130 n garland approved

Bought a Downtown Condo in 2009? Appreciation Depends on the Building: 130 N. Garland in the Loop

Jan 6 • Loop • 1224 Views • 92 Comments

This 4-bedroom unit in the Heritage at 130 N. Garland in the Loop has been on the market since April 2013.

It has direct views of Millennium Park and the Lake from every room in the unit.

The 3100 square feet unit also has a much sought after 3-bedrooms and 2-parking spots included.

The kitchen has granite counter tops, maple cabinets and stainless and black appliances.

It has crown molding and hardwood floors throughout the main living space.

The Heritage is a full service building and has one of the most amazing indoor pools in the city.

Originally listed at $2.5 million, it has been reduced to $2.2 million.

That’s just $90,000 over the 2009 purchase price.

Unlike in the housing boom years, isn’t appreciation really a building specific (and even a unit-specific) thing?

Laura Arnett at Baird & Warner has the listing. See the pictures here.

Unit #5303: 4 bedrooms, 3 baths, 3100 square feet

  • Sold in November 2005 for $2,079,500
  • Sold in June 2009 for $2,110,000
  • Originally listed in April 2013 for $2,500,000
  • Reduced several times
  • Currently listed at $2,200,000 (includes 2 parking spaces)
  • Assessments of $2146 a month (includes doorman, cable, pool)
  • Taxes of $20,768
  • Central Air
  • Washer/Dryer in the unit
  • Bedroom #1: 16×16
  • Bedroom #2: 12×16
  • Bedroom #3: 16×12
  • Bedroom #4: 14×13

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92 Responses to Bought a Downtown Condo in 2009? Appreciation Depends on the Building: 130 N. Garland in the Loop

  1. Gary Lucido says:

    And appreciation would also obviously depend upon whether or not you overpaid or got a deal when you bought the place.

    Just posted my December update: http://www.chicagonow.com/getting-real/2014/01/chicago-real-estate-market-home-sales-december/

    Sales were up double digits but contract volume not that great. Drew down from the pending home sales to achieve this growth. Inventories keep hitting new lows. Market times ticking up. Low distressed sales.

  2. franklin says:

    with the national elections coming up the economy might retract a bit or stall until those results are in

    we say how the stock market fell /crashed once the Dems took over in 06/07 and then once the redistributor -in chief took over it plummeted \\only to be “saved” by the flood gates ( aka payback) opening up for that “free” money

    if you understand economics ( forget politics for a second) you know what that does to the economy

    it helps the government finance all that debt but destroys the value of the USD

    sooooooo

    buying now?

    best pay a better price then you would have gotten a few years back ( not possible as the “pros” have the buyers thinking its a sellers market) ( they never learn,,, the buyers that is)

    just some background

    I sold all I owned by 07 as I had been reading the tea leaves for a while

    when I started to buy or look to buy in 08 /09 most , not all , but most realtors were still pushing the bs

    understandably since most of the buyers and flippers from 2004—–

    were in deep

    BUT I AM telling you that the prices are still too high compared to what is coming down the road

    take care

  3. sonies says:

    Those shower doors… omg you see them in cheap apartments not 2 million dollar condos… they did nothing to improve the space either, real estate is a depreciating asset unless you make improvements especially at this price point!

  4. Sabrina says:

    “Inventories keep hitting new lows. Market times ticking up.”

    Thanks for the update Gary. But these two sentences don’t make any sense to me. If inventories are at new lows, how can market times be ticking UP? I don’t get it. That would mean that sales are slowing, right?

  5. Gary Lucido says:

    Contract activity is definitely slowing. Check out my graph to that effect. Could be that the only inventory left is less desirable at their list prices. Also, higher market times would be normal at this time of year.

  6. Sabrina says:

    Good info Gary. I’m sure inventory is definitely less desirable at this time of the year so we’ll have to see what happens over the next 8 weeks. I’m waiting for the supposed “deluge” that is supposed to come on the market in mid-January (trying to get ahead of the spring buying season.) The bad weather could impact those listers though.

    A lot of the “new” listings coming on right now are simply old listings that didn’t sell last year.

  7. homedelete says:

    This time two years ago was the ‘bottom’ in many areas; some areas a few months earlier, some a few months later. That was the time to buy.

  8. Steve heitman says:

    The bottom in Lincoln Park was more 2010. And buy I did… 4 wonderful properties at less than land value. Rented them out for the past 3 years at 12% yields and now 2 are being demolished and up will come some beautiful new construction for hungry buyers to scoop up. Yes I will make a lot of money with my investments, but I am sure that those who followed the advice of this site and rented, will prosper equally.

    The economy is taking off and we should see steady economic and job growth over the next 3 years. Look for real estate prices to increase about 5% annually through 2016. Good luck!

  9. Steve heitman says:

    Sabrina – you seem to be drooling by Gary’s data suggesting longer market times. Don’t get too excited as there is no inventory and what is there is garbage. Add to this the weather and holidays and every listing just added 2 weeks of listing time. I personally don’t see the demand I predicted last Jan, but there is a lot of people waiting for the February 1st inventory.

  10. Sabrina says:

    “Yes I will make a lot of money with my investments, but I am sure that those who followed the advice of this site and rented, will prosper equally.”

