Last week I did a combined monthly/ weekly update which indicated that by the end of March the impact of the coronavirus contagion was already fairly severe - at least in terms of contract and listing activity. The Chicago Association of Realtors released their updated numbers for the week ending April 4 yesterday morning and it continues to show a pretty bleak picture.
- Single family home activity fell from 318 last year to 172 this year. That's a 46% drop.
- Condo and townhome activity fell from 517 to 195 which is a 62% drop. Wow!
- Last year there were 528 new single family home listings compared to only 255 this year. That's a 52% drop.
- Last year there were 971 new condo townhome listings vs. only 352 this year. That's a 64% drop. Ouch!
Let's take a look at how all of this affected inventory:
- Last year there were 3168 single family homes for sale compared to only 2796 this year. That's only a 12% decrease.
- Last year there were 5277 condos/ townhomes for sale but this year it dropped to 5002, which is only a 5% decrease
You'll notice that these percentage decreases are much smaller than the percentages I was throwing around earlier. The reason for that is that the available inventory is comprised mostly of listings that have been around for a while and their number has not changed much. So you have 352 new condo listings on a base of almost 5000 units.
What we really want to see is how much inventory is available relative to contract activity so we need to look at weeks of supply - i.e. at the current sales rate how long would it take to sell through the current inventory? This is not something I have looked at before with this data.
- For single family homes we had a 10 week supply last year but this year we have a 16.3 week supply. OK. That's not good.
- Unfortunately condo inventory is way out of control. Last year we had a 10.2 week supply which has ballooned this year to a 25.7 weeks which is totally outrageous. I didn't do this calculation last week but it I just checked and it came out only slightly lower than this number.
The bottom line is that the real estate market is not nearly as balanced as I thought at the end of last week and there appears to be more stress in the condo market - possibly because lower priced buyers have less financial cushion than the single family home buyers. Just a theory. And the reason I didn't notice this last week was that I was looking at monthly data which did not fully reflect the impact of our sequestration. The bottom line: It's going to be damn hard to sell a condo in this environment.
It will be quite a while before I have actual data on this so I'm basically working off of anecdotal information. From what I've surmised there was a flurry of contract cancellations in the first couple of weeks as the financial markets went to hell without warning and people had no idea what was going on. However, since then there are far fewer cancellations because a higher percentage of the contracts out there were entered into after things got hairy. So the parties entered into these contracts with full knowledge of the current environment.
Also, there are now boilerplate Covid-19 addenda to real estate contracts available which provide for extensions and even cancellations in the event that the outbreak causes a delay or an inability to close respectively. Some attorneys are adding similar language into their attorney review letters. Buyers, sellers and their attorneys need to be careful what they agree to because some of these addenda are less precisely crafted than others. For instance, the addendum provided by the Mainstreet Organization of Realtors provides that either the buyer or the seller may unilaterally extend the closing or even cancel the contract if a government body, their business, or their employment is interrupted by a government response to the outbreak.
The Mortgage Rate Environment
Mortgage interest rates are still very flaky right now. Check out the graph below to see how much fluctuation there is from one day to the next. I've had mortgage brokers tell me that a single lender might offer a really low rate for a very brief window during the day and then raise the rate without warning once they have enough applications to fill their pipeline. So don't believe people when they tell you that mortgage interest rates are at all time lows. Maybe they are. Maybe they aren't.
#RealEstate #ChicagoRealEstate #Coronavirus
Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market or get an insider's view of the seamy underbelly of the real estate industry you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.