May 5, 2021

There is a lot of affordable housing coming on the market on Chicago's Northwest Side and in the suburbs.

Only it's not the kind that "woke" liberals clamor for. It's the kind where the buyer/occupant can bear the cost of PITI, an acronym that means principal/interest/property taxes/insurance, without serious inconvenience - and without any government subsidy.

What a novel concept. Back in the days of yore it was known as free market capitalism. Now people have a problem when somebody gets denied a home, condo or apartment just because they cannot afford it?

It's a sellers' market, and the expectation is that area home values will appreciate by 10 to 16 percent in 2021, and sales prices by a like amount. With the market essentially dormant during the pandemic year of 2020, there is enormous pent-up demand. And with mortgage interest rates at 2.31 percent for a 15-year fixed and 2.91 percent for a 30-year fixed (plus points), buyers can afford the principal and interest even if the taxes and insurance (and water bills) are rising, at least for the near future.

If you are going to buy or sell, do it now.

At some point under the Biden-Harris administration there will be capital gains tax hikes, which will cut into sellers' profits, and there will be inflation, which will nudge home prices and interest rates higher. You have to pay for all that infrastructure somehow. Here are the trends:
First, be quick about it. The time from listing to offer is between 24 to 48 hours. The era of in-home showings by realtors is largely over. It's all digital now. Selling realtors post 20 to 30 images of the subject property's interior and exterior. Buyers know what they are getting, sight unseen. Buyers can get themselves pre-qualified based upon their income, and what that income will enable them to afford. But buyers often seek a lower pre-qualification as a negotiation strategy, low-balling their initial offer.

Sellers, said Jim Oehler, a broker-associate at Weichert-Ambassador Realtors in Niles, fall into four categories, which he tabs as DDDTs - meaning death, divorce, downsizing /retirement and (job) transfer. When a homeowner needs to move, price is not necessarily paramount; alacrity is. They want to get it done. So the first offer is often the accepted offer. When empty nesters and retirees want to move, price is the key factor. No low-balling.

Onerous property taxes - and, for Chicagoans, onerous water bills - are over-rated as a cause unless the owner/seller wants to completely change their lifestyle and career. Moving from Chicago to Park Ridge, Lombard or Orland Park is not going to slash PITI or expenses too significantly, as would moving to Florida or Idaho. Schools are still of reasonable quality in Chicago, city workers must still live in Chicago, and the Northwest Side 16th District has the lowest crime rate in Chicago, although gang-related activities, shooting incidents and some drug-peddling are moving up the Milwaukee Avenue corridor.

Second, home style (frame or brick) and location, coupled with age, size and state of repair obviously dictates price. Housing stock can be segmented into two groupings: 1890s vintage frame wide-lot Victorians, early 1900s Octagon brick bungalows and center-entrance Colonials, and a plethora of frame tract homes built 1910-25 to fill the empty spaces. The second group is post-World War II 50-foot wide one-story English brick bungalows and ranch-style homes. If they have a one-car garage, you know they were built 1948-60. Split-levels, a frame-and-brick hybrid, came into vogue in the late 1950s, mostly in the suburbs, with two-car garages.

The price differential - ranging from $150,000 to $250,000 - between the two is striking, explained Dympna Fay-Hart, real estate agent at Dream Town Realty in Edison Park. The older, bigger, more spacious housing stock, she said, is priced in the $450,000-$600,000 range, and "demand is phenomenal. They're sold within a day." The buyers, she adds, are usually thirty something married Northwest Side expatriates with kids who spent their twenties living the good life in Lincoln Park or Lincoln Square/ Ravenswood (and are paying rents of $2,000 and up). So yes, they're coming back.

The 70-year old bungalows and ranches, with dinky rooms and lots, are in the in $300,000-350,000 range and fit a different buyer demographic: Mostly second-generation Hispanics and Eastern European Whites who are being gentrified out of their Logan Square apartments, or see an opportunity to upgrade from their Grand-Pulaski or Harlem-Belmont homes. Oehler, who is on the Farnsworth School LSC, noted a surge of those demographics in the student body.

