Market Conditions: February Sales Climb 10.2% While Median Price Jumped 12.9%

It’s time to check in on how hot the market really is. We all know there is low inventory but how many sales are really taking place?

From the Illinois Association of Realtors:

The city of Chicago saw a 10.2 percent year-over-year home sales increase in February 2013 with 1,378 sales, up from 1,250 in February 2012.

The median price of a home in the city of Chicago in February 2013 was $158,000 up 12.9 percent compared to February 2012 when it was $140,000.

Here is the sales data for February going back to 1997 (courtesy of G). It is slightly different from the IAR’s data:

  • 1997: 881 sales
  • 1998: 991
  • 2000: 1383
  • 2001: 1151
  • 2002: 1677
  • 2003: 1566
  • 2004: 1814
  • 2005: 2228
  • 2006: 1855
  • 2007: 1703
  • 2008: 1454
  • 2009: 870
  • 2010: 1257
  • 2011: 1092
  • 2012: 1250
  • 2013: 1378

Here is the Median Price Data also going back to 1997 (thanks G!):

  • 1997: $117,000
  • 1998: $132,000
  • 1999: $143,750
  • 2000: $161,500
  • 2001: $180,200
  • 2002: $212,000
  • 2003: $215,000
  • 2004: $229,900
  • 2005: $268,900
  • 2006: $267,500
  • 2007: $270,000
  • 2008: $290,000
  • 2009: $218,125 (with 31% being REO/Short Sales)
  • 2010: $176,000 (with 46% being REO/Short Sales)
  • 2011: $150,250 (with 50% being REO/Short Sales)
  • 2012: $140,300 (with 52% being REO/Short Sales)
  • 2013: $158,000

The Condo/Townhouse sales data since 2008 (thanks to G again):

  • 2008: 1087 sales, median price of $314,900
  • 2009: 451 sales, median price of $280,000 (with 18% being REO/Short Sales)
  • 2010: 660 sales, median price fo $250,000 (with 33% being REO/Short Sales)
  • 2011: 604 sales, median price at $193,500 (with 46% being REO/Short Sales)
  • 2012: 692 sales, median price at $165,250 (with 50% being REO/Short Sales)
  • 2013: 779 sales, median price at $200,000

“The bumpy recovery of the housing market continues,” noted Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory at the University of Illinois. “Sales continue to experience year-over-year gains and the number of foreclosed property sales continues to exceed new additions to this part of the inventory.”

“Our clients are hopeful about the consistently strong market indicators,” said REALTOR® Zeke Morris, president of the Chicago Association of REALTORS® and Operating Principal and Managing Broker, Keller Williams Realty, CCG.

“City of Chicago home sales in the first two months of 2013 were 21.8 percent above where they were at the same time in 2012, despite the fact that sales traditionally slow in winter. The current market renewal leaves no question about Chicagoans’ continued desire for homeownership. What’s critical is that lenders more actively foster loan product for buyers across the financial spectrum.”

Bidding wars and lack of inventory continues to plague the market in March.

Will a lack of supply but a damper on the housing recovery?

February home sales in Illinois up 16.2 percent from a year ago; statewide median price marks sixth straight month of year-over-year gains [Illinois Association of Realtors, Press Release, Mar 21, 2013]

101 Responses to “Market Conditions: February Sales Climb 10.2% While Median Price Jumped 12.9%”

  1. The median gives an indication of the mix of properties sold and the large jump in median is a result of the low end of the market being picked to death. Bottom feeders get sticky fingers.

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  2. I was really shocked that their release did not mention the fact that last year had a 29 day February. They are really understating the increase this year. In my March 7 update I calculated an adjusted increase of 19.7%: http://www.chicagonow.com/getting-real/2013/03/february-record-home-sales-chicago/

    BTW, since G has vanished since his predictions of doom and gloom did not materialize I have taken up his practice of posting an update on the previous month’s Market Conditions post on the 7th of each month. I include inventory and distressed sales and contract activity. Distressed sales as a % are also down.

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  3. Gary, that is ridiculous. Do we know if they exclude the 29th? As you know, the last day of the month is huge for RE closings.

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  4. It’s interesting to me that the condo/townhouse median price is higher than median price for all properties. Does the median price for all properties include empty lots? Townhouses/condos always seem like a sfh alternative, with the single family home as being the ideal. I would love to own a sfh, but they are way too expensive in my neighborhood.

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  5. “Gary, that is ridiculous. Do we know if they exclude the 29th? As you know, the last day of the month is huge for RE closings.”

    They’re ridiculous or I’m ridiculous? I know for a fact that their 2012 number includes all 29 days and I know that the last day of the month is huge. So what I did was I just used 28/29 as an adjustment factor to calculate the comparison point. However, I took my snapshot on the 7th of Feb 2012 so that it was apples and apples. My numbers are much better :)

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  6. Gary, sorry they are. Not you.

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  7. Jenny —
    Totally disagree. The SFH is not the ideal for most who desire city living. Its ideal for families with kids. Most 20 somethings want amenities (gym, doorman, party room) not a tiny city yard. Baby boomers/seniors also don’t want stairs and yard. SFH is ideal for those looking to raise a young family in the city.

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  8. ““City of Chicago home sales in the first two months of 2013 were 21.8 percent above where they were at the same time in 2012, despite the fact that sales traditionally slow in winter.”

    nonsensical quote of the day?

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  9. I would love to own a single family home. Having a back yard with a private garage would be fantastic. You also can fix things properly when they break, instead of relying on an association. The added privacy is great too. If you have a single family home as a single person, you can buy some exercise equipment and put it in a spare bedroom. The house is big enough that a party room isn’t necessary. The only downside is the lack of a doorman.

