For the past couple of years, whenever I’ve been asked why not much is happening in the real estate market, one of my answers has invariably been, “Because sellers still think they can ask for the moon and get it, while buyers are either sitting on the sidelines waiting for the ‘inevitable’ 10-20% drop in prices (or assume that it’s already happened). What’s left is a huge gap in expectations, which has become a big, black hole where not very much is getting done.”
On one side, we have the buyer (one of whom is responsible for the above title) and on the other side, we have the seller and listing agent arguing that “all real estate is local” and “not all markets are declining.” When asked for the basis of their arguments, at least for their particular locale, neither side usually comes up with an acceptable (if any) response. Personally, I don’t consider “I heard it in the media” an acceptable response.
With many questions, including:
-Is the economy (and more specifically, the real estate market) tanking?
-If real estate is local, how local is it? We know there can be huge variations among different major markets. But, how much variation is there within a market?
For example, the most recent Case-Schiller Housing Index shows that the Chicago market declined 6.6% from Jan ’07 to Jan ‘08. Does that mean -6.6% can be used as a guide anywhere in the metro-Chicago area? I decided to find out, not only to quench the thirst of my own curiosity, but also to (maybe?) bridge that gap in expectations between buyer and seller.
In researching each community area in the city and suburbs, month-by-month, from Jan 06-Present, I’ve found some interesting variances, an example of which can be found here:
As you can see, one micro market (Lakeview condos) has appreciated, with the moving average showing an increase in prices of approximately 11%, from March 31, 2006-March 31, 2008, while the neighborhood of Belmont Cragin and its surrounding area has declined about 23% during the same time period. Another statistic to note is that, while the months supply of inventory (MSI) in Chicago is approximately 16.17 right now, the appreciating area above currently has an MSI of only 7.24 months, while the depreciating area has an MSI of 40.5 months; quite a variance! So, it seems each of their diverging price trends may continue.
Predictably, those areas whose previous increases depended on the prevalence of sub-prime mortgages and speculation are leading the declines, while the more established areas are holding their own; sort of a flight to safety, much like what often happens in the stock market. So, in a sense, the local market is a microcosm of the U.S. market - some areas are declining drastically, while others are, in fact, still on the rise.
The lesson to be learned here is to know the immediate market and to use actual local data, rather than "news" reports (which don't always necessarily equate to reality) to help educate all parties interested in real estate (buyers, sellers, agents, casual observers...), so that all sides might get onto the same page and, hopefully, much of that expectation gap can be bridged.
(If anyone would like market trend information, along with a graphic representation, for a specific locale, please let me know and I will email it to you)
Predictably, those areas whose previous increases depended on the prevalence of sub-prime mortgages and speculation are leading the declines, while the more established areas are holding their own; sort of a flight to safety, much like what often happens in the stock market. So, in a sense, the local market is a microcosm of the U.S. market - some areas are declining drastically, while others are, in fact, still on the rise.
The lesson to be learned here is to know the immediate market and to use actual local data, rather than "news" reports (which don't always necessarily equate to reality) to help educate all parties interested in real estate (buyers, sellers, agents, casual observers...), so that all sides might get onto the same page and, hopefully, much of that expectation gap can be bridged.
(If anyone would like market trend information, along with a graphic representation, for a specific locale, please let me know and I will email it to you)
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