In 2006, the housing market flew too close to the sun. And like Icarus with his wings of feather and wax, a previously golden sector of the American economy plummeted to a bloody crash-landing. But real estate agents across the North Shore say that one group has an advantage: buyers.
In the North Shore especially, there's a surplus of houses but a dearth of buyers. That means those who want to move in have the hitherto unusual luxury of being the ones with the power.
"If you're a young person with a steady 9-to-5 job, steady income and you haven't damaged your credit yet, it's a perfect time to buy," said Emery Moorehead, chairman of the North Shore Barrington Association of Realtors and a sales associate in Koenig & Strey's Lake Forest office.
Housing prices have dropped about 28 percent since their peak in the summer of 2006, when banks were handing out high-risk loans without asking for documentation of people's credit scores or debt histories. That, coupled with the fact that the Illinois unemployment rate is down a few percentage points since March 2010, has given buyers the upper hand in what Moorehead called a "perfect storm."
"It was [for] 20 years a seller's market," he said. "But the last five years, it's been a buyer's market. Times have changed."
In these new times, lenders are also ratcheting up their regulations for who qualifies for financing.
"Those who could have afforded a $1 million home five years ago perhaps can only afford [a] $600,000 home now due to lending requirements," said Peter Moulton, @properties' vice president of brokerage services for the North Shore.
Ultimately, Moulton sees that as a positive because it is forcing people to live within their means. That's a sharp contrast to a few years ago, when lenders made it easy for buyers to bury themselves beneath a mountain of debt without much thought about whether they would be pinched in the future. It was a culture of immediate gratification, not a culture of planning ahead.
Now that buyers are coming to the table with less spending power, sellers must price their homes competitively if they want to command interest.
"The consumer needs to see value, and if they do not see value, they will not act," Moulton said.
Buyers should feel empowered, Moulton said, but they should also be loyal to their motivation for moving, whether that's to expand their family, to take advantage of better school districts or even to downsize after retirement.
Above all, he said it's paramount that buyers be in complete control of their finances and not buy more house than they can handle.
"Financial health is wealth," Moulton said. "Long-term happiness is going to be largely dependent on good decision-making financially."
And sound personal decision-making leads to a better local economy.
"What we're helping people realize is that if you buy a home, you're investing in the community," said Chris Smith, the managing broker of Baird & Warner's Evanston office. "If you were to peel the onion back, you'd find that investing in real estate is one of the better investments you can make.
"They're not making any more of it," he added with a laugh.
The North Shore by the numbers
There were 4,059 houses for sale in the North Shore as of March 31, according to Moulton. Last month, 228 deals were closed, giving the area a 5 percent close rate.
Moulton tossed out another important statistic: Of the homes that came on the market at a compelling rate, the average final sale price was 92.25 percent of the asking price. Those houses that needed one or more price adjustments? They sold for 76.81 percent of the readjusted asking price.
"The market will price your home based on what a buyer is willing to pay for it," he noted.
Here's a breakdown of vital stats across the North Shore and its diverse townships, according toTrulia.com, an independent real estate search engine:
- Wilmette – April's average list price: $721,400. Average sale price in the first quarter: $485,000. At the time of publication, there were 272 houses for sale and 93 foreclosures listed.
- Northbrook — April's average list price: $532,800. Average sale price in the first quarter: $295,000. At the time of publication, there were 389 houses for sale and 219 foreclosures listed.
- Lake Forest — April's average list price: $1.59 million. Average sale price in the first quarter: $756,000. At the time of publication, there were 372 houses for sale and 80 foreclosures listed.
- Lake Bluff — April's average list price: $982,000. Average sale price in the first quarter: $335,000. At the time of publication, there were 123 houses for sale and 48 foreclosures listed.
- Deerfield — April's average list price: $516,300. Average sale price in the first quarter: $337,500. At the time of publication, there were 187 houses for sale and 139 foreclosures listed.
- Highland Park – April's average list price: $895,511. Average sale price in the first quarter: $382,500. At the time of publication, there were 393 houses for sale and 138 foreclosures listed.
