Sunset On North Avenue in Bucktown, Chicago

Have you read the latest news that home sales are down? Pretty much everyday, right? According to Standard & Poor’s Case-Shiller Home Price Indices (PDF), released on Monday, Chicago experienced an 18.7% decline in home prices from April 2008 to April 2009, but did not experience a percentage change from the prior month, March 2009 to April 2009.

This information is interesting, but begs two questions for me:

1. What neighborhoods of Chicago do these stats encompass; and are they relevant to the neighborhoods where my clients are selling and buying?
2. In this rapidly-changing economy, statistics from two months ago is ancient history, so what are the most recent sales in May and June of this year?

Let’s Dig Into the Sales Data More Closely

I am definitely a numbers gal, so I decided to pull information from the Multiple Listing Service (MLS) on the areas where my clients are doing business and see what stats would be of value to them. I picked three neighborhoods that have a great mix of condos and single family homes, and seemed like a decent representation of averages for the north-side of the Chicago marketplace. The areas I selected are Lincoln Park, Wicker Park/Bucktown, and Lincoln Square.

Here is what I found when I compared the volume (number of homes sold) and the average selling price data from the first half of 2008 with the first half of 2009:

Lincoln Square and Bucktown/Wicker Park Home Sales Volume Way Down

As reflected in the tables above, the average volume of sales, not surprisingly, are down with the hardest hit being the condo market in Bucktown/Wicker Park (-56%) and Lincoln Square (-52%). In the single family home market, Lincoln Park experienced the greatest decline at -36%.

Lincoln Park Condo and Single Family Home Average Sale Prices Are Up

Surprisingly, the condo and single family home sale prices when comparing the first half of 2008 and the first half of 2009 in the Lincoln Park neighborhood increased 3.6% for single family homes and 5.2% for condos. Lincoln Square reports a depreciation in sale prices at -18.7% for single family homes and -16% for condos. Bucktown/Wicker Park : -11.9% for single family and only -1% for condominiums.

North Side Sales Prices Have Decreased Far Less Than the Numbers Reported by S&P

Overall the average decline in sale price for all three markets for the first half of 2008 to the first half of 2009 is -5.5% for single family homes and only -2.6% for condos. A significant difference from the 18.7% decline reported; and a better reflection of what is happening currently in the marketplace within those three neighborhoods.

As the Realtor? advertisements market in their most recent campaign ad, markets are local, and statistics like these are not necessary a reflection of the block where you live or want to live. So consult with your real estate agent about current appreciation and depreciation in the areas that interest you?these numbers are easily gathered and analyzed, so don?t be afraid to ask?it?s interesting what you can learn when you dig a little deeper.

While attending the recent SPARKt conference I had the pleasure of listening to Adrian Holovaty, the founder of EveryBlock.com explain his unique service. If you haven’t heard of it, I suggest you head over their right away and sign up. It’s amazing.

What is EveryBlock?

EveryBlock.com is an amazing service.

EveryBlock.com is a service that goes out onto the web and looks for information about your block and the surrounding area?up to four blocks around your block. It looks for lots of stuff:

• Homes for sale
• Closings
• Crimes
• Pictures people are taking in the area
• News
• Building permits
• Liquor license applications
• Reviews of local businesses
• Street closures
• Restaurant inspections (do you really want to know?)
• Lost and Found
• And more…

I get a daily email from EveryBlock.com telling me all the comings and goings in my neighborhood.

Now, given the city we live in…what is most amazing about this is that Adrian was able to get this data out of the notoriously tight-lipped City of Chicago. The city didn’t want to give up the crime data, but Adrian persisted and got it for all of us. The problem is that it’s delayed by over a week and is often very, very vague. They have an online petition for you to sign asking the city to give more details on the crimes so we know what is really going on. Please sign it!

It’s a great service and I highly recommend it…except for the restaurant inspections. Those just make me sad.

24 June 2009 ? Today we have news on both extremes concerning Chicago’s real estate market. On the very bad side…yesterday The Sun Times, Chicagoist, and many others reported Chicago has 4 of the most dangerous neighborhoods (in Chicago’s case they are actually sections of well defined neighborhoods) in the country. They are: #2 State St. & Garfield (Washington Park), #19: 66th and Yale (Englewood), #24: 58th and Wallace (Englewood), and #25: 60th and Winchester (Englewood). You have to wonder what the numbers would have been if they had lumped Englewood as one neighborhood. On the very good side…Chicago home sales were up 11.5% in May when compared to April. However, it is not all good news; we still have a long way to go?sales were down 27.5% when May is compared to May of 2008. See Robert John Anderson’s complete post about the data for more details.

Two reports yesterday seem to cast a shadow over recent good news in closings.

