Crib Chatter Celebrates Its 5th Anniversary: Despite The Bust, Our Debate About Housing Rages On

Sep 4 • Market Conditions • 152 Views • 44 Comments

Crib Chatter burst onto the Chicago scene on September 3, 2007 with a post on a West Loop pre-foreclosure loft in 17 N. Loomis otherwise known as the Heartbreak Lofts. (Foreshadowing of things to come about the overall market?)

See the very first property post here.

There were no comments on those first posts because no one knew Crib Chatter existed.

5 years, 4000 posts and 171,000 comments later, the debate about Chicago’s housing market continues on.

I’d like to thank those who have stuck around for most of the five years and have added to the debate (Homedelete, Laura, G, Clio, Bob, Dan, Anonny, Milkster, anon(tfo) and others.) It’s been fun following some of your own personal journeys of whether to rent and/or buy.

From the get go, the debate was always emotional.

Check out this heated discussion on May 28, 2008 about the state of the Chicago housing market.

Remember, this was before stock market collapse, before Lehman went under, before the TARP, the rescue of the auto industry and the near collapse of the financial sector.

The post was “We Love Authentic Lofts: 711 S. Dearborn in Printers Row”.

See all of the debate here.

G (May 28, 2008, 6:38 am)

forrealestate, the fact that there are “many potential buyers who are aghast/shocked at the idea that they actually have to possess any cash in order to qualify for a mortgage loan” indicates that your client did not make a good investment. Nobody did who bought a condo downtown in at least the past four years. Even longer if we factor in all of the losses due to owning costing more than renting.

Prices climbed because of a speculative mania. The manis was fed by the disappearance of lending standards, including loans to borrowers with reduced (or zero) down payments, no income verification and low teaser rates. The high percentage of sales to speculators contributed greatly as well. Both of these are gone from the market now.

The result is a huge reduction in demand which can only lead to large price reductions and numerous foreclosures, which in turn will feed the downward spiral. It has only just begun.

There will be knife-catchers all the way down to the bottom, a bottom that will be with us for years. A return to historical affordability levels is inevitable. It is the belief that bubble pricing will not collapse that is fantasy. 

homedelete (May 28, 2008, 6:59 am)

Jim, you’re right, $160k a year is enough income to support a $499k condo. However, according to the IRS, an income of $157k a year is in the top 5% of all households in America. Its arrogant to think that there are so many buyers out there that can afford $499k units because there are not. If there were so many buyers then there wouldn’t be a glut of inventory in Chicago. In my opinion, $499k is too much money for a 1600 sq ft 2bd/2ba condo in this building. Regardless of what other people paid during the bubble years with their toxic financing; $499k is out of the price range of too many people.

The problem with the anemic market is that there are waaaaaaaaaaaay too many $499k condos and not enough $160k incomed buyers. I’m not in outer-space with my reasoning here either. The problems in the real estate market speak for themself. Inventory is approaching the 12 month market, sales are down 30% per the article on this site a few days ago, and the case-shiller shows prices have fallen off a cliff. One of the simpliest explanations is that homes cost too much. 

homedelete (May 28, 2008, 7:04 am)

“There will be knife-catchers all the way down to the bottom, a bottom that will be with us for years. A return to historical affordability levels is inevitable. It is the belief that bubble pricing will not collapse that is fantasy.”

That’s classic. I love it. And IMHO a return to historic affordability levels may mean a 50% reduction in price on this unit from $499k to $250k, either in nominal or real terms, or a combonation of both. Too bad for this owner if he loses money but at the ‘bottom’ of the bubble, where that is, he’s going to be underwater and screwed. He may never get his money back. 

G (May 28, 2008, 7:27 am)

“either in nominal or real terms, or a combonation of both”

You aren’t supposed to notice that inflation means prices are falling faster in real dollars. Or that everything will cost more so the home price drops won’t look as bad in nominal terms. Of course, wages won’t rise with inflation so the math might become obvious even to the sheeple when their wallets are empty. Oh, that’s right, this mania was fed with empty wallets (and open bank vaults) to begin with.

And now, the end is near… 

 anon (May 28, 2008, 8:01 am)

sartre: Oh, the reason I’m not not a “bitter renter” is that I’m not a renter. I’m definitely bitter.

