Crain’s Reports 36% Drop in 2007 on New Downtown Condo Sales
Crain’s is reporting a 36% drop in downtown condo sales in 2007. Sales have fallen 55% since 2005, which was a record year, but are around the pace of 2001-2003.
None of this is a surprise to those of us who chatter on this site. But some of the stats in the article are rather startling.
It only confirms to me what I have seen happening in the new condo buildings in Lakeshore East, Streeterville and the South Loop.
Sales are WAY down. I’ve seen very few flips selling in ANY of the new construction buildings.
And this is why:
“Buyers are still confused and scared of making a bad decision,” and are waiting to buy until the market hits “rock bottom,” Appraisal Research Vice-president Gail Lissner said at luncheon presentation Thursday at the Standard Club.
Buyers signed contracts for 412 units in the fourth quarter, down 43% from 720 in the year-ago period.
Add up all the listings for sale in just the Lakeshore East buildings that are completed and you can see where the problem is.
This is my favorite quote from the article:
Developers will face a bad combination in 2008: weak demand and rising supply. Sales this winter have slowed to a trickle — condo buyers signed just 13 contracts at downtown projects last weekend, “an all-time low,” Ms. Lissner said — just as several developments are nearing completion.
Thirteen contracts in the entire downtown in one weekend at these new buildings!
I guess those low interest rates aren’t doing much for the condo market (though I’m hearing of some houses selling in the suburbs in a spurt in the last few weeks.)
Inventory is going to be the huge problem in the downtown market. There are simply too many condos for sale and not enough qualified buyers.
Downtown developers will finish a record 5,900 units this year, according to Appraisal Research. The problem is that 1,700, or 29% of the total, remain unsold.
“There’s going to be definite pressure on developers to sell those units,” Ms. Lissner said.
If 29% remain unsold, you can bet another 20% to 30% on top of that are flips. That could be 3400 condos coming on the market this year. Plus, all of the existing inventory.
Market times are going to rise. And what will happen to prices? We’ll soon see.
The number of unsold units you refer to are “new contruction,” right? And if (as you estimate) there are going to be about 3400 coming on the market this year, how many more *used* units will be coming on the market? And that 412 number–does that apply to just new construction, or total contracts signed downtown for ANY unit? Because if so, and that level of sales stays constant over the course of this year, then we’re talking 412 X 4 quarters buyers (about 1650). Even if the 3400 number refers only to new units, that’s a two-year market clearance rate at current prices. If you add to that *used* units then at current prices… much longer than two years. Wow.
Best news I’ve had all day….
Kenworthey- yes- the 36% drop is for NEW condos only. I re-wrote the post title so that it was a bit clearer.
From the article:
“New downtown inventory totaled 5,814 units at the end of 2007, up just 3% from 2006, according to Appraisal Research.”
As I said above, I estimate at least another 3400 will come on the market this year (between unsold units and flips.) THEN add on the “older” units (those on the market right now in Lakeshore East – for instance.)
The numbers are pretty astonishing, really.
So why are prices not dropping more, or faster? As someone waiting to “jump in”, I only have to look at my own building where I am renting a condo to become curious as to how long sellers can hold out. For privacy, I prefer not to name my tower address, but there are over 20 units for sale, most have been on the market over 180 days up to a year, but most have NOT reduced their prices from 2005 top of the bubble estimates (the building was finished in 2003). There have been 4 sales in the last 6 months out of 27 listings. Many of these units are also for rent, yet there are few takers as rents average over 2,700 a month. Sellers are still playing games in my building such as “lowering the price” by $50,000, and then you learn that the deeded parking space is now removed from the original listing, or throwing in their flatpanel wall mounted T.V. , as if they wanted to go through the trouble of removing it out anyway. There is a unit on my floor, originally purchased for 450,000, now on the market for 725,000, that has been empty for over a year as the owner was moved by his company to France. He has had no activity, yet the price remains unchanged. How long can they hold out?
