Area home sales plunge; prices steady - Bottom may soon be in sight, analysts say/Foreclosure fishing? Read this first

Area home sales plunge; prices steady - Bottom may soon be in sight, analysts say
Copyright © 2008, Chicago Tribune
June 27, 2008


Home sales in the nine-county Chicago area were down 29 percent in May compared with a year ago while prices were fairly stable, dipping just 0.5 percent, to $251,000, according to the Illinois Association of Realtors, as a housing industry in crisis continued to struggle.

Nationally, sales of existing homes rose slightly in May compared with April, only the second increase in the past 10 months. Prices, however, kept plunging and analysts said the large number of unsold homes indicated the prolonged slump in housing was far from over.

Some analysts, though, are beginning to speculate that the bottom of the market soon may be in sight.

Home sales in Illinois were down 22.9 percent in May from a year ago and the median price dropped 7.3 percent, to $190,000, from a year ago.

May's numbers did reflect an improvement from the previous month. Total home sales, which include single-family and condominiums, were up 17.3 percent, to 11,173 sales, compared with April sales of 9,523.

"The Illinois housing market showed some positive signs of stabilizing in May, with a sizable jump in sales from the previous month and the fourth consecutive month-to-month increase," said Kay Wirth, president of the Illinois Association of Realtors.

The National Association of Realtors reported Thursday that sales of existing single-family homes and condominiums edged up 2 percent in May, to a seasonally adjusted annual rate of 4.99 million units. Even with the small gain, it was still 15.9 percent below the depressed levels of a year ago.

The median price of an existing home sold in May dropped to $208,600, 6.3 percent lower than a year ago. The median is the point where half sell for more and half sell for less. It was the fifth biggest year-over-year price decline in records that go back to 1999.

The two-year slump in housing has dragged down the economy, and rising levels of foreclosures are dumping even more unsold homes on the market.

Given the weak economy, many analysts said they were not looking for a turnaround in housing for many more months. "Plunging prices and massive inventory are huge disincentives to home buying," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Economists said falling consumer confidence, rising job layoffs and higher mortgage rates were standing in the way of a housing rebound.

But some economists are suggesting that the housing crisis could soon bottom out.

"I think we are close to a bottom," Michelle Meyer, an economist at Lehman Brothers Holdings Inc. "Sales will probably fall another 5 percent or 10 percent before bottoming by the end of the summer. It will be a feeble recovery, we will kind of bounce along the bottom."

The supply of homes for sale remains about twice the level representing a stable market, according to the national Realtors group, and figures have yet to show any sign of sustained sales gains. Federal Reserve officials said Wednesday that the housing contraction will likely dampen growth into 2009.

"It's going to be a long, painful end" to the housing industry's decline, Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa., said in an interview with Bloomberg Radio. "Prices have come down enough that affordability has been restored in some markets and we're starting to see some buyers come back in."


Foreclosure fishing? Read this first - Make sure your eyes are wide open, be prepared to do plenty of legwork and realize that the hard work is still ahead
THE LOCAL SCENE BY MARY ELLEN PODMOLIK
Copyright © 2008, Chicago Tribune
June 27, 2008


Prospective home buyers with an open mind and a good credit history are finding there are plenty of diamonds in the rough in the foreclosure market.

But you have to be prepared to look, both at multiple properties and their potential and at your own wherewithal to get through the process and move into what in some cases is essentially a rebuilt home.

Much has been reported over the past year about the growing number of foreclosures here and elsewhere and there is a lengthening list of properties from which to choose. In May, foreclosure filings, which include default notices, auction sales notices and bank repossessions, totaled 9,670 in Illinois, according to RealtyTrac, a real estate web site. That was a 15 percent increase from April and an increase of almost 42 percent from May 2007.

The latest list included almost 3,000 Illinois homes that have been foreclosed upon and a bank now has title to the property.

"There's so much inventory out there that the buyer can pick and choose," said Susan Sirles Fidler, a Realtor at Re/Max 10, Oak Lawn. But she cautioned, "The stuff that's almost free is almost free because it's going to cost you an arm and a leg to put it back together. It's not buyer beware as much as buyer be smart."

