If you’ve been following the housing market at all, you’ve probably seen articles about how the housing market is recovering, mortgage rates are slated to rise, and prices are climbing again. However, as the inimitable Dennis Rodkin recently pointed out in Chicago Magazine, the Chicago housing recovery is happening in fits and starts.
As we’ve discussed before, even if you live in Chicago, when it comes to housing you don’t live in Chicago. You live in a district of Chicago with its own boundaries, attractions and demographics. Those districts in turn contain many different types of housing, not all of which are truly comparable to your current home or the one you want to buy. Statistics that may be useful on a national or citywide scale are useless when it comes to determining the right time for you to buy or sell.
Today we’ll be looking at how you can determine what section of the market you should be watching and how to figure out whether or not the market has recovered.
What’s Your Market?
Much like your personality can theoretically be affected by the motions of the stars, planets and other cosmic bodies, there are also many factors that contribute to a home’s real estate horoscope.
Local Attractions & Neighborhood
The name recognition of a neighborhood will do a lot to dictate when your market recovers. Trendy neighborhoods that everyone recognizes will come back faster than the ones nobody knows about. Areas closer to the El trains and Metra stations will come back faster than those that require a car. Give some thought to which type of neighborhood you’re in and base your comparisons on similar areas. In other words, if you live in Hermosa you should not be using Wicker Park as a barometer.
Condos and townhomes are popular among younger families, older folks and singles. There’s different types of condos to consider, too. Skyscraper towers with their $700+ assessments attract a far different population than small, self-managed walk-up conversions.
Single family homes generally attract an older, more stable population. But some will target ranches and split levels while others will want bungalows, Georgians or Victorians.
Do you own/want a Prairie Style house in a neighborhood full of Colonials? Or a vintage walk-up on Sheridan Road? A 3 story loft built into the chimney of a Chinatown noodle factory? Or this contemporary beauty that’s nestled in the middle of pre WWII brick in Lakeview? The market for non-conforming properties is always the toughest to gauge in terms of speed and price. If you’re trying to sell or buy something that’s out of whack with its surroundings you need to be aware that the market statistics in your immediate surroundings only marginally apply to you. They’ll have an effect on price, but less impact on market time.
Age of Property
New constructions and rehabs fresh out of the developer’s hands are in a totally different market from owner-occupied homes. Buyers interested in one will have a very hard time shifting gears to consider the other.
Current buyers are used to seeing nothing but rehabs on the market, since it’s been dominated for years by conversions of distressed properties while homeowners waited out the downturn before listing. Meanwhile, sellers who have occupied their homes through the downturn may have pushed too-small homes to their limits, or run short on funds to maintain them. If you’re trying to sell your home of the past ten years, you cannot consider the performance of the prefab Green Tech home they just built down the street.
As poor as Chicago’s public school reputation may be, proximity to a good school (public or private) will still buoy up the surrounding neighborhood. NorthCenter and Edgebrook have both largely survived the downturn with minimal loss in value due to their strong public schools, while their neighbors Irving Park and Jefferson Park took a tumble without similar strength to anchor them.
Lender vs Cash
Who is likely to buy your building? Someone who needs a loan or someone with cash? At low prices and very high prices, cash buyers can cause a feeding frenzy. In the middle price ranges you find mostly buyers with mortgages, especially between about $150k and $450k. Cash dominant areas are going to seem to move more quickly because it takes less time for a cash deal to close.
This should be a no-brainer, but you really do need to consider your budget/target sale price as part of determining your specific market. The markets under $100k and over $1m have been on the upswing for several months already. In the middle we’ve seen slower growth.
The politics of a neighborhood will affect how quickly your market recovers. Some folks don’t want to live in TIF districts. Others may shy away from high property taxes in a particular area, or only want areas with blue recycling carts. Given the long history of some members of the City Council some folks may have sworn to never again live in Alderman So-and-So’s ward. The city, county and state also court buyers into some neighborhoods with down payment assistance and lower loan interest rates.
What to look for
So you’ve determined that you should be watching for new construction single family homes in the Bell school district, or perhaps you’re looking for a 1960’s condo along Harlem in Montclare. Now that you know what types of homes you should be watching, what signs should you look for?
- Shortening market times. This means how long it takes a property to sell. You can find this information on many real estate sites. Just look at the date the listing was posted and when it went under contract. An average of 3 months is good. Anything shorter is great. Anything longer and you’ve still got a long way to go.
- More resales. As owners surface from underwater status, more of them will list their currently-occupied homes for sale. When you start seeing homes on the market while the owners are still living in them, that’s a very good sign.
- Fewer renters. In a rising market, the homes temporarily occupied by renters will return to the sales market. A good chunk of those renters will convert to buyers. Many of them were waiting for their credit to recover after short sales in the late 2000’s.
- Homes selling at list price or higher. Realtors aren’t going to turn around and start listing homes at higher prices. They will let buyers in multiple offer situations bid the prices up over list. For a long time now we’ve seen the average sale prices of homes at anywhere from 50-95% of their list prices. When that tips over 100%, your market is on its way back.
- Homes sitting under contract for 60+ days. A house is “under contract” if the seller has accepted an offer but the deal has not yet closed. For years now, contingencies in sales contracts have been plentiful but one specific type of contingency has been largely absent – the home sale contingency. This means that the purchase of a new home is contingent on the buyer selling their prior home. In the slow market, most places have been under contract for 30-45 days even when lenders are involved. If you start seeing homes under contract for 2-3 months, you can bet there’s a home sale contingency involved. This is a very good sign.
What does this mean for you?
If the market is starting to come back, then the price for your home of choice (or your current home) will be rising. However, sellers should not assume that they will immediately surface from being underwater, nor should buyers panic and think that prices are going to skyrocket out of reach. There are still a lot of foreclosed homes that the banks need to sell off, and the underwater homes may have a lot of appreciation to do before they can resurface. Even if the sections of the market jump 10% this year, remember that an average, sustainable appreciation rate is more like 3% per year.
Realtors may call you and try to convince you that now is the time to buy or sell, using national or citywide statistics. Before you jump on board with them, make sure they’re looking at the right “horoscope” for your particular home of choice.
Friday I’ll be back to discuss the taboo against listing prices on “for sale” signs, and how it might be leaving the door open for scammers. See you then!