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Chicago housing market slowly, stubbornly improves

Deavay Tyler Executive Vice-President A   D Property Services Inc. manages foreclosed homes for banks. Wednesday September 26 2012.

Deavay Tyler, Executive Vice-President at A & D Property Services, Inc., manages foreclosed homes for banks. Wednesday, September 26, 2012. | Scott Stewart~Sun-Times

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Updated: November 2, 2012 6:06AM

When the housing market gets back on its feet, how will we know?

Will it be when somebody finally fixes up the abandoned house down the block? How about when that stubborn neighbor gets his price on the house he’s listed for two years?

Others might say it’s when the local bank, if it’s still in business, really wants to issue a mortgage. And there will be dreamers who’ll say it’s fixed when they can unload that condo that seemed like such a great idea in 2008.

The housing market in the Chicago area is getting better, in accordance with improving conditions nationwide, but it’s still broken. Its problem is that it is broken in many places, and healing will take, well, how long?

“I’d say its another 10, 20 years. It’ll be a generation,” said Deavay Tyler, executive vice president of A & D Property Services Inc. on the South Side. His company has a unique perspective, literally straight from the side street.

A & D manages foreclosed properties for lenders, securing them and making sure the grass gets mowed. Tyler said its inventory keeps growing, and now numbers more than 4,000 properties, as more banks sign up for service.

“When we’re working, that means banks are addressing their inventory. They have a sense of urgency,” he said.

Tyler said he sees a market that’s trying to improve but is still “flailing about, not knowing where the bottom is.” Its most hopeful sign, he said, is that sellers have gotten more realistic about prices.

Holding it back, Tyler said, is the ongoing rush of foreclosed properties, which tend to sell for substantially less than those in non-distressed situations. Illinois is among the 24 states that require most foreclosures to go through judicial review, said sales data firm RealtyTrac LLC.

Delays in the judicial process mean that housing in the Chicago area will be a year or two behind any national recovery, Tyler said.

A RealtyTrac report said Illinois in August had the highest foreclosure rate in the country, with new filings up 42 percent from a year ago and representing one in every 298 homes. Clearing the active inventory will take just under three years, said Geoffrey Hewings, a University of Illinois economics professor who compiles sales reports for the statewide Realtors association.

The clearance rate represents an improvement from recent months, but Hewings still is glum. He noted the impact of high unemployment, worsened by more discouraged job-seekers dropping out of the hunt.

“Based on current and historical conditions, forecasts of sales and median prices for the coming months do not look encouraging,” Hewings wrote in a mid-September report to the Realtors. He predicted that in Chicago, year-over-year median sales prices for homes will decline 1.5 percent to 5.5 percent, a sign of no solid “bottom.”

There’s an almost daily onslaught of data about housing, however, that can sow confusion. Price movements and sales figures might be reported for local or national markets, reflecting new homes or existing homes. Differences in data collection can make some reports stand at odds with others.

A prime example is the latest reading of the respected Standard & Poor’s/Case-Shiller price index for Chicago. Compared with the Realtor reports, it is delayed; the latest version for Chicago covers July. It showed prices here rising 2.7 percent from June, the fourth straight monthly increase. Still, the July index is slightly down from its level of a year ago.

Case-Shiller tracks prices for homes that have sold more than once, an attempt to get a consistent gauge of a market. Other sales reports can be skewed by a high number of cheap or expensive houses trading over a short period.

For many analysts, housing’s truth is that while the patient is stirring, it has a long convalescence ahead. From the market’s peak in early 2007, prices have fallen 30 percent across the country and closer to 40 percent in the Chicago area.

The data analytics firm Fiserv Inc. predicted national prices will bounce back an average of 3.7 percent a year over the next five years. Even at that rate, though, many markets won’t pull even with the 2007 high until about 2023.

“In some hard-hit markets, prices will take decades to recover,” Fiserv Chief Economist David Siff told CNNMoney.

Do we really need that much patience? Homes are more affordable than they’ve been in decades and the Federal Reserve’s bond-buying commitment, a cheap-money policy known as “quantitative easing,” is designed to keep interest rates at historic lows. Thirty-year mortgages shouldn’t get much higher than 4 percent through 2015, based on the Fed program.

In that sense, the sales agents are correct when they speak that timeless bromide, “Now is a great time to buy.”

So what’s the problem? Carl Tannenbaum, chief economist at Northern Trust Corp., said it starts with the balance sheet for the average American.

He said people are still working through their debt problems, with job insecurity factoring into every decision. Today, fewer people can “trade up” for a home because they have little or no equity in the one they live in.

“Saving from scratch takes a long time, given low saving rates and low rates of return on some asset classes,” Tannenbaum said. “There is a broad community of prospective home buyers who could get a mortgage in 2006 but cannot today.”

Compared with 2003, Americans have four times the level of student loan debt.

A further complication is that lenders are still trying to get bad loans off the books rather than issue mortgages to anyone who has less than sterling credit, Tannenbaum said. Many also are holding back on loans out of uncertainty about financial regulations that could emanate from the Consumer Financial Protection Bureau, an agency created by the Dodd-Frank reform of Wall Street.

The Federal Reserve has reported that while banks are loosening the standards for new credit cards, they are holding tight on mortgage requirements.

“The housing market is slowly turning a corner,” Tannenbaum said. “It’s no longer dragging the economy down and it’s even starting to help it a little. But nobody should think that it’s going to be a driver for growth.”

It’s a bracing outlook, but one to remember as you read commentary about housing, some of it from vested interests.

When the National Association of Realtors reported higher sales figures and median prices for existing homes in August, its chief economist, Lawrence Yun, allowed himself some optimism. He spoke of the “strengthening housing market” that is “testament to the sizable stored up housing demand that accumulated in the past five years.”

In 2007, his predecessor in that job, David Lereah, was quoted as saying prices would rise despite “all the wild projections by academics, Wall Street analysts and others in the media.”

He spoke in January in that year, about when the rest of the nation heard a bubble pop.

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