    I would get a second dog in a nano-second if I had a house with a backyard.

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  10. Jenny and a local –
    You’re can’t directly compare the citywide SFH average price to the condo/townhouse average price and draw a conclusion that people like one vs the other, because it’s an apples to oranges thing. In the most depressed neighborhoods in the city, it’s all SFH’s, nobody ever built condos and townhouses (or very very few). ie, the condo/townhouse number disproportionately represents the more affluent areas, where the SFH number is much more spread throughout the city.

    If you were to compare the numbers in a given neighborhood or community area, you might be able to make a reasonable conclusion.

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  11. “I was really shocked that their release did not mention the fact that last year had a 29 day February,”

    Is it really that relevant? Won’t there be small differences in the number of business days every time? Would that usually be normalized in data like this? (I think not but who knows). Should every single report say “Just so you know, the way that the calendar works is that this month has one more business day this year than it did last year.” Seems like the fallacy of false precision to me.

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  12. Everbody is different and wants different things. I would never want a sfh in the city, or anywhere else for that matter, at any time or stage in my life, at any price. The reasons are too numerous to list, but they are real, at least to me, which is all that counts.

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  13. I would never want a SFH if I didn’t have kids.

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  14. Crap, I’m on jenny’s side of this–I don’t like ‘other people’ enough to willingly share a roof, and deal with their laziness/neuroses/powertrips. Fee simple townhouse/rowhouse, sure, but *still* with no association (beyond maybe plowing and garbage). Rather have a neighbor with an unkempt yard than get a letter from the association about whatever I’m doing ‘wrong’.

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  15. “Crap, I’m on jenny’s side of this”

    and so comes the tortoises

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  16. Housing went down 30%. Now it will need to rise 64%, with an inflation erosion adjustment, to get back to 2006 peak bubble prices.
    A $100,000 house in 2006 is worth $70,000 today.
    $100,000 in 2006 equals $115,000 in today’s dollars, per BLS inflation calculator, so to be at the same value as in 2006, today’s $70,000 house would need to rise 64%.
    $70,000 x 1.64 = $115,000

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  17. “Most 20 somethings want amenities (gym, doorman, party room) ”

    The party room has to be the funniest and least used amenity of all.

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  18. Shadow Inventory???? Okay so maybe things are getting better. But does an improving market translate into increased inventory. I know of two households (one in Chicago another in West Bloomfield Mich) who have been toying with the idea of listing or defaulting. (one bought at the bottom last year the other has a 2007 bubble mortgage). Both are deciding NOT to list because “The market will be better next year”. So curious what sellers’ agents have to say about the psychology. Do you find people hoping to WAIT for a better price? And won’t this only exacerbate the “low-inventory” conundrum??

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  19. March sales in Chicago were up 16.4% over last March, though the IAR will report it closer to 13.7%. Contract activity is still strong, which will continue to feed these comps. Distressed sales are declining and inventory just keeps dropping: http://www.chicagonow.com/getting-real/2013/04/chicago-real-estate-market-update-incredible-strength-continues-in-march/

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  20. “March sales in Chicago were up 16.4% over last March, though the IAR will report it closer to 13.7%. Contract activity is still strong, which will continue to feed these comps. Distressed sales are declining and inventory just keeps dropping: http://www.chicagonow.com/getting-real/2013/04/chicago-real-estate-market-update-incredible-strength-continues-in-march/

    Thanks for the info Gary. I wouldn’t want to be looking to buy right now with these inventory levels. When will the Fed figure out that it’s distorting the market – but just the other way?

    Bad things happen when the market distorts this strongly. In Las Vegas, inventory is down to just 1 month! Imagine that. Wow.

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  21. Although rates are lower than they were last year they aren’t THAT much lower so it’s not just the fed. I think the big difference is that people are realizing that buying is cheaper than renting and will become more so over time. They also realize that a year from now prices will probably be higher and mortgage rates will be higher so you can jump on available properties now or wait a year and take your chances.

    I would expect though that with some modest price increases more inventory should materialize but it ain’t happening yet.

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  22. “Although rates are lower than they were last year they aren’t THAT much lower so it’s not just the fed.”

    What are you talking about Gary? ALL of this is the Fed. Without the Fed buying $85 billion a month we wouldn’t even be talking about the housing “recovery.” But they can’t buy for forever so what happens when they stop? We’ll see- right?

    But I do agree that the rents are getting absurd in the GZ right now. The problem with that argument, though, is that they are building thousands of rentals and those are renting and sales are barely back to breathing level. Sure- it’s much better than we’ve seen the last few years, but it’s still not at levels seen earlier last decade. That’s when EVERYONE wanted to buy.

    It just seems much hotter because inventory is so much lower so buyers are panicking. I’m not disputing that it’s up 16% from last year. Don’t get me wrong. But the market isn’t as “hot” as everyone is making it out to be. It’s just coming up off of really low levels.

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  23. Why compare the current market to the boom years though? We have seen the result of that.

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  24. gringozecarioca on April 12th, 2013 at 8:02 am

    “What are you talking about Gary? ALL of this is the Fed. Without the Fed buying $85 billion a month we wouldn’t even be talking about the housing “recovery.” But they can’t buy for forever so what happens when they stop?”

    Or they can start buying 100bil a month :-)

    “When will the Fed figure out that it’s distorting the market – but just the other way?”

    They know this, this has been their goal for years.. Somewhere in 09-10 this became pretty damn clear. If you think this can’t amplify on a much more massive base, and get completely out of control you are missing half of the probability tree.

