Chitownproperty

This week a real estate industry research company released a report on the 100 most overpriced housing markets in the country. Topping the list is Santa Barbara, California, with a median price of $567,300, 80% overvalued. Naples, Florida is next at 74% over. The good news is that Chicago is still considered a fairly-valued market. The median home price here is $266,300, or just 14% over the equilibrium value.

A recent Harvard study says that while the housing market is headed for a general downturn, we don’t face a large-scale crash. Demographic changes, expanding population, and the influence of the government in land use will help keep home demand healthy.

The National Association of Realtors lowered its forecasts for both existing home sales and new construction, and called for the Federal Reserve to stop raising interest rates in order to relieve pressure on some “vulnerable” markets. Regardless of the updated forecasts, 2006 is still expected to be the third best year for housing ever.

Rising mortgage rates and higher prices make buying a home more difficult, but they also mean rental rates are going up too. With fewer people in looking to buy homes–and many previously available apartments having been converted to condos–the rental market is tight. Unfortunately this will begin to drive up consumer prices too.

Of course anyone remotely interested in real estate saw the Tribune’s headline today. It is a buyer’s market now, but what does that mean? The Trib’s Mary Umberger says:

Homes sell in months, not hours. Prospective buyers actually browse. They drift back for a second look at a place weeks later, confident that it still will be available. They want the price cut. And they get it.

…

Agents see no catastrophic shift from the housing boom times, with homes languishing and prices in decline. The volume of sales appears to be running on a par with last year’s record numbers, and there are still towns and neighborhoods where sales continue to clip along.

What has changed in terms of verifiable statistics is that the inventory of homes on the market has surged, even for the traditional spring selling season. Faced with so much competition, many sellers are being counseled to settle in for a longer wait, and think hard about their asking prices.

She says this is what a “normal” market feels like. No more long lines at developer grand openings, no more triple bid situations, and in the long run it’s probably the best for everyone, especially in a market like Chicago that was never overheated in the first place.

Just as day-traders artificially drove up the prices of tech stocks during the internet boom, condo speculators have fueled the real estate boom of the past few years, and are now facing losses as they try to bail out:

Over the last few years, real estate speculators looking to make a quick gain also snapped up preconstruction condos in Chicago, Miami and San Diego. With prices rising by more than 20 percent a year, short-term buyers figured that by the time the condos were ready to occupy, they could sell them without ever moving in, clearing thousands of dollars in profits.

But as more speculators look to cash out in recently hot condo markets around the country, some economists say they could put even more downward pressure on prices in those buildings where for-sale listings are swelling.

(From The New York Times)

Despite a drop in activity in December, 2005 was still a banner year for the housing market. From today’s Sun-Times:

The Commerce Department reported Thursday that construction of single-family homes and apartments totaled 2.065 million units last year. That was an increase of 5.6 percent over 2004 and pushed total construction to the second highest level on record, exceeded only by 2.357 million units built in 1972.

Construction of single-family homes hit an all-time high for the third straight year, rising to 1.714 million units, up 6.4 percent from the previous record of 1.611 million single-family homes built in 2004.

Pace of New Housing Construction Falls Sharply in December (From The New York Times)

The home renovation boom is simmering down, feeling the bite of higher loan rates, according to a news report Monday

A softening market means buyers and sellers have to readjust their expectations for prices. Property appraisers hired by mortgage lenders bring the reality of the local market to bear when they evaluate comparable sales data. Sellers hoping for a fat return may be upset by the answer from the appraiser, but the numbers don’t lie. They can only justify the value of a home in relation to recent sales of similar homes in the area. Kenneth Harney of the Washington Post Writers Group spoke to a number of property appraisers for advice on what to expect in this cooling market. One is particularly succint and insightful:

Chris Call of AREAS Appraisers Inc. of Springfield, Va., has this three-word piece of wisdom for sellers and buyers in softening markets: “Just be realistic.” Don’t be greedy as a seller, unless you want to sit dead in the water for months without an offer. As a buyer, don’t expect sellers to bleed for you. Generally they won’t unless they absolutely have to. And sellers: Don’t blame the messengers — appraisers or realty agents — when your generous, tax-free capital gains turn out to be slightly less than you planned on.

Sales of previously owned homes fell for the second month in a row in November. What does this mean for you? As the market slows, homes will typically stay on the market longer and buyers will find themselves in a much better bargaining position. Sellers may not be able to reach for the stars anymore with their asking prices, but the market is cooling at a reasonable pace because mortgage rates have been rising moderately–not the crash many have predicted, especially in Chicago where prices were never artificially inflated in the first place.