I think this is a very interesting question @Matt White. I think this question can be asked of real estate in general. I will give my two cents but I am anxious to see what some of the true experts have to say if they will comment on this one.
In my opinion the NWI area may very well see a correction in the near future. Some of the telltale signs are the fact that you are seeing more and more people investing and buying primary residences (demand). The prices seem to be rising in certain areas and some of the prices are markedly higher than they were just a short time ago pretty much everywhere. That being said, there are still a lot of foreclosures (supply). There are also a lot of properties on the market for long periods of time.
That being said, I don't believe that the correction will be anything like what happened in 2007. Todays bank money is just not the same as it was back then. Lenders aren't giving it away or lending based on future values. They want you to have equity. That is a major factor. I have also had some appraisals done recently and the appraisers are very conservative when you compare their numbers with actual recent sales. Those two things coupled with the inventory tell me that a crash like 2007 is very unlikely. You will more likely see a stagnation of prices. Some of the properties that have been out there for a while will come down and the overall time on market will probably get longer.
This is very much dependent on the type and location of property. No one answer will fit an area as diverse as NWI. Even if there are some corrections NWI has a lot going for it that will allow it to continue to grow. There are many depressed areas that are in prime locations. That is speculative but those areas can have major turnarounds at any time. That may seem far fetched but you would have said the same about some areas in Chicago that were very much depressed 10 years ago and are affluent neighborhoods today.
They built two Wal-Marts in North Hammond and South Hammond. Believe me when I tell you that is significant. Wal-Mart does not put these stores in declining areas and they spend tens of millions of dollars to research these areas. When you have a new Wal-Mart you can almost guarantee a need for low income housing. Don't discount that demand because we are not talking about criminals. We are talking about decent hard working Americans that don't make enough to live in Munster or St. John. They pay rent and they need a place to live. The need for low income housing is not going away anytime soon. The gap between the rich and the poor continues to grow. As more people drop from middle to lower class they need a place to live. They are still the same people but they have less money.
Also look at the politics or whatever you want to call it in Illinois. The state is in serious trouble. They have some of the highest taxes in the nation in income, property and sales. People are waking up and asking why they are paying that. They get no more or less than people who live in states and counties with lower taxes. They are fed up and they are leaving at an alarming rate. Chicago still has some of the best job opportunities in the country and they will for a long time. Couple that with my previous comments and you will see it doesn't take a rocket scientist to guess where these people will end up. You may or may not know about the housing booms in places like Bolingbrook, Mokena, New Lenox, Shorewood, Minooka, and Plainfield Illinois. I think the next exodus like that will be to Indiana.
All of this applies to residential properties. Taking that one step further, this applies to one to four unit residential properties. I think the story is much different for larger multi-family properties. When you look at the going cap rates investors are willing to pay in this region coupled with the fact that many commercial loans on rebound properties are coming up for refinance in the next couple of years I think investors should be very cautious in that arena.
Your best bet is to buy smart and leave the bad deals to the impulse or emotional buyers. You can buy those properties from them when they dump them at a loss or lose them to the bank. Take your time and buy smart with an exit strategy in place. Smart Real Estate Investors make money in all markets. I cannot guarantee you a solid return if you buy a property. I can guarantee you no return if you don't.
