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What’s Going on in the Addison Illinois Real Estate Market?

Monday, November 22nd, 2010 by Sari Levy

The answer to that question isn’t exactly pretty. Like many other communities the Addison Real Estate Market has been brutal for sellers in 2010 and the picture isn’t getting brighter any time soon.  Of course, the picture is pretty bright for those folks who are looking for a bargain.  But for sellers or responsible mortgage payers who would like to refinance and take advantage of the incredibly low interest rates, the future remains pretty bleak.  That’s because the volume of distressed sales doesn’t appear to be dwindling.

According to the recent stats published by the Mainstreet Organization of Realtors, Addison has seen a 7% decline in average price in the year over year between October 2009 and October 2010 and another 11% decline in average price in the year prior. Of course, we know those figures don’t mean a whole lot since it’s simply an average which is meaningless because the components that make up the average aren’t defined narrowly enough- e.g. older homes, large homes, small homes, ugly homes and new construction homes all get lumped into the same bucket.  On another post, I’ll look at which segment of the market in Addison is hardest hit.

Since I’m a resident of Addison, the reality of the recession and abysmal market hits home. As someone who has been a responsible homeowner for thirteen years, never once being late on my mortgage, and never extending my LTV above 80%, I’m having trouble refinancing because of the value of my home, which has depreciated by AT LEAST 24% since I last refinanced in February 2009.  That’s factual.  There is a small part of me wishing I hadn’t been so responsible.  Anyways, back to the market stuff.

There have been 162 single family home sales ranging in price from $50k to $595k.  68 of those sales or 42% of those sales were short sales or foreclosures.  Talk about being hard hit.  The short sales and foreclosures sales are typically for homes under $200k in Addison although the highest price home sale was no exception.  The seller sold the home for $595k.  The home would have easily fetched upwards of $800k had it been located in Elmhurst.  Interestingly enough the new owners paid $595k for the home but have taken two separate mortgages in total amount of $646k.  Does that mean the buyer bought himself an extra 10% equity on the place to start with? Not bad.

If you are lucky enough to be a buyer who desires to live in Addison  the news is good.  There are plenty of deals on homes here.  In fact, with all the distressed sales, there are pre-2000 prices on re sale homes.  There are also some pretty cool opportunities in Addison new construction with prices under $500k.

Lucid Realty Launches CHUMP Pricing Plan In Chicago Area – Same Great Real Estate Service At A Higher Price

Monday, June 21st, 2010 by Gary Lucido

Optional pricing plan allows Chicago home buyers and sellers to forgo savings on personalized real estate services.

Chicago, IL (PRWEB) June 21, 2010 — Lucid Realty, Inc. today introduced CHUMP, a full price real estate service targeted to Chicago area home buyers and sellers who erroneously believe that you get what you pay for. CHUMP (Catering to Highly Unsophisticated and Misguided People) allows real estate clients to receive the same legendary service provided to Lucid Realty’s regular home buyers and sellers but forgo the savings that are normally offered in the form of rebates to buyers and discounted commissions to sellers. Clients who choose this more traditional pricing plan will still be entitled to Lucid Realty’s in-depth real estate market knowledge, personal attention, relentless follow up, strong negotiation skills, and high degree of responsiveness but can now feel better that it is costing them more money.

Read more about the CHUMP pricing plan

Will Rising Interest Rates Kill The Real Estate Market?

Monday, February 22nd, 2010 by Gary Lucido

Understanding the relationship between interest rates and home prices is particularly important now because most people believe that interest rates are heading up in the not-to-distant future. One might quite logically expect that when mortgage rates rise it depresses home prices. After all, most people determine the affordability of a home by looking at the monthly payment. In fact, buyers and their lenders usually target their price limit based upon how much they can afford to pay in principal, interest, taxes, and assessments, given their income. And the interest component of that equation is a big driver of the size of the payment. So when interest rates rise you would expect that all buyers would have to shift their expectations down scale and that this would depress home prices.