G: Have you stocked your bunker with enough water, jerky and ammo? But seriously, the most likely “way out” (with all it’s other bad effects) of this is half a decade of significant (8-10%) inflation. “They” (blame who you want) have been hiding it for a while–with the absurdity of “core inflation”–excluding food and fuel, which is exactly what is driving inflation.

G (May 28, 2008, 8:28 am)

There is no way to inflate out of this without wage inflation, and I don’t see that happening. Higher prices on everything but housing means less money to spend on housing (buying or renting.) What do you suppose that will do to prices/rents?

What I meant by “the end is near” is the fallacy that bubble prices can be sustained in real dollars. Case Shiller futures for 2009 and 2010 are already at 2003 index values for Chicago. So for anyone who thinks prices will hold or increase, your opportunity for riches is available.

Funny thing about your “water, jerky and ammo” comment is that it does include my top investment pick for 2008: food. Buy up all the non-perishables now that you will eat before their expiration and you will be sure to outperform nearly all other investments.

Bob (May 28, 2008, 8:32 am)

G,

Case Shiller futures aren’t that liquid of a market so I’m not sure how much can be inferred from them. I don’t think we’re near bottom, but don’t look to those futures as anything more than a suggestion of a leading indicator.

My suspicion is the powers that be will likely follow anon 8:01ams course. A half decade of 5-10% inflation (not the heavily fudged CPI) will help to ease the pain. The powers that be know what a huge negative wealth effect would hit the economy if they don’t provide some inflation to help offset the losses in nominal terms. Call it a stealth bailout.

G (May 28, 2008, 8:48 am)

I haven’t look at those futures as anything but a way to make money.

How will price inflation ease the pain if there is no wage inflation?

I don’t disagree that “inflating us out” is what the PTB are trying to do, just that it will create more harm than good. The bottom will be deeper and longer due to this policy (in real dollars.)

In the meantime, savers are punished for the excesses of speculators. Which makes me think that anon’s ammo tout might be the real winner. 

homedelete (May 28, 2008, 9:03 am)

I am tangentially involved in foreclousres because my firm has a foreclosure department. Buyers have been overextending themselves for years and now they realize the pain. It is a scary thought to think that 50% haircut in Chicago is appropriate and necessary, maybe inevitable, but I see it coming.

forrealestate (May 28, 2008, 9:12 am)

prices in this building are not going to fall by 50%.
that’s unrealistic.

panic + knife-catching paranoia! ;)

it must be very tiring to be both (a) right ALL the time and (b) so scared that everyone is trying to rip you off! ha!

the very, very simple truth is that if one rents, there is NO/ZERO chance of acquiring any ownership interest in the property or coming out with anything of one’s own in the end. building equity is likely and almost definite if one purchases – IF one does not purchase without any money down, etc.

even if one wants to call a purchase a gamble of some sort, then, well, at least a purchaser is TRYING to make some money rather than simply throwing his/her money away (to a landlord who DOES own, i might add).

by the way, “raise your hand” if you have actually been IN the donohue building and most all of the other buildings in the area! (and i am certain that some of you have!)

have you seen pretty much every building in the area? have you seen these units in the donohue? in person? and are you aware of the deals that happen OFF the mls (those count for appraisals/mortgage appraisals, by the way – assuming one can get one’s hands on the contracts)? between owners? this is a super-niche market and if you don’t have this kind of “i have actually taken the time to enter the building in person and see it with my own eyes” knowledge, then i think you’re talking a lot of smack! – purporting to know the difference between this building and the others in the area! – all via computer at your non-real-estate-related jobs! ha!

have you been to the book stores? hackney’s? kasey’s? the wine shop? did you ever spend an afternoon at gourmand?

in general, in the south loop, i tell investors that if they want to flip (if we are not looking at some kind of super-deal), they should look, look, look elsewhere.

however, if one is prepared to hold a property for 5-7 years, buying even cookie cutter in the south loop is not a bad idea. things will even out.

printer’s row is special, tho. it’s different. and the donohue is a niche market within a niche market. there are enough people with the kind of taste it takes to want to live in this kind of building to support the market – easily. just wait. the right one always comes along . . . .

Steven Heitman (May 28, 2008, 9:16 am)

50% haircut? If you are right our country will be bankrupt, the stock market will crash, and are financial system will collapse. My opinion is your salary level may be right on target with what you have to offer.

While we no longer debate the price declines in the Chicago housing market (although the severity has varied by neighborhood), the debate has now shifted to when it will hit bottom.