    You mean like these sellers who bought in 2010 in LP and are going to take a loss even if they get the full listing price?

    http://www.redfin.com/IL/Chicago/1816-N-Bissell-St-60614/unit-1816/home/13350874

    If someone told you:

    Buy in 2010 but four years later you will lose $10,000, $20,000 or $30,000 or save your downpayment and just rent for those 4 years- with your downpayment intact- which should you do?

    Steve, you’re a realtor. You have to admit that the LP market is “mature” especially for 1 and 2-bedroom condos. The appreciation over the past 15 years hasn’t been as great in LP as in other neighborhoods that gentrified during the boom (Lincoln Square, West Town etc.) Condos that sold for $350,000 in 2002 aren’t worth much more. On the single family luxury end- maybe it’s different. But as an “investment” – for a regular homeowner- it’s just not there in LP anymore.

    On the reverse side, the losses also weren’t as great in LP as other neighborhoods. LP is like a blue chip stock. It doesn’t go up much and it doesn’t go down much.

    I’m not saying no one should buy in that neighborhood. But LP just isn’t going to appreciate like other neighborhoods still may.

  11. chuk says:

    “You mean like these sellers who bought in 2010 in LP and are going to take a loss even if they get the full listing price?”

    “Buy in 2010 but four years later you will lose $10,000, $20,000 or $30,000 or save your downpayment and just rent for those 4 years- with your downpayment intact- which should you do?”

    Define “loss”. What about the rent they would have had to pay for the last 4 years? Show your math.

  12. Mo says:

    Not that anybody asked me, but here is my math on the 1816 Bissel property:

    Bought for $469k in June, 2010. I’m assuming 20% down, which is $93,800.
    Interest paid:
    2010 – $8,279
    2011 – $13,986
    2012 – $ 13,715
    2013 – $ 13,434
    TOTAL INTEREST PAID: $49,414.
    Assuming 33% effective tax rate, that works out to $33,107 in interest paid.
    Assuming it costs $25k in closing costs to get out (about 6% of sales price), that works out to $58,107 that went “down the drain.”
    Moreover, they had to put down $93k, and over the course of the mortgage they paid $25,759 in principal. So their total equity into the home is about $118,000.

    How much would it cost to rent the equivalent place? I’m making a wild guess here, but let’s assume it’s $3,000/month to rent a similar place. They were in the home for 42 months, and 42*3000= 126,000.

    So it looks like this place was cheaper to buy than to rent, but the wild card is what would have happened to their $93k downpayment if they put it into the stock market instead.

  13. Mo says:

    Oops – obviously I forgot to add HOA and taxes.
    HOA would be 42 months * $100 = $4,200.

    Taxes are $7k/year, at 3.5 years in the home = $24,500.
    After 33% tax deduction, thats $16,415.

  14. chuk says:

    “Bought for $469k in June, 2010″

    Actually, it was bought for 440,000 in Nov 2010.

    Here is my math for 38 months assuming it sells at ask:

    3.5% interest (100% financed) = 47,295 (31,215 after tax benefit)
    HOA = 3,800
    Taxes = 22,167 (14,630 after tax benefit)
    trans cost = 27,600 (6% of 460,000)
    ——————————————-
    100,862 without tax benefit
    77,245 with tax benefit

    However, they only paid 440k for the unit. If they sell for 460k, that is a 20k profit:

    80,862 without tax benefit
    57,245 with tax benefit

    Cost to rent = 38 * 3000 = 114,000

    “You mean like these sellers who bought in 2010 in LP and are going to take a loss even if they get the full listing price?”

    It’s no wonder some people are forced to be lifelong renters.

  15. chuk says:

    btw, I used 100% financed for the simple people that don’t understand the difference between principal and interest. Consider it 3.5% interest on 80% and 3.5% opportunity cost on 20% if it makes you feel better.

  16. anon (tfo) says:

    “Consider it 3.5% interest on 80% and 3.5% opportunity cost on 20% if it makes you feel better.”

    In the spirit of CC investment advice, I think the hypothetical renter would have chosen among SRS, LF or AAPL to invest 100% of that DP, and would have thus either lost ~60%, or gained ~35% or ~70%, respectively, pre-tax, on that op cost calculation.

  17. DZ says:

    “either lost ~60%, or gained ~35% or ~70%, respectively”

    What if you were also using your holdings to write options, which as I understand it, is often free money?

  18. Gary Lucido says:

    Well, this is exactly what the NYT rent vs. buy calculator is for. It helps you go through all this math. The bottom line is that there are a ton of tradeoffs but in a rising rent/ housing price environment owning starts to look really good. That’s why I finally bought about 18 months ago after renting for 12 years. There is no doubt that in my neighborhood I can sell today for a nice little profit – even if I had normal transaction costs.

  19. gringozecarioca says:

    “What if you were also using your holdings to write options, which as I understand it, is often free money?”

    I’ve been trying to understand this for days… Went and looked at AAPL 600 calls for Feb.. for starters there were 4 of them listed in yahoo, which confused me for a lil while.. but once I understood why, what left me puzzled were the different prices. Not why those 4 were different, but when someone wants to sell options as a covered call, how do they decide if the price of the option is ‘good’. If it is $3 or $3.50 does it make a difference to someone like chukmaster flash???