- Niles — April's average list price: $260,000. Average sale price in the first quarter: $192,750. At the time of publication, there were 165 houses for sale and 225 foreclosures listed.
- Winnetka – April's average list price: $1.85 million. Average sale price in the first quarter: $987,000. At the time of publication, there were 202 houses for sale and 25 foreclosures listed.
- Glenview – April's average list price: $545,000. Average sale price in the first quarter: $420,000. At the time of publication, there were 518 houses for sale and 312 foreclosures listed.
- Morton Grove – April's average list price: $266,000. Average sale price in the first quarter: $225,000. At the time of publication, there were 184 houses for sale and 247 foreclosures listed.
- Des Plaines – April's average list price: $207,000. Average sale price in the first quarter: $125,000. At the time of publication, there were 636 houses for sale and 998 foreclosures listed.
With those hard stats in mind, Patch consulted firms across the North Shore—Koenig & Strey, Baird & Warner, @properties, Coldwell Banker, Prudential Rubloff and others—to find out how both buyers and sellers can get the most out of their transactions.
Five tips for buyers:
- Plan for the future.
What does a home need to offer you? Security? Good schools? More space for a family? "They should be thinking about this in a minimum of three to five years where they see themselves," said Smith of Baird & Warner.
- Take advantage of low rates, and do your homework.
"These rates are [at] historic lows," said Moorehead of Koenig & Strey. He counsels his potential buyers to lock in a long-term loan—possibly a 30-year mortgage with an interest rate below 5 percent.
- Be ready to back up an offer before you get into negotiations.
That includes getting pre-approved by a lender. "It's not what you can afford, it's your credit," said Leslie Stein, a senior vice president with Prudential Rubloff. "If someone has blips in their credit, most loan officers can see what the problem is and have it corrected."
- Get a referral.
Talk to someone who has had a good relationship with the real estate agent before. Take advantage of the Internet. Thanks to online reviews and neighborhood guides, buyers can find plenty of information about both the real estate agent and the community. Said Moorehead: "It's hard to make mistakes if you're Internet savvy."
- Don't live beyond your means.
This is about community health and smart decision-making, not ego or grandiose desires. "If you buy a house based on what you can afford, it's going to appreciate," said Stein of Prudential Rubloff. "And in a few years, you'll be able to afford the bigger house you wanted."
Five tips for sellers:
- Exercise judgment, but the first offer is often a good one.
Sellers have a difficult time accepting it, but a fair offer often comes within the first 30 to 60 days. "If [the buyer] loves it enough to put in an offer, get it done," said Moorehead.
Smith had this advice: "Homes are not like wine when they're on the market. They do not get better with age; they only create a perception in the minds of the buyer that there's a problem or difficulty with the property."
- Create a compelling price right off the bat.
"If you're bringing your home to market, you need to be aggressive about your pricing and addressing any kind of repair issues so that you're one of the top homes in the market," Smith said.
- Be realistic, and keep your emotions out of it.
"They're not buying your memories; they're trying to create their own," Moorehead said.
In the real estate world, there are three prices: What Bill and Jane's house down the street sold for a year ago, what the sales agent comes up with and what someone's willing to pay when they walk through the front door.
"There's no longer this win-win situation where buyers feel great and they get the home they always wanted, and you get the price you always wanted," Smith said. "There's a give and take to get homes to close."
- Presentation is the most practical thing you can control.
De-clutter, de-clutter, de-clutter. Paint. Update appliances. Install new lighting. Presentation is everything in today's market, and prospective buyers can afford to walk away if they can't see themselves at home in your house.
"You want people to see the space in your house, not what you have in your house," Moorehead said.
When painting, go for neutral colors: browns, greens, beiges, blues, off-whites. "You want to be able to allow the potential buyer to see themselves living in the house with their belongings and their lifestyle," said Eve Bremen, the branch manager at Coldwell Banker's Winnetka office.
Point of Agreement
All of the real estate agents interviewed by Patch agreed on this point:
It may sound like common sense, but buyers: Don't buy beyond your means. And sellers? Be realistic about your product.