I experienced the same price drop waiting game as Morgan. I was renting at Museum Park Tower 4 (1235 Prairie) and when I started looking at something to buy in the area this November, I saw no deals at all. Even if you go to the “South”-South Loop they are still asking too much for too little. Then you throw in the parking space for $40,00, no thanks. I ended up just buying small place in West Bucktown (I know, I cringe even writing that name), parking is free, assesments are $100, just makes so much more sense right now.
Morgan: I don’t know how long they can hold out. It’s money just being thrown away (and people say renters are burning their money!)
From what I’ve seen- some start to feel the pressure after it’s been a year to 18 months or so.
I think, for right now, lots of sellers are being told by agents that it’s now the spring buying season so sales will pick up and buyers will be coming out. Aka, the sellers should be “patient” and they’ll be able to sell this spring/summer.
The reality will only really hit by next September, when they still haven’t sold and they’re facing yet another winter selling season (aka, no chance of selling).
I also believe that many sellers in Chicago just haven’t figured it out yet. Maybe they think Chicago is immune from a big drop because we didn’t have a HUGE bubble (a bubble, but not as big as other cities.)
I keep hearing from sellers that they’re “not going to give it away.”
I have been looking at places in South Loop. The flippers and developers are just unwillling to drop their prices very much for what seems to be very cheap construction and finishes. I decided to start looking in Hyde Park and South Shore neighborhoods, but I think the rehabbers there have been slow to adjust to the price changes that are coming as well. It seems that it is going to be just a matter of waiting it out to see who blinks first.
The problem is that every day people are so leveraged that selling for a loss will mean 1) they’ll have to come up with the money right away (which they don’t have) or 2) they won’t have a down payment required to move into a new cheaper place. Sellers are in a sort of catch-22 – knowing they should sell but not able to walk away. For myself – I am only looking at units purchased in 2002 or earlier – hopefully the seller can then at least break even and the transaction can continue. Developers are the only other sellers that have the financing to reduce they’re price/lose money on a transaction.
Again, hate to say it, but if you’ve been in this situation just ONCE – you learn a lot. I think many sellers will hold out thru summer and into fall, then finally begin dropping prices. Unfortunately, am guessing many prices will drop in the same time frame, and it won’t do much good at that point with the nuumber of units avail v. demand.
About this time next year, owners will be “throwing the keys back at the bank.” Just my guess.
Wouldn’t wish the anguish on anyone, but I am planning on taking advantage of market – without being an asshole!
Ok – so I got beat up for mentioning this before, however, I will say it again. While I agree with many of you that it doesn’t seem reasonable that prices haven’t come down in light of the significant increase in inventory, the statistics for sales of condos in Cook County (the broader view rather just the downtown market) have significantly decreased, the price (albeit median) of units actually went up.
To see the data, please go to my blog and click on the title of the article “4Q07 Illinois Median Price Moves in a Modest Range” to see the back up report prepared by the Illinois Assoc of Realtors – sales data from the MLS boards.
To Morgan’s point – a unit that was originally purchased from the developer at $450K and is now listed at $750K is simply not reality – from a buyer’s perspective, it is absolutely fair to expect prices to come down, but that does not necessarily correspond to equivalent, dollar for dollar, decreases in value. Price reductions from unrealistically priced units, ie prices that are not in-line with Chicago’s modest appreciation of roughly 2% year over year from 2006 to 2007, does not mean the market is collapsing.
I am going from memory so I cannot provide the exact source of this data, however, I remember reading that units that were selling in 2005 were roughly 25% purchased by speculators in the Loop market – ie flippers – counting on the increase in prices from purchase to delivery to increase 25% to 30% in VALUE.
Clearly, with the amount of excess inventory, the 25% to 30% increases are simply not sustainable, hence you should expect PRICES to decline, but in my opinion, not substantial decreases in value. Again, the Chicago market has seen modest increases in aggregate value of roughly 2%.
