According to Chicago real estate agents, market analysts, and consumers, the local housing market has been stalled by a standoff between home and condo buyers and sellers.

Sellers are still clinging to last year’s dreams of making big profits on the sale of their properties. Meanwhile buyers, sensing that the market has changed, are on the lookout for bargains – and won’t settle for anything less.

“The market is irrational right now,” said Stephen Baird, chief executive of Baird & Warner Real Estate in Chicago.

Rational or not, it’s clear that Chicago real estate is already in a full-blown buyer’s market . . . and this is only the beginning.  To take advantage of the buyer’s market now, Search the Chicago MLS.
Illinois home and condo sales in October were down 9.7% compared to last year, and there’s no reason to expect improvement. Fitch Ratings said recently that housing is in a major multi-year contraction that’s being driven more by consumer perception than interest-rate spikes and a plodding economy.

Fitch reported this December that “A negative buyer psychology seems to have become pervasive . . . The expectation or fear is that home prices have peaked and buying now would be a mistake.”

According to The National Association of Realtors, “most of the correction in home prices is behind us.” The NAR recently announced that buyers were beginning to re-enter the market and would begin nudging sales upward in the first quarter of 2007.

If you’ve been paying attention to realtors’ other rosy predictions over the past few months, you might think this is overly optimistic. If so, James Merrion of Re/Max Northern Illinois agrees with you.

“I’m more of a second-quarter, third-quarter guy,” Merrion said. “We’ve had too strong a market. When you’ve had prices go up in Illinois as much as they have in the past five years, people’s salaries haven’t increased that fast. I think we need to see some price moderation [via sellers lowering their asking prices] in order to get back to a healthy market.”

Naperville real estate agent Ellen Landau thinks that the enormous backlog of unsold Chicago homes and condos needs to clear out before sales bounce back. “[It] could take 18 months for the market to normalize,” she said.

A survey by ZipRealty showed that Chicago’s housing inventory fell about 6 percent between October and November, painting a slightly brighter picture for the future. This decline was mirrored in many cities nationwide over the same period.

A year ago, Chicago had a 3.7 months’ supply of single-family homes listed-about 28,000. By the end of September 2006, inventory had ballooned to a 6.8 months’ supply of 48,000.

That number dipped to about 43,000 in mid-November, a 6.5 months’ supply.

Real-estate activity jumped slightly around Thanksgiving, surprising experts who are used to this being a very quiet time of year.

“It is odd,” said Merrion. “We think it’s people getting used to rates and prices.”

Coldwell Banker agent Karrie Lange, on the other hand, thinks that inventory is down due to profit-seeking sellers taking their homes and condos off the market out of frustration. “[They] are in denial,” she said. “I don’t think they realize how much inventory is out there. If the buyer doesn’t think a house is a value, he will skip it.”

Some say it may not be greed that’s keeping sellers from lowering their prices. The ones who bought in at the market’s peak may not have much room to accommodate bargain-hunters.

One thing that real estate agents agree on is that, when a home or condo is correctly priced, it gets snapped up quickly.

Mohammed Mahmoud had been expecting to find a bargain is suburban Shorewood, but was beaten to several homes by eager buyers who topped his offer. He was surprised to find that the houses he was interested in were going for within 1 to 2 points of the asking price.

“Right now,” said Naperville agent Landau, “the majority of properties in Naperville, for example, are selling at 96 percent of list price. But that’s not accurate because the list-to-sell is based on the latest price.” Looking at the original asking price for a property-before any cuts were made by the seller-would paint a very different picture.

And, no matter what the prices are of the homes that are actually selling, there is still an enormous glut of homes and condos that are not.

Predictably enough, David Lereah, chief economist for the NAR, says that home prices will be 1 percent higher than current levels by late 2007.

Moody’s Economy.com, on the other hand, is predicting that the median price nationally for existing homes will drop 3.6 percent next year.

[tags]Chicago condos, Chicago real estate, Chicago buyer’s market[/tags]

[dels]Chicago condos, Chicago real estate, Chicago buyer’s market[/dels]

This entry was posted on Wednesday, February 14th, 2007 at 1:41 pm and is filed under Market Update, Suburbs.