Future of Short Sales in 2014 (Chicago Market)

In the anticipation of the official numbers that will be released next week by Illinois Association of Realtors, a lot has been said about the decline of the Chicago real estate market at the end of the year. Whether it’s an actual decline or just the market staying flat, the fact that sales have slowed down is hardly surprising to anyone. Things slow down for real estate professionals at the end of the year anyway; in addition, rather unfavorable borrowing conditions and general lack of inventory definitely added to the year-end slump.

What is interesting to us is the type of transactions that did happen, not the notion of a general slowdown. The percentage of home sales that were distressed rose to 32.8 percent in November. Admittedly, this is lower than it has been during the past year, but still—almost 33 percent of all sales were distressed sales (either short sales or foreclosures).

What does it mean to real estate professionals? It means that short sales are still alive and kicking and should be sought after whenever possible. Unless you’re one of the very well established and connected agents, getting REOs is out of question; at least getting enough REOs to earn you a solid six figure income. Traditional equity sales are not so easy to come by, especially after the mini-bubble created by cash investors and scarce supply.

The only homeowners that HAVE to sell are short sale candidates. Everyone else can and will wait once they’ve sensed a possibility of rising prices. So, even though many market experts repeatedly buried short sales throughout 2013, they are definitely going to make an appearance in 2014, albeit in a supporting role rather than starring one. This is true across the country, but especially in judicial states like Illinois.

Brent Nyitray of “Market Realist” puts it this way: “Borrower behavior is heavily influenced by the consumer protection laws, particularly at the state level. States that have judicial review of foreclosure activity tend to have higher delinquency rates and a bigger foreclosure shadow inventory.”

So, yes, judicial states tend to have more foreclosures, but it also means there are more potential leads for real estate agents willing to work short sales. Theoretically, almost every foreclosure can be prevented and resolved by doing a short sale. Recent numbers show that there are going to be enough short sales in 2014 in the Chicago market; enough for an average Realtor to continue allocating part of their portfolio for them.

Will 2014 be “the year of short sales”? Not really. Should real estate agents ignore them hoping for a “full” market recovery? Definitely not.