A Cooler Market, but Warmer by the Lake.
by Diane Ethridge Cannon
Anyone turning on the news or opening the newspaper will be confronted with stories about record foreclosures, falling home prices, excess housing inventory and lenders exiting the mortgage market. All of these factors are at play in Chicago and Cook County as well as the rest of the country. With nearly a quarter of all mortgages made in 2006 being sub-prime, that is to say mortgages made at relatively high rates to those with low credit scores, minimal assets and unverified or insecure employment, it is no wonder that foreclosures are over 50 percent higher in 2007 than 2006 and that Attorney General Lisa Madigan projects that about 20% of these subprime borrowers will end up in default.
The consequences of the credit problems on this end of the spectrum have spilled over to the other end, with reports of major lenders announcing that they will sit on the sidelines and simply not make loans, including loans to high net worth individuals.
But, as in every other housing downturn, the housing market in Chicago is less affected than in most other regions and metropolitan markets. The area didn’t heat up as much as other areas and it won’t have to cool down as much in the current environment.
The following graphs provide a snapshot of the current situation and make comparisons over the past fifteen years.
The columns in Figure 1 show the current inventory of attached single family homes (condos for the most part) listed in MLS in the 25 community areas predominantly served by Rubloff, grouped within $100,000 ranges. Over 3,600 units priced in the $200,000s, and over 3,000 priced in the $300,000s are listed today. As we would expect, the columns make up a skewed curve, with the number of properties listed declining for each price range higher than the $200,000s, dropping to only 119 listed in the $900,000s. But the really startling fact shown in the graph is the last column on the right: nearly 700 units priced above $1,000,000 are being marketed. And as the solid blue line shows, the median number of days on the market is significantly higher for these properties than for more affordable units.
As to what actually sells, as Figure 2 illustrates, the median sale price has risen steadily over the past 15 years, but even so, half of all attached sales in the first half of 2007 ranged between $232,000 and $420,000, and a quarter of all sales were below that range. Also, when you see increases or decreases in median sale price you need to remember that this does not reflect increases in individual house prices when the inventory is changing, and that is certainly the case in Chicago. Nearly 50% of all houses sold in the first half of 2007 were built after 1978, and these newer homes had a median sale price of $375,000, while the older homes had a median sale price of $260,000.
Across the country and in the region as a whole there are reports of falling home values, but in the core Rubloff areas along the lakefront median sale price at the midpoint of the year is modestly up (to $314,000) after having been flat at $302,000 for two solid years (see Figure 3); properties are selling at very close to their asking price, with less than 3% discount being typical. On the other hand, the volume of sales has declined to levels of at least three years ago, on both north and south parts of the study area. (Figure 4).
The graph that best illustrates the potential for problems going forward is Figure 5. Here we see that on both the north and the south, we are getting into uncharted territory for time on the market. Even in the post-gulf war days of 1992 median time on the market was around two months. Today, on the north side of town median time on the market is over 3 months and the MLS data do not for the most part reflect the huge increases in new inventory developed or being developed. This is a particularly acute problem on the south side. The combination of these factors send a strong signal that those who need to sell their property will need to consider lowering the price.
