Market Conditions: Are Sellers Capitulating in Chicago?
The Chicago Tribune writes that many real estate agents are finally seeing sellers capitulating and lowering prices significantly in 2009.
Are they?
On Tuesday, a key index showed that Chicago-area home values in November posted the biggest one-month decline on record. The latest drop in the S&P/Case-Shiller Home Price index has all but wiped out the local market’s gains and returned prices to May 2004 levels.
“We’re essentially at fair market value,” said Jack Ablin, chief investment officer of Harris Private Bank.
While he said he believes the worst is behind the market, he added: “Given the credit conditions and the environment, it wouldn’t be a surprise to me if we shot [below fair market value].”
Real estate agent Rhonda Crump finds herself having to heed the same advice she’s given clients. The lack of activity in real estate has affected her family’s finances.
So five months ago, she and her husband decided to sell the three-bedroom Beverly home they bought in 2006 for $273,000 and added more than $20,000 in upgrades. The original listing price was $349,000. After several reductions, Crump cut the price Monday to $280,000.
“We are doing everything we can in terms of price,” she said.
In Morgan Park, an expansive 6-bedroom, 51/2-bath home that was listed for $1 million in 2005—and is now a foreclosure with major water damage—is listed at $349,500.
Such homes are a steal for buyers, but they can also lower the value of similar houses within a one-mile radius.
“Foreclosures, even short sales, they are going to bring down values,” said Henry Torn, a buyer’s agent with Chicago Realty Partners. “We live in a new age.”
Real estate agents say home price tide has turned, sellers are capitulating [Mary Ellen Podmolik, Chicago Tribune, Jan 28, 2009]
These foreclosures are only bringing the prices of houses down to their true market value- to prices in keeping with comparable rentals and the incomes of likely buyers.
The foreclosures would not be happening if A. the loan on the house were close to the value of the house and B.if so many loans for 4,5,6X (or more) the buyer’s income had not been made.
Home values would never have inflated as they did between 2000 and 2006 were it not for careless lending at ridiculous multiples the buyer’s income, and on terms anyone could see were not sustainable. If only fixed mortgages had been written to begin with, we would never had had the runup in house prices of the past ten years.
What is happening is only that house prices in all brackets are reverting to normalcy, and foreclosures are part of the process. We might as well just let it happen, instead of spending tax money to buy up this crap and refi it, which is only prolonging the misery and upheaval.
Buying mortgages to drive down mortgage rates is also an unfortunate attempt by the government to prop up these prices.
“We’re essentially at fair market value,” said Jack Ablin, chief investment officer of Harris Private Bank.
Well then, that settles it. The best and the brightest are obviously bankers. Right?
I still blame the homeowners(maybe it’s because I work in financial services). Nobody forced them to rush into home ownership but their ego and their strong desire to keep up with the Joneses. Since when do we let a person on commission tell us what we can afford? Since when do we think we can afford a house if we don’t even have 5% to put down. They made themselves the victims by pretending to afford something they couldn’t.
I don’t think adjustable mortgages are to blame for this. My coworker’s husband was in his last year of radiology residency 2 years ago when they got a 5 yr ARM on their condo. I think couples like that, where on persons income will double within a 2-3 years are who sensible bankers had in mind when they were handing out ARMs. Someone getting an ARM to take advantage of the lower initial payments to buy a bigger house is obviously completely irresponsible.
What I find more troublesome was all the 100% financing that was going on. Had there been laws that tied the original lender to their toxic mortgages, maybe they would have been more careful. Of course no bank would care how toxic the mortgage if they knew they could get rid of it before the home owner starts showing signs that he’s overextended himself by alot.
Laura- I don’t agree that overinflated prices were solely caused by easy lending. Prices are set by price takers, not price makers. Demand and Price wil always have a positive relationship. Developers kept building increasingly overpriced condos because people were buying them. All everyone had to do was boycott overpriced, cheaply built condos. This is a free country, no one can make anyone get a 500k mortgage on a place that is worth 375 on it’s best day.
Of course the Harris Bank CIO is going to make tribune readers think prices are at rock bottom so people will hurry, buy up all Harris’ REOs and qualified borrowers will waltz over to Harris bank to get mortgages.
I hope lending/borrowing becomes the way it was in Europe in the early 90s. The bank tied your debt to you until it was paid off. If that meant being 70 years old and still paying on your house that you bought 42 years ago, so be it. I don’t see why us taxpayers should foot the bill for irresonsible borrowers.
