August 09, 2023
BUYER LOW-BALLING CAUSING HOUSING MARKET GRIDLOCK
Here’ s a multiple-choice question. How stupid would you be to: (a) Sell your house for 10-15 percent less than current market value and/or forfeit your existing 3 percent mortgage interest rate? (b) Buy a house for full value and pay 7.75 percent interest on a 30-year fixed mortgage? (c) All of the above? Or (d) none of the above?
If you answered (d) you are certifiably NOT stupid. You understand the current state of the residential and commercial real estate market in Chicago, and particularly on the Northwest Side and in the nearby suburbs. Buyer demand is high, but residential sellers are NOT accepting low-ball offers because buyers are NOT offering market value bids. The result is stagnation. The market is in gridlock.
It’s all about the math. Sure, good schools and easy access to mass transit and expressways matter in home choice, but the primary criterion now is AFFORDABILITY. The relevant acronym is PITI – mortgage principal, interest, taxes, insurance.
The situation plays out like this: Inflation is at 8.5 percent annually, that spurt starting around March 2022. Until then, and perpetuated by COVID, housing loan interest rates were as low as 3 percent with treasury notes, CDs and savings accounts paying 1.5 percent interest or lower. That meant a home buyer or refinancer could get a $300-400,000 mortgage for annualized interest of $9,000-12,000, or $750-1,000-a month, which added to monthly principal of $1,000 plus another $500 for taxes and insurance, to about $2,500. Recalculate that at 6 percent or into the sevens, where Fed prime rate hikes have pushed it. A 6-7 percent mortgage doubles interest and boosts the cost to close to $4,000, or $48,000 per year.
Add to that housing price inflation and rising taxes, which means a buyer must either put down a larger down payment or borrow more, which means an even bigger PITI. To counteract this buyers are trying to chisel down prices by low-bidding and asking for thousands in home repair credits. It’s not happening. “Buyers are coming in with offers 10-15 percent below clear market value,” said Dympna Fay-Hart, a longtime Northwest Side realtor. “And sellers flatly refuse to sacrifice tens of thousands of dollars in value and then buy a house with double the interest rate.”
The market is “stagnant,” said Hubert Cioromski, owner of Troy Realty, “and will remain so until (interest) rates drop to 5 percent,” which he expects will occur before the Nov. 2024 election. They better if Joe Biden wants to win re-election.
Housing stock varies from area-to-area, as do market values. “Everything’s situational,” said Fay-Hart, especially price. “A lot of people want brick,” she said, so the post-World War II ranches and bi-levels, listed in the $325-425,000 range, sell well as starter homes. They proliferate west of Harlem, in Oriole Park, Dunning, the north part of the 41st Ward, Harwood Heights, Norridge, south Park Ridge, Niles, Skokie, Des Plaines and the western suburbs. Then there are the brick bungalows built in the prosperous pre-Depression 1920s, which proliferate in areas like Albany Park and scattered elsewhere, listed for $350-550,000.
The “hottest” properties, Fay-Hart said, are brick 2- and 3-flats which can be owner-occupied and can generate rent of $2,000 and up. They are mostly located on or near major arterial streets and are listed for $600-650,000, but that market is cooling as property taxes climb. Its return-on-investment has dwindled. Also, national realtor groups have rated Chicago as among the Top Ten WORST cities to be a landlord, citing an ordinance which requires owners to pay tenants’ attorney fees if occupancy issues/complaints are not rectified.
The wood-frame houses built between 1890-1920 are plentiful and in high demand – but mostly to a limited clientele of 2-income earners who can plunk down 500K. The trend of the moment, sort of reminiscent of the 1990s tear-down craze, is to rebuild from within. Just buy, gut, rebuild, upgrade and sell for $900,000 to $1.1 million, making developers a 100K profit. Otherwise, spacious, 2-story, upgraded frames are listed for $600-750,000.
And then there are all those condominiums built in the 1970s and 1980s, listed in the $200-240,000 range (2-bedroom). Except on the Lakefront owning a condo costs about the same as renting but the resale profit is negligible. On the Northwest Side half of condos are owned by older retirees. When they die the condo goes on the market. At present, there is an excess of units, which depresses sale prices.
