Market Conditions: Is a Glut Building in the Chicago Luxury Housing Market?
Luxury home sales were hot in the first half of 2017.
This shouldn’t be surprising as the stock market continued to hit new all time highs. Usually, new highs in the stock market equals strong luxury home sales.
From Crain’s:
Sales of high-end homes in Chicago and the suburbs grew sharply in the first half of the year, far outpacing the growth in the market overall.
“It looks to me like people are feeling better this year with the economy chugging along, and they’re willing to spend money on a nice house,” said Kim Kelley, an @properties agent on the North Shore whose clients bought a house in Glencoe for more than $5.1 million in April.
In the six-county area, 1,347 homes sold for $1 million or more in the first six months of the year, according to Midwest Real Estate Data. That’s up nearly 13.4 percent from the first half of 2016.
But now, there are more million dollar homes and condos than ever before.
Two of the largest condo buildings under construction in the city, the Vista and One Bennett Park, will, combined, add another 475 condos priced over $1 million to the inventory.
But it’s not just condos.
In the GreenZone, plenty of million dollar homes are going up in addition to re-sales.
“There are 14 homes for sale at $5 million or more in Lincoln Park, and there’s only been one sale” at that level, said Jennifer Ames, a Coldwell Banker agent. She represented buyers who made the last big-dollar deal of the year’s first half, paying $4.9 million last week for a six-bedroom, 7,000-square-foot home on Dickens Avenue in Lincoln Park.
In the Gold Coast, where two homes have sold for $4 million or more so far this year, there were 19 at $4 million and up on the market as of yesterday. There’s oversupply in Lakeview, too, though it’s not quite so lopsided. In the first half of the year, 83 homes in the neighborhood sold for $1 million or more, but 111 homes are listed in the $1 million to $2 million range.
Last year, Lincoln Park had three sales at $5 million and up in the first half, compared to just one this year, Ames pointed out. Some high-end listings “go weeks without a showing,” she said.
Baird & Warner agent Marissa Schaefer says she sees a pattern to what isn’t selling: “So many of them look the same,” Schaefer said. At the price, and with so much competition, she said, buyers expect to land a home “that really stands apart architecturally.”
Anyone who has walked around Lakeview over the last 3 years has seen dozens of new construction homes that look like these three.
All of these were priced over $1 million.
Are we about to have a glut problem in the luxury market?
Luxury home sales surge in first half- but prices slip [Crain’s Chicago Business, Dennis Rodkin, July 6, 2017]
And exactly as the developers of the Green Zones of Chicago had learned that there were more land-speculators able and willing to gamble in houses intended for the lacrosse-playing class than there were members of this class, so also those who carved out playgrounds for the rich in Gold Coast or elsewhere learned to their ultimate sorrow that the DINKS and yuppies could not play everywhere at once. And once more the downfall of their bright hopes had financial repercussions, as bankrupt developments led to the closing of bank after bank.
Well, there’s been a growing glut of single family homes in the green zone (pretty much above $1 or 1.2 MM) for quite some time. It looks like there was some improvement in Lincoln Square and Lake View and even North Center at the end of June but Lincoln Park is in the stratosphere at an 11.1 month supply.
Nice to see some humbling reality on here.
i remember a few months (maybe a year back?) when I was looking for a SFH for around 1.5 in the green zone, I was laughed at – what about now?
I said it then and I’ll say it now – the sub 600k market will always be hot. It never made sense for the 1 mil + market to be booming in chicago. This isn’t nyc or cali.
PS – have you guys started seeing the 1 mil homes being listed in LOGAN SQUARE? I understand it’s improved significantly…but come on – it’s not ready for that price point.
“PS – have you guys started seeing the 1 mil homes being listed in LOGAN SQUARE? I understand it’s improved significantly…but come on – it’s not ready for that price point.”
It’s like paying the developer for years of appreciation in advance. Along these same lines, here’s my favorite listing of late because i used to drive by this occasionally on way my to my favorite fishing spot:
https://www.redfin.com/IL/Park-Ridge/1975-Touhy-Ave-60068/home/13641611
It was a dilapidated cape cod on a super busy street that some developer bought in 2015 for $160k. This guy then transforms this crap shack into an $829,000 luxury monstrosity. It fails on so many levels. It’s on a busy street, next to apartment buildings, odd design choices, backyard patio is directly next to the apartment building, so, so many stair cases, weird dormers everywhere for no reason, way too high of a price….This to me is another sign, along with million dollar Logan Sq homes, that real estate is starting to get frothy again.
Agreed 100% HD. That’s why i decided to hold back…
When i couldn’t find a single dang SFH in a decent area of the GZ for 1.5 ( and I wasn’t THAT picky ) I knew something didn’t smell right. I’m old enough to remember the tremors of the last bubble and I feel like we’re going to see another one.
I’m going to hold out and see what happens the next 1-2 years.
“I’m going to hold out and see what happens the next 1-2 years.”
Not sure if that will be long enough. Prices are quick to rise in real estate but slow to fall. You’d be better off trying to find a value property. Find your own tear down and build from scratch, or move out further to a suburb, or find a house that needs a lot of work and hire someone to renovate extensively. It’s cheaper than buying a house that’s already renovated. Of course there will be trade offs. Or you could just bite the bullet and pay the $1.5 ask and get it over with. As someone once told me, there are no deals in real estate.