May 2004 is fair market value?? hahahha what a foolish statement.
“We’re essentially at fair market value,” said Jack Ablin, chief investment officer of Harris Private Bank.”
The economic crisis is over because Mr Albin says it’s over!
Puh-leeze.
This article demonstrates the 1st step in the leveling process.
No smart homeowner is going to lower their home pri without sound advice from their realtor.
After months of trying to convince sellers the pricing of the early part of this decade are over, I think realtors have sort of painted a clear picture of this markets realities, especially after an especially starving Holiday season for the trade.
Now that all the individual owners are on board, look for pricing to start dropping across the board. Problem is, financials are going to start putting their inventory in the market as soon as they notice buyers are present.
Many readers of this site are going to be SHOCKED when the great number of “troubled assets” in Chicago’s “good” neighborhoods (Gold Coast, Lincoln Park and, most especially, Streeterville, with it’s large inventory of “Second/Weekend homes) start to flow onto the market. Some will rejoice, as I can tell there are serious investors here as well.
I, for one, will be saddened.
On another note. Morgan Park is routinely rated in the Top 5 neighborhoods in Chicago, and have topped the list 3 times in the past decade. However, $1,000,000 down to $350,000, damnnnnnnnnnnnnnnnnnnnn! This house was shaped like a lead balloon.
“Home values would never have inflated as they did between 2000 and 2006 were it not for careless lending at ridiculous multiples the buyer’s income, and on terms anyone could see were not sustainable.”
Surely, knowing that the loans were not sustainable, you shorted the bank stocks, knowing that they would collapse and have made a good chunk of money by now. Right?
bi-owner: Please let me know when those troubled assets arrive on the gold coast 🙂 I will gladly take one
“Morgan Park is routinely rated in the Top 5 neighborhoods in Chicago”
How broadly are those neighborhoods drawn and on what criteria? If done using the 77 official neighborhoods, I’d say it’s no better than #3 on the southside, which leaves it out of the top 5 by any standard I can think of.
“We’re essentially at fair market value,” said Jack Ablin, chief investment officer of Harris Private Bank.”
Yeah, bankers are really good at assessing fair market value….
“Since when do we think we can afford a house if we don’t even have 5% to put down. They made themselves the victims by pretending to afford something they couldn’t.”
And the lenders turned a blind eye to their obvious lies. Putting all the blame on the buyers is as sensible as saying it’s *all* the fualt of the appraisers–if they’d told “the truth”, then the buyers would have known better and the banks would have never made teh loans.
““We’re essentially at fair market value,” said Jack Ablin, chief investment officer of Harris Private Bank.”
Yeah, bankers are really good at assessing fair market value….”
It’s not the bankers fault–they relied on the prices set by the buyers and sellers–they’re the one’s who should be expected to know the market.
lauren:
your comment is funny. blame it all on borrowers. biased due to employment in fin. serv. indeed. You seem to forget that the lenders turned a blind eye to verifying the condition of the house, market value, or borrowers ability to pay. No one forced banks to lend $800K to someone making 50K. A lot of it had to do with the brokers who wanted to keep up with the Joneses, making their commissions. It’s kind of like the blind leading the blind.
you say “They made themselves the victims by pretending to afford something they couldn’t.” but what about the lenders who made themselves victims by pretending to “afford” something they couldn’t (as in leveraging themselves 25X to true assets they hold).
Judge Judy’s ruling: lenders/borrowers/gov. each 1/3 responsible
Since when do we think we can afford a house if we don’t even have 5% to put down.
exactly why the gov. is partially to blame. aren’t there all sorts of incentives created by the gov. to get people to buy? as in only needing a 3% downpayment on your first house purchase? I know a lot of people who took advantage of this 3% requirement and not a single person I know has defaulted or not been able to afford their current house/condo
ChiGuy- I’ll take the 1/3rd each ruling. At least that is fairer than the current 45%banks 45% industry professionals and 10% home buyers blame. Of course the 25 yr old mortgage broker wanted a new rolex and the appraiser wanted to trade in his Acura but I still think it’s up to the individual to decide what they can afford before they even call the realtor or the mortgage broker. Any person earning a commission off a purchase will always advise their client to make the biggest purchase possible, nothing new.
