Statistical evidence shows promising real estate improvements

"As odd as it may sound, people are getting used to this real estate market. They don't like it, but they are getting used to it and they are coming out of their shells and starting to buy," said Paul Wells, a Realtor with RE/MAX of Barrington, 306 W. Northwest Hwy., Barrington.

A statistician at heart, Wells used abundant statistics to illustrate his point.

The low point of the Chicago area real estate market appears to have been December 2008 when the Multiple Listing Service for the entire metropolitan area showed a 22-month inventory of homes. The market is considered "balanced," Wells explained, when that inventory sits at 12 months or less.

Today's inventory shows only 9.8 months worth of homes on hand throughout the entire area.

"That is a big and very promising change," Wells said.

In his home base of Barrington, the numbers are even more extreme because the high end of the market has taken a larger hit than other segments, Wells said. In that area there was a 55-month inventory of homes on the market in December 2008. Today, that inventory has fallen to an 18.2-month supply, which is higher than the area's average, but much better than it once was.

What are you seeing in the overall real estate market?

Thanks to the stimulus package that offered an $8,000 tax credit to first-time buyers and those who have not owned a home in the last several years, and the $6,500 tax credit for those who have been homeowners, Wells said closings in the Chicago area were up 25 percent in May and 17 percent in June, over the same months in 2009.

"The stimulus added fuel to a spring market that could have been very slow. We didn't see as many first-time buyers as we expected, but those who did purchase ignited the market and started a domino effect, which allowed other buyers to buy bigger homes. In fact, closings have been up for the last 13 months in a row.

"But the bad news is that they were down 26.34 percent in July (after the tax credit qualification deadline expired)."

That is his only bad news, however. Because pending sales (those waiting to close) were actually up dramatically in July.

"The stimulus obviously stole from a couple months worth of sales in the future, but not as many as we had worried. Those who planned to buy during the summer probably pushed themselves to do it earlier, but those who planned to buy in November probably still plan to buy in November. So I don't think the aftereffects of the stimulus will last too long."

How does the Chicago area market different from what you are hearing about the national market?

"The states that have gotten really slammed like Nevada, Arizona, Florida and California, are bringing down the national statistics, but I will say that the Midwest has always been more stable and more protected than many other areas of the country and that remains true today."

What part are distressed properties like foreclosures and short sales playing in our current market?

Wells said members of his sales team have been dealing with distressed properties for two years and things are finally starting to go more smoothly with the banks, thanks to the involvement of a local title company in the process.

"Banks are now more apt to agree to a short sale than wait to foreclose because they realize that it can save them a lot of money."

But both buyer and seller are still in for a long and bumpy ride. Even the Realtor must be patient since, when on the telephone with a bank working on a potential short sale, the average time one is on hold is 70 minutes, Wells said.

"If you make five of those calls in a day, you have spent six hours on the phone."

But he feels that it is worth the headaches, in the end.

"I have been a real estate agent since 1986 and this is the first time that I have felt truly needed. People don't understand the procedures and ramifications of all of that, and they really need my help."

What has happened to home prices in our area?

"The median price of a home in the metropolitan Chicago area a year ago, in July 2009, was $210,000. Today it is $195,000. That is a 7 percent drop.

"And it is still a challenge to get a house to appraise out for a loan because the bank appraisers include short sales and foreclosures in their calculations. So if your neighbor's house is sold in a short sale, it is going to hurt your home's value.

"The tax assessor, on the other hand, only includes traditional closings in his calculations because the government needs to be able to levy enough taxes to keep us out of dire straits with regard to infrastructure and services. A price halfway between those two figures is probably more realistic than either number."

Do you see any differences between the single family and attached (townhouses, duplexes and condominiums) markets?

The attached housing market has taken the biggest price hit of all because they tend to cost less and have a higher default rate, Wells said. And many potential buyers do not qualify for FHA financing because the FHA won't finance an attached home if its condominium association has more than a 25 percent delinquency rate on payments. It also won't finance an attached home within an association where rentals are prevalent.

These factors probably explain why only 1,882 such attached homes were sold during July throughout the Chicago area, compared to 2,734 attached homes sold in July 2009, for a 31 percent drop (compared to that 26 percent drop in the market overall), Wells said.

And while there is now a 9.8-month inventory of all homes on the market, there is a 13.8-month inventory of attached homes now for sale.

What do you see in the future?

"I see nothing but good things on the horizon now. These will turn out to be the good old days we will talk about ten years down the road. We will regret not buying everything that is available.

"We are seeing the lowest interest rates in history and houses are literally 'on sale' right now. But things are starting to balance out and I think that we are tapping on the bottom of the market now."

Wells believes that continued low interest rates will help the market stay on track to a recovery.

"A little bump up in the interest rate might even help because people will get nervous and realize that they need to hurry to buy because, after all, when interest rates are at 4 percent, even a 1 percent increase in the interest rate will cause your annual interest payment to increase 20 percent."