Also, not sure if you’re paying all cash, but mortgage rates will be rising as well.
If the last recession is any indication, the most that properties will drop in GZ areas is about 10-15%.
the last recession was extremely severe in nature and not typical at all
To B’s point: All about location. Parts of Albany Park are not even close to peak pricing while GZ areas recovered to the 2005 peak pricing relatively quickly. Buying further out won’t pan out just because it is cheaper (trust me, I bought in Albany Park in 2005 and lived this). I now live in a decidedly GZ location and bought just before the mortgage markets loosened up, so I did get a great deal. My property could also go for at least 60% more than I paid in 2013 but the problem is, I wouldn’t be able to replicate it with anything remotely comparable without going way out of the GZ and building new.
And to homedelete’s point – -yeah, home prices are sticky when they are someone’s actual home and there is a lot of emotion in the sale price (provided the seller isn’t being forced out). Developer spec built houses? I’m not so sure. Does anyone have data on this? Depends on how long the investors want to wait to get their principal back and how they were financed in the first place (nonrecourse – – developer will just hand it over to the bank before coming out of pocket at all)
Riz may well get a good deal on a SFH in the GZ after all if it is new construction.
In a debt fueled economy, nothing matters except for sentiment. Chicago (and supposed coast transplants, me included, going gee-whiz look how cheap per sqft) buyers apparently can’t seem to price in an extra two years of property tax increases (this is a fact when rahm announced the first leg of it two years ago, that it’s a four year tax raise, don’t forget), after this 10% which is on top of a monstrous increase the year before.
Add to that an extra 1.2% income tax, I understand that established six figure income people think, “whatever an extra couple 100 dollars a month, I just won’t eat at Spiaggia for lunch a few times a month.”
But facts and figures add up, fundamentals matter.
Optimism is the right strategy for life, but a 30 year interest rate tightening cycle is coming to an end. Who’s to say 2008 wasn’t a joke of a recession considering that even though formal unemployment is technically a cyclical low of 4.4%, but labor participation of adults is only 62%, whereas in 2007 it was 66%. That’s 4% of the adult working population automated out, outskilled, opiated out, out alcoholed, and out video gamed.
As I think it’s been said somewhere else on this forum, how many DINK’s and yuppies do you have to spread around? How long will places like Logan Square be cute because of cronut shops and fried chicken shops not outpace the realization that Trump might literally have to send in the Feds and military to establish a military state of emergency when the remaining breadwinners of low income families get squashed on their pensions and low salaries?
A question for the crowd away from the doom though, how are the 1m-1.5m type of buyers financing? What percentage is cash and what percentage is financing, and if so what % of financing? 20% down or 30-50% down?
Lastly, seeing huge a mount of markdowns on asking prices in the ~1.5mm range, but the supply is still low-ish. Anyone tried ultra low bidding just to see if they bite or markdown in fear? Marking down from 1.8mm to 1.5mm something that should clear 1.2mm isn’t really a mark down.
Liz, lenders don’t give nonrecourse loans to spec home builders. They do for large commercial malls and because they’re securitized, but local banks lending $ to some builder aren’t making these loans on a nonrecourse basis.
Riz, likely you are picky. I found a decent enough GZ SFH for a “mere” 1.1M. It’s similar to what’s pictured above which would easily be 1.4+ on my block. I bet you were looking at new or newly new properties only, I don’t understand paying the premium there personally, yeah some people might think my mid-2000s finishes are dated but I generally prefer them to the current monotonous and drab look (which will run its course soon enough anyway) and no way am I going to spend even close to the cost difference vs. new keeping my place up over the next decade+ I plan to live there. (At which point “new” now will be dated anyway and the “new” won’t justify as much of the cost difference vs. my place as it seems to now)
I went the opposite direction of “new” and went with a classic vintage greystone from the late 1800’s. There is a specific market for vintage and vintage woodwork, and the best part is that it won’t “fad” out or become “dated” in 20 years. People will still want the vintage look 50 years from now.
“I went the opposite direction of “new” and went with a classic vintage greystone from the late 1800’s. There is a specific market for vintage and vintage woodwork, and the best part is that it won’t “fad” out or become “dated” in 20 years. People will still want the vintage look 50 years from now.”
You’ve just described my dream home. I’m so sick of new and design style trends. Spec homes annoy me greatly.
I wonder if there is really a glut of $1M+ homes.
This site is interesting: http://statisticalatlas.com/place/Illinois/Chicago/Household-Income
To be in the 95th percentile in terms of income in Chicago, you have to make about $200k a year. In other words, 5% of Chicagoans can afford a house costing about $1M (give or take). There are 1,028,746 households in Chicago. That equals about 51,500 households that could possibly afford to spend $1M+ on a home. A quick search on the internet shoes that there are 1678 homes currently on the market for $1M+. Is that too many?
“the last recession was extremely severe in nature and not typical at all”
the same could be said about it’s recovery; $12 Trillion dollars of quantitative easing supports a lot of assets, housing included.