Also, I agree that governemtn programs helped make alot of (responsible) people home owners, which is a good thing. I just don’t get the 100% financing. If a person doesn’t have any type of money to put down, they shouldn’t even want to buy property. Even if it is just 3% down, that at least shows that someone took the time to save and won’t be as likely to walk away from their property since they have some of their own money invested in it.
Of course, industry bias- they sign my paycheck 🙂
“We’re essentially at fair market value,” said Jack Ablin, chief investment officer of Harris Private Bank.”
Steve Kerch did a commentary for Marketwatch today titled “If you can’t say anything nice …Commentary: Let’s put a moratorium on housing news we know will be bad”
His conclusion is:
“A moratorium on housing news won’t cure any of the economic ills we face. But it might restore at least a little balance in the home-sale markets, easing the skittishness of potential buyers. These buyers now must look over their shoulders at every piece of data and wonder whether they are going to feel foolish a month from now instead of worrying what they should be worrying about — whether the decision makes sense for them and their families for years to come.”
The NRA would love this!
http://www.marketwatch.com/news/story/We-cant-say-anything-nice/story.aspx?guid={B7B2B09B-E0AE-4824-8B18-6CF5754DC7EA}
I don’t know why part of the link for the Marketwatch story was cut off, but I’ll try posting it again.
http://www.marketwatch.com/news/story/We-cant-say-anything-nice/story.aspx?guid={B7B2B09B-E0AE-4824-8B18-6CF5754DC7EA}
or you can google the title:
If you can’t say anything nice …Commentary: Let’s put a moratorium on housing news we know will be bad
Whatever happened to freedom of speech…
“Whatever happened to freedom of speech…”
It’s a media member suggesting the media self-censor. It’s the definition of freedom of the press (not speech–an individual right)–the media exercising their right to keep their mouths shut without government interference.
“fair market value” pu-lease…
Have you guys seen the new guidelines. You can’t buy anything without 20% down and even on a $350k house that’s 70 grand. Not enough people have that kind of cash to start real buying again (and everyone else has their “20%” tied up in their existing house which they cannot sell). It’s going to take at least two years before even the frugal can save up the cash. By then, rate will be at 7-8%. This thing is going down for another 6-9 months and moving sideways from there for years.
I think it’s 30/20/20/30… realtors/lenders/borrowers/government. A lender didn’t take people from place to place and brainwash them about how real estate is always going up. Realtors (specifically buyers’ agents) did. Then, realtors sent the buyer straight to the lender they knew would fund the loan. As another blogger wrote: “lenders just made the crack, realtors convinced people to use it.”
Also, this is one of my favorite quotes from NAR’s chief economist: “The continuing shortages of housing inventory are driving the price gains. There is no evidence of bubbles popping.” – David Lereah, , August 2005
A moratorium on bad housing news won’t hide all the empty stores and unsold condos that I see on my travels around town.
Lauren, the easy money is to blame. It was the stated policy of the last two administrations to drive the economy by means of asset inflation and debt creation, and borrowers, no matter how foolishly willing to overpay, could never have done so if the institutions had not made the money available.
Reasonable lending standards were suspended completely. Since when do you lend money without documenting the borrower’s income, or using a reasonable debt:income ratios to determine whether or not he is qualified to borrow? What we have seen here is a complete lapse in financial ethics, not to mention basic self- preservation.
I was breathless at the loans I was offered. YES, I could have bought a $350K condo on my moderate income and gotten cash back at the closing. What I could really afford did not matter.I have worked in financial (securities) for 20 years, and many of my brokers also practiced as mortgage brokers. I was at one time talking to 4 different mortgage brokers, all of whom are now out of business. One made extremely dirty and rigged home loans to immigrants who did not speak English and were barely literate even in their native languages. He is now bankrupt as he deserves.
Everyone up and down the chain, from the Fed and Treasury, who made it clear that they stood ready to bail out any institution that got itself into trouble, through the geniuses that created all the derivative instruments that allowed these institutions to build leverage towers 20 stories high that are now collapsing us all, clear down to the greedy, delusional borrowers, is complicit in creating this mess.
But I would lay the core responsibility at the doorstep of our policy makers, who essentially handed a bunch of crazed juveniles- those would be our financial institutions- a credit card with an unlimited line on it and told them, do what you want, if you get into too much trouble, we’ll pay the bill.
“May 2004 is fair market value?? hahahha what a foolish statement.”
