By: Markus Azadeh • February 9th, 2010 •
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“We’re not at all optimistic. There are just too many difficult things that have piled up on us.”
Perry Bigelow, CEO of Aurora-based developer Bigelow Homes, on the housing market.
Chicago homeowners will have to get used to a new reality, where selling a house routinely takes six months or more and home appreciation just barely outpaces inflation.
Alby Gallun, Crain’s Chicago Business.
More Chicago-area homeowners defaulted on their mortgages during the final three months of 2009 than in any other quarter since the housing crisis began in 2006.
Mary Ellen Podmolik – Chicago Tribune staff reporter February 4, 2010 based on year-end figures released by the Woodstock Institute
Let’s sum it up before we even get into the analysis: 2009 was not a good year for the housing market in 60646, Edgebrook, Sauganash, and Gladstone Park. Some of these neighborhoods fared better than the other and then again, all of them fared much better than many other Chicago neighborhoods outside of 60646. The real estate market, as we all know, is cyclical. And, at the bottom of the cycle, the market often doesn’t look pretty. We just put an ugly real estate year behind us, and we may not be out of the woods yet, as two major factors that put pressure on the housing market are still wreaking havoc on our economy: A depressed labor market with relatively high unemployment, and the subsequent rise of the distressed property pool. Meaning, tons of people who own homes are losing their jobs. Therefore, they can’t pay their mortgages any longer. As a result, we see more short sales and foreclosures. That in turn, puts pressure on home values. If you recall, the first wave of distressed properties starting roughly in mid 2006, was mainly due to sub-prime mortgages. That’s pretty much behind us now. Going forward, we have entered the territory of resetting Alt-A and Option ARM (toxic!) mortgages. We’re talking about massive amounts of loans that are going to default, all the way through 2012. This is no joke, ladies and gentlemen, we’re going to come out of this, bruised and battered.
BUT, it’s also important to see the signs that represent the light at the end of the tunnel. Take for instance the mortgage interest rate: It’s still relatively low, hovering around the 5% mark for 30-year fixed-rate products. Or, government initiatives that incentivize first-time home buyers, and more recently, existing homeowners, to purchase a home by offering a tax credit. The relative “flooding” of the market with bank-owned foreclosure properties (REOs) – while in and of itself a bad thing because of eroding home values – has suddenly enabled many first-time buyers to buy a home now, for the downpayment of which they otherwise may have had to save for several additional years. The distressed inventory is not staying vacant for long. It’s being re-distributed: Mostly to investors and first-time buyers (the latter group often losing out to the former, in bidding wars). The deck is being re-shuffled, if you will. So, among all the bad news, we still find some good news. And these have just been some of my observations in the field. Let’s get down to the nitty-gritty…
At the end of the first quarter of 2009, I had expressed the hope that the shortfall in home sales in Edgebrook would be made up during the rest of 2009. Alas, my hopes did not materialize, and Edgebrook ended the year with a total sale of 58 single family homes. This represents a decline of 26% vs. 2008 and a shortfall of 43% vs. 2007. However, in the fourth quarter of 2009, we had 16 sales vs. 14 in Q4 2008. Not sure that I want to call this a turnaround of the market yet, but it’s nice to see the bleeding stop for a little bit.
 Edgebrook Q4 2006-2009 Units Sold  Edgebrook 2006-2009 Units Sold Bad news: In Q4 2009, home values in Edgebrook eroded further. The median sale price of a home in Edgebrook fell to $373,500 which was almost 8% lower than in Q4 2008. Undoubtedly, out of 16 sales, the closing of four bank-owned foreclosure properties and two short sales had something to do with this development. Ordinarily, these non-arms length transactions should not factor in the equation, but look, when 27.5% of the total market value in Q4 2009 ($5.9MM) are distressed home sales, we can no longer pretend that the distressed portion of the local market operates in a vacuum. On an annual basis, the median sale price was 7.8% below 2008 and 3.6% below 2007.
Good news: Average market times in Edgebrook fell from 110 days in Q4 2008 to 80 days in Q4 2009. For the whole year, 2009 market times were roughly equal to 2008 figures: On average, it took a good five months to sell a home in Edgebrook, in 2009.
