Flipper Alert: Price Reductions at 451 W. Huron in River North
I last chattered about the flippers at 451 W. Huron in River North in December 2007.
451 W. Huron is a 135 unit new construction building that was 95% sold when closings began in the fall of 2007.
Current statistics:
- 19 for sale
- 9 for rent
The units that I chattered about two months ago, are all still for sale. And they all have been reduced.
Unit #501: 2 bedrooms, 2 baths, 1015 square feet
- Sold in September 2007 for $402,000
- Was listed in December 2007 for $419,900 plus $35,000 for parking
- Now listed at $409,900 plus extra for parking
- Or available to rent for $2500 a month
- Christopher Pagano at Coldwell Banker has the listing
Unit #512: 2 bedrooms, 2 baths, 1100 square feet
- Sold in September 2007 for $395,000
- Was listed in December 2007 for $484,000 plus $35,000 for parking
- Now listed for $449,000 plus the parking
- Or available to rent for $2975 a month
- CitySpace Realty has the listing
Unit #503: 1 bedroom, 1 bath, around 770 square feet
- Sold in September 2007 for $280,000
- Was listed in December 2007 for $293,000 plus parking
- Now listed for $292,000 plus parking
- Brenda Tabak at Coldwell Banker has the listing
Unit #804: 1 bedroom, 1 bath, around 770 square feet
- Sold in September 2007 for $287,500
- Was listed in December 2007 for $294,900
- Now listed for $289,900
- Or available to rent for $1650 a month (parking extra)
- Christopher Pagano at Coldwell Banker has the listing
Closings are not yet completed in the building. Stay tuned.
Poor Marianne…
$375 to $400/ft for these places with no view or anything else special? Isn’t that nuts?
Anon: That’s a lot of money for that location. Could be why none have re-sold.
Hi, the location is great – but the one bedrooms looks small at 770.
I am new to the area and am looking to become a first time home buyer. I am looking for a one bedroom, one bath/1.1 bath in the River North area. I visted this building (451 W. Huron) this past weekend and really liked the inside of the 1b/1b. I am planning on visiting 600 N. Dearborn this coming weekend, but have read some interesting things on this site about its lack of value. I am planning on staying in a unit for at least 3 years, but more likely 5 years. Any advice?
Adam: Just a question- if you’re new to the area, why not rent a bit so you have time to check out all the buildings and neighborhoods before making up your mind?
You’ll get a better feeling for the neighborhoods.
451 W. Huron is a completely different location than 600 N. Dearborn. 600 N. Dearborn is right smack in the middle of the action (tourists, people going out to dinner etc.) On the weekends, you can still hear the people down on the street at 2 am.
I guarantee you it will be much different at 451 W. Huron. But if you like it quieter, than 451 W. Huron is for you.
I could go on with many differences between just these two buildings (management, assessments, finishes etc.) It depends on what you’re looking for (your lifestyle, where you work etc.)
By new to the area, I mean I have rented at 1 W. Superior for 7 months and love the River North location. I work in the Loop so either location 451 W. Huron or 600 N. Dearborn is fine for work. I did notice how quiet it was at 451 W. Huron compared to where I currently live. I saw the article about lack of value appreciation at the 600 N. Dearborn building – what do you think the cause of that is? If I were to purchase one of the listed units do you think I am getting a good deal? Or do you think prices will still come down say 6 months down the road? Or the 600 N. Dearborn building is a dud and will never appreciate? Thanks for the help.
Finishes are very outdated at 600 N Dearborn. Until recently, there was a Red Lobster in the building that kept prices down. Chase is there now which is great.
Update…4 Under Contract, 1 closing in last 90 days…18 listings available on MLS
PEND 451 W Huron 904 Chicago 8008 $289,900
PEND 451 W Huron St 704 Chicago 8008 $297,500
PEND 451 W Huron 1411 Chicago 8008 $304,150
PEND 451 W Huron 707 Chicago 8008 $419,467
CLSD 451 W Huron 1311 Chicago 8008 $332,551
People don’t like the smell of fish and lobster in their own condo all the time?
