a $3 million dollar home, now find themselves needing only $2 million to purchase the same home. Arlington Heights has had numerous homes sell having received multiple offers while others have sold at full price.
Spending has increased, as evident by Mother’s Day purchases, and all indications are that this Father’s Day will also show consumers spending more money on gifts. It is a good sign when people begin to spend a bit more of their money because it usually shows an increase in consumer confidence.
The real problem though, in this writer’s opinion, is jobs. Until more people are back to work and corporations loosen up on the cash they are sitting on to hire new employees, the housing market is still going to be sluggish at best.
However, I can hear the companies saying they do not have the need for new hires because demand for their goods has not increased. This is what I call a circular situation. If you hire new workers, they will have money to spend and therefore the need for more goods will increase. So far it appears that companies are not willing to take that risk.
As a Real Estate Broker/agent and homeowner, I hope that Mr. Stiff’s observations hit their target as we could all use a boost.