Not sure how this ends but I’m sure it’s not “over”
“To be in the 95th percentile in terms of income in Chicago, you have to make about $200k a year. In other words, 5% of Chicagoans can afford a house costing about $1M (give or take). ”
Understood that the 5% includes people who make far grater, but you can’t afford a 1 M dollar house on a 200k in come, if you’re doing it right. There is no way. I can barely afford 1.5 on a 600k+ income.
Riz, I appreciate the conservatism but how do you define that affordability? I assume there’s a balance between % finances if any, monthly payment vs after tax income, reserves and leverage consideration. I like the 2-3x income limit, but curious where you get that.
I define it like this, just based on me for this year:
~ 600k post taxes is about 30-ish per month after taxes are taken out.
Each month:
About 5k go into savings. 5k goes towards investment accounts and retirement. 2 k goes toward college / grad school savings for the kid ( this is a lot but we are planning on a second child so saving a bit more. )
That leaves about 18k . Take out household operating expenses ( credit card bills, groceries, miscellaneous costs, dinners out, gas, car payments, etc ), that’s another 3k.
That leaves around 15k or so. I don’t want to pay my house off until i’m in my 60’s so i’m looking at 15 year options. My mortgage payment in that case would be in the 9k range. add in taxes of about 2 k per month and you’re at 11 k – without including utilities and household stuff like cleaning, furniture, repairs, etc…Maybe with a few thousand left to add into savings / for vacation etc .
That’s my logic. Sure, a bank will easily give me a 2 million dollar loan with 10% down, doesn’t mean I can ‘afford’ it – probably in the same way someone making 200k can ‘afford’ a 1 million dollar house – but not really.
If you’re making 200 k your post tax income is probably what, 10-12k? A 800k mortgage payment plus tax etc you’re looking at probably 6 grand per month towards your house. That’s half your post tax income. To me, that’s far too much.
PS this is why i’m willing to spend that 1.5 for something I really like in the city…but those empty nester north shore 1 -1.3 million dollar mansions are starting to look pretty dang good.
“A question for the crowd away from the doom though, how are the 1m-1.5m type of buyers financing? What percentage is cash and what percentage is financing, and if so what % of financing? 20% down or 30-50% down?”
Approved for 10% down with my bank, which is nuts. When i eventually bite the bullet, looking at minimum 20% down, likely more. A mortgage balance of a million dollars makes me very nervous. Believe i’m being aggressive. Many of my friends with similar income are buying 1 mil range homes with something more like 40% down.
” Find your own tear down and build from scratch, or move out further to a suburb, or find a house that needs a lot of work and hire someone to renovate extensively.”
I may be dreaming here, but i’m hoping the eventual shortage of buyers at the 1.5 mil + property level will eventually run out, and some of the properties that are a bit out of reach currently in the 1.7ish range will drop in price…Whenever i’ve done math for renovations or a tear down it always seems to end up costing more than just buying…I’ve talked to contractors before but in my opinion , everyone’s looking to make a buck, and when your budget is over 1 mil, they try to screw you over / overcharge at every avenue.
“Many of my friends with similar income are buying 1 mil range homes with something more like 40% down.”
I suspect large down payments is how many people with lower incomes can afford million dollar homes. If you’re borrowing $600K then your monthly is like $2837. It’s the property taxes that will kill you eventually. Right now it’s running around 2% of what they think the market value is. A lot of million dollar homes are assessed at only a $800K value, which means your property taxes are going to be $16K/ year. But eventually they raise the value and we know they are going to raise the rate also. So let’s say taxes go to 2.1% of $1 MM. Now you’re paying $21K/ year in taxes.
That’s a good point Gary.
I guess if you’re making 200k but have enough of a nestegg to throw down a 400k down payment, the 600 k mortgage isn’t as extremely out of reach.
All that being said, I was raised with the mentality to never spend more than 2X or at the very most 3X yearly income on a home..
There are no guarantees in life – what if you lose your 200k job? if you’re just barely making the payments month to month you’re in hot water. I’d want to have enough in the bank to pay my mortgage for a year or two.
Great comments riz and gary, thanks. We’re looking to snag some of the 1.2-1.3 places for 1 either in the winter or be patient and wait out until the sentiment turns, which it will one way or another. We are lucky to be a little less reliant on financing, and looking for a time that’s actually an advantage.
One factor that’s concerning me though, is with the global glut of debt in the public sector, I kind of don’t see any other alternatives to deleveraging past that other than currency devaluation and therefore forced inflation (other thank war and bankruptcy). In which case, real assets including housing will rise in nominal price. The IL/Chi situation is unique with a handful of states in how poorly this place is run and that eventual chickens coming to roost dysfunction. Maybe just a farm in new hampshire!
“There are no guarantees in life – what if you lose your 200k job?”
I’ve seen a ton of fairly successful people lose a lot in their life. The most common mistake I’ve seen people make is assuming that they will always make as much money as they do now. Great example is that there were a ton of well paid people at Circuit City in Richmond (I worked there for like 6 years). When CC went under how many well paying employers could they all go to in Richmond? That’s why we’ve always lived well below our means.
“There are no guarantees in life – what if you lose your 200k job? if you’re just barely making the payments month to month you’re in hot water. I’d want to have enough in the bank to pay my mortgage for a year or two.”