  20. Gary Lucido says:

    In general options are fairly priced. The real problem is the spreads. They can be horrendous. In terms of writing covered calls…it’s not the money machine that everyone seems to think it is. You are giving up the upside and keeping the downside. On average you won’t really make anything. Having a covered call position is equivalent to being naked short a put..

  21. gringozecarioca says:

    Gary.. you got a point in my book.. Too bad the realtor thing removes 4-5 :-)

  22. chuk says:

    “On average you won’t really make anything.”

    And in many cases you will make LESS than without using them. But that is one of the main reasons to use covered calls. Reduce risk (which then reduces reward).

  23. Gary Lucido says:

    “Gary.. you got a point in my book.. Too bad the realtor thing removes 4-5″
    I’m really a finance/ Internet executive/ entrepreneur that happens to be in the real estate business. I don’t like thinking of myself as a realtor. :)

  24. gringozecarioca says:

    “Reduce risk (which then reduces reward).”

    …and since that reward and risk are made equal by a function of their price (as Gary stated, they are fairly valued) there is no mathematically supported benefit to transacting. Essentially like betting black or red on a roulette wheel if there is no green. Thus my comment to DZ…. to which you replied nonsense. Of course, crossing the bid offer spread creates the green 0. turning you into the roulette player. If you want to alleviate your risk , if that’s really what you are set out to do (to be less long), simply take a smaller initial long position.

  25. chuk says:

    ” (as Gary stated, they are fairly valued) there is no mathematically supported benefit to transacting. Essentially like betting black or red on a roulette wheel if there is no green”

    That’s like stating that stock prices are fairly valued and there is no mathematically supported benefit to transacting. So what? Does that mean one should never buy or sell stocks (which is what you said about selling options)?

    “Thus my comment to DZ…. to which you replied nonsense. ”

    Which it was.

    “if that’s really what you are set out to do (to be less long), simply take a smaller initial long position.”

    Wrong. It is not that simple. Reducing risk is ONE reason to sell calls. Not the only reason. And you may way to TEMPORARILY reduce risk on a larger initial long position you have taken. Do you have a time machine?

    And just because on average you likely won’t “beat” the market selling options, who says you have to do it “on average”? If you want to beat the S&P 500, and you buy all 500 stocks, should you be surprised if you don’t beat the average? What if you selected 250 stocks instead? What if you sell 6 months of calls instead of 12?

  26. MO says:

    Chuk -
    Just curious – how would you know which stocks to buy, or which options to sell? Isn’t there an equal chance that your selection will beat the market, as there is a chance that your selection will underperform?

    So unless you have an “edge,” you’ll come out average. What constitutes an “edge” is debatable and there are plenty of trading firms built around a perceived edge. Obviously the one fail proof “edge” is inside information, but I’m guessing none of us have that.

  27. sonies says:

    stick to real estate gary…

    ze, the reason you see 4 different prices is because AAPL has weekly options, expirations every saturday, obviously the longer the time the more premium you get. Covered calls are also very nice for turning your stocks into income vehicles as well, in this craptastic interest rate environment it has done extremely well compared to a bond portfolio. Learning to not get ripped off and bidding/asking properly is key, but thats why some folks pay us the big bucks to do all that work for them. Just like realtors get paid for whatever it is they do.

  28. sonies says:

    Jesus Gary… no

    “You are giving up the upside and keeping the downside.”
    wrong, your downside is less than if you had not wrote the option at all. If the stock hits a price you are comfortable selling at, you are not giving up upside either…

    “On average you won’t really make anything.”
    Yeah an extra 5%+ a year in returns for holding stocks you already own isn’t anything at all

    “Having a covered call position is equivalent to being naked short a put..”
    no its not, just… not even close

  29. chuk says:

    “ze, the reason you see 4 different prices is because AAPL has weekly options, expirations every saturday, obviously the longer the time the more premium you get.”

    He knew what they were. He was just doing his “stoned guru” schtick.

  30. chuk says:

    “Having a covered call position is equivalent to being naked short a put..”
    “no its not, just… not even close”

    Actually, yes it is.

  31. sonies says:

    maybe its the vicatin I’m on but… how exactly? does not compute

  32. gringozecarioca says:

    “That’s like stating that stock prices are fairly valued and there is no mathematically supported benefit to transacting. So what? Does that mean one should never buy or sell stocks (which is what you said about selling options)?”

    2 completely different things. A stock is an asset. A small piece of a company. You are buying a stream of expected cash flows and the companies assets and liabilities. I will gladly accept a stock trades at the fair value for this stream of earnings plus the business .
    An option is purely a mathematical valuation based on derivative movement of an underlying. A better term for “priced at fair value” should more technically state they are priced at “expected value”. and thus fair value=expected value. Technically what you get in premium you give up an equal amount by transferring rights “temporarily” to someone else. And this buyer is paying you for the benefit of those rights. So options are “priced” where if you transact at fair value you are giving what you are getting. no free money.

