Rising prices fuel higher expectations

Media reports about rising home prices, strangely enough, are starting to have a dampening effect on the local housing market, said Royal Hartwig, a member of the Royal Family team at Keller-Williams Realty's Palatine office.

"After hearing these optimistic reports, sellers who have been holding back are deciding that it is time to list their homes. But many times they are expecting to get more money for their homes than the market will currently bear, so the homes are starting to just sit on the market again and inventory is rising," Hartwig said.

"While the market was great in 2013 and it is still pretty healthy, there are some signs of a slight pull back in the Northwest suburbs, McHenry County and Lake County where we primarily sell."

However, the market outlook is very positive overall, Hartwig said. The six-person Royal Family team has closed more than $20 million in sales so far in 2014, which translates to more than 100 houses. But there are some sobering realities, he added.

We talked to him more about current housing market trends.

How does the local market differ from what you are hearing about the national market?

"In parts of Texas, I hear that homes are selling better now than they were at the peak of the market back in 2006. That is not the case here in Illinois. We still have a ways to go before we are back where we were back then.

"Back in 2011 and 2012, 60 percent of the houses on the local market were distressed - either foreclosures or short sales - and that pulled down the whole market. This past July, the local percentage of distressed homes had fallen to 23 percent, which is great. But the average nationally is only 11 percent. So we are still lagging the rest of the nation and that hurts everyone.

"I deal with very few foreclosures and short sales, fortunately, but I know how they affect our sellers."

Hartwig said when a buyer sees two houses in the same neighborhood and one is heavily discounted because it is in foreclosure, the buyer might make an offer on the distressed property or might put heavy pressure on the traditional seller to drop their price.

Illinois ranks seventh among states in terms of current foreclosures on the market, while the Chicago metro area ranks fourth in terms of foreclosures in American metropolitan areas.

Do you see more movement in any specific sector, like single-family, condominiums or townhouses?

All types of housing are currently selling, Hartwig said. The volume of sales among condominiums and townhouses have dropped by 5 percent over 2013, but the average selling price for those units has risen 12 percent.

Among single-family homes, Hartwig says average sales prices have risen by 5.8 percent over the last year with most of those increases coming on homes at the lower end of the price spectrum.

The higher the price on the home, the fewer the number of interested buyers, he explained.

What changes have you seen in the market in the last year?

"There has been a significant reduction in the inventory of foreclosed homes, therefore more traditional sellers whose homes are not distressed are feeling confident about selling their homes. They are seeing a light at the end of the tunnel.

"They just can't price their home too high. They have to watch their competition because if a home is priced right, it will still sell. The challenge to the Realtor is to keep the price reasonable by showing the seller the facts and overcoming their emotional connections to the home."

Do you see many first-time buyers taking part in the market?

"There are a lot of renters out there who could be buyers but they are afraid to take the chance, so they are continuing to rent. Back in 2005 and 2006, people like that raced to buy a home because of the rising prices, but there is currently no urgency to buy, so the market may pass them by."

Hartwig said he is actually seeing more investors in the market than first-time buyers. People see investment in real estate as a better bet than getting 1 percent interest on a certificate of deposit at a bank.

What needs to happen for the local real estate market to fully bounce back?

"Illinois needs to figure out a way to reduce property taxes. We are seeing a lot of people selling their houses in Illinois and moving to other states with lower taxes in order to reduce their fixed costs.

"At least some of those people would buy a condo here instead of moving away if the taxes were lower. That would be a huge boost to the local housing market and to home values. But for that to happen, the property taxes would have to be reduced significantly, not just a little bit.

"Property taxes in Illinois are insanely high. In some cases, the taxes are 50 percent higher than they were at the peak of the housing boom. I know of people whose taxes went from $5,000 to $7,500, for instance. The municipalities and townships aren't getting the state and federal money they used to get, so they are just raising the taxes on their residents. The commercial properties are getting creamed even worse than the residential properties, so raising their taxes isn't a solution."

For information, call Hartwig at (847) 985-0200 or visit www.realestatefamily.net.