Southwestern IL housing shortage helps sellers, hurts buyers

More from the series The COVID real estate market It’s a crazy challenging time to

More from the series

The COVID real estate market

It’s a crazy challenging time to buy a home in the metro-east.

Many listings are attracting five or 15 offers from people bidding $5,000 to $30,000 above asking price, and they’re selling within days or hours of being put on the market.

In some cases, sellers are requiring buyers to pay cash for the difference between higher contract prices and lower appraisal values and expecting them to skip the usual inspections. Even foreclosed properties are getting an increased amount of attention.

Real estate does have its cycles, up and down, but this is one unlike any other that I’ve seen,” said Barb Davidson, managing broker for Coldwell Banker Brown Realtors in Belleville, who’s been in business 44 years.

For the first time ever, Davidson has told her real-estate agents that a sale is virtually guaranteed if they can secure a listing. That makes it easy — and profitable — for sellers and the people who represent them.

But it’s stressful for buyers, and Davidson worries about those who might find themselves “underwater” (owing more on mortgages than homes are worth) if values drop in the future.

“I will be so relieved when this starts to normalize a little bit,” she said. “… I think it’s beginning to calm down. I’ve seen a few of our listings going for full price with only one or two offers. That’s a little more normal.”

Davidson is guessing that some buyers have backed out of the market temporarily, just because they’re exhausted.

COVID-19 boosts demand

The COVID-19 pandemic has created a perfect storm in housing markets all over the country, according to real-estate experts. They point to a variety of factors, some research-based and some anecdotal.

In the past year:

All this has created a housing shortage, or “supply bottleneck” in the words of Geoffrey J.D. Hewings, emeritus director of the Regional Economics Applications Laboratory at University of Illinois, who compiles statistics for the Illinois REALTORS Association in Springfield.

“Basically, the market in Illinois is very much mimicking what is happening at the national level,” he said. “We’re seeing very positive price gains and sales gains compared to last year.”

When demand exceeds supply, it’s often referred to as a “seller’s market.” That’s good for sellers, bad for buyers.

Affordability is an issue for some people looking to purchase homes right now, according to Hewings. Those with better credit ratings and money in the bank have an advantage.

“More than 50 percent of recent sales were made with a down payment of 20{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} or more, making it difficult for first-time buyers to offer competitive bids,” Hewings stated in a June report of the Illinois REALTORS Association.

home construction.jpg
Builders in southwestern Illinois can’t keep up with demand for new homes, like this one under construction in O’Fallon. The cost of lumber, steel and other materials also has skyrocketed during the pandemic. Derik Holtmann

Steady increase in sales

A strong metro-east real-estate market is nothing new, according to Deb Frazier, CEO of the REALTOR Association of Southwestern Illinois, which covers St. Clair, Monroe, Randolph and Clinton counties and part of Washington.

Frazier noted that home sales in St. Clair and Madison counties increased every month for a year — beginning in June 2020 — before Madison experienced a 10{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} drop, going from 389 sales in April to 350 in May. St. Clair went from 326 to 366 sales, a 12{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} increase.

Then home sales in both counties shot up from May to June 2021, with an 29.7{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} increase in Madison County and 17.5{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} increase in St. Clair County, according to a July 22 news release from Frazier.

“St. Clair County home prices were up from June 2020, with an 18.2 percent increase, with an average price of $219,870,” it stated. “Madison County home prices were up 17.5 percent, with an average price of $211,459.”

Many people mistakenly assumed that the real-estate industry was struggling last year, based on the experiences of restaurants and other businesses forced to close or operate under strict limitations due to the COVID-19 pandemic. But that wasn’t the case.

Illinois officials determined that home buying and selling was an “essential” activity that could continue during the state COVID-19 shutdown that began in March 2020, and it did.

Some real-estate agents reported record sales, and this year has been even better.

“Overall in Madison County, year-to-date sales of single-family homes are up 15.7{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df}, compared to the same period in 2020, which is fantastic,” said Rick Owens, managing broker at RE/MAX Alliance in Edwardsville with his wife, Tammy.

“But we’re down 2.4{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} in listings, so that creates a huge inventory gap, and that’s where the multiple bids for one listing come into play. If a house is priced well, and it’s at a particular price point, it will typically sell in two days and go for more than the asking price, provided that it’s decent and it looks nice.”

Owens gave the example of one of his recent Edwardsville listings. The asking price was $250,000. The owners received eight offers in three days and sold the home for $285,000.

Location, location, location

Real-estate agents consider some metro-east housing markets “hotter” than others. That includes Edwardsville-Maryville-Glen Carbon, O’Fallon-Shiloh-Mascoutah and Waterloo-Columbia-Smithton.

In addition, homes in medium-level to upper-level “price points” are in higher demand than those in lower levels.

Owens attributes this to historically-low mortgage interest rates — ranging from 2.75{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} to 3.125{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} — which have enabled young buyers to bypass “starter” homes and afford something better. Davidson agrees.

“Everything’s selling in all the price ranges,” she said. “But it’s closer to asking price in the lower price ranges (below $180,000). They may get multiple offers, yes, but it’s a little calmer in that market.”

