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)
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%.
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?