If a speculator purchased their unit in 2005 with a 2007 delivery, they may be able to recoup their original purchase price or 10% less, but not 20% to 30% less in my opinion based on recent sales data. In some cases, sure – there will be some sellers in financial distress, but not a majority.
Tom:
I’m not as much of a bear as some here, but I do expect a return substantially to historic trend. I expect you do understand how misleading medians can be, especially when comparing sets of different size and different composition. Use the following example:
In period one, 11 houses sells at 2, 2, 3, 4, 4, 5, 7, 10, 12, 13, 15. The median would be 5. The average is 7.
In period two, 9 houses sell at 2, 2, 2, 2, 7, 7, 7, 8, 8. The median is 7. Is this a 40% gain? The average is 5. Is this a 30% loss? What if some or all of the 9 are the same houses sold in period one? Do you want to know which houses didn’t sell in period two before making a judgment?
Then in period three 11 houses sell for 3,3,3,3,3, 5, 7,7,7,7,7. The median is back to 5. The average is still 5. What does the median, the average or the individual prices tell you about the state of the market? Is the market rising, falling, or essentially unchanged? The medians and average say nothing much, right?
I think that the undisputed facts are (1) inventory is up, (2) sales are down; (3) asking prices haven’t changed much, (4) financing allowing people to obtain a mortgage for 6 or more times income has dried up, (5) the pool of people with incomes to support a jumbo mortgage has not increased significantly, (6) the market for flippers buying is pretty dead.
Now, with these facts (please, tell us which you think is untrue and why) is it possible that prices won’t decline? Sure, why not–I could win the lottery, too, because I do buy tickets sometimes. But both are contrary to economic expectations and, the failure of these facts to lead to a decline in asset price would be, I believe, unprecedented in history. So, of course everyone expects prices to come down.
The questions are how much and when. If it’s a long, slow decline in a higer inflation environment, then the prices of even individual homes aren’t going to change much. And if, as I expect, the entry-level market is stalled and, as a direct consequence, the trade-up market is stalled, then nothing much is going to happen to the market-wide median numbers–approximately equal numbers of sales above and below the median will be lost.
I would expect that the average sale price will go up a bit, as the higher end activity makes up a larger percentage of all transactions.
Anon – I absolutely believe prices will come down – again, the question is whether the price decline will actually and substantially erode overall value. I am in complete agreement that the market conditions suggest that there will be – and in my opinion – have been in a market of price correction since Spring, 2006. Prices will come down – but not in every area of the city.
Financing has been tightened for almost every borrower, including those with 20% down payments and good credit. However, 10% loans are still being underwritten at higher rates. The largest underwriter of private mortgage insurance is no longer underwriting loans with less than 10% down in Chicago. Bottomline, the subprime market did not affect a majority of borrowers in Chicago.
I guess what I am trying to dispell is the belief that we are in a market collapse equal to Detroit, Miami, Las Vegas etc. Too much emphasis is placed on the declines without any context.
“I guess what I am trying to dispell is the belief that we are in a market collapse equal to Detroit, Miami, Las Vegas”
I don’t think that Chicago will have a collapse like any of those three, but maybe a little like each of them. Those three cities are really three different kinds of collapses.
Detroit has a job market related collapse–there might be certain parts of the metro that have that on a small scale.
Miami has had an upscale condo tower boom driven by “investors” aka flippers–the Chicago buildings that have a high percentage of flippers are going to be problem for their owners and some of their neighboring or otherwise comparable buildings. You can have a hard time convincing a first-time buyer that condo A at $350k is really worth the money over condo B at $225k if they’re both 900 sq ft and within a few blocks of each other on the near north side, regardless of one building being “better” than the other.
LV has a combo problem, with a lot of the weakness in middle-class, starter-home type properties in the equivalent of Chicago suburbs. There’s probably less finished inventory here relative to population, but the builders are still going to be in a position to crush re-sale sellers in their developments until they burn through their finished product. And then an owner has to deal with a year+ of neighborhood comps at prices at or potentially below their purchase price.
