CHICAGO CONDO SALES SLUMP 19.1%, Despite Rebound for Chicago Single-Family Home Sales!
TIGHTER MORTGAGE UNDERWRITING RULES FOR CONDOS, INCREASED FEES THREATEN TO SCUTTLE MANY DEALS!
Here in Chicago, investing in condos, either as a live-in owner, or as a non-occupant investor, has become popular over the last decade or so, peaking along with the Real Estate Boom roughly three years ago.
Today, it seems, even as the single-family housing market has begun to rebound here in Chicago, sales of condominiums trails far behind. Chicago Tribune Real Estate Reporter Mary Ellen Podmolik reports more details.
There are many possible culprits!
Strong demand several years ago lead to mass construction and overbuilding of units - especially in trendy and up-and-coming Chicago Neighborhoods, ranging from Rogers Park on the Far North Side, to Bronzeville on the South Side. Strong demand drove up prices.
In addition, easy, high-leverage, low-down-payment loans, readily available at the height of the housing boom here in Chicago, nearly instantly turned thousands of former renters, many of whom had little cash and troubled credit, into condo homeowners. Traditionally, many young buyers here in Chicago make purchasing a condo their first home, and, until recently, were able to buy nearly at will.
Today, a similar, youth-skewed demographic makes up the condo market. But there are far fewer loan options for these young buyers. Often times, the only mortgage available for a buyer with not-so-perfect credit, and a less-than-20% down payment, is an FHA Guaranteed Loan. An FHA Loan allows credit-blemished borrowers, with as little as 3.5% down, to finance their new home or condo.
However, the FHA adds restrictions to the condo purchase process which precludes some condos from being considered for such financing. Typically, many new construction or rehab projects fail to qualify for FHA Financing unless special application is made. Existing projects must have very solid fiscal credentials, strong owner occupancy, and no Right of First Refusal for new owners in the Condominium Declaration (this last rule is changing, however).
Across the City of Chicago, condo units sold last August were down 19.1% versus year-ago levels, as compared to a sales increase of 22.6% for single-family homes. According to the Illinois Association of Realtors, median condo prices plummeted as well during the same period, tumbling 15.3% in the same year-to-year period.
Due to lackluster condo sales here, the aggregate sales of pre-owned homes - a figure that combines both single-family homes and condos, dropped 7.2% versus August, 2008. However, combined single-family detached home and condo sales did increase for the second consecutive month in August, by 1.3%. Between August, 2008 and August, 2009, the median home sales price tumbled 18.2%, down to $205,000, versus a $252,000 median one year ago.
There seems to be a sales surge happening right now for condo sales, however - especially for the many first-time homebuyers who select a condominium or attached townhome as their first home purchase. These first-time buyers are hustling to qualify for the Federal First Time Homebuyer Tax Credit, an $8,000 credit against due income taxes for those buyers who have not owned a home or condo within the last three years.
Many housing groups, including the National Association of Realtors, is heavily lobbying for extending the program, and perhaps expanding it to all home buyers, but such extension is not assured.
First-time buyers also make up a sizable percentage of those buying short-sale properties - those whose outstanding mortgage balances exceed their sales prices. Many move-up buyers can't land the short sales if they can't sell their current homes or condos first.
A fast recovery for Chicago Condo and Homes Sales? Not likely, according to Geoffrey J.D. Hewings, Director of the Regional economics Applications Laboratory at the University of Illinois. He sees current for-sale inventory level of over 11 months in some areas continuing to put downward pressure on housing prices at least until the middle of next year.
DEAN MOSS & DEAN'S TEAM CHICAGO
