North Shore Views

Confused By What You Read About the Housing Market?

It’s hard to know what to make of recent headlines about the housing market. Some days it seems like things are improving. Other days it’s all doom and gloom again. Here are some of the headlines about real estate I’ve read in the last few weeks:

“Housing Market Activity Picks Up”

“2010 Housing Market Off to a Chilly Start”

“Illinois Real Estate Sales Up 35% in 4th Quarter”

“New Wave of Foreclosures Threaten Market”

“Warren Buffett Sees Housing Market Bouncing Back by 2011″

“Chicago Local Housing Report Reveals Market Slow-Down”

“Negative Reports on Housing Continue”

I try to read everything I can about the real estate market and consider myself pretty well-informed on market developments. But even I find myself scratching my head sometimes. I guess I’m not the only one who wonders what to do with the mixed messages we are getting from the media. Lawrence Yun, Chief Economist for the National Association of Realtors, attempted to make some sense out of it all in his podcast on Thursday.

Here’s a summary of his comments on the state of the economy:

The U.S. economy grew 5.9% in 4th quarter 2009 and is projected to grow 3% during 2010.
But this growth was not accompanied by any new job creation, and unemployment remained near 10% in February.

The housing market recovery is still in a delicate state. Sales activity is up and the downward trend in prices appears to have stabilized. However, foreclosures remain high and government policies (e.g., HAMP) to stave off an acceleration of foreclosure activity have been ineffective, so foreclosures will remain high in the near future.

New home sales are down, because builders are just not building. The credit conditions for builders to get loans are very tight. Plus, builders cannot compete with the prices of all the distressed properties that are on the market.

Existing homes sales are doing better due to the tax credit, though sales dipped in January because of the severe weather in many parts of the country. Sales activity is expected to pick up in coming weeks as the April 30 tax credit deadline nears.

In the near term, the sustainability of the housing market recovery is going to depend on two things: consistent job creation and what happens with foreclosures in the coming months. And it’s anybody’s guess how that will play out because we’ve never been in exactly this situation before.

The general consensus among economists is that the housing market will move sideways in 2010 and then begin to grow again at a moderate and sustainable pace beginning in 2011.

Tags: North Shore real estate market predictions, North Shore real estate trends

North Shore Market Update – January 2010

In January 2010 sales of single family homes on the North Shore were up 58% vs. January 2009, which was when the market was virtually dead. Consistent with trends over the last few months, increases in units sold were accompanied by declines in average sales prices (-12%) and increased market times (+13% to 248 days). Highland Park and Glenview showed the greatest sales gains in January, while Winnetka and Northfield, two of the most expensive communities, actually had decreased sales.

Tags: North Shore market data, North Shore real estate market predictions, North Shore real estate trends, North Shore sales trends

What's Ahead for North Shore Real Estate?

Predicting the future is popular at this time of year and, when it comes to real estate, there is no shortage of opinions about what’s ahead for 2010. Some economists, like Lawrence Yun of the National Association of Realtors, are fairly optimistic about the housing market’s prospects. Others, like Mark Zandi of Moody’s Economy.com, are downright pessimistic. Since real estate is my livelihood, I would like to believe Lawrence Yun, but unfortunately his track record hasn’t been all that great, so his predictions need to be taken with a grain of salt (or two).

Having read the economists’ and other experts’ reports and scrutinized the local market data, I’ve come to my own conclusions about how the North Shore will or won’t reflect what’s going on nationally:

1. On a national level, sales will continue the positive momentum begun in mid 2009, at least through May, as buyers take advantage of the tax credits, low interest rates and attractive prices. This will hold true for the North Shore of Chicago too, but much of the activity in our area will be at the lower end of the market (<$800,000). And once the tax credit expires this summer, the market will probably stall again,  at least temporarily.

2. Based on recent trends, I think that prices will decline another 2-3% over the next three to six months, before stabilizing. So, if potential sellers are waiting to see if prices will rebound before listing their homes, they are in for a long wait. It will take at least five years (and probably more) before we see prices anywhere near 2006 levels.

3. The Fed will do its darnedest keep interest rates low for as long as it can to avoid sabotaging the recovery;  but we should expect rates to rise somewhat, probably to around 6%, later in 2010.

4. Foreclosures have not been as big a problem on the North Shore as elsewhere, but we are not out of the woods yet. We will likely see an increase in short sales and foreclosures as adjustable rate mortgages reset and those who took bigger risks when the market was good find themselves unable to refinance now. Unemployment in the neighborhood of 10% will continue to plague us at least through mid-year, putting a further drag on the housing recovery.

5. New construction of spec homes will be at a virtual standstill until existing inventory works its way through the system. Builders just can’t compete with the discounted prices of distressed properties and will be unwilling to build without a buyer lined up in advance.

6. The shift away from McMansions towards smaller, more efficient and greener homes will accelerate, driven by first time buyers and downsizing empty nesters.

I certainly hope that my predictions turn out to have been too pessimistic. That is,  except the one about the McMansions. I, for one, would be happy never to see another McMansion built again.

Tags: Home prices North Shore, North Shore market data, North Shore real estate market predictions, North Shore real estate trends