The real-estate boom hasn’t had much of an effect on East St. Louis, Cahokia and Centreville, according to John Sieron, managing broker of Sieron & Associates in East St. Louis, which was founded by his father, Edwin, in 1957.

Those communities are dealing with a range of social and economic problems, and that affects home values. Most of Sieron’s listings are priced at $50,000 or below.

“It hasn’t changed a lot,” he said. “There is some increase in pricing due to lack of availability (of homes with particular features or locations), but in our office, we’re not seeing nearly the volatility that you’re seeing in other communities around the area.

“It’s a simple supply-and-demand situation. In other areas, there’s not enough supply to handle the demand. Here, there’s more supply than demand.”

From left, Barb Davidson, managing broker of Coldwell Banker Brown Realtors in Belleville; Geoffrey J.D. Hewings, emeritus director of the Regional Economics Applications Laboratory at University of Illinois; Deb Frazier, CEO of the REALTOR Association of Southwestern Illinois; and Rick Owens, managing broker of RE/MAX Alliance in Edwardsville. Provided

Ticking clock for buyers

Lance Spreter is an aspiring home buyer who unknowingly threw himself into the real-estate fire in January.

The O’Fallon man decided not to renew the March 1 lease on his apartment, figuring he could stay a few weeks with his girlfriend and her three teenage boys if he didn’t find a suitable listing right away.

A few weeks turned into five months. Spreter is still looking for a home, with help from the Owenses, his real-estate agents. He’s thankful that he has a roof over his head.

“But now (my girlfriend’s) got me doing some major projects, so I’m looking to get out as soon as possible,” he joked.

Spreter, 50, is a table supervisor at the Casino Queen in East St. Louis, where he has worked for 28 years. He has a 16-year-old daughter who stays with him on weekends. He and his girlfriend plan to build a home together when their children are a little older.

For now, Spreter would like to find a 1,500- to 1,800-square foot ranch with three bedrooms, two baths and an open floor plan. He’s willing to take on a “minor fixer-upper.”

Spreter has toured more than 15 homes in O’Fallon, Shiloh, Edwardsville, Glen Carbon, Collinsville and Belleville in the past seven months. He made offers on four, and all were rejected, despite being more than $20,000 over asking price.

Spreter would have bid on a half-dozen other homes, but he pondered too long, and they sold within 24 hours. Some already had “pending” contracts while open houses were taking place.

“I’m looking for homes in the $175,000 to $210,000 range, and they’re all going for way over asking price,” Spreter said.

Spreter is trying to stay positive. He feels like the situation has improved slightly in recent weeks, with more homes that seem overpriced staying on the market longer. He’s also hoping for less competition after school starts this fall.

No big change expected

Year-to-year increases in home sales have been significantly higher in the Chicago area than the metro-east. The most recent Illinois REALTORS Association housing reports provided these statewide figures:

  • Some 17,875 single-family homes and condominiums sold in May 2021, up 51.8{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} from 11,642 in May 2020; some 21,129 sold in June 2021, up 38.9{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} from 15,217 in June 2020.
  • Home sales closed in an average 32 days for May 2021, down from 53 days the year before; sales closed in an average 26 days for June 2021, down from 54 days the year before.
  • Median sale price in May 2021 was $262,000, up 21.8{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} from $215,050 the year before; median price in June 2021 was $270,544, up 22.5{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} from $220,900 the year before.
  • Some 25,426 homes were listed for sale in May 2021, a 45.7{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} decline from the year before, when 46,791 were on the market; some 28,289 homes were listed in June 2021, a 37.6{a3382cfb20fe1297d95e8ba52ce43279dc51037f9223fc2fc6a7bf81a44823df} decline from the year before, when 45,321 were on the market.

Experts aren’t sure what will happen with real estate in the coming months and years, given that the COVID-19 pandemic and its effect on home buying and selling is unprecedented.

Hewings predicts the market will stay strong unless the economy “goes off a cliff” for some reason or banks start “playing games” like they did in the mid-2000s, causing the subprime mortgage crisis.

“There’s nothing to suggest that things are going to change very rapidly because the (housing) supply is not likely to magically increase,” he said. “Even if we we had massive construction starts, it would be six to nine months before they had an impact on the market.”

Hewings noted that there’s an oversupply of commercial property right now, and some developers have considered converting malls and other complexes into condos or apartments, but that would take time.

Another wild card is COVID-19. Experts believe lower positivity rates and higher vaccination rates have made some potential sellers feel more comfortable about listing their homes and allowing people to take tours, but the number of Illinois cases has been rising in recent weeks.

Like Davidson, Owens is sensing a “slow normalization” in the metro-east real-estate market. He doesn’t expect any sudden or dramatic change.

“The experts are predicting that we will have this for at least the next two years, and some say even as long as five years,” Owens said. “It won’t be as crazy as it has been, but it will continue to be a nice strong market.

“The bottom line is, we don’t have enough homes.”

Teri Maddox has been a reporter for 36 years, joining the Belleville News-Democrat in 1990. She also teaches journalism at St. Louis Community College at Forest Park. She holds degrees from Southern Illinois University Carbondale and University of Wisconsin-Madison.