Care to back up your claim with any evidence? Of course not…
“The latest drop in the S&P/Case-Shiller Home Price index has all but wiped out the local market’s gains and returned prices to May 2004 levels.”
Given the continuing decline every month, calling bottom now seems foolish.
G – Keep in mind that the lastest index captured a month in housing where no one did anything. The equity markets were collapsing daily and overall confidence was at 0. Anyone who bought during this latest month had a lot of balls and certainly bid everything down down down. Being as smart as you are I am sure you knew this, right?
Doesn’t the CS index go down every winter, regardless of conditions?
You both need to read up on the CS index since your comments indicate you haven’t before.
Not always but prices do seem to remain flat over the the winter seasons. I think we are about as low as we will go (give or take 5%) in the next 6 months. Buying now (if you plan to stay for 5 years) has more reward than risk if you ask me. I have been saying for a long time that we will see inflation in 2010 and beyond. Inflationary environments kills cash and rewards hard assets. We will see but the bone heads on this site will see rental prices increasing at 5-8% annually. You can lock in your monthly housing expense at a 5% interest rate today or roll the dice bouncing around from rental to rental. It is a quality of live decision for many and most will end up on the ownership end.
It is always the people who go against the trend that end up making the good decisions. It works this way almost 100% of the time and I am sure this time is no different. Just my opinion…
“You both need to read up on the CS index since your comments indicate you haven’t before.”
How so? Please explain your baseless comment.
“Doesn’t the CS index go down every winter, regardless of conditions?”
Data?
Chicago reale state has appreciated at 4.3% since 1987. That is the biggest bubble I have ever seen!
G – Lincoln Park is overpriced? Data?
Also, show us the data that you are not a complete tool? Data?
I wasn’t making a statement that needs data to support it, I was asking a question.
“Given the continuing decline every month, calling bottom now seems foolish.”
Data?
Hey G – Data on the data? Data? Data? Do you have any data?
“You both need to read up on the CS index since your comments indicate you haven’t before.”
Do you have any data showing that I should read up on the index?
Turd – Do you any data to support you were just asking a question? G mkaes statements that are complete speculation on future events and then asks you to support a question with data.
What a tool!
LMAO.
I am hrading out to homedepote to purchase some materials for the home improvements I am undertaking. I find a lot of joy in making improvements to my home.
How do renter deal with making changes to their homes? Oh yeah, they have to call their landlords! LOL 🙂 🙂
STDFG 🙂
“It is always the people who go against the trend that end up making the good decisions.”
Well, it depends on timing. If you go against the trend too early you get f***ed. Not to mention, trends don’t always reverse, some assets go to zero.
I am sure housing will go to $0.
Going to zero and the market freezing are basically the same thing in the short term. Check out this chart of new home sales. It’ll blow your mind Steveo
http://3.bp.blogspot.com/_N_vrglIqnJs/SYHJ5_PcXUI/AAAAAAAAAp0/Jm7o7IGYE5M/s1600-h/new+home+sales+1208.gif
“#Steve Heitman on January 31st, 2009 at 11:21 am
I am sure housing will go to $0.”
Credit for the link above:
http://interestrateroundup.blogspot.com/
For the next week that chart will be my desktop in honor of you Steveo – “saved by zero..”
Going to $0? Steve you can buy a house in Detroit for $10.
So its possible for RE to goto zero. Probably not in too many neighborhoods we talk about on this here blog but it is possible.
Heck right now you can get a co-op in HP for 70k.
“What a tool!”
That’s one opinion we don’t need data for!
“Going to zero and the market freezing are basically the same thing in the short term.”
Yes, everyday at 3:00 when I can’t sell my stocks because the market has closed, my portfolio is valued at $0. Right HD?
Steve and his online alias Turd are agreeing with each other! How surprising. Maybe you should come up with a new one Steve. Turd has been outed.
Juliana – You outed my turd? Clean up your posts or I will have to vote that sabrina remove you.
You can buy houses all of over the country for under $100 but these places are no where anyone should be living. If real estate goes to $0 you can bet that just about every asset you own (including cash) will be at $0 as well. I think we all hope the US economy continues…
Sorry, but I’m not SH.
I think the US economy will cease to exist and HD will finally be able to afford a place south of Irving Park.
HD – I have seen the new homes data several times before your post 🙂 . It is part of a cycle and it it will only cause builders to stop building (which they have), and eventually a shortage in new construction 5 – 10 years from now. The home inventory in the US is depleted by 500,000 – 600,000 units per year. The longer the builder stop building the faster the inventory will fall and create price appreciation.
