Flow is “Slow” in Chicago Residential Real Estate

According to the upcoming property report by PahRoo Appraisal & Consultancy, “the flow is slow," cash is king, and we are not there yet. With nearly two-thirds of the year behind us, there have been 24,200 sales of attached (condo) and detached (single family) properties in Cook County per Midwest Real Estate Data (MRED). That is an 11% decline from the same period last year and a 34% decline from the same period in 2007, which was the prior peak.

Here are some areas you need to consider when buying or selling your home:

Price, Price, Price
If the old adage is location, location, location, then the new adage is price, price, price. Based on analysis of sales activity in Cook, Lake and Dupage Counties, the PahRoo Property Report suggests that the properties which sell in today’s market are the properties that are priced right, aka, low price. Sales prices in Cook County of detached properties year-to-date moved slightly up by 1.4% compared to the same period last year, yet sales prices of attached properties declined 16.2%. Compared to 2007, sales prices of detached properties fell by 32% and sales prices of attached properties dropped 25%.

So, if you're still wondering what is driving the real estate market, it is price first and location second.

Cash is King and Discounts are Large
The Report notes that year-to-date, 43% of all transactions in Cook County were distressed sales, classified as short sale or foreclosure per MRED. It is not much better in Lake County and Dupage County, where the total is 37%. Alarmingly, in all three counties, distressed detached and attached housing sold for more than 50% less than non-distressed housing based on year-to-date sales.

“Therefore, for owners who are considering selling, the penetration of distressed real estate sales in the area is a strong indicator of their potential sale price. Recent research indicates that once an area experiences 24% of sales being distressed, the market pricing for non-distressed real estate is impacted.” says Michael Hobbs, president of PahRoo Appraisal & Consultancy.

Then it should come as no surprise to buyers that those with cash are reaping much better purchase prices than those without. When sellers are presented with two offers, one with a financing contingency and one with cash offer, even if the cash offer is slightly lower, many times the cash offer is the choice.

Deals, Deals, Deals

For those with an appetite for risk and a pocketbook to seize opportunities, the market continues to be ripe for investment in real estate. “We are experiencing an increase in clientele who are real estate investors seeking to acquire properties at foreclosure auctions in Cook, Lake and Dupage Counties. Regularly our clients are buying properties at discounts of 20 to 35% below comparable REO properties on the MLS,” said Bardan Azari, manager of Cherry Picker Investments. Cherry Picker provides clients access to a proprietary database of distressed property throughout Northern Illinois.

On an annual basis through 2010, initial foreclosure filings have increased 60% since 2007, according to Cherry Picker’s statistics. “We have seen a slow downward trend in new foreclosure filings, which could indicate that we are nearing a bottom in foreclosure auction prices,” Mr. Azari says.

Are We There Yet?
“When considering the 10.5% unemployment in Chicago and 9.5% unemployment in Illinois, the deteriorating financial condition of the United States, the slow-to-no-growth economy, the size of the shadow inventory and the existing foreclosure trends, it is no surprise that we are not close to being out of the woods yet in Northern Illinois,” Mr. Hobbs notes. There is a huge amount of housing inventory to digest and not enough buyers and available credit to handle it all.

Contact Michael Hobbs at 773.388.0003 or Hobbs@PahRoo.com.

Tagged as: Chicago, real estate , financial planning, housing and investment

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Terri Lee Ryan is a former Chicago commercial real estate broker, marketing consultant and hotel developer. An avid writer, she is the author of Life Is One Big To-Do List. In “People, Places and Property” she dishes on leaders in real estate, new places in your neighborhood and deals being done in Chicago.