North Shore Views
It’s mid-January and that means it’s time for me to weigh in with my predictions for the North Shore’s real estate market for the coming year.
But first, I want to revisit last year’s predictions and see how close I came to being right (or not).
Here’s what I said a year ago:
1. Many buyers will be chasing too few homes.
2. Good houses will go fast.
3. Upper bracket homes will be a tough sell.
4. New construction will be up but hampered by lack of available land.
Well, I was generally right on all of these: buyer demand did exceed supply, resulting in bidding wars and dramatically reduced market times. While homes up to $1,500,000 were selling like hotcakes, sales of upper bracket homes (+$2,000,000) lagged. And new construction was definitely up. The only thing I underestimated (along with most economists) was the level of price appreciation. I predicted prices would rise about 3% on the North Shore, whereas the median price ended up being up 9%.
So now for this year’s projections:
1. More people will list their homes and therefore the supply of homes will be greater than last year. Now that prices have started to increase again, fewer people are underwater and more are able and willing to sell. So there will be more inventory for buyers to choose from. However, there is still considerable pent up demand and I think we will continue to have more buyers than sellers, particularly under $1,000,000.
2. Price appreciation will continue but at a slower pace than last year.
One of the things that drove prices up so much last year was that buyer demand outstripped supply. With more houses coming on the market, North Shore price increases will be in the 4-5% range (vs. the 9% appreciation we enjoyed last year).
3. Mortgage interest rates will increase to at least 5%, and possibly 5.5%
Good news for the economy is bad news for mortgage interest rates. The improved economy combined with the Fed’s tapering which will drive rates up by a point or so over the next year. They’ll still be low by historical standards but will mean that homes are 10% less affordable (a one point increase in interest rates means 10% less purchasing power).
4. Mortgages will be easier to get because the increasing rates has reduced refinancing activity and pushed banks to increase their purchase lending. In addition, there are new mortgage rules taking effect in 2014 that will provide greater clarity to banks about the legal and financial risks that come with different types of mortgages, which should make them more willing to make loans.
5. New construction will increase to the extent there is land available. The most active sales of new construction will be under $1,600,000 but available lots to build on are few and far between, so moderately priced new homes tend to go quickly. Higher end new homes not so much. There are currently over 15 active listings of new homes over $2,000,000 in the MLS and only 11 have sold in the past twelve months.
Now that we are seeing prices appreciate again, are you wondering what your North Shore home is worth? Give us a call at 847-881-6657 and we’ll provide you with a Pinpoint Price Analysis. Or, if you just want a ballpark estimate, you can get a quick and easy over-the-net home valuation by just giving us some basic information about your house. Just go here to submit your info and we’ll send you your home valuation within 48 hours.
I’m not any better at predicting the future than anyone else, but I do read and study the economic reports and compare their conclusions to my own analysis of local market conditions. Here’s where I come out on the North Shore housing market:
1. Many buyers chasing too few houses
With the improvements in the economy, job market and consumer confidence, home buyers have jumped off the fence and are ready to take advantage of historic low interest rates and high housing affordability.
But many sellers are still under water on their loans and can’t or won’t sell at a price below what they owe, causing an imbalance in supply and demand. Ultimately this will drive prices up and economists are forecasting an increase in median prices of around 3% in 2013.
2. Good houses will go fast
The result of #1 is that the houses that are in good condition and priced right, will literally fly off the market. On the North Shore the most active segments will be homes priced under $1,200,000, and especially around $600,000 to $800,000. Those houses will get multiple offers and will sell at or above list price in a matter of days. If you are a buyer in this price range, be prepared to make a strong offer right out of the box if you really want the house. And make sure you are pre-approved (not just pre-qualified) by your lender in advance. Your Realtor will counsel you as to how to improve your chances of winning the bidding war.
3. Upper bracket homes will be a tough sell
Unfortunately, upper bracket sellers will not enjoy the level of buyer interest we’ll see at the lower price points. There will continue to be few buyers above $2,000,000 in the coming year. Having witnessed the effects of the housing bust, buyers will be more conservative overall and more reluctant to over-buy. For perspective, the number of homes sold in 2012 above $2,000,000 was down 63% from 2007. They now represent only 2% of the market vs. 10% back in 2007. I don’t expect this to change dramatically in the coming year.
4. New construction up but hampered by lack of available land
Many builders got out of the business during the bust but those who stayed in are ramping up construction. The problem on the North Shore is that virtually all new construction is infill and there are very few buildable lots available. Couple that with increases in the cost of building materials (especially lumber) and the result will be higher priced new homes. Buyers looking for new construction are likely to get a better deal by buying newer construction (5-7 years old) vs. brand new.
The bottom line for sellers: if you have equity in your home and want to sell, now is the time. Not sure what your home is worth in the current market? Give us a call at 847-881-6657 and we’ll prepare a competitive market analysis for you.
The bottom line for buyers: the days of the deal are over. If you want to buy a home on the North Shore you’ll need to have your ducks in a row and be prepared to act quickly to get the house you want. We’d be happy to take you on our “Tour of the Shore” to familiarize you with the communities and neighborhoods and educate you on relative home values. That way you’ll know what it will take to get your dream home.
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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.
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.
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.