Selling 6 Months Later: 2110 W. Roscoe in Roscoe Village
We’ve chattered about how difficult it is to make money if you are selling a year or two after you bought a property.
But what about 6 months?
Such is the situation for the sellers of this 3-bedroom unit at 2110 W. Roscoe in Roscoe Village. It closed in January and was re-listed in June.
Here’s the listing:
BEAUTIFUL, HIGHLY UPGRADED THREE BEDROOM PENTHOUSE IN THE HEART OF ROSCOE VILLAGE. DARK HARDWOOD FLOORS THROUGHOUT, CROWN MOLDING, VERY UPGRADED KITCHEN CABINETRY W/GRANITE & JENN-AIR APPLS. ENORMOUS MASTER SUITE W/LARGE WALK-IN CLOSET, BATH W/SEPARATE SHOWER & TOILET. WIRED FOR SPEAKERS & PLASMA TV’S THROUGHOUT.
ROOF RIGHTS FOR LARGE DECK AND GARAGE PARKING INCLD. MEASUREMENTS DEEMED RELIABLE BUT NOT GUARANTEED.
Janet Jasmer at Jameson has the listing. See more pictures here.
Unit #3: 3 bedrooms, 2 baths, 1875 square feet
- Sold in February 2005 for $535,000
- Sold in January 2008 for $590,000
- Originally listed in June 2008 for $625,000
- Reduced
- Currently listed at $609,000 (parking included)
- Assessments of $199 a month
- Taxes of $7719
I wouldn’t pay their asking price, but OMG that closet is amazing.
$299,000 if the seller want to sell today.
$600,000 if the seller wants to sell 15 years from today.
It was overpriced in 2005 and it is extremely overpriced today. the current owner is the final knifecatcher for this property. I agree with john s. 299 is the fair price for this bubble property now that the bubble has finally popped.
Wow, overpriced. I’d turn the closet into a whole new room. A guy just doesnt need all that space.
You know, I think that’s a real closet. I don’t understand why there is such a shortage of closet space in this city. It’s directly causing traffic and parking problems:
. No closet space
. People fill their garages with junk
. Then they park their cars on the street
Where I come from (Dallas, Richmond) this is the kind of closets people have.
I don’t know where you guys are coming up with $299K for this 3 bedroom 2 bath newer top floor condo in the heart of Roscoe Village. If the price ever sunk that low, our economy will have tanked to the point of a major depression.
I would think around upper 400s at the lowest.
Eric,
Upper 400s? Unfortunately the people that bid units like these up above the 400s did so with toxic financing. They were 20-somethings “livin’ the zero down dream”. Those loans are now toast.
The purchaser of this would need to have at least 10% down. The people that bid up real estate during the bubble never had money down. They’re also the same people that finance their cars for 72 months. Also if they’re getting the extra bedroom for kids this means not only do they need 50k for the downpayment, they will also probably want to send their kids to private school once they hit middle or HS, so put that down too on their expenses column.
It is spacious though, so I’d guess lower 400s. Nothing seems special to me about RV to justify paying much more than 225/sf.
Another seller disconnected from reality. All those headlines they’re reading about the downturn apply to other units. Afterall this is THEIR unit and it is DIFFERENT. Its the rest of the world that has the real estate downturn not this address. lol.
“want to send their kids to private school once they hit middle [school]”
There isn’t really middle school in CPS–the elementaries are almost all K-8.
“I’d guess lower 400s.”
That’s about right, in my mind. Makes it around rental parity, after tax deductions and with 20% DP. Thought that low-$400s would have been more reasonable in 04/05 when these were built (when teardowns in the area were $600-700k). Why they paid $590k in January of this year is a total mystery to me.
Bob,
I thought it looked like these purchasers did put 10% down?
——
$299k is pretty funny. Enjoy waiting for that price.
“If the price ever sunk that low, our economy will have tanked to the point of a major depression.” – Eric
Obviously you have been living in outer space the last 8 months. A great depression might be avoided, but a severe recession and contraction as witnessed by other nations that have had housing bubbles in the past, like Japan or Sweden, is unquestionably at hand.
Instead of looking at the 1930’s as a frame of reference, I suggest looking back to credit crisis and national housing bubble 1873. In either event, speculative wealth was destroyed.
Gotta agree with most of the posters on this board to a degree…good luck selling this at $609k. The fact that the present owners bought at $590k is unfortunate…I don’t see them getting anywhere near that back.
I mean, the front room is good sized, as is the master bedroom, but the other two bedrooms are nothing special whatsoever. The fact that they’ve got taller-than-average kitchen cabinets and a designer closet in the master bedroom is not going to command that kind of asking price. The Roscoe Village neighborhood is great, living in nearby St. Ben’s myself, and will command some premium. For those that don’t think the RV area is special, I’m not going to try and convince you…there are a lot of folks out there that do.
Personally, I agree with Eric…I would expect this to sell at mid-to-upper 400k.
I’ve lived in Roscoe Village for 4 years, and I’ve loved it, but I don’t think that anyone who already lived there, let alone prospective buyers thought it was special enough for a 200K premium on a home price. Neither is “St. Bens” (the realtor name for a portion of North Central) or anywhere around there.
It’s overpriced, but hey, so are a lot of places showcased on cribchatter, I’m sure we’ll see it reduced soon.
