Home sales plunge is a puzzle

Home sales plunge is a puzzle
By Mary Umberger
Copyright © 2007, Chicago Tribune
Published March 24, 2007

Chicago-area home sales in the first two months of the year declined 12.1 percent from 2006, confounding analysts who were looking for the first small signs of a spring bounce but instead saw a market continuing to struggle.

The fall in Chicago seemed even more painful given that the national housing picture this year is showing some signs of life.

The results for Chicago added up to the slowest February performance since 2001, which was generally considered to mark the beginning of the housing boom.

Chicago is not performing according to expectations, said economist David Stiff, of Fiserv CSW, a housing-market analyst in Cambridge, Mass.

"It's not a market that got caught up in the bubble, and it didn't have affordability issues. I suppose buyers have gotten caught up in the general psychology and are sitting on the sidelines, waiting to see what happens," added Stiff, whose company studies home-sales data in regional markets.

"I think of Illinois as a bellwether for other markets that didn't get caught up in the bubble," he said. "We have been forecasting about 4 percent price appreciation, year over year, in the Chicago area."



Slight price rise

Instead, the median price for both single-family homes and condominiums in the Chicago area in February was $240,000, up just slightly less than 1 percent from one year ago, according to data reported Friday by the Illinois Association of Realtors.

David Berson, chief economist at housing financier Fannie Mae, said he, too, was surprised at Chicago's 12.1 percent drop, and suggested that auto industry troubles might be having an indirect effect.

"[Where] the economy is most slow, it is in the upper Midwest, not necessarily in Illinois or Chicago," Berson said.

"But there are still portions of the industrial base in northeastern Illinois that support the auto industry, and that has been weak," he said.

He also wondered about the tumult in the mortgage industry. "Maybe the worsening in the mortgage market is having some spillover into the housing market, with people being forced to sell," Berson said. "We'll see, a few more months down the line."

The national home sales picture, released Friday by the National Association of Realtors, was better than Chicago's, although year-over-year numbers still were down 3.6 percent.

But economists, including NAR chief forecaster David Lereah, expressed surprise that sales managed a one-month jump of 4 percent from January to February, the biggest since April.

The data reflect home sales that closed in February, with contracts usually signed weeks before.

Lereah and others said the numbers nationally probably were buoyed by unusually tolerable weather in December and early January that put consumers into a buying mood in many parts of the country. He cautioned that next month might tell a different story.

"Winter storms last month discouraged shopping, and buyers were chilled with the third-coldest February on record," he said. "These unusual weather patterns mean home sales that close in March may decline before rebounding later this spring."

Worries persist over the inventory of unsold homes, which inched up again in February, to a 6.7-month supply nationwide, according to the NAR.

Wilmette real estate agent John Nash said inventory in his area is starting to level off. But he, like economist Stiff, said buyer psychology--specifically, bargain-hunting--is stalling a market recovery.

"The buyers I'm working with all tell me they're in no hurry," he said. "They say they want to get a good deal, and I don't know that they're not overplaying their hands."

ne of his clients, Ann Peisel, listed her Wilmette home last summer, and took it off the market after three months, without a single offer.

She lopped $100,000 off her asking price and relisted it a little over a month ago for just over $1 million.

She did get an offer--though it was for about $900,000, which she considered too low.

"It was somebody who was taking a chance, who really couldn't afford the price," she said. "Nobody is taking into consideration that I have already lowered the price by $100,000."

Negotiations didn't get far, and the buyers went elsewhere--a now-familiar scenario, Nash said.

"It's not uncommon now to see someone offer 10 percent below asking price," Nash said. "A year ago you wouldn't see anybody doing that. Offers that were 5 percent below asking price have been the ones that turn into deals."

Chicago broker Robert Zoretich noted that Illinois, like the nation as a whole, also had a one-month sales hop, of 2.4 percent. But he said he is puzzled about how the rest of spring will play out. He said that even though the marketplace seems busy, deals are not happening with much velocity.

"They're looking, there are showings," he said "There's pent-up demand, but they're just not pulling the trigger," he said.

"I thought in the last couple of weeks it would be picking up more, but it hasn't," he said. "We're showing properties, but we're just not getting contracts."



Decline in West

The Realtors' regional reports were mixed.

The market dive continued in the West, where sales dropped 9.6 percent, year over year. Prices, however, were up 2.2 percent, the NAR said.

The market picked up in the Northeast, with sales up 3.4 percent and median prices up 1.4 percent from a year earlier.

In the Midwest, sales were down 1.9 percent year over year, and prices were down 1.3 percent.

Sales were down 4.4 percent in the South, with prices down 2.9 percent.

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mumberger@tribune.com