Market Conditions: Could a Lower Supply of Foreclosures Actually Mean Lower Prices?

Conventional wisdom would have it that as the number of foreclosures and short sales declines, then that should put a floor under prices as its these properties that have been bringing down overall housing prices.

However, as Diana Olick, the real estate reporter at CNBC, recently found out when she talked to some experts on this subject, the declining number of foreclosures may actually work to bring housing prices even LOWER.

“We believe the distressed part of the housing market has already bottomed,” said Morgan Stanley analyst Oliver Chang on CNBC’s Squawkbox. “The bid that we see from the investor is the reason for this bottom.”

He sees further declines in organic home prices.

Why?

Banks have been very slow to release their repossessed (REO) inventory onto the market, not to mention that foreclosure processing delays have literally millions of properties still sitting in foreclosure limbo.

There is a dwindling supply of foreclosures and rising investor demand. Analysts keep pointing to overall falling inventories, but the current existing home sales pace doesn’t account for that drop.

The fact is that with so much of the supply distressed, and so few organic sellers putting their homes up for sale, the inventory drop is artificially skewed to the recent lack of movement in foreclosures and a crisis of confidence among potential organic home sellers.

In January, 49% of the 1,094 sales in Chicago were REOs/short sales.

Sure, Clio argues that those sales aren’t “real”- as they are all cash investors buying the $30,000 condo in Albany Park or other  neighborhoods outside the GreenZone.

But take out those 500+ sales, and what are you left with?

A housing market still in crisis.

Here are the percentages of sales in January that were REO/short sale in some of the GreenZone neighborhoods (thanks G!):

  • South Loop: 55%
  • Loop: 31%
  • Near North: 34%
  • Lincoln Park: 14%
  • Lakeview: 28%

What happens if the investors can’t buy because the number of foreclosures begins to fall?

“Investors and first-time buyers ARE the real estate market,” he adds. “Investors and first timers want REO and short sales. Anything done to prevent the flow of distressed property will hurt the volume of existing home sales and all of the economic benefit that comes along with them. An REO-to-rent program will bring about record lows in monthly existing home sales volume. And volume precedes price.”

Hanson believes that when the distressed supply is choked off, by selling REO in bulk to rent, not re-sell, then the only thing you have left is meager organic sales.

“The housing market will implode,” he adds.

Yes, lower supply, in a normal market, would generally mean a return to home price appreciation, but that’s not the way today’s market is working because organic demand is still so weak and is hampered by tight credit.

There is even less demand for mid- to higher-priced homes.

“$200K to $300K is the new normal for home builders,” says Rick Palacios of John Burns Real Estate Consulting. “Since new home prices peaked in 2007, new single-family sales of over $500K have been more than cut in half, dropping from 13% to just 6% of all new home transactions.”

Is looking at the foreclosure rate a red herring for those looking for the “bottom”?

Fewer foreclosures could mean lower home prices [CNBC, Diana Olick, February 17, 2012]

165 Responses to “Market Conditions: Could a Lower Supply of Foreclosures Actually Mean Lower Prices?”

  1. That guy is an idiot. He doesn’t explain why the “organic” sales prices aren’t imploding already. The reason, I would assume, is because there’s still a market (if a small one) for them at prices higher than the foreclosure and short sale market. If the foreclosure and short sale supply is cut off and people who could buy at those prices can’t afford higher prices for the “organic” market, then you’ll still be left with the same low sales volume and buyers that you had before in the “organic” market as they will be unaffected. Supply and demand still functions just like it always has.

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  2. “Hanson believes that when the distressed supply is choked off, by selling REO in bulk to rent, not re-sell, then the only thing you have left is meager organic sales.”

    wouldn’t this actually drive the prices up or at least support where they are at now?

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  3. also, did anybody see this?

    http://www.chicagotribune.com/news/local/ct-met-frozen-in-time-20120217,0,1924736.story

    How can the following statements both be true?

    “We are stuck … and we can’t go anywhere,” said Tracey Fine, 34. She estimates they would lose more than $100,000 if their condo sold tomorrow.

    Not that they’re complaining. They’re not underwater, have savings and Todd Fine, a lawyer, has a good job. “We’re better off than lots of other people,” Tracey Fine acknowledged.

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  4. What about estate sales? Are those similar to short sales and foreclosure?

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  5. This article makes no sense. The logic is totally confused. How can low supply = lower prices? Besides, in Chicago foreclosure activity is dramatically on the rise: http://www.chicagonow.com/getting-real/2012/02/chicago-foreclosure-activity-taking-off-again/

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  6. It could drive prices down if all the “REO sold to rent” drives down rent prices and the rent vs. buy decision tips more towards renting.

    ” “Hanson believes that when the distressed supply is choked off, by selling REO in bulk to rent, not re-sell, then the only thing you have left is meager organic sales.”
    wouldn’t this actually drive the prices up or at least support where they are at now?”

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  7. Real estate in my opinion will continue to grind lower for years. It is an inefficient market and will remain so until houses get into stronger hands. The government is doing everything it can to slow the decline but it will eventually go where it needs to go. We all know people living in homes who haven’t paid anything toward tha t property in years.I have a good friend living in a new north side 6 bed 6 bath beautiful home who hasn’t made a payment in the over 2 years since the home has been finished.

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  8. A majority of REO’s are either Homepath properties (where the GSE fixes it up on the very cheap and tries to sell it) or become contractor flips, where a contractor picks it up on the cheap and tries to fix it up and flip it. It’s hard to find a honest to goodness bonafide foreclosure that only needs ‘some’ work that doesn’t already have multiple bids.

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  9. Icarus-
    Interesting read. I do not at all get the people who are in a position such as the Fines.

    Most people I know in that position take the hit, move on. They are pretty much just wasting their time complaining about their cramped space.

    Not sure what they are waiting for in moving. Move on to rent and/or buy

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  10. They would “lose” $100k off what they paid….so if they bought at $380, they could only sell at $280. However, they either put enough down or have paid off enough to owe $280 or less. So, most of both statements are true. What she doesn’t realize is that they aren’t stuck though. Just because you don’t WANT to take a $100k loss doesn’t mean you can’t. If they aren’t underwater and have savings, it sounds like they COULD move.

    I think a big part of getting the housing market to turn around is convincing such people that can move but don’t want to feel the pain of losing money to feel more pain in staying. The more time they have to live in such a cramped space, the more they be ok in dealing with the loss I think.

    I know a couple who had 3 condos individually, got married, sold them all at a loss but were able to buy the home they want and are happy. I think they are smarter to have taken the losses when they did than to be miserable in one of those small condos and still take a loss down the road. If you are waiting for 2006 prices to come back, it is going to be one LONG wait!

    “How can the following statements both be true?”

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  11. Sad_at_Plaza440 on February 20th, 2012 at 9:18 am

    I consider myself fairly bearish, but I don’t understand the reasoning report in the OP either. The underlying assumption would have to be that foreclosures/REOs and “organic” home sales are separate markets. If foreclosures/REOs dry up, then the purchasers for that group could leave the market (certainly possible in the case of investors, who could go to alternative investments, less clear about first time buyers). That could certainly cause a drop in overall home sales. But I don’t see how it affects organic home prices. The investors focused on foreclosures/REOs were not buying organic homes in the first place. If anything, the standard law of supply and demand should work, as at least some investors and first-time buyers would shift from foreclosures/REOs to organic sales, creating more demand for organic sales, and driving up the price.

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  12. Sad,

    I think the underlying thought is that the investors will pull out of the market if the REO’s dry up and the first time owners won’t be able to afford the “organic” sales, so if the “organic” sales want to be able to actually sell, they’ll have to come down in price to foreclosure levels.

    What is forgotten in this market is that low supply helps prices even if there is low demand. There will still be some people that need/want to buy a house and if all there are is expensive “organic” sales, they’ll have to pay those prices. Although perhaps there will be more people that want/need to sell than buy with the drop in foreclosures and “organic” prices will be cut to reach out to the larger group of buyers that are willing to pay the REO prices.

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  13. Trudi & Benjamon, I think you’re both right. I suspect a lot of people don’t really look at it that way. They just know they paid X for their place and selling if for anything less equals a loss.

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  14. It does equal a loss in they did pay money they aren’t getting back but what is the value of moving on? Yes, for those of us that kept hearing you always make money in RE it is hard to swallow a loss but to me it is better than complaining and being miserable.

    What the complainers don’t realize either is that when (and if) their place ever gets back to its 2006 value, everything else will be so expensive they won’t be able to afford it. You can’t both sell your place for 2006 prices and buy at 2011 prices in the future.

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  15. Benjamon, what impact would those who can afford to sell have on those who cannot? For example, let’s just look at the following two camps: The Fines who can sell without bringing any money to the table or a very small amount to cover transaction costs, and the NotFines who have to bring big money to the table to get out now.

    If the Fines take the plunge and sell their condos, what impact does it have on the NotFines?

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  16. It’s so easy to judge, isn’t it? Until the Fine’s neighbors just walk away and the fines are even more underwater. $100,000 is a bitter pill. Very bitter. It’s better just to give it back to the bank and take the credit hit for 7 years.

    “Benjamon9 (February 20, 2012, 9:47 am)

    It does equal a loss in they did pay money they aren’t getting back but what is the value of moving on? Yes, for those of us that kept hearing you always make money in RE it is hard to swallow a loss but to me it is better than complaining and being miserable.”

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  17. “We are stuck … and we can’t go anywhere,” said Tracey Fine, 34. She estimates they would lose more than $100,000 if their condo sold tomorrow.”

    Can people like the Fines, with substantial savings, walk away w/o much risk of the bank coming after them?

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  18. “It’s better just to give it back to the bank and take the credit hit for 7 years.”

    Have banks actually tried to go after such people with saving and failed in court recently?