Once again we need to realize what is happening on a local real estate level, neighborhood by neighborhood. Lakeview, and subsequently RV right next door, are holding value really nicely and experiencing appreciation albeit small growth. The fear mongers who like to post here think everywhere is Solo and West loop, but weather is local. Roscoe Village rocks and blends family living with entertainment really nicely, there is reason to pay a premium over logan square and uptown to live here.
Mid to uppler 400’s is fair value. I just bought a 2/1 near SoPo and paid lower 300’s (18 other units sold for the same values). This place in RV blows my place away. If the posters here think they can pay downtown arlington heights or desplains condo prices for RV, they are NUTS.
I say redesign the closet with some wood trim and custom doors to add more value. its kind of white and plain as of now.
G_rant
SoPo?
I wonder if giving locations trendy sounding nicknames increases their attractiveness.
At the asking price, one would need at least a $180,000 income with 10k down and ZERO debt or other monthly obligations to get a 30 yr loan for this property. With taxes and assessments, the monthly payment will be at least 4400k per month.
With the economy bleeding jobs at a rate of 2 million a year, how many people still earn this much money? And then have no car payments, student loans, or credit card balances? And of those few, how many are going to take on a 550k mortgage on a property that is essentially a depreciating asset?
As far as “Once again we need to realize what is happening on a local real estate level…,” no neighborhood is immune to revamped and very conservative underwriting standards. A professional couple with a $200k annual income, but no savings, 250k in student loans, 30k in credit card debt, and two car payments will not be able to come close to this unit.
G_rant,
Once again we need to realize what is happening on a local real estate level was and continues to be a housing bubble !
We’ve already went through all the various valuation methodologies and the conclusion is a bitter pill to swallow for many housing speculators. I understand the denial sellers are facing, admitting they made a stupid investment is a big hit to ones confidence and pocket book. Moreover, sticking your head in the sand and hoping the problem goes away is not the solution.
Professor Krugman said it best:
“This is the way the bubble ends: not with a pop, but with a hiss.
Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. So the news that the U.S. housing bubble is over won’t come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn’t have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero? “
“very conservative underwriting standards.”
You say tomato I saw what the hell are you talking about. Twenty percent down and total housing expenses not exceeding 28% of your gross income I do not consider “very conservative”. Why not talk to your parents and grandparents and find out what “very conservative lending standards” really are.
“You say tomato I saw what the hell are you talking about.”
Please explain your comment.
I am a grandparent and I bought my first house in 1966 with 10% down provided my mortgage payment did not exceed 25% of our income.
It was a pun on tomato tomato. Instead of say I accidently put down saw.
The problem our economy is now facing is big and the main culprit behind was lax lending standards the past decade. We should welcome 20% down as normal and housing costs not exceeding 28% of gross income anymore.
I am in my late 20s and it seems people my age and into their early 30s feel entitled to own a place if they have a college degree. Not everybody should be a home owner.
Bob – Another interesting stat is the number of people per home. It declined during the bubble. No more roommates or apartments until you get married, everyone needs to BUY a condo at 23. That is changing since home price appreciation is no longer happening to cover all the holding and transaction costs!
I agree with cjriis.
You can pull up city wide median income here:
http://egov.cityofchicago.org/city/webportal/portalDeptCategoryAction.do?BV_SessionID=@@@@1221187509.1220517093@@@@&BV_EngineID=ccceadefdhhdgfgcefecelldffhdfif.0&deptCategoryOID=-536886129&contentType=COC_EDITORIAL&topChannelName=Dept&entityName=Planning+And+Development&deptMainCategoryOID=-536886126
Unfortunately, the data is from 2000. However, by using data provided by the Bureau of Labor Statistics we can fill in the holes to present day.
For example, BLS tracks compensation growth (see link below):
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CIU1010000000000A
According to the BLS, compensation growth from all workers has increased 3.6% per year since the end of 2000. We know median incomes by neighborhood from 2000, to get an estimate of what they are today multiple the median income by 1.327 (3.6% or 1.036 taken to the 8th power = 1.327).
Using this process outlined above, one could estimate that the median income for an individual living in Lake View today is $71,500 and $112,075 for a family.
So the question is how much house can this person afford without overstretching him or herself? Keep in mind that a responsible adult has to save for retirement, eat healthy meals, enjoy the life$tyle that attracts everyone to the city, and pay other miscellaneous bills. Don’t forget you need to save a little too.
Using this simple calculator from CNN Money we can get an idea what this person can afford. I assumed $1,100 in monthly expenses.
http://cgi.money.cnn.com/tools/houseafford/houseafford.html
According to the calculator, the median family income living in Lake View , making a Gross Salary of $112,0750 can only afford a house between $330,000 and $360,000. Which is between $2,200 and $2,600 per month.
In my experience and with a recent search of the MLS Listings, I could not find anything in decent condition in Lake View between $2,200 and $2,600 per month for a family( i.e. 3 bedrooms).
Keep in mind that when you make median income for a neighborhood you should be able to live in the median type/style home for that area, not some hole in the wall.
As cjriis mentioned, many people have student loan debt, credit card debt, and other debt accumulated to live the “upscale lifestyle”. Thus my rationale for a more realistic price of $300,000 for this unit.
