March 9, 2011
Although the stock market and other major economic indicators such as gross domestic product continue to rise, foreclosures in Berwyn are also climbing. The number of local foreclosure filings jumped from 659 in 2009 to 791 last year — an increase of 20 percent — according to a recently released study from the Woodstock Institute.
The foreclosure problem has reached what Robert Dwan, the city's director of community development, calls “catastrophe” levels as the city struggles to keep people in their homes and properties maintained.
“Its a huge, huge undertaking,” Dwan said of managing the city's vacant properties. “As a city, we have to make sure that the property is maintained from a visual aspect, and that costs us. (The property owner) may get tickets and they may get notices that they have to maintain the property, but we have to be active in the monitoring process.”
The problem has gotten so bad that Joseph Pav of Pav Realty estimates that 60 percent of all of his home sales are now foreclosures. That, in turn, has pushed the sale of the average Berwyn bungalow down by $100,000, Pav said.
“This is an area that had a lot of sub-prime loans,” Pav added. “The sub-prime loans started the problem. But by the government and the powers that be not correcting the problem, that has strangely enough started a second wave of foreclosures because of the people that couldn't sell their homes for what they invested in them.”
Ironically, the boom in foreclosures also has made rent prices skyrocket. Property values have plummeted just as the market is being flooded by renters who no longer qualify to buy a house.
“If you take a combination of the $150,000 sale price as an average and a lower rate, it's almost cheaper to buy than to rent a bungalow because a lot of the foreclosed buildings, those people have no choice but to rent,” Pav said. “So, rents are hot.”
Many residents have expressed frustration that their property taxes have gone up, despite the fact that the bottom has fallen out of their homes’ assessed values. Berwyn Township Assessor Al Kveton explained that property tax payments haven’t decreased because nearly everybody lost value in their homes.
“Once the tax levy is set, it's going to be collected,” Kveton said. “Taxes are portioned out based on property values, but everybody’s value has gone down about the same, so your share of property taxes will be about the same.”
The city’s fight
The challenge for the city of Berwyn is preventing homes from going vacant, Dwan said. Once houses are vacant, the city has to ensure they don't become blighted or become havens for squatters and drug users. The city has even had problems with thieves stripping copper piping out of vacant homes to sell as scrap metal.
That challenge has been exacerbated by the number of people who owe more than their home is worth.
“I think it's wonderful when people stay in their houses when they're in an upside-down mortgage because they like the houses and they like the community, but they can't sell the house for a profit after 20 years and retire on that money like they used to,” Dwan said. “In our lifetime, it may never cross where that house is worth more than what we paid for it. In 20 years, maybe we'll be even.”
Although the city can't help people pay their mortgages or stop foreclosures, its still fighting back.
The city has started a single-family home rehabilitation program that offers residents who meet certain income requirements to take out a no-interest loan to make major repairs to their house.
It’s also embarked on a more ambitious state-funded program to buy vacant homes and then renovate them to meet improved ecological standards, in turn selling them at affordable rates. The city has already purchased 26 homes and is waiting on the state to release funding to begin the renovation process. In the meantime, Dwan has a crew of people who inspect the houses every week and maintain the lawns during the summer. Even without funding, that program still allows the city to keep blight in check.
While foreclosures can be disastrous for homeowners and a headache for city leaders, they’re also a boon for redevelopers. That economic activity could help stabilize the problem in the long run, Pav said.
Home values have become so low that they make a great investment for people looking to rehab homes.
“Now, we're finding that most of the buyers on the foreclosures, a majority of them are rehabbers and investors that are buying them,” Pav said. “You put in some new tiles and some new painting and throw in a couple of light fixtures and you can get an extra $20,000 on them.”
Because house prices have fallen so low, some people who couldn't afford a house before can now find a place in Berwyn. Between new homebuyers and remodelers, Pav thinks the worst of the foreclosure crisis could be over.
“What you're going to see now is most of the foreclosures that come out on the market get snapped up pretty good. The average sale price dropped in the last few years, but right now, I'd say we're at the bottom,” Pav said. “Five years from now, they're going to look back at 2011 and say ‘My God, they're so much lower than they are now.’ People aren't going to believe that these houses sold at these prices.”
Marianne McAleer, who handles foreclosure transactions as the city's compliance clerk, also said foreclosures already look like they're down from last year.
The city also has several natural real estate factors that could drive up home sales in the near future.
“The housing stock is outstanding here,” Pav said. “We've got some people that lost some homes out west. They're looking around here now, and they're looking at some of these bungalows and they're buying those.”
Additionally, people might want to move closer to jobs or entertainment in Chicago as gas prices continue to rise. As winter comes to an end, Pav said he thinks the cycle of foreclosures and falling home prices also will begin to draw to a close.
“I think in the spring, the affordable ones are going to sell because the prices are a lot better,” Pav said. “It's going to turn around ... eventually you’re going to stop the foreclosures.”