Chicago has better fundamentals than those 3, but I’m still expecting 2001-2002 prices to return. Sure, it’s a little tough to do comps on the stuff that wasn’t even marketed until ’03 or later, but any good appraiser can get pretty accurate with $/sq ft and adjustments.
I agree with anon but would add the foreclosure factor to the equation. They are starting to show up everywhere, and they are just starting.
Anon, your prediction of “still expecting 2001-2002 prices to return” marks you as quite a bear. Welcome. Utilizing the most pertinent IAR stats for Chicago (2002-2004) and Cook County (2005-2007) condo sales, the median price appreciation for 1/1/02 thru 1/1/08 was around 40%. A rough guideline, definitely, but considering there are already examples of downtown area condos selling near their 2002 prices, it is useful.
I can’t understand what Tom Hall is trying to say beyond the “but, but, its not as bad here”. For a submarket like downtown area condos, I would add “yet.” He should write for the Onion with material like this: “The largest underwriter of private mortgage insurance is no longer underwriting loans with less than 10% down in Chicago. Bottomline, the subprime market did not affect a majority of borrowers in Chicago.” LMAO.
G – I am glad to have provided some humor to your day. I appreciated your statistics, however, where are the statistics to support that the sub-prime market was significant in Chicago? I agree – if taking the Loop as a submarket, no doubt prices will fall, but again, I don’t believe they will translate into significant declines in value.
Tom, you keep saying falling prices doesn’t mean decline in “value.” It’s a lingo thing, I’m sure, but what is the difference? Isn’t something as “valuable” as someone is willing to pay for it?
Subprime mortgages does not necessarily equate to loans written to people with poor credit. Subprime mortgages are mortgages that don’t conform to FANNIE MAE and FREDDIE MAC – hence, an entire secondary market was created to buy loan packages with blended risk that provided a higher return for investors. While a number of buyer purchased properties based on lax lending guidelines, a number of credit worthy buyers purchased property with little money down – less than 5% or no money down. They were and are capable of making the payments.
It used to be that a buyer required at least 20% down in order to purchase a home. The fact that the largest underwriter of private mortgage insurance won’t insure loans of with less than 10% is expected – not earth shattering.
It is fair to assume that buyers who can get loans today are being held to significantly more rigorous lending guidelines – what buyer were doing 7 years ago.
Kenworthy – yes – however, it someone paid $450K 2 years ago from the developer, closes 2 years later and now wants to flip it for $575K, there is a fairly high probability in this market that that ain’t gonna happen. If they sell if for $450K – they may not make money, but the property will not have lost value. Prices on many properties will come down, but that may not translate into a significant decrease in value.
I get what you’re saying, but I would use different terms, because the ones you are using are confusing. The “value” of a property is the highest price someone is willing to give me, at any given time. My “cost basis” is the amount I spent for it. If the value of the property (when I want to sell it) is lower than my cost basis, then I have definitely taken a loss. If the value is higher than my cost basis, I might have made money (and I say “might” both because I might have lost money once the costs of purchase/sale are factored in, once I factor in the cost of ownership during the holding period, and once inflation is figured in.)
I think most of us would agree that the downtown market is NOT about subprime. That’s why when Wall Street and politicians kept saying the subprime crisis would be “contained” it was laughable.
It is a CREDIT crisis- and people were taking on more than they could afford at all levels.
The foreclosures downtown are either:
1. Investors who can’t hold on
2. Buyers who got the $500,000 all interest loan and probably make $75,000 a year and now that the ARM is correcting, can’t afford the payment.
I also agree that this is just the tip of the iceberg downtown. There are far too many investor units on the market and now others who won’t be able to hang on.
Tom, what you defined above are “non-conforming” mortgages, not subprime mortgages. Thanks for another laugh.
You previously stated: “The largest underwriter of private mortgage insurance is no longer underwriting loans with less than 10% down in Chicago. Bottomline, the subprime market did not affect a majority of borrowers in Chicago.” You don’t think that the new down payment requirement was caused by the failure of the subprime market? It is just a coincidence?