Home Builders Not Predicting Increased Business

Hanging on

The National Association of Home Builders (NAHB) reported yesterday that it’s nation-wide monthly sentiment index dropped by a point to 15. This is down from a score of 18 one year ago and an all-time high posted four years ago of 72. NAHB doesn’t slice its data very thinly, so the only numbers we have for Chicago are the Midwest area, which actually increased from 14 to 15.

It’s important to note exactly what this survey is. According to NAHB’s web site, the survey is,

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as ?good,? ?fair? or ?poor.? The survey also asks builders to rate traffic of prospective buyers as ?high to very high,? ?average? or ?low to very low.? Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Chicago’s Vacancy Rates at Historic Highs

The Census Bureau is reporting that vacancies are on the rise in Chicago and are actually the highest ever since they began collecting this data in 1996. In the quarterly analysis released yesterday, the vacancy rate in Chicago is now at 3.8%, which is a 41% increase over a year ago, when the rate was 2.7%. It is also up 3% from 3.7% in the fourth quarter of 2008.

Crain’s is reporting that Neighborhood Housing Services of Chicago (NHS) has data that shows South Side neighborhoods are being hit the hardest. Examples cited are Englewood has the highest vacancy rate in Chicago of 16.1% and North Lawndale is standing at 11.8% vacant.

There are many factors leading to this increase, among them are all the foreclosures due to people using sub-prime loans they could not afford, foreclosures due to more and more people losing their jobs as unemployment continues to rise throughout the country, and the huge numbers of newly developed homes that have come on the market in the past two years not selling.

On April 1 the Chicago Association of Realtors^® (CAR) released some data that I thought was interesting in this time of dropping property values. However, I didn’t see these numbers discussed anywhere other than their web site. I think these numbers deserve a second look and hopefully some comments from our readers.

The goal of their numbers was to separate distressed property (short sales and foreclosures) from “traditional” sales. CAR is able to do this because Chicago’s MLS?Midwest Real Estate Data (MRED)?flags all short sale and foreclosures. This makes it possible to separate out the traditional from the non-traditional sales. They decided to call the non-distressed properties “traditional” because only in the last 12 months have distressed properties been of any consequence. So, as far as the MLS and CAR are concerned, distressed property sales were not common or all that significant to the larger market.

What Do The Numbers Show?

The numbers that CAR published in their blog were for only one week: March 21 to March 27, so very few conclusions can be drawn from them. However, they are quite interesting:

Traditional and Distressed Units Sold (Click to Enlarge)

Number of Units Sold

• 330 properties were sold in Chicago during that time period: 126 detached, 142 attached, and 62 multi-units.
• 137 of the sold properties were distressed sales. That’s 41.5% of the sales where either foreclosures or short sales.
• 52.4% of the detached sales were distressed (66 out of 126), only 15.5% of the attached were distressed (22 out of 142), and a whopping 79% of the multi-unit sales were distressed (49 out of 62).

Median Prices of Homes Sold (Click to Enlarge)

Median Sales Price

When evaluating prices of properties in a declining market, appraisers use median prices for a neighborhood rather than averages. Averages can be thrown off considerably by just a few very large or very small prices. CAR provided both median and average prices for the week they did the numbers. We’ll take a look at the median numbers?they are very telling:

• During the week of March 21 to March 27, 2009, the median price of the detached homes sold was only $125,000, $291,000 for attached homes, and a tiny $56,500 for multi-units. These are the numbers for both distressed and “traditional” homes.
• Distressed detached homes sold for a median price of only $45,000 while their “traditional” counterparts sold for $205,000. Separating the numbers does help to see quite a difference. Distressed attached homes sold for a median price of $107,000 and the “traditional” homes sold for $313,500. Multi-units were not much different with the 49 distressed buildings selling for a paltry median price of only $36,500, while the traditional multi-units went for $287,500.

What Conclusions Can We Draw?

Again, I want to emphasize that these numbers are only from one week and it’s not possible to extrapolate very far with such a short time frame. However, for that one week in March, there were several interesting points.

The prices were obviously extremely low for Chicago. It is unlikely that in the vast majority of neighborhoods in Chicago you can buy a multi-unit building for under $300,000. However, the median for even the “traditional” sales was below that number. The other two categories were very similarly low priced.

Does this mean that during that week the vast majority of sales were in the poorest neighborhoods of Chicago? It certainly appears to be the case. It would be very interesting to see even more data like this.

Why Do This?

CAR’s 2009 president, Dave Hanna, explained that this exercise was important so people can compare “apples to apples.” If a distressed home and a “traditional” home sell in the same neighborhood or the same block, it’s important that everyone from owners to real estate agents to appraisers make it clear that they are in different circumstances and have very different prices.