Exactly. I don’t think most people think this way though.
“About 5k go into savings. 5k goes towards investment accounts and retirement. 2 k goes toward college / grad school savings for the kid ( this is a lot but we are planning on a second child so saving a bit more. )”
Very few people save this much money. It sounds like you’re making great choices for your family. Although, I don’t think I’d save for college. I don’t know how it got to the point in this country where parents pay for college. I am grateful that my parents paid for my undergrad degree, but looking back, I question whether it should have been their responsibility.
————————-
In the end, from what I’ve seen with my friends (who are mostly childless) is spending 3-4x one’s income on a home. I went with 4x my annual income, knowing that I would likely see significant raises over the next couple of years. I was making very little at that time (back in 2011) though and felt fairly confident that if I was laid off, I could find something fairly quickly.
My mortgage balance right now is about 1x my household income. It’s a cross between a smaller mortgage balance and a higher income. But my child care bill every month is nearly double my mortgage!
“Understood that the 5% includes people who make far grater, but you can’t afford a 1 M dollar house on a 200k in come, if you’re doing it right. There is no way. I can barely afford 1.5 on a 600k+ income.”
It’s interesting that we’re having this discussion with mortgage rates still near historic lows. What happens when they rise? Eventually they will.
Unless incomes are a lot higher, then there will be even fewer buyers who can afford those $1 million properties.
The Fed’s easy money policy has certainly put the housing market in a pickle. Entire states are betting their future on rising home prices and low mortgage rates.
So far no one has had to worry. But using Riz’s calculations, what happens when that mortgage is now $20,000 a month instead of $10,000?
“Is that too many?”
Jenny- you don’t go by households. You calculate demand by inventory.
How many months is it taking to sell the average $1 million home? Multiply that by the number on the market.
If you get something like “it will take 3 years to sell all of the homes at the current sales rate” then it’s a glut and there are too many.
“That’s 4% of the adult working population automated out, outskilled, opiated out, out alcoholed, and out video gamed.”
I hate this argument.
If, after 10 YEARS, you still haven’t found employment, then that’s on your back. You could have earned a PhD in that time period to “retrain” yourself. You could have become a welder. You could have become a Youtube star. And yeah- I get it that some are on drugs, can’t read etc. But I’m SO TIRED of this argument that all of these people would have had jobs in 2007. They didn’t.
Only about 8 million people are actually out of work who could be working. It’s for a variety of reasons (stay at home moms with MBAs, for starters.)
What we need is more training. We need more opportunities at community college and high school level to learn skills. Not everyone should go to college.
We give those whose job was outsourced overseas money to retrain. This has worked really well. But why is it just overseas outsourcing? Let’s offer that to anyone whose career is going away (coal mining- for instance.) We have to provide a different path.
Our labor participation will not be high again for another generation. The Baby Boomers are retiring. With them retires their productivity and sheer weight in the labor market.
“the last recession was extremely severe in nature and not typical at all”
Just a reminder: before 2008, home prices had NEVER declined in Chicago except during the Great Depression.
There was a period in the 1980s where they were stagnant for about 6 years (which, with inflation, was actually a decline).
But no actual declines.
So if you’re betting on a big decline in the next recession, you’re really gambling. As Sonies said, the Great Recession was the most severe you could have. We’re not going to have another one like that with that kind of job losses for a long while.
Remember the 2001-2002 recession? No? Most people don’t. And home prices didn’t decline then.
“using Riz’s calculations, what happens when that mortgage is now $20,000 a month instead of $10,000?”
I wouldn’t use Riz’s calculations. With 20% down on a $1 MM home the monthly mortgage payments for a 30 year are currently $3783. At 6% it will be around $4800 and it will be a while before they get to 6%. Personally, I think if they get to 6% either we will be driven into a recession (because the Fed made a bad call) or the economy will be growing enough to justify it.
“It never made sense for the 1 mil + market to be booming in chicago. This isn’t nyc or cali.”
That may be true Riz. But the companies are moving from the suburbs to the Loop or West Loop. So all those people who lived in million dollar homes in the suburbs will, eventually, be doing so in the city instead to shorten commutes.
Chicagoland may not be gaining as many wealthy as California or NY, but they are choosing to live in new locations.
The North Shore has been suffering. There is a HUGE glut of homes up there for sale. This is a reflection of those commutes and the desire to be closer to restaurants, culture etc. And a lot of the new companies like Groupon, GrubHub etc are all based in the city.
And, by the way, don’t forget we’ve always had our wealth base thanks to the big financial center we have. The CME and CBOE have brewed quite a lot of millionaires thanks to their IPOs. Everyone talks about the Microsoft millionaires in Seattle but what about the CME millionaires?
The $1 million market was also booming in 2005-2007, by the way.
“With 20% down on a $1 MM home the monthly mortgage payments for a 30 year are currently $3783. At 6% it will be around $4800 and it will be a while before they get to 6%.”
It will be forever until we get to 6% unless suddenly we have massive inflation.
Never say never.
“Remember the 2001-2002 recession? No? Most people don’t”. I remember it extremely well. So does, I would hazard a guess, nearly every single person in their late 30s or older I’ve worked with over the past twenty years. I remember the layoffs, the paycuts and the fact that if you did have a job you did whatever you could to keep it for a couple of years straight. Way to trivialize Sabrina.