    …and no, not schtick, I said I eventually understood, at first it confused me, but seeing the different prices for the same strike made me think about at what price people decide, “ah, this is a good price”

    “Wrong. It is not that simple. Reducing risk is ONE reason to sell calls. Not the only reason. And you may way to TEMPORARILY reduce risk on a larger initial long position you have taken.”

    …so what are the others.. all i see it doing is lessing a long position. the more you go higher the less long you get, the more you go down, the longer you get… preference of mine isseeing myself get longer on way up and shorter on way down..

    ““Having a covered call position is equivalent to being naked short a put..”
    no its not, just… not even close”
    ….simply furthers my opinion.. people should just leave options alone…

  33. Gary Lucido says:

    So many comments….so little time.

    First, draw out the expiration value of a covered call position and a naked put position and you’ll see they are mathematically equivalent except for the capital tied up in the covered call position but the cost of this is miniscule today. This is basic.

    Writing a call on a long stock position absolutely gives up the upside. Sure you get compensated for this but I guarantee you that if you play this game long enough you will not come out ahead and it’s not risk reduction. It is absolutely roulette. Because when the stock goes down you still get hit – minus the premium you got when you wrote the call. But then when the stock goes up you don’t gain. So your probability distribution is asymmetric, for which you get compensated fairly. But it’s not a money machine.

    Now if you believe you have superior knowledge – e.g. the implied volatility is higher than it should be – then that’s a different story. Or if you believe you can systematically avoid selling calls when the stock is more likely to move up.

    There are option plays periodically when a stock is hard to borrow but it’s not without risks but covered call writing is grossly overrated and I hate the way it’s discussed in the media – like you can consistently earn more than the current risk free rate of return.

  34. Gary Lucido says:

    Thanks, Chuk. While I was attempting to write a dissertation you just linked to an authoritative source. :)

  35. chuk says:

    “2 completely different things”

    No, they aren’t. Think deep ITM strikes.

    “so what are the others”

    Well, leverage for one. Also, it is a way to capture dividends if you buy after the ex-div date. There are others, but I will leave those up to you.

  36. JMC says:

    This is a little off comment but has CribChatter shut down? I read the post by Sabrina and moving overseas…. is this the end of CC? Just curious. I haven’t read this in a while and came back to notice this comment on another post.

  37. sonies says:

    like i said vicatin… but why are they comparing a buy-write strategy to a short put is beyond me… you buy the stock if you get assigned on a put… you are selling the stock if you get assigned on a call, you want the stocks to move in opposite directions for puts and calls…. just not seeing it, perhaps when I’m less dumb i’ll try and figure it out, maybe these guys are just being needlessly complicated, most “experts” love to verbally masturbate something simple… or maybe I’m just being dumb

  38. gringozecarioca says:

    “Well, leverage for one.”
    Fair, I’ll give you that.. but not in the way of buying OTM and thinking you control shares at a higher price. I’ll agree a $40 call, with little to no premium, is a good cheapskate way to buy a $50 stock if your timing is shorter term.

    “Also, it is a way to capture dividends if you buy after the ex-div date.”

    That makes absolutely no sense. IF you are lucky, very lucky, and transact in massive size, in strikes with massive open interest, and have very low transaction costs.. and then again …..get really really really lucky that someone is a dumbass and forgets to optimal exercise calls BEFORE going ex-div, I see the argument. but capture a div post ex?? Forward underlying is adjusted for expected dividends repricing the option against that price, not the spot price.. so not going to work.

  39. anon (tfo) says:

    “like i said vicatin…”

    You shouldn’t go cheap with your back pain meds–buying vicodin off the street gets you that mix of scrapings from the club bathroom, talcum powder and laxatives known as vicatin.

  40. gringozecarioca says:

    “or maybe I’m just being dumb”

    with all due respect.. being dumb.. or not sufficiently high :-)

    Think this way…

    AAPL trading 550..
    600 call = $10 so 600 put must trade $60.

    If you buy the underlying for 550 and sell the call for $10… OR sell the 600 put for $60, your P+L at expiration (and all times until then) will be the same.. They are identical positions.

  41. chuk says:

    “That makes absolutely no sense”

    Because I typed “after” instead of “before”.

    http://www.businessinsider.com/options-dividend-trade-strategy-2012-9

  42. chuk says:

    “OR sell the 600 put for $60″

    And this is why option selling can sometimes make sense. In any trade, you are assuming you “know more” than the person on the opposite side. If you are buying AAPL at 550, chances are you are expecting it to go up. The sellers is expecting it to go down.

    Let’s say you think you “know more” than the market. Because of your research, etc, you do not believe AAPL will go above 600. But you are still bullish on it.

    Sell 1 600 put for $60.

    AAPL goes to 599. You make $59 per share ($5,900)
    AAPL goes to 0. You lose $540 per share ($54,000)

    If you were to “lower your risk” by taking a smaller initial position (98.18 shares), your maximum loss is $54,000. Your maximum gain is unlimited. However, in our case we “think we are right” and that AAPL will go to 599 or less. If you are right and AAPL does go to $599, you will make $4,811. So if you think you are right, one could argue you are better off selling the naked put to get your $5,900 reward instead of the $4,811 with just buying the common. Of course this doesn’t mean you WILL be right. You are just making a more precise prediction with your position.