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  19. Blah, blah, blah. All these articles about “the market” are essentially pointless. In the first comment to this post, David said all that needs to be said about the issue: “Supply and demand still functions just like it always has.” If someone had been stuck on an island with no connection to the outside world for the past six years or so, and just returned to Chicago, that maxim should pretty much bring him or her up to speed as to the state of the real estate market. For more color, one might add: “Welcome back, hope there was enough fresh water on the island to have at least enjoyed your time there. In Chicago news, among other things, Barack Obama is president and Rahm Emanuel is mayor; the Hawks won the Cup; the Spire is not going to happen, but Trump is done; the proceeds from the parking meter deal are already gone; Bob Sirot is now an anchor on Fox Chicago; an over-the-top Whole Foods opened in LP; Chicago isn’t getting the Olympics; cupcakes have been a big deal; Oprah left; and the southside St. Patty’s day parade was ended, but is now returning. As for the real estate market, when you got stuck on the island, prices were at an all-time peak and lending standards were at an all time low; new construction was rampant everywhere, from the SL to tear down SFH projects anywhere possible; an economic downturn spurred mortgage defaults, which caused MBS and other products to explode, dragging the whole market down and bringing the financial system to the brink; the prolonged downturn and the attendant high unemployment rate, coupled with an oversupply of housing and tighter financing requirements, have caused real estate prices to decline everywhere, from the nicest areas to the worst, for example, generally speaking, values/list prices are down between 10 and 20 percent from peak in the nicest areas, and listings on such homes have been closing at roughly 10 percent off of the list price, and homes in less desirable areas have seen value reductions that are generally commensurate with the extent of overbuilding/converting and the extent to which it was crazy-to-ever-buy-there-in-the-first-place; it continues to be a challenge to find a nice home in the nicest of areas, and it’s relatively easy to find a nice home in a less desirable area.

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  20. Icarus,

    I think if the Fines took the loss AND bought again it would help the nonFines. I think a lot of what this market lacks is confidence. If more people that could did sell and rebuy, it wouldn’t seem to be such a dead market which would then pull more people out and prices could go up.

    Remember, this is a country of the masses. Not many are buying or selling which scares more not to. If more people started to buy and sell it would pull others off the fence. “well if the Jones can’t move neither can we” but… “if the Jones can, we can”

    An attitude shift is needed however it is done.

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  21. “homes in less desirable areas have seen value reductions that are generally commensurate with the extent of overbuilding/converting and the extent to which it was crazy-to-ever-buy-there-in-the-first-place.”

    What overbuilding was there in Portage Park, for example? I didn’t see it.

    I don’t agree with your “thesis” anonny. I also don’t agree that there aren’t great properties in your 3 block radius scenario that you’re always throwing out here. Sure- for $400k you’re not going to get all your unicorn criteria (or rarely get it.) But my gosh- there are properties in the $700,000s and $800,000s that are sitting and sitting and sitting.

    There simply aren’t enough buyers at that price level (city wide- actually.) I’ve seen some rowhouses in LP go under contract kind of quickly priced between $1.0 million and $1.5 million but that seems to be a different market then the $500,000 to $1 million club. That middle market is really, really difficult. That’s why all the 3 bedroom duplex downs formerly priced in the $700,000s are now selling in the $500,000s. There simply aren’t enough buyers who qualify for those loans anymore.

    The most telling stat to me is the surge in REO/short sales in Lakeview. Sure, there were a LOT of condos built during the boom times there. But it had been holding up fairly well until late 2011 and now in 2012. Now, prices are falling off a cliff even in the “prime” lakeview areas (close to the lake etc.) Organic sellers have no hope against the short sales.

    How many years will it take Lakeview to “correct”? My gosh. Another 5 or 6??? We’re looking at 2016 or 2017 for a “bottom” in Lakeview prices (at least on condos.)

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  22. “This article makes no sense. The logic is totally confused. How can low supply = lower prices?”

    Because without the investors buying (who will ONLY buy the cheaper foreclosures)- then 30% of the sales are wiped away right there. Few are buying in the mid-tier ($500k to $1 million) and then we’re left with a smattering of upper bracket sales- which can’t fuel a housing market. The mid-tier prices will have to fall in order to find buyers- eventually.

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  23. “What about estate sales? Are those similar to short sales and foreclosure?”

    In my opinion: no. They almost always price it higher than a bank would. And they’re willing to “hold out” on the price (has been my experience.) The children/grandchildren are always like, “we’re not going to give it away.”

    It may be the largest part of an inheritance.

    I’d much rather buy a foreclosure, actually.

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  24. “They would “lose” $100k off what they paid….so if they bought at $380, they could only sell at $280.”

    But since they are move up buyers, chances are they would save more than 100k on the price of their next purchase. The $600k house is now $400k.

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  25. “There simply aren’t enough buyers at that price level (city wide- actually.) I’ve seen some rowhouses in LP go under contract kind of quickly priced between $1.0 million and $1.5 million but that seems to be a different market then the $500,000 to $1 million club. That middle market is really, really difficult.”

    That’s true.

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  26. Icarus-

    If they’re NOT underwater- why aren’t they just selling and getting the hell out of there? I don’t believe them that they’re not underwater. Because prices aren’t going to come back in the next, say, 3 years to justify them continuing to live there with two older kids (if it’s rough now- just wait.) Unless they live there for the next 10 to 20 years (maybe longer) then they might as well just dump it and move on with their lives.

    What about these people? These are the scenario we talk about over and over and over again on Crib Chatter. This is why the market hasn’t “bottomed” and won’t for years to come. All of these people want to sell. They’re all going to take a loss. It’s just a matter of when.

    A couple of miles away, in Bucktown, Jay and Dina Schwartz are also trying to unload a two-bedroom condo they’ve outgrown. In the last 18 months, they’ve slashed their price eight times — from $449,000 to $334,000 — and had more than 100 showings.

    With a 19-month-old daughter and two dogs, their desire to flee their third-floor unit for the suburbs is palpable.

    “Until we can move, we totally have to put our life on hold,” said Jay Schwartz, 40. “We can’t even decide whether or not to have another child.”

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  27. I was able to get a pretty good price on an estate sale home (at least I think it was pretty good because I was able to resell less than a year later for about 10% more). Maybe I got lucky because I submitted an offer, another offer was just accepted that fell through due to inspection issues, and then they contacted me right away to see if I was still interested. Maybe they were scared of not being able to sell due to the inspection findings but, in any event, they were very willing to negotiate with my offer that about 30% off asking price at the time. We settled on something between 20-25% off ask. I thought it was a great price at the time but later realized that it was closer to a reasonable price–place needed a lot of updating: old cloth electrical wiring, old plumbing (where the shower would get ice cold or scalding hot if someone was running water elsewhere in the house), etc. Now, I don’t believe that estate sales are necessarily the better deal and that you often get what you pay for. Same with REOs–yes, they’re priced low but they usually need so much work that I don’t think they’re that amazing when you really consider the costs. The best buys might be those really motivated “regular” sellers looking to relocate for work or something similar.

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  28. Look up their mortgages. Can they really sell free and clear when they have to also pay the 8% transaction costs just to move?

    A unit in their building sold nearly two years ago (June 2010) for $329,500. Prices have gone lower since then. Units down the street (also new construction) are listed for $315,000.

    They paid $392,000.

    But they should just do a short sale and get out of it. Yeah- it sucks. But it’s not like everyone isn’t doing it these days. Otherwise they realistically have to live there forever.

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  29. “But they should just do a short sale and get out of it”

    Bank isn’t going to let them do a short sale if they can’t prove financial hardship.

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  30. “I think if the Fines took the loss AND bought again it would help the nonFines” and “If they’re NOT underwater- why aren’t they just selling and getting the hell out of there?”

    I tend to agree. I also think that people like the Fines are also in two camps. Those who simply don’t realize that they would help the nonfines and themeselve and those who know they would help but think “why should I take the loss, let someone else sell, set the market price, and then I’ll sell a year later for more”.

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  31. Chuk the probably with the move up scenario is one needs a downpayment on that new home. One which isn’t coming from the equity of a prior sale.

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  32. “The underlying assumption would have to be that foreclosures/REOs and “organic” home sales are separate markets.”

    This is correct. They are two separate markets. Everyone is getting all excited because the investors are jumping back in. Yet “real” homebuyers are no where to be seen. Sales at record lows. So how is that going to work to heal the market? Regular homebuyers are NOT buying right now. And when they do buy, they want a deal.

    They can’t afford the organic home prices- as they stand right now. That is very clear from the pricing of many non-REO properties that are sitting and sitting out there. But suddenly cut it 15% to 20% and list it as a short sale and it goes under contract almost instantly. Gee- wonder why?

    I don’t buy it that suddenly homebuyers will be forced to pay more because there are less foreclosures. They simply don’t have the capability of paying those prices anymore.

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  33. By the way- I can’t find the Schwartz’s property- but even just looking around in Wicker Park and Ukranian Village- there is massive pain everywhere.

    Check out 2136 W. Crystal. This is common to what is out there. Last sold in 2006 for $473,000. On the market for years until they finally threw in the towel and now it’s listed at $330,000 as a short sale (3/3 duplex up.) Also finally got a contract on it.

    http://www.coldwellbankeronline.com/ID/1696344

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  34. Mostly I agree Icarus but I think there is a third camp of people that just want to move on and I can’t wait for that group to grow. I’ve been curious to see if the recent increase in activity (that Clio loves to over exaggerate about) is finally people falling into the third camp.

    It is hard to bite the bullet and move from the two camps you describe into this third one, but I do think it will happen eventually.

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  35. “We are stuck … and we can’t go anywhere,” said Tracey Fine, 34. She estimates they would lose more than $100,000 if their condo sold tomorrow.”
    Can people like the Fines, with substantial savings, walk away w/o much risk of the bank coming after them?

