Where Did All The Houses Go

Posted on April 3rd, 2013 in Real Estate Videos.




Where Did All The Houses Go?

Phil Buoscio – Managing Broker, Better Living Realty

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There are lots of indicators out there that are showing the housing market has hit bottom finally and that we’re starting to see an up-tick in values across the country. Part of the reason for this in my opinion is the inventory level has simply plummeted to levels that have not been seen for over a decade in the Chicago-land area. But what does this really mean for buyer’s and seller’s? Is the market primed for a true long term recovery? Or is this simply function of underwater owners not being unable to sell and the REO and short sale supply finally starting to stabilize?

Below are two charts showing the supply of homes for sale in the city of Chicago:

In June of 2008, there were 25,996 homes for sale.

In March of 2013 (last month), there were 11,190 homes for sale.

In five years, we have managed to reduce the inventory of homes for sale by 57% in Chicago. Today’s inventory is now just 4.6 months for detached single family homes and 3.4 months for condos! While this clearly indicates we are in a sellers market, the graph below shows that in 2012 and now in 2013 we are breaking the seasonal tradition of increased inventories in the spring market. This trend in my opinion is indicating that seller’s are finally in reality that many of their homes are underwater and they cannot sell. Therefore they don’t list them in the spring anymore to test the market.

So as we’ve seen, it’s a sellers market. If you’ve been waiting to sell, right now might be the time if you have equity. The other positive sign for sellers is that while the inventory is decreasing, the actual number of closed sales is increasing still! See the graph below showing the number of home sales. With the number of closed sales still slightly trending upward and the inventory as low as it is, we are going to see a shift at some point. And that’s why I say if you have equity and need to move out, right now and the next 6-12 months might be the best time to sell. There’s simply not enough homes in the inventory to keep the number of sales increasing at this rate.

 

So What Does All This Mean?

For active buyer’s right now, it means this is one of the toughest markets I’ve seen to purchase in. Buyer’s have to be prepared for a multiple offer situation. And if the right deal is on the market, it means possibly paying over list price. The good news though for buyer’s is that interest rates are still historically low. While price is always important to the purchase of a home, the reality is that what you pay monthly for your mortgage is the biggest factor. And while there has been an up-tick in values, we are by no means at the peak of some bubble where it’s not smart to buy like in 2006.

For seller’s, I do have some concerns about what is on the horizon looking at some data. First off, as you’ll see in the graph below, about 50% of the market is still distressed property (Bank owned and short sales). If you look at the peaks and valleys, the trend line is still going up on distressed sales. While I don’t have a specific graph or data to prove this point, it seems the banks have gotten much better about throttling their active inventory to prevent further price declines. While this prevents further dramatic value drops, it also prolongs the market dragging along the bottom. Again, there are positive signs, but until the distressed sales and inventory drop much lower, it’s going to be hard for overall values to increase at substantial rates.

The other concern I have is, who’s actually buying the houses right now? The graph below shows the number of mortgage applications for purchasers over the last 20 years roughly. We are right at levels not seen since 1999. While the inventory is low right now and demand for housing seems high, there’s really not that many buyer’s in the market looking to purchase. There are two major factors effecting a rebound in the number of buyers.

1) There are still too many homeowners that are currently underwater. It’s estimated that one in four homeowners is still underwater in the Chicago-land area. Many of these people, if they could sell, would be in the market for a new home and mortgage. But the reality is they are simply locked in where they are and cannot sell. If these underwater homeowners either pay their way to equity or the markets improve enough, they will presumably flood the market with homes for sale. This could result in a decline in any recent gains that have been achieved. So the current up-tick in values, in my opinion will eventually trigger a wave of homes to hit the market when underwater homeowners are "in the money" again.

2) Previous homeowners that are now straddled with poor credit, foreclosures and bankruptcy are another drag on any sustained recovery. The fallout from all the foreclosures and defaults still have years to play out if you think about current lending guidelines for purchases. In general, a homeowner who defaults on their mortgage will need to wait at least 2 years and in most cases 3-7 depending on if their property foreclosed or they when through bankruptcy. Remember the graph above, distressed property sales didn’t start picking up until 2009. So best case, those early defaulters are potentially getting back in the market right now, IF they’ve cleaned up their credit and have a substantial down payment. Distressed sales peaked last year and are trending up again. Most of these people are still probably 3 years out from getting back in the market to purchase again.

When you combine these two major factors, you’re potentially talking about over probably 40% of potential or previous home buyer’s, not being able to get into the market. While I think the dramatic declines in value are in the rear view mirror, there’s still a possibility of dragging along the bottom here for another 2 years until homeowners can sell their underwater home or regain good credit. After 2 years, assuming there’s stability in the economy at large, I believe that there will be little that could drag down prices and we should see consistent and solid appreciation gains again.

Bottom line is if you’ve got equity and need to move, now is a great time. You’ll almost certainly be able to sell given the low inventory. And you’ll be able to lock into bottom of the barrel prices at historically low interest rates on the purchase of a new place. And hopefully you’ll be able to take advantage of any increase in value over the next 5-10 years in your new home.

For a FREE market analysis of your home, please call me directly at 312-953-6725 or email me at myrealtorphil@gmail.com Feel free to also visit my website and browse the homes I currently have listed and also search homes in the entire Chicago-land area that are currently for sale www.BetterLivingRealty.com Please also remember that I specialize in short sales. While the market is showing signs of improvement, you may still know someone who has lost a job recently and needs to avoid having a foreclosure on their record. Please have them call, email or visit my site to get informed on the short sale process www.ShortSaleSuperMan.com

 

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