I agree with cjriis. Houses at least for the next year are essentially a depreciating asset. We have only skinned the surface of what is going to be a bad three-five years. Banks are simply not going to lend money it is as simple as that. In order to get a loan you are going to have to put down 20%. This alone is going to take out a large part of the buying population in Chicago (i.e. twentysomethings). A guy or girl in the city earning 180K+ that is in thier twenties is most likely in the financial services sector or a lawyer. Well people in finance (i.e. banking, hedge funds, etc.) are going to be laid off left and right and young lawyers are riddled in debt. Not to mention the majority of these individuals probably do not have 120K+ in liquid cash for a downpayment. Prices in the city are going to have to fall unless everybody that has been overpricing their units are content sitting on them for the next 5-7 years. However, by that time we will probably be looking at 10-15% interest rates as we will have to save our currency. Then what happens? This is a bad scenario and honestly speaking I do not feel that this overly skeptical.
It’s a facade. Easy credit enabled many people to spend much more than they earned. I know a professional couple (who said they make in excess of $200k a year between the two of them) tell me that they might file bankruptcy because Todd Stroger raised their real estate taxes by $6,000 a year. Of course that was an exaggeration but the truth of the matter is that for them every penny counts. The $900,000 house, the dual car payments, the private schools, the yearly vacations to Napa, the minimum payments on the credit cards, the $500 shoes, the $2,500 tailored suits….it’s amazing, they live paycheck to paycheck and they make $200k a year. They might even be fudging $200k a year for all I know – they could make less.
#cjriis on October 4th, 2008 at 2:44 pm
At the asking price, one would need at least a $180,000 income with 10k down and ZERO debt or other monthly obligations to get a 30 yr loan for this property. With taxes and assessments, the monthly payment will be at least 4400k per month.
With the economy bleeding jobs at a rate of 2 million a year, how many people still earn this much money? And then have no car payments, student loans, or credit card balances? And of those few, how many are going to take on a 550k mortgage on a property that is essentially a depreciating asset?
As far as “Once again we need to realize what is happening on a local real estate level…,” no neighborhood is immune to revamped and very conservative underwriting standards. A professional couple with a $200k annual income, but no savings, 250k in student loans, 30k in credit card debt, and two car payments will not be able to come close to this unit.
I think it is hysterical that people think 200K can afford them this kind of lifestyle. My wife and I are in our late twenties and actually make a combined income of over 230K a year and if you want to save any money whatesover you cannot buy $500 dollar shoes and $2500 tailored suites. I think people need to start speaking in terms of net income and not gross income. Take taxes, mortgage, daycare/pre-school, food out of 200K salary and there is not a whole lot left over. Granted we are better off then what the liberals call middle class but nobody and I mean nobody should be buying a $600K+ place on 200K a year unless you have no car payments, school debt, or daycare/school expenses. The math does not add up.
Another point that will be interesting to see play out is the fact that many mid-twentysomethings got downpayments from their parents. With the equity markets down 15%+ across the board and people getting worried about retirement this is a trend that will probaby stop.
Sorry Homedelete I read your comment after posting mine. You summed it up perfectly.
Ohhh my favorite city McMansion just dropped its ask 50k. 600k for a new HUGE house in Bridgeport. This thing will be a comp-killer when it finally sells. A big arse house with a yard in the city and all of its subrurban largesse will be sure to send the urbane hipsters into fits.
I think there are going to be some really good deals at the bottom of this thing. Damn I wish I had 600k 😀
homedelete – Don’t forget the college loan debts! Truly unbelievable the costs of college education….all of those loans to make college “affordable” had the same effect as easy lending standards made homes “affordable”. The easy college loans simply allowed colleges to spend even more and charge even more building palaces to themselves and admin top heavy…a true waste of money. It is interesting how the media is afraid to tackle this issue. Student loan debt just begot more student loan debt, not affordable colleges…
Think about what a student loan really is…..tens if not hundreds of thousands of dollars in unsecured credit to an 18-22 year old with no work history, no income and no real credit score to speak of….no payments for years while in school, and upon graduation, the borrowers debt/income ratios are so out of whack that there the banks defer or forbear payments, and when the borrower finally has a meager income, the bank provides graduated payments and interest only options for a number of years. The private loans are even worse because they have variable interest rates that are much higher than the federal loans. STudent loans ARE subprime loans. The only difference is that subprime loans are backed by a collateral and student loans are not dischargable in bankruptcy….so they balance keeps on rising and rising….sort of like a WaMu neg am option arm mortgage….the similarities between the two types of loans are frightening. I haven’t heard of major student loan defaults in the news but if this mess gets any worse…
And student loans do not bode well for the housing market. How many 20-30 year old still live at home? It’s a lot; Some surveys show that 77% move back in with parents after college graduation. (http://www.bizjournals.com/birmingham/stories/2008/08/04/daily19.html). How are they going to buy new homes if they’re moving back with the ‘rents?
“#John on October 4th, 2008 at 8:23 pm
homedelete – Don’t forget the college loan debts! Truly unbelievable the costs of college education….all of those loans to make college “affordable” had the same effect as easy lending standards made homes “affordable”. The easy college loans simply allowed colleges to spend even more and charge even more building palaces to themselves and admin top heavy…a true waste of money. It is interesting how the media is afraid to tackle this issue. Student loan debt just begot more student loan debt, not affordable colleges…
“
My household has a good income it isn’t quite $230k but it’s still respectable. You’re right though, the numbers just don’t add up to live an extravagant lifestyle on $200k a year – credit cards and HELOC fills the gap. It’s just not people making $200k a year either – it was households making half that or even a 1/3 of that borrow that. I see bankruptcy petitions on a regular basis and the amount of credit card and HELOC debt is staggering. Some of these people just showed no restraint….and the banks showed no restraint either.