This cycle has been completed many many times in the past. No new completions – depleted units = lower inventory. Lower inventory + populations growth = higher prices. With a long term stable economy, housing values will appreciate.
And I am not a turd 🙂
Here is my favorite part of HD’s link. What happends when the auit building homes? The supply of homes will decline dramatically over the next 5 years. As long as the population grows there is only one outcome here…
” The raw supply of homes for sale continues to decline — to 357,000 in December vs. 397,000 in November. I have been highlighting this trend, which results from the dramatic cutback in home construction, for a long time. However, because the pace of sales collapsed, the “months supply at current sales pace” indicator of inventory rose to 12.9 from 12.5. That’s the highest on record as well”
Well then Stevo you should agree with me that these builders should NOT be getting any sort of bailout. The quicker they go BK and new homes goto zero the quicker we’ll get out of this mess. No bailout for builders!
BK them all. It is part of the cycle.
If there is no market for something then the price is effectively zero. No one, including me, has said that all real estate will go to zero b/c of systemic economic collapse. However, as it stands right now, it’s difficult to sell over priced homes. The market will come back, you’re absolutely correct, but the $64,000 question is whether you can afford to wait for the market to return without having to file personal bankruptcy.
So HD sees opportunity for buyers right now, right? Finally I have converted you. I am officially done postomg and will wait for you phone call to start viewing properties.
Gold has been hanging in there. Not a goldbug, but I do have some assets there, as a hedge, and have gradually added more over the last year. I would not increase my already long real estate position at this point. I already have too much exposure there and I like being liquid. I’ve made some profits on shorting Treasuries, but that trade makes me nervous. Too many wild cards out there, like Bernanke, but looks like the bond market called his bluff, for now. Same with my yen position. I’ve made some money there, but Japan’s economic data suggest they will try to do something to devalue their currency. Too many wild cards, too much data. Its like a big freaking chess game trying to predict the next move. I still think the dollar is doomed, but how it all plays out is the question. So I watch and read everything, and am ready to move quickly as things unfold.
Steve H: “You can buy houses all of over the country for under $100 but these places are no where anyone should be living. If real estate goes to $0 you can bet that just about every asset you own (including cash) will be at $0 as well. I think we all hope the US economy continues…”
My speculative play is to buy some puts on the remaining big banks that haven’t had massive drops in their equity prices yet. WFC, PNC, JPM.
Check out this Enronesque cliff for Fifth Third Bank as an example:
http://finance.yahoo.com/echarts?s=FITB#chart2:symbol=fitb;range=5y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
It happens so fast its like hemorragic fever. One day they get the sniffles the next day they’re dead.
Nationalization of the insolvent banks, where the FDIC breaks them up and sells off what’s left, would result in the shareholders getting wiped out and your play paying off. From what I understand, that would be the best solution. (I’d like to see the federal reserve get nationalized as well, but the only talk I see of that is among the tinfoil hat crowd so far.)
But it looks like Geither and Summers are pushing the “bad bank” approach, where the taxpayers get stuck with the toxic assets and the bank shareholders get rewarded.
Bob: “My speculative play is to buy some puts on the remaining big anks that haven’t had massive drops in their equity prices yet. WFC, PNC, JPM.”
Nationalization of the banks is nothing more than crony capitalism, except, the bureaucrats instead of the shareholders determine which friends and family members get the plumb jobs and massive bonuses.
And I personally would rather see the shareholders who have money invested in company, as opposed to Barney Frank and Christopher Dodd decide who gets the spoils.
And that’s why I’m not a socialist.
I’m not sure where I stand on nationalization. While nationalization is not a preferred outcome, for megabanks like Citigroup and BofA I think its probably the only option at this point.
If the government were to nationalize and do it correctly, they would follow juliana’s advice and cut them up piecemeal and redistribute the deposits and operations. The fear is that they instead will get involved with the management of these companies and implementing policy decisions via their control.
hd right now its the worst of both worlds: our government is basically throwing money at them and via the loss sharing agreement with BofA and Citi they are encouraging risk taking. Right now the management of Citi and BofA have every incentive to roll the dice. If its heads they and the shareholders win, tails and the taxpayers foot 90% of the loss.
