The Chicago area’s housing market saw the ever-so-small beginnings of a turnaround last year, as excess inventory started to be absorbed and price declines moderated and even showed improvement in some areas.
On New Year’s Day, the Mortgage Debt Relief Act of 2007, which expired Dec. 31, was extended for another year, which prevents troubled borrowers who sell their home through a short sale from being taxed on the forgiven principal. The “fiscal cliff” legislation also extended the deduction for mortgage insurance premiums.
Untill, there is a long, long road ahead, and the national picture is prettier than that of the local market, where some clouds remain. With the fiscal cliff averted, there are other housing issues to keep tabs on this year.
Foreclosures will remain part of the conversation. A stronger economy, and mortgage loan modification and home retention efforts, have helped some, but certainly not all, homeowners. In November, the number of homes nationally that were repossessed by lenders rose on a year-over-year basis for the first time since October 2010 and Illinois posted the 11th consecutive monthly year-over-year increase in foreclosure activity.
Battered communities will help themselves and each other. Last month, the Illinois General Assembly passed legislation to fast-track the court-supervised foreclosure process for abandoned, vacant single-family homes and small multifamily properties. That process, which now can take up to two years, would shrink to as little as 90 days, meaning blighted properties could more quickly change hands and stop pulling down neighborhood property values. The measure awaits Gov. Pat Quinn’s signature. In the past, he has indicated his support. The bill also would give communities more funds to take care of foreclosed eyesores.
Meanwhile, groups of municipalities in the northwest, west and south suburbs have formed housing collaboratives and are moving forward with plans to share resources and improve hard-hit suburban neighborhoods.
Separately, the Cook County Board is scheduled this month to consider the formation of a land bank that would take possession of unproductive properties and hold them in a trust for redevelopment.
More sellers will get off the fence. Current homeowners accounted for about 46 percent of home purchase transactions nationally in November, according to a Campbell/Inside Mortgage Finance survey. As the housing market continues its slow recovery, experts say, more homeowners who have been waiting to move up or downsize are expected to take advantage of the low mortgage rates. The Federal Reserve last month said it would continue to support low mortgage rates until the labor market outlook shows substantial improvement. For 2012, the fixed-rate, 30-year mortgage averaged 3.66 percent, the lowest annual average in at least 65 years, according to Freddie Mac.
Buyers will encounter new lending rules. New regulations designed to prevent predatory lending practices and another housing crisis have been in the works since the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. Regulators could announce the new rules as early as this month. The rules will include, among other things, a definition of what constitutes a “qualified”? mortgage, in other words a borrower most likely to be able to repay a home loan. Concerns abound that the rules may further constrict mortgage availability or make loans prohibitively expensive.
Home prices will get less depressing. A nationwide survey of 105 economists by real estate site Zillow predicted home prices nationally would rise 3.1 percent this year, and that 2012 saw a 4.6 percent gain. These are national averages, and real estate is hyperlocal. For the first 11 months of last year, the median price of a home sold in the Chicago area still was lower than a year ago, but the percentage declines continued to moderate.
Rents will continue to rise. Average rents on suburban and downtown Chicago properties continued to rise last year, and the increases are expected to continue in a classic case of supply and demand. Household formation is on the upswing, and people moving out on their own either can’t qualify for mortgages or don’t want to tie themselves to home-ownership.