City Agent: Are those the prices that they were listed at or are those the prices they are under contract for? Thanks.
Those are the List prices. You will not find out the exact “CLOSED” price until the deed is recorded (tax records) and or the Listing Office has updated the closed price which normally happens 24 hours after the actual closing date.
Only unit 704 that city agent listed was a flip with a prior purchase price of $285,300. All of the rest are closings by the developer to original purchasers.
Adam, see my comment on the post from earlier today titled “Downtown Chicago Apartment Rents Fall 4.3% in 4th Quarter” for a little more insight into waiting to buy. You can’t lose by waiting, especially with only a 3-5 year holding period.
It is an absolute lock that prices on downtown condos will fall further.
G – Thanks for the link. I can see after reading multiple posts that you seem to be the most pessimistic of all the posters. You obviously know a lot more about this than most, but your estimates and feelings are that most places will decline in price for another 3-6 months? And it would be foolish for me to buy in the next two months?
Also, Streeterville Reator said outdated finishes and the Red Lobster have hurt 600 N Dearborn’s value appreciation or lack thereof, and this makes sense – your thoughts?
Thanks for everyone’s thoughts and comments.
Cheers.
Red Lobster is gone now though and a nice Chase Bank branch replaced it. If you can get a real deal at 600 N Dearborn and remodel the kitchen/bathrooms to your tastes, go for it!
I agree with Streeterville, now the real question is what is a ‘real deal?’
Adam, do you have to buy now? It’s not like prices are going to go up if you wait a few months.
There will be much more inventory this summer and sellers will be more desperate. That’s just my opinion. Look around and wait for someone who MUST sell the property. Then you’ll get a “deal.”
Adam, a return to traditional affordability is optimism, not pessimism. I absolutey do not agree “that most places will decline in price for another 3-6 months.” The declines will continue for much longer and there will be no way to miss the bottom since it will be around awhile. The recovery from the bottom won’t start in 2008 or 2009.
There is no financial reason for a renter to buy at this time. There is no doubt that some put a value on owning beyond the financial decision; in the current market they will pay dearly for that. If you intend to hold for only 3-5 years it would be (if it is even possible to be) more foolish to buy now as there is a miniscule (and decreasing daily) chance that you wouldn’t come out ahead by renting something similar.
The downward spiral is still in the early stages here. Just wait to see what occurs after the oft-heralded “Spring Selling Season” doesn’t.
Adam, I have found most of Streeterville Realtor’s comments to be excellent, including his/her (sorry, I don’t know) observations regarding 600 N Dearborn.
I know this must come as a surprise to those who see my responses to the cheerleading used home salespeople, but I don’t believe that all are dimwitted and deceitful. Streeterville Realtor certainly doesn’t exhibit those traits, and his/her knowledge of downtown area buildings is a definite postitive contribution to the discussions around here. I say this even though I don’t think we agree at all about the extent of the market collapse, but SR’s comments have never struck me as anything but honest and forthright.
Thanks G! Great forum Sabrina!
I love the “crystal ball” argument that who knows whether prices will continue to fall or go back up – really? The housing market cannot instantly correct like the stock market – the widespread ownership of unique units with unique interests will make this popping of the bubble result in a drawn out decline.
The irony of the deflation (not pop) of the housing bubble is that it would probably be easier to buy now than in a year because once the sustained decline becomes obvious banks will have to request higher downpayments and tighten lending standards (even more than now).
I do think that rents will eventually go up – and knowing that prices go up faster than down I bet this could happen as soon as this fall – its as inevitable as housing prices going down. With more people staying on the sidelines or delaying moving into a hosue, people turned out of foreclosed houses, etc., the demand will go up as will prices.
