If the market seems crazy out there, you’re not alone. Even when once-in-a-lifetime forces are at work, tried-and-true wisdom still goes a long way. Here’s what the numbers show.
The home was listed for $109,000. It closed in 10 days with a sale price of $130,000. The winning bid – one of five submitted – offered cash, no contingencies, proof of funds from the bank and an escalation clause to outbid the competition.
If that sounds crazy to you, you’re not alone.
“It is crazy,” says Jean Crosby, managing broker-owner of Berkshire Hathaway HomeServices Crosby Starck Real Estate in Rockford, whose agent put a losing bid on the Byron, Ill., property. “The winning buyer struck inspections. It was on a well and septic. No well and septic check. And they paid $130,000 versus $109,000. And closed in 10 days, cash. I think that’s the only reason they got it.”
If you’ve bought or sold a home in the past few years, you’re well aware that it’s a feeding frenzy out there. If you’re contemplating a move soon, be prepared for a wild ride. The convergence of once-in-a-lifetime forces are conspiring to keep the real estate market challenging for the near future.
The good news, though, is that smart buyers who follow sound principles can still secure a solid deal in northern Illinois. That isn’t likely to change anytime soon.
“What our Realtors continuously hear is that Rockford is such an affordable housing market, and you get such a bang for your buck,” says Conor Brown, CEO of NorthWest Illinois Alliance of Realtors, a group that advocates for real estate brokers across Winnebago, Boone, Ogle, Stephenson, Carroll and Jo Daviess counties. “Their clients who come here from out of town understand why, in Rockford, you can have a great quality of life and all of these amenities plus the ease of getting around.”
Market Forces at Work
Back in early August, Brown announced a major milestone for the Rockford area: the average sale price of a home was $198,254. It was the highest ever recorded and almost double the record low set in March 2014. Almost two months later, he announced an even bigger milestone: Average sale prices eclipsed $200,000 – for the second straight month.
Those results spell good news for Rockford, Brown says, because they indicate rising property values and a strong market. But just below the surface, the numbers show a market reacting to the simple laws of supply and demand.
For starters, the supply of homes for sale is at unusually low levels. Completed transactions are off 11.5% year over year, with just 407 properties sold this past August – and that was the highest point all year. It’s not that the buyers are leaving. It’s that the sellers aren’t entering.
“In a normal market, we would have 1,600 to 1,800 houses on our MLS (multiple listing service) that covers three counties,” says Tom Humpal, broker-owner of Re/Max Property Source in Rockford. “Now, we have maybe 300 or so homes and somewhere around 2,000 buyers. So, when a house comes up for sale, guess what? You get multiple offers, and many times the house sells for more than the asking price.”
The supply of homes is so low that Brown estimates there’s just less than a month’s worth of supply right now, meaning that if no new homes came on the market everything would sell out in three or four weeks. By contrast, inventory in a “balanced market” is considered to be about six months.
“It’s difficult to imagine it going any lower than it currently is this year,” adds Brown.
Local Realtors believe there are several forces keeping sellers away. The sizable baby boomer generation, born between 1946 and 1964, is hitting retirement age and many are staying in their homes longer, opting against downsizing, says Crosby. They have an economic incentive.
“This is a national statistic: roughly 85% of all homeowners who have a mortgage have an interest rate at 5% or less,” says Crosby. “So, they are not willing to put their home on the market if they’re at 2.5% or 3%. Not when current rates are around 6 or 7%.”
At the same time, buyers in their mid-30s are just now entering the market, many of them having rented in more-expensive cities and suburbs during the past decade. Crosby believes personal finances kept many of them from entering the market any sooner. While roughly 66% of these buyers are married, about 14% – one in seven – are single women, according to the National Association of Realtors.
“Part of it is they’re trying to get rid of student debt, because that impacts their monthly mortgage payment and how much down they can put on a home,” she says.
How to Survive
Before a buyer jumps into this market, it’s important to be prepared. That begins with one of the wisest decisions you can make in any market: hiring a qualified, knowledgeable Realtor.
“I firmly believe you need someone to help you navigate,” says Humpal. “Buyers and sellers realize that today you need a Realtor to help you through the process so you know how to respond at every turn.”
Their skills are especially helpful when deals get cutthroat – and that’s still commonplace these days.
“Let’s say there are nine offers on a home. That means there are eight buyers who will not get that house,” says Humpal. “Who’s going to get it? The person who has the highest-skilled Realtor working for them.”
Hiring the right Realtor should go hand-in-hand with hiring a good lender, preferably someone local who knows Rockford, say Humpal and Crosby.
“It can’t be, ‘I’m talking to a lender,’” Crosby adds. “They have to have something in writing that says they’re lendable. If they’re paying by cash, they have to have something that says they have the funds to close – and it needs to be on bank letterhead. Without that, they won’t even get past first base.”
Crosby finds traditional 15- or 30-year mortgages are the safest approach given today’s ultra-competitive market. FHA-style loans are more complicated, she says, and thus they tend to be less attractive against other bids. Contingencies are also more likely to earn rejection.
“The important thing is that they have to be ready to make a quick decision,” Crosby says. “A lot of home buyers are buying properties and eliminating the inspection, eliminating attorney’s approval, eliminating contingency on the sale of another home.”
Such tactics aren’t always advisable.