    What would be the non-options way of generating the same return assuming you are proven right? Again, no one enters a trade believing they will be wrong.

  43. chuk says:

    Simpler example of dividend capture with covered calls:

    http://www.theoptionsguide.com/dividend-capture-using-covered-calls.aspx

  44. gringozecarioca says:

    Chuk, you enter trades with a lot more confidence than I ever have….

    For my last comment on dividend capture.. YOU WILL get assigned. period. you will never get away with it enough to even come close to covering your commissions. If you tell me otherwise I call complete BS.
    Second, as an FYI… there is an error in the example. If he traded the 40 call at 10.20 that means the put is worth .20 and having extrinsic value means it has to have a change in value with a change in price. the drop of $1.50 will make the 40 put worth more than .20 so say it goes to .30 or .35 thus the following morning the 40 call wouldn’t be worth 8.70 as he says but 8.80 or 8.85…

    As for selling a lower amount. I was referring to the fact that selling the call means that the day after your p+l will not be 100% of the stock move.

    and of course you cant beat it.. you sold a call that went out worthless. now at 650 not selling the call was better. And the worst of worst for me.. is say you called a 600 high.. it gets there sooner than you expected…. but when you get to 600, you can’t sell the stock and have to sit there hoping it settles at 599. Drops back to 550 and you are kicking yourself in the ass knowing it hit your target, all your work was brilliant, and you couldn’t sell your long position out cause you were short optionality.

    Now time for video games…

  45. chuk says:

    “Chuk, you enter trades with a lot more confidence than I ever have….”

    Well, I wasn’t even saying it is what I do. But it is a valid strategy for some people/times.

    “and of course you cant beat it.. you sold a call that went out worthless. now at 650 not selling the call was better. And the worst of worst for me.”

    Right. But those are 2 different strategies. Each one has their place. You can’t just dismiss one of them entirely. (hence the “nonsense”)

    “but when you get to 600, you can’t sell the stock and have to sit there hoping it settles at 599. ”

    Well, you could buy back the call and sell the underlying. But that’s why it is easier to do with naked puts. Only one transaction involved. No timing/exposure to the 2 separate transactions.

  46. chuk says:

    ” YOU WILL get assigned. period. you will never get away with it enough to even come close to covering your commissions”

    Not with BoA at the helm…

    http://www.theoptionsinsider.com/industry/?p=100000642

  47. Gary Lucido says:

    What kills me is when these columnists and the guys on TV (e.g. Options Action) talk about covered call writing like it’s a guaranteed way to increase your return – i.e. just take your whole portfolio of stocks and willy nilly write calls on every position and then watch the money roll in. These guys should know better than this. It’s just NOT true.

    And as long as I’m bitching about dumb financial commentators why do they keep saying crap like “A trader bought 50,000 calls today, which is very bullish”? Uh….that means someone else sold 50,000 calls today and that was very bearish.

  48. Sabrina says:

    “This is a little off comment but has CribChatter shut down? I read the post by Sabrina and moving overseas…. is this the end of CC? Just curious. I haven’t read this in a while and came back to notice this comment on another post.”

    Crib Chatter has been on hiatus for several months now. There are other things going on in my life and inventory dropped so low it was boring running this site. It became more burdensome than fun. And yes, I’m going overseas for work shortly so I won’t be running it full time from there either.

    I am doing only a couple of posts a month right now.

  49. Sabrina says:

    On the Bissell row house- the 30-year mortgage rate was around 4.6% in November 2010.

    Using the excellent NYT rent to own calculator- and a 30-year with 20% down- it calculates it would be better to own if you are living there more than 6 years. That’s with 2% appreciation in home costs and 3% appreciation in rents (with your rent being $2500 because there’s no way you were paying more than $2500 a month for a 2/2 in LP on the El line back in 2010.)

    “If you stay in your home for 6 years, buying is better.It will cost you $20,110 less than renting, an average savings of $3,352 each year.”

    The NYT calculator figures out all of the tax ramifications and the lost opportunity costs on the down payment. It’s an excellent resource (it doesn’t allow you to calculate using an ARM or a 15-year mortgage however.)

    This homeowner is going to lose money. As I’ve been saying for years, you really have to plan on staying in a property for 10 years or longer. It just makes financial sense. Twenty and thirty somethings tend to move a lot. They get married (or divorced). They get job transfers to other cities (or countries, in my case.) Why would we want to be tied down to a property for all that time?

    For someone like HD who is going to be in the Chicago area, apparently, for the rest of his life and has children and schools to worry about etc.- then of course it makes sense to buy something.

  50. Sabrina says:

    Millenials need to be smarter. Unfortunately, the housing bust did not change opinions that buying a condo for 3 years is a smart thing to do. It’s not.

  51. Sabrina says:

    What I also find interesting about this housing market is that the bears are once again being mocked. It’s a sign of the still inherent massive financial distortions in the housing market (and other markets as well- including art) that speculation is being rah-rahed again.

    Why can’t the housing market simply be “normal”? Why do prices have to go up 10%, 15%, 20% a year? That is so far from the norm to be laughable. Yet, apparently, the bust taught people NOTHING. Which leads me to believe that there is going to be an even bigger bust still coming on the horizon that will really change the housing game. But that can happen only when the Fed gets out of the game- which it may be inclined never to do.

