For some time now, homeowners in Chicago have realized that they are more insulated from volatility on the real-estate scene than other U.S. markets. There are two main reasons for that relative stability. Prices here don’t go up as fast as in the big cities on the coast; that means they don’t have as far to fall in an economic downturn. What’s more, the Chicago market doesn’t have as many speculators, who tend to run from the market once prices lose their buoyancy.
Now, the fallout from failing “subprime” mortgage lenders-companies that make home loans to buyers with poor credit ratings or no down payment-has revealed two more ways that Chicago’s housing market may be more resilient than markets in other parts of the country. Dianne Swonk-the chief economist at Mesirow Financial and one of Chicago’s premier consumer economists-tells Deal Estate that subprime lending here is likely targeted at a more reliable group of home buyers than in places like Ohio and Florida, where huge numbers of subprime borrowers have recently defaulted on their loans.
“The Hispanic proliferation into the suburbs has been one of the major fueling factors in the growth of the Chicago housing market,” Swonk says. Fortunately, she adds, “Chicago has a very well-developed immigrant lending market.”
Because some of those potential homebuyers headed for the suburbs may not yet have a well-established credit history, they often get subprime mortgages-but not the predatory kind that are making currently making headlines, Swonk says. Subprime mortgages that rely on financial basics-such as requiring a reliable household income-are a good way to bring people into the housing market.
And since many of these immigrant borrowers have game plans for financial success, they are not likely to find themselves unable to pay and wind up in foreclosure, Swonk says. While some subprime loans certainly went to people whose wobbly work lives will make paying a mortgage tough, she believes that the huge numbers of foreclosures that are devastating places like Cleveland won’t be seen here.
An additional measure of local strength is also evident in data released by San Francisco’s First American Loan Performance. Chicago’s load of subprime mortgages is about 19.8 percent of all mortgages, below the national average of 22.25 percent-and way below four cities in California and Virginia where over 40 percent of mortgages were subprime.