Read this sobering article in today's [3/23/2010] Chicago Tribune business section. It's a real "good news - bad news" bit of information, with the bad weighing down the good.

The good news is that the number of real estate sales has increased for the eighth consecutive month. The bad? Median sale prices are plummeting.

And the reason they are plummeting should neither shock nor surprise anyone.

A Fair-use lift:

quote:

...for every 10 single-family homes and condominiums sold within the city last month, four were distressed properties.

[...]

"If you're in the traditional market, the reality you have to deal with right now is, distressed properties are your competition," said Dave Hanna, managing partner of SourceOne Realty.

[...]

Now you have foreclosures that are $1 million, and they're nice properties. They don't have damage to them. They're the new normal."

Yes, the "new normal". When 40% of Chicagoland's real estate sales are "distressed" [primarily foreclosures but some short sales too], I would call that the "new normal".

Nationwide? The number is 48.1% distressed.

Knowing what I know about township assessors and how they cipher "33.33% of market value", I know that they don't use ANY "distressed" sale in their sales ratio calculations.

This actually makes perfect sense. Based on past history, anyway. Why would an assessor use a distressed, non-market sale when s/he is trying to determine 1/3 of market value?

Distressed sales have historically been just that: Distressed, bank sales or auctions. Not "free-market" sales.

Current history? Where nearly 50% of the sales are distressed? Uncharted territory. For everyone.

One thing is clear: The HUGE volume of distressed sales is clearly dragging down sale prices for normal, arms-length "market sales".

After reading this article, I asked myself: If you, Mr. BTN were in the market for a new home, wouldn't YOU TOO be combing the "distressed property" listings?

Of course I would! Especially, since they are the New Normal!

An emerging phenomenon is: The Trapped Homeowner. They want to sell and move but really can't. They either would lose a ton of money on the sale - after paying off their mortgage or, they would have to sell for a 1995-vintage price and lose as much as $100K-$150K in evaporated equity [my case].

In the meantime, the property taxes still ride the Bubble Wave, as the market value slides further.

T'ain't pretty.

Absolutely! I don't know how "new" they are, though....looking at Realtor.com over the last few years, distressed sales have been the norm virtually since the bubble popped. Good news for buyers on an individual level, bad news for sellers and the market as a whole.

Agree. This is not exactly "breaking news". What is news though is the ungodly percentage of ALL sales that are now distressed.

If this continues for the rest of 2010 and into 2011 and actually exceeds the 50% of all sales mark?

It is going to get even uglier and the future of property taxes, assessments and limiting rates and all that jazz is going to REALLY get weird.

Oh and other bad news is that prices are STILL GOING DOWN. I am seeing this first-hand. The home just to the east of me was foreclosed in February 2009 and sold by the bank [for $75K less than its EAV] in May - not even one year ago.

It has since lost another $12K in market value.

All I can say is: Wait'll that guy gets his property tax bill based on the still-Bubble assessments for a home that is about $82-$85K LESS than the assessor is carrying it.

I mean, the guy [and his wife, no kids] likely thought they were getting a Great Deal last May. Maybe they should've waited a bit longer?

This is also causing more sideline watching from the few buyers out there.

Yes, it is definitely causing more sideline watching from potential buyers....who wants that risk??

The problem is that they have to continue going down, or be distressed sales, because the percentage of those who could qualify for a loan right now (and would want to) is SO small....and these lending firms and banks cannot afford to keep paying for the properties, so they have to get rid of them....the best way to do that (from a business standpoint) is to lower the price.

Check. And for every reduced price, bank sale? Down go ALL prices.

And I read on DuPage County's web site from - Gwen Henry, CPA - that there are new and improved procedures to accomodate "late payments of taxes".

Based on the number of bank-owned homes that I am seeing, this has to be to accomodate the slow-paying banks, no?

I mean, a bank that owns a foreclosed home is in no big hurry to pay the property taxes, right?

What leverage does the County tax collector have? "We're gonna throw you outta there and have the sheriff sell it!"

Well, when 4-out-of-10 [approx.] homes are bank-owned and no one is living in them, that threat, coupled with the bank's OWN leverage [i.e. "legal department" and loans that the bank might hold on the County!], isn't real "scary"!

One thing that has (pleasantly) surprised me lately is the number of homes that appear to have gone under contract quite quickly lately. A couple that come immediately to mind are one on the S side of Turner between Forest and Park, and one on the SW corner of Highview and Montclaire. So it appears that some people are out there buying homes for non-distressed prices.