I too remember the recession of 2001-2002, which is one of the reasons I attended grad school rather than enter the workforce. Many of my recent college grad peers were having trouble finding work or taking lower paying jobs. Many of us went to grad school instead.
“what happens when that mortgage is now $20,000 a month instead of $10,000?”
In Riz’s scenario (ie a $1.2m mortgage, w/ 15 year amo), for the payment to double like that, rates would have to go from the ~4% of now to about 18%.
So, that’s a strawman.
The more likely scenario of rates doubling to ~8% would increase that ~$9k monthly to about $11,500.
” this argument that all of these people would have had jobs in 2007″
2007 Labor Force participation rate in ’07 was lower than in ’00 (before that recession you think no one remembers):
https://fred.stlouisfed.org/series/CIVPART
Using the participation rate, and the labor force total, there are basically the same number of labor force participants today as in ’07, and about 5m more than in ’00–with about 18m more in the total pool.
The interesting thing is that the 25-54 cohort–the prime working years–is essentially flat since 2000, and still below its early ’08 peak. So, the lower overall participation rate is driven largely by a larger percentage of the Labor Force being outside of the prime employment years, where the participation rate is much, much higher.
“The more likely scenario of rates doubling to ~8% would increase that ~$9k monthly to about $11,500.”
The city keeps raising property taxes and people seem to keep buying homes. Mine just went up another 15%. A small increase to interest rates is unlikely to have a big impact in sales. Also, all working people in Illinois just got a pay cut of 1.2%. I wonder if that will impact property values.
Sabrina – what do you hate about the argument that 4% of the adult workforce is not participating that did in the last cyclical top?
You think all those people are going to get a doctorate or that they are mom’s with Kellogg MBA’s in Lincoln park while dad is an executive in healthcare or insurance?
It doesn’t matter what you think we SHOULD do, the fact is, this is the way things are. Wages aren’t sustaining the fundamental needs of a population of humans and you argue that those who lost out because they didn’t have paper wealth to be reflated by the Fed, it’s their own fault.
Things that can’t last long term won’t. Rates will go up, Fed will pull back balance sheets, and the longer this economy has the top 10-20% holding their ears singing La-La-La while they shop at Whole Foods walking past the homeless man, the uglier it’s going to be when the pensions blow up.
Rich folks won’t go away, and I’m looking to improve / maintain my own privilege, but keep your eyes open that there are many clear resemblances to other recessions, and this one has new rhyming elements that are much worse.
Actually, no, don’t. Let them over leverage so it get’s washed out even deeper when the risk premia returns to asset prices as it always has and does.
“when the pensions blow up”
You know what would keep the pensions from “blowing up”?
10 years of 5%+ Fed Funds rate.
Voila, problem resolved.
“Remember the 2001-2002 recession? No? Most people don’t”. That recession was an absolute disaster for the industrial portion of the economy and was a structural shift in our regional economy. Since 2000 Cook County lost over 250,000 manufacturing jobs. Go to the south suburbs like Cal Park, Harvey and Riverdale – they remember it quite well, those who are even left living here. Harvey was a fairly middle class nice town even into the 90s and if you go there now it looks like a zombie movie with block after block of abandoned houses.
Let the pensions blow up. The lazy retirees aren’t even required to pay state income tax on them. They should have to feel a modicum of the pain that the lower class feels in financing their lavish lifestyles.
My how things have changed.
I remember the 2002 recession vividly. Probably why I am so freaking conservative with money. I graduated from Kellogg in 2001. The year I graduated was the height of the dotcom boom. I’d say 10-15% of my classmates that entered in ’99 dropped out after the first quarter to go be VP of Biz Dev at dumbasss start ups chasing IPO riches. Almost all of them were back in school by 2001 graduating a year late.
Traditional recruiters were so out of favor that McKinsey was literally begging people to interview.
JP Morgan was so desperate for hires they guaranteed $1 million over 3 years to new IB associates and gave out $100k signing bonuses.
By fall of 2001, top companies were delaying start dates and rescinding offers. Laying people off less than six months after starting their jobs.
In fact, inflation adjusted salaries for new grads are just now starting to exceed the starting salary I had when I graduated.
“lazy retirees”
Are there any other kind of retirees? I thought the whole point of being retired is that you get to be lazy. Now I’m bummed.
“Harvey was a fairly middle class nice town even into the 90s and if you go there now it looks like a zombie movie with block after block of abandoned houses.”