    Probably not. Husband is a lawyer with probable high income. They probably make too much for the bank to waive the default amount. Hiding assets is illegal and could jeopardize husband’s legal career (bar ethics, etc…). They are like us. Not underwater, need house for kids, but make too much for banks to agree to short sale, have enough assets but not enough for a downpayment on our SFH. We have to wait and save for a down payment or lending restrictions have to lift enough to allow us to rent out our condo and purchase a SFH. We can’t qualify for a big enough loan b/c we still own the condo. If we sell at a loss, we still don’t have a large enough down payment to by a SFH. Renting is more expensive than are mortgage which would not help us save for downpayment…this is why we are stuck.

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  36. “If the Fines take the plunge and sell their condos, what impact does it have on the NotFines?”

    The NotFines are setting the market. They are simply going to the bank and listing it for much lower than the Fines would (most likely.) So they’re getting the sale first and setting the comp.

    Unit #4W in the Fines building has been on the market since last August. It’s a “normal” sale. Listed at $364,000 (with a roofdeck though.) They don’t appear to be setting the market either because there are too many short sales nearby (hence- why it’s not selling.)

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  37. Mind you this is how the housing prices screwed the responsible buyer. We are not underwater and would swallow the loss if we could just get a loan to get into the forever SFH… It sucks, b/c the irresponsible buyers and greedy banks screwed us, and there is no bailout for us. We have equity so we can’t really walk away (no benefit as bank could sell our place for the mortgage amount) or a short sale (if one is necessary, though I doubt it) would damage credit too much. The new tightened guidelines are screwing us.

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  38. The people who tried to be responsible and put 20% down are the ones I feel bad for… The people who bought with little down are the ones who win in the end as the most irresponsible people are always the ones the government programs help and can walk away with only damaged credit. Many people I know could sell without bringing anything to the table, but would have a huge chunk of their life savings wiped away because of they decided to put a huge chunk of their life savings into a house as a down payment. Theoretically, they could also get a great deal on another property at this point, but many no longer would have the 20% to put down.

    I suppose the people who put little down even when they a lot in savings are the real winners as they can just do a deed in lieu of foreclosure and walk away.

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  39. Urban mommy hate to tell you but you bought a condo, presumably in the boom, with either lack of planning/foresight for kids or the expectation that you could trade up in a few years. You, too, were irresponsible.

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  40. “A couple of miles away, in Bucktown, Jay and Dina Schwartz are also trying to unload a two-bedroom condo they’ve outgrown. In the last 18 months, they’ve slashed their price eight times — from $449,000 to $334,000 — and had more than 100 showings. With a 19-month-old daughter and two dogs, their desire to flee their third-floor unit for the suburbs is palpable. ‘Until we can move, we totally have to put our life on hold,’ said Jay Schwartz, 40. ‘We can’t even decide whether or not to have another child.'”

    Wait, so before they had a kid, they craved an urban/hip/socially-active lifestyle so much that they purchased in Bucktown (as opposed to certain comparatively boring and more family oriented areas of the city), and the next step is the burbs?

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  41. Jenny if they don’t need to bring money to the table that means a huge chunk of their life savings is _already gone_. Whether it makes them feel better not marking their RE to market is another issue entirely.

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  42. “Urban mommy hate to tell you but you bought a condo, presumably in the boom, with either lack of planning/foresight for kids or the expectation that you could trade up in a few years. You, too, were irresponsible.”

    Not sure I see how that’s “irresponsible.” Did she take a risk? Sure. But it doesn’t seem like there are a whole lot of risk-free investments out there, and certainly not many that allow one (i) to live in a nicer home while (ii) enjoying a tax advantage. And the only “risk” she took was with respect to the expectation that they could simply trade up in a few years. Having kids, at least for those with educations now currently “stuck” in nice 2/2 condos, is not a “risk.”

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  43. Anonny bucktown people are from the burbs and pre-kids want to prove to the world they aren’t like their parents, even get the tats & piercings to show it. But then when they crap out a brat or two their whitbread golden retreiver gene kicks in and its move back to burbs to repeat the cycle.

    Such people are automatons/Von neumann machines. And if they are reproducing less because of this scenario in the long run society will be better off.

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  44. Having kids I don’t consider a risk either. But your claim of a tax advantage is entirely dependent on comparing the after tax cash flows. Often the tax savings is far less than anticipated. And she did take a risk by assuming she could trade up and that turned out to not be the case.

    I’m sick of this ‘woe to me’ pouting about it though, urban mommy comes off as entitled to me.

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  45. The Schwartz’s have cut their price 8xs for a total of $115k. How much do you want to bet the place would have been sold long ago had they originally priced it at $345k?

    The idea of “well let’s try and see….we can always lower the price if needed to” I think is hurting many sellers. If you want to sell, price it right the first time! I think buyers worry about a place on the market forever and can tell when sellers are playing a game and when they are serious. Sellers need to realize it is too easy to research these days. It isnt nearly as easy to find stupid buyers anymore.

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  46. “How much do you want to bet the place would have been sold long ago had they originally priced it at $345k?” and “If you want to sell, price it right the first time! ”

    how do we know that 18 months ago the comps didn’t say $449K was the price you should start with?

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  47. Because Icarus it never sold 18 months ago or thereabouts for 445k. DUH!

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  48. Mr. FIne should suck up his losses and move on, you think having a crabby wife and 2 kids in a condo is worth less than 100k? Stubborn moron lawyer probably doesn’t want to admit he was wrong buying it in the first place!

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  49. I don’t agree with Bob too often, but he’s right about the automottons who blindly have to move to naperville the moment trixie has a baby.

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  50. I think most folks would probably take the paper loss if they really want to move as long as they don’t need to write a check at closing. Of course, the issue is that most homeowners absolutely don’t or are incapable of writing a big check at closing. This is why pricing is so sticky outside of foreclosures and short sales. Very few owners have the equity so they can sell without having to write a check. Until there is meaningful principal reduction, we are going to keep bouncing along the bottom.

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  51. Bob, you are s—. We qualified for bigger loans in 2006 pre-kids (more than we qualify for under current guidelines despite the fact that our salaries have increased) but did not take out such a big loan for a SFH b/c that would have been irresponsible. If we had, we would have had no rainy day fund. Instead, we bought a nice condo, convenient to work, and on a budget that allowed us to have an emergency fund with enough in the bank to pay our mortgage for a year should one of us become ill or unemployed. We planned smartly. Yes, we took on risk that the market could change but this is a risk you take when purchasing anything (stock, etc…). Moreover, I’m not lamenting that I lost value on my asset, I’m lamenting that I was one of the most responsible investors, yet I lose my full equity when those who were less responsible (i.e., put little down) are free to walk away from their loss when the same asset loses value. Also, as a taxpayer, I’m footing the bill for their bailout. I have no problem suffering the loss if others also suffered the same loss for taking on the same risk. But that is not what is happening. I’m just asking for fundamental fairness and efficient markets. How is that “entitled”? Your “hate” for those who work for their assets and want to be treated fairly are “entitled” suggests you have big issues related to your place in this world.

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  52. Exactly Russ & this is why I think we have several more years of small declines ahead of us. If I had to guess I’d say 3%year..

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  53. “we are going to keep bouncing along the bottom.”

    Keep bouncing? So far, we have only bounced slightly off of a couple of small outcroppings, only to fall further each time.

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  54. Bob…Oh, and fyi….I’m not some urban hipster who thought she was too cool to move to the burbs until kids came along. We plan to stay in the city, preferably in the same neighborhood.

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  55. “Mr. FIne should suck up his losses and move on, you think having a crabby wife and 2 kids in a condo is worth less than 100k? Stubborn moron lawyer probably doesn’t want to admit he was wrong buying it in the first place!”

    You’re forgetting one thing…that Mr. Fine is a lawyer which means he probably works 60-70 hours a week, so he’s never home to see how miserable things are in the condo…hence he wants to keep his $100k in his pocket.

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  56. It sucks because you cannot currently own your ‘forever SFH”? Welcome to how the other 90% lives, urbanmommy. And how they’ve always lived.

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  57. “Mind you this is how the housing prices screwed the responsible buyer. We are not underwater and would swallow the loss if we could just get a loan to get into the forever SFH… It sucks, b/c the irresponsible buyers and greedy banks screwed us, and there is no bailout for us. We have equity so we can’t really walk away (no benefit as bank could sell our place for the mortgage amount) or a short sale (if one is necessary, though I doubt it) would damage credit too much. The new tightened guidelines are screwing us.”

    Let me get this straight, urban mommy – when the banks handed out mortgages like candy on Halloween, they were greedy and now that they have reigned things in and you can no longer benefit from their “greed,” they are screwing you?

    And you call yourself a responsible buyer. I’m in my mid 30’s and watched that bubble blow up. Everybody I knew was pressuring me to buy back in ’05 and ’06 and I kept holding off and living like a prole renter and saving money (see homedelete, circa now). Then, in late 2010, I finally bought with a whole bunch down and I have nearly completely retired my mortgage because after about 2 or 3 months I got impatient with paying all that interest while the rates at which I could invest stayed low. Right now, the spread on my monthly tax, assessment and interest expense versus renting is $1500 a month and assuming that stays the same, if I stay in my place for 5 more years I can lose close to $100k (not giving effect to transaction costs) and still not really have a “loss” since I would have paid rent during that time anyway.

    You simply don’t understand leverage, lady. Leverage 101 is that leverage magnifies gains and losses. Leverage 102 is that you better have a darn good reason to buy a declining asset on credit and if you don’t have a giant cushion to kick into lower your interest expense early in the life of the loan if your leveraged investment goes down, you’re gonna lose a lot of money. If you’re still sitting on the front end of your amortization table and bleeding all kinds of cash to the bank on your mortgage because you haven’t made massive prepayments, you probably deserve to lose a lot of money because, notwithstanding your beliefs, you were not a responsible buyer.

