While homeowners in other housing markets across the country are breathing a collective sigh of relief amid increasing home prices, those here in Chicago are still holding their breath, waiting. If recent figures are any indication, they'll be waiting for quite some time. Many who are or will soon be underwater in their mortgages simply don't have the financial luxury of waiting it out any longer.
Chicago's percentage of home foreclosure sales ranked third highest among major U.S. metro areas for first quarter 2013. According to RealtyTrac Inc., foreclosure-related sales accounted for nearly 35 percent of all Chicago residential sales. This is nearly double the national rate of 20 percent and up from 32.4 percent in 2012's first quarter, which indicates foreclosed properties (the house has entered foreclosure, but the mortgager has not yet repossessed) are an albatross around our local market's neck.
The number of homes facing foreclosure is decreasing. Yet Chicago's high percentage of foreclosure sales is problematic considering foreclosed homes sell at a significantly lower price. In fact, for the sixth consecutive month, area home prices dropped again by 0.8 percent in February 2013. S&P/Case-Shiller reports Chicago prices are down approximately 34 percent from their peak in September 2006.
The statistics have placed many Chicago homeowners, especially those who purchased homes pre-housing bubble, in a catch-22 situation. On average, homeowners move every seven years. Those who bought in 2006 or 2007 are feeling that 7-year itch now. However, would-be sellers who bought at the peak of the market are still paying on mortgages taken out when home prices were high. When home prices dropped, their equity decreased or disappeared, putting them "underwater" (owing more than the house is worth).
California research firm CoreLogic Inc. reports over 506,000 Chicago-area homes were underwater as of the fourth quarter 2012. That number is up 7.6 percent from 2011. To sell, underwater homeowners would be out the amount between mortgage balance and sale price, an unfeasible or impossible idea to many. Owners ready to sell are instead keeping their homes off the market until prices recover, hoping to regain equity or at least their initial investment.
With fewer homes on the market and one-third of all listed homes underwater, ready and able buyers' options are limited, yet demand is high thanks to historically low interest rates. With buyers unable to find inventory to buy and sellers unable or unwilling to sell at a loss, there is a bottleneck in our housing market. The bottleneck is causing Chicago's recovery to lag far behind other major markets in the country, with the exception of two other areas.
Both buyers and sellers alike need viable solutions to get Chicago's stagnate market flowing again. Sellers not qualified for relief programs or willing to "walk away" and risk their credit or investment must seek legal advice. They have legal rights and options that could possibly put them in a position to sell their homes while keeping their finances and credit intact. However, timing is of the essence for underwater homeowners to act. Waiting until a home goes into foreclosure drastically limits their options and drives down the home's value even further.
For more information on solutions available to homeowners, download a complimentary copy of "Consumer Defense: A Tactical Guide To Foreclosure, Bankruptcy, and Creditor Harassment: The Luxury of the Informed." Hardcopies are available for purchase on Amazon.com.