Northern Illinois housing market

I frequent quite a few message boards / blogs throughout my day and on one of them, someone posted this question:



"Hi everyone! I'm new to this forum but I have heard great things about how helpful people are here. So I want to clarify with you real-day experts who can give me genuine answers, instead of all that Realtors' blah blah who can twist things either way to suit their needs to just make business out of you. I had been postponing buying a house for a long time, despite my wife nagging about it, but now that our family is increasing, I decided its afterall time that I take that plunge into this big housing world and ease a little of the chaos around. Of course it's not that we have so much money to own even now, but just enough to put a down payment of 25K, for around 300-350K house, and declare ourselves as a proud house owner. So I started first with understanding this big housing world. I am daily coming across the real estate columns analysing/predicting ,..... and bragging that this is a buyer's market and there is no better time as the market has been taking a downturn etc,.. etc,... This all made me congratulate myself on my right time and go see the real figures...... and I am surprised ----the prices are same as earlier irrespective of it being a buyer or seller market! So now I am getting totally confused , are these analyses/predicitons just a load of crap! or just about that big LA & Cal markets only!? or Did the prices really fell here in Chicago suburbs too? Can soemone tell me if it indeed is wise that I buy a house now? or just wait for one more year for the market might get even lower? ---meanwhile I can build some more towards downpayment? No offense to any owners, guys, but I am desperate of a better deal due to my pocket restriction. I would greatly appreciate some help here. Thanks in advance. "



Now normally, I would just answer their question(s) on the message board and leave it at that but after thinking about it, I thought I would throw it into this blog as well.



If I (or anyone for that matter) could predict the market, I would be the richest person in the world. Unfortunately that is impossible, no matter what an agent tells you. All you can get are different opinions and take them for what the are worth.

In my opinion, and that's exactly what it is, the "sky is falling" mentality is driven from markets that have seen a much more severe downturn that others. The Midwest has not seen huge effects like the rest of the country has. In reality, the market is just going through a correction. Think about it, in the early 2000's people were making 15, 20, even 30% annually on their real estate investments!! That's just insane! For the history of the housing market, the average gain is around 5%....NOT 30! Now, in 2007, people are making the traditional 5% gain and everyone is freaking out about it. The days when investors could buy a 100,000 house, put 12K into it and sell it a year later for 150,000 are over (at least for the time being). That said, you can still make your investment in real estate and expect the 5% annual return. It's without a doubt the most solid investment out there, even in this crappy market.

In addition, I too feel the market will still bleed a little further before bouncing back. I base my opinion on 3 things:
1). There are still new foreclosures coming on the market each and every day. This is a great rule of thumb for market trends. When the foreclosures seem to be subsiding, you can expect the market to start making it's comeback.
2). The #1 culprit of all these foreclosures you are seeing are from the sub-prime markets. And most of the sub-prime markets are in an Adjustable Rate Mortgage (ARM). I'm not going to get into exactly what an ARM is but the reason I bring it up is there are a record number of ARM's (over 2 Million to be exact) that are going to be re-set within the next two quarters. This is a VERY alarming statistic. Granted, these will not all go into a foreclosure situation however, I'd be willing to bet that at least a 1/3 will. And when that happens, we will see an even bigger slide.
3). Supply and Demand. The inventory of housing is off the charts. For every buyer out there, there are over 10 homes to choose from. All this means is the buyers that are out there can get very picky! So picky that they scare themselves right out of buying. When the supply is greater than the demand, that spells doom.

No matter what you may think (or hear), it is still a good time to buy. Interest rates are low, there's plenty to choose from, sellers are desperate...all the signs are there. And if you are going to try to outwit the market, you're just going to shoot yourself in the foot. I mean really....what are you waiting for? If a house you like now is 300,000 and it goes down in 3 months to 290,000, what are you saving on your mortgage?...... about 50-60 bucks...that's how much. Not to mention someone else already bought the house you like from under you.