Authorities believe downturn in housing market to last awhile

DuPage County’s suffering housing market continued its slump in 2008, mirroring a nationwide trend heading into its fourth year.

The number of homes bought and sold in Wheaton fell sharply last year, and those that did sell fetched lower prices. The market drought is hitting hard at the wallets of not only home sellers but also schools and towns that rely on real estate taxes.

And experts are not hopeful for a quick rebound in 2009.

In Wheaton last year, 401 detached single-family homes were sold, down 16 percent from the 478 sold in 2007. The market was just two-thirds of what it was in 2005, according to numbers from the Mainstreet Organization of Realtors in Downers Grove.

As fewer people are buying real estate, homes are lingering on the market longer. In 2008 it took more than five months to sell the average Wheaton home, twice as long as it did in 2005.

The downturn seen in almost every town in DuPage County is part of a national slump since housing prices peaked in 2005. In late December a real estate index of major cities announced 27 straight months of declining home prices, capped off by a record 18 percent drop in values from the prior year.

There is no shortage of hypotheses to explain the burst of the housing bubble. Increasing foreclosures because of the subprime mortgage meltdown, dried-up mortgage-lending thanks to the 2007 credit crunch and a years-long glut of home construction are all factors.

But at the heart of it is simple economics: supply and demand. More homes are for sale than people to buy them, and that drives prices down.

“What it means for sellers is they need to be extremely realistic about where they price their home,” said Sherry Spengel, a real estate agent in Glen Ellyn and Wheaton. “There’s so much inventory that you really have to be priced right — or even just below — if you want to be the one to sell.”

For homes that don’t attract a buyer right away, it can be a long wait — 59 days on average last year in Wheaton.

“Those are averages,” Spengel said. “We’ve seen houses on the market for 200, 200-plus days.”
As weeks become months on the market, it becomes even tougher to sell a house without further reducing the price.

“There’s nothing wrong with (the) house, but the perception is that if it’s still on the market there’s something wrong,” said Spengel, who runs a real estate blog.

And it is not just homeowners taking a bath in the housing slump.

School districts earn money from property taxes, though it is unclear how declining home values will affect the tax rates this year. Officials in every township are in the midst of assessing one-third of the township’s properties for this year.

Town governments, however, are calculating how much revenue will be missing due to declining home sales.

Wheaton is one of several towns in DuPage County that levies a tax on each real estate sale. For every $1,000 in the sale price, $2.50 is paid to the city.

With homes sales down along with housing prices, that transfer tax is bringing in less money and leaving a significant hole in the budget.

“At the moment, it’s almost nonexistent,” said Wheaton City Manager Don Rose.

Two years ago Wheaton collected more than $1 million from its real estate transfer tax. Through November the revenue was $411,000 for the current fiscal year, which ends April 30.

“We’d be lucky to see it get it up to $600,000 because there’s not a lot happening in the realm of home sales or anything else,” Rose said.

The dour revenue forecasts are nothing new for Wheaton officials. Last year they announced a $4.3 million deficit in the 2009-10 budget, and leaders responded with a sales-tax hike and millions of dollars in cuts in the budget that take effect May 1.

But if the real estate tax continues to decrease — along with the sales tax due to a suffering retail sector — it could mean even more budget troubles in the years ahead.

“The expenses are still there,” Rose said. “The demand for services certainly doesn’t go down.”

As national leaders debate how to resurrect the housing market, one key ingredient will be time, said Kathe Doremus, senior mortgage loan consultant at Community Bank-Wheaton Glen Ellyn.

“There is no fast fix,” she said. “Every time they slap on the Band-Aid, it’s created more of a problem. It hasn’t stabilized the market.”

A possible solution is to encourage more first-time buyers to enter the market, she said.

“We need to bring new buyers in order to let those people make purchases,” said Doremus, who is on the board of directors of the DuPage Homeownership Center, a nonprofit affordable housing agency. “There are plenty, and I see them all the time, who have excellent credit and money for a down payment.”

First-time buyers could inject new blood into a sector that has become dormant: people moving from house to house within a community, as opposed to moving in from another region.

“I think that was a lot of (the) market. It was just people moving around,” Spengel said about real estate sales. “That complete sector, from what I’ve seen, has shut down.”

But there is no guarantee the market will turn around anytime in the near future.

“There may be hope,” Doremus said, “but it’s going to be a long time.”