Freeze Frame
As Chicago's real-estate market began to experience the big chill, homeowners worried that this was the beginning of the next ice age. But as our annual house survey demonstrates, there were a few bright spots in a year that was more frustrating than desperate.
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The surprise might be that homes managed to get sold at all, what with all the worry about oversupply of new houses and condos; rising numbers of foreclosures on subprime and, later, conventional mortgages; higher interest rates that made it harder to buy; and an economy that can't decide which way to go. Those aren't doomsday factors, but they do help explain why many likely home sellers held their properties off the market; why many buyers figured they could snag a bargain; and why Chicken Littles everywhere were talking about a catastrophic real-estate market.
The sellers of a house on Montana Street in Lincoln Park experienced firsthand the changing climate of Chicago's real-estate market. They had priced their house at $2.295 million—which had been the asking price when they bought the place four years earlier. This past April the house did sell, but for $140,000 less than it had four years earlier.
In some cases, the downturn affected condos as well. In Rogers Park, Don O'Carroll, a Chicago cop, and his girlfriend, Cindy Clarke, a Century 21 Sussex & Reilly real-estate agent, spent the summer confounded by their failure to unload any of the six condos O'Carroll built on Farwell Avenue. "We've had three price reductions," Clarke said after the condos had lingered on the market for five months. "We're down about $70,000 on each unit." The condos are housed in a new brick building with at least one balcony for each unit; each unit features Bosch kitchen appliances and energy-saving windows. Prices, cut to between $219,000 and $415,000, are in the upper range for the neighborhood, but not out of reach—yet the only unit that was occupied by late summer was the one Clarke and O'Carroll had reluctantly moved into.
Clarke hosted open houses almost every weekend, threw a soiree for real-estate agents that didn't shut down until nearly midnight, raffled off a digital camera, handed out Champagne. Nothing worked. "I'm baffled," she said. "Our next step is to rent these babies out."
They started with prices that turned out to be overly optimistic—a range of $369,000 to $485,000—but in that, Clarke and O'Carroll weren't at all unusual. Reductions from original asking prices became the norm this year, as sellers incrementally scaled down their hopes to match the prevailing reality. In June, Chicago found that one of three houses sold in the region moved only after having at least one price reduction.
Bennetta Kelly and her husband did a reality check when their Lincoln Park townhouse wouldn't move this spring. From their initial asking price—what they thought it would have brought at the top of the market a few years ago—they cut 5 percent, and they soon sold it for another 5 percent below that. "You had to be willing to listen to the buyer," Kelly says.
Gloria Matlin, a top-selling Coldwell Banker agent in Glencoe, says she made it a practice this year to check in with all her sellers every two weeks to let them know it was time to bring down the asking price. "And most [sellers] got it," says Matlin. "They'd say, 'Gloria, let's keep reducing it until it sells.' But I fired three clients who wouldn't let the price come down."
Incentives, too, helped move a lot of properties this year, whether it was a free plasma-screen TV, cash back from the seller at closing, or a parking space at no charge. Ira Becker, a Jameson Realty Group agent, estimates that half the sellers he knows tossed in incentives this year. Builders of new homes especially prefer using incentives over price cuts, because they don't then have to contend with earlier buyers fretting that the older, higher prices they paid are being undercut.
After all, who wants the value of his home to go down? Backpedaling to keep that from happening, some sellers pulled their homes off the market. Gloria Matlin says a number of big-ticket homebuilders on the North Shore have put their finished homes into the rental pool, in the hope that they can "stop the bleeding" and sell in better market conditions a year or two from now. These moves, as well as incentives and other tactics, contribute to what Joseph Pagliari, an economist at the University of Chicago's Graduate School of Business, calls the "stickiness" of downward-moving real-estate prices. "In an environment of falling home prices," he explains, individual efforts to keep from accepting a lower price add up to a collective foot on the brake.
All of this suggests that if your neighbors with their house for sale have been stubbornly holding to their asking price for months now, you might want to take them some cookies. At least they are doing their part to keep prices in your neighborhood from slipping any further.
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