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  25. “They know this, this has been their goal for years.. Somewhere in 09-10 this became pretty damn clear. If you think this can’t amplify on a much more massive base, and get completely out of control you are missing half of the probability tree.”

    I agree that it’s been their goal to reinflate. But they think they can control it. Only they can’t. So we’re going to get distortions the other way – which is what we’re seeing now. Only this time it’s not people taking out subprime loans and flipping properties it’s private equity groups buying thousands of houses, renting them and hoping to sell them at some later date. Only what happens when they all go to sell them probably around the same time?

    None of this is “normal.”

    Why can’t we just have a normal housing market for once? Is that too much to ask for?

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  26. “Why compare the current market to the boom years though? We have seen the result of that.”

    We’re not. March sales look to be around 2001 or 2002 levels. That wasn’t the “boom” years. In fact, I don’t remember most people paying a lot of attention to housing in 2001. Interest rates were 7% which was considered “low”.

    The only reason it feels “hot” right now is because:

    1. We are coming off of such low levels, any kind of gain would seem like a big difference.
    2. Inventories are really, really low. So buyers are competing for a smaller pool of goods resulting in multiple offers, quick sales etc. If we had the same inventory as 2002, people would say the market has improved but I doubt they’d be calling it “incredible” or “hot.”

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  27. gringozecarioca on April 12th, 2013 at 8:31 am

    “Only this time it’s not people taking out subprime loans and flipping properties it’s private equity groups buying thousands of houses, renting them and hoping to sell them at some later date. Only what happens when they all go to sell them probably around the same time?”

    Somewhere on this site, years ago, I said this is exactly what would happen.. Funds and PE would step in….

    “None of this is “normal.”
    Why can’t we just have a normal housing market for once? Is that too much to ask for?”

    Yep, this is the new black… and no reason they all go to sell at the same time. Assets in strong hands don’t get handled the same way as assets in weak hands. Not saying that means that avoids larger moves down, just saying strong hands act differently than weak hands.

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  28. We’re at 2001/2002 levels of sales which was the beginning of the bubble so I would say that’s a pretty normal level.

    I’m saying that the change in the housing market in the last year is not the Fed because rates haven’t fallen that much in the last year. Everything up to that point was influenced by the Fed though. I think in the last year it’s been the rent/buy dynamics and the improving outlook for the economy.

    Now when the Fed lets off the gas…that’s another story. Rates will rise but historically that has not killed the housing market. And if there’s inflation then that will drive the housing market even higher.

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  29. “We’re at 2001/2002 levels of sales which was the beginning of the bubble so I would say that’s a pretty normal level.”

    Can the market be normal and hot at the same time?

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  30. “Can the market be normal and hot at the same time?”

    Valid point. The sales level is normal. The speed at which properties are selling is hot.

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  31. We’re in the market for a SFH at the moment and our experience does indicate that the inventory is low and most properties that we are looking at are taking 1 to 2 weeks to go under contract. That said, prices aren’t that far off the basement (which appears to be sometime in late 2011 for what we are looking at) with the places that are moving selling for somewhere around their 2004 prices.

    On the other hand there appears to be a bit of a bi-modal distribution, with some places on the market for 6-12 months because the sellers are not prepared to sell at 2004 prices. We put an offer in on a place (that also received another offer), and the seller rejected both offers. Their place has been on the market for 11 months. I guess they’re hoping the market comes up to their expectations – it may well play out for them, but boy are they patient.

    Then again we’re also patient buyers and won’t over-reach on pricing.

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  32. very valid point bobdobilina. However the 2004 price varies by neighborhood, and the GZ may be 2004 prices but some better areas are back to 2000-2003 prices too, and of course, the lower working middle class areas have gone back into the 1990’s…The properties with defects (external obsolescence or otherwise) or need significant updating are even cheaper, and those are the ‘deals’ these days, but there aren’t many of those around, because most of them are priced like the homes that are selling at 2004 prices, but nowhere near the same quality…

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  33. There is definitely a bimodal distribution.

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  34. Hey Russ, what do you think?? Pls watch video with Chris Whalen.

    Mortgage Recovery Has Peaked: Whalen

    http://finance.yahoo.com/blogs/breakout/mortgage-recovery-peaked-whalen-161234990.html

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  35. Here is an interesting report

    http://www.housingstudies.org/data/ihs-price-index/cook-county-house-price-index-fourth-quarter-2012/

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  36. gringozecarioca on April 12th, 2013 at 12:50 pm

    “There is definitely a bimodal distribution”

    I would bet there is not.

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  37. HH, mortgage volume is still up although the market is shifting dramatically from refinances to purchases. Most plain vanilla refinances have been done already two or three times at this point. However, there is still a huge backlog of mortgages that have not been refinanced because the loans don’t qualify for HARP. There is still a huge negative equity problem that hasn’t been addressed and I don’t think the current tight inventory is necessarily going to solve it either.

    I wouldn’t be surprised one bit if the 30 year eventually did get down to 2.5. However, we could also see a spike too. Who the hell knows….

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  38. 2.5% would just be ridiculous. I can’t see that happening before the Fed takes their foot off the gas pedal and that’s likely to happen this year.

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  39. “HH, mortgage volume is still up although the market is shifting dramatically from refinances to purchases.”

    Is it true what Whalen says?

    1) That JPMorgan is laying off mortgage employees
    2) regulation has made the business unattractive to the exec who run banks?
    3) That it’s possible one of the TBTF banks totally quits participating in that sector of banking?
    4) That you need a credit score of 700 to get a loan?

    then he also said something about the Gvt. extending a program until the end of the year. What was that? Then Whalen said it doesn’t matter because the regulation (which results in only 700 scores getting loans) supercedes the Gvt. program so the program is ineffective and cannot be implemented?

