RE/MAX Northern Illinois Reports Hopeful Signs Appearing In Chicago Real Estate Market

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According to RE/MAX Northern Illinois and data produced by Midwest Real Estate Data, LLC (MRED), home sales in the nine-county metropolitan Chicago real estate market showed some resilience during this year's first quarter. Sales in the city and suburbs totaled 10,317 units during the first quarter of 2009, a decline of 26.6 percent from the same period in 2008.

These results are caused by at least two separate factors, we believe

Home sales in the nine-county metropolitan Chicago real estate market showed some resilience during this year's first quarter. Sales in the city and suburbs totaled 10,317 units during the first quarter of 2009, a decline of 26.6 percent from the same period in 2008. However, much of the decrease was concentrated in the attached home segment of the market, which consists primarily of condominium units (both apartments and townhouses). Sales activity in that segment declined 45.6 percent, while sales of detached homes fell 10.6 percent and actually increased in the City of Chicago, where 9 percent more homes were sold this year than in the first quarter of 2008.

"Home sales activity is definitely on the rise at the low end of the market where foreclosures are attracting a lot of bargain hunters," said Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network.

Merrion noted that sales of detached single-family homes priced under $150,000 rose 63.5 percent in the suburbs and 86 percent in the city when first quarter sales in 2009 are compared to those of 2008.

From a geographic perspective, the increased sales of detached homes occurred quite broadly across the metro Chicago real estate market. Of the 227 suburban communities where housing activity in the 9-county region is tracked by Midwest Real Estate Data, LLC (MRED), 133 recorded more detached sales during the first quarter of 2009 than in the same period a year earlier, and 15 others reporting at least one sale showed no change in sales activity. In contrast, when first quarter results from 2008 are compared to those of 2007, only 24 communities showed increased sales activity, while 12 were unchanged.

Among the 77 neighborhoods in the City of Chicago, 41 had in increase in the number of detached homes sold during the first quarter of this year when compared to the same period of 2008. Sales volume was unchanged in seven other neighborhoods. A year ago, a similar comparison would have shown only 13 neighborhoods with an increase in sales while five remained unchanged.

The increase in suburban detached-home sales touched communities in all counties and of all sizes though not everywhere. In a number of the largest suburban towns, including Aurora, Elgin, Evanston and Naperville, detached sales declined.

Overall, however, communities and city neighborhoods not generally viewed as being at the top of the income scale were most likely to see increases in transaction volume. Many communities viewed as quite affluent continued to see sales fall. For example, among the North Shore suburbs, only Glencoe, Deerfield and Northfield reported increased sales numbers. In the city, Edgewater and West Ridge were the only North Side neighborhoods in that category.

"These results are caused by at least two separate factors, we believe," said Merrion. "One is growing demand by first-time buyers and investors for distressed properties, a category that includes homes in all stages of foreclosure. A second factor is that with recent price reductions, home affordability has increased more dramatically in some communities than in others, and where homes are more affordable, buyers are returning to the metro Chicago real estate marketplace."

According to Merrion, affordability has been improved by both falling home prices and by home mortgage interest rates of less than 5 percent.

As an example of how lower prices can stimulate higher sales, Merrion points to Addison, Ill., the western suburb where detached home sales rose from 17 in the first quarter of last year to 29 in the first three months of 2009. At the same time, the median price of a home sold in Addison fell 39 percent from $204,500 to $125,000.

"Of course, not every increase in sales activity was accompanied by lower prices," he said. "In 25 suburbs, the median sales price of detached homes increased, and in 10 of those communities the number of units sold also rose."

A case in point is Bensenville, quite close to Addison, where homes sold during the quarter rose from 11 to 16 and the median price was up 28 percent to $195,500. However, the overall correlation between lower prices and increased sales is quite strong, according to Merrion.

Sales of attached homes paint a less encouraging picture. In the first quarter of 2008, attached homes accounted for 73 percent of all sales in Chicago and 31 percent in the suburbs. This year in the same period, attached homes represented 53 percent of sales in the Chicago real estate market and 25 percent in the suburbs.

Attached home sales in those city neighborhoods with the heaviest concentration of condominiums, including Lincoln Park, Lake View, the Near North Side and Near South Side, fell by 50 percent or more when compared to 2008.

"We believe a number of factors are depressing attached home sales right now," said Merrion. "One positive factor is the many attached sales in prior years were new units or newly rehabbed units, and there are many fewer of those on the market these days as new development has fallen considerably. As the supply of attached units declines, so do sales."

In the Chicago neighborhoods of Lake View and Lincoln Park, where attached homes are a major component of the housing stock, 1,990 attached units went on the market in the first quarter of 2008. This year during the same period, that total fell 22 percent to 1,555 homes.

A second contributing factor, according to Merrion, is that mortgage lenders are using more stringent lending standards, which are having greater impact in the condo market than elsewhere. The condo market has more single buyers, he noted, which in many instances makes income stability more of an issue and down payment requirements more challenging to meet.

In addition, loans on condos are being held up more frequently than in years past by problems related to the finances of condominium associations or the percentage of units occupied by renters. Such factors don't normally impact the purchase of a detached home, according to the RE/MAX executive.

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