Krystina Pratt is about to take one home off the foreclosing listings. The 22-year-old Chicagoan works in the construction industry, so when she started looking at foreclosures as a means to buy her first home, she knew to look past curb appeal. Still, even she was surprised by some properties' condition as she went through almost 100 houses in the city and suburbs.

"Some of them were in supreme shape for them to be distressed houses," she said. "Others were 'this has been on the market forever.' There was mildew and water damage."

There were also broken windows, graffiti, and it was obvious what squatters had used for bathroom facilities in homes where the plumbing had been ripped out. Pratt suspended her search for a month in the winter because of squatters but since then, she's found an 1878 home on a double lot in Grand Central Crossing.

Despite being vacant for more than a year, it wasn't boarded up. There weren't broken windows or graffiti. Copper pipe was missing in the bathroom but the furnace, hot water heater, kitchen cabinets and original woodwork all were intact.

Listed at $44,900, she offered $45,000 to the bank that holds title to the property, to increase the chances for acceptance after she lost bids on two other properties to buyers who made cash offers. Pratt secured a loan for $130,000 and is set to close on the home July 1, after which she'll start working with contractors to make the home livable. That includes new electrical and plumbing systems, new interior walls and new windows.

The takeaway from Pratt's experience: Go into the process with your eyes wide open, be prepared to do plenty of legwork and realize that the hard work often begins after the purchase is closed.

"I can't recommend this to someone who can't see the vision of a house," Pratt said. "If all you see is the windows are cracked or the walls are cracked, a foreclosed house is not for you. You have to be able to see outside the box. Ninety-nine point 9 percent of them are going to require moderate to heavy work."

Real estate agents who specialize in bank-owned homes, called real-estate-owned, or REO, properties within the industry, say there are two kinds of foreclosures available on the market now, and each appeals to a different sort of buyer. Investors, with contractors in tow, are buying the most distressed properties at rock-bottom prices with plans to flip them. Realty professionals advise consumers who plan on living in the homes to buy properties that don't need as extensive work.

Marki Lemons, a broker with Rubloff Residential Properties in Chicago, gives a monthly seminar for consumers on foreclosed properties and each month 15 or 25 people attend. As part of it, she takes them through a foreclosed property to open their eyes to what lies ahead. "They tell me 'is this for real' and I say this is typical," Lemons said. "They're sold as it because you can't even have full inspections on the property because the water and electricity is turned off and there are missing furnaces and hot water tanks. [Foreclosures] are for people who want to create sweat equity for themselves."

When it comes to making an offer, the better the property's location and condition, the less likely banks are to negotiate concessions like paying closing fees or footing the bill for some repairs.

"If it's the location you want and the condition you want and the price you want, it's the same as any other deal," Fidler said. "It goes smoothly, depending how good the buyer is, how good the source of funding is and how good the seller is."

Available properties are listed on numerous web sites that have been established for the foreclosure sales business; some are membership driven while others are free with registration, which means the site's operators then have access to a buyer's contact information.

Consumers also can work with a real estate agent, or use some agent's web sites, to access listings on Midwest Real Estate Data LLC, formerly the multiple listing service's database. Plugging in key words like "foreclosure," "no inspection" and "addendum" will narrow the listings to foreclosure properties.

Many buyers of foreclosed homes are finding the best financing option to be a 203(k) loan offered by lenders and administered through the Federal Housing Administration. The program was developed for buyers of single-family properties that need rehab and repair. With a 203(k), a buyer secures sufficient funding to buy the home as well as to renovate it at a long-term fixed or adjustable rate that is generally 1 to 1.5 points higher than conventional lending rates. Some lenders offer, and others require, that the loan be converted to a conventional mortgage once the project is completed. Find more information through a lender or at www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm.

"Every call we get is for a 203k," said Stephanie Sowell, a renovation specialist at Wells Fargo Bank in Chicago. "Since the depression in the real estate business the past seven to eight months, it has become a huge, huge, huge product. Everyone wants it."