Point being – I don’t think renters like myself will get out of the housing crisis scott free – the correction will take years to sort out and eventually lead to home prices falling (slowly) and rents increasing.
No doubt that it is easier to get a mortgage now than it will be in the future, but that is changing rapidly. The new reality is if you don’t have very good to excellent credit, verifiable income history, and at least 10% down you will not be buying a condo until you do. This fact will accelerate price reductions as the qualified pool of buyers evaporates.
Vacancies are rising in rentals downtown, the supply is soon to grow by at least 25%, and the shadow market of condo rentals is very large (between 1/4 to 1/2 the size of the current conventional rental market.) Support for this was in my comment to the post yesterday titled “Downtown Chicago Apartment Rents Fall 4.3% in 4th Quarter”. All of this points to rents going up downtown as not being “as inevitable as housing prices going down”. I have never seen any evidence of an inverse correlation as you suggest, and the reasons you give for it are easily countered. Those “staying on the sidelines” or “delaying moving” already live somewhere so they will not affect demand at all. As for the “people turned out of foreclosed houses”, they will not be renting any of the conventional downtown apartments because they will not qualify.
I agree that a real estate bubble “pop” is always drawn out over time and we are at the start of this one. This will definitely take years to sort out. However, prices are already falling drastically at the margins, and the lack of sales elsewhere can only result in eventual price declines as fear and capitulation set in.
G – I see your belief in economics is limited to housing going down. Supply and demand works both ways – like you say – people have to live somewhere – or are you really arguing that there is too much housing capacity in Chicago?
SLR, I rebutted your examples of increased demand for downtown rental housing. Where else do you see the demand coming from? Job growth for Chicago is in decline, which will also result in lessened demand than recent years. There are also the continuing financial sector layoffs to consider. Even if you don’t predict we are in, or approaching, a recession there is no way that rental demand will equal recent years.
As far as “arguing that there is too much housing capacity in Chicago”, there is certainly too much downtown at current prices for rent and for sale. This is obvious in the vacancy and sales stats. It remains to be seen how overbuilt it is, but there doesn’t seem to be a question that developers built to a demand that included a significant percentage of “investor” units that did not represent real demand by an actual occupant at asking prices. They also are building new apt bldgs based on past predictions of steady occupancy and rising rents, the former of which is in steep decline and the latter will soon follow.
So, especially in the face of the exploding supply of rentals, I am left to wonder how you are still arguing for an increased apartment demand downtown?
G – you need to read more carefully – don’t create straw men about what I said. “I do think that rents will eventually go up – and knowing that prices go up faster than down I bet this could happen as soon as this fall – its as inevitable as housing prices going down.”
Gumshoe G, you are a true, “KNOW IT ALL…” I have to say I can’t remember someone knowing so much since I was in 3rd Grade. We had this one kid in class that knew everything. He reminds me of you… It is amazing!
CA, since you know that G’s predictions are false, then perhaps you are the know-it-all?
Rather than resorting to childish taunts (that I am sure don’t bother G, but do lower the level of discourse here), perhaps you can point out where you think G is wrong. I’m not even asking for facts, just your opinion about what, in particular, G is so very, very wrong about.
Can you give us even one thing that’s more specific than “you’re wrong, Mr. Know-it-all Gumshoe”? And, please, don’t resort to anecdotal evidence of a few dozen recent closings (w/o actual closing prices)–tell us why you think G’s expectation for the trend is so obviously wrong.
Anon, I don’t need to justify anything. You’re all over the map as well. Just a month ago you were ready to place offers here and there.
“And, please, don’t resort to anecdotal evidence of a few dozen recent closings” I was simply giving an update good news or bad. If there was only 1 closing I was going to update the situation at the Columbian. I thought it would be nice to see activity in the last 90 days regardless if it was a flip or sold by the developers sales office.
I’m might sound extreme to you but I will at least give an educated opinion good or bad… I don’t claim to know everything. I’ve posted many times that it will take between 2-5 years what happens with some of these NEW BUILDINGS.