Also legally I don’t think there can be any more mergers of the big banks. They are all at or even exceeding their deposit base limit. Which means only much smaller banks would be able to absorb them. The only thing clear is the outcome for Citi and BofA is not going to be pretty.
why not try wiping out equity and convert the bondholders to shareholders?
And wouldnt this be a good time to start a bank? You have no crap on your balance sheet…get some tarp and lend it out the way they thought it would be.
CH,
No there are seven thousand banks, one thousand thrifts and around nine thousand credit unions. Most of them have no crap on their balance sheet and don’t even need the TARP money. You’d be competing against them.
Its only the media that makes it seem as if noone will step in to fill the hole if any of the big ones fails. And our government seems unwilling to let the winners separate from the losers.
Steve said: “It is part of a cycle and it it will only cause builders to stop building (which they have), and eventually a shortage in new construction 5 – 10 years from now. The home inventory in the US is depleted by 500,000 – 600,000 units per year. The longer the builder stop building the faster the inventory will fall and create price appreciation.
This cycle has been completed many many times in the past. No new completions – depleted units = lower inventory. Lower inventory + populations growth = higher prices. With a long term stable economy, housing values will appreciate.”
It depends on location, right?
For instance, Florida saw massive building of condos in the late- 1970s and by 1980, they couldn’t give them away. My father bought one on one of the keys near Sarasota because the builder gave him massive incentives and a price reduction. They were basically “giving them away.”
It didn’t go up in price for 15 years (until about the mid-1990s.) He didn’t care- as we used it as a vacation place and the mortgage payment was low.
Of course, we all know the story after the mid-1990s. It doubled in value and he sold and moved up to a 3-bedroom condo right on the Gulf. That unit doubled by 2004 and he sold it to someone who literally knocked on the door and said, “I want to buy your unit”- even though it wasn’t on the market.
Since then, prices have collapsed by about 40%.
So- how long will it take the condo inventory in, say, the downtown and South Loop to be absorbed?
My guess is many, many years.
“Heck right now you can get a co-op in HP for 70k.”
Bob, I’ve seen them even lower than that (in foreclosure) for $25,000.
“Doesn’t the CS index go down every winter, regardless of conditions?”
No, Turd, it doesn’t. G feels that your belief that it might is eveidence that you have never looked at the CS index and are relying on (bad) reporting or (baseless) supposition about it.
It’s hard to argue with that, because your question has no support in the index. Also, you were on the ‘tubez when you posted, so it would have been easy enough to use thegoogle and see for yourself–this isn’t esoteric data that would require any significant time to find. Many feel that the failure to do a simple search to check an easy question before posting is evidence of trolling (I don’t agree, but …).
anon(tfo): http://cribchatter.com/?p=6208#comments
If you’re interested check out this california thread from the housing bubble blog. I basically a lurker over there (as opposed to my frequent posts over here). There’s some interesting things going on in the west coast right now. The comments are particularly interesting because I believe it is sort of a glimpse into the future of what’s to come to Chicago:
“The LA Times reports from California. “The Southern California real estate crash has finally reached the high-end areas of the Westside. Home prices in Beverly Hills, Santa Monica and Malibu — which continued to soar well into 2008 — finally tanked at the end of the year, losing between 26% and 30% of their value in just a few months, the latest data show. The sudden drop came as a surprise to Shelley Conn, who remained a believer in the myth that the wealthier parts of the Westside were immune until she put her Santa Monica house on the market last spring.””
The ‘immune’ and ‘myth’ that it can never happen ‘here’ i.e. replace Malibu with Gold Coast or Lincoln Park.
“The Times Herald. “Home prices in Solano County dropped more than 44 percent in December compared to the same month the previous year, though sales skyrocketed here as they did statewide, the latest industry figures show. Countywide, the median price for homes sold fell to $206,000 last month from $369,750 in December 2007, according to the California Association of Realtors. Fairfield’s median price fell furthest — 54 percent — to $191,000 from $415,000. Vallejo’s was next, sliding just over 49 percent, to $162,000 from $319,750.””
“‘Was: $420,000 in 2006. Sold: $130,000 in November 2008. Deal: 69 percent discount. This 1,000-square-foot, two-bedroom and one-bath house was built in 1955…The house, on Ohio Avenue near Ash Street and East Valley Parkway in Escondido, was purchased in 2006 with no money down and a loan from subprime specialist Argent Mortgage. Its recent price tag was also lower than the $146,000 paid three sales ago —- in 1999.’”