However, about a month ago one of my clients sent me a link to a BusinessWeek article on the impact of interest rates on home prices. In this article the author, who is the founder and president of Home Warranty of America, claims that the data just doesn’t support the notion that rising interest rates depress home prices. Although he doesn’t provide the direct analysis in his article he does provide links to several data sources so that you can do your own analysis. However, I would like to point out that this is not the first time I’ve heard this claim and I myself have glanced at the data before and found this to be true – especially in the late 70s and early 80s, which is the time period referenced by this author. During that time period home prices rose, despite interest rates that approached 18% ?!?!?! Or at least home prices didn’t decline like you would have expected.

Well, last week a spirited debate transpired on Cribchatter about this very topic. This has to be one of the longest threads in Cribchatter history with 234 comments. The people who argued that higher interest rates would push home prices down were initially arguing based upon the same logic I articulated above. However, eventually both sides of the debate started to link to various studies and articles that proved their point of view. Like most academic endeavors, when someone makes a career out of spending grant money they can prove anything they want so it’s not surprising that there are plenty of studies to support either side. Personally, I got a headache from following the debate, not to mention that it was full of insults.

However, I would like to point out a few things:

  • Many of the articles referenced as proof that higher interest rates depress housing prices were nothing more than opinion pieces, based upon financial logic, or were based upon anecdotal data. Hardly real studies. Nevertheless, several legitimate studies were referenced to support this thesis.
  • There could be several logical explanations as to why higher interest rates would not depress home prices as expected:
    • Buyers assume they can refinance at a lower rate in the future
    • Buyers have other financing alternatives, including adjustable rate mortgages and higher down payments. (I remember buying our first home in the summer of 1984 and an ARM was a no-brainer.)
    • Higher interest rates are usually associated with inflation and inflation pushes up housing prices
    • Buyers assume that if interest rates are higher now they will go down in the future and that will elevate home prices
    • When rates go up buyers shift their focus to the lower end of the spectrum but demand at every price level is replaced by demand shifting down from a higher price level – except of course as you get to the higher levels there isn’t as much replacement demand as exiting demand
    • When rates go up buyers simply allocate more of their income to interest payments.

For further reading you may want to check out some of the referenced studies and one that I have been meaning to read for a while:

  • What Moves Housing Markets – demonstrates that interest rates do not affect home prices. “…our results provide evidence that changes in risk-free interest rates may not have done much to change housing valuations over the 1975 to 2007 period.”
  • The Effect of Real Rates of Interest on Housing Prices – demonstrates that real interest rates do affect home prices. “This ebb and flow of real interest rates appears to explain market price levels.”
  • Assessing the Role of Income and Interest Rates in Determining House Prices – demonstrates that interest rates do affect home prices. “Our results support the existence of a long-run relationship between actual house prices and the amount individuals can borrow.”
  • Why do House Prices Fall? – demonstrates that interest rates do not affect home prices. “Interest rates appear to play a relatively minor direct role, though they may play an important indirect role.”

Did The Government Set Off A Chain Reaction?

Monday, January 18th, 2010 by Gary Lucido

I’m blown away by the activity level we’re seeing in the Chicago housing market these days. Anecdotally I keep running into other realtors showing real estate and I’m surprised by the number of cash deals out there. As I recently reported, December contracts were up 100% over the previous year and we’re seeing January activity up like 76% so far this month.

The surprise here for me is that I expected that, with the end of the original tax credit set for the end of November, demand would have been tapped out and even the creation of a new tax credit would not be sufficient to replace all the housing demand that had been pulled forward. So I’m left trying to explain what is going on. Here is one possible theory: the government program brought first time buyers into the market in droves sooner, rather than later. This released sellers who have now become buyers and the circle of life goes on. The only problem with this theory is that it would require a belief that the government can actually do something right. Nahhhh. I welcome other theories.

Chicago Home Prices Down Again In October

Tuesday, December 29th, 2009 by Gary Lucido

The Case Shiller home price index came out this morning and it shows renewed price declines for the Chicago area. The home price index fell 1% in October.

Chicago Case Shiller IndexWe are back to May 2003 levels, which represent a 10.1% year over year decline in Chicago area home prices. This also equates to a 22.4% decline in prices since the bubble peak in September 2006. What that means, BTW, is that anyone who put less than 22.4% down in the last 3 years has had their down payment wiped out.

Most importantly, take note of where we are relative to the trend line above. The fact that we remain below trend definitely suggests that prices should move up from here.

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