March housing sales dive - Existing-home transactions drop 8% nationwide, 22% in Chicago
By Mary Umberger and Robert Manor
Copyright © 2007, Chicago Tribune
Published April 25, 2007
Lumber dealer Rick Baumgarten knew business wouldn't be good this year. But even after a career spent riding the ups and downs of the housing business, he said he was too optimistic.
"I didn't think that the slump was going to be as deep as it was," said Baumgarten, president of Lee Lumber on the North Side. "I was plain, flat-out wrong."
The slump is deep. New data out Tuesday from the National Association of Realtors shows that existing-home sales nationally were off 8.4 percent in March, and in the Chicago area they dropped a wrenching 22.1 percent.
Experts said the U.S. economy isn't in danger of immediately tanking as a result, but the outlook for the next few months is taking on a more cautious tone, given the housing industry's major influence on overall economic activity.
The report on housing sales came the same day as a downbeat report on consumer sentiment, with The Conference Board consumer confidence index declining in April.
The Conference Board blamed higher gasoline prices, but one economist said the weaker housing market also is contributing to public unease.
"There is a relationship," said Jonathan Noonan, chief investment strategist for Appleton Partners, an investment management firm in Boston. Noonan said some people who once thought of their home as a source of ready cash, whether through home-equity loans or outright sales, may be becoming less confident.
"You could tap into your house just like an ATM" when sales and prices were rising, he said. "What we have now is the unwinding of this."
Like some other economists, Noonan said weakness in housing could reduce this year's increase in gross domestic product from a relatively brisk 3 percent to a not terribly uncomfortable 2 percent.
Yet within the real estate industry, the gloom is not pervasive. It is even ebullient in some quarters, as the housing market sends out thoroughly mixed signals about how the post-boom era will play out.
Nationally, the March existing-home sales drop-off was the worst since January 1989. The Realtors blamed unusually harsh weather in February for curtailing home shopping.
In Chicago, where the weather was equally brutal, real estate agents also blamed the slump on the ongoing cat-and-mouse game home buyers and sellers have been playing, although some said that, anecdotally at least, that seems to be evening out.
"The buyer mentality has changed," said Gold Coast agent Mario Greco, who said he has seeing strong sales, sometimes with multiple offers. "It took almost six months for sellers to realize they weren't going to make $100,000 [appreciation] on their homes, they were going to make $75,000.
"And buyers are realizing they're not going to get it at a rock-bottom price. Sellers are coming down, buyers are coming up."
New Lenox broker Jim Mance said he wasn't seeing as much flexibility.
"Generally speaking, I don't see the listing prices moving down much more than 2 or 3 percent," he said.
One of his clients is Jackey Licka, who said that even though she and her husband, Wayne, had a deadline to sell their New Lenox duplex home in order to move into a newly built house in Pennsylvania, they knew they were probably overpricing their unit when they listed it for sale two months ago.
"We knew we were too high in the beginning, and then we lowered it by $10,000," she said.
Even then, the couple got offers that were $25,000 below their asking price, she said. She said they held firm, and in recent days they negotiated a contract to sell the home for about $7,000 below their asking price, which she declined to disclose. She's happy with the outcome, she said.
The median home price in March continued to rise in Illinois, although by just a fraction of a percent higher than the year before, to $198,000. Chicagoland prices also rose, by just under 1 percent, the Realtors said.
Nationally, however, the median price slipped marginally below last year's, to $217,000. The annualized pace of sales fell to a seasonally adjusted rate of 6.12 million units, from a pace of 6.68 million units in February.
"We're definitely in a market that is still finding its legs," said Robert Zoretich, president of the Illinois Realtors. "Tentative buyers and sellers are still trying to read the market and are taking their time."
Tim Rogers, chief economist for the investment advisory service Briefing.com, found some comfort in Tuesday's real estate numbers.
"You still don't see prices falling off a cliff," he said. "That means sellers are not in panic and feel they can wait a while for a buyer."
Construction and sales of construction materials will take a hit soon, said Erik Hurst, professor of economics at the University of Chicago Graduate School of Business.
Among those benefiting most from the residential construction boom of recent years, obviously, have been construction workers.
"We have had a little slowdown, nothing drastic," said Tom Villanova, president of the Chicago & Cook County Building & Construction Trades Council, which represents 100,000 workers in 24 trades.
Construction is a significant part of the Chicago-area economy, but even a big drop in residential building won't badly hurt workers here, Villanova said.
"Usually when residential goes down, commercial and industrial pick up," he said.
Electricians who might have wired houses instead might wire office buildings, for example.
Others also said that they were compensating, as one end of the housing market shifted work into another.
"We are busier than ever," said Gail Drury, who owns a kitchen-design firm in Glen Ellyn. "We're not doing as much new construction now, but the remodeling is more than making up for it."
Indeed, the kitchen and bath industry remains cautiously upbeat..
"We have an optimistic forecast of a 1.5 percent increase in business, to 7.6 million kitchen remodeling jobs, and spending on that will be $130.4 billion," said Ed Pell, manager of market research for the National Kitchen and Bath Association in Hackettstown, N.J.