I actually only seriously commenting on buildings I’ve actually visited. I’m not going to tell you the finishes are bad just by looking at pictures. Or mention that I can’t wait to see those views get blocked when I know Michigan Ave, Grant Park, LSD and the Lake are directly east of the building. Sorry, Kenworthey.
G, acts that everything he speaks is 100% guaranteed going to happen. His arguments are too extreme with little pieces of facts thrown in here and there… He acts as if Developers are clueless. Enough with this nonsense about Pyramid Schemes.
If your pressured into buying anything over $100,000 by any sales person in any sales center than there is something wrong with how you think. I truly feel sorry for you…
“You’re all over the map as well. Just a month ago you were ready to place offers here and there.”
No, no I wasn’t. Haven’t mentioned placing an offer on anything in 4+ months of postings here (or anywhere else, either). Happily ensconced in my house purchased in ’01. Not planning to move, nor buying anything as an “investment”.
And still, no basis for why you think G is wrong beyond “his arguments are too extreme”. If you want people to disbelieve G, give us some reason.
Oh, and you should have to justify name calling. It’s inappropriate and makes you look bad.
“Or mention that I can’t wait to see those views get blocked when I know Michigan Ave, Grant Park, LSD and the Lake are directly east of the building. Sorry, Kenworthey.”
Wha? When did I say I can’t wait for views to get blocked? If you’re talking about my comment in the Columbian, the possibility of prices going lower makes me INTERESTED in the building, and I asked when anyone thought the view would be blocked, because it was the only reason I could think of for that building to be doing as badly as it is. I was told “never,” and quickly acknowledged that I probably could have known that from the address.
Of course I think things are overpriced downtown. You’d be insane not to think so. Do I have schadenfreude about it? No. Sure, I’d love to pick up a beautiful unit I can’t currently afford simply because of the r.e. bubble. But I certainly don’t relish the economic hell for this city (and this country) that would make it possible–and I’ve said so.
I wasn’t going to pile up on you since anon and G have been doing such a good job of it, but since you brought me into it–I agree that getting ANYONE to buy in this city right now unless you manage to find them a unit that is priced at about 2003 levels is, frankly, dishonest and doing their client a deep disservice just to make a commission. That’s because NO ONE who is involved in this business (as you are) can sincerely think that prices aren’t dropping, and still have a pretty long ways to go.
“That’s because NO ONE who is involved in this business (as you are) can sincerely think that prices aren’t dropping, and still have a pretty long ways to go.”
Well, when all else fails, hurl insults, and assert that you have no need to justify yourself.
“O.K. Someone stop me quick, but I think I am going to put an offer on one of these in the high $500,000’s.” need I say more…
“How long until that Eastern Lake view (it’s main selling point) gets blocked?” Kenworthey, it was just an example with no harm intended. I actually enjoy reading your posts and hearing your excitement about some of these amazing buildings…
CA on “Fourth, Prices have been falling for the past 6 months now.”
Kenworthey, “That’s because NO ONE who is involved in this business (as you are) can sincerely think that prices aren’t dropping, and still have a pretty long ways to go.”
If you read any of my posts in the last couple days I’ve been agreeing with anyone that prices are coming down and the market has slowed. I’ve also been saying that well priced homes are going under contract right now…
city agent, you clearly admit that you agree with Kenworthey’s reasoning, but how about her conclusion that the reasoning supported:
“getting ANYONE to buy in this city right now unless you manage to find them a unit that is priced at about 2003 levels is, frankly, dishonest and doing their client a deep disservice just to make a commission. ”
Do you agree with her conclusion?
South Loop Renter on February 21st, 2008 at 4:34 pm
G – you need to read more carefully – don’t create straw men about what I said. “I do think that rents will eventually go up – and knowing that prices go up faster than down I bet this could happen as soon as this fall – its as inevitable as housing prices going down.”
