The home front
Looking forward into 2008, a group of veteran Chicago developers, brokers, lenders and investors see a gradual recovery coming for some sectors of the Windy City’s real estate market.
The outlook is good for 30-year mortgage rates at 6-percent or less, and the retail and apartment rentals should post strong numbers, according to a forecast by a panel of experts at the recent Lincoln Park Builders of Chicago Real Estate Forum.
However, the experts say it may take until 2009 before the over-built new-construction condo market in downtown Chicago rebounds. More than 6,000 unsold inventory units were on the market downtown in the third quarter of 2007, according to the latest report from Appraisal Research Counselors.
Affordable mortgage money should help reduce this inventory, experts say. In mid-January, the benchmark 30-year fixed mortgage rate average fell to 5.87 percent from 6.07 percent. A year ago, the 30-year average was 6.21 percent.
Although interest rates are extremely affordable, the fallout from the subprime mortgage crisis has caused the nation’s mortgage industry to go through a “state of siege” and that likely will last two more years, said mortgage broker David Hochberg of Townstone Financial.
“Over the last five years, the residential lending market was like the Wild West,” Hochberg said. “Now, 6-percent home-loan rates are available, but many lenders are not approving loans. No-doc loans are out, and lenders are saying that mortgage applicants with a credit score in the low-500s seeking a zero-down payment loan will be rejected.”
Apartment investor Gary Kass, of Kass Management Services, noted that the rental apartment market has rebounded with sharply lower vacancy rates and higher rents.
“The rental market should be terrific for landlords in 2008, because there is a shortage of good apartments in Chicago,” Kass said. “On the North Side, we expect to see nearly zero vacancies and healthy rent increases. The market will be slower on the South Side, but big investment dollars also are coming to that part of town.”
On the expense side of the ledger, Kass expects landlord costs to rise 2008, especially because of the impact of higher real estate tax assessments.
Retail leasing specialist Keith Lord of The Lord Cos. said retail space is “on fire” as Chicago experiences a very healthy market. “Retail brokers love it when there’s a downturn in the residential real estate market, because our business booms,” he said.
Noting that Americans love to shop, Lord called Chicago “a safe harbor” for investors.
“Retail rents are up and vacancies have fallen to 8 percent from 10 percent,” he said. “We are forecasting that vacancies will shrink to the 6-percent to 7-percent range.”
However, retail shops that depend on housing will likely struggle in 2008, Lord predicted.
“Retail space for grocery chains, such as Whole Foods and Trader Joe’s, health food shops, restaurants and fitness centers will be in great demand in urban neighborhoods such as River North,” Lord said.
Regardless of the slowdown in sales of new condos in Chicago, the market here is doing much better than other parts of the country, said Susan Tjarksen of Aries Real Estate Development.
“In Florida, 60 percent of the condominium inventory stands unsold,” Tjarksen said. “Florida is two years away from recovery, and downtown Minneapolis has no condo market at all.”
Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc., www.dondebat.net.