Normally, we don’t chatter much about what is going on in the suburbs but someone sent me this article from the New York Times examining the increase in foreclosures in Lake Forest and I thought it was worthy of discussion about the upper end of the market, in general.
You know what they say- if it’s happening in Lake Forest- then what affluent neighborhood/city is “safe”?
From the New York Times Chicago News Cooperative:
“In the first half of 2010, the largest increases in new foreclosures occurred in the region’s middle- and higher-income communities,” according to a report this month by the Woodstock Institute, which tracks housing trends in the region.
DuPage County was hardest hit in the Chicago metropolitan area, with a 74.8 percent increase in new filings in the first six months of 2010; Lake County, home to Lake Forest, was second, with a 64.9 percent jump. But in Lake Forest, the increase in the number of foreclosures was a jarring 78.9 percent.
An examination of real estate transactions in Lake Forest through the end of July found that of the 127 houses sold this year, 18 of them, or 14 percent, were either in foreclosure or were transferred on so-called short sales — that is, when the selling price falls short of the amount owed on the mortgage.
As we saw in the recent Chicago Journal piece about the increase in foreclosures in the green zone areas while they are starting to die down in the harder hit subprime areas of the far west and south sides, so too have the foreclosures and distress sales started picking up in the more affluent areas outside of the city.
The numbers in Lake Forest are comparatively small — 34 foreclosures this year compared with 11,103 in Chicago, according to the institute’s tally — but the impact has been especially nerve-racking.
Two years ago, the words “foreclosure” and “short sale” did not exist in the local real estate lexicon, said Dick Christoph Jr., a Realtor with Coldwell Banker in Lake Forest.
How did this come to pass in Lake Forest, where people are not only wealthy, but also like to think of themselves as wise in the ways of money?
The culprits, real estate experts say, are interest-only and no-down-payment loans, which were popular with high earners who saw the housing bubble as a way to enhance their wealth.
From the mid-1990s until the bubble burst two years ago, it was virtually impossible to lose money in real estate in Lake Forest.
“You’d ask someone how they were doing, and they’d say, ‘Oh, I made $100,000, $200,000 this year, but my house went up $200,000,’ ” Mr. Christoph said. “So they started spending like they were earning $400,000 a year. In reality, they were living above their means.”
But some real estate agents, including Mr. Christoph, are advising underwater sellers to consider a walk-away. “The banks will hate me for saying this,” Mr. Christoph said, “but if you can’t ride it out and you’re going to be caught in a short sale, quite frankly it makes sense to stop paying the mortgage.”
“A lot of people just got caught up in this thing,” he added. “They’re not bad people; it’s not a deadbeat scenario. You have to protect yourself and move on.”
The article describes how some homes on Lake Michigan which would have sold for $10 to $11 million previously are now being “whispered” about being for sale for $4 million to $5 million.
If these kind of reductions are happening in Lake Forest, what does this mean for Chicago’s high end market?
Far from poor, real estate woes nip at Lake Forest [New York Times Chicago News Cooperative, Tom Hundley, August 7, 2010]