“shiphouse on October 4th, 2008 at 7:27 pm
I think it is hysterical that people think 200K can afford them this kind of lifestyle. My wife and I are in our late twenties and actually make a combined income of over 230K a year and if you want to save any money whatesover you cannot buy $500 dollar shoes and $2500 tailored suites.”
Great discussion here. Sorry I missed it until now.
One other thing. If you actually need 3 bedrooms then there is a good chance you have 2 kids. That adds a whole other dimension even though you might be older and make a bit more money. You might even decide to give up one of those dual incomes. Then to top it off try living with 4 people in 1875 sq ft. with only 2 bathrooms. We have 3 bedrooms and 2/2 baths. Wouldn’t even look at a place with only 2 baths.
As you guys point out the numbers just don’t add up. When I moved here from Richmond 9 years ago I was baffled by how people could afford to live here. Now I see that they really can’t. But what is more baffling is that Lincoln Park and Lakeview still are unscathed – but that’s an old discussion.
Is it surprising that the banks showed no restraint? They could sell away their risk via securitization AND it was profitable to borrow money.
When the federal funds rate was 1% for almost three years the real cost to borrow money for the banks was negative. Even today it still pays to borrow money from the fed, unfortunately the fundamentals deteriorated and banks won’t lend anymore.
The federal funds rate should never be below the CPI. When will the fed learn that when you make it profitable for banks to borrow money they will do as much of it as possible. At least with this whole fiasco we can lay monetarist economics to rest. I only wish Milton Friedman could live to see the legacy of his failed dogma. At least Greenspan can.
homedelete – The student loan defaults will come. Easy student loans have allowed colleges to charge more just like home prices when you can borrow money easily and pain free (at least in the present) price doesn’t really matter if is $12K or $20K a year. If you actually have to pay out cash on the spot, you WILL care if the price is $20K instead of $12K. The student loan debt bubble thinking is silly. Moreover, colleges were pushing loans on people if you recall the little that the media covered it about student loan kickbacks. Anytime you make easy credit with no plan for principal payback you will allow the price to become unanchored from its real value. Student loans are also being used to used extravagant student lifestyles with luxury resort like apartments and the like. If someone actually did an investigative report into this matter you would be shocked that they use the funds for plasma TV’s etc. The abuse far exceeds any of the reports of fed govt workers using govt issued credit cards. The student loans aren’t being used to just pay for tuition that’s for sure. I know of some current college students that have told me of all the things their friends have bought with student loan money…so irresponsible just like those that HELOC’d their homes into negative equity while leasing fancy cars and going expensive trips. I know of one couple who made over $400K a year with a $750K house that they had to go into short sale for $399K….the waste and consumption by these disgusting pigs is sickening. An irresponsible consumption orge that we as responsible tax payers are going to be paying for through lost stock prices, taxes, lost currency value, etc…. It is sick sick sick. Let them live under a bridge.
John,
Its funny you mentioned that. I work downtown with a view of one of the luxury apartment complex’s gym/sunbathing deck.
You should see all the young 20-somethings living the good life. These kids are spending at least 1400/month for all of these amenities and I know all can’t come from wealthy families. I would guarantee my rent is several hundred dollars less.
Why someone in college would spend so much on rent to live in a luxury apartment downtown is unconscionable. Either that or this complex has a couple hundred working bartenders.
All I can say is it is about time the spigot got turned off on these deadbeats and freeloaders… Living the debtor lifestyle has to end.
One final thought Gary,
The median income for LP is over 200k. I doubt this fact applies to any other neighborhood in the US. If this fact is true it justifies median prices being 600k.
Lakeview is gonna crater though I agree. Incomes support prices. There are a lot of yuppies in LP who want to pretend they’re not OR rather don’t want to live downtown and pretend to be Gordon Geckos. I hate to agree with SteveH again but not every neighborhood is an LP. The poseurs will have a heavy price to pay for overbidding on units like this blog entry exemplified. (Disclaimer: I live in LV).
Err I meant median household income and midwest US.
Lincoln Park is collapsing right now. There is no ‘Black Monday’ type crater in RE, it happens slowly. Sales are at 20 year lows, which is astonishing when one considers the amount of rentals replaced with condos, and single-family teardowns for mult-units, in that timeframe. The current owners are just stronger than in other areas and they can afford to continue paying more per month than potential buyers will not pay (obviously.) All of the pent-up sellers will not last until a market recovery. Sept saw a 10pct decline in median YOY, expect much more of thay to follow.
Most RE bulls have now ceded most ground as to what neighborhoods will hold their value. In many cities, they are now down to one or two areas which offer a beacon of hope.
We will see how they fare on their last stand. I predict they will have thrown in the towel before next spring.
The Fed should be abolished. The Fed encouraged parasitical nonproductive use of money that got us to the brink of what may be a great depression that will change our lives and that of our children forever. As Congressman McFadden said to Congress in 1932:
“…we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Rederal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation’s debt. The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over.
“This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operated, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.
“Some people think that the Federal Reserve Banks are United States Government institutions. They are not. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and the rich and predatory money lenders. In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket; there are those who send money into states to buy votes to control our legislatures; there are those who maintain International propaganda for the purpose of deceiving us into granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.”