 Edgebrook Q4 2006-2009 Sale Prices  Edgebrook 2006-2009 Sale Prices Another sign of hope on the horizon: In Q4 2009, the sale-price-to-list-price ratio increased to 95.4% which means that on average, Edgebrook home sellers were willing to part with their properties for only about 4.5% below their asking prices. Given the fact that 6 of the 16 sellers were banks, this figure is not surprising, as banks are not interested in “non-performing assets” and had therefore offered these homes for down-to-the-bone asking prices already. Throughout the year, this ratio fell to 92.6% which is a little more than a percent vs. previous year.
 Edgebrook Q4 2006-2009 Sale-List Prices  Edgebrook 2006-2009 Sale-List Prices With 45 homes currently for sale in Edgebrook, the MSI-Index (Months Supply of Inventory) stands at 8.4 months which means that if no other homes came on the market for sale, it would take 8.4 months to sell off the existing inventory of homes for sale. |
The Sauganash real estate market made a big comeback in Q4 2009 to slightly edge ahead of 2008 figures. The 22 homes sold in Q4 2009 were exactly double the number of sold units in Q4 2008! It was a successful “Hail Mary” pass of sorts that was responsible for a total sale of 57 homes in 2009 vs. 56 in 2008. Gotta love a good comeback. We probably owe a big thank you to the first-time home buyer tax credit for that one when everybody was rushing to close their home purchase by the end of November 2009.
 Sauganash Q4 2006-2009 Units Sold  Sauganash 2006-2009 Units Sold Just like in Edgebrook, home values in Sauganash continued to erode in 2009. While the median home price in Sauganash in Q4 2009 managed to beat out the one in Q4 2008 by 5.2%, on an annual basis, the median home value in Sauganash lost 19.2% in 2009 vs. 2008. There were seven foreclosure sales and two short sales in Sauganash in 2009. However, removing these 9 transactions from the analysis only slightly raises the median home value to $412,500 which is still 16.8% below 2008 results. Average market times in Sauganash improved in Q4 2009 to 182 days vs. 191 in Q4 2008. For the entire year, it still took an average of 152 days to sell a home in Sauganash vs. 191 days in 2008.
 Sauganash Q4 2006-2009 Sale Prices  Sauganash 2006-2009 Sale Prices A very pleasant surprise was to see the average sale-to-list-price ratio climb to 93.4% in Q4 2009. This has been the highest SLP ratio in the fourth quarter of the past four years. Again, distressed inventories were already discounted, so no surprise there. But if I remove the nine distressed transactions from the analysis, I arrive at a ratio of 92.6% for the year which is still remarkable. It means that Sauganash home sellers are once again starting to become a bit less negotiable, in terms of price.
 Sauganash Q4 2006-2009 Sale-List Prices  Sauganash 2006-2009 Sale-List Prices If no other homes came on the market for sale in Sauganash, it would take 7 months to sell all the existing inventory of 51 homes that are for sale.
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I have saved the best for last: South Edgebrook and North Gladstone Park. Home sales in these two sub-neighborhoods tied the Q4 results of 2008 with 13 sold homes, but for the entire year of 2009, unit sales increased by 16%. In fact, with 52 sold homes in 2009, SEGP had the second-best annual sales result within the past four years, only behind the 61 units sold in 2007. Are things starting to look up in South Edgebrook and North Gladstone Park?
 SEGP Q4 2006-2009 Units Sold  SEGP 2006-2009 Units Sold Even though SEGP median home values declined by almost 12% vs. 2008, in Q4 2009 they handily beat the Q4 2008 results by nearly 13%. Moreover, average market times dramatically declined in SEGP. In Q4 2009, on average, it took 67 days less than in Q4 2008 to sell a home. And while it still took almost 5 months on average to sell a home in SEGP in 2009, this figure was 40 days less than in 2008.
 SEGP Q4 2006-2009 Sale Prices  SEGP 2006-2009 Sale Prices Not unlike Sauganash, South Edgebrook and North Gladstone Park posted remarkable sale-to-list-price ratios, both quarterly, as well as annually. While the SLP ratio in Q4 2009 edged out the one in Q4 2008 by 0.7%, in 2009, that figure increased by 0.3% over 2008. Could this perhaps be the sign of a real estate market that has finally bottomed out? I’m curious to read your thoughts on this subject.
 SEGP Q4 2006-2009 Sale-List Prices  SEGP 2006-2009 Sale-List Prices 39 single family homes are currently for sale in South Edgebrook and Gladstone Park, hence the absorption rate is pushed to 9 months. Please note that in all sub-neighborhoods of zip code 60646, the current MSI-Indices are in single digit territory. This is a good thing!
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