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  58. “those who were less responsible (i.e., put little down)”

    How is putting less down irresponsible? If I can get a place by putting 10% down, the rates for which are not significantly worse than 20% down deals, why shouldn’t I? If one is buying a SFH that is *truly* a place that one could live for the next 30 years or so (i.e., it is of a quality and is in a location that, even if one’s income doubles or quadruples in, say, 10 years, there would be little reason to “move up”), then sure, lock in the current 30-year rate. Otherwise, why not save/invest/buy a vacation home with the other 10% Russ, am I crazy here?

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  59. I know many older people, who are nearing retirement who are putting off retirement because they aren’t going to be able to sell any time soon for anywhere near the price they paid. My parents for instance, are putting off retirement for a few years at least, so they can hopefully pay down a bit more of their mortgage and eventually have enough to buy a smaller house for cash. They bought their house in 2003, figuring they’d stay 10 years and then buy a smaller house for cash (not because they were expecting huge returns, but because they thought they’d get back what they put in for a down payment, plus the bit of principal they would pay off during the 10 years of ownership).

    This is happening to a lot of boomer parents who moved up to bigger houses and now want to retire, move to a smaller house, paying cash. They generally aren’t the ones on the news bitching about the “economy.” My parents grumble about their situation, but are OK with it. Lots of their neighbors are in a similar situation. No one is selling except for the people who put little down and have nothing to lose by walking away.

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  60. “they thought they’d get back what they put in for a down payment, plus the bit of principal they would pay off during the 10 years of ownership”

    According to Crib Chatter Dogma, this is incorrect thinking if it was done 5 minutes into the boom years.

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  61. “I know many older people, who are nearing retirement who are putting off retirement because they aren’t going to be able to sell any time soon for anywhere near the price they paid.”

    Thus, crippling the earning power of the younger generations who are expected to absorb it simultaneously with increased student debt, higher taxes, and higher food and medical costs. What does that leave for the future of overpriced housing when govt manipulation is already spent?

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  62. Housing will stabilize when people buy homes they can easily afford and not stretch financially for them. It will take years. The government is doing everything it can to keep it from cratering but the orderly slide will continue. Buying a house should be looked at as an expense of living just like renting. It is not an investment. It costs money to live.

    http://www.cnbc.com/id/46413058

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  63. As I mentioned earlier there is very definitely a third camp of people out there. This year alone I have had FOUR friends trade up from their condos to SFH (all in the city). None of them were underwater, but two of them took pretty decent hits on their places, the other two chose to rent theirs out. But allof them made up for it on the buy side.

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  64. “Walking away” from your mortgage obligations is a drastic step. If you’re a white-collar professional, default has an impact on your employment prospects because firms do credit checks. In consideration for partnership, default is a major issue. For an expensive residential rental’s credit check, default is a red flag. No wonder many white-collar couples are staying put in their underwater 2/2s.

    Estate sale properties often provide an opportunity for a buyer both willing to wait for right property, and not dismayed by a dated property requiring updates and possibly renovation. No sense buying someone else’s cosmetic decoration.

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  65. “I can’t find”

    Try 14-31-116-039-1003, last listing in MLS expired in November at $344,000. First listed March 2010 for $449,900. Don’t know if it’s a FSBO now.

    Unit 2 went under contract 2/7/12 with list of $312,500, originally listed Oct 2010 for $375,000. Unit 3 appears to have an extra outdoor parking space.

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  66. “But allof them made up for it on the buy side.”

    How can you be sure, especially for the two now holding 2 depreciating assets?

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  67. Architect my credit has never been checked for employment and I am a white collar frequent job hopper . Criminal & drug screen are done almost every time & education verification one third the time. Credit check not once.

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  68. “No wonder many white-collar couples are staying put in their underwater 2/2s.”

    While I’m sure it wouldn’t work for many small families, I’m surprised more who are “stuck” in their 2/2’s (e.g., the Schwartzs, discussed above) don’t simply rent them out and find something more suitable – to rent. Assuming they can rent their 2/2 for roughly (almost?) the carrying costs, why not just move into a rental and start saving towards a down for a new place? I realize that a preferred rental (i.e., one that is both in a desired location and containing enough bedrooms) might make it hard to save aggressively toward a down (though they could always be flexible on location for a couple of years and save money), but it would allow them (i) to live in a place that better suits their needs (ii) while paying more towards the 2/2’s principal and “waiting things out” a bit longer. That way, once they do in fact sell the 2/2, assuming they can extract *any* money from that deal, they can immediately put it towards their down (whereas had they remained in the 2/2, even if they could have sold “at a profit,” they most likely would have had to move out prior to the closing anyway).

    Basically, they would be doing what many here on CC advocate doing instead of buying (only in a different order): rent a suitable (or tolerable) place, keep saving, wait this out, look for just the right place on which a truly great deal can be had, then pull the trigger. Other than the headaches of being an accidental landlord, they would be in the same position as, say, HD, only they’d have a condo, the carrying costs of which are being paid by someone else. (Granted, if they bought a 2/2 for $400k that’s now hard to sell for $200k, they’re going to need to remain landlords for a long time before they’ll enjoy a painless, let alone profitable, outcome, but even in that horrid scenario, that’s still better than financial ruin or writing a check at the closing; and, in many cases, it’s more likely that they paid $400k, and it’s now hard to sell for $300k, which means the light at the end of the landlord tunnel isn’t so far off.)

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  69. The problem is twofold anonny: they aren’t accustomed to saving up a sizeable downpayment which is difficult, takes patience, prudence & time AND accomplishing this is all the more difficult when effective rents don’t cover the costs, which is the majority of the time.

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  70. Bob is right. Plus, prole renters trash condos, so after 3 or 4 years of renting, you’re going to need to pony up a lot of money cleaning and fixing the place up.

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  71. “I think a lot of what this market lacks is confidence. If more people that could did sell and rebuy, it wouldn’t seem to be such a dead market which would then pull more people out and prices could go up.”

    I’d slightly amend your claim: what this market lacks is NOT confidence per se, but price transparency. What needs addressing are the things that inspire confidence — like easy & free public access to comps, to price histories. But the industry, by restricting access to the MLS, has sought to prevent the very thing I think would be ‘confidence-boosting’ info, and sought to prevent Redfin.com from publishing anything. Demand for that kind of formerly secret, ‘restricted’ info is probably what partly drives readers to blogs like CribChatter, where if one is willing to wade thru a lot of bs, one can get a handle on things.

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  72. I hate the “lose money on the sell but save money on the buy” argument it’s comparing a real loss today to a hypothetical savings from a previous and now non-existent price. The loss on the sell is real; whereas the savings are not.

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  73. It’s not confidence, it’s price. Price solves nearly everything.

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  74. I suspect there are only a few who have the right combination of A + B where

    A = “Assuming they can rent their 2/2 for roughly (almost?) the carrying costs”

    and
    B = “a preferred rental (i.e., one that is both in a desired location and containing enough bedrooms) might make it hard to save aggressively toward a down (though they could always be flexible on location for a couple of years and save money), ”

    Anyone who has a 2/2 that they could rent to cover *almost* the carrying cost is probably located in the GZ and I just don’t see them “slumming” it to live in Portage Park for a few years.

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  75. the Fines’ reluctance to sell at a loss illustrates what Kahneman & Tversky called the “endowment affect”: the tendency of persons to value an object more highly when they own it than when someone else owns it, an idea buried in this essay:

    http://www.nybooks.com/articles/archives/2011/dec/22/how-dispel-your-illusions/

    But the Economist wrote it up 30 years ago (Oct. 9, 1993), with this example:

    “Would you rather have $85,000, or an 85% chance of $100,000? Most people would take the money. Would you rather lose $85,000, or run an 85% risk of losing $100,000? Most people would take the chance. When Amos Tversky of Stanford University posed people these dilemmas he was interested in their understanding of, and attitude to, probability, time and risk. His work has implications for the study of how a financial market works. It demonstrates that people are ‘non-linear’. They are risk-averse when expecting a gain and risk-seeking when facing a loss.”

    We know this. People hold their losers much longer than their winners, even when rationality would dictate otherwise; they are, in T&K’s terms, “risk-seeking when facing a loss.”

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  76. “I hate the “lose money on the sell but save money on the buy” argument it’s comparing a real loss today to a hypothetical savings from a previous and now non-existent price. The loss on the sell is real; whereas the savings are not.”

    Assuming that both houses sell at the same discount to prior market value, the savings on the new house are just as real as the loses on the sale of the old house. Further, if the buyers are purchasing a bigger house, the savings in absolute terms on the purchase are greater than the losses on the sale. I think part of your point is that there is no way to know the prior market value of the new house, but surely there are methods to estimate it. Usually I agree with your posts, but not this one.

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  77. In the stock market people who hold on to their losers are called bagholders. People shouldn’t look to their home as an investment. It’s a mistake. It should be looked at as a necessary expense.

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  78. Sad_at_Plaza440 on February 20th, 2012 at 5:55 pm

    benjamon9 said:

    “I think the underlying thought is that the investors will pull out of the market if the REO’s dry up and the first time owners won’t be able to afford the “organic” sales, so if the “organic” sales want to be able to actually sell, they’ll have to come down in price to foreclosure levels.”

    I agree with the first part of that statement, but still don’t see how it leads to the second. There are two possible relevant scenarios: (1) investors/1st timers only buy REOs/foreclosures; and (2) investors/1st timers buy both REOs/foreclosures and organic homes. If (1), once REOs/foreclosures dry up the investors/1st timers just drop out of the market. Total sales would drop, but I don’t understand how that would affect organic sales. Ex hypothesi, investors/1st timers were not buying organic homes, and so them dropping out of the market will not affect organic sales prices. An analogy would be that if people stopped buying clothes at Wal-Mart, that’s not going to cause Neiman Marcus’s prices to fall; they’re completely separate markets. The investors/1st timers falling out of the market do not affect those looking for organic sales. The few people now buying organic homes will continue to do so, and organic home sellers will continue to compete for that market as they do now.

