Market Conditions: Chicago Tribune: High End Homes Sitting With No Buyers
The Chicago Tribune reported over the weekend what Crib Chatter readers have known for over a year: the upper bracket market is dead.
And now there’s a glut of million dollar homes with no buyers in sight.
From the Tribune:
In Oak Brook, it’s a $5.75 million stone castle. In Burr Ridge, it’s a Middle Eastern-influenced home named Villa Taj, once priced at $25 million and headed for the auction block next month. In Barrington Hills, it’s a nearly 12,000-square-foot home sitting on five acres. In Chicago, it’s an unfinished, four-story, bank-owned home with an elevator. And in Lake Forest, it’s an elegant country home whose already trimmed price was just slashed by another $1 million.
All are newly constructed, ultrahigh-end homes, reminders of the housing market’s headier, healthier days. And all are additions to a market that is bursting with multimillion-dollar homes waiting for that very discriminating buyer with very deep pockets.
What’s interesting is that while the article discusses the upper bracket inventory in Lake Forest, where most people would assume it would be, it doesn’t address all the million dollar homes in neighborhoods and cities that rarely saw houses priced that high before the boom.
While no one is surprised at a $2 million home in Lincoln Park, maybe they should be about a $2 million home in West Bucktown.
In Lake Forest, for example, more than 50 homes are listed for sale for at least $3 million, not counting homes that are being privately marketed. In the past 12 months, 11 residences in that price range sold, and it took, even with significant discounts, an average of almost 500 days to sell those properties.
Move up to homes listed for at least $5 million and there are more than 20 Lake Forest properties for sale. In the past 12 months, one home in that price range sold, which means if the supply and market held steady at their current level, it would take 20 years to whittle that inventory.
The luxury home builders quoted in the article are sticking to their guns and show no regret about sinking millions into luxury spec homes.
Longtime homebuilder Don Ciaglia plowed ahead with the spec construction of one of his largest luxury homes, on a wooded hilltop in Barrington Hills, despite the industry’s darkening skies a year ago.
“We weren’t going to stop building,” he said.
Adds his wife, Ruth Ciaglia, an ERA Countrywood Realty agent who listed the home, “At the time, a house like this was really a good idea. There were houses like that that were selling. Who knew?”
Ciaglia has lowered the price by $50,000, to $5.39 million, but doesn’t plan any more reductions.
One builder who’s decided to see the glass as half full is Adel Tarakdjian, who in December started building a 23-room home in Glencoe that’s listed at $5.995 million.
Tarakdjian, who constructs a spec home every two to three years to use as a marketing tool, has no plans to drop the price of the home that is loaded with features, starting with the 1,200-pound, heated, steel front doors. In fact, in July, before he’d finished the project, he increased the price by $295,000.
“I believe in my product,” he said. “Of course there’s risk involved. There is risk involved in everything we do in our lives. If I cross the street, there is risk involved.
“I do sleep. I sleep well.”
Ultrahigh-end homes slow to sell in crowded market [Chicago Tribune, Mary Ellen Podmolik, Oct 18, 2009]
There is way too much product in suburbs between 1 and 2.5. In many cases it’s a multi-year supply, with 50-75 homes on market and single digit annual sales. I think there has to be continued price deflation unless credit and unemployment improve. There is also a shadow inventory of homes held off the market due to conditions, that will eventually come on the market. The same is true downtown but to a lessor degree. Lots of 1m plus homes sitting in popular neighborhoods, and I don’t see why the trend would reverse any time soon.
This is exactly why Banks needs to start over with their recruitment. Had they taken the time to run some numbers before funding some of these developers’ projects, they would have seen that Chicagoland doesn’t have enough “Real” rich to purchase all these high end properties now that easy breezy lending is over
Lotta hedge fund managers, real estate mini trumps, bankers, advisors, etc. lost their jobs I guess and don’t want to live in a 6 million dollar place in the burbs…
What’s up with 1200lb ‘heated’ doors? First I’ve ever heard of that!
“…And exactly as the developers of the tropical wonderlands of Florida had learned that there were more land- speculators able and willing to gamble in houses intended for the polo- playing class than there were members of this class, so also those who carved out playgrounds for the rich in North Carolina or elsewhere learned to their ultimate sorrow that the rich could not play everywhere at once. And once more the downfall of their bright hopes had financial repercussions, as bankrupt developments led to the closing of bank after bank.”