5 years later, is the worst of the housing bust now behind us?

Bears, are any of you now bullish?

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44 Responses to Crib Chatter Celebrates Its 5th Anniversary: Despite The Bust, Our Debate About Housing Rages On

  1. David says:

    Congrats! I’ve been there since the beginning and you’ve gotten better with each year! to 5 more years!

  2. Icarus says:

    So it seems I’ve been here 50% of cribchatter’s life. Good line:

    “it must be very tiring to be both (a) right ALL the time and (b) so scared that everyone is trying to rip you off! ha!”

    What ever happened to Forrealestate?

  3. homedelete says:

    G’s first point was pretty funny, somebody found it a few years ago.

  4. stephen says:

    What happened to Heitman? He was a hilarious read.

  5. PermaBear says:

    Wow, homedelete pretty much crushed everything back then. Too bad he went to law school instead of Wharton or HBS, dude could be typing on cribchatter from a beach in Maui after he made his first billion!

  6. Sabrina says:

    “What happened to Heitman? He was a hilarious read.”

    He checks in from time to time. He last posted a comment in October 2011.

    Once Lincoln Park started having price declines like everywhere else, his main argument dried up. (Remember- he basically argued that LP wouldn’t be hit in a bust because it was location, location, location.)

  7. Sonies says:

    The one thing I have learned from this blog is that there are snotty douchebags in every corner of town!

  8. homedelete says:

    ” PermaBear (September 4, 2012, 8:05 am)

    Wow, homedelete pretty much crushed everything back then. Too bad he went to law school instead of Wharton or HBS, dude could be typing on cribchatter from a beach in Maui after he made his first billion!”

    Who says I”m not an internet millionaire sitting on a beach in Maui?

  9. Sonies says:

    Anyone remember super bull HD from a year ago when he secretly bought his place? That was some quality stuff right there

  10. PermaBear says:

    “Who says I”m not an internet millionaire sitting on a beach in Maui?”

    We all know that if you were you would be surrounded by a large group of hot island girls and not posting on CC at 3 or 4 in the morning.

  11. Groove77 says:

    “What happened to Heitman?”

    his dog walking business took off. no time for internet (or RE) anymore

  12. Housing Bear says:

    I have been a bear and remain a bear. I will say that rents are so high right now that I am almost forced into BUYING. I also know, that being forced into buying is not an ideal way to get into the market. I’m 29 and think our generation has a once in a lifetime opportunity to wait until this market really hits a bottom. I would rather buy with prices rising.

  13. Dan #2 says:

    Congrats, Sabrina, and thanks for the call-out (I think I was the Dan you referenced). Your site makes work a lot more bearable.

  14. DZ says:

    “Bears, are any of you now bullish?”

    I was definitely bearish, am on balance prob still (real) bearish but less so. Willing to buy now, given life circumstances, was not willing to buy then.

  15. DZ says:

    “I think I was the Dan you referenced”

    I’m betting it was Danhofer, who Sabrina has an odd affection for.

  16. Dan #2 says:

    Ah, I see. I’m Dan #2, after all, not plain old Dan.

  17. T.S. says:

    Congrats Sabrina, here’s to another 5 years-at least!
    I miss Miu. I’m cool with Clio being gone though..

  18. john999 says:

    Congrats Sabrina and thanks for the years of great content and discussion! It was funny seeing Steve Heitman’s comment above….. ahh, those were the days.

  19. helmethofer says:

    My gut tells me that buyers today are STILL knife-catchers, and the worst-case scenario could be one that mimics Japanese property declines of 75% from the peak.

    http://www.marketoracle.co.uk/images/2008/japan-house-prices–nov08.gif

    The S&P is trying for the third time now (2000, 2007, 2012), to bust through all time highs in the 1,400′s. But what is going to push it through that HEAVY resistance?? If it rolls over, what then is going to drive RE prices higher? …not the economy, that’s for sure. Food stamp usage hit an all-time high in June.

    I’d like to rollover my equity and upgrade housing now, but I still worry about seeing my equity/downpayment evaporate away from current depressed price levels as housing prices continue to fall. I also fear creeping increases in mortgage rates, and that is not going to help RE prices.