You correctly stated that “It is fair to assume that buyers who can get loans today are being held to significantly more rigorous lending guidelines – what buyer were doing 7 years ago.” As a trusted advisor, do you really think that the appreciation of the past several years was not a direct result of the lower lending standards? Your conclusion that this will not result in a drop in prices is astounding.
That leads me to one other thing: your mixing of the terms “price” and “value” makes no sense. That seems to be the typical practice of a used home salesperson.
Kenworthy – thank for you the clarification – I meant cost basis, versus value – forgive my lack of the appropriate accounting terms. Forgive my oversight – I’m just a used home sales person – but I do sell new ones too – and other real estate, but I digress…
G – Thanks for the clarication regarding non-conforming versus subprime. 100% mortgage represent a portion of the subprime market and were extremely popular and used by a number of buyers who have excellent credit. Again – I should have been more specific and used the correct terminology.
I absolutely believe that the changes in underwriting of private mortage insurance policies are a direct effect of the subprime loan fiasco. But again, that is no surprise. Borrowers with good credit, ie north of 700, are still able to obtain mortgages with a minimum of 10% down, albeit at higher rates.
Do you have the statistics for what % of subprime loans represented the total number of loans underwritten in Chicago?
In a quick and dirty search, I found the following on Wikipedia:
source: http://en.wikipedia.org/wiki/Subprime_lending
In the third quarter of 2007, Subprime ARMs only represent 6.8% of the mortgages outstanding in the US, yet they represent 43.0% of the foreclosures started. Subprime fixed mortgages represent 6.3% of outstanding loans and 12.0% of the foreclosures started in the same period.[3]
Here’s another myth regarding subprime mortgages that I found of interest:
Source: http://www.pittsburghlive.com/x/pittsburghtrib/news/cityregion/s_551474.html
Myth 2: Poor first-time homeowners who never could have been expected to make mortgage payments or cavalier investors who “flipped” properties to make quick speculative bucks are typical subprime borrowers.
Most subprime borrowers — nearly 90 percent — aren’t first-time home buyers, and fewer still are the flippers using subprime financing to turn junk bungalows into posh digs on cable TV shows, according to studies by the nonprofit Center for Responsible Lending in Washington.
“These are people who are living in their homes who are really in trouble, not just people who made a bad investment decision,” said Center economist Debbie Gruenstein Bocian.
What credit experts call “serial refinancing” by existing homeowners fueled the subprime fire. Because interest rates remained low through the late 1990s and early 2000s — and residential housing prices kept rising — homeowners could take advantage of “cash out” re-fi deals that provided progressively larger loans than the value embedded in first mortgages. Borrowers pocketed the difference.
To lure clients, an increasingly larger pool of mortgage brokers took chances on borrowers carrying greater risk of default. Their most tantalizing “teaser” was a no-down-payment loan bearing low initial interest rates that would “adjust” to higher rates and, therefore, higher payments. Most applicants could afford the low starter bills, but if the rate floated higher, many would be put at risk of defaulting.
“Cash out” home equity re-fi’s and other subprime loans account today for one-fifth of all outstanding mortgages — and more than half of all foreclosures, according to the Mortgage Bankers Association’s National Delinquency Survey. Although adjustable-rate mortgages make up only 7 percent of the mortgage market, they’re tagged to 43 percent of foreclosures.
“Here’s the way these things were sold: People got phone calls that said, ‘I’m going to lower your monthly bills by $300 and you can use that to pay off your credit card bills, or pay off your medical bills. Come in and sign the paperwork.’ People assumed they were getting a good deal, because interest rates were going down and no one told them that the loan would re-set and they could lose their homes,” said Bocian.