————————————————————–
I apologize and did not intend to create a straw man. I was careless to mistakenly interpret your statement to mean there was an inverse correlation. My knowledge of other bubbles tells me that sale and rent prices will most likely both go down, but that is somewhat anecdotal. Regardless, it is obvious that I disagree with your opinion that rising rents will happen this fall. No big deal.
I am still curious as to what you think will cause an increase in demand for apartments from current levels? I don’t see any significant increase in demand in the near future, and it actually fell significantly in the 4th quarter. However, I do see a very significant increase in supply. That is how I arrived at my opinion that rents will not increase this fall, and downward pressure on rents will be around for at least a couple of years.
I’ve enjoyed the information and postings on Crib Chatter for some time now but after reading the most recent postings I am shocked at the level of communication. It is highly unprofessional! Everyone has opinions and some have factual statements to make. Both, if given in a courteous and respectful manner, have merit. I would hate to see this site overcome with mean spirited and bickering like people. It takes away from the value and discourages comments of opposing views. Please bring the discussions to a higher level of mutal respect and politeness.
Marianne
I don’t agree with Kenworthy’s conclusion – sorry – I actually resent it. View my comments as BS, however, there are a number of buyers in this market – many of whom simply don’t agree with the logic that prices will fall below 2003 – or even to 2001 levels. While lending requirements have changed, there are still a large number of well qualified buyers in this market. Sub prime represented on average 7% of buyers. Even prior to the subprime phenomenon, there were plenty of qualified buyers – yes, we didn’t see double digit appreciation, but the market remained stable. Buyers have not disappeared.
Yes – there is no question that prices are falling – many should – some sellers are simply unrealistic. If you bought a unit at 1235 S. Prairie in the NW corner for example – you should not expect to make money – your unit has no view – no surprise, it’s not worth $700K. If you paid developer’s prices for a unit that has a obstructed view, you made a poor decision,. Units with guaranteed views will keep their value – disagree with me or not, they are selling.
I am curious about the “on average 7% of buyers” claim for subprime. According to this really cool graphic from the NY Times (http://www.nytimes.com/interactive/2007/11/03/weekinreview/20071103_SUBPRIME_GRAPHIC.html#) Cook County has 37% of all outstanding mortgages classified as “subprime”.
The interesting thing about the “subprime is contained” claim is that it probably isn’t the loan type which will have the largest detrimental effect on the downtown market. That will more likely be the alt-A loans; loosely defined as those loans given to borrowers with good credit scores but little documentation of income or assets. There was quite a bit of flexibility in these loans along the lines of owner-occupancy requirements, debt to income and LTV ratios, and interest-only or option-ARM payments. It is the disappearance of these loans from the market which will really do some damage to the bubble prices.
There will be knife-catchers all the way down to the bottom, so there is no surprise that there are buyers now. Especially since the NAR sees no problem with encouraging them that “it is a great time to buy.” Of course, for the NAR there has never NOT been “a great time to buy” because they only survive on commissions. It remains to be seen how that influences the public’s opinon of their profession in the future.
G has obviously done his homework and is well versed in real estate and economics. I don’t think he/she is biased. I understand this mess pretty well. the people who believe now is a good time to buy are flat out naive or they are just trying to “pimp” their real estate holdings or their book of business. I rent at 451 huron and it is an awesome building and an awesome location. i highly suggest renting here. prices will go down about 10% in this area as there is too much supply in the city and it is much more difficult to get a loan these days.
does anybody know what the pre construction prices were in this building or where you go to find this info?
crystalballer: You can find the closing prices on the Tribune’s website- so that will tell you what some of them paid pre-construction (because clearly some of those buyers were that early.)