  20. Sonies says:

    Think Euro flight helmet, the shit will continue for years

    that will keep the stock market up, and mortgage rates down

  21. While I’m not a housing “bull”, you can now get a very good deal that makes financial sense, a “good deal” being a place that you really like that compares favorably with your rental, is a place in which you could imagine living 10 years or more, and is priced below rental parity after factoring in the utilities, taxes, and maintenance that are usually included in your rent in a rental.

    However, I’m not bullish on appreciation prospects, because I believe we are, at best, only about a quarter of the way through an epic financial and economic unwinding in this country, and that wages and salaries for most people will continue to deteriorate, while most pension funds, as well as social security, will be unable to come anywhere near making good on promises made based on the “sunny day” projections of yearly 8% returns, made in much sunnier days decades ago. In short, our economy (and society in general) is now going through a game-changing shift such as it has not experienced in over 100 years, and no one knows exactly where it will go, but it will probably leave most of the population, including the “rich”, considerably poorer.

  22. skeptic says:

    It’s a fun site, and I have learned quite a bit about rehabs and so on which (hopefully) I’ve put to use while we’re gut rehabbing our place. As I describe CC to people, it’s an odd vortex in the universe where realtors, developers, home buyers, home sellers and “interested parties” all converge.

  23. anon (tfo) says:

    “most pension funds, as well as social security, will be unable to come anywhere near making good on promises made based on the “sunny day” projections of yearly 8% returns, made in much sunnier days decades ago”

    You mean we’re at T-minus (something) from discovering the whole f’ing economy is a ponzi scheme, and everyone under the guaranteed-by-politics age (whatever that may be) is completely f’ed, but still expected to keep paying in for the benefit of those over the guaranteed-by-politics age? Good times!

  24. anon (tfo) says:

    “the worst-case scenario could be one that mimics Japanese property declines of 75% from the peak”

    To compare fairly, need to look at the bottom compared to pre-bubble levesl. From your link, looks like Japan bottomed at ~15% below pre-bubble level. Call pre-bubble in US ~90 on Case Shiller–so maybe a 75 as a “worst case” Japan parallel. Which would be really bad, but not 75% off peak, as neither nationally nor any single market ever got to CSI = 300.

  25. homedelete says:

    anon (tfo) “You mean we’re at T-minus (something) from discovering the whole f’ing economy is a ponzi scheme, and everyone under the guaranteed-by-politics age (whatever that may be) is completely f’ed, but still expected to keep paying in for the benefit of those over the guaranteed-by-politics age? Good times!”

    I’m all for the Obamacare death panels! Two of my neighbors on my block in Old Irving were FPD retirees and they had two of the nicest homes on teh block – and a boat that one of the a$$holes parked in front of his house everyday during the summer like “I’m FPD and I have a pension and I have a nice boat”

    Also, I’ve been calling 80-90 CSI as the ‘bottom’ for a while now.

  26. homedelete says:

    I bought in the last year even though I know it’s not the bottom (despite what looks to be that way) because it made sense. With young children, mortgage qualifications, prices, commute, it just made sense. It’ll be a blink of an eye before the kiddos would have attended belding or scammon – ergh. Now they get great suburban schools. If I lost my job or if I wanted to hang my own shingle, I would need years of self-employment income to qualify for a mortgage, so I got teh mortgage part taken care of before going out with partners. Prices seemed cheap enough to make sense, and I appear to have timed the ‘bottom’ perfectly, but look for new CSI lows in the winter. and commute, well, that’s gotten worse in some ways, better in others, but that’s chicago.

  27. mh says:

    God you people are depressing.

  28. Wojo says:

    “Bears, are any of you now bullish?”

    Awww, while you’re at it, why don’t you give me a nice papercut and pour lemon juice on it?

    After seeing how Greenspan ‘saved the economy’ in ’87, and then again in 90-92, nattering nabobs of negativism like myself were totally convinced in the early 90s that (to quote Reverend Lovejoy) “It is ALL OVER people!”

    I was sort of, almost, maybe, kind of right:

    http://4.bp.blogspot.com/-8wf2t_0OtvA/UDzidHH9PNI/AAAAAAAAP8M/OrgWtxLsWMo/s1600/RealHousePricesJune2012.jpg

    Doubting the Maestro, Committee to Save the World, and/or The President’s Working Group on Financial Markets — aka, the Plunge Protection Team (they’re like Seal Team 6, only wielding Phds) — hasn’t quite panned out for me. But turn bullish now? “Not gonna happen. Wouldn’t be prudent.”

