Chicago’s home sales are certainly doing better than just a few years ago, but a decent percentage of the sales are still distressed sales. Moreover, price growth has slowed recently. As a result, the number of “underwater” sales and loan defaults is not decreasing as quickly as one would like.
Like dieters trying to lose pounds that stubbornly hang on, Chicago’s housing market is struggling to slim down its stock of distressed homes.
One in five homes that sold locally in September (20.8 percent) were foreclosed properties or short sales, according to business data firm CoreLogic.
That’s the fifth-highest percentage among major U.S. cities and more than double the national rate of 9.7 percent. It’s also down only slightly from September 2014, when distressed homes accounted for 21.4 percent of Chicago-area sales.
The region’s volume of distressed homes is “coming down, but it’s not happening fast,” said Naomi Campbell, a Coldwell Banker agent in Libertyville who focuses on distressed sales. “We’re going to see them in big numbers for a couple more years, at least.”
Though the local residential market has bounced back from the crash, price growth has slowed recently, meaning many homes are still underwater, or worth less than their debt. Underwater homeowners are more likely to default on loans and some have little choice but to accept a short sale, meaning selling for less than they owe their lenders.
Illinois also is a so-called judicial state, meaning all foreclosures must run through the courts, a process that can prolong the process, Campbell said. Slow wage growth contributes, too.
“These days, a lot of people are just hanging on financially by a thread,” said Jason Shapiro, owner of Rising Realty, a Chicago-based foreclosure sales agency. “One little thing like a health emergency, and they let go.”
Wily homeowners also are extending the foreclosure pipeline, said Alice Jennett, an agent with Berkshire Hathaway HomeServices KoenigRubloff Realty Group.
“They can’t sell it for what they paid, so they just stay and don’t pay until they get put out of the house,” Jennett said. “They know they can stay for a long time” in what’s known as the foreclosure free ride that can stretch for three years in Chicago before a lender reclaims title to the property.
Distressed home sales peaked here in February 2012, when 44 percent of sales were foreclosed homes or short sales, according to CoreLogic. Nationwide, the peak was 32.4 percent in January 2009.
While the share of sales that are distressed was not tracked prior to the crash, numerous reports say that over the long term, distressed sales typically run under 5 percent of all homes sold.
Orlando, Fla., had the highest share of distressed sales in September, at nearly 23 percent, according to CoreLogic. In Tampa, Baltimore and Miami, distressed sales represented more than 21 percent of all homes sold in September.
For the four months prior to September, Chicago’s distressed-sales rate was below 20 percent, the longest stretch of sub-20 shares the area has posted since CoreLogic started tracking the data in early 2009. The share of investor-backed foreclosure purchases tends to drop in the summer, and sales of non-distressed homes pick up.
While the region’s distressed-sales rate in September was at one-in-five, the percentage varies widely by location. In 19 of the city’s 77 neighborhoods, well over half of home sales were distressed in the year ended Oct. 31, according to a report from the Chicago Association of Realtors based on Midwest Real Estate Data figures.
Over that period, more than three out of four homes sold in Englewood and Washington Park were foreclosures or short sales. About two out of three homes sold during that period in North Lawndale and West Englewood were distressed, and in another 15 neighborhoods, at least one out of two home sales was a distressed sale, according to the report.
“Places that were hurt the most by the crash are still not recovering,” Jennett said. “They’re still hurting.”