Sabrina, i checked the tribune’s website and it showed 80 transactions over the last year, but no pre-construction transactions. do you know the exact link? thanks
G may end up being right but for now he/she is simply presenting common knowledge and then extrapolating it to the worse possible scenario. This is very common behavior on anonymous message boards during bear markets, we saw the same thing with stocks a few years ago. The most extreme arguments NEVER end up being correct. G seems to like baiting people with snarky terms like “optimistic increases in affordability” and “used-home sales people.” I’m willing to bet G is just mad because he/she can’t afford to buy a place and likes to stick it to people who can.
D
Crystallballer: There is no such thing as a “pre-construction” transaction. The closing prices on the units (that just closed in the last few months) ARE the pre-construction prices.
The buyers would have signed their contracts several years ago- but finally closed just a few months ago. You should get an idea of what they “originally” sold for (as long as some of the buyers were the earliest buyers.)
Check the lowest floors. Flippers like to buy the low floors in pre-construction. They’re usually the cheapest and because they close first, easiest to flip.
Real estate market trends. FYI, home price will continue to decline over the next two years. In some areas of the country foreclosures are currently outpacing sales each month and the rate of foreclosures is accelerating! Chicago, with its more modest run up in prices will not decline as much, but it will decline. All signs point to renting unless you can secure a pre-bubble price such as 2003 … better 2001 prices. In real estate (unlike with stocks), it took years to reach the top of this bubble and it will take years to reach the bottom. Once at the bottom prices will stay flat and inventories will reach the 10 month supply mark…it will stay that way for months. Once prices start to rise, they will rise slowly for at least 1 year. The lesson, don’t try to catch a falling knife here, the price declines are out of your control and there is simply no hurry to get in since the downside risk is enormous with little risk once prices start to rise (no rise in real dollar terms at first so any rise in price is just inflation anyway). Huge risk when real estate is declining before the bottom, small risk if you miss the exact bottom and prices start to rise. If you property goes down 33%, it takes a 50% price increase to break even in just NOMINAL dollar terms.
See the following video (and note things have gotten worse since then and these people aren’t uninformed and Merrill Lynch has since said 10%-15% price declines in 2008 and 2009):
http://www.wellcomemat.com/video/0DC1587DB7
Sabrina, thanks, that is good intel. this makes a lot of sense now. looks like the 1 bedrooms sold between 260-300k. do you know if the published prices on chicagotribune.com would include parking, if parking was purchased?
Thanks Sabrina. do you know if the price of parking is typically included in the sale prices listed on the tribune’s site?
John is right — places like miami could depreciate 50% or more from peak to trough, however, places like chicago, that rose at a slower pace and didn’t experience as much speculation, will depreciate much slower. If someone insists on buying in this market, they should make sure they are getting it for a 2003-4 price level. There is a camp of people out there that think chicago is immune b/c price increases were only 10-20% annually, however, that pace is unsustainable for chicago and abnormal. A normal rate of appreciation is 2-6% above core inflation. Also, chicago’s population is not rising like NYC’s and Cali’s and there actually are a lot of speculators that created artificial demand and supply in the city. Wait until the economy worsens…then things really start to look interesting. Look at all these high rises and new construction buildings around the city. Many crackhead developers and their sales agents claim the buildings are almost fully sold, but many of these people will walk away when they realize the property isn’t even worth their “pre-construction” price.
Crystalballer,
There is no way “normal” appreciation is anywhere near 2-6% ABOVE core inflation. It’s more like 3-4% per year, NOT COUNTING inflation. Which makes sense–housing is, at heart, a consumer good and it doesn’t get more valuable over time (unless your housing happens to be in a place where more people are moving to than in than in the past). Real estate can’t increase in “productivity.” Contrast this with stocks–you are buying pieces of businesses that become worth more over time–that is, they beat inflation–because they become more productive.
The only reason–and I mean the ONLY reason–putting money in your house is a good investment (for the average home owner, not the average speculator) is the mortgage interest deduction, where Uncle Sam is basically giving you money for 30 years. Otherwise, you’d be better to put your money in the stock market (and in a declining market, you are better off in the stock market even WITH the mortgage interest deduction.)