    Who would have thought they’d grow their balance sheet to $4 trillion? Why not $8 trillion then to keep it all going?

    These are fascinating times but not in a good way.

  52. Gary Lucido says:

    Very odd. I got a notice that MO posted a comment here but it’s nowhere to be found. So either the notices go out before the comment is approved or the comment got removed, which I doubt.

    I think 10 years is a bit extreme. I often see 6 years work out on the NYT rent/ buy calculator. A lot of people also buy for the degree of control it gives them over the property. 3 years is definitely too short unless you have visions of tenants dancing in your head.

    However, it all comes down to the assumptions you make and in the last couple of years rents and housing prices have gone up a LOT. The Case Shiller index for Chicago is now up 24% from the low and nationally economists are saying 3 – 5% per year over the next 5 years. Not to mention that Chicago is still well below it’s long term trend line.

  53. Sabrina says:

    “However, it all comes down to the assumptions you make and in the last couple of years rents and housing prices have gone up a LOT. The Case Shiller index for Chicago is now up 24% from the low and nationally economists are saying 3 – 5% per year over the next 5 years. Not to mention that Chicago is still well below it’s long term trend line.”

    Gary- you’re basically saying the following:

    Rents can keep going up above the norm.
    Housing prices can keep going up above the norm while mortgage rates rise.

    But incomes have remained flat, to lower if you include inflation, and show no indication that they will be rising.

    What doesn’t make sense here?

    Your scenario would be outside the norm of everything we have seen historically in the housing market. But then again- everything we have seen over the last, say, 15 years, has been outside of the norm (both the boom, the bust, and now the reinflation.) So I suppose we could continue to get something that doesn’t make any economic sense.

    But when WILL we go back to the norm? It ALWAYS does. And then what?

  54. Gary Lucido says:

    That’s not exactly what I’m saying. I’m saying that if you had merely assumed 3% appreciation in rents or house prices over the last couple of years you would have been way wrong. I think the reason we did better than that is that the Chicago market over corrected. I personally think it has a way to go yet to get back to the long term trend line but I would not be willing to assume more than 5% appreciation for the next year.

  55. Sabrina says:

    “Very odd. I got a notice that MO posted a comment here but it’s nowhere to be found. So either the notices go out before the comment is approved or the comment got removed, which I doubt.”

    There was one waiting in moderation so when it got approved it ended up being way down the list of comments on that thread.

  56. chuk says:

    “What I also find interesting about this housing market is that the bears are once again being mocked.”

    Wrong. You are not being mocked for being a bear NOW. I myself am leaning slightly bearish. You are being mocked because you remained a bear since the bottom, yet claimed you were bullish. Despite proof to the contrary.

  57. chuk says:

    “This homeowner is going to lose money. As I’ve been saying for years, you really have to plan on staying in a property for 10 years or longer. ”

    You are either unable to do basic math, or you are so biased that you refuse to see the truth. Not sure which one is worse…

  58. chuk says:

    btw, you still haven’t “shown your math” on the Bissell property. Yet you keep spouting off incorrect statements about it. We have a real life example here. You are claiming the buyers “lost money” by buying this property instead of renting it. Even if they sell at ask. So, put your money where your mouth is and prove it. SHOW YOUR MATH.

  59. chuk says:

    “Why do prices have to go up 10%, 15%, 20% a year? ”

    You are the only person saying that.

  60. anon (tfo) says:

    “I think 10 years is a bit extreme. I often see 6 years work out ”

    I always (ie, before 2000) understood the CW to be that the default tipping point was around 7 years. Less than that, it would usually end up costing you money (at least in real $ terms) to buy. Lots of exceptions, of course.

  61. DZ says:

    “SHOW YOUR MATH.”

    Well, she pointed you to the NYT calculator w some guidance on inputs. Did you she not give you enough detail on inputs (I haven’t checked)? Are you unhappy about the use of the calculator?

  62. MO says:

    I just messed around with the NYT calculator and was shocked at how long it takes for a home to pay off. My current rent is $1240, and the calculator told me it would take 30 years for a $400k condo to pay off. I guess I should keep renting then? That’s too bad because I’m getting tired of the apartment I rent. Should I just find a different place to rent?

  63. Gary Lucido says:

    MO, that result is rather surprising so I would double check your assumptions. Also, make sure you are comparing apples and apples. So would it cost you 400K to buy the place you are living in now or does 400K put you in a much nicer place? Also, sometimes you just have a great rental deal and you should milk it for all you can.

  64. chuk says:

    “Well, she pointed you to the NYT calculator w some guidance on inputs. Did you she not give you enough detail on inputs (I haven’t checked)? Are you unhappy about the use of the calculator?”

    Using the NYT calculator, it shows this buyer made out better than he would if he had rented for 38 months. Yet she continues to claim the opposite. Unless she’s using a 200% opportunity cost.

