To let me know the exact month and day the market “bottomed out”. I’m waiting to time it (JK:). This is, in every single aspect, the best time to BUY real estate in Chicago since the early 80’s. Yes- I realize what I just said. The real estate market in Chicago is DONE sliding. We are at bottom.

Will prices remain soft?

Statistically yes. In reality, not so much.

Last month the National Association of Realtors posted numbers that 45% of the transactional volume involved distressed properties. That means something in short sale or foreclosure. If the average discount on a distressed property is approximately 20% off market value- then doesn’t it make sense that the average sales prices market wide will appear significantly down? I think my 4 year old can answer that. I have told so many clients this recently: good properties that are priced well are selling, and faster than you think. I have personally been involved in 3 multiple offers since February. Offers have been low but the far majority of sellers are not willing to give their place away. 

In short, there will still be deals out there over the next few years. But…

Will interest rates be so low?

Likely not.

Will inventory be as plentiful?

It’s already starting to be absorbed.

There are many indicators practically screaming a change in tide. They all point in the direction that we are experiencing a “bottoming” effect right now. You’ll see what I mean, this time next year.

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We are almost 80% sold, of which over 80% of those buyers are owner
occupied. The common areas are finished and so are all of the units. The
developer is in a healthy cash position. This creates stable prices and a
feeling of “safety” to many of the people who are purchasing there.
That’s probably a significant reason WHY it’s selling!

Getting back
to the great deal… if you put an offer in for new construction/rehabbed
buildings under 20% below list, odds are they will not accept your offer. Of
course it’s ok to start there as long as you keep your expectations in
check regarding the final price. There’s a reason many of these builders
are holding out on their prices, they can’t go any lower.

Simply put- any
builder in their right mind will give the project back to the bank before they
come to the closing table w/ a check, period. Now, for those who really want
the steal; caveat emptor (buyer beware). If you do find a distressed property that you like make sure to do your
homework!

Issues such as back due monthly assessments and unfinished common
areas can come back to wrap themselves in the form of a big (and costly) gift. Great
deals can be found in these buildings but remember that their value takes
longer to return as well.

By keeping your expectations in check, you can push
the builder to the edge of profit and still be comfortable purchasing a home
you love in a building that’s not riddled with short sales and
foreclosures.

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It’s been a long time since someone said to me “I just want to find a place that I love”. House hunting should be fun & exciting- an adventure to find the perfect new home. In reality, to get a great deal on a home you’re going to have to give up something. Nearly ALL of these deals have issues… must purchase in AS-IS condition, no right to an inspection, lack of financing for rehab properties, a high percentage of the entire condo building is not sold yet, etc. If you have the patience, means and ability to keep your expectations in check, you can find great deals. And you should go after them!

You shouldn’t be buying today unless you plan to stay in that home for a minimum of 4-5 years. It’s probably a good idea to like the place! If you’re like the majority of my clients who have no experience rehabbing, who don’t have the extra money (or time) to both buy and then repair a home, who don’t want to live in an area that is less desirable given their needs, who aren’t thrilled by a building but found a cheap home in one, who don’t feel comfortable buying home sweet home via auction, well don’t feel bad! You’re just like most buyers in the market today or any other day for that matter. Yes- there are great deals out there today. It’s clearly a buyers market. That’s exactly why the most effective buyer strategy today is to focus on finding the home that you love. Look in the neighborhood you really want, go for that extra half bath, and make sure to get that parking spot included. Once you find the perfect new home, use time trusted negotiation techniques (comparable sales data, advice from a real estate professional, identify the motivations of the seller, etc) to then negotiate the very best deal possible. Sounds like a great deal to me!

-Michael Hulett

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Home Values: The
media has both projected home value increases and decreases.  Both
sides are probably right.  On a national level, we could see a slight
slide fueled primarily by just a few markets.  On a Chicago level, many
signs point towards a balanced recovery.  In fact, many neighborhoods
were only nominally impacted when compared the rather bleak national
figures. 

Chicago is only one of twenty towns in the Case-Schiller index and
none of its neighborhoods are individually represented.  As always,
some neighborhoods will do significantly better than others. 

Signs of Recovery: There was a good post over at Luett Mortgage Group’s blog the other day.

The Existing Home Sales information is a leading indicator of a
recovery.  With record low housing starts, the inventory is starting to
thin. 

This is actually much better news for Sellers than Buyers right
now.  Even if builders could start building new homes today, they wouldn’t be able to get
product to market before the housing inventory tightens up
significantly.  While this will ultimately benefit Sellers, many are
still highly negotiable.  Once CNN reports this news, the laws of supply and demand will have likely taken over.

Affordability: Affordability is not a concept, it is a
calculation.  Homes are indeed more affordable, but significantly more affordable.  Let’s look at what has happened with home prices in the
past year and mortgage payments in the past month.  The median home
from the Case-Schiller Index cost $207,400 in December 2007.  It cost
$175,400 in December 2008.

Assuming 20% down payment, the difference between a $207,400 home
at December’s 6% rates and the $175,400 at today’s 5% environment:

Neighborhoods: Neighborhood selection
is always a function of personal circumstances and life events.  The
trade-off between ‘value’ neighborhoods and ‘blue-chip’ neighborhoods
is very significant these days.

Long-term values are popping up in the fringe neighborhoods.  While Bucktown has remained stable, the fringe areas like West Bucktown have some phenomenal values if you are in your home for five years and can withstand some rehab while you live there.

For a shorter-term hold or someone looking for an established neighborhood, it is necessary to get the best value possible from a limited amount of motivated sellers.  With few motivated sellers in the more desirable neighborhoods, many are seeing multiple offers.  Winning these situations requires quick decisions and initial offers won’t be as low as in the fringe neighborhoods.

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The South Loop remains a glut of inventory in a slow market.  Condo prices do however show a large increase over last year. 

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