“That’s a risk a buyer will take, but if you want a house today, you have to take some risk,” adds Humpal. “I’m not advocating for these tactics, but I am saying that if you want to be a winner you have to offer a better program than the other guys.”
If do you end up in a bidding war, it’s important to know what the home is really worth and what you’re comfortable spending. A Realtor can run a market analysis to see how the value of the home stacks up with the appraisal and future market value.
“My big concern is for the person who goes $30,000 to $40,000 over list price,” says Crosby. “Can they sell in five years at that price? This industry has peaks and valleys, so this market won’t last forever. Where will that buyer be positioned when it’s time to sell the property?”
Sellers Hold the Advantage
Life events still happen regardless of market forces. For those who find themselves ready to sell, it’s a good idea to start out with realistic expectations. That starts with a solid understanding of what attracts buyers, which is something a qualified Realtor understands.
Most searches these days begin online, where buyers can scan homes for sale and view pictures of the interior. This is the buyer’s first impression, so Humpal encourages his clients to display quality photos that show a move-in ready house.
“If you don’t have a good presence on the internet, you’re not going to get the job done,” he says.
Pictures alone won’t cut it. What’s inside needs to look its best, and that often means a few smart fix-ups, such as a coat of paint, new flooring or kitchen countertops. While older homes that are well cared-for can still get a solid return in today’s market, Humpal says, a few thousand dollars invested in the right places can maximize a seller’s return.
“If you think your house is worth $250,000 you might get $200,000 if you don’t do anything,” Humpal says. “If you do all of the things your Realtor suggests, you could get $275,000 on that house. The value for the money you spend upgrading your house is 100% worth it. You’ll get your money back and then some.”
Once it’s time to list, be ready for things to move quickly.
“We often tell a seller to list it on Friday and go away for the weekend, because as soon as it hits, showings are going to start,” says Crosby. “We’ll list the property at 8 a.m. and we’ll have 13 showings arrive by 10 a.m. It’s just incredible.”
Where Are the Builders?
Conventional wisdom still suggests that low inventory and strong demand will spur new home construction. While that’s been true in some corners of America, including the Chicago suburbs, it’s not been the case in Rockford. Fifteen years after the housing market crashed, Rockford homebuilders are still recovering.
As of late August 2023, builders across Winnebago County had taken just 85 permits for new single-family construction this year, according to the Home Builders Association of Rockford (HBAR). Those numbers are off pace from last year, when builders across the county sought 105 single-family permits and 40 duplex permits during the calendar year.
What’s slowing things down? Cost remains a top concern, says Dennis Sweeney, HBAR executive vice president. Not only are building materials more expensive since the pandemic but the starting price of new homes remains higher than many existing homes.
“Things have gotten a little better from the pandemic, but we’re still seeing huge problems because of supply chain issues,” says Sweeney. “There are labor issues in this market – you can’t find framers – so the time it takes to build a new house is getting stretched out, and that also adds to the cost.”
Back in the boom times of the 1990s, a ranch home could be complete in about four months, Sweeney adds. Now, it takes six to seven months. And builders, who are mostly small, independent firms in Rockford, face tighter restrictions on financing and government mandates than they did 15 years ago.
“If you can’t sell it right away, you don’t build it,” Sweeney says. “Lenders want to see a buyer. So, it’s gotten a lot tighter. Back in the boom days you could sell spec homes left and right.”
In Chicago-area markets like Huntley, Elgin and Yorkville, homebuilding remains white-hot, in part driven by the work of national homebuilding firms. Such builders have a tendency to erect sprawling subdivisions where big homes on small lots maximize costs, Sweeney says. But in Rockford, the national builders remain distant and spacious lots remain a standard.
“We have nice diversity of housing stock and the local economy, so we have that going for us, and that’s a good thing,” says Sweeney.
He also credits the City of Rockford and Rockford Public Schools for their recent agreement to rebate property taxes on new home construction.
“That’s a win-win because your infrastructure is now more efficient and you have a house added to the tax rolls,” says Sweeney. “So, that might stimulate some infill in the City of Rockford and the boundaries of Rockford Public Schools.”
The Well-Kept Secret
Even as home prices rise in Rockford and the market gets squeezed, smart buyers still recognize they can get a good deal here in Rockford.
In fact, a recent study by the National Association of Realtors found that Rockford was the third most-affordable market in America where the average sale price is under $250,000.
At a median sale price of $180,000 in August, Rockford easily outperformed the Illinois average of $280,000 and the Chicago suburban average of $339,900, according to the Illinois Realtors association. It’s also more affordable than places like Kankakee ($212,500), Bloomington ($215,000) and Champaign-Urbana ($201,000).
Even compared with Wisconsin, Rockford still stacks up. The state averaged a median sale price of $300,000 this past July with a median of $350,000 in the region that includes Rock, Dane and Green counties.
Because they know Rockford has its advantages, it doesn’t surprise many local Realtors when they’re contacted by someone in a far-off location.
“I’ve seen parents who once said, ‘I’m going to retire to Florida and the kids can come visit me.’ But do you know what happens? The kids don’t go. So, they say, ‘I want to see my grandkids,’ and they move back to Rockford,” says Humpal. “We also see people moving here from places like California, and they say, ‘I can live anywhere I want and still do my job, so how wonderful is it to cash in my house while I can make good money on it, put half in the bank and still have enough to buy a beautiful home in Rockford?’ We have to keep promoting what a great town we have.”