  65. MO says:

    Good point, Gary. I guess I forgot to mention that the space I rent is tiny – i.e. approx 400sq ft. I originally moved in because I was a student, didn’t need space, the building is very nicely maintained, and the location is highly convenient for the CTA.
    Now I am not a student anymore and ready for a little more space, and have some money to make an investment with (assuming its not a stupid investment, which is why I am doing the math … )

  66. chuk says:

    Here is the rent vs buy using the numbers Sabrina gave. I had to guess on the ones she didn’t. Hence the “show your math”. (note, the $2,500 a month rent is likely too low for this, but whatever).

    http://oi39.tinypic.com/2ihm6op.jpg

    Here is Sabrina’s statement:

    “Buy in 2010 but four years later you will lose $10,000, $20,000 or $30,000 or save your downpayment and just rent for those 4 years- with your downpayment intact- which should you do?”

    And here is what the NYT calculator says:

    “If you stay in your home for 4 years, buying is better. It will cost you $28,230 less than renting, an average savings of $7,058 each year.”

  67. sonies says:

    where are you renting a 400k condo for $1240 a month????

  68. Vlajos says:

    The calculator is interesting, but what how about a family of 4? What does a nice 3-4 BD cost to rent vs. own?

  69. MO says:

    Sonies – for me, a condo purchase would also be an upgrade in living style. So you are right, I didn’t account for that in the NYT calculator.

  70. DZ says:

    “Using the NYT calculator, it shows this buyer made out better than he would if he had rented for 38 months”

    Aren’t we basically at 38 months for the Bissell prop? So toss up?

  71. DZ says:

    “What does a nice 3-4 BD cost to rent”

    $7,400 of course.

  72. chuk says:

    “Aren’t we basically at 38 months for the Bissell prop? So toss up?”

    Even at 36 months, buying is ahead by $12k. Which is pretty much the exact opposite of what Sabrina is claiming.

    http://oi44.tinypic.com/2a0c46u.jpg

  73. DZ says:

    “Even at 36 months, buying is ahead by $12k. Which is pretty much the exact opposite of what Sabrina is claiming.”

    Just saying it’s kinda toss up that point. Change a couple inputs and I could get the opposite result. (I am really enjoying the dedication you are putting into this w the jpegs.)

  74. chuk says:

    “I am really enjoying the dedication you are putting into this w the jpegs”

    http://i.chzbgr.com/maxW500/7892614656/hF19E35C9

  75. anon (tfo) says:

    ““What does a nice 3-4 BD cost to rent”

    $7,400 of course.”

    But that was–what? 3 years ago?–and we’ve had annual rent increases in the double digits each year since, right? So more like $10,000/month now, right? And that’s for a large but kinda dated sfh in a marginal-ish location in an acceptable CPS attendance area.

    Somewhat more seriously, using the calculator, using $7500 (+1%/yr) for rent, $1.3m (+0% appreciation) for the buy, (defaults for all other assumptions) at 3.25% interest, the crossover is in year 7, but at 5.5% it moves out to year 18. Which is consistent with Sabrina’s contention about rates going up–a fairly narrow circumstance, sure, but also what I would expect. Change only the purchase price to $900k (where those “$7500 rent” places were selling a few years ago), it shifts to 3 years (at 3.25%) and 4 years (at 5.5%)–ie, no meaningful difference.

  76. homedelete says:

    Arguably the most overpriced listing with the dumbest realtor MLS entry for the ugliest, most craptacular home in all of the northwest suburbs. This is truly worth clicking this link

    http://www.redfin.com/IL/Park-Ridge/900-S-Washington-Ave-60068/home/13638841

  77. Sabrina says:

    Here is the rent vs buy using the numbers Sabrina gave. I had to guess on the ones she didn’t. Hence the “show your math”. (note, the $2,500 a month rent is likely too low for this, but whatever).

    http://oi39.tinypic.com/2ihm6op.jpg

    Chuk- you’re using the wrong mortgage rate. The rates weren’t 3.5% for a 30-year in 2010. It was around 4.5% to 4.6% that month (maybe they got a higher rate a couple of months earlier- or maybe they got slightly lower- who knows.) It’s just for purposes of the example.

    You also have to put in the $100 a month assessment (go to the “advanced” settings on page 2 of the calculator to put that in.)

    It’s a great calculator that shows things pretty accurately (but it DOES all depend on your inputs.)

    You would need to be in the property for 6 years if you’re also able to rent a 2/2 for $2500 (which was pretty easy to do in 2010.)

    Everyone has to calculate things based on their own lives. If you’re not going to live there for awhile, you’re stupid to buy.

    But no one learned anything from millions of foreclosures apparently.

  78. Sabrina says:

    “Good point, Gary. I guess I forgot to mention that the space I rent is tiny – i.e. approx 400sq ft.”

    $1240 for 400 square feet?

    Where the heck do you live?

    You can get a 1-bedroom in Southport with granite counter tops for that.

  79. Sabrina says:

    HD: That is awesome. I LOVE the listing.

    “Huge house, like a St. Bernard. This is a golden opportunity for you to take this monstrosity of a house, rehab it, sell it and become the house flipper you’ve always wanted to be. House needs work but it is in the glorious “South Park” area of Park Ridge. Buy this house before someone else does and you’re left scratching your head wondering how you missed yet another money making opportunity.”

    I know, for me personally, I’ve ALWAYS wanted to be a house flipper. That’s been my life-long dream.
    Lol.
    Has speculation returned to the market? You betcha.
    How will it all end???