    So, you’re saying that in Chicago, loan volume is not declining?

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  40. Of course the Obama Administration wants everyone to be able to get a mortgage even if your credit sucks.

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  41. Sabrina, you sound like you’ve been reading James Grant and/or David Stockman. Since you’ve probably already read Stockman’s book excerpt, I recommend reading Grant’s similar less hyperbolic case for your view:

    http://www.grantspub.com/userfiles/files/g30n06d.pdf

    “Why can’t we just have a normal housing market for once? Is that too much to ask for?”

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  42. Grant, Stockman, Sinclair, Ron Paul, and all the rest of the hard money crowd got a lesson today in the precious metals as to who runs the show….and it ain’t them.

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  43. 1) From my understanding, a lot of the layoffs are related to servicing and modifications. Not necessarily originations, but I don’t know. We’ve been hiring. However, originations may be declining at a macro level, but it doesn’t mean it declines for every business. A lot of the TBTF banks origination groups are typically staffed by desk monkeys to take advantage of all the refi business. As it dries up, the high volume TBTF banks need to shed the dead weight. However, it doesn’t mean things have slowed for the middle market players which are much more efficient at originating mortgages overall. In other words, the pie can shrink, but many still wind up getting a bigger piece.

    2) & 3) Regulation is making the business unattractive. It is more costly to originate due to all the compliance, regulations, CFPB, and a ton of other BS, so there is probably going to be a shift back to the broker/wholesale channel which is cheaper and more profitable for the banks.

    4) Not really true. You can still get an FHA loan with around a 640. Conventional financing is tough with less than a 700, but not impossible. The problem is Fannie/Freddie have made it so costly with loan level price adjustments. It isn’t the banks.

    5) HARP refinances were extended to 2015. They were supposed to end this year.

    Everyone I know is busier than ever right now. I don’t know total Chicagoland volume, but any LO that is half way decent should have started off Q1 with a bang. q2 is nearly as busy. The only thing that hsa changed is the mix of refinances vs purchases.

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  44. I thought that 700 was a high credit score. On a 0-100 scale where would that typically fall, like on a percentile basis? You guys are really that busy with loans so difficult to originate? That doesn’t make sense. What’s a HARP refinance/loan? thanks!

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  45. Consider this from today’s wsj:

    “. . . housing is not the secret sauce of economic prosperity. The anemic 0.4% GDP growth in the fourth quarter of 2012 would have been even worse without a 17.6% surge in real residential fixed investment.

    Wow! That’s a huge increase in re investment, not likely to be long sustained. And it resulted in 0.4% GDP growth? Yeah, I’m with you Russ: I see no reason why rates couldn’t fall further, like they did today.

    http://online.wsj.com/article/SB10001424127887324789504578384682292475750.html

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  46. http://www.redfin.com/IL/Park-Ridge/Undisclosed-address-60068/home/12557598

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  47. does that house come with a tanning bed?

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  48. “does that house come with a tanning bed?”

    There isn’t one book in that house, in any of the rooms.

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  49. Anyone who drops $1MM in a house in Park Ridge (where $1MM is more than 30% of their NW), either has tunnel vision or an extreme belief that the future will be better, or their wife made them do it.

    But that is one beautiful house you have there, HD. I especially like what your wife did with the basement (?) and the artwork. I especially like what she did with the bar. The bar looks so naturally put together and those mounted bar stools are so obviously the average distance away people sit from each other at a bar, and they don’t come with the ear screeching sound when someone decides to move their bar stool (or option). And the view of the pool to the left just makes this bar so fantastic. I also dig the late 80s ceiling tile in the basement. I also enjoy the sauna/wine room with 11 bottles of wine.

    Sabrina please do a post on HD’s new abode.

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  50. Oh and forgot to admire the Cog Hill t-shirt. I’ve always thought of having my own t-shirts framed in glass and mounted above a bed, it certainly makes more sense than signed sports ones, right? Feel free to chime in, CC crowd. There could be no doubt in any prospective purchasers mind that they will be Cog Hill material if they purchase this beautiful million dollar home.

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  51. The interior isn’t great, but, a cool mil buys a lot of house in park ridge compared to most of the gz.

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  52. the indoor pool was a nice surprise.

    also liked the shredder. check there for book remains.

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  53. Am I the only one noticing that some properties are starting to linger on the market again?

    These are the expensive 2/2s in Lincoln Park and Lakeview that were selling just a month ago but now a bunch of them have jumped on the market and have come on too high.

    Are there really that many buyers for a $550,000 2/2???

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  54. “March sales in Chicago were up 16.4% over last March, though the IAR will report it closer to 13.7%. Contract activity is still strong, which will continue to feed these comps. Distressed sales are declining and inventory just keeps dropping: http://www.chicagonow.com/getting-real/2013/04/chicago-real-estate-market-update-incredible-strength-continues-in-march/

    We are in another bubble at this point. It’s all government driven too. Really sad for young families to be completely shut out of the market unless they become indentured servants for the rest of their days. I wonder when we will hear that the IAR data is misstated agan…

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  55. “We are in another bubble at this point.”

    I don’t see how you can say that with prices almost 29% below the long run trend line – and I generated that trendline from pre-bubble data.

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  56. “We are in another bubble at this point.”

    I don’t think this is true- not yet.

    What’s the definition of a bubble? When people believe that an asset class can only go up. (Sorry Gary- I disagree with you. A bubble has no association with whether prices are off the all time high or not.)