I saw a statistic that said that the Chicago area (not just the city) was about 3% a year over the last 30 years. There were many years when there was NO appreciation (specifically some years in the early 1980s and again in the early 1990s.)
Imagine a housing market where nothing went up for 5 years? It’s happened here before.
Deaconblue on February 24th, 2008 at 8:53 pm :
G may end up being right but for now he/she is simply presenting common knowledge and then extrapolating it to the worse possible scenario. This is very common behavior on anonymous message boards during bear markets, we saw the same thing with stocks a few years ago. The most extreme arguments NEVER end up being correct. G seems to like baiting people with snarky terms like “optimistic increases in affordability” and “used-home sales people.” I’m willing to bet G is just mad because he/she can’t afford to buy a place and likes to stick it to people who can.
_________________________________________________________________
Wasn’t it Sally and you who said I should “go away” becasue all I do on here is “look for fights?” Doesn’t this make you a hypocrite?
Why don’t you ever address my comments instead of making a fool of yourself? Is it because you cannot put a logical thought together, like above? And you want to talk about “very common behavior on anonymous message boards”? Hyocrite, indeed.
You wrote that I “may end up being right” but that I extrapolate “to the worse possible scenario.” You then conclude that “The most extreme arguments NEVER end up being correct.” LMAO.
By the way, I am very optimistic about the return of traditional affordability. As far as wanting to “stick it” to bubble condo purchasers (who by your logic are my financial superiors) don’t you think they have “stuck it” to themselves rather well without my help?
Home prices over the long term tend to be a hedge against inflation with about 1%-2% appreciation in real dollar terms (but of course we all know we have to maintain and update those properties which offsets some of the real appreciation!). The 100 year+ trend has been a +/- of 10% in real dollar terms in cycles above the long term trend line. We just got off a 93% jump in real dollar terms! That is historic and we could all wait for home prices to decline back to the long term trend….BUT, more was going on with people withdrawing their “equity” to fuel our consumer led economy, now that has ended….bye bye HELOCs. So, there is no question the decline in home prices will be a serious drag on the economy and we WILL, if not already, have an economic recession. There is no way productivity gains can out pace the decline in housing and loss of consumer spending through home equity loans. Note, I was not always a bear and had been more optimistic since I’m in the midwest, but once you see what is happening in CA, NV, FL, there is no way I can be at all bullish on real estate…no way. Gone are the days of flat pricing hopes allowing inflation to work its way up, we have declines which aren’t done yet and already have gone beyond inflation and are dipping below the nominal dollar prices people paid. That is a psychological shock to 90% of the home buyers out their who took out loans thinking home prices (at least in nominal terms since they don’t think in real terms) would just keep rising. No they are underwater and caught in a debt-trap. Had they rented they wouldn’t have the debt-trap.
See this on YouTube for your entertainment….if you like scary rides! The ups and downs of the housing market……..
http://www.youtube.com/watch?v=kUldGc06S3U
Kenworth, the 2-6% covers different areas…i’m sure you know that not all areas appreciate at the same rate.
Kenworth, it sounds like you didn’t even read my blog b/c i wasn’t trying to make the case for buying a house for investment purposes, or even buying a house at all right now.
pretty good chart by robert shiller on real price increases over the last century: http://mail.google.com/mail/?ui=2&ik=ca3726a726&realattid=f_fa1cq0jz&attid=0.1&disp=inline&view=att&th=116c55b7a2f87a88
Can’t we all just get along? 😉 Nobody wants to hear that they are going to lose money on thier house if they bought in a bubble. But it appears to be a cold hard fact of reality these days.