    If (2), then once REOs/foreclosures dry up, investors and 1st time owners will only be able to buy organic homes. That should create more demand for such homes, and thus higher prices. I just don’t see any scenario where REO/foreclosures drying up causes a fall in organic home sales.

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  79. Sad_at_Plaza440 on February 20th, 2012 at 6:05 pm

    Okay, so after thinking about this a little bit more, the only way I can see the logic from the article in the OP working as the following: (1) investors and 1st time buyers were sitting on the sidelines; (2) they hear the real estate market is full of cheap REOs/foreclosures, and for that reason enter the home buying market; (3) even though they originally intended to by a REO/foreclosure, once in the market they decide to upgrade and buy an organic sale. Under that scenario, if investors/first time buyers hear there are no longer many REOs/foreclosures, they never enter the market, and so never end up buying an organic home, which causes a fall in sales and prices of organic homes.

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  80. “Because prices aren’t going to come back in the next, say, 3 years to justify them continuing to live there with two older kids (if it’s rough now- just wait.) Unless they live there for the next 10 to 20 years (maybe longer) then they might as well just dump it and move on with their lives.”

    The Fines will be moving somehow, either Mr. and Mrs. Fine or the shiksa’s parents in Houston will bail them out, because nobody will want to think their grandkids are growing up near the corner of Ashland and Augusta. What’s over there? Revolution Books (communist rabble, La Condesa mexican restaurant, and a bunch of nail salons and a rub-and-tug massage parlor strip that was recently shut down and raided.

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  81. Bob-“It sucks because you cannot currently own your ‘forever SFH”? Welcome to how the other 90% lives, urbanmommy. And how they’ve always lived.”

    Once again, you have no idea what you are talking about. I grew up in a middle-low income family. Paid for a large part of my college and all of grad school (100K in loans all paid off), saved for a down payment on my condo for 10 years. Bought at 35 years…not entitled, worked hard. The other half is the group that were allowed to buy with no money down, no credit checks, and are now walking away in droves with no repercussions.

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  82. “The other half is the group that were allowed to buy with no money down, no credit checks, and are now walking away in droves with no repercussions.”

    Well I think they should be put in prison. Also principal writedown should be out of the question–I don’t care if people can refi at today’s low rates but our government should not be forgiving their debt (or incentivizing banks to do so) under any circumstances.

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  83. A friend of mine paid 240k for a place in Rogers Park in 06 with 3% down. He still owes over 200k. He worked with some company that specializes in short sales. He got an offer for 125k and his lender, Chase, approved it in January. He stopped paying his mortgage in January. He got a letter from Chase last week telling him that he could close 3/15/12 but he has to bring 14,500 to the table. This is not a problem at all since he is in excellent financial condition. He just wanted to get the heck out of there. We are considering this a win-win. I think that his timing was really great and his zip 60626 has lots of distressed properties.

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  84. Either take the loss now or over the next 10+ years in x $100 bills from renters not being able to cover the mortgage + tax + assessments. There’s no use complaining because nothing is going change. And don’t stay where you’re not happy, there will always be more money to be made and new opportunities.

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  85. “mortgage + tax + assessments”

    +insurance.

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  86. “An analogy would be that if people stopped buying clothes at Wal-Mart, that’s not going to cause Neiman Marcus’s prices to fall; they’re completely separate markets. The investors/1st timers falling out of the market do not affect those looking for organic sales. The few people now buying organic homes will continue to do so, and organic home sellers will continue to compete for that market as they do now.”

    Right Sad. That is the whole argument. The ONLY THING propping up this housing market is the REO/short sales. Take those away and what do you have? An even more horrible market with even lower home sales. That’s why that one analyst in the article says that when (if ) this happens- the housing market will “implode.”

    There are already few organic sales as there is. Buyers aren’t buying them. They’re buying the REOs/short sales.

    Of course, as Gary pointed out, Chicago is one of the few markets where the REOs/short sales don’t appear to be slowing- but instead are picking up. You can see it in the data for Lakeview which has gone from almost no REOs/short sales in January 4 years ago to 28% this year. Buyers want “deals” whether they are investors or otherwise. If it’s not a “deal” they’re not buying it.

    Like I said- that’s why the “organic” properties are sitting- sometimes for years. No property should be on the market for years (unless it has a special circumstance- i.e. it’s haunted etc.)

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  87. “I hate the “lose money on the sell but save money on the buy” argument it’s comparing a real loss today to a hypothetical savings from a previous and now non-existent price. The loss on the sell is real; whereas the savings are not.”

    Me too! This is such a stupid argument. Only real estate agents make it.

    The $100,000 this couple is losing is REAL money. They’re never, ever going to get it back. How long did it take to save it? Who cares that the house they’re going to buy in the burbs is now priced $200,000 less than 5 years ago. EVERY PROPERTY is priced less. Big deal. They still don’t have the $100,000. It is pissed away into the wind.

    Only in real estate can they try and argue this. I have never once heard the same argument for stock investors.

    “Too bad you lost $100,000 on that GM investment when the stock market tanked. But just think, you can buy Ford for 40% off now. It’s a win-win.”

    LOL!

    Absurd.

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  88. “Keep bouncing? So far, we have only bounced slightly off of a couple of small outcroppings, only to fall further each time.”

    G is right. We haven’t been bouncing along the bottom. Sorry if you think so. The chart clearly shows Chicago’s condo market quadruple dipping (and getting worse the last few months- not better.) SFH aren’t much better.

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  89. “No property should be on the market for years”

    The South Loop takes the cake in terms of oldest MLS listings.

    1841 S Calumet Townhouse #2 at 2,559 days, or 7 years old.
    1201 S Prairie with a bunch at 2,196 (6yo).
    1629 S Prairie with a bunch at 2,180 (6yo).

    These stale MLS listings become even more absurdly comical with each passing year as the market moves further away from them. Makes me wonder at what point they can no longer be marketed as new. Try leaving an undriven car on the lot for this amount of time and trying to sell it as new.

    It’s like the developers aren’t even putting in any sort of effort to move these. It makes one wonder what the banks are even doing if anything to incentivize the developer to either these or foreclose and take the units back. I suspect nothing at all.

    Also I put no credence in the downtown inventory ARC reports which they paint as precipitiously dropping RE inventory.

    http://caapts.org/files/Preview%202011%20ARC%20Presentation.pdf

    No sorry I don’t believe the chart on page 3. Doesn’t mesh with the residential glass towers I see downtown with very few lights on nor the data G posts here.

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  90. “Absurd.”

    It’s not absurd when you consider the convenience yield RE offers, even if I disagree with it. In other words its a lot harder to satiate a nagging wife with or take shelter in Ford stock.

    “The chart clearly shows Chicago’s condo market quadruple dipping (and getting worse the last few months- not better.) SFH aren’t much better.”

    One thing I rarely hear mentioned when RE valuations are discussed is the growth in taxes and assessments that occurred during the boom. If after tax shelter/dwelling costs nowadays are to return to the same proportion of aggregate wages they were in the 1990s/pre-bubble environment it seems to me RE values need to fall even more to account for the growth in taxes and (in Chicago) assessments that occurred. Some may say lower rates counteract this but taxes & assessments more than doubled, rates didn’t halve.

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  91. Bombs away suckers. I’ve said it before on here a couple years ago (and of course got laughed at by Clio) and I’ll say it again. The value of your 2/2 (or any property for that matter) approaches ZERO as the cost of upkeep (taxes + assessments/maintenance) approaches the market rent. That’s mathematical reality people. There are MILLIONS of properties that will eventually bottom out at nil.

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  92. ” No property should be on the market for years (unless it has a special circumstance- i.e. it’s haunted etc.)”

    You can’t just put haunted and add “etc” after that. “I came home from work, chopped my wife to pieces, etc”.

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  93. “You can’t just put haunted and add “etc” after that. “I came home from work, chopped my wife to pieces, etc”.”

    What do you mean Chuk?

    There are haunted properties. There are properties that have had notorious murders or other crimes happen there. There are some that are so unique that there are literally only a few buyers who would be interested (those globe houses they built in the 1980s, for instance, that are like giant circles.) Those kind of properties are very difficult to sell.

    But otherwise- no property should be on the market for years. None. Nada. You are NOT priced correctly.

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  94. “Bombs away suckers. I’ve said it before on here a couple years ago (and of course got laughed at by Clio) and I’ll say it again. The value of your 2/2 (or any property for that matter) approaches ZERO as the cost of upkeep (taxes + assessments/maintenance) approaches the market rent. That’s mathematical reality people. There are MILLIONS of properties that will eventually bottom out at nil.”

    BOOOOOOOOOMMMMMMMMM!!!!!!!!!!!

    That’s one of the most provocative statements on CC, ever. I’ve thought about the math. I wonder how many others here have too? At some point, if things get that bad, like in Argentina in 2001 or Greece today, etc. then it’s the stock, bond, and currencies that will crash, right? At that point, a hard asset like an apartment in a secure building, in a good part of town, etc. is valuable, you’ll get paid somehow, even if the paper currency is nothing. Is there a historical precedent where RE taxes and Opex/assessments are more than rent?????

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  95. “That’s one of the most provocative statements on CC, ever. I’ve thought about the math. I wonder how many others here have too? At some point, if things get that bad, like in Argentina in 2001 or Greece today, etc. then it’s the stock, bond, and currencies that will crash, right? At that point, a hard asset like an apartment in a secure building, in a good part of town, etc. is valuable, you’ll get paid somehow, even if the paper currency is nothing. Is there a historical precedent where RE taxes and Opex/assessments are more than rent?????”