    Sentiment is simply bullish towards housing. I think if we see the big investment firms buying at even higher prices- then it could get worrisome. There are lots and lots of people suddenly becoming landlords. There are lots of people who think buying a 2-flat is a sure thing. There are lots of people buying 2-bedroom condos simply to rent out.

    But is it extreme? No. Not yet.

    Again, sales are at 2002 levels. Prices aren’t moving that much off the lows.

    But I don’t think the Fed will be able to turn off its policy on a dime. That’s the risk. That it will keep its foot on the accelerator far too long and we will see the bubble re-inflate.

    If you think we have problems in Chicago with 3-bedroom brick bungalows selling for $375k (which they are) then you should really feel sorry for those trying to buy their first home in Los Angeles and other areas of California. I saw an article recently which said that there were almost no houses priced under $400k in any decent areas of LA because the private equity funds were buying up everything on the market. How sad for regular families simply trying to live.

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  57. So the US will become like Germany. The young people will be indentured servants to their landlords, the private equity firms, who also get huge tax breaks from the government. The system is rigged and will only get worse. The only ways to break the cycle is to buy an overpriced home (inflated by the government debt bubble) and pay a much higher % of your income to housing than past generations, move 30-40 miles away, move to an area with a lack of safety or poor public schools. This is not a good thing overall and will hurt consumer spending. Housing is crowding out other spending for many young families. I really fear for my own kids and how they will make it.

    California is a whole different country compared to Illinois. Both totally screwed up states. The public employee unions in Illinois would love to see 7% income taxes for all, and 9-10% for upper income tax payers here, all so they can pay for the rolls royce retirements of the pensioners. It’s going to happen.

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  58. “What’s the definition of a bubble? When people believe that an asset class can only go up. (Sorry Gary- I disagree with you. A bubble has no association with whether prices are off the all time high or not.)”

    I wasn’t comparing prices to the all time high but rather what a “normal” valuation might be. Compared to normal history prices are really depressed right now. You yourself said “Prices aren’t moving that much off the lows.” as a defense of your position that we are not in a bubble. And I think you can have a bubble without people thinking that prices can only go up. Most people would define a bubble as a period during which prices go up way beyond what is realistic. I use the long term trend line to define what is realistic.

    “How sad for regular families simply trying to live.” But that’s just the way markets work – they do what they will do regardless of what it means for various segments of the population. In the long run prices can not exceed what people can afford to pay – either they will go down or people will move away. Frankly, I don’t understand why anyone without a high income would live in the expensive parts of California – or Chicago for that matter.

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  59. What’s really happening in Chicago is that good housing options are moving further west and north. I’m working (was working until I started posting here – now it’s going to be tomorrow) on a blog post on the new construction SFH options in Chicago under $400K. Some of them look pretty darn good.

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  60. “Frankly, I don’t understand why anyone without a high income would live in the expensive parts of California – or Chicago for that matter.”

    Exactly. The problem with LA is, it is sooooo much more expensive than Chicago and incomes are essentially the same as here.

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  61. I believe that it’s the stock market bubble that’s driving up the housing market (incrementally). If stocks crash again, then housing will again be dead.

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  62. PS with the PMs and commodities crashing today, it could be a signal that we’re going to have a deflationary downwave. Europe has been printing less money than us, and in many countries there asset values have fallen, and not been inflated back up (like in the US which prints freely). So, in Europe homeowners are underwater, their bank loans (marked to market) make the banks insolvent, and the governments are likewise underwater. If a deflationary downwave hits us, then everyone will be underwater here too: homeowners, corporations with debt, banks, and the US Gvt. That’s why we’ll continue to print to prop everything up so the whole nation doesn’t deflate into an underwater position, across the board. Very unstable. I think the key is to avoid debt, because if asset values crash across the board, the debt $ stays the same.

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  63. “Exactly. The problem with LA is, it is sooooo much more expensive than Chicago and incomes are essentially the same as here.”

    The worst are the (relatively) dumpy parts of the Bay Area, like down the peninsula around San Carlos. You get a totally mediocre existence, with windy crappy weather, and it’s insanely expensive. If you ever rent a car and drive around SFO you see that there are immigrants who move and settle there and set up businesses etc. I often wonder, of all the places in America why start there?

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  64. “What are you talking about Gary? ALL of this is the Fed. Without the Fed buying $85 billion a month we wouldn’t even be talking about the housing “recovery.” But they can’t buy for forever so what happens when they stop? We’ll see- right?”

    Sabrina, you are terribly underestimating how much of a dove Bernanke is. He extensively studied the Great Depression and came up with the hypothesis that the government and fed did not do enough to get the U.S. out of depression then. The market is presently betting that interest rates won’t go up until 2015. Rates will be low for quite a long time.

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  65. Mike: you’re right, but you didn’t address how long it can continue, or “what happens when they stop”.

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  66. http://allstarcharts.com/wp-content/uploads/2012/06/6-3-12-Long-term-rates-back-to-1790.gif

    Typically after a large crash down there is a very long bottoming period, I mean we could see sub 4% rates for 20 years!

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  67. Wow, interesting graph sonies. Thanks for posting!

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  68. Some salaries in CA are higher than they are here which helps explain at least one of the reasons for higher prices. For starters the state government jobs pay extremely well and with overtime it’s easy to make over $100,000 a year. A job in the CA prison system is dangerous but extremely well paying with awesome benefits. Cities pay very well too, so well in fact, that a handful have gone bankrupt trying to pay salaries and pensions.

    The film/movie/tv jobs pay pretty well too. And silicon valley salaries are pretty high too,programmers out there not only get higher salaries but they often get stock options too which give them large down payments for their $800,000 4/2’s ranchs in Santa Clara.