“IMO, real estate is only worth the present value of the future cash flows. I didn’t dream this up. It’s what I was taught in college by some of the best people in the business. And I wouldn’t personally pay $400 month to live in a house like that, unless it was in a super sweet location.”
And this poster says prices are going back to 1995!:
“My friend baught a house in HB in OC 1995 for $210000 south of 405, near Magnolia and Warner. In 2005 it tested $700000 and now it is around mid $ 400000. I still would call those prices “California dreammin…” . Citibank stock is $3 ($86 year and half ago), and people can’t find a job in fast food places… I think it is very realistic to test 1995 prices again in 2012…”
“There are some houses in that $40,000 -$60,000 range or close to it in San Diego.They may not be your dream home but they are out there.
http://www.realtor.com/realestateandhomes-detail/4190-Estrella_San-Diego_CA_92105_1106252613
http://www.realtor.com/realestateandhomes-detail/San-Diego_CA_92113_1106261343
Having lived here for a long time I do see rents dropping and prices sliding further but nothing nice in this area will come close to that.My guess is the median here settles around the high $200,000 to $300,000.”
It’s interesting you bring up these examples from California Homedelete. I saw the same articles.
How about the house in Merced County (an inland county) where the agent said it was the first house he ever sold as a real estate agent in 1989 for $65,000 and he again has the listing…for $70,000?
Wow.
20 years of ownership and NO appreciation.
It’s getting scary in some parts of California now. Obviously Merced isn’t San Francisco County or LA County, but prices are rolling back severely.
Several of you also sent me the Bloomberg article out today talking about 15% price reductions on the Millennium high rise in downtown San Francisco (due to lack of sales.) That’s nearly unheard of in San Francisco (at least in the last decade or more.)
The cracks are showing everywhere now. No zip code is immune. Though some ARE holding up slightly better than others, as I’ve said.
Give me a break Sabrina. “No zip code is immune. Though some ARE holding up slightly better than others, as I’ve said.”
That is what I said and you simply have finally adopted it. Whata scam !
Sabrina, I actually wanted to copy that story about the realtor who was selling the same house 20 years later for the same price but it looks like I accidentally skipped over it. It’s been a long day.
It was the housing bubble blog that actually turned me into such a bear on the housing market. I first discovered it in 2005 and I was a few years out of law school. At the time I was thinking, wow, how is everyone buying these nice homes? I’m a fricken lawyer and I can’t fathom paying these crazy prices. Some of my lawyer friends with decent jobs but high student loans and fancy lifestyles were paying $300,000 for rinky dink condo conversions. I wasn’t quite sure how they afforded it.
So, I googled ‘housing bubble’ and the hbb popped up. In 2005 it was just about the peak of the bubble and posters on the hbb were predicting this very crash we’re in now. Posters described the option arm, the neg am, 100 ltv, 55% dti’s and all that fun stuff used to get people into homes they couldn’t afford.
For the most part the posters on the hbb have been spot on. Ben Jones the author of the blog even admits that he didn’t think the crash would happen with such severity so quickly in bubble markets and at the time they were the only ones predicting doom and gloom.
They recognized the now familiar pattern seen everywhere around the country. It stated on the west coast and was sort of a precursor to everywhere else: first prices in fringe areas peak (primarly exurbs and bad areas), then sales volume drops, then the median price rises, then volume drops even more, then the median price crashes, then the pattern steadily works its way into pricier areas…and then the crash hits places like malibu and beverly hills, meanwhile bottom feeders (or knife catcher) buy ‘deals’ in the fringe areas so sales volume rises….only to have fringe areas drop even further. Granted CA is a crazier place to begin with but the pattern seems to play out similarily in most markets i’ve read about.
Steve: I’ve always said some are holding up better than others. But for how long?
We’re certainly not seeing many LP properties priced at 50% of their 2005 sales price (as we’ve seen in Rogers Park and elsewhere) but that doesn’t make it a good market now that prices have “only” come down 10% or 15% or whatever it now is.
It is little solace to some of those in the LP or Lakeview zip codes who have to bring a check to the closing if they bought within the last 4 to 5 years.
Speaking of failing banks, follow Corus Bank on down. It’s heavily involved in California, Florida and Nevada upscale high-rise condo construction. It claims it was well prepared for a sharp downturn in the housing market, but not depression-type drops that we are seeing. Although I hope not, I am fearing this bank is about the fail. It dropped significantly today, and trades for much less that $1.00/share.