In addition, the Appraisal Research Report is published quarterly and assimilates data for new construction in the Chicago market – particularly the Loop (8008). It is one of the few reports that attempts to quantify the percentage of new construction units purchased by investors or individuals who are purchasing second homes – non-owner occupied. The sales data is acquired by the developers and shared by the developers. Worst case this is hearsay, however, the report consistently reports that between 20% to 25% of the new construction units are purchased by individuals who already have a primary residences – best guess – flippers.
While default rates are notorious high on subprime, it did not represent an overwhelming % of loans written in Chicago – I am in the process of confirming that fact – it was shared by a mortgage broker colleague of mine – I am trying to get the specific facts to see if Chicago is consistent with the national average.
This begs the question – what % of investors bought new construction units used subprime mortgages? Let’s say 50%. If 25% of the units coming on the market as flips are investor-owned, perhaps 12.5% of these are financed via subprime mortgages, of which worse case, 50% are in the process of foreclosure – 6.25%.
I think the bigger issue is how many owner-occupied units are subprime financed? Clearly, if that were the case, prices will come down on existing units and the cost basis for these units may erode, however, I don’t believe we will see huge erosion in the cost basis of units.
Just another quick and dirty analysis – for the Loop (8008), per MLSNI for units currently Active on the MLS as well as Closed over the past 12 months:
Priced from $450,000 to $750,000 the current absorption rate for a 2 bed / 2 bath unit is 10.90 – just short of 11 months of supply.
326 currently active units
359 Closed units
The absorption rate will continue to slow down and the inventory will build up in the $400k and above price point.
The credit crisis and stricter lending standards are just beginning to effect potential buyers. It will get very ugly in the next two to three years when prices will head south.
Tom Hall: I noticed that you are the listing agent for 2741 N. Sheffield. It seems like this development will be a good barometer to how healthy the Lincoln Park market is. It abuts the Brown Line el and all the units are priced $500k and more. I foresee many price drops by the developer in the future.
Mike – thanks for your post. My developers are lucky – they just had their bank remove the presale requirement before releasing the funds, they are now able to begin the remainder of the building – only the foundation has been poured. Financially, they are healthy and are able to ride out the market. It is very difficult to sell smaller projects off of plan – having the project up with help considerably.
I foresee some incentives, but at the moment, buyer traffic has been relatively high. Obviously, time will tell – at the moment, things are progressing as planned per my developer. The market dynamics were predicated – they saw it coming in late 2006.
I did a quick analysis – in Lincoln Park (8007) – units priced between $500K to $750K, from 2 beds to 4 beds / 2 bath to 3.5 baths – all fall within The Rotunda’s parameters. Currently per MLSNI, 196 active units, 289 Closed in the last 12 months – currently we’re looking at an absorption rate of 8.13 months.
Tom: What has been the prior absorption rate of units in that price range? What was it last year and in 2005?
Those were both boom years when money was plentiful and anyone could get a loan, but it would be helpful to know how high the markettime has risen compared with other years.
I think subprime loans are being confused with those that are all interest, ARMS, negativeAm loans etc.
The subprime mortgage crisis is not affecting the downtown condo market.
But the credit crisis is. People simply borrowed too much money and can’t pay it back. It doesn’t matter what kind of loan you took out.
Sabrina – I had a unit at Plaza 440 – unit 2709 on the market in 2005 which sold in March, 2006. This was one of the first resales when American Invsco completed the conversion. At the time, Trump Tower was a hole in the ground and this unit’s view of the Loop was going to be obstructed – it was difficult to sell because no one knew how the view was going to be affected. My total market time was 308 days – listed for $497,900 and we sold for $483,000 after my clients updated the kitchen with new appliances and installed engineered woodfloors. I remember the average market time was roughly 120 days at that time.
If you compare the rate then – 6 months, to now – just short of 11 months – it has almost doubled.
Thanks Tom. And that was during the peak time.
It would probably take double that time to sell now (in that same building) and probably a massive price reduction.
Tom: also, about the Rotunda development:
You keep saying traffic is “high” on your properties, yet no one seems to be buying (with your 3180 LSD unit and The Rotunda.)
