In Chicago, market for mid-sized homes remains strongest

When you hear national reports on the state of the real estate market, do not confuse them with the state of the real estate market in the Chicago area.

"The Chicago area has always been the hub of the Midwest, so the market here has held up well compared to the national market and places like Florida, Arizona, California and Nevada, in particular," said Jim Nelson Jr., vice president and general counsel of RE/MAX Suburban, which has seven offices in Cook, Lake and DuPage counties.

"Those markets have been decimated compared to Chicago," Nelson continued. "But that tends to happen in vacation areas because they also have higher-runups in price during housing booms. So they have further to fall.

"Lots of speculators went into those markets hoping to make a killing and when the market slowed, they tried to pull out and got stuck," he explained.

"It is the tortoise and the hare philosophy. It is better to go up steadily at five percent a year than to go up 20 percent one year, 20 percent the next year and then get your legs chopped off," he stated.

The places where real estate has held up the very best, according to Nelson, have been Seattle, the upper Midwest and other places along the Canadian border.

How is the real estate market in the Chicago area faring?

"I think that it has certainly been a challenging environment over the last year and a half to two years, but we are slowly seeing some signs of life now," Nelson said.

"The buyers did not come back in the spring as we had hoped, but we have seen more activity in the last month, so that is a positive sign."

Do you see more movement in any specific sector?

"The market for low- to mid-market, reasonably-priced homes in the $350,000 to $400,000 range has shown the strongest demand," he said. "And the rug has literally been pulled out from under the demand for $1 million houses."

Interestingly, he said, because of the fall of prices, there are plenty of houses on the market in the upper $200,000s but even these are not selling as well as those in that slightly higher price range.

Are rising gas prices having an impact on where people choose to buy?

"Five or six years ago people were venturing quite far out to buy because they could get more house for their money," Nelson said. "But now that gas prices have gone so high, they are realizing that the extra $300 per month that they are spending on gas could go a long way toward a mortgage payment."

So buyers are showing more interest today in houses that are close to train lines and close to their places of employment than they were a few years ago. That is good for older towns like Mount Prospect and Arlington Heights that are served by train lines, he said.

Are first-time buyers who have no home to sell taking advantage of this market?

"When the market is down or going down, people have a tendency to wait for it to turn before they jump in because they are nervous that it will fall even further," Nelson said. "So we haven't seen a lot of first-time buyers taking advantage of these low prices because they are wary. But I expect that with the new tax incentives and good prices, more people will soon realize that this is a great time to buy."

Is it difficult for a qualified buyer to get a mortgage today?

"We are seeing more mortgage issues today than ever before," Nelson admitted. "There is tighter credit, higher down payment requirements and lots of appraisal issues.

"We have also seen a marked switch to FHA loans. They used to be about five percent of the market and now they make up about 30 percent of the market because they are more flexible about their requirements than the other lenders."

What needs to happen before the Chicago area real estate market can strengthen again?

As a nation, according to Nelson, we are spending more than we earn and that has contributed to the current problems.

"Many of us used our homes like ATM machines by taking out home equity loans and stripping our homes of their equity and that has contributed to the credit problems we are experiencing," he said. "But once we take the time to work through the liquidity crisis at the banks, banks will start easing their credit restrictions a bit and will start making more loans again.

"Real estate has always outperformed the stock market and it will do so again," Nelson said.