    Sure, jobs like nurses, lawyers, consultants, have comparable salaries to the rest of the country, and there are a ton of really really low wage service jobs, but there’s a lot of income and a lot of money out there which helps support prices.

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  69. http://www.bloomberg.com/news/2012-12-11/-822-000-worker-shows-california-leads-u-s-pay-giveaway.html

    California government jobs pay extremely well.

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  70. “http://www.bloomberg.com/news/2012-12-11/-822-000-worker-shows-california-leads-u-s-pay-giveaway.html
    California government jobs pay extremely well.”

    It sounds like fraud and theft of taxpayer funds. They should have limited pension accruals at the top social security benefit rate (around $113,000). Any pay over that, the employee should be on their own to save additional amounts. The government, the rich and private equity are taking over the world. The middle and upper middle class will be left with scraps and declining standard of living for the next 20 to 25 years. The baby boomers really messed it up for their kids. It’s sad.

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  71. Speaking of books, housing, the Bay Area, windy crappy weather and immigration, check out the book “House of Sand of Fog” by Andre Dubus III. It covers a situation where a woman’s home is sold by the city for non-payment of property taxes and what happens to her and the family who buys the home. There’s a movie as well with Jennifer Connelly, which wasn’t bad. Made me cry :(

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  72. gringozecarioca on April 15th, 2013 at 12:42 pm

    “PS with the PMs and commodities crashing today, it could be a signal that we’re going to have a deflationary downwave. ”

    Or it could just signify that everyone is trying to get out of the same door at the same time… I like that interpretation more…

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  73. By the way, Gary’s been working hard trying to get me a house, but everything we’ve bid on has gone into highest and best situations, and I’m looking outside the GZ.

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  74. gringozecarioca on April 15th, 2013 at 12:51 pm

    “There’s a movie as well with Jennifer Connelly, which wasn’t bad. Made me cry ”

    Any movie with Jennifer Connelly doing a nude scene, can not be bad.

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  75. “Some salaries in CA are higher than they are here which helps explain at least one of the reasons for higher prices”

    I can think of at least one other broad reason for the higher prices in nice areas of CA: it is awesome. Yeah, yeah, the schools situation there makes Chicago look like a model of success, an earthquake could destroy it any minute now, there are places around the SF bay where the weather is murkier than others, and various complaints can be lodged against southern CA, and what not and whatever, but it’s generally awesome. People knock the fact that much of life is spent in a car in CA, but that pretty well describes life in most places in this country. Of course, if things like the ocean, mountains, old growth forests, desert and generally great weather aren’t of great interest, then I could see how the appeal of CA might escape you. If you’ve not taken a vacation to anywhere in CA in the past few years, and/or have no intention of doing so in the next few years, that would indicate a lower level of interest in those things. But I would venture to guess that there is a rather disproportionate ratio of folks from the LA/SD/SF areas who visit Chicago vs. folks from the Chicago area who visit LA/SD/SF for fun.

    (We’d probably move there if it weren’t so far away from family. It’s a half day’s travel from here, and pretty much a day away from the east coast. I’d rather visit CA once or twice a year than have to deal with frequent trips to the midwest/east.)

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  76. Ze, she lives down the street and goes to my mom’s gym in Brooklyn.

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  77. annony, I think you’re on the right track but you’re missing something, that being land constraints. It’s an awesome place to live but that alone doesn’t account for the higher prices. The awesomeness attracts a lot of people (CA has 35,000,000 people) who are mostly jammed onto habitable valleys near the coast (yes the inland empire has a lot of people too) and the competition for those limited resources drives up prices.

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  78. Anonny, you are missing out on the worst part of california… THE PEOPLE!

    Californians, my goodness I hate them so much

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  79. San Franciscans annoy the hell out of me.

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  80. “Are there really that many buyers for a $550,000 2/2???”

    No, but isn’t it pretty to think so.

    “The baby boomers really messed it up for their kids. It’s sad.”

    I totally agreed with you Dave M. That notion is the recurrent theme in Stockman’s (and so many others’) book. But I like jeremiads, from Jonathan Edwards to Joan Didion. To quote J. Mascis: Nice guys grow on trees.

    http://www.newyorker.com/talk/financial/2013/04/22/130422ta_talk_surowiecki

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  81. Frankly, I don’t understand why anyone without a high income would live in the expensive parts of California – or Chicago for that matter.

    In 2011
    LA median household income was $51K and median home price was $513K.
    Chicago median household income was $47K and median home price was $261K.

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  82. gringozecarioca on April 15th, 2013 at 4:02 pm

    Where’s Bob.. On days people lose lots of money he usually shows up to pontificate, all cheery, after knocking down a couple of peach schnapps..

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  83. he’s a guns, gold and canned food tea bagger so he’s probably busy crying in his Glenn Beck endorsed bunker

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  84. “Of course, if things like the ocean, mountains, old growth forests, desert and generally great weather aren’t of great interest, then I could see how the appeal of CA might escape you.”

    I lived there for many years. California’s weather is only good in Southern California. Northern California sucks. Yeah- the fog in San Francisco is real. If you like wearing winter coats on the fourth of July (which I did EVERY YEAR) then that’s for you. On the other hand, wine country is truly lovely but it’s too far to commute to San Francisco for a “real” job. If you have a telecommuting type job (aka you run a website like Crib Chatter) then you could do it. I really recommend people visit there- especially Sonoma- which is just beautiful.