    I think the key will be to make sure it’s paid off or you have assets to make payments. On the other hand, however, if America has a Greece-like moment, I am going back home to the sticks where the fam has firearms and land. I wouldn’t want to be anywhere near a liberal utopia like Chicago when the proles (many of whom are heavily armed while the law abiding folks aren’t) are told the welfare gravy train is stopping.

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  96. ““I hate the “lose money on the sell but save money on the buy” argument it’s comparing a real loss today to a hypothetical savings from a previous and now non-existent price. The loss on the sell is real; whereas the savings are not.”

    Me too! This is such a stupid argument. Only real estate agents make it. ”

    I’ve got to defend this argument and not just because I’m a real estate broker. It does make sense. If you live in a 2 bedroom condo and want to move to a SFH in the suburbs are you better off in world A where you sell the condo for $300K and buy the home for $600K or in world B where you sell your condo for $200K and buy the home for $400K? I think the answer is obvious.

    The reason it’s not fair to compare this to the stock market is because you typically fix your allocation of dollars towards stock but in the housing example you have decided to increase your allocation of dollars towards housing so you benefit from lower prices. If you were about to add $200K more to your stock market investments then you would be happy that prices are down. I know I was when I was in that position.

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  97. @Gary Lucido

    Respectfully disagree. If nothing else, you are comparing an unrealized gain/loss with a realized gain/loss.

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  98. Gringozecarioca on February 21st, 2012 at 5:08 am

    So bob can see himself,correctly, as short.. but a person who always planned on moving up can’t see himself as having a spread on?

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  99. gringozecarioca on February 21st, 2012 at 5:43 am

    ““Keep bouncing? So far, we have only bounced slightly off of a couple of small outcroppings, only to fall further each time.””

    Ha, dead cat bounce up there… Price has not turned yet. Couldn’t agree more.

    ” There are MILLIONS of properties that will eventually bottom out at nil.”

    Yes, but that rowhouse in Baltimore never should have been purchased by anyone other than a slum landlord. So back to rental income formula valuations where it never should have left.

    Nice home in Ol’ Greenwich or a lil’ place over lookin the reservoir in Central Park. Good luck with that one.

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  100. “The reason it’s not fair to compare this to the stock market is because you typically fix your allocation of dollars towards stock but in the housing example you have decided to increase your allocation of dollars towards housing so you benefit from lower prices. If you were about to add $200K more to your stock market investments then you would be happy that prices are down. I know I was when I was in that position.”

    You benefit only if the asset (housing or stock) goes up or if you don’t care if the asset goes up. In fact, if you allocate more dollars to an asset that continues to slide you’ve increased your losses. I was happy to buy Citi at $16 after it slid from $50. Big mistake. It went all the way to $1.

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  101. “I’ve got to defend this argument and not just because I’m a real estate broker. It does make sense. If you live in a 2 bedroom condo and want to move to a SFH in the suburbs are you better off in world A where you sell the condo for $300K and buy the home for $600K or in world B where you sell your condo for $200K and buy the home for $400K? I think the answer is obvious.”

    The house obviously better go up unless you can easily afford it and don’t care about price stability or appreciation because you just doubled your bet.

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  102. Baby Boomerette on February 21st, 2012 at 7:28 am

    Lots of really good information/analysis here, with thankfully a minimum of the “snark” that often hijacks these threads.

    Just one quibble:

    Can we PLEASEPLEASEPLEASE stop the use of “organic” when discussing real estate? Good grief, that word’s already been plenty overused/misused by the food, medical and cosmetic markets!

    I prefer “open market” (as opposed to the “shadow market), “standard market,” or “mainstream market.”

    Oh BTW – when will property values in Lakeview go up again? I predict that it will in some way be related to the fortunes of Theo’s “new attitude” Cubs, just like the last boom in condo values aroind Addison/Racine was concurrent with the fortunes of the Sammy-era Cubbies.

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  103. Whether the losses are realized or unrealized and whether the new asset purchased goes up or down is irrelevant. All that matters is that you bought something you wanted for less money than what you would have had to pay in the past. In the case of a house you are getting twice the utility for a net $100K less. I’ll take that deal any day. At the end of the day you will own a bigger house and have more money in the bank than you would have otherwise. I don’t want to focus too much on the stock market example because it’s not a great analogy. Stocks have no utility other than their value whereas the house obviously does.

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  104. “Whether the losses are realized or unrealized and whether the new asset purchased goes up or down is irrelevant. All that matters is that you bought something you wanted for less money than what you would have had to pay in the past.”

    You are right if you don’t care if it goes up or down. If it continues to go down you allocated more assets to a declining asset. If you bought the house to live in you are correct. If you think of it as investment you are not correct.

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  105. Do most people buy houses and not live in them?

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  106. I didn’t think I needed to explain the sentence but ok. If you buy a house to live in that you can easily afford and don’t think of it as an investment then it doesn’t matter if it goes up or down. Theo bought a 3 million dollar house but he makes 3 million a year. The value isn’t relative to his financial situation. But if you buy the house to live in it and also think of it as an investment then it matters if it goes up or down and it isn’t necessarily an advantage that it is off it’s peak. You have in fact increased your exposure to a potentially declining asset with significant carrying costs. Bottom line – buy a house to live in and think of it as a necessary cost of living and make sure you can easily afford it because otherwise it might hurt you financially.

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  107. I know plenty of people who bought in 2005/2006 when they could afford it and they like their place but now, and they can still afford the payment now, they’re totally pissed off that they’re underwater. Not only are they stuck, but they could buy their same style house across the street fro $120,000 or more cheaper. Your advice doesn’t conform to the practical realities of life.

    “Bottom line – buy a house to live in and think of it as a necessary cost of living and make sure you can easily afford it because otherwise it might hurt you financially.”

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  108. “I know plenty of people who bought in 2005/2006 when they could afford it and they like their place but now, and they can still afford the payment now, they’re totally pissed off that they’re underwater. Not only are they stuck, but they could buy their same style house across the street fro $120,000 or more cheaper. Your advice doesn’t conform to the practical realities of life.”

    Isn’t that might point. Don’t expect a return on your money. Think of it as an expense. Renting or buying is a cost of living. Buying provides some advantages and renting provides some advantages. Figure out which one is better for you but know it is going to cost you money. It costs money to live. Those people were expecting a return and shouldn’t have.

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  109. So they would have put off their purchase for 5-6-7 years? I guess they would have netted $20K a year. What was their situation before the purchase? renting? living in a cramped condo?

    “I know plenty of people who bought in 2005/2006 when they could afford it and they like their place but now, and they can still afford the payment now, they’re totally pissed off that they’re underwater. Not only are they stuck, but they could buy their same style house across the street fro $120,000 or more cheaper. Your advice doesn’t conform to the practical realities of life. “

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  110. Sad_at_Plaza440 on February 21st, 2012 at 8:39 am

    Gary Lucido said:

    “I’ve got to defend this argument and not just because I’m a real estate broker. It does make sense. If you live in a 2 bedroom condo and want to move to a SFH in the suburbs are you better off in world A where you sell the condo for $300K and buy the home for $600K or in world B where you sell your condo for $200K and buy the home for $400K? I think the answer is obvious.”

    If people could get 100% financing (or if everyone paid cash), that might be correct, but the leveraged nature of real estate purchases defeats the argument. Let’s suppose, for the sake of argument, in period 1 you buy a condo for $250K with $50K down, and in period 2 you have the alternatives Gary outlines above. In the scenario where prices have dropped, selling your condo now grosses $0 minus transaction costs. To buy the home you have to come up with the entire downpayment of $80k from other assets, and pay off transaction costs from selling the condo. In the scenario where prices have increased, selling your condo grosses $100k minus transaction costs. To buy the home you need to come up $120k downpayment, but you already have $100k, so you just need another $20k plus transaction costs. Thus, increasing home prices makes it easier to actually purchase more expensive homes, at least under our current regime.

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  111. yes they treat it as an expense but you’re ignoring the fact that millions of people who could afford to buy in 2004-2006 are today really pissed off that their home lost value. Few of them, except you, look at it a spock-like rational transaction. Nobody wants to buy a lose to have it lose such significant value. a little value here and there, sure, but to lose significant value like a 1/3rd or more? That hurts really bad and it makes people angry/sad/depressed, etc. not everybody expected a gain, but no rational person wants a loss that big.

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  112. The advantages of buying are not financial.

    http://www.cnbc.com/id/46413058

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  113. gringozecarioca on February 21st, 2012 at 9:28 am

    To share.. I have posted once or twice on the downside of a place I have, and have been trying to get rid of. Just received this from my mgmt co.

    “I just wanted to confirm if you would in fact sell if I could find a buyer for your home. We have had a tremendous year so far and I potentially could find someone for you if you were in fact interested. ”

    Pricing being bid is ’04-’05

    Now off to lunch…

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  114. “If people could get 100% financing (or if everyone paid cash), that might be correct, but the leveraged nature of real estate purchases defeats the argument. …… Thus, increasing home prices makes it easier to actually purchase more expensive homes, at least under our current regime.”

    Actually the assumption is that you are not cash constrained. And while it is EASIER to upgrade in an appreciated housing market you are economically better off (if you want to upsize) in a depreciated housing market – the cost of upgrading is lower.

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  115. agree with Gary…the cost of upgrading is significantly lower and the interest rates are unbeatable right now. The friends I know who upgraded this year (and I have a few more looking to do so) have gotten past the ‘depression’ of losing the money and were more excited by the opportunity.

    The people keeping the market alive are those that are upgrading.

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  116. The parents in that Trib article need a reality check. I have two kids in a 900 sq ft 2/1.5 and we have enough room. Sure I’d love another bedroom, a basement and another bathroom, but we’re not falling over each other.

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  117. “Actually the assumption is that you are not cash constrained.”