Here is a link to the full text of her speech.
http://www.afn.org/~govern/mcfadden_speech_1932.html
Bob: “The federal funds rate should never be below the CPI. When will the fed learn that when you make it profitable for banks to borrow money they will do as much of it as possible. At least with this whole fiasco we can lay monetarist economics to rest. I only wish Milton Friedman could live to see the legacy of his failed dogma. At least Greenspan can.”
Regarding Lincoln Park…while I acknowledge that volume is down that doesn’t mean underlying values are down. Just like in the stock market, it could mean that there is a wide disagreement over what the value is. Yes, the buying has dried up but so has the selling. Only when demand or supply changes will prices change.
I can’t for the life of me figure out who would buy this place. 1850sf is tiny for a three bedroom. You’d be on top of each other with a kid or two in a place this size. I think people with 600k to spend want something much nicer (that kitchen is ridiculous) and in a better neighborhood and I think those places are out there. Not sure what price makes sense for something like this.
“Yes, the buying has dried up but so has the selling.”
Gary – Yes, but not equally. Sept LP condo/TH sales were down over 40pct YOY and new listings were down only 10pct YOY. This might help to explain the 10pct median price drop YOY.
Look how strange it has all become, when suddenly 1875 sq. ft. is “small” for a family of 4? Makes me get all misty-eyed for my childhood friend who grew up with 5 siblings in a 3 bedroom apartment in a 2 flat their grandma owned. Bunk beds in the girls bedroom and the boys bedroom. OH! ONE bathroom for all of them. And somehow they lived, cramped, just fine.
I’m turning into my grandmother; “oh you kids these days, you just don’t know how good you’ve got it!”
Back on topic, I’d call it worth very high $300’s/low 400’s.
Juliana who branwashed you with all that bullshit? Look up the Glass-Steagall act and you will figure out how we got stuck with this crisis.
I lived in Roscoe Village for about 2 years until my landlord sold the building on a standard lot to developers for $550k. The developers built over most of Damen Ave that it’s nearly unrecognizable as compared to 10 years ago. Anyway, the developer built a three flat, you know, $550k for the penthouse, $450 for the 2nd floor and $500k for the duplex. It took a while to sell all units but they sold. Still, to this day, I cannot understand who in their right mind would pay that kind of money for one unit of a three flat.
Stephen,
In truth fractional reserve lending was a HUGE part of this mess. She is not all wrong.
Lets picture ourselves as parents in our mid to late 50’s. We have 500k + in a variety of asset classes. Stocks, bonds, cash, forever stamps and a home. Our Son is 26 and has been working for 4 years at a 60k/year job and wants to buy a place (right or wrong). With the stock market the way it is (indecipherable, bearish and intangible) and cash at only an ~2.5% yield, it makes perfect sense to put 20% down on a condo for your son in a LV/RV type neighborhood. The parents might but down 35% to buy down the monthlies. This is a great way to gift wealth, get your son to work hard and diversify family money. And Dad has a place to visit in the city without giving up his suburban lifestyle, a kind of hybrid empty nester life.
I am 26 and live in LV and have many friends who get started in life this way, it’s actually very common. Dad gives son a fat CD on 25th birthday or helps with the down payment, a final token before he makes you earn your own living. In fact, its wise for Dad to do this. I’m not saying everyone out there is involved in something like this, but neighborhoods like LP and LV DO have tons of young people. Young people with means (inheritance, parental help, goldman bonus, grandma, marital gift, settlement) in a bad economy buy in LV. They cross diversey into LP when they have even more means. Its not fair, or easy to study or survey, its not talked about a whole lot eighter. But in this country, in LV/LP/RV, the fact is that money networked young people (and their families) will always be able to afford a 400k condo no matter how bad things get. Its the old fashioned way.
or else Dad can just keep his Capital in his domestic financial value funds and forever stamps. Fantastic.
G_rant – I hope you start saving your money….sad that daddy has to come in and provide you with your own down payment….very sad indeed. I bought my first place when I was 22, pretty early for most, and would never have even thought of asking my parents for even 1¢. You need to look in the mirror, you’re an adult, take care of yourself and I hope you don’t end up having to run to daddy government when you’re old and have little savings.
On a positive note, all of those people with $100K-$200K kitchens with professional grade appliances will actually get a chance to use them as they won’t be able to afford to actually eat out at restaurant. Now if they could only grow their own food….
I’m sure plenty of young people get down payments to buy condos. The down payment is the bribe to get them out of the house. The other 77% return home after college.
G_rant,
Not sure this is as common as you think going forward. Also there is the issue of taxation of such a large gift, which of course is never paid just like sales tax on internet purchases.
Also those same parents portfolios are now going to be under pressure and who wants to buy a depreciating asset. I have no doubt the scenario you described indeed does happen.
But most people with a half mill in cash accounts were financially savvy their entire career: they are going to talk their John and Jayne out of ownership right now as its a pretty bad investment.
My parents have north of that amount as well and it is not the culture of my family to ask for handouts unless really needed. We all understand nobody really needs a big fat mortgage liability.
If you think RV will always have 400k condos no matter how bad things get I think you’re missing the mark here. I see LV following the same pattern as RV: median house prices falling in line with 3x median HH income. Wait and see.