  29. Gary Lucido says:

    I think employment will determine the fundamental direction of home prices and right now it’s improving. Obviously I felt comfortable buying now since it made more sense for me than renting – a lot more sense. But we may not see a year over year improvement in prices for several more months and I’d like to see that.

    Also, look at what’s happening to XHB. If you really think that there’s a lot more downside risk in housing then you should be shorting that thing or buying puts big time because it’s damn near tripled since March 2009.

  30. helmethofer says:

    Gary: It is indeed hard to believe that a $400K mortgage only costs $1850 per month and the interest is deductible on that.

  31. Joe Zekas says:

    Happy anniversary, Sabrina.

    Engaging an audience over a 5-year term is a genuine achievement, and I congratulate you on it.

  32. Gary Lucido says:

    ” It is indeed hard to believe that a $400K mortgage only costs $1850 per month and the interest is deductible on that.”

    But the real “cost” on that is only $1177. The rest is forced savings.

  33. Bob says:

    “I think employment will determine the fundamental direction of home prices and right now it’s improving.”

    The current rate of extremely anemic growth can’t sustain current valuations.

    And…it’s not a given the rate will keep rising:
    http://3.bp.blogspot.com/-nvN3niN-VW8/UEYJ_ynjS5I/AAAAAAAAQR4/p2Td_m7SHZY/s1600/ISMAug2012.jpg

  34. Bob says:

    Err rate will keep falling falling. Its early, yet.

  35. Groove77 says:

    ” Joe Zekas (September 4, 2012, 11:42 pm)
    Happy anniversary, Sabrina.
    Engaging an audience over a 5-year term is a genuine achievement, and I congratulate you on it.”

    WTF?

    damn it its time to buy duct tape, spam, canned beans and run to the underground shelter world is ending soon.

  36. Sabrina says:

    “damn it its time to buy duct tape, spam, canned beans and run to the underground shelter world is ending soon.”

    Joe and I have a love/hate relationship. ;)

  37. Sabrina says:

    “Engaging an audience over a 5-year term is a genuine achievement, and I congratulate you on it.”

    Thank you Joe. That is nice of you to say.

  38. G says:

    “Also, look at what’s happening to XHB. If you really think that there’s a lot more downside risk in housing then you should be shorting that thing or buying puts big time because it’s damn near tripled since March 2009.”

    Typical UHS nonsense. Let me translate: “You can’t truly be bearish on local markets discussed on CC if you won’t bet heavily against the current price of national homebuilder stocks.” Somehow, it doesn’t seem relevant to the hoods under discussion here.

  39. elfadelphia says:

    When the government has the printing press, there is no bottom

    They prop up prices and those lower middle class people who saved up cant get a chance to buy an overpriced $250k place for the real price…say 130k

    and so on

    it would of course benefit all who care about a free market to let the market find its true price(s)

    until then…

    bottom? we dont see no stink n bottom

  40. elfadelphia says:

    G

    Stock prices ( or ETF’s in this case) are not necessarily reflective of the underlying fundamentals

    take a look at high paying dividend stocks where the underlying is shaky

    heck look at the whole market

    After the Dems took over Congress the Dow started to slip , once Obama was in place the crash of 03/09 took place

    AND THEN all that tax money was thrown around and stocks flew higher

    BUT NOT BECAUSE OF GREAT FUNDAMENTALS

    but because that “free” money was there and they traded it back and forth

    not sure if thats what you are getting at
    but non the less, just want to state that anyway

  41. RIz says:

    Congrats Sabrina – though i’m shorter on time nowadays than i’ve ever been, I find myself checking in here almost every day.( Sometimes from the O.R ;) ) – Wouldn’t know half the stuff I needed to know before buying a place if it hadn’t been for all you guys.

  42. Sabrina says:

    “Stock prices ( or ETF’s in this case) are not necessarily reflective of the underlying fundamentals

    take a look at high paying dividend stocks where the underlying is shaky”

    Um…there are record corporate profits this year. Those ARE the fundamentals that stock prices are based on.

  43. Bob says:

    “Those ARE the fundamentals that stock prices are based on.”

    Yeah as a hedge against a depreciating monetary base due to the various quantitative easings must have nothing to do with it.

  44. Mike says:

    I am bullish – nervous – but bullish. I don’t know if we are at the bottom but I would expect anyone buying now and selling in 7+ years to make a profit.

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