    And that your current condo and move-up markets are depreciating simultaneously at the same rate. Also, that you don’t care if pressing your bet in a declining market results in a greater net loss. What percentage of move up buyers that you sold to at your 2009 bottom call are unconcerned about their unrealized losses today?

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  118. ” “I came home from work, chopped my wife to pieces, etc”.”

    Yeah, I though everyone understood that that circumstance requires “yadda yadda yadda”

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  119. “the interest rates are unbeatable right now”

    Until tomorrow, of course. This is just like the chronic bottom calling we’ve heard each year.

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  120. “I have two kids in a 900 sq ft 2/1.5 and we have enough room. ”

    I’m calling DCFS on you, Jennifer.

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  121. The logic of this argument escapes me.

    If foreclosure sales dry up due to having all been cleared from the market then prices will plummet as the buyers of these foreclosures exit the market? What?

    Why would it get harder to sell housing “organically” just as lower-priced competition is exhausted?

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  122. Jennifer: You should enroll your kids in CPS programs in Englewood this summer at 7025 S Princeton (Yale G. S.) & 7525 S Harvard (Harvard G. S.). Your handle could then be StanfordYaleHarvardMom!

    “I have two kids in a 900 sq ft 2/1.5 and we have enough room. ”

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  123. “You should enroll your kids in CPS programs in Englewood this summer at 7025 S Princeton (Yale G. S.) & 7525 S Harvard (Harvard G. S.). Your handle could then be StanfordYaleHarvardMom!”

    You’re dropping the ball there, southbound–Yale is on Princeton; so she could just shorten it to HYPSMom, and have the superfecta.

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  124. I agree the “The logic of this argument escapes me.” In my NW sub’n market I see three distinct SFH submarkets. The first submarket is comprised of REO and short sales which are sought after & purchased by investors and young home purchasers who appear to me to be overpaying somewhat given condition, apparently convinced that buying properties described as REO or short sale confirms they are getting a “deal”. The third market is also 15 – 30 year old somewhat updated homes (granite, stainless & hardwood) priced appropriately which are flying off the shelves emptying this sub-market of inventory as we speak. The second market which imo Hanson mistakenly combines with my 3rd sub-market believing both are the “organic market” is comprised of homes of similar vintage (but typically somewhat smaller) as third sub-market but which have not been updated (corian, white or black and carpet). There is virtually no absorption of 2nd sub-market homes here even with repeated price cuts. My recommendation to a 2nd sub-market seller would be to instruct listing agent to change marketing from “conventional sale, motivated to sell in order to build retirement home” to “obligated to pursue quick sale, preapproved price in hand” in order to test my theory that it is more likely to sell faster for same if not price if buyers perceive it in 1st sub-market rather than stagnating in 2nd sub-market waiting for rationality to prevail.

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  125. Correction “… to test my theory that it is more likely to sell for same if not (insert here “a greater”) price….”

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  126. Southbound, your assessment makes a lot of sense. The reason tier 2 homes wont sell despite repeated price cuts is because of the expense involved in making a tier two home into a tier one home. A kitchen costs roughly 30k for a nice kitchen GE stainless steel (no wolf, Viking etc), figure 10k per bathroom, plus older systems to be upgraded, etc. few young families have the resources or time to do these things them self or to hire someone to do it all in one fell swoop. I doubt many of those 30 year old tract homes you speak of in the new suburbs were even built to last that long!!!!! a tier 2 home should be priced as a tier 1 home due to the costs to upgrade and make new.

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  127. “The people keeping the market alive are those that are upgrading.”

    You mean on life support, don’t you? Because the patient is still near death.

    The “upgrading” buyers have NEVER been the reason the market has been good (or bad.) It’s all about the first time homebuyer- who is non-existent right now for a variety of reasons. So if you’re hoping all those move-up buyers, who are taking $100,000 losses on their last property, are going to bring this market back to life- then you’re going to be waiting a long, long time.

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  128. “A kitchen costs roughly 30k for a nice kitchen GE stainless steel (no wolf, Viking etc), ”

    I don’t know. we did it for about $4k

    http://www.mysteries-of-life.com/2011/03/kitchen-redofor-now-part-ii.html

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  129. After reading through these, it seems that common sentiment is that current prices are only going to decline further in 2012 and into 2013, except in the top top locations and properties, which do not make up the market, or even a sub-market it seems. Is there any hope for people looking to buy, or should they just wait until the fall and hope prices are down another 5-10%, which could be very possible?

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  130. “You’re dropping the ball there, southbound–Yale is on Princeton; so she could just shorten it to HYPSMom, and have the superfecta.”

    And they’re all in Chicago, so why not CHYPSMom (would like CHYMPS but can’t figure out how to get M in there and I realize who the C is would be debated). But then we’d find out she was really UICHYPSMom and that would be too depressing to contemplate.

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  131. “I don’t know. we did it for about $4k”

    HD meant including new cabinets and surfaces.

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  132. “would like CHYMPS but can’t figure out how to get M in there and I realize who the C is would be debated”

    Here’s your MIT: http://www.morrison.tec.il.us/

    And the C is great, as there are at least 4 possibles–all of which one can connect to a Chicago location/school–and CHYMPS clearly excludes Duke.

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  133. “The “upgrading” buyers have NEVER been the reason the market has been good (or bad.) It’s all about the first time homebuyer- who is non-existent right now for a variety of reasons. So if you’re hoping all those move-up buyers, who are taking $100,000 losses on their last property, are going to bring this market back to life- then you’re going to be waiting a long, long time.”

    Well I should clarify that for my purposes the market is very much back to life… at least in the Lakeview GZ that I live in. My investments are all in SFHs and I can’t rent them quick enough, there’s literally 5-10 applications for every property the day it has listed. For me there’s no need to sell right now. Although two tenants are seeking lease to buy options right now that I’ll consider.

    The first time homebuyer is not coming back much anytime soon, but you’ll see many more newbie real estate investors buying in this market, which keeps certain GZ neighborhoods very healthy and strong.

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  134. We purchased our condo in 2008 and paid what we then thought to be a “fair price” only to see the value of our purchase plummet shortly thereafter. Because of a number of issues not the least of which is horrible “neighbors,” we have made the decision to sell at a significant loss and make up the difference on the buy end of the transaction. It’s clear that we will not see our original purchase price for years and we’re simply unwilling to continue to spend another minute “arguing with idiots.” In addition to buying into a well managed beautiful building we stand to increase our square footage by 1000 sq. ft., and will be able to pay cash for the new unit. Our assessments will be greater than they are currently however a peaceful living environment is worth the price of admission.

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  135. Margo when one doubles a bet after a loss at the craps table is it similarly called “making it up on the buy”?

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  136. “Margo when one doubles a bet after a loss at the craps table is it similarly called “making it up on the buy”?”

    They’re paying cash–and can live with their 10 year cost of shelter–why the F do you care?

    And, consider that they are the sorts who *were* going to buy a condo in 2008 *no matter what*. Had they purchased the condo they are now buying, in ’08, for the then-market price, would they be better or worse off today–that’s the real question. I suspect that they would be somewhat better off having only purchased one, rather than cycling through a loser, even ignoring the 2x transaction costs, but neither of us knows.

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  137. “Although two tenants are seeking lease to buy options right now that I’ll consider.”

    Hey Trudi, there are a couple of places in LP for sale right now that are out of my current range (and, we’re a year or two away from really needing to move), but I think they could be acquired for quite a bit less than their current list prices (one of which probably for significantly less, but will need new kitchen/baths). Perhaps you’d like to buy one, then lease it to us with an option…

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  138. @anon(tfo) and Bob: Had we purchased the second unit over our current place, we would have realized a loss of $250,000 and had to incur a “special” of approximately $80,000. I know because I’ve looked at the building for years. Just to be clear, we are not crying the blues or whining about having purchased our place at the wrong time. We simply came to the conclusion that (a) our current living condition is untenable and (b) we may never see the original purchase price of our condo. Instead of trying to tough it out we’ve opted to move on.

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  139. Is it strange that I find reading Cribchatter is so hilarious. Just wait till the official stance of the RE cartel or even the government or perhaps the President goes on tv and officially advocates the policy of “make it up on the buy.” Stock brokers, casino pit bosses, and used car salesmen would probably love using that line of reasoning, but they probably deem their clientel too intelligent to use it on them, but for RE selling anything goes. haha

    Here’s an idea which will improve the RE market (aka reduce affordability), lets ALL buy property with other peoples money (which one may or may not have to pay back) and let’s see what happens to prices. Oh wait, we’re already trying that. Haha.

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  140. @Brad F….not sure where you’re coming from with your post but my comment of “make it up on the buy” means only that we’ll trade up in square footage, bid our loathsome neighbors farewell, and be able to go on with our lives. I mentioned being able to pay cash. Won’t be using anyone’s money but our own. The premise is a simple one from our perspective. Either we take the loss now or take it later. We are choosing to take ours now rather than sit around moaning and groaning about our current living situation.

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  141. well there goes my attempt to stay off CC for Lent :D

    @Margo, it’s hard to put a $$ value on it, but I’m willing bet if you did, you actually did bettter when you factor in
    “trade up in square footage, bid our loathsome neighbors farewell, and be able to go on with our lives.”

    congrats.

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  142. Icarus –
    Speaking of square footage, I was thinking of you.
    I’ve been looking at SFHs and multi-units and it’s been disappointing.
    The rooms are often tiny, odd, chopped-up and closetless.
    The rooms in my vintage 1BR are much larger.
    The stairway in a home can eat up so much space.
    What you have in your condo is probably much nicer than a lot of houses, so don’t despair.

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  143. Thanks Milkster. Hope you mean the desire for bigger square footage and not me being square made you think of me. ;)

    We’ve seen some of those small cramped SFHs too. Which areas are you looking at these days?

