Wheaton and Glen Ellyn Still Overpriced? (Geneva, Worth: sales, foreclosure, credit)

[seattlehawksea]

If you think so, you may be right. Here is what I did:

I compiled a list of homes that are currently on the market that I am interested in and recorded current listing and past sale prices. All of the homes are very, very comparable in that they are: roughly 2000 sq. ft., 4BR, 2.1 Baths, 2 car garage, have a fireplace, are South of Geneva Rd. and North of Roosevelt Rd. Each is also within 0.7 - 1.5 miles of a Metra stop. They are also the same style of home and the lot sizes are surprisingly very close in each town, both of which will be left out of the discussion not to single anyone out. Each home was built between 1969 and 1980 and was last sold between 1997 and 2000, which was before the housing bubble began. All in all, very, very comparable.

I calculated what the selling price should be if each realized a 3% or 4% constant yearly return on the home since the last sale. I use 3% and 4% since these numbers are in line with house price inflation historically, although they are higher than consumer price inflation in the past decade, which was low (see a previous post of mine with respect to house prices and inflation). Therefore, with that assumption, I am stacking the deck against my belief that homes on the market are still overpriced.

In the following, I show how much homes are overpriced relative to listing assuming a 3% and 4% yearly return. I also round to the nearest thousand to make things easier to read.

Here are the results for Glen Ellyn and Wheaton:

GLEN ELLYN

Home #1
Last sold in 2000
Difference between listing and selling price in 2000 if 3% appreciation: 86k
if 4% appreciation: 57k

Home #2
Last sold in 1998
Difference between listing and selling price in 1998 if 3% appreciation: 133k
if 4% appreciation: 96k

WHEATON

Home #1
Last sold in 2000
3%: 94k 4%: 64k

Home #2
Last sold in 1997
3%: 122k 4%: 92k

Home #3
Last sold in 1997
3%: 106k 4%: 70k

Home #4
3%: 30k 4%: -3k

So, with the exception of the 4th home in Wheaton (in the case of a 4% yearly appreciation), all of the homes are overpriced according to these assumptions. Of course, every single home may have added 1000 sq. ft since 2000 (which is highly unlikely given the style of the home). In addition, I make the assumption of a 3 or 4% yearly return. If credit conditions remain strict and/or we experience a recession worse than expected, those assumptions may be even too generous.

To buyers: these areas are still overpriced. This holds at least for the homes I am interested in. I don't know what the market looks like for $1M+ homes for example, but I suspect the same holds.

To sellers: some but not most of you may find a sucker to pay your listing prices. "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."

[irish setter girl]

Just curious, how far off are these list prices from homes that have actually closed in the same area? Seller's need to be concerned about the house appraising out if/when they get an offer. Did you compare list price to current (last 3 month) closed sales? Also, some buyers will actually pay more for certain streets/neighborhoods in town . I'm not saying they should but many agents/sellers/buyers feel certain areas are worth more simply because of the block/school etc... President street is a big dividing line and so is Main Street for downtown Wheaton. Glen Ellyn has quite a bit of diversity when it comes to schools and buyers will pay for certain ones. I'm not saying I agree with it I am just commenting that many people have those opinions. I'm curious to find out your figures for list vs. closed sales. Thanks for the info!

[seattlehawksea]

irish setter girl,

Good post. All of the homes I am looking at are not downtown in the sense that they are more than 0.7 miles from the downtown train stations in each town. But they are all in the northern portions of each town. All of the schools (elem, middle, and hs) are the same or very comparable in test scores in each town.

Regarding past sales prices, a characteristic feature of a deflating housing bubble is that it takes time for prices to drop. California housing prices took six years to drop and stabilize after the late 80s boom, finally hitting bottom in 1996. The Boston housing market had the same thing happen around the same time.

One reason for this is that price discovery is hard for buyers and sellers in times of increasing or decreasing prices. Think about a price decline in progress. A seller may focus on comps sold in the past three months, which may have sold higher. A seller three months from now will be looking at comps sold now which could be selling higher than then. There are a lot of frictions in terms of disagreements between potential buyers and potential sellers about an appropriate price in this situation. Therefore, the process of price discovery can be slow.

Another thing is that some buyers absolutely feel they need a home now (there is nothing wrong with this as it's their preference). Therefore, they will pay extra even though they know they may lose some money in the next two years, but probably will do well over 10-15 years. Over time, however, a price level appropriate with supply and demand for each tier of home will be discovered.