  80. MO says:

    @ Sabrina –
    overpriced highrise in Lakeview. Rent has been increasingly aggressively over the past few years and I’ve been sucking it up out of laziness. Needless to say, I want out.

  81. sonies says:

    wow homedelete that is the best terrible listing I have EVER seen EVER! hahahahaha!

  82. chuk says:

    “Chuk- you’re using the wrong mortgage rate. The rates weren’t 3.5% for a 30-year in 2010″

    No, I’m not. I assumed a 5/1 ARM. Which is the ONLY product someone should be using to buy a 2/2 that they plan on selling in less than 10 years. Why in the world would someone pay a premium for a 30 year rate that they will use for 4 years?

    “You also have to put in the $100 a month assessment (go to the “advanced” settings on page 2 of the calculator to put that in.)”

    I did.

    “You would need to be in the property for 6 years if you’re also able to rent a 2/2 for $2500 (which was pretty easy to do in 2010.)”

    Wrong.

  83. anon (tfo) says:

    “Arguably the most overpriced listing with the dumbest realtor MLS entry for the ugliest, most craptacular home in all of the northwest suburbs.”

    Selling so soon?

    (I keeed)

    At least the flood control is in place.

  84. Sabrina says:

    “overpriced highrise in Lakeview. Rent has been increasingly aggressively over the past few years and I’ve been sucking it up out of laziness. Needless to say, I want out.”

    MO- you need to get out of those big buildings run by conglomerates. They assume you won’t want to move out (which you haven’t.) If you look with local landlords you can get something quite nice in Lakeview for $1250 a month. It would be a small building though- without the amenities you may be used to. So if you want a pool, exercise room etc. you won’t get that. But you can get a 700 square foot 1-bedroom for $1250 in many of the prime neighborhoods.

    Good luck!

  85. Sabrina says:

    The December housing data is coming out around the country and it continues to be very, very interesting.

    In SoCal- sales dropped to a 6 year low but prices rose as inventory remains tight. Basically, there’s nothing for sale that is “affordable” so buyers under $300,000 are out of luck.

    “Southern California home sales fell to a six-year low for the month of December as investor activity eased again and buyers struggled with a tight inventory of homes for sale. The median price paid for a home jumped to the highest level in nearly six years, the result of demand outstripping supply, declining distress sales and a slight increase in the share of sales in mid- to high-end areas, a real estate information service reported.”

    Investors are also leaving that market as prices rise and cheap foreclosures are few and far between. The December cash share was at its lowest level since September 2010 at 27.7%- down from 35.8% in December 2012.

    While ARMs doubled to 12.9% from a year ago, ARMs have averaged 31% of all loans since 2000.

    Typical monthly mortgage payment tells the tale of higher mortgage rates AND higher prices: $1,594 v $1,139 a year ago.

    Is it any wonder sales are declining?

    http://www.dqnews.com/Articles/2014/News/California/Southern-CA/RRSCA140114.aspx

  86. Sabrina says:

    Also, interesting mortgage information in Wells Fargo’s earnings report.

    It continues to be the largest mortgage provider out of the big banks. Mortgage originations were down 60% in the fourth quarter. Refis were crushed- down 80%. But purchases fell 22% as well.

    Unless all cash buyers are still in the game, it means sales will be weak the next few months.

  87. Gary Lucido says:

    It’s not higher mortgage rates hurting sales right now. It’s the lack of inventory. Given how little is for sale it’s a miracle sales are as strong as they are. Just look at the Case Shiller futures contract for Chicago and it’s a story of higher prices for the next few years. If you don’t believe it you can always take a short position in the contract.

  88. Sabrina says:

    “It’s not higher mortgage rates hurting sales right now.”

    If you’re in an area where the median price is over $400,000- then higher mortgage rates are certainly going to bite.

    Higher prices in many areas are also biting. Again, I keep saying it over and over, you can’t get blood from a stone.

    This is Arizona- where prices have soared. Incomes aren’t increasing but prices are up double digits (and rates are also up)? You’re going to see sales slow.

    From Phoenix:

    “Land and housing prices rose too fast in reality. Just like
    pre bubble, people want to get top dollar in a bad and stagnant economy. I
    personally think this was a false market increase. Look at these three things.
    Cost of housing increase, avg salary increase, the real unemployment numbers
    and populations shifts. Just last week, it was showing that we are not a
    growing state. Actually, more people left then moved into Arizona. Investors
    are what is driving this, which is not good for a healthy economy.”

  89. chuk says:

    Much like any market, it will over-correct in both directions. As I told you in 2011, the market would overshoot to the downside, and make a “V bottom”. That has already occurred. Now the market has probably come up too far too fast. I would expect to see a pullback here (5-8%), before the market returns to a more “normal” market (2% per year).

  90. Gary Lucido says:

    Higher prices correlate with higher rents and overall higher housing costs as a % of income. That is happening and there is a limit to what it can be. But the impact of higher prices and rates on demand is going to depend upon what part of the property price distribution you are on. People are going to move down the distribution. As long as the cohort above your price range is similar to or larger than the cohort at your price range then you are not going to see a significant reduction of demand.

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