When they hear the term ‘housing crisis’ the Mid-Illinois Realtors Association thinks of 2008 not what the McLean County housing market faces today.
“There was a crisis in 2008,” said Ed Neaves, regional vice president for the National Association of Realtors. “When you look at the word crisis you equate crash. There is not going to be a crash.”
According to Neaves we were building about $1.5 million a year worth of homes each year before 2008, but that dropped to about $500,000 after 2008. Neaves says we are back up to $1.4 million today. His point is that as a result of the crash we are short $8 million worth of homes that we would have expected to have been built over the last 15 years and be in inventory today.
“I wouldn’t say housing crisis, when you say that word, but what I would say is we definitely have an inventory crisis,” said Diane Cote, CEO of MIRA.
“We don’t have enough inventory,” said Tammy Heard, immediate past president of MIRA
Today we have about 120 homes on the market but typically we would like to have 700.
The average length of time a home stays on the market now in our area is 1.3 months. According to Heard anything less than 3 months is a sellers market.
“According to the Federal Housing Finance Agency approximately 70 % of all mortgages are less than four percent and 90 percent lower than five percent leaving roughly 10 percent at six percent or higher,” said Heard.
According to Heard the main problem today is related to these interest rates. People who own homes at the mid-tier levels may not want to sell right now because their mortgages are at low interest rates and they may not want to pay higher interest rates on a home that would be new to them.
“I don’t think we have a housing crisis going on,” said Meenu Bhaskar, President of MIRA. “I think it is more along the line of an affordability crisis.”
Potential buyers at different tiers are facing different problems.
At the top tier there are always people that can afford to buy. This group contains not only potential buyers that one might think of as wealthy but also other groups as well.
One such group is people who bought new houses years ago. Their homes have seen increases in value and so they have equity built up in them and are able to afford more expensive new homes.
Another group is people moving to the area from the east and west coast where property is tremendously more expensive making our real estate prices look extremely affordable to them.
No doubt the cost of new homes has increased. According to Neaves, a 1,400 square feet ranch that sold for $200,000 four years ago sells for $315,000 today.
With today’s high prices there isn’t a great number of people looking to buy new homes right now but there are still a number that are.
Putting too much emphasis on new home sales only can result in one coming away with the wrong impression of the housing market. One must keep in mind that new home sales represent only 10 percent of the housing market.
The bulk of the housing market is made up of mid-tier used houses. Heard believes lack of activity in this tier is key to today’s challenges. This market has to move at a fair pace for the total market to be healthy. If it doesn’t the whole market slows down.
One of the things that impacted the mid-tier market was Covid.
During the pandemic people stayed at home. They became much more aware of the improvements they had been longing for in their home. With nothing to do and nowhere to go they decided to make those investments and did so. As a result many mid-tier home owners have chosen to love it rather than leave it.
“On average people stayed in their house four years ago 7.2 years,” said Neaves. “That’s now 12.”
A slow mid-tear market not only impacts that tier but the lower tier that consists of first time buyers as well because there are no homes vacated by mid-tier owners available to first-tier buyers as ‘starter homes.’
“First time homebuyers, can’t afford it,” said Neaves. “They can’t afford 8.5 (percent mortgages) and they can’t afford the prices so that market is extremely challenging.”
“There is no reprieve for that,” said Heard. “In McLean County we really have struggled, at least since 2008, with affordable housing for people.”
Neaves does not believe that we are thousands of houses short in our area. He points out that 60 to 70 percent of Rivian employees live out of the county. He says that the situation was much the same before Rivian when the Mitsubishi plant was operating in Normal and comfortably estimates 50% of Mitsubishi employees lived outside of McLean county.
Neaves also says Normal hasn’t built 4,000 houses in 30 years.
“We can’t build that many houses because there is not enough sewer,” said Neaves. “The infrastructure is not there.”
