Chicagoland Real Estate Confusion
I don't mean to pick on this NBC5 article, but I think it's indicative of a lot of the problems that buyers of real estate encounter when they turn to the media for advice. Such as:
1. An inconsistent point of view. Is the article aimed at real estate investors, or at first-time homebuyers? Is it intended to give practical advice about where to purchase property, or to give an overview of the Chicago real estate market? I have no idea. We're told about suburbs that offer good values for buyers, as well as about the priciest areas to live in Chicagoland. Are there really readers who need information about Plainfield and Aurora AND Kenilworth and Lake Forest?
2. Potential conflicts of interest. The article quotes a realtor who says that Sheridan Road is about to "make a huge comeback," and a builder who refers to Pilsen real estate as "a great investment." Yet we know nothing about the backgrounds of these individuals, or the reasons behind their opinions. Did the realtor make his comments because he's an expert in Chicago-area real estate, or because he's trying to sell more property on Sheridan Road? Is the builder a seasoned observer of the Chicago real estate scene, or just somebody undertaking new construction in Pilsen and eager for his project to prove successful? Again, I have no idea.
3. Sample Problems. The article claims that "Beford [sic] Park has seen a 163 percent increase in year-over-year prices." That's a pretty incredible number, isn't it? But when we're talking about increases in sales price, we always have to take a closer look:
- According to 2000 census data, Bedford Park has a population of 16,138, and 6,115 housing units. Needless to say, this is a pretty small area.
- I did a search on the Tribune's home transactions page, and found that there were 14 transactions involving Bedford Park real estate in each of the years 2002, 2003 and 2004. In other words, the 163% number (even if accurate in some sense) represents a tiny sample size. Any year-over-year increase may well be due to the sale of more high-end buildings.
- The average sales price for real estate in Bedford Park was $740,214 in 2004, $730,393 in 2003 and $560,107 in 2002. These figures look exceedingly high, but that's because of the presence of commercial and industrial properties on the list. In both 2003 and 2004, a property in Bedford Park was sold for $5 million or more. Because only 14 transactions occurred each year in Bedford Park, you can see why the average sales prices were so high.
- A better idea might be to look at the median sales price for each year. Doing so yields much more typical results: $210,500 for 2004; $197,000 for 2003; and $159,000 for 2002.
- These increases are fairly healthy, but don't approach the 163% number in the article. I've sent an e-mail to the article's author, asking how he came up with his number, and will post his response when (if) I receive it.
- Finally, I did a search on realtor.com for homes in Bedford Park, and found only one listed property. I wonder if the seller has been overwhelmed with offers from people wanting to get in on the "hot" Bedford Park real estate market?
In conclusion: I don't believe that most people are interested in playing the "real estate game" -- real estate is a big purchase (for many of us, the biggest purchase we'll ever make), and you want to be sensible in terms of price, location, etc. However, to the extent you want to play "the game," and use articles like the above one to guide you, you're probably going to lose.
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