    If you’re rich, California is also great. (Of course that’s true anywhere.) You could live like Oprah Winfrey in the middle of the mountains near some of the small towns. Or you could live in Santa Barbara, which is beautiful and less congested. I think of that house in one of the valleys north of LA that Reese Witherspoon is selling (it was in Architectural Digest recently.) Now THAT’S the California dream.

    Here it is: http://realestate.msn.com/for-sale-reese-witherspoons-california-ranch

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  85. If we’re having a “deflationary downwave” with the Fed and Japan buying $150 billion a month and the Chinese having just spent $1 trillion to keep their economy going, then we’re ALL doomed.

    No, it’s the result of the instability that will come with the Central Banks being nuts. Nothing we are seeing is “normal.” Not the interest rates, not the housing market, not the stock market, not the bond market and now, not the commodities market.

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  86. “Anonny, you are missing out on the worst part of california… THE PEOPLE!”

    yeah, places like Brentwood and Marin County are full of NYC you-know-what transplants. U-Michigan and Ivy League sweatshirts everywhere and you’re supposed to be CA? It’s NAUSEATING. They even have high school “clubs” for people who graduated from NY high schools so they can keep up the ethnic networking, like in one instance from Great Neck. Boxer, Feinstein, the whole scene is lame and disturbing ethically, morally and culturally. For the same weather and scenery, move to Italy instead and enjoy life. Marin County is one of the least friendly places I’ve ever been to.

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  87. “If we’re having a “deflationary downwave” with the Fed and Japan buying $150 billion a month and the Chinese having just spent $1 trillion to keep their economy going, then we’re ALL doomed.”

    All the debt still outstanding, as assets on somebody’s balance sheet, will not be repaid in full. That money will be written off, and it will disappear. They haven’t printed as much as will be written off, the net result is lower money supply. They’re just trying to fill the hole, but can’t fill it.

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  88. “yeah, places like Brentwood and Marin County are full of NYC you-know-what transplants. U-Michigan and Ivy League sweatshirts everywhere and you’re supposed to be CA? It’s NAUSEATING.”

    Brentwood and Marin County- now those are two completely different places. Wow. You can’t get more different. Marin County is mainly removed from everything as it’s north of the Golden Gate Bridge. Lots of hippies and whatnot in parts of it (of course the former SF mayor and his actress wife and kids now live there. The weather IS better.) It’s also insanely expensive in parts.

    Sorry Dan, you’re wrong. I don’t know many New Yorkers in Marin County at all. The ones I knew lived in Silicon Valley and hated it because it wasn’t NY (it’s just the suburbs, after all, so I didn’t blame them.) They almost all went back to NYC as quickly as they could.

    The culture of SF and NY couldn’t really be more different. In SF, they don’t care where you’re from. No pedigrees there. They don’t even care if you HAVE a college degree. ha! Sorry Dan. You clearly have never lived there. That’s what makes California so unique and great. You can be born in a trailer in South Dakota and move there and become the head of a billion dollar company or a movie star and no one bats an eye. And no, there are no “high school clubs.” Come on. You’re nuts. (but we all know that.)

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  89. “They haven’t printed as much as will be written off, the net result is lower money supply.”

    No. No deflation Dan. Printing the hell out of it. It doesn’t matter if they “write it off.” When they stop printing, the game will be up. Unless, of course, you assume they print for the next 10 years which is absurd.

    I have no doubt that Bernanke is a dove as someone said. He is fighting the 1930s war but this isn’t the 1930s. Unfortunately the damage has already been done. I’m sure they were surprised at what’s happened over the last 2 days in commodities. But this is the same Fed that didn’t see any problems in the subprime market and declared it “contained” and “no threat” to the greater economy just 6 months before it almost brought the whole country down.

    There’s no deflation. Just bad Fed policy that is causing instability.

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  90. PMs and commodities price collapse vindicates the economic ideas of the economic elites.

    To respond to the economic crisis, economists and mainstream policy makers have favored highly unusual policy measures (massive Fed balance sheet expansion, massive stimulus, etc.). These ideas are usually based on years of traditional economic research (Keynesianism, monetarism, etc.).

    All of these ideas have been slammed by heterodox types like Austrian economists, who have warned of hyperinflation, and gold going to $10,000.

    So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It’s great that our economic elites know what they’re talking about, and have the tools at their disposal to address crises without creating some new catastrophe.

    Things aren’t great in the economy, but the collapse/hyperinflation fears haven’t panned out, and the decline in gold is a manifestation of that.

    Regarding the East Coasters in CA, I was at the Sagebrush Cantina in Calabassas with a NY dude, and his obnoxious wife who got transferred there to work at the Bloomingdale’s in Sherman Oaks. He told me point-blank what you are denying. What I am supposed to do, forget what he told me point blank? LOL. And SF is full of Ivy types from the East Coast. These dweebs think they’re too good for LA and SoCal, so they end up in the Bay Area. Mill Valley is filled with these annoying people.

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  91. gringozecarioca on April 16th, 2013 at 7:14 am

    HH… Are you sure the sell off in gold is not just a simple technical breakdown and that price isn’t being determined by supply and demand of contracts in the open market? One might say that gold has been breaking down since Apr 12 and the move below 1600 got the specs all excited seeing blood in the water and made them aggressive to see how they could hurt the longs, which they discovered they could.. So pound away without remorse until carnage.

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  92. “Regarding the East Coasters in CA, I was at the Sagebrush Cantina in Calabassas with a NY dude, and his obnoxious wife who got transferred there to work at the Bloomingdale’s in Sherman Oaks. He told me point-blank what you are denying. What I am supposed to do, forget what he told me point blank? LOL. And SF is full of Ivy types from the East Coast. These dweebs think they’re too good for LA and SoCal, so they end up in the Bay Area. Mill Valley is filled with these annoying people.”