[irish setter girl]

CubsFan, I understand your point. I assume you are looking to move to this area without selling anything first. Many people who are moving here are doing so becasue they feel they are getting the best possible price for their current house now so they will buy now. If they wait another year to buy they may pay less, but they will sell for less as well. It all washes out.

Also, some people are buying because they are just ready to start living here. They want to be part of the community, have their kids in school, and become established. Sure they could wait a save some money on the purchase price but they are ready to live here and now.

Assuming that the majority of the buyers out there are not paying cash, these homes that are selling must have appraised out for the buyer to obtain financing. This tells me that homes are selling for reasonable prices for the current market and those who need a house now are not overpaying. Like you said, they know they may lose a bit in the next year or two but in the long run they are going to be fine. Sometimes you just have to live in the moment

[seattlehawksea]

irish setter girl,

I agree. In the end, things will stabilize and one should not fret too much about losing money in the short term if you need to move now for school and community reasons. However, for the buyers that can wait, I would recommend waiting.

[irish setter girl]

Hopefully in a year or two we'll see you in Wheaton/Glen Ellyn. You can't go wrong with either place and I hope you enjoy living here as much as I do. Happy house hunting!

[Steve-o]

Overpriced? Maybe. Worth it? Definitely. Sure there are other towns where your dollar goes a lot further, but Wheaton and Glen Ellyn are gems, you get what you pay for, people need to remember that.

[vandre]

Originally Posted by Steve-o

Overpriced? Maybe. Worth it? Definitely. Sure there are other towns where your dollar goes a lot further, but Wheaton and Glen Ellyn are gems, you get what you pay for, people need to remember that.

You are completely missing his point. Cubsfan1492 is arguing about the rate of appreciation of those towns, not whether they were overpriced or not even before the bubble.

In other words, all other things staying constant, historically house prices have increased at a given rate % (because of inflation,etc..). Because of the housing bubble, this pattern has a 'bump' whichCubsfan1492 expects to be corrected by the market itself

Assuming the rate of appreciation could be represented by a linear equation, in a 'normal' market you would see a straight line with certain angle (rate of appreciation)... because of the housing bubble though, there is a gap..... Now notice how this graph is b number of units above the x axis.. Saying that Wheaton/Glen Ellyn are overrated would mean that the whole line should be shifted down

y= mx+ b

m= rate of appreciation
b= "desirability"

If Wheaton/Glen Ellyn were overrated to begin with(even before the bubble) it would mean arguing that the 'b' should be lower

If the rate of appreciation is skewed (which most likely is) it would mean arguing that the 'm' should be lower

[TempesT68]

Originally Posted by Steve-o

Overpriced? Maybe. Worth it? Definitely. Sure there are other towns where your dollar goes a lot further, but Wheaton and Glen Ellyn are gems, you get what you pay for, people need to remember that.

Nailed it.

In sales there really is no calculation or equation of what houses "should" cost or be listed at. It all comes down to basic what people are willing to pay. If you have been following the market, the "housing crisis" has had the least effect on the chicagoland area then anywhere else in the nation. There was an article i believe in the daily herald maybe 6 months ago showing the declines in sales, and the upper cities like wheaton, only had a downturn of about 3% and places like oakbrook were on a large increase in sales and home values.
People who live in cities like wheaton and glen ellyn are more well off in life for the most part and the foreclosure problems are not an issue for the most part in these cities.
To live in a nice, safe community with most anything you could ask for, it's not going to be cheap, and people will pay to live there.
I'm not sure but it just seems to me you're a little bitter of not being able to afford a home you are looking for in these areas, perhaps look elsewhere?

[vandre]

Originally Posted by TempesT68

Nailed it.

In sales there really is no calculation or equation of what houses "should" cost or be listed at. It all comes down to basic what people are willing to pay.

Of course there is no magic equation that determines the exact value of a house, *BUT* that doesn't preclude you from making an educated guess with an acceptable confidence interval (the equation I wrote was just a very, very contrived example)

Another example: Why people put their retirement money in stocks? not because they know if X stock will rise tomorrow, but because given a long enough time horizon, the stock market has shown an upward trend (better than CDs, savings etc...)

For what is worth, I do agree that Wheaton/Glenn Ellyn are towns worth living in, it is just that in a non-stable housing market I think it is wise to evaluate your options carefully. I think cubsfan is just trying to make an educated purchase...