Dolton, Cal city, Harvey, these were foreclosure ground zero back in 2006 and even through today. So many residents overpaid for their homes, or took out too many home equity loans. When the economy crashed and incomes dropped, the $160k suburban cal city home dropped precipitously in value as neighbors right and left defaulted. I had someone talk to me a while back about how banks were literally abandoning homes in those south suburbs and releasing liens, or just allowing tax deeds to issue, because it was cheaper than trying to foreclose, pay the back taxes, and resell. I saw one case where the person stupidly allowed their home to go to tax sale for $10k in back taxes and then decided to buy it back from the tax buyer for $40k…which was still less than then $80k plus interest, taxes and fees from the defaulted mortgage that was wiped away in teh tax sale…..if they had just seen a lawyer for some advice BEFORE the tax deed was issued. A $500 meeting could have saved them $30k…
As for IL, it’s a very, very slow moving train wreck, that’s taken decades to get to the point we are in now, and it will likely continue for decades more before it finally collapses. Like someone said about bankruptcy, at first you go bankrupt slowly, then all at once. IL is still in the slowly phase. Both Madigan and Rauner will have died from old age and natural causes long before any imminent collapse of IL. It’s going to take my children growing up and leaving the state, along with a brain drain of hundreds of thousands of others before it all finally collapses, and all that are left are poor people too poor to move all living off the dole and squatting in the abandon mansions of Lincoln Park and Lake Forest. That may never happen, and the tax rate would just go higher and higher. Because realistically, IL (more specifically chicaog) holds itself out as midwest blue state oasis in a country of red. Remember, 101 of 102 counties voted overwhelming for Rauner, but he lost Cook County 66/33 to Quinn. IL even with our just below 5% income tax rate is still lower than MN’s 7.05-7.855 rates and WI’s 6.27% for middle to upper middle class households. We have a long way to go to reach CA’s 10% of everything about $40k, OR’s 10% or NY’s 8.82%. We could double our income tax and only break the top 5 of 50 states. All of us may be dead before the situation IL gets so bad that it collapses upon itself though population loss, job loss and overburdened public finances.
And two things about Chicago (and IL) that no one considers is that we 1) have an abundance of water – Lake Michigan, rivers, lakes, ground water, and we have a lot of precipitation as rain, which a lot of other areas do not; and 2) with climate change, the weather is only going to get more favorable. Winters will be less harsh, the growing season will be longer, spring will come earlier and fall weather will stay nice longer…Many places in the sun belt outdoor activiies are not possible during the day. It’s too hot and humid. But 85 degrees in Chicago is just about perfect for any type of outdoor activity..
Speaking of market conditions (the original subject of this post) here is my June update: http://www.chicagonow.com/getting-real/2017/07/chicago-real-estate-market-update-june-strongest-month-in-10-years/
Even though we hit a 10 year high in sales growth is anemic. Sales were up 1.7% last month but IAR is going to say that sales were down 1.7%. Inventory keeps falling.
Not sure if it’s a glut, and it’s obviously not the city, but driving around in Wilmette yesterday, I couldn’t believe all of the (1) sale signs on existing homes and (2) giant/fancy homes recently finished or under construction.
At least it makes sense for suburbs like Wilmette to be building million dollar homes. I was shocked that Oak Brook has a large stock pile of million dollar homes. Why do people want to live there? Wilmette has the lake and is near to Chicago and Evanston. Oak Brook is where the Chads and Trixies go to die.
“Just a reminder: before 2008, home prices had NEVER declined in Chicago except during the Great Depression. There was a period in the 1980s where they were stagnant for about 6 years (which, with inflation, was actually a decline). But no actual declines.”
What’s your evidence for that claim?
“I was shocked that Oak Brook has a large stock pile of million dollar homes. Why do people want to live there”
To be quite honest, In my search i’ve found that a nicer house that doesn’t need massive renovations in oak brook routinely costs more than the north shore suburbs…There isn’t much on the market in oak brook ( I mean real oak brook, not the elmhurst school district area around york ave. ) for less than the 2 million range if you want a big, newer construction house. the 1 million dollars places in oak brook kind of suck.
Most tear downs in the popular midwest club subdivision are a million bucks.
Oak brook is popular because it’s got the mall, great schools, a lot of the cookie cutter restaurant things closeby, naperville is close, and the city isn’t that far..In fact I think the mileage is about the same as wilmette ( probably 20 miles give or take ) . There’s a lot of nice housing there with proximity with a lot to do.
The North suburbs are amazing ( and I personally prefer them ), but I feel like it’s a lot more ‘older’ folks when compared to oak brook or naperville.
My wife far prefers oak brook and naperville to the north suburbs. She feels that the north suburbs are ‘snooty’ and not as diverse…which is probably true. But also probably part of the reason so many people like them more.
PS – Chad and Trixie are a lot more likely to go to naperville. Unless they are loaded they typically can’t afford oak brook or hinsdale.
To give you perspective, a friend of mine from residency is thinking of putting an offer in on this house in oak brook ( he grew up around there ) :
https://www.zillow.com/homes/for_sale/Oak-Brook-IL/pmf,pf_pt/4497443_zpid/13061_rid/0-2000000_price/0-7492_mp/priced_sort/41.884387,-87.893458,41.790384,-88.026324_rect/12_zm/?
It’s a nice enough house in a nice subdivision…but it’s around 1.6 mil and probably needs around 200k of upgrades, depending on your taste. AT that price point it’s actually a really good deal in current market.
lol “needs” 200k in upgrades…
what?