Really curious when some homes sell so quickly, and others seem to languish - even tho apparently similarly priced and in similar condition.

Dins- have you cyber-snooped these listings? Zillow, Trulia, Redfin and so on. Always interesting if not 100% accurate. Heck, Google works too.

Zillow's Last Sold Date/Price can be very revealing in terms of the current asking/selling price.

I've known of a few people within a couple of blocks who in the last year have walked away from their homes.

Nice homes too . My guess is a lot of them bought Option ARMS and now they're stuck with large monthly payments. And since Jumbo mortgages are hard to get. And with Taxes around here you can see why.

quote:

Originally posted by ByTheNumbers:
Dins- have you cyber-snooped these listings?

I pulled a listing sheet from in front of one of them. They were asking something in the high $600s - which I thought a decent (certainly not terribly depressed IMO) price for that type of house in that area of GE. Hadn't been paying attention, but I had not noticed either home showing signs of vacancy or being poorly cared for before they went on the market.

I know there is one very similar house in the same area that has been on the market for nearly a year. And a couple of others that seem to have been removed from the market after not selling. Haven't been in any of them, so I have no idea what would make some homes sell so quickly and others languish.

It makes it very confusing to try to figure out what on earth my home is "worth." The fact that there are tons of cheap houses for sale is of little use until I know what I can get for mine - or even IF it will sell.

Not planning on moving right away - but maybe in a year or so...

This is exactly why I wanted to rent when we moved here last year. At this altitude of home prices, shifts in value will be greater towards the downside, then the upside. Didn't want to get stuck with a deflating asset, plus the added expenses of trying to sell it when we decide to move back east. Granted, my situation was a little different, in the sense that we knew this wasn't to be a perm situation. I'm either throwing my money to a "local" in the form of rent, or to a bank in the form of interest. In a devaluation environment, rent is the cheapest avenue to take, even when you consider the tax benefits of having a mortgage. In my opinion, you've got to plan on keeping the house for the next 7 years, which is about the amount of time it is probably going to take to get back to 2007 values around here. Chicago in general has some big problems, now, and coming over the horizon. If you're able and willing to ride this out, then now is a good time to buy-in, because things will turn around. But, if you're looking for today's value to remain or increase tomorrow, then now probably isn't the right time. However, if you're thinking about moving to Detroit, as crazy as this sounds, now is a great time to buy a home there! When you're that far down, there's only one way to go.

quote:

Originally posted by nc211:
In a devaluation environment, rent is the cheapest avenue to take, even when you consider the tax benefits of having a mortgage.

Couldn't have said that better myself!

quote:

If you're able and willing to ride this out, then now is a good time to buy-in, because things will turn around.

THANK YOU! I've been trying to tell people that it will get better, it always does. That's the natural flow of the market (any economic market, to be quite honest), but SO many people freak out and jump ship when the return would be greater in the end if they rode it out! Same kinda thing you see with the stock market, though there's probably more risk involved with that one.

quote:

When you're that far down, there's only one way to go.

Hahahahahahaha. That was awesome!

Another thing that spooks me a little about buying right now, is the interest rates. Not that they're too high, but too low. With all of that government debt on the books now, at somepoint, we're going to have to start paying it back. Our AAA rating, as a nation, is being reviewed because of it. That's not good. How does this tie into to buying a house right now? Well, again, it all ties back to how long you plan on staying in it. If you want to buy and live in it for a long time, none of this really matters to you and I'd certainly say "go buy a house". But, if you thinking "5 years, I'll move", then you could be facing a situation where mortgage rates mimic the early 80's, and therefore the buying power of the dollar is much weaker, thereby hurting the "realistic" value of your home. A $300k home is much easier to buy with 5% money, then 10%+ money. So folks have to adjust the value of the home to get it within reach of capable buyers. That seems to be a balance that doesn't get a lot of attention these days. Me personally? I'd love to buy a house in the 10+% window, because I know the appreciation scale will be in my favor when the rates come back down. That's where you make the big bucks in this sort of stuff. When the crowd goes left, you go right. Don't believe me? Go to Bloomberg.com and look at ticker "GGP". The crowd went left a year ago, saying they were done, prices were less than $0.50. 12 months later.....$15.88. Had you spent $250 then, you'd have $7,940 today!