Chicago Real Estate Market - Hidden Opportunities
Urban real estate markets offer a unique opportunity for profit as the nation struggles with a crisis in housing characterized by “bubbles”, “melt downs”, and the collapse of housing values in many parts of the country. The Chicago metropolitan market by and large escaped the excesses of the sub prime driven run-up in home prices.
An exception to this was the inner city working class neighborhoods on Chicago’s south and west sides These markets were always dominated by sub prime lenders. It is in these neighborhoods that a disproportionate number of foreclosures occurred (and will continue to occur). Much the same happened in major cities across the country.
The combined effect of media attention on The Crisis and evidence of increasing foreclosures put the brakes on home sales in early 2008. For all practical purposes the real estate market ground to a halt and has not yet recovered. It’s not for want of mortgage financing. Where sub prime lenders have headed for shelter or closed their doors entirely, conventional bank lenders continue to lend as they have in the past, although subject to more stringent underwriting standards.
A survey of price changes over the last four years shows the peak values experienced during Chicago’s modest response to the Bubble 3-5 years ago (Chicago Tribune “Price Pulse” data). It is interesting to note today’s median prices in many instances have merely returned to values just prior to peaking about three years ago. In this regard it is useful to keep in mind today’s pricing is dominated by reduced price distressed properties that will draw down median pricing. In this “buyer’s market” those not obliged to sell are standing pat, hopefully preserving their home’s value until the market is restored.
Rental demand strong. Meanwhile, this foreclosure driven loss of housing aggravates an already high demand for rental housing. For the last six years the City of Chicago has been systematically demolishing its subsidized high-rise rental housing; most visibly, the infamous Cabrini Homes complex on Chicago’s near north side. Across the city, over 25 thousand subsidized housing units have been demolished and not yet replaced. A recent DePaul University study (2008) predicts over *75,000 new affordable rental housing units will be needed within the next ten years.
Rehabilitated ‘distressed’ housing is an efficient, cost effective source of affordable housing. In any market, housing on the market as a “forced sale” invariably sells at a discount. Given the number of foreclosures available presently, discounts are greater than normal. 3-5 bedroom Chicago brick bungalows, generally valued at over $150-200 thousand, may be purchased today “as is, where is” for $40-60 thousand. While most need work to meet rental standards, the completed homes will be among the first to command attention in a restored market.
© Philip Elmes. For more about Phil Elmes and the Urban Rehabber coaching program go to: http://www.UrbanRehabber.com