Chicago’s market offering mixed messages

Despite declining traffic levels and longer market times, Chicago’s real estate prices are still showing surprising resiliency.

Industry survey shows low buyer confidence is keeping buyer traffic slow

Traffic to both new and existing homes declined through May and June falling below expectations of builders and area Realtors. Agents said falling prices and turbulence in the lending market are keeping buyers on the sidelines.

The latest figures from the Chicago Association of Realtors show a local residential housing market in decline. The number of residential properties sold during the first quarter totaled 6,697, a 19.2 percent drop from the first quarter of 2006. It was the poorest showing for single family homes since the first quarter of 1998, for condos and townhouses since 2004’s first quarter and for multifamily buildings since 1995’s first three months.

Other comments from Agents:

· “So many homes to choose from, buyers can just see them all.”

· “Gas prices, the war, and the media are scaring consumers”.

We expect buyers to remain hesitant as inventory continues to grow and lead buyers to view patience as the right strategy.

Number of days on the market increases

The average number of days on the market also showed a precipitous change. Regardless of the type of home, the marketing time during the first quarter rose an extra 25 to 35 days, compared with the first quarter of 2006. For instance, single-family homes were on the market for an average of 79 days in the first quarter of 2006; this year’s first quarter average marketing time was 110 days.

Modest price increases

Despite the gloomy outlook, price gains seem to be keeping up with inflation. June real estate closings for single family homes show prices a little higher than 14% over the same week in 2006. Condo prices closed almost 7% higher than the same period last year. As these closings are for contracts written 30 to 60 days ago, we don't expect to see the same numbers in July for contracts written in June.

Surprising optimism

Thad Wong, founder of @properties, sees room for optimism. “In a shifting market, there is dramatic opportunity.”

On the low end, the rash of condo conversions has raised rents, driving more renters into purchasing their first home.

“The mentality of being a homeowner is different than it was 10 years ago,” Wong said. “Everyone feels like they can and should own.”

Expecting growth

Wong predicts that @properties’ 2007 transaction volume will be $2.1 billion to $2.2 billion. In 2006, a year in which @properties acted as listing agent, selling agent or both on 4,674 properties, transaction volume totaled $1.725 billion, a 32 percent increase from 2005. In September, the company was named to Inc. magazine’s Inc. 500 list of the nation’s fastest-growing privately held companies.

Wong estimated it may take 18 months for the market’s “stabilization” to be complete. Others think he’s on target. “The fundamentals are there in terms of job creation, low interests, and the economy is growing,” said Walter Molony, a spokesman for the National Association of Realtors.

Recommendations to clients

Sellers can plan on longer market times. If you plan accordingly, your move can still proceed smoothly. We’re cautioning against testing the market with over-reaching prices. With excess inventory to choose from, buyers have an easy time of finding a better price nearby an overly-optimistic priced property.

Our strongest recommendation is not to give into the temptation to buy first, then sell. This is a certain route to losing money. (Read The Contingent Purchase.)

Buyers can definitely take advantage of the softening market by shopping around a greater selection of inventory and bidding aggressively. For the first time in a couple years, inflation caused rent increases and softening home prices are making owning a home a favorable proposition to renting.