Sure, I expected this response. no big deal. Rather than focus on me (and I save plenty, match on 401k, have a great job, love to eat at home! and care about long term stability for myself and family (totally crazy)), I am trying to play advocate and highlight a market moving force that no one discusses. It’s bad etiquette and a very sensitive subject to discuss the money network, per se. Proof from Johns response. Does anyone deny that Real Estate in traditionally younger neighborhoods is affected by this force? It throws all the facts and studies out of whack.
I am also pointing to opportunity costs from a parental perspective and finding alternatives to such crappy stock market. Read: what is the smartest thing to do with a large amount of money when you are pre-retirement? Answer: Put it into your son/daughters Real Estate and protect family wealth in multiple ways. Might want to think about meeting minimum gift allowances before the inheritance tax gets ya (assuming you eat at home and can retire one day 🙂
I know people who received gifts of hundreds of thousands of dollars and leveraged it 4:1. I also know people who received gifts of $20,000 on $200k units. It’s all relative. Gifting downpayments has been around since houses were first constructed in Mesopotamia. A down payment doesn’t rid the need to pay the remaining 80% of the mortgage. The buyers still needs to earn enough income to pay the monthly nut. Call me when parents start buying homes for their children in the LP and LV, and maybe then you’ll be on to something.
Hate to tell you but where the 20 somethings bought will be hit as one of the worst. Sorry for the harsh response but the level of entitlements out there is absurd. I for one am a saver and positioned myself out of some major holdings and other investments and went to $3.5M+ cash position over the last 20 months. Still have 7 figures in stock market but those are mostly in taxable accounts so taking the gains seemed reactionary so will instead roll out my long term portfolio and wealth plan when the time is right and this deleverageing has more fully unfolded. Foreign stocks using US$ to purchase has made little sense with the weak US$ and the emerging markets will get hit as hard as they went up.
I just can’t understand young adults who would accept such a sizable gift from their parents. I want my parents to keep all of their money and to spend every last cent on themselves and I’d be there to back them up if needed. Unfortunately they are prudent savers so no spending spree is on the horizon and they probably will die with too much money in the bank. If anything, I feel I should give back to my parents, not take anything from them. In fact, I am truly horrified at the thought of being gifted anything from my parents. Wow, it just doesn’t compute in my mind. I have always been hard working including working full time while full time grad student for many years (uhhh, no real social life then except work and school 7 days a week). I did have net worth after taxes of over $1M at 25 y.o. though and went multi at 30. I guess it is the work ethic and the abhorrence of the thought of any type of handout whatsoever since I am an able bodied intelligent person. Oh, and I tithe 10% pre-tax for many years too starting first year out of grad school…which I paid my way through on my own too ($40K a year). Hence, handouts to me just would make me sick, I give to charity, I’m not a charity to be donated to. That’s just where I am coming from.
I’d take money from my parents if they gave it to me. It’s a leg up in the world that not everyone gets. However my parents have their own situations and were unable to contribute financially in any aspect of my life since age 17. I’ve pretty much been on my own since then.
John – I’m on board with your philosophy, but its not my intent to go through all the attribution to apparent success in life (to do this for everyone would be exhaustive). All I’m saying is there are thousands of young people who work hard, have salaries that can cover the monthlies(some even very high), but don’t have the downpayment.
Given the relative attractiveness in RE opposed to stocks (including rent savings), a parent might want to consider having their son/daughter pay the mortgage rather than leaking 15 years or rent to some landlord while they save the nut. This is a discussion about optimal asset allocation and assumes that the son/daughter isn’t a lazy f*. I think a lot of neighborhoods are seeing this impact as baby boomers start “thinking” about things.
Sorry G_rant, but I’d still feel like it wasn’t “my” house if someone else paid for even a part of it. Right now optimal asset allocation wouldn’t include real estate that is depreciating and that will never return to those prices in real dollar terms ever…..even if Chicago gets the Olymipics! LOL Seriously, a condo (unless you buy it really cheap) is a dog of an investment and the price of shelter is less than buying. Money is made in real estate at the time you purchase it because that is the ONLY time you have control….at that time you decide whether to participate in the real estate market and at what price. Often when you sell you have a small window of time and you don’t get to choose the market then. Better to simply buy an apartment stock than have one investment condo.
Grant: You really think baby boomer parents are thinking that real estate is the “safe” investment for their money right now? (to give to their children to build wealth?)
If you do- then this real estate bubble clearly has a long, long way to go before we hit bottom. And that may very well be the case.
It means no one is fearful to buy right now. It means that even though they are purchasing a depreciating asset, they still believe it will provide larger returns than other asset classes (stocks, bonds) when history has shown that is not the case.
The obsession with having 20-somethings “own” something (who, by the way, don’t tend to live anywhere for longer than say 3 years) is still with us. Until this mindset goes away- we are far from the bottom.
I am sorry but if I am 50 and only have $500K-1M I in assets I do not think I am going to give any of that to my son/daughter to purchase a house. This is not a large amount of money for somebody that age nor is it an amount of wealth that will prop up any market for a substantial period of time.
It is parents that gave their children DP that has directly attributed to the housing bubble (on top of teaser loans). If twenty-something’s were forced to save for the down payment housing prices would be at an appropriate level. Yes any stupid 25 yr old with an avg $60K/year job can afford a $500K place if their parents give them a $250K DP. This is not reality nor is it sustainable. Additionally, your comment about GS (Goldman Sachs) jobs and all that other BS is delusional. I do not think that the Chicago market will be affected as badly as NYC (because frankly there are not nearly as many I-Bankers here as NYC) but I-Bankers and everyone else in the financial industry have been receiving bloated bonuses (from jr. analyst on up) that will be substantially lower the next several years, this in itself will put downward pressure on the housing market.