HD, I have been a lurker at HBB since 2005 myself. IMO, Chicago is one year behind California, but it tracks quite well the overall trend as you pointed out. It is very entertaining to read what is going on in California and see exactly the same thing happening here a year later. It also gives you advantage in the sense that you know what to expect.
Although local Corus is actually a small bit player in the scheme of things. Take a look at Fifth Third & KeyBank too, possibly even PNC. Yea they’re not local like Corus but Corus is quite small.
2009 won’t be the year of national household name banks going teets up, instead it will be the year of midwest regionals doing it instead.
Yeah it might not make NBC evening news beyond a sentence or two, but it will certainly be the talk of the town around the rest of the midwest in places like Ohio and Indiana.
Whose to say the midwest is really culturally behind the rest of the US by a decade? In this instance it will only be one year. Maybe Cincinnati’s getting progressive? Or maybe instead just the equity markets are nine years ahead of social trends..
Yeah TARP money isn’t going to save Fifth Third’s exposure to Florida. That state like Cali fell off a RE cliff.
Corus bank used to have a prime branch location at Clark and Washington…but no one was ever in there when I passed it on the way to court…and last year it unexpectedly closed up overnight and a Scott Trade moved in shortly thereafter….and now when I pass the Scott Trade no one is ever in there either.
“last year [Corus branch] unexpectedly closed up overnight”
Their lease was up. They didn’t post a sign, but they just chose not to renew the lease. Nothing unusual since, as you noted, there wasn’t much traffic. Cole Taylor did something similar with a downtown branch.
That said, I don’t think there is *any* other US bank with as large a percentage exposure to “sand state” condo development loans (they also loaned a lot on apt bldg conversions to condos) as Corus. They are well and thoroughly f’d. They announced last week or the weel before that they were getting back into making purchase money loans to individuals–specifically to diversify their default risk on all of the development loans they have on their books.
“check out this california thread from the housing bubble blog”
Yeah, I know. CA is in total meltdown (along with AZ, LV and Fla). There are a few significant differences, I think:
1) Chicago has many more “luxury condo” developments, as a percentage of available units, than CA, esp SoCal;
2) CA had much, much more appreciation, overall, and in general (in comparable) sub-market by submarket;
3) CA exurbs–especially the fundamentally less desireable ones (Palmdale, Corona, Lake Elsinore, Modesto for $650k++ anyone?)–got much further inflated than similar Chicago exurbs;
4) EsEff (and the inner bay area) had a historically higher housing cost (around 4x income) than SoCal or Chicago, and can be expected to continue to do so;
5) Toxic lending (esp. Neg Am) was much, much more prevelant in CA (don’t argue this one until you look at the NY Fed data)
6) The highest demand areas of CA (EsEff, parts of the Peninsula, Santa Monica, etc.) were, in general, out of whack with incomes even through the last real estate trough in the 90s. So, compared to Chicago, there was a higher base being inflated–indeed, the LA “low-tier” max ($338k) is above the Chicago “high-tier” minimum ($331k).
Look, the CS index (yes, I know, I’m using only SFH; hence point 1 above) for “low-tier” LA (under $338k; including only LA & Orange counties) peaked at 339.81 (i.e., a house that was about $190k in 2000 (aka a 1200 sqft house in the valley) sold for over $638k in Nov. 2006–totally blowing away any sense of affordability). The Chicago low-tier (under $212k) peaked at 183.56 in March 2007–so a home that was $144k in 2000 (aka a bungalow in a so-so ‘hood, or a tract home on the prairie) sold for $265,460–which (really) stretches median income affordability, but isn’t totally crazy. Things were just much, much worse in Cali, and saying that “the same thing” is going to happen in Chicago is nuts.
Are there going to be a lot of foreclosures? Yes.
Are a lot of people going to lose their homes? Yes.
Are there going to be neighborhoods that slide into crap? Yes.
Is the scale of the problem going to be as bad as Cali? No.
We focus on a sliver of the Chicago market here–even adjusting for “market value” (aka, asking prices), the “luxury” condo market isn’t a substantial part of the market–so we miss that, if what you want is *a* house, Chicago didn’t detach from reality anything close to how Cali did. It’s going to be unpleasant, but I think we (collectively) are going to have more unpleasantness b/c of national and global housing insanity than b/c of local housing insanity.