I see in the ad for The Rotunda it says the following:
“Now after an across the board price reduction of $25,000, prices start at $500,000 with parking for 2 bedroom, 2 bath simplex up to $750,000 with parking for 4 bedroom, 3.5 bath townhome.”
Isn’t it that all of the price reductions simply give the “traffic” of people coming through these properties incentive to wait? If prices continue to drop, there is no need to buy right now.
I don’t mean to gang up on you, Tom, as at least you’re trying to be honest about how the market is right now. Just wondering about the sales technique on this new development.
Sabrina – buyers are skiddish – and they have alot of choices, however, properties are selling – the market has not come to a complete standstill, nor has it over the past 12 months. 3180 isn’t difficult to understand – people on Lake Shore Drive want a view. The issue we’re faced with isn’t necessarily price. It is a pet-free building with no washers & dryers. Price isn’t always the answer – most buyers wouldn’t be interested at any price.
In terms of The Rotunda – again, buyers have alot of choices, however, not all new construction is created equal.
Regardless of market conditions, selling a unit off of a plan in an 8 unit building is difficult – few if any buyers are able to envision what the unit will look like – compounded by the current market conditions, it is not unexpected to not have a contract. In planning this project, we projected a sellout over at least 24 months – typically in a project of this size, it would be less than 12. The Rotunda includes alot for the money. Some people are turned off by being by the “L” – that’s okay, we knew that would be an issue – they aren’t are buyers. The buyers that are attracted to the project do see the value for the money, but want to see what the project will really look like – and let’s be honest, they’re in no hurry, however, buyers are out looking and making decisions.
Over the past 3 weekends alone, I have had over 12 people come to my open house at my office to review floorplans, finishes etc. 2 people have sat down with the developer to discuss the project in greater detail – that is all encouraging.
I have encouraged my developers to consider buyer incentives, which is still not out of the question – for them, it is a matter of timing.
Tom Hall,
The Loop is not area 8008 in the MLSNI. These kind of mistakes seem typical for you as your ease at dismissing them confirms. Will your cheerleading be similarly dismissed as a mistake in the future regardless of those who have been misled into financial disaster?
I don’t have any idea what point you were trying to make, but a 6.25% foreclosure rate will result in a very large drop in sale prices. Even half that rate would result in a large drop.
Now for the chuckles you provoke, like when you wrote “I don’t believe we will see huge erosion in the cost basis of units.” I think you are again using terms you do not understand or are being purposefully obtuse. How does someone “erode” the cost basis? Is a time machine involved? If you meant to communicate that a seller will not lose relative to their purchase price, then certainly you have suggested that the develpers provide a price guarantee for “buyers” at 2741 N. Sheffield, right?
You are good for a laugh again with this one (in regards to your LSD listing): “The issue we’re faced with isn’t necessarily price. It is a pet-free building with no washers & dryers. Price isn’t always the answer – most buyers wouldn’t be interested at any price.” Earth to Tom: the remaining buyers aren’t interested at your price. The “issue” is always price unless the “issue” renders a property worthless.
G: “Anon, your prediction of “still expecting 2001-2002 prices to return” marks you as quite a bear. Welcome. Utilizing the most pertinent IAR stats for Chicago (2002-2004) and Cook County (2005-2007) condo sales, the median price appreciation for 1/1/02 thru 1/1/08 was around 40%.”
Nah, the real bears are expecting a significant overshoot on the downside. My view is the “real” bears see a return to 98-99 pricing. 01-02 is merely the result of rational thinking.
Dropping that 40% “gain” requires a less-than 30% drop from 1/1/08 prices. I think there are basically 2 ways for there not to be a 30% drop: (1) funny business with the numbers one uses as a reference (e.g. medians/means, as discussed above) or (2) lots of inflation. The current administration (and the NAR, etc) has a history of playing around with numbers and there certainly is a current bias in favor of higher inflation. So, it’s not impossible to retain (or have the illusion of retaining) high nominal prices, but I’m not in favor of it.