Other than that one hideous bathroom everything else looks totally fine…
I thought the big draw for Oakbrook was the relatively low property taxes
Wow. It seems crazy to me to spend that much to live so far from the city and so far from the lake. I feel like the western suburbs should be value-priced compared to the north shore. If I was going to spend $1.6 in the suburbs, I’d live a block from the lake in Winnetka in this house: http://www.estately.com/listings/info/349-sheridan-road–1
Lets not beat around the bush here. As soon as you get into a certain income demographic, a large part of why people move to a certain area is because of racial and political demographics. The north shore is almost exclusively WASP and jewish while being socially liberal but fiscally conservative. the near north shore suburbs (that HH hates so much) like Glenview is also a mixed bag of jewish, wasp, european mutts and asians. but still socially liberal. The NW suburbs basically up through the C&NW Line is of a more mixed bag but much less jewish and not nearly as socially liberal as the north shore or the near north shore. The dupage county suburbs are more diverse, more non-european influence, and both fiscally and socially conservative.
I grew up in an area near the north shore and throughout my entire life our public schools were closed on the observed jewish holidays. It’s still a bit like now but in today’s PC world instead of calling september 21st what is on the school calendar, they call it a “non-attendance day” on a thursday in the middle of the week in September. In the city neighborhoods it’s totally a mixed bag except that it’s almost exclusively socially and fiscally liberal. I actually believe that Chicago engages in anti-democratic voter suppression. More often than not, candidates run unopposed. Like the D on the ballot has no R or I running against them. Why show up to the polling booths when there only one choice? Isn’t that exactly what happens in Putin’s Russia? THere is PUtin, and no one else?
“lol “needs” 200k in upgrades…”
Don’t you remember how much mulch and landscape lighting cost?? Do we really need clio to come back and explain it again?
“anti-democratic voter suppression”
How does the city engage in that? If the Rs would run RINOs in the city, they’d eventually get some elected. It’s just that the R party can’t tolerate throwing money at a long term project that is soooo ideologically impure.
Between public sector employees and the poors, we will never see anything other than the type of politician we have in office now. There doesn’t need to be a huge conspiracy. These people will always vote for the politician who promises them the most freebies.
There is a reason Chicago politicians want “affordable” housing and require city employees to work in Chicago.
“How does the city engage in that? If the Rs would run RINOs in the city, they’d eventually get some elected. It’s just that the R party can’t tolerate throwing money at a long term project that is soooo ideologically impure.”
They do on the NW side which also arguably has some of the lowest crime rates in the city. R = law and order, no crime. OK, now I”m just trolling, I’ll stop this in its tracks right now
“Other than that one hideous bathroom everything else looks totally fine…
I thought the big draw for Oakbrook was the relatively low property taxes”
I haven’t seen the place but my friend told me two bathrooms, the entire basement, and parts of the garage needed to be totally redone. There were also some issues with the back deck structurally and the slope of the driveway, hence the 200k number he got to bring the place up to speed.
“Wow. It seems crazy to me to spend that much to live so far from the city and so far from the lake. I feel like the western suburbs should be value-priced compared to the north shore. If I was going to spend $1.6 in the suburbs, I’d live a block from the lake in Winnetka in this house: http://www.estately.com/listings/info/349-sheridan-road–1”
Me too. There are plenty of nice, older ( like the one you posted ) houses in the north shore suburbs priced under 1.5 million. But they aren’t selling. Meanwhile, there are barely any houses to buy in oak brook.
For what it counts, the people I know that live in or are looking to move to oak brook are almost all physicians and other working professionals of south asian heritage ( indian and pakistani ) – Same goes for Naperville. there’s a big community in the area and I think that may be part of the draw..Not much of a brown crowd in the north shore suburbs, aside from maybe highland park.
If I ever bit the bullet I would almost only be willing to move to the north shore suburbs, hence I asked not to long ago if it would be weird being a brown guy there.
“They do on the NW side”
How does the *city* do this?
You want to blame the Committeeman system, great. Blame the D party, sure. The fact that, even if 5 wards on the NW side had R aldercritters, the Ds would still control the council, of course.
But none of that is the city or its ordinances.
The north shore is almost exclusively WASP and jewish while being socially liberal but fiscally conservative.
This is mainly true if you don’t consider Evanston part of the north shore.
The North suburbs are amazing ( and I personally prefer them ), but I feel like it’s a lot more ‘older’ folks when compared to oak brook or naperville.
We went to a BBQ in Wilmette on the 4th and I was surprised by how young (and diverse) the crowd was. Almost exclusively people who had moved from the city within the last 3-5 years. The house my friends bought (for less than the sale price on their LV condo) is a fixer upper, but it’s on a beautiful tree-lined street, with a lot of gracious, older homes – walkable to the lake and the metra station. We took the metra there (from Clybourn) and it took like 20 minutes. If I were looking to move to the burbs, it would be on my list.
“Meanwhile, there are barely any houses to buy in oak brook.”
I haven’t looked lately so I don’t know if that’s true. But the houses in the Midwest Club were on the market for YEARS. Who wants a 7,000 square foot house built 25 years ago that has had NO updating? Who wants to pay for a gated community- with all those fees?
But maybe they are selling outside of the gated communities. I know some of the townhouse subdivisions were popular.
“What’s your evidence for that claim?”
It’s all anyone ever talked about, oh, say, 10 years ago when it started to bust.
You can search this blog for your “evidence.” Go back to 2008-2010 time period to find the articles.
“Even though we hit a 10 year high in sales growth is anemic. Sales were up 1.7% last month but IAR is going to say that sales were down 1.7%. Inventory keeps falling.”