According to Fay-Hart, the area’s influx of buyers is predominately married millennials with children leaving Ravenswood, Uptown and Lincoln Park. “They have money,” she said.
One serious wrinkle is education. CPS has gone woke, which enrages some parents.. The affluent have a choice: Put their kids in a parochial or charter school. The Archdiocese has closed some Catholic schools but enrollment is increasing.
As for commercial properties, buying and rental demand is so low as to be cratering. Storefronts on busy thoroughfares have a 25-30 percent vacancy rate. The once-vibrant strip between Foster and Devon along Milwaukee Avenue seems to some a “Dead Zone.” There are too many vacancies, said Cioromski, whose Troy Realty specializes in commercial sales and property management. “Density” is the key, he said, meaning that more people in a neighborhood result in more family-friendly businesses like restaurants, bars, coffeehouses, ice cream shops and hot dog joints, which increases nearby property values.
To be sure, changed shopping habits and changed working habits have rendered storefronts obsolete and parking moot. To be sure, too much density, like multi-story apartments, can transform a neighborhood and impact schools. But too little commercial development can be ruinous. Cioromski cites Edison Park, once an eat/drink Mecca. It lost several bars, a bank, and a food store (until recently), and the Suerth property is in limbo.
41ST WARD: “I’m not making any endorsement” for ward Democratic committeeperson in 2024, said Alderman Anthony Napolitano. That’s a smart move. Despite the fact that Napolitano is the ward’s most popular politician, having been re-elected with 72.9 percent in 2023, beating Democrat Paul Struebing 12,714-4,729, and despite the fact that the 41st is the least Democratic, least Woke (Brandon Johnson got 13.7 percent on April 4) and most pro-Trump (47.1 percent in 2020) ward in the city, any Napolitano endorsement would be a “Kiss of Death” in a Leftist-dominated Democratic primary.
The numbers tell the tale. And the tale-teller is good Kim Foxx, soon to ride off into the sunset. The Foxx vote is the bedrock, rock-bottom Leftist Democratic vote in the ward. It’s the bottom-of-the-barrel. She got 1,923 votes in the ward in the 2020 state’s attorney primary, or 15.9 percent in a turnout of 12,092, and 6,114 votes, or 21 percent in a turnout of 29,099, in the election against Pat O’Brien (R). Johnson got 2,679 votes in a turnout of 19,582.
Democratic primaries draw about 10-12,000 with the progressives comprising half that. Bernie Sanders got 6,757 in 2016, just above Foxx’s 2020 6,114. Struebing had 4,729. In the 2020 committeeperson (D) primary, Joe Cook beat Napolitano-backed cop Bill Kilroy 5,808-4,690, getting 55.3 percent in a 10,498 turnout. In 2016 Tim Heneghan beat Napolitano-backed Andrew DeVito 6,787-3,921, getting 58.7 percent in a 11,573 turnout.
Clearly, two-thirds of 41st Warders admire Napolitano. But half of the remaining one-third, or about 5-6,000 voters, revile and detest him. The alderman endorsed Paul Vallas for mayor and he got 86.3 percent in the ward, and he endorsed Matt Podgorski (R) for county commissioner. It would be nice to have a friendly Dem who wouldn’t run against him in 2027, but there is no upside for him to meddle in and back a loser in the 2024 Democratic primary.
“I’m running” for committeeperson (D), said Danny Martin, a Norwood Park resident who was elected one of three 16th District Police Council members on Feb. 28, finishing second among seven candidates with 17.9 percent, and getting 8,308 votes in the 41st Ward. Martin was endorsed by Napolitano, Sposato and FOP for the PDC post
The 2021 ward remap put incumbent Cook’s Edgebrook/Wildwood home into the 45th Ward, so his organization will be backing John Hanley, political director of Operating Engineers Local 399, for the post. Outlook: A lot of union money will be spent for a mostly ceremonial job. The lower the March 19 turnout the less likely Martin will win.
Read more Analysis & Opinion from Russ Stewart at Russstewart.com
This column was published in Nadig Newspapers. If you, a friend or a colleague wish to be added to Russ's BUDDY LIST, and be emailed his column every Wednesday morning, email webmaster Joe Czech at Joe@Nadignewspapers.com