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Haisler: McHenry County real estate market improving

Published: Thursday, July 24, 2014 5:30 a.m. CDT

Well, we finally got some hot temperatures this week, and it feels like summer. But today’s question is how hot is the housing market?

In the accompanying chart is a review of the first half of the year using information from Midwest Real Estate data LLC, the area’s regional multiple listing service.

Starting at the bottom of the chart, notice a reduction in the amount of homes for sale this June from last June. That’s good news for sellers who are excited to think about moving, but for buyers it likely means there will be fewer homes to choose from.

A great indicator of the market is months supply of inventory. One of my favorite statistics, this indicates how quickly the County would run out of homes for sale at the rate listings are coming onto the market and at the current rate of sales. A reading of 5.7 is balanced.   The National Association of Realtors has noted that, all things being equal, a balanced market is between 4 and 6 months worth of supply. Any higher indicates a buyer’s market, and any less indicates a seller’s market. The current rate of 5.7 months is down from 6.1 months last year, showing a trend that the county’s housing stock is balancing out. For the sake of comparison, a couple of years ago, we had a 14-month supply of housing inventory.

Market time seems to be frequently discussed by both buyers and sellers. Sure, it’s important, but there are so many factors that can affect it that it’s just not the tell-all number some think it is. For example, if in a certain month a neighborhood had an excess of homes come on the market, the average market time might increase for that neighborhood. Yes, it’s important, but the bigger thing to note is the trend. The trend shows the number of days coming down to 110 from 128 or from 4.5 months to less than 4 months today.   

The Housing Affordability Index is a complex equation, but, again, noting a trend is what counts. A high number suggests housing is not as affordable, whereas a lower number suggest housing is more affordable. It’s down nearly 8 percent, suggesting that either wages are increasing, home prices are decreasing, or likely a mixture of both.

The percent of list price received is another interesting statistic. A few years ago, when the market was hot for sellers, real estate agents advised their seller clients that they might be able to get 98 percent or more of their asking price for their home. More recently, that figure has dropped. At one point, we were in the upper 80 percentages. Now, at 93 percent, the housing market is getting back to normal, which I consider 93 percent to 96 percent.

Everyone’s favorite is prices. Both list price and sales price are up again, and that’s good news for everyone. However, keep in mind that this doesn’t necessarily mean any one house or neighborhood has increased in value. It is stating that the average home that is selling is higher priced. So throw in a couple of high-value homes, and the number shifts. Six years ago, there were very few high-priced properties selling. Now that some are, this is reflected in the average price. Again, a few years ago there were a lot of under-$100,000 homes selling. That has brought the average price down. This is good news no matter how you slice it. Just don’t think it automatically means your home is worth 7.9 percent or 9.1 percent more. Contact your real estate agent to find out where you stand.

The under contract, closed sales and new listings categories are the pulse of the market. This indicates what’s coming on the market, what’s coming off the market and what’s in the books. Just because a property goes under contract doesn’t guarantee it will become a closed sale in a couple of months. A few years ago, the dropout rate was pretty high. Sellers were getting contracts on their properties, but many – at one point nearly 50 percent – would lose their contract either to default by the buyer or more commonly because in a short sale the banks couldn’t figure out how to approve the sale price agreed upon by the buyer and seller. Short sales were really difficult then. Today, they’re less difficult, in my opinion. Fortunately, short sales have become much less a part of the market today. About 55 percent of sales are traditional sales (no bank involvement in the contract), 30 percent are bank owned (the bank is the seller, think foreclosure) and 15 percent are short sales (buyer and seller agree on a price but the bank needs to approve it).

So in my opinion, the market is improving. It’s come a long way to get to this point, but the cuts aren’t healed yet. There’s a bit more pain on the way, but we’re rebounding. We used to say the three most important things about real estate were “location, location, location.” Well, it became “jobs, jobs and jobs.” Until the economy is fully recovered, the housing market will continue to struggle a little.

• Jim Haisler is CEO of the Heartland Realtor Organization, a nonprofit trade group based in Crystal Lake serving nearly 900 real estate professionals throughout northern Illinois.

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