The foreclosure market has been thrown into turmoil after several big banks halted foreclosure actions and several state attorneys general started looking into possibly erroneous foreclosure processing by many lenders. There is even a call in Washington for a government-imposed moratorium on foreclosures.
I asked local real-estate and foreclosure experts what this portends for Chicago-area homebuyers and sellers. Here is a roundup of their insights.
• “Best-in-class real estate will still move,” says Matt Garrison of Coldwell Banker. “But commodity markets and fringe areas will continue to be hit, and there cannot be a recovery until the catharsis occurs and excess is purged from the market. Foreclosures are good to the extent that they clear and reprice the market, creating demand. The slowing of this process is bad for the market.”
• “You’re going to see litigation from foreclosed owners on their former property, which can throw [the present owner] into a tizzy,” says Michael Van Zalingen, the former director of housing at Neighborhood Housing Services (he’s now a consultant for the agency). “The fear [of this] could drive more buyers into arm’s-length homeowner-to-homeowner transactions, because even though you pay more, it’s a safer deal. That could help revive the traditional market.”
• “This could be a small window of opportunity for the home seller while the foreclosure inventory is held back,” says Frank De Novi, a Coldwell Banker agent based in Arlington Heights who specializes in foreclosure sales. “Foreclosures go for about 35 percent less than nonforeclosure property, so if you’re selling your home right now, this could be a boost. There’s less of that [lower-priced] competition.”
• Some analysts have said home prices will initially go up as the downward pressure of bargain-rate foreclosure sales is removed, only to drop later when a backlog of foreclosed properties is released into the marketplace. Mabel Guzman, president of the Chicago Association of Realtors and a Su Familia agent, disagrees. “We’re not going to see these fluctuations that everyone is anticipating, because the market is in a stabilization mode,” she says. “Everyone is proceeding with caution, and the numbers are staying where they’ve been the past few months. Nobody is going to rush in until we have an economy that is creating jobs and consumers feel confident that they can afford to buy the house and sustain homeownership.”
• Jason Shapiro of Rising Realty doesn’t expect a significant impact on prices. “It’s basic supply and demand,” he says. “Prices are low now because there’s so much inventory.” Shapiro adds that buyers of foreclosures are likely to get impatient. “Contracts’ closing dates are going to be put on hold for several months while [the bank] checks whether this was a faulty foreclosure. So you’ll see buyers falling out; they just won’t be willing to wait when there are so many other choices out there.”
• This latest foreclosure mess “adds uncertainty to already existing uncertainty around the direction of the housing market, the direction of the economy, and qualifying for a mortgage,” says Geoff Smith, the senior vice president of the Woodstock Institute. “This has the potential to further reduce confidence in real estate and really set the market back. This will be particularly amplified in communities where distressed properties make up a large proportion of the housing inventory. As we know, these are predominantly communities of color.”