Karp Real Estate

Shadow Inventory is REAL on Chicago's North Shore!!

I have been hearing about this "Shadow Inventory" for months.  Experts have been saying that real estate prices will be going down some more this year because there are tons of foreclosed properties about to hit the market.  Plus they also point out that many other potential sellers will be putting their homes on the market because they are tired of waiting for the market to get better. They've been saying this for so long, that it is beginning to sound like that old story about the boy who cried "wolf." 

When I talk about the Shadow Inventory to some people on the North Shore, they give me a surprised look and say something like, "There aren't any foreclosures around here, I haven't seen any foreclosures signs."

Well I have to agree with part of that sentiment.  I haven't seen any foreclosure signs either.  You know why?  Real estate companies don't typically put up a sign that says foreclosure when they are trying to sell a property.  The only foreclosure signs I've seen are on the 10 pm news!

So, this morning I did some research to find out if there really is any "Shadow Inventory" on the North Shore.  And, I also pulled some numbers that may surprise you - there have been many foreclosures on the North Shore in the past 12 months!!  I looked at these North Shore towns:  Deerfield, Evanston, Glencoe, Glenview, Highland Park, Kenilworth, Lake Forest, Northbrook, Northfield, Riverwoods, Skokie, Wilmette,  and Winnetka.

In the 12 months ending today (1.26.11) there were 467 foreclosed properties sold by real estate agents in these North Shore towns.  In that same period there were 377 short sales in the same 13 towns (source: MRED MLS).

There are currently 1,969 properties in these same North Shore towns that are in the foreclosure process (pre-foreclosure) or already bank-owned and not yet sold to new buyers (source: Realist public tax records).  Not all 1,969 properties will end up in foreclosure or as short sales, but it is more than double the number of short sales and foreclosures that were sold in the past 12 months. This also does not take into account the "pent-up" potential inventory from sellers that have been waiting to sell their homes.

Click on this link to see town-by-town details in a cool 3-D chart, Download Shadow inventory 1.26.11.  You'll see that Skokie, Evanston, Northbrook and Glenview head the list with the most Shadow Inventory.  You'll also see that not a single town is exempt from this - yes even Kenilworth has some distressed properties.

If the banks start listing the Shadow Inventory for sale all at once, it will put more downward pressure on prices.  I am hopeful that the banks will release the properties onto the market slowly to minimize the impact on prices.  Only time will tell.

Thank you for reading!!

To find any home for sale in the Chicago area, click here.

Real Estate Market Showing Signs of Improvement!

There are some signs that housing market is finally starting to recover. I am cautiously optimistic - the experts (and I) are not suggesting that it will come roaring back and that we will see 2006 numbers right away.  Here are some positive statistics:

• National Association of Realtors released their December Existing Home Sales Report this week. The report showed a 12.3% increase in closed transactions over the month before.
• Also this week the Census Bureau reported that privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 635,000. This is 16.7 percent above the revised November rate of 544,000.

Both of the above reports are promising.  However, not all the news in the reports was positive.

• Existing home sales were slightly down from the same month last year.

You may recall that home sales were artificially inflated at the end of 2009 because of the First Time Homebuyer Tax Credit, which was set to expire at the end of the year.  So comparisons between Q4 of 2009 to 2010 are somewhat murky.

So overall, these reports seem to suggest that we may have bottomed out in regard to the number of transactions being completed. That can only be a positive for the industry. 

There is still a huge amount of visible and shadow inventory (homes in foreclosure and other sellers that have been waiting to sell their homes) which will continue to put downward pressure on prices.  It seems that buyers are beginning to realize that there are tremendous opportunities in the market.

My biggest concern about the recovery is the banking industry.  In addition to the foreclosed properties that are expected to come onto the market, the other side of the equation is the availability of mortgages.  I heard recently that Fannie/Freddie will be initiating “risk based” pricing adjustments this week.  This means that:

• Clients will now have to put down 25% regardless of property type and have at least 740 credit score to receive best pricing. 
• Rates will be higher for home buyers with less than 20% down for conventional loans and for “combined loan to value” loans, (with second mortgages).

Right now, the rates are still very good, but how many home buyers will qualify?  Here are rates this week, quoted by one of my mortgage brokers:

• 4.625% for a 30 year fixed “perfect” loan, (40% down, paying escrows with mortgage). 
• With 20% down, we’re at 4.75%. 
• With “risk based” pricing, we would be at 4.875% with 20% down and a 720 credit score. 

Thank you for reading and GO BEARS!!!

Click here to search for your next home on Chicago's North Shore.

2011 - Going Back to Basics, House vs. Home

For almost a decade now, most of the time people when were talking about real estate they were discussing money. They didn’t talk about the value of a having your own home but instead about the price of the house. They didn’t worry about having a roof over their heads but instead were concerned with the interest rate on their mortgage. They didn’t care as much about where they raised their family as they cared about how much we increased our family’s net worth (the location was important as it related to the resale value of the house).  I know that this is an oversimplification, but it does ring true.

I think that the big lesson coming out of the housing crises and the recession (that finally seems to be ebbing), is that attitudes towards home ownership will change in 2011. I believe that real estate will return to what it has been for the 200+ year history of this country: a place for us and our families to live comfortably. It will also prove to be a great long term investment as it always has been.

Our parents and our grandparents didn’t buy their homes as a short term financial investment. They bought it so they had a place of their own to come home to at the end of the day; a place to raise their family; a place they could feel safe.

Sure they dreamed of a ‘mortgage-burning’ party. They realized it was a form of forced savings. They were taught that, if they paid their mortgage every month, they would wind up with a little retirement account decades later.

And, they realized that wouldn’t happen if they rented.

However, in the last decade, we somehow forgot that the financial aspect was the serendipity not the major reason to buy. We took for granted that we had a roof over our heads, and we got greedy.  With so many people losing their homes and others having to really cut back in order to hold onto what they have, I believe that 2011 will be the year that people return to the historic reasons families purchased a home. This is the year when we again remember that home ownership is a major part of the American Dream.

The good news is that the obstacles to a housing recovery are slowly, very slowly, turning around.

The Economy

Most reports are showing that the economy is doing better than expected. This shopping season provided additional proof of this point. As the economy recovers, so will consumer confidence. This will be great news for housing.

Unemployment

There is much talk about a ‘jobless recovery’. We agree that unemployment will continue to be a challenge. However, when you talk about housing, it is not the unemployment rate that is all telling. Instead, it is the change in the rate. As unemployment skyrocketed, people started to worry about their own job. Any change creates concern. Unabated concern turns to fear. Fear causes paralysis. The spike in unemployment has plateaued. People no longer have the feeling that ‘they are next’. The fear will diminish and people will start moving on with their lives. This too will be great news for housing.

Interest Rates

It seems the bottomless pit in which rates have been falling does have a floor after all. And it seems we have found it. Those purchasers who had been waiting for the best interest rate may have already missed it.  The news here is that the rates are still attractive for buyers.

Prices

Economists are projecting that prices will not see any appreciation in 2011. Sellers who had been waiting for 2006 prices to return will finally come to the realization that waiting any longer makes little sense. They will instead decide to get on with their lives and sell this year.

Prices may even soften further. However, the possible savings to potential buyers will be minimized by rising in interest rates.

Bottom Line

This is the year that normalcy returns to real estate. People will buy and sell based on the desire for a better life for themselves and their families. They will realize that is the true value of home ownership and they will be willing to pay for that value.

Thanks for reading. 

To find any home for sale in the Chicago area click here.