Inventory reduction: Number of local homes for sale falls
Realtors have a new problem as the residential market approaches the key spring selling season: not enough sellers.
The number of existing homes for sale in the Chicago area fell more than 36 percent last year to just under 39,000, or just 4.7 months of supply based on current sales trends, according to multiple listing service Midwest Real Estate Data LLC (MRED). That's the lowest inventory since 2006, when the market was cresting.
Buyers, who all but disappeared as the market drifted down, are back, fueling a 37 percent jump in local home sales in January. As a result, the supply of homes for sale has plunged in Chicago neighborhoods such as Douglas, McKinley Park and Avondale, and suburbs like Rosemont, Romeoville and Skokie.
The number of listed homes fell the most in the Near South Side, a community including the South Loop. A division of New York developer Related Cos. recently relaunched sales of about 500 units in three failed South Loop towers pulled from the market last year, but only a fraction are currently listed for sale.
It's still slim pickings for many buyers in the neighborhood who can't compete with investors paying cash, can't finance a purchase in a building full of renters or don't have the patience for banks to approve a so-called short sale, a red tape-heavy transaction resulting in a loss for the lender. Nearly 44 percent of all sales on the Near South Side last year were distress-related, according to MRED.
“Not everybody has eight to 10 months for the bank to decide,” said Kevin Thornton, managing broker and owner of South Loop-based brokerage Thornton Properties. “I definitely have guys looking and they just can't seem to find anything decent.”
Low supply is an issue in the suburbs as well, where new listings receive multiple offers daily, said broker Cathy Bier of La Grange-based Smothers Realty Group. Only 53 homes, or 2.6 months of supply, were for sale in the western suburb, in the fourth quarter.
“As a buyer's agent, you have to be the first person in,” she said.
A few areas were anomalies, with listings rising. In north suburban Bannockburn, for example, 11 homes were marketed for sale in the fourth quarter, up from six at the end of 2011.
Though the supply drop means buyers have fewer choices and less leverage in negotiations, it's good news for many sellers, who can sell their homes more quickly than before — and have more power to hold the line on prices.
Indeed, local home prices have stopped falling. The S&P/Case-Shiller index of Chicago-area single-family home prices rose 2.2 percent last year, the first annual gain since 2006. Still, that was the weakest year-over-year gain of the 20 cities tracked by S&P/Case-Shiller.
The local residential market still faces challenges. Foreclosures and distress remain a problem in many neighborhoods and suburbs, and many homeowners are still “underwater,” owing more on their mortgage than their home is worth.
“The market is in a transitional point,” said Geoff Smith, executive director of the Institute for Housing Studies at DePaul University. “It's kind of a chicken-and-egg situation: Prices need to go up and consistently go up before you see a lot of homeowners come out from underwater or owners who aren't underwater are comfortable selling.”
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