When the housing bubble burst in 2008, cities like Miami, Las Vegas, Phoenix and Detroit gained immediate notoriety for the huge downturn their real estate markets experienced. During the boom these markets experienced huge growth and skyrocketing home prices, and when those prices fell, they came down hard.
The Great Recession is by no means over, but the housing sector in the Western half of the United States is beginning to experience some improvements. While prices in Las Vegas did fall to a 15-year low in January of 2011, buyers have started to weed through the glut of foreclosures. According to real estate analytics firm DataQuick, 70 percent of Las Vegas homes sold in May were REOs (real estate owned by banking institutions). Even though prices remain low, it seems that for the moment foreclosures are moving instead of clogging up the marketplace.
The housing crisis is not limited to big, previously high-value markets like Las Vegas and Miami. In the Midwest, where housing prices rose during the boom at a lower rate than they did in markets like those mentioned above, the number of foreclosures is increasing.
According to RealtyTrac, Chicago, Illinois is first in the country in the rate of ongoing foreclosures. Real estate experts attribute this high concentration of REOs to a number of factors, including strong borrower protections, the reluctance of banks to lower prices and an investigation by Illinois’ Attorney General into the robosigning scandal.
Chicago sells fewer homes each month than any other major metropolitan area except New York. To put it in perspective: over the first five months of the year, an average of 4,004 foreclosed homes per month were sold in Phoenix. Comparatively, during the same time frame, the monthly average for Chicago was only 1,697 homes.
Winifred Curran, an Associate Professor of Geography at DePaul University, suggests the boom in places like Miami was so big that banks were more desperate to sell when the bubble burst. They lowered their prices to get rid of foreclosed homes and because of this are seeing some movement in the REO market. In Chicago, where prices did not increase as dramatically during the housing boom, banks were not as willing to come down on prices and are now sitting on a huge foreclosure inventory.
Residents of Chicago agree that bank policy is one of the biggest challenges consumers face. John Bouman, president of the Sargent Shriver National Center on Poverty Law and resident of Chicago’s Maywood neighborhood, says the home across the street from his has been vacant for over a year. He knows of two prospective buyers who inquired about the property but could not find anyone at the bank to give them answers. Bouman says, “Sometimes I think it’s hard to find anyone at the banks who can make a decision, so these properties just sit there.”
In addition to ineffective bank policy and lack of flexibility in pricing REOs, the locations of Chicago’s foreclosures pose different challenges. Daren Blomquist, the Marketing and Communications Director at RealtyTrac, points out that the foreclosures of properties in markets like Las Vegas and Phoenix tended to be in desirable new construction suburbs. In contrast, many of the foreclosures available in Chicago are located in older, economically weaker neighborhoods that may be less desirable to buyers.
With all the challenges current and future homeowners in Chicago face, we can only hope that the market begins to turn around in the coming months. The City of Big Shoulders offers a beautiful lakefront, loads of delicious restaurants and a variety of neighborhoods to suit anyone’s taste. In light of all the great perks to living in the Second City, it seems like it’s only a matter of time until the market begins to rebound.