Crystalballer, I definitely read your post! You said, “A normal rate of appreciation is 2-6% above core inflation.” And I said, that is not “normal.” Of course there are areas where it happens, sometimes. But it isn’t normal (as the Case-Schiller study makes clear, though your link to it is broken). If it really was the case that “normal” housing appreciation is 2-6% above inflation, I’d be buying houses like mad. 2-6% above inflation is 5-9% a year–which is about as good as you can do in the stock market. When you add the mortgage interest deduction on top of that, you are outperforming the stock market considerably.
Housing is a consumer good. It may take a long time to consume it, but it’s a consumer good. It depreciates. The only time it appreciates is when more people are moving into an area and demand outpaces supply, OR you are a developer who takes an old house or underperforming piece of land, builds something better on it, and sells it at a profit.
OR when people are irrationally exuberant. 😉
This whole inflation thing. My understanding is that the government inflation figures are really BS because they don’t include energy and food prices. So inlfation is actually much higher.
Core inflation strips out food and energy.
John–my guess is the 1-2% above inflation over time and on average probably reflects population growth, rather than actual appreciation of any given home… And I have no idea what the population trends are generally, but have heard a) more professionals want to live in the city (yay!) and b) population in the city on the whole is on the decline (boo!)
You should click on this for an interactive graph. Be sure to compare the “INFLATION-ADJUSTED RATE” to see it in real dollar terms. The default is in nominal dollars “ACTUAL RATE” so click on the words to change the settings. Compare the cities…Miami ouch. Chicago can’t buck the market, there will be further declines. It really is an amazing thing. Las Vegas was a gamble! Wow!
http://www.nytimes.com/interactive/2008/02/27/business/20071031_HOUSING_GRAPHIC.html
Kenworthey, the 2-6% figure i pulled came from a GS research publication on real estate. i can’t say i disagree with the stat when using empirical evidence. my grandmother purchased a house in a near west suburb of chicago in 1978 and sold it in 2006, which represented a 5.2% CAGR (2% after inflation). another example is my mother-in-law’s purchase of her house in los angeles. she bought in 1983 and sold in 2006, which represented a a 9.0% CAGR. i think these two illustrations are a pretty good proxy for a high growth and average growth market, so the 2-6% is not really out of line, and i think most major cities would fall within this range over the last 25 years.
since i am an equity and credit trader, i would agree that better returns exist in the equity market, however highly skilled professional real estate investors can generate abnormally high returns with low volatility.
bottom line though, nobody should approach the purchase of a home as an investment.
irrational exuberance and easy money definitely drove this last cycle. i’m in no hurry to purchase a house — the deals will continue to get better until inventory is reduced to around 7 months (currently over 10 months), credit picks up, consumer confidence rebounds, and the rent vs purchase analysis is in favor of purchasing. i think attitudes have drastically changed from risk taking to risk averse.
John – thanks for posting that NYTimes housing price graphic. Interesting to see that Chicago prices shot up at a much higher rate in the late 1980’s than they did this time around. Maybe 1980’s boom was shorter but more intense? Would love to see graph extended back 100 years.
I think we’re going to be in this downturn for several years. In fact, we already have been in it for a few years, depending on how you look at it. I have friends who bought a house in 2004 who are underwater now. So they see it as four years and counting.
The burst in the late 1980’s was sharper but shorter, the recent bubble, albeit not as sharp, was much longer and had the effect of creating a larger oversupply since it takes years from a project’s start to each finish. When the burst is short, fewer projects make it out of the gate. We will see several year over year price declines. I expect no less than 3 years of consecutive price declines in the U.S. housing market, Chicago included. We aren’t quite at the half way mark in this down housing cycle and definitely not half way through the price declines. The higher end/ luxury market is grossly overbuilt all over the country. The Trump phenomenon of outdoing the last builder is gonna really hurt that market. Good news for buyers though, in a few years those prices will decline the most.
i visited 1501 on the fifteen floor corner unit beauiful. well layed out not to big great price. love the area. hope to maybe buy.
great views from 1501 corner unit you have to views of chicago river and one view from living room of the lake