If inventory is still falling, then prices will continue to rise.
Buy now or be priced out forever.
“I remember the 2002 recession vividly. Probably why I am so freaking conservative with money.”
Russ- the only people who remember it were you, the lawyers who were laid off but quickly found new jobs, and those in Silicon Valley and Silicon Alley.
For the rest of the country, it just wasn’t that severe. It was a blip. Yeah- the NASDAQ started its multi-year crash. And then we had 9/11 which slowed the economy.
But it really wasn’t that bad for most. Heck, the early 1990s recession had bigger national impact.
A true deep recession was graduating from Kellogg in 2008 and going 3 years without finding a job. It was nothing compared to 2008-2009. NOTHING.
What happened in Silicon Valley was that everyone who moved there for the boom, left. They were all in their 20s anyway. They all found new jobs rather quickly. Mostly within 4 to 6 months.
“Rich folks won’t go away, and I’m looking to improve / maintain my own privilege, but keep your eyes open that there are many clear resemblances to other recessions, and this one has new rhyming elements that are much worse.”
I hate the argument that there are all these people who are unemployed and they’ve waited 10 years to find jobs (somehow buying food, clothing and paying for their housing all that time) so the economy sucks.
It doesn’t.
We’re basically at full employment. In many areas, there are shortages. We have a skills miss-mash between some of those jobs and people who are looking. We need retraining for many people whose jobs are being lost to technology or outsourcing and are never coming back.
We no longer have blacksmiths. I don’t understand why everyone thinks we will have the same jobs we have today another 20 years from now.
And as for “clear resemblences to other recessions” please tell us what those are?
Recessions are caused by excesses. Speculation. Distortions in the economy. Have we ever had a Fed with this current balance sheet? EVER???
Have we ever had the largest generation in US history heading into retirement?
Have we ever had an economy that was over 80% service sector?
Have we ever had a recession when we had jobs like “social media director” or “SEO specialist” both jobs which didn’t exist during the last recession?
No two recessions are alike.
Is there some speculation starting to appear in the economy? Sure. Is it anywhere even close to 1999 or 2007? Not even close. Not even 50% of a close.
Maybe you all don’t remember people buying pre-construction condos, closing on them, and re-selling them to someone new when the building closed for $100k or more?
What about waiting in line to buy a condo?
What about the mortgage fraud?
How about people who owned 5+ condos? Because, after all, they only went up?
Come on. If you’re so sure some of the signs today are the same as other recessions, please tell us. Are people making $1,000 in an hour trading Facebook shares like they did with Qualcomm back in 1999? Are IPOS going from $10 to $50 on the first day of trading? Are there record numbers of IPOs?
Please. Lay it on us. What is so similar?
Yes- the economy will have another recession. But unless more speculation shows up in the economy, it’s not likely to happen any time soon.
As anyone knows who lived through 1999 and 2007 can attest, the risk taking and speculation can build for MANY years before bursting. We’re not even close to those levels.
If we get a recession soon, it will be shallow.
Sabrina, thanks for the lengthy if a bit manic response, which is warranted given my manic notes myself starting it.
central bank balance sheets;https://www.yardeni.com/pub/peacockfedecbassets.pdf
expressed with stagnant wages therein and lack of inflation
Shiller CAPE ratio: http://www.multpl.com/shiller-pe/
Assets are priced to perfection. Does Chicago warrant GZ properties up 20-25% in the last two years?
Sounds like we have some Kellogg grads around here so hoping to ask some advice. I’m a just turned 31 options trader/ portfolio manager looking to transition into something new, ideally in tech / product management.
Is it worth pursuing a Kellogg or booth MBA? Or should I consider coding bootcamps/ CSS masters? I know some coding, but I ultimately want to end up in leadership roles…
An MBA from a top school is a great way to reboot your career. You just have to know what you’re going to do with it once you graduate. Kellogg is better for a marketing role but you won’t go wrong with Booth either.
If you go the software route you will probably never starve and make decent money. The top dollars are on the West Coast though. The FANGs are paying around $100K + 100K signing bonus + $100K stock grants over 4 years for the best new undergraduates but it’s not enough to know how to code. You have to be really smart and they will actually watch you write code as part of the interview process. But if you qualify and get promoted and move into tech management then you can make shitloads of money.
“Is it worth pursuing a Kellogg or booth MBA? Or should I consider coding bootcamps/ CSS masters? I know some coding, but I ultimately want to end up in leadership roles…”
Potentially yes. I would first decide what you want to do. If you want to end up in a leadership role I would go the MBA route. If you can swing it, go full-time. You will have better networking opportunities, internships, etc. I don’t think the part-time students are as successful in changing careers. Personally, I don’t know that an MBA was worth $120K in terms of knowledge, but they are the new bachelor’s degree in banking, consulting, etc.
“Personally, I don’t know that an MBA was worth $120K in terms of knowledge, but they are the new bachelor’s degree in banking, consulting, etc.”
I would agree with this. It’s not about the knowledge, but impressing people. As long as it’s from a T5 school, I think an MBA will help you as long as you plan to go into a role where people are impressed by it.
I don’t know much about the boot camps though, so can’t comment.