The Wall Street Journal is reporting two important conclusions based on data from the Office of Comptroller of the Currency and the Office of Thrift Supervision:

Seriously Delinquent Subprime Loans Rise from 10.75% to 16.4%

The report found that the number of seriously delinquent subprimes loans is on the rise. This means that more and more people are letting their mortgage payments go unpaid. This, of course, leads to lenders foreclosing on the properties, which leads to many unfortunate consequences: uprooted families with bad credit, as well as the potential for all types of property owners seeing the value of their property drop rapidly as more and more homes in their area become vacant.

10% Reductions in Monthly Mortgage Payments Reduces Late Payments

Not surprising...cutting mortgage payments significantly helps.

This news comes as the lenders are beginning to modify loans for people in danger of being foreclosed on. The lenders will be following the Obama administration’s guidelines that provide incentives to lenders if they can reduce the borrower’s mortgage payment to 31% of their income. The new data supports the administration’s claim that if the guidelines are followed, we will see fewer bankruptcies. The goal of reducing bankruptcies is key to their plan, so that the value of entire neighborhoods and areas of towns and cities does not drop substantially.

The report points out that many borrowers’ mortgages amount actually increase while working with their lenders to catch up on late payments. The lenders will often put the missed payments back into the loan, thereby increasing the monthly payments. The Obama plan attempts to help both the lenders and the borrowers break this cycle, keep the borrowers in the house and making their payments. When borrowers have fallen behind on their mortage payments, 50% of them will fall behind again within nine months if their payments remain the same or increase. The studies found that 26% will fall behind again if their mortgage rate is cut by at least 10%.

The percentage of delinquent mortgages that have had their monthly payments cut by more than 10% is on the increase. 37% of such loans had their payments reduced by 10% or more in the fourth quarter of 2008 compared to 26% in the third quarter. However the report found that 1 in 4 of modified loans actually had their payments remain the same or increase.

Construction Workers at Work Would Be Good to See

Housing starts went up in February. By now you have read in many, many, many places about how the Commerce Department announced this amazing fact yesterday (click here for the PDF). First of all, what is a “housing start?” The Commerce Department defines them as, “the number of single or multi-family dwellings that have begun construction.” It turns out that the lion’s share of these starts were in multi-family dewellings, which in this case means apartments followed by condos.

However, simply having this number go up is amazing since most people who follow such trends expected them to go down. However, many worry if it was simply a matter of nicer-than-expected weather in February allowing shovels to hit the dirt.

A Look at the Numbers

Nationwide, the Commerce Department reported that housing starts in February went up 22.2 percent when compared to January. Also important is that housing permits were up 3 percent in February as well.

However, this isn’t just a straight 5th grade percentage calculation. The Commerce Department adjusts their numbers based on historical data regarding the season. Generally there are fewer starts in the winter, and they try to take that into consideration. They try to put January and February on a level playing field by looking at traditionally how many starts are there in January and February and take that history into consideration.

If they extrapolate this information out, the Commerce Department says that if this trend were to continue, 583,000 units would be built in the US this year. This is compared to the experts in the field saying that there would likely be 450,000 units started this year. Again, the big 583,000 units is a projection based on history and the big increase in February.

In the Midwest, housing starts were up 58.5% when you compare January to February. Many of these starts are multi-unit buildings, which usually means condos. However, even single-family home starts were up in the Midwest by 12.8 percent.

This may all sound really good, but they are simply comparing January 2009 to February of 2009. When we compare January 2009 to January 2008, we see that there were 45.5 percent fewer housing starts in 2009 than in 2008.

What About Chicago’s Housing Starts?

Unfortunately the data from the Commerce Department does not include metro area information. The Chicago Tribune is reporting that Strategy Planning Associates says that, “suburban developments, sales are averaging 0.15 sales per week per project.” They don’t say if this is bad or good; it certainly sounds bad.

What Does This Increase in Housing Starts Mean?

It’s important to note that January’s housing start number was a record low. So the improvement we say in February is like taking one step up the stairs of a basement flooded with three feet of water. You’re standing in less water, but the basement is still flooded and your feet are most definitely still wet. But, any improvement is a great thing.

This news is sparking the question of whether or not this marks the end of the real estate slide. Does it mean that we’re on the upswing? There are hundreds and hundreds of answers to that question available on the web, but the real answer is none of these prognosticators have a clue.

My basic thought is that if a large number of these starts are for apartments in areas that need them, it’s great tnews. However, when we look at the slow sales in Chicago, we have to wonder if this market needs even one more new condo. As Barbara Kiviat at Time so clearly points out, with so many houses unsold on the market, is adding more a good idea? And, given what I’m hearing from my friends in the leasing business, there isn’t an over demand for apartments at the moment either given how many condo projects ended up being really nice apartments.

So, it’s good news but I wouldn’t suggest go buying that used yellow Maserati I saw in used-car lot on Ashland yesterday!

Thanks to Bill Jacobus for the photo, which he so graciously licensed under the Creative Commons License.