Andrea Geller

Originally Posted on the Chicago 77 Real Estate Blog October 27, 2009

Being that it is the fourth Tuesday of the month, today is the day Standard and Poor releases its Shiller-Case housing numbers. They looked at month to month numbers versus the Realtor® Association who basis their findings on a year over year period. According to their statistics, this month's Case-Shiller home price indices is reporting improved readings for seven months in a row. Essentially, this new report reflects similar data to last month's figures.

What this means for the Chicago Real Estate Market

When Case Shiller talks about "Chicago" they are using the Chicago Metropolitan Statistical Area or MSA which, defined by the U.S. Census Bureau, includes the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will. Keep in mind Chicago's 77 neighborhoods are thrown in with Joliet and Rockdale Junction in terms of these statistics. With that being defined, they are reporting that Chicago saw an increase in home prices from July 2009 to August 2009 of 1.7%, but a 12.7% decline of year over year prices.

No matter who is pulling the data and how they chart it, the message is the same - first time buyers and jobs. "Broadly speaking, the rate of annual decline in home price values continues to improve" says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "While many of the markets remain down versus this time last year, the relative rate of decline has shown some real improvement. We see this general trend whether you look at the as-reported data or the seasonally adjusted figures." But Blitzer cautions that "We do want to remind people of the upcoming expiration of the Federal First-Time Buyer's Tax Credit in November and anticipated higher unemployment rates through year-end. Both may have a dampening effect on home prices."

Sales Up - Prices Down

This morning the Illinois Association of Realtors reports that for the month of September 2009 the number of residential sales were up 3.3 % but the median sales price was down to $160,000 statewide, a 9.3% decrease compared to September 2008. Following the state's trend, in the City of Chicago the number of units sold were up 5.8% to 1,918 sales compared to 1,813 homes sold in September 2008. Chicago's median price in September 2009 was $225,000 down 16.2 percent compared to $268,600 a year ago in September 2008. The City of Chicago's numbers must distinguished from the Chicago PMSA, as defined by the U.S. Census Bureau, which includes the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will where the median sales price was only $199,000.

Why the Increase in the Number of Sales but the Decrease in Pricing?

For the traditional homebuyer pricing is at levels we saw in 2004. Short sales and foreclosures have been impacting property prices giving buyers the opportunity for good value without having to buy distressed homes or deal with the short sale process. Interest rates have been hovering around 5%. The first time home buyer tax credit has been an incentive for some. Home buyers have repositioned themselves to meet the new lending guidelines by saving money for a down payment. It is not unusual to now see buyers putting 20% down.

What the Next Months Will Bring

Just like the numbers, it will be a mixed bag. Distressed properties will continue to impact market pricing for months and even years to come if unemployment does not go down. Banks inventory of REO properties continues to grow. Many homeowners are opting to wait it out in their current home for a while if they can, especially those who have only owned their properties for the last few years. Just have buyers need to be qualified to buy, sellers need to be qualified to sell. The median sale price will rise only if financing becomes jumbo financing becomes more readily available. Chicago's $500,000 - $1,000,000 market is crippled by having a much lower conforming loan number of $417,000 than in many other areas of the United States. We will consider to see qualified buyers entering the market as a result of relocation and buyers who have financially readied themselves to move forward with a home purchase.

This is a real estate market where 10% of the Realtors are doing 90% of the business. I am determined to stay in that 10%. With that being said I have been going on listing appointments and working tirelessly with buyers writing offers and getting them to the closing table.

In today's world consumers and clients really want us to quantify value for their listing or purchase. No matter how great of a negotiator you are getting your seller the best price, if it does not appraise it will be a brand new deal or no deal at all. The media throws out a lot of national statistics while the local press tries to pull out numbers for their region. The reality is the most important numbers should be those specific to the neighborhood and the supply and demand of the particular type of property the clients are buying or selling.