What is going to be hysterical is when all of the parents that gave their children down payments during the housing boom by taking out HELOC’s can’t sell cookie cutter McMansions for what they thought they were worth and in affect can’t pay down their HELOC’s. Say good bye to that retirement house. I hope Jr. and the daughter in-law can make some space in their inflated two-bedroom with a nice view of the El-Tracks because it looks like the in-laws might be spending some more “retirement”/”in-town” time with them than actually expected.
Hey Shiphouse – Where would you put 1 million these days? Just curious.
Housing is down around 3% year over year and the S&P is down around 20%. Looks like it paid to own housing in 2008!
The silly wealth planners out there shouldn’t have pushed homes as investments at those bubble prices. Oh well. The proper asset allocation for an individual can be rolled out over time when each asset is priced reasonable. You can’t time the market perfectly over time but you sure can time fundamentals and trends and make prudent investments in those asset classes. My personal asset allocation plan is being rolled out at the time of my choosing and right now condo in an oversupply market with still bubble pricing makes no long-term investment sense. Just my opinion. Buy low and hold is a pretty good plan with the right asset allocation and tax efficiencies.
Here is a question, what if you could rent a great place for 1/2 price of owning (not including home price declines) then that would be a no brainer.
Always look at home prices in real dollar terms…nominal dollars are deceptive after several decades.
SH – Cash. It’s up about 6% if you did a one year CD! Housing is down 20%-40% in a lot of markets. Stocks are doing to turn around much quicker than housing. Peak unemployment will probably hit 2011-2012. Housing bottom 2014-2016. Stocks bottom by second half of 2009.
Note: housing prices in real dollar terms will bottom 2014-2016.
Sabrina,
I respect your opinion on RE, and your thoughts about when the bottom will hit. As my argument went, I feel that RE for kin is a better option for pre-retirement people as it provides much more stability than stocks over time. Especially now, as a first time/second property buyer.
I also think there is a large % of places for sale in LV/LP that are designed ONLY for people in their 20’s. I mean, what 40 year old with a child wants to live next to wrigley or roscoe and halsted, or next to a loud bar on clark? Age isn’t a valid criteria for ownership, only financial viablility and employment stability.
The housing greed of a 25 year old is dwarfed by the greed of a 40 year old that has hit a now-or-never crossroads as he tries to keep up with others in the same age group that are doing really well. Its the 40 year old”s that feel entitlement and pressure to own as their peers all have. Placing blame on 20 somethings is simply tilting at windmills.
love your blog.
G_rant
8% unemployment is a 98% certainty, 10% is in the realm of realistic possibilities. Home prices are tied to incomes…more unemployed mean lower wages for all as people compete for jobs…which means lower home prices. Plus the return to traditional lending standards. Housing prices will over correct on the downside and not just return to the long term trend line, that is also 98% certain. The next president will be dogged by unemployment all the way until the 2012 election. I don’t wish that on either one but that is the reality of this nasty little recession that is now upon us…can’t duck a bubble that big.
go to:
http://www.ingdirect.com/wethesavers
Worth reading…
I’ll repeat what I said in another post because the same senario will play out here:
This unit, like many others, will go to foreclosure because the seller would rather screw up his/her credit than face a huge loss. They can’t ‘wait it out’ because the unit is cash flow negative.
Once in foreclosure two things can happen: 1) the bank drops the price to $300,000 and unit sells. Or 2) the bank lets the unit sit on the market for months, allowing it deteriorate (e.g. mold, frozen pipes, etc.) while hoping a greater fool comes around.
In either case, prices will fall drastically and positive feedback loop that is comparative sales will go into reverse. The only doubt I have, is whether $300,000 is still too high considering the severe recession and credit contraction spreading across the country.
The funny thing is, some people have suggested to me that I should start buying come Florida homes to flip….. I laugh and say “now?” you’ve got to be be kidding even if you can buy cheap right now, you can’t flip for a profit because of inventory levels….by the time you factor in transaction costs not worth the risk, period. Let some other fool do that.
Regarding a previous post, the first wealthy generation earns it, the second generation tried to respect the first and preserve it, the third generation spends it all since they never witnessed what it took to earn it in the first place. When you are given things, the value of a dollar losses its value pretty quickly.
but it includes parking and the taxes + assessments are only 850/month…haha
John,
I would agree with the wealth comment, but there are ways to instill responsibility. The mistake parents often make is that they give their children a large amount of money right after college when expenses are at their lowest and the child still needs to learn what cost and hardship are. If you have the money, my recommendation would be $20,000 (for furniture, work clothes, etc) to your child after college and then no further large disbursements until 35. This is a long enough period after college that the child must learn financial responsibility and then might not change his/her lifestyle once other disbursements arrive.
As someone pointed out already $500K is not a lot of wealth for someone in their 50s. Also, having a significant portion of that tied up in real estate is not wise. It is a depreciating asset and has only returned about 3%/year over a long period of time – on a nominal basis. While the stock market has not done well in the last 9 years, it has returned at least 8 – 10%/year over long periods. To think that the last 9 years in any way reflect the long term outlook for stocks is just as ridiculous as believing that it also reflects the long term outlook for real estate.