Only Yesterday
– Frederick Louis Allen
The hubris of that Tarakdijian fellow is pretty awesome. “you think this wont sell!?.. I laugh in your face and raise the price another 300k. now I take nap”
In addition to hubris, Mr. Tarakdijian shows extreme courage and bravery. He’s fighting the market and he’s not giving up. The market will bend to his will, not the other way around.
This is laughable. “I believe in my product???” Seriously? You can have the best product in the world but if few can afford it and those that can don’t want it then it doesn’t matter.
It’s possible he’s just trying to paint a nice picture for the few realistic buyers out there, but I think that’s a pretty futile endeavor right now.
I predict that the $1,000,000-2,500,000 homes are going to be hit very hard over the next few years. Lot’s of would-be buyers have been wiped out or had their income cut significantly, credit is tight for those that are good but not great candidates in this price range, and the people with real money are shopping in the 3-5mm+ range. Consider that there is an oversupply of these homes even in a normal market, and it should be an interesting ride over the next few years.
Or maybe he put so much blood sweat and musk into the place that he doesn’t really want to sell the place?
That market is dead. Even if financing were available, the market would still be dead. I believe people are starting to realize that it makes no sense to live a 23 room house with 1200 lb heated doors.
It is one thing to live large, but the excess has surpassed just being silly.
A lot of the people I know in the higher income brackets who have managed to eke out a good year or two in this mess have scaled back immensely and downsizing. Getting rid of mortgages and the like, not upgrading. Folks are realizing the good times don’t always last.
The full article also talks about this gem:
http://kingwanted.com/
Almost 6 million for this medieval abortion…
cool castle. looks like something you’d see in a video game.
I understand his plan. When the bank comes to reposess that home they will have an enormous fight on their hands. With those well locked 1200lb doors and bullet proof windows (just assuming) he will have an excellent fortress to defend. When they make thier move he can turn up the heat knobs to “scalding” and the bank vice president that gave him the go-ahead will get burned just as bad as the crazy spec builder.
LOL!!!!! Thanks for the morning guffaw Bob2… that castle… wow… what the f*** were they thinking?
The Chateau de Coucy was a castle; the above is hideous. What bank financed this? Why would a bank finance this?
You would think that with the kind of money they are asking for that place, they could spend a few hundred bucks to get a decent website built. That site looks like it a was done by a six grader on Myspace.
Yeah, that place is a joke. Perfect for an athlete or entertainer getting bad financial advice.
Hopefully the men of genius that built this god ugly castle in the burbs for 6 million bucks paid cash and didn’t waste the bank’s money…. what are the odds of that? Probably the same odds of this place selling!
the castle is horrible, the website is even worse. it’s absolutely pathetic that someone selling something that expensive couldn’t put together a better website.
i’ve seen myspace pages with more polish.
No one fully anticipated the may lay caused by the fall of banks. As an interesting example, the WSJ had an article about a report Honeywell puts out on the private aviation industry. In 2008, Honeywell said the industry seemed insulated because of a large backlog and would ride through relatively unscathed. In reality, people walked away from million dollar deposits because they could not get financing, orders were cancelled and now pricing continues to deteriorate. In the 2009 forecast, Honeywell does not expect private aircraft production to reach 2008 levels until 2019. Anyone see some flaws in the crystal ball? Housing was one of many industries that took it on the chin. At least the media has not vilified home ownership in the same way to went after aviation and hotels/conventions.
How will the demographic shifts affect the high end market? Seems to me that a lot of boomers would be downsizing from their 5000-10,000 sq. ft. homes as they become empty nesters, whether for smaller homes in the ‘burbs or condos in the city. Couldn’t that continue to depress this market well beyond the real estate bubble?
Benjy,
Yes, I’ve thought the same thing. Also, there is a massive stylistic difference in the new construction homes of today vs. the houses that the rich have lived in over the past 30 years. I’ve looked at some very nice homes that I would not care to live in due to layout or style preferences that I believe people of my generation typically share.
These issues can obviously be fixed through major renovations, but they won’t come cheap and they will likely result in more tear-downs and price reductions beyond the effects of supply and demand.
McMansions and other million dollars homes will eventually sell relatively cheap; with the understanding that the costs don’t come so much with the purchase price, but instead, with the taxes, maintenance and utilities.
And don’t forget high rates on Jumbo mortgages HD to add to the carry cost. I don’t think the Obama admin. is looking to subsidize the high end home market anytime soon. One should probably expect the spread between conventional and Jumbo to increase over time.
Anyone wanting to live large should simply rent out a house – not purchase, for at least the next 5+ years.
I wonder if municipalities will consider zoning variances to allow some of these McMansions to be subdivided into condos/townhouses/apartments. May be the