Third, the "hottest commodity" on the current market, Fay-Hart said, are 3-flats and 6-flats. "Buyers want to make space for their family, and generate rental income," she said. Such multi-unit properties, most built in the 1970s and 1980s along arterial streets, go for $600,000 to $1.2 million, but they can be affordable if fully occupied/rented.

Contrary to popular perception, COVID-19 has not completely tanked the small-building rental and condo market, at least not on the Northwest Side and suburbs. Neighborhoods closer to the Lakefront had seen renters flee to cheaper accommodations but that is starting to change and people are flocking back. State and federal moratoriums on evictions and foreclosures, again extended through the end of this summer, will likely have minimal area impact. There is no deadbeat mentality: People want to keep what they have."

"You can tack a 'For Rent' 3x5 card to a bulletin board at a supermarket, and get a response within hours," said Oehler. What is occurring, he added, is an exodus of younger tenants to condos.

"You can pay $1,500-a month rent or buy a 2-bedroom, 2-bath condo for $250,000-300,000 and pay the same amount," said Fay-Hart. But then there are the monthly assessments and property taxes. The market for 1-bedroom, 1-bath condos is really flat, both realtors concur.

Really hurting are real estate lawyers, of which I was one for over 40 years. Business is booming. Closings are not now more expeditious (still 3-plus hours), but they are now all remote. It takes about 20 minutes to review the seller's documents, and about 45 to review the buyer's (deed, mortgage, etc.) documents. I used to charge $400 to 600, and get a $400 "agent stipend" if I represented the seller and directed the closing to a certain title company. Virtual closings means nobody shows up, and there is huge resistance to paying a lawyer half-a-grand to briefly be on Zoom. Do-it-yourselfers are proliferating.

Not hurting are realtors, who still get their 4.5-6 percent commission, increasing along with sales prices. Their most arduous task is taking on-property photos to post virtually. No home showings. No closing attendance. All you need is a smart phone.

What's gone missing from the 2020-21 real estate rebound, as compared to the boom-and-bubble bust of 2000-2007 (when property values inflated by 10 percent annually), are three things:

(1) There is no buy-to-flip mentality, at least not like before. People who buy a home intend to live there.

(2) There are no more knockdowns and subsequent McMansions, as was prevalent in Park Ridge. Most of these spec homes have been in and out of foreclosure.

(3) The era of 80/20 mortgages is long over. Back in the halcyon days of the Bush administration a buyer could bundle the real or falsified income of multiple borrowers and get an 80 percent loan-to-value mortgage and a 20 percent equity loan, paying nothing down with a 3-year balloon. The expectation was that the property's value would increase by 10 percent annually and it would be worth 30 percent more when refinance time came. That didn't happen, and the bubble burst in 2008.

These days there has been a profusion of home repairs and upgrades. The pandemic was a stimulus: Make it better or get out. Most have chosen the former, and contractors and home improvement stores have been deluged. There are now more people who DO NOT want to sell their home as those who do.

Commercial property is a whole other story, and it is not pretty.

"There's a vacancy (storefront) on almost every block" of the area's commercial corridors, said Hubert Cioromski, owner/principal of Troy Realty, which specializes in commercial sales and is in located in Edison Park.

The pandemic was especially destructive, he said, wreaking havoc on bars and restaurants, which are just now able to go beyond 25 percent capacity. Which is why patrons are flocking to Park Ridge.

The underlying issue is "density," which is a fancy code word for requiring more "affordable" units in privately constructed buildings, which has political ramifications (meaning more Democratic voters).

But DENSITY is also critical to the local business climate. Presumably those who live in an area will shop locally. More is better. It also evokes fervid opposition from homeowners on side streets, who will suffer more congestion and parking problems,

COVID may have made all of that moot. "I get boxes at my front door almost every day," acknowledged Cioromski. Shopping locally has been supplanted by shopping easily.

The bottom line: You've got to live somewhere. The Northwest Side and near suburbs aren't bad options. Crime is low compared to other parts of the city. And while there have been murders and drive-by shootings they have not been a constant thing. Not yet. And having your home's value jacked-up by $10,000 to $25,000-a year is a good thing. Enjoy it while you can. Or bail.