Forecasting the 2012 Housing Market

Looking back over the 2011 real estate market is akin to reviewing the route you drove to get to your Florida vacation rental from your home in Chicago. It was not a short drive, there was traffic, and at times, even congestion. There were some unexpected detours and ultimately you made it, but you are worn out.

Some of the highlights from the trip through Chicago real estate in 2011 were record low interest rates, near-record high housing affordability, real estate prices equating to 2001 levels and a slowing pace of falling prices.

Whether seeking a 15yr or 30yr mortgage, a buyer likely found interest rates below 4% -- historically low rates. Those low rates and 2011 prices resulted in near-record high housing affordability for buyers in the Chicagoland market place. Fueling the Chicago housing affordability was the local real estate market's return to prices last experienced a decade ago in 2001. For those buyers who took the plunge in 2011, they experienced slowing price declines and an abundant inventory of available properties.

Some of the lowlights from the trip through Chicago real estate in 2011 were increasing down-payment requirements for buyers with Illinois ranking in the top 10 for foreclosure activity. The Chicago-area unemployment remained near 10%, general real estate prices finished approximately 5% lower than the prior year and approximately 40% of sellers experience a loss on the sale of their home.

No matter how you look back on the trip through 2011, Chicago real estate was not a pretty tour. Prospective buyers with FHA financing experienced an increased down-payment requirement and heavier scrutiny from mortgage lenders. Sellers competed for the attention of a reduced buyer pool and found unwelcome and active competitors in the form of foreclosed properties and neighbors conducting short sales.

Chicago-area distressed real estate activity topped the 40% mark in 2011, which was previously unheard of and resulted in Illinois being ranked 8th in the nation in foreclosure activity. "Lack of jobs (10% unemployment) and a high concentration of distressed real estate contributed to the 5% decline in annual Chicago real estate prices that have now plummeted 31% from the peak," says Michael Hobbs, President, PahRoo Appraisal & Consultancy, a real estate valuation firm specializing in residential and commercial real estate.

Looking ahead to 2012, there does not appear to be an end in sight to the historic downturn in housing, which is bad news for sellers and very good news for buyers. RealtyTrac reported that 1 in 427 housing units received a foreclosure notice in Illinois and "foreclosure activity is actually increasing, not decreasing since the Robo-signing debacle started wrapping up in November 2011 and lenders have resumed foreclosures," says Bardan Azari, of Cherry Picker Investments, a foreclosure investment service. Furthermore, a recent report from Zillow indicated that 46% of Chicago real estate owners had negative equity; hence, they are underwater on their mortgage.

In summary, the 2012 spring market is likely going to be a hostile environment for sellers as 2012 is forecasted to end 5-10% below where it starts and short sales are projected to increase 25%. "All of this trauma for sellers translates into great buying opportunities for prospective purchasers and investors as cash will continue to be king in 2012 and interest rates will stay at record lows as the pace of sales increases," Mr. Hobbs notes.

For more information on the state of the Chicago real estate market, contact Mr. Hobbs at 773.388.0003 or Hobbs@PahRoo.com.

Tagged as: Chicago Housing Market, 2011 Chicago Housing Market, 2012 Housing Market Predictions and Chicago Real Estate Market

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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.