    So you go somewhere for one weekend and you meet one couple and that is all of California? Why am I not surprised. This is Dan we’re talking about.

    Honestly, New Yorkers aren’t that big of a deal (at least in the Bay Area.) They just don’t like it in CA. It’s too slow paced and small for many who grew up in NYC. There seem to be far more people from Raleigh, Boston and Austin than NYC. Boston and SF are very similar in the types of people it attracts. And you can complain all you want about the “ivy types” but that includes Stanford, of which there are, obviously, tons of graduates in the area. It’s a sign of success that a city is attracting the ivy league and top graduates. I don’t see why you think this is a bad thing.

    It’s just not as you say Dan. California is the least pedigreed place I’ve ever lived in (and I’ve lived on the East Coast too.) I’ve never met anyone in California who put their high school on their resume as I have on the east coast and even in Chicago. Again, no one cares in California where you went to school. Heck, Steve Jobs didn’t even graduate from college. That’s what I love about California. You can really be whomever you want out there. No one cares where your family is from or what they do.

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  93. “HH… Are you sure the sell off in gold is not just a simple technical breakdown and that price isn’t being determined by supply and demand of contracts in the open market? ”

    1) A gold breakdown could signal deflationary downwave, with stocks to follow next. Copper is breaking down, and it’s Dr. Copper. If it falls like gold does, then I think we could expect a stock crash after that?

    2) Since gold was at $1900 in summer of 2011, it’s tested $1,525 four times! The last of which, last week, resulted in not a bounce off of resistance into a new bull phase but instead a breakdown below that massive resistance. How can we look at it in a vacuum?

    3) one argument that the gold crash is unique, is explained by the goldbugs who maintain the crash was orchestrated and manipulated by the Fed, bullion banks, etc. For that perspective read the kingworldnews business tab and see all the “explanations” they give for the “take down”.

    Nonetheless, a pure agnostic technical analyst isn’t going to listen to excuses, or explanations, they maintain that the chart tells it all….despite who or what was behind the crash. So, personally, I think the gold crash is worrisome for other asset classes. I agree with Sabrina about all this money-printing, but I still think they are trying to fill up a hole, to keep us even, and the hole is debt destruction globally, that erases money supply faster than these central banks can create it. If we have a crash, the whole entire globe will be underwater, esp. governments and homeowners (esp. those with other debt too). The central banks want to keep us where we are, which is even with 2000 & 2007 levels, because anything less means everyone can’t pay off their debt or even refinance and that includes world governments!! What happens to gold after that is anyone’s guess. It’s hard to believe that people are trading gold for paper cash, and that paper cash is rising in demand relative to gold, but that’s where we are today. What does anyone else think??

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  94. “HH… Are you sure the sell off in gold is not just a simple technical breakdown and that price isn’t being determined by supply and demand of contracts in the open market? ”

    PS to answer this original question, LOL. No, the takedown in gold was done on a paper basis at the COMEX, the physical market is much more “healthy”, but as of now the paper market determines the price still. Maybe there will be a physical default because all the “gold” trading at the the COMEX isn’t even there in reality. All the tonnage traded, or shorted in this case, is paper gold, leased gold, hypothecated, re-hypothecated, etc. Nobody ever gets to audit any of the gold bullion vaults, so nobody really knows who owns it, or if the SHTF who would have the ultimate claim on it, everyone has all these paper claims to the vault bullion, but good luck getting your hands on it when really needed.

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  95. ” It’s a sign of success that a city is attracting the ivy league and top graduates.”

    It’s a sign of herd mentality. These types only live in a few areas: Boston, NY, SF — and rarely LA or SD. It’s pretty annoying to be around such people who think they are “better” than people living in 95% of the rest of America, and can’t lower themselves to live in the same metro areas as other Americans in all the other varied locales in our nation.

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  96. gringozecarioca on April 16th, 2013 at 10:14 am

    “Since gold was at $1900 in summer of 2011, it’s tested $1,525 four times! The last of which, last week, resulted in not a bounce off of resistance into a new bull phase but instead a breakdown below that massive resistance. How can we look at it in a vacuum?”

    Wouldn’t that be a bounce off of support and not resistance?? Resistance is above and support bellow??

    “the physical market is much more “healthy”, but as of now the paper market determines the price still.” I am confused? Is the physical market healthy or did it drop in price consistent with the paper market? Did the spot to future spread blow out or something?? One or the other?

    BTW.. Ze always hated goldbugs… Ze finds them creepy.

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  97. gringozecarioca on April 16th, 2013 at 10:17 am

    “It’s hard to believe that people are trading gold for paper cash”

    Today I traded paper cash for Tomatoes and Mangoes. Hard to believe they gave me food for paper.. Funnier part is they gave it to me in a paper bag that was like 20 times the size of the paper I gave them. So essentially I walked in and gave them 1 piece of paper and got food AND even more paper than I originally walked in with. Suckers!!

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  98. “Is the physical market healthy or did it drop in price consistent with the paper market?”

    1 Krugerrand still buys a case of beans, 2 gallons of clean water and 50 rounds of ammo, just like two weeks ago.

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  99. I’ll take a property in close proximity to an L stop over gold any day of the week. Apparently, so will many:

    http://columbiachronicle.com/property-values-near-public-transit-increase/

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  100. Thanks skeptic, very interesting though not surprising.

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  101. ” Ze always hated goldbugs… Ze finds them creepy.”

    You mean Goldbergs? or Goldsteins? What about Goldmans?

    “Wouldn’t that be a bounce off of support and not resistance?? ”

    That’s right/.

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