Bottom line: people who maintain this love affair with real estate and continue to look at it as an investment are going to be screwed.
Should we add ‘born on third base yet thinks they hit a triple’ to the list of market saviors, or does it fall under ‘rich people?’
May I respectfully remind some posters on this forum when they said “you can forget about $60/bbl oil”, this was when oil was $125. Also, the same posters said “only fools will not buy stocks right now”, this was when Dow still knew what 12k looked like, well…this fool is up 37% YOY… ON THE SHORT SIDE.
Finally, the same folks claimed dollar is toast. How’s that bet working out for ya’?
We are going to ZIRP and massive deflation. All assets (stocks, real estate even commodities) will decline, get used to it. Cash is king.
I don’t know about massive deflation. Our federal government has a penchant for handing out free dollars lately. $700 billion and the printing presses are running full steam ahead. They’ll inflate away our national debt and try to prop us prices. If they print enough dollars they might actually succeed.
sartre,
The rally in equities that occured last fall and into this year really showed me how asleep 95% of the population is. After August-07’s volatility and looking at the root causes it was very obvious that there were serious systemic issues with our financial system that the banks were trying to hide.
I didn’t expect it to escalate this quickly, but there was absolutely no reason for the latest equities rally other than people blindly buying index funds with their 401k.
I’ve been in bonds since August 07 and am slowly working on winding those down into cash. Luckily I stayed away from financial services bonds, knock on wood.
Its happening right now. Look at oil,commodities,housing stocks, heck even plane tickets. 700B is a drop in the bucket. Before Jan, wall street will be back for more and then more and then even more. They can pump all the want, deflation is worldwide and its happening despite massive pumping. US $ will become even stronger. The credit binge in the rest of the world was much worse than ours, people don’t realize how easy credit became in BIRC countries and how massive the deleveraging is going to be. (one clue shanghai and indian stock markets are down ~50% in less than a year).
this morning…trading halted in bovespa (brazil, down 10%) and moscow (down 15%), that completes your BIRC. Oh and Dow just saw 9k. I can see there will be an intermediate term bottom this week since fear is too high, but longer term trajectory for assets is down.
This is what happens when you give a bunch of stupid real estate specualtors unlimted credit.
There is no way deflation will occur. The government has the keys to the printing presses. They’re even talking about buying commercial paper. Let’s face it, if Zimbabwe can do it so can we.
Gary, look around you..where do you see inflation?. Inflationists have been crying for over an year now and they have been wrong. Money has now cycled through all asset classes (stocks, real estate,commodities) and is now headed down the toilet bowl. No amount of printing will match the massive worldwide deleveraging going on right now.
The daily returns for Europe are downright frightening. I thought it was practically impossible for stock indices to drop 10% in a day. I hope there is some way to slow down these movements.
Equilibrium is best reached slowly…these kind of movements will have a whole host of bad affects.
Where all the politicians who toted the market’s downturn after the failed bailout bill last Mon/Tues??? Ummm, the bailout bill can’t do much about falling asset prices and looks like Friday’s and today’s downturn will out do last weeks big fall after the failed vote. Oh well…
I do see this as indicated homes will continue to become more affordable. So much for mommy and daddy’s help with a down payment, that equity is gone.
I don’t see inflation now and I don’t think it will come to that but governments have an unlimited ability to prevent deflation. Governments have even bought stocks before. They could send every man, woman, and child a check for $10k if they wanted.
Maybe some of these charities and non-taxed not-for-profits will have to sell their corporate jets now….. Charities with corporate jets or fractional shares in private jet service has always struck me as just plain wrong.
“shanghai and indian stock markets are down ~50%”
Shanghai’s down about 65% in **less** than 12 months.
“when you make median income for a neighborhood you should be able to live in the median type/style home for that area”
This is bascially true, but the median property is **not** the same median single-family transaction. When 50%+ of a neighborhood’s households are renters, median housing is rental, not owned. Most city neighborhoods are over 50% rental. For this to be a fair assessment of neighborhood “affordability”, you need to find the median income of the demographic of current owners and likely home-buyers–determined however you want. Using the city’s (or any neighborhood’s) median incomce w/o any adjustment includes the incomes of the over 50% of Chicagoans who are, and will remain, renters, which skews the analysis.
“but governments have an unlimited ability to prevent deflation”. Gary,
they failed during great depression and they will fail again. Yes, they can send a 10k check and they probably will. But the loss of credit for every man, woman, child and business will far, far exceed that amount. Thats deflation.
“The daily returns for Europe are downright frightening”
Bob,
The future of euro and EU is quite suspect at this point. If you think we had a backlash for the 700B bailout. Imagine when German taxpayers have to bail out Spanish banks. Its not going to fly.
Sartre,
The reason that the government failed during the depression was that their actions were DEFLATIONARY. They raised bank reserve requirements. They contracted the money supply something awful. Plus they initiated a global trade war. Back then they just didn’t understand money supply very well. I don’t believe that can happen again.
G:
“Sept LP condo/TH sales were down over 40pct YOY and new listings were down only 10pct YOY. This might help to explain the 10pct median price drop YOY.”
While new listings might have been down only 10 percent this year apparently there were many cancellations last month. Sellers would rather pull their properties off the market – i.e. supply is down. That’s why the inventory on a months of supply basis is actually down this year.
This unit has recently closed at $560K. Is this a good sign that Roscoe Village (esp the prime spots along Roscoe St) have maintained their value relatively well??