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  144. Southside, walk it out!!

    Btw, someone – DZ or Skeptic or someone a couple of years ago pointed out the glut of SFHs in the Avondale/Albany Park/Irving Park vicinity in the 100K range. There were a ton. These have dried up. I remember looking at the listings when it was mentioned and there were a lot to choose from back then. Sure, some of them needed repairs, but I wasn’t complaining for 100K. Can someone please ‘splain? I thought there were supposed to be better pickins by now? Hmmmmmmm? Anyone?

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  145. “Can someone please ‘splain?”

    People saw how fast they sold to reno-flippers, so they bumped up their asks a little?

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  146. Avondale $100,000 or less detached SFH property listings:
    2012 4 (to date)
    2011 26
    2010 22
    2009 12
    2008 1
    2007 1

    Albany Park $100,000 or less detached SFH property listings:
    2012 5 (to date)
    2011 8
    2010 5
    2009 4
    2008 0
    2007 0

    Irving Park $100,000 or less detached SFH property listings:
    2012 8 (to date)
    2011 21
    2010 23
    2009 14
    2008 1
    2007 0

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  147. G, gives stats for the 100 to 200, that’s the range that seems to have dried up. Sub 100k is few and far between anyway.

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  148. Milkster in honor of my daddy’s 90th if he hadna died years ago:
    “I bought it out like stunner
    I hope when we kiss we make you sick to your stomach
    Stunning like my daddy…”
    Walk it out now

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  149. “Sure, some of them needed repairs, but I wasn’t complaining for 100K. Can someone please ‘splain? I thought there were supposed to be better pickins by now? Hmmmmmmm? Anyone?”

    Milkster: in addition to G’s data- if they’re under $100k, won’t they be bank owned? The banks have been withholding some of the foreclosures due to the big agreement all the states are negotiating. Many of those in the industry now expect a lot of those to come on the market shortly. So there could be more of those houses soon to come.

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  150. Oooooh, Southbound!
    I didn’t know the Lil’ Wayne lyrics.
    Gonna listen when I get home tonight.
    Respect to your Pa.

    I was thinking about “Walk it Out” by Unk:
    West Side Walk It Out
    South Side Walk It Out
    East Side Walk It Out
    North Side Walk It Out
    Now Hit The Dance Floor
    Now Bend Your Back Low
    She Do It Wit No Hands
    Now Stop Pop And Roll
    I’m Smoking Bubba Hoe
    Now They In Trouble Hoe
    I Like The Way She Move
    An Undercover Hoe
    Now Everybody Leaning
    I Make The Crowd Rock
    Now Gone And Walk It Out
    I See They On My Jock

    And yes, these days, I’m into the Southside.

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  151. On the Avondale/Albany Park/Irving Park houses, I remember them being in the 100 – 125K price range. I don’t remember if they were foreclosures…
    I have bid on some sub-100K listings here and there.
    They always end up in bidding wars and I have not been successful.

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  152. “G, gives stats for the 100 to 200, that’s the range that seems to have dried up.”

    It hasn’t dried up, either.

    Avondale $100K-$200K detached SFH property listings:
    2012 21 (to date)
    2011 50
    2010 56
    2009 38
    2008 17
    2007 0

    Albany Park $100K-$200K detached SFH property listings:
    2012 23 (to date)
    2011 57
    2010 35
    2009 39
    2008 5
    2007 0

    Irving Park $100K-$200K detached SFH property listings:
    2012 27 (to date)
    2011 107
    2010 90
    2009 75
    2008 16
    2007 2

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  153. The listings a couple of years ago were in better condition.

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  154. “seems to have dried up” is merely a subjective assessment, and obviously, wrong.

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  155. G –
    For the 60618 zip code in Avondale, are you able to see more listings than I can?
    Or out of the 21 listings to date for 2012, does that just mean that 6 of them have either closed or gone off the market?
    (I’m not challenging you, btw. It’s a sincere question.)
    I’m able to pull up 15 listings on MLS from 0 – 200K.
    The cheapest is a hillbilly back-of-the-lot shack for 94K: MLS 07972994
    Then it jumps to a scary, vacant, boarded-up, de-converted ahem “condo” (yeah right) for 140K:
    MLS 07971788
    Then various others – some okay – but none of them deals.

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  156. Milkster, I didn’t break out by zip, only community area. The question was whether or not listings dried up. So, yes, my numbers include any detached sfh that was available in 2012 regardless of current status.

    MLS 07972994 4019 N Drake is not in Avondale.

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  157. “but none of them deals.”

    LOL, did I say anything about deals?

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  158. I’ve already shown that lower priced listings haven’t dried up. Now, what about the better pickins? The foreclosure slowdown hit here before the bulk of distressed properties were in, or far along, the foreclosure pipeline. The robo-immunity settlement will change that, and the pipeline flow will be increasing well above national numbers around here in the near future.

    Here’s a look at some of the shadow inventory. These are condo/TH/SFH totals. I don’t have these broken out for just SFH. The first set of numbers are for REO taken back by the bank at auction for 1/1/10 – 6/30/11, followed by the number of REO sold in the MLS from 1/1/10 – 2/22/12.

    Albany Park 201 184
    Avondale 190 103
    Irving Park 210 173

    Of course, comparisons like this are not perfect. The total REO taken back from 7/1/11 – 2/22/12 are not included (35-50 additional is most likely), and the MLS REO sales include many that were taken back prior to 1/1/10. There is also a problem with determining how many of the REO were sold outside of the MLS, although I haven’t seen much evidence of this in these areas. My conclusion is that there are well over 200 total REO unsold and currently held by lenders in these areas.

    Now, what about the rest of the pipeline? Here are the new foreclosure filings for 1/1/10 – 6/30/11, followed by the number of short sales for 1/1/10 – 2/22/12.

    Albany Park 511 93
    Avondale 513 46
    Irving Park 659 120

    Same problems with direct comparison of these numbers. There were likely 150-175 new filings since 6/30/11 for each area. Some of these filings will be cured, but that has been a very low percentage. Some of the early 2010 filings might have “sped” through to REO, again this will be a low percentage. Definitely a large percentage of the short sales are included in the filings. Regardless, it’s clear that there are many hundreds of REO/SS already in the pipeline. Also, it remains to be seen how new filings were being affected by the various moratoria, but they will still be at hundreds a year minimum for the immediate future even if they do slow. Simply put, the distressed sales are a very long way from over in Albany Park, Avondale and Irving Park.

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  159. Very interesting.
    This in particular:

    Now, what about the rest of the pipeline? Here are the new foreclosure filings for 1/1/10 – 6/30/11, followed by the number of short sales for 1/1/10 – 2/22/12.
    Albany Park 511 93
    Avondale 513 46
    Irving Park 659 120

    Thank you for the analysis.

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  160. @ Milkster, may I ask why are you interested in buying these type of properties? Is it to covert them to rentals?

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  161. Yes, I like older homes and apartments.
    For example, I saw a place on the Southside last week and it had all the original wooden doors and porcelain doorknobs and clawfoot tubs and the original intercom system from the early 1900s and some old furniture stashed in the basement.
    Just so cool.
    I like taking places like this which have been neglected and breathing life back into them.
    In this market it think it’s difficult to make a profit on a flip.
    My idea was to buy something, fix it up and rent it out as long as the rent can cover the expenses and maybe even provide a little extra income.
    Real estate prices in New York are too expensive for me to pursue this there.
    If I made a permanent move to Chicago then I would eventually take the house over for myself or just keep it as a rental.
    Originally I was looking solely at apartments but very few HOAs have good finances and adequate reserves. Some have deferred maintenance. Some have bickering board members.
    I like the idea of a SFH or multi-flat because I’d be in charge.
    The problem I’m finding with the houses though is that their square footage is often much less than my 1BR in my middle-class, vintage courtyard condo.
    You guys know I live in New York full-time.
    Feel free to poke holes in my plan.
    Tell me what you think.

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  162. @Margo “we’ll trade up in square footage, bid our loathsome neighbors farewell, and be able to go on with our lives.”

    A big congrats to you as well. We did sort of the same thing by getting all three things you mention, except we had the added bonus of buying in the early 90s, while our now ex-loathsome neighbors bought in the boom. They thus get to deal with our selling price. We were, to say the least, motivated. For whatever reason, the thought that we might bail must not have entered into the ex-neighbors’ decision making process. Either that, or it’s proof of karma. Not thrilled with our price (we did very extensive renos), but we had room given when we bought and it was _oh so worth it_. Hope you love your new place as much as we love ours!!

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  163. “My idea was to buy something, fix it up and rent it out as long as the rent can cover the expenses and maybe even provide a little extra income.” and “Feel free to poke holes in my plan.”

    For the first part of the plan to work, it has to be something that is cashflow positive or break even. So you have to find something that is in decent shape and doesn’t cost a lot to bring up to rental-ready. I think it’s a twist on the CC axiom of the house that can command big rents, isn’t going to be gotten for cheap and the house that is gotten for cheap, isn’t gonna command high rents.

    You essentially have to predict the next up-and-coming hood. This would tie in nicely with the second part of your plan. If you figure it out, please let us know. Actually, if we all invest maybe we could artifically make a nabe the next up-and-coming :D

    “If I made a permanent move to Chicago then I would eventually take the house over for myself or just keep it as a rental.”

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  164. Milkster, I was gonna recommend this one since you like original woodwork

    http://www.redfin.com/IL/Chicago/5204-W-Montrose-Ave-60641/home/13478293

    but apparently someone else has the same affinity for old wood as its pending.

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  165. Icarus, that house is GORGE!
    Looks to be in great condition and I like that area.
    Chicago is really amazing for original woodwork.
    Much more than New York.
    Thank you for the advice.
    That is what I am running into.
    The cheaper homes require so much work to bring them up to rental standards that they have not been working out.

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