As professionals we need to keep up on our resources. Most of our local Realtor Associations and MLSs provide us numbers or the tools to pull them. We also need to look at the validity of the data. I keep finding new places to evaluate value. One that I spent a while on this morning was Trulia's Chicago Heat Map page. I kept clicking on the arrows sorting the data in different order. What was very apparent was that a block north, south, east or west can make a great difference of the value. You can also sort by rank in search popularity. There was not really a correlation between popularity and value. Lincoln Park whose values have decreased by 12.6% is remains the most popular neighborhood to search. Lakeview,the neighborhood just to the North in which I live has flat lined which in today's world means it was a good thing I stayed north of Diversey.

My facsination today with Trulia's report reminded me again. When people ask "Why should they buy in this market?" or "Is now the time to buy?" We as professionals need to get these potential homeowners away from the generalities of it all and focused. First are they in a good financial position to be a homeowner and what type of property are they looking for in what neighborhood. Sellers have to be qualified as well. What makes a well qualified seller has its own definition which I will hold off for another post on another day.

In a recent conversation with a client who wanted to become involved in a transaction that I felt he did not have the wherewithal to close in today's current lending environment the client told me he wanted to stop hearing the negatives. I should focus on the positives. What can be done?

Priding myself in being a solution oriented Realtor, I thought about this. I called several real estate and lending professionals gave them this client's scenario. My first instinct was to refer my client to another agent who might be better able to help him with his purchase. The second group of calls where to lenders to verify that my thoughts on the viability of how he thought he could finance properties. Both the lenders and real estate agents confirmed what I had expressed to my client.

I read a blog this morning about no listing is a bad listing. One of his points was that the agent who says this is because they lost the listing to another agent just has sour grapes. I have lost very few listings to other agents. Of recent, many of the listing appointments I have gone on have decided not to list now because of they financial circumstances do make sense in this current market. We then focused on positioning themselves for the future.

The few listings I have lost to other agents have been listed at considerable higher prices than I advised. The other agents either where more willing to take the listing at a price the market could not bear or told the sellers what they wanted to hear.

Whether the news is good or the news is bad, I never like to sound like a "Debbie Downer". I just try and relay my professional opinion and advice in the best way I know how for my clients. Many times it is looking at what they can do either in the short term or long term. It is finding the answers. Unlike in the past where money was flowing from the banks, there is not always immediate gratification.

As a Realtor, our clients hire us not to tell them what they want to hear but for our honest professional opinion. I guess it is all in the delivery but in some cases there are cannots and no solutions available unless the client can come up with the cash. Sometimes that is the only solution.

In the past real estate agents always entered into negotiations with the perspective that buyers and sellers have different points of view. For sellers who bought their homes in the last years, they are looking at the same issue that the buyers are looking at: How much is the check going to be that they have to bring to the closing table?

Home Sellers
It seemed to me that over the past year or so sellers where jumping on the short sale bandwagon. Recently it seems that if they have to sell they are opting to write a check at the closing and rent for a while until they regroup and position themselves to be homeowners again.

Home Buyers
In the past weeks home buyers have been going forward submitting offers. Very different than just a few months ago, they are not throwing out "low ball" offers. Buyers are working with their Realtors® and strategically putting together offers. More importantly than what the active comparable properties on the market are they are taking into consideration the last closed as well as pending sales. Those pending sales could very well be the closed comps when it comes time for that buyers appraisal. No one wants to get into the situation of a property not appraising for the agreed upon purchase price.

It is no longer what the price the seller wants to get for their home or what the buyer can afford. It is putting a qualified buyer together with a qualified seller at the closing table.

What These Means to Realtors
Rather than quickly getting to agreeable terms, real estate agents will be going up and back between the parties as each side carefully reevaluates their position with each counter. It will be our negotiating skills as professionals to get the buyers and the sellers together on price and terms that can both handle. We need to continue to be an active party to the transaction through the closing.