G – I wish I knew everything – but I gave that up 20 years ago. Yet again, I am pleased that I am a source of humor.
You are correct, 8008 is Near North Side / Gold Coast, however, it has the highest number of units on the market – I thought it was a better gauge of absorption rate. The absorption rate in 8032 is 9.37 – over 9 months of inventory 57 currently active units, 73 have closed in the last 12 months – but not the 10.9 in the Near North Side. In searching for property “downtown”, in order to get a picture of the entire Loop – 8008 and 8032 are used as ideal search criteria.
No – price is not always the issue. When you work with buyers and seller on a day to day basis you’ll discover that isn’t always the defining issue – true, some properties are worthless to many buyers – that’s why they choose one property over another – but what do I know, I’m just a used home salesperson.
Tom Hall, you can’t help yourself, can you? You now state “In searching for property “downtown”, in order to get a picture of the entire Loop – 8008 and 8032 are used as ideal search criteria.” Is the flow of BS just uncontrollable? Do tell why “a picture of the entire Loop” would include 8008? Even if you could, why would that explanation exclude the Near West Side and the South Loop?
Could it be you have no idea what you are talking about yet again?
By the way, why keep repeating absorption rates based upon 12 month sales numbers when you must know that the pace of sales declined over that time? I remember a used home salesperson on here stating an interest in “acceleration”, I wonder why deceleration isn’t pertinent?
G – I am sorry – you’re right, I’m wrong. I am glad you have a perfectly clear picture of the market and understand the correct way to interpret the data. With such great insight, why settle for being a mere consultant?
You are called out on your BS and that’s your best reply, Tom Hall?
It seems you are lashing out for some reason. Are you not used to seeing your statements challenged? I can’t imagine you wouldn’t be, that’s for sure.
G – Sorry for disappointing you regarding my earlier short response – I was distracted by one of my clients – I was simply trying to sell a used home to a client anxious to overpay in this market …
Anyway – I get called on my BS all the time – par for the course for being a used home salesman.
In terms of previous comments by fellow bloggers re: The Loop and specific projects and concerns about flippers losing their shirts et al, 8008 and 8032 include a bulk of the new highrise development in downtown – the Loop and near north side. If you don’t look at the properties in 8008, you lose all of the properties north of the River to Division. If you don’t include 8008 when looking at the downtown market, you don’t get an accurate picture of many of the new developments that are beginning to deliver new units as well as sell units yet to be delivered over the next 12 to 24 months.
SoNo – 860 W Blackhawk
515 N Peshtigo
435 E Illinois
550 St Clair
600 N Fairbanks
240 E Illinois
200 E Illinois
505 N McClurg
…
What large developments am I missing on the Near West Side? It doesn’t represent a bulk of the new construction relative to the number of units. Plus, life style is not consistent with high-rise living.
If I include 8033 – The Near South Side – including Museum Park and South Loop, I am looking at a total absorption rate still under 12 months. However, as my experience as a used home salesman has demonstrated – buyers do not consider Museum Park or South Loop to be a similar living experience as the Loop/Near North Side – “downtown”. Buyers buying behavior – or lack thereof – is why we are having this discussion.
You tell me what is the best way to view the total data and what areas to include in order to get a better picture of sales volume. How am I to slice and dice the data? As my experience has shown me as a used home salesperson, buyers who look at highrises downtown tend not to like the lofts in West Loop or South Loop – they may look in Museum Park but don’t like the lack of ammenities. They may venture over the river to see what is outside of the Loop and in the Near North Side at the bulk of residential highrises. Real estate is not a commodity hence not every 2 bedroom, 2 bath unit is the same in Chicago.
The pace of sales has declined substantially over the past 12 months – true – in my opinion, it started in late 2006. Using the closed sales data over the last 12 months already reflects the decline in volume – what do you mean deceleration isn’t pertinent?
A difference of opinion is no reason to issue personal insults. Let’s play nice.