Low Home Prices Haven’t Spurred Buying Fever

Despite extremely low housing prices, buyers aren't exactly swarming to take advantage of the bargains and lenders remain cautious with their money, according to agencies.

In the first quarter of 2011, prices fell to their lowest levels since the beginning of the housing bust, reported the S&P/Case-Shiller housing index. It showed that the U.S. National Home Price Index had declined by 4.2 percent in the first quarter, after it fell 3.6 percent in the last three months of 2010. Overall, the index is down 5.1 percent compared to its level a year ago.

“Home prices continue on their downward spiral with no relief in sight,” David M. Blitzer, the index committee chairman at S&P Indices, said in an announcement about the numbers.

While not exactly a positive indicator for a housing recovery, low home values bring “opportunity,” said Christina Marino, a former president of the Chamber of Commerce and an agent at Century 21 Marino Real Estate Inc. in Morton Grove.

 "It’s the opportunity to make a purchase because now homes, I think, are affordable," Marino said.

That notion was seconded by another local real estate agent, Anthony Spallone, an associate broker for the northern Illinois branch of Re/Max Masters, an international real estate company.

"[Buyers are] never going to find these prices again for many, many years," Spallone said.

The national median price for an existing single-family home was $158,700 in the first quarter—4.6 percent less than in the first quarter of 2010, when it was $166,400, reported the National Association of Realtors.

Prices are significantly higher in Morton Grove, . In April , the average sales price in the town was $237,818, according to RealtyTrac.

That amount is significantly higher than the rest of the Chicago area, where the median price of a home dropped 15 percent in April to $162,500, according to the Illinois Association of Realtors.

In Morton Grove, like in much of the country, a majority of sales are from foreclosures and short sales, Spallone said.

"We see no sign of that slowing down right now," he said.

Distressed homes, sold out of foreclosure or short sales, are typically selling at a 20 percent discount and comprised 39 percent of first-quarter sales, reported the National Association of Realtors.

Foreclosed properties in Morton Grove are selling at a huge discount--about $200,000, which is nearly $40,000 less than nondistressed properties, according to RealtyTrac, an online marketplace for foreclosed properties.

Both Marino and Spallone said their respective offices had seen higher sales in Morton Grove this year, though they did not provide specific numbers.

However, Blockshopper.com statistics paint a different picture when it comes to the village. Its numbers  show 63 home sales between January and April, a 25 percent decrease from the same period in 2010.

Chicago-area home sales fell in April, marking their 10th straight drop since 2010. A total of 5,710 single-family homes and condos in the nine-county Chicago region sold that month, a 19.2 percent fall off from the 7,070 sold in April 2010, according to the Illinois Association of Realtors.

Some people say that banks stringent lending standards are hurting the housing recovery by making it harder for borrowers to acquire loans. This is a reversal from the Wild West era of mortgage lending scene during the housing boom between 2000 and 2006, when the slowdown hit.

Data from Freddie Mac and Fannie Mae indicate tighter requirements for conventional mortgage loans. The average credit score needed in today’s market rose to about 760, up from 720 in 2007.

For a Federal Housing Administration loan approval,  an average credit score of about  700 is required, a rise from about 630 in 2007.

Fratantoni acknowledges that tight standards have discouraged borrowers, but insisted that when it’s all said and done, conservative lending practices will be for the best.

“In the short run, it is constraining the number of buyers out on the market," he said. "But over the long run, it’s probably going to be a more sustainable mortgage market.”

Spallone said he had no problem with tighter standards because the earlier loose requirements standards were largely responsible for many of the loan defaults and the record number of foreclosures suffered during the recession.

Now lenders want tax returns from multiple years and a qualifying credit score, Spallone said. They also "want to see that that down payment was sitting in the bank account for some time," he added.

Richard Porter, research director of the payments studies department at the Federal Reserve Bank of Chicago, had this to say: "Banks are crawling out of the hole that they got into.

"Given that they’ve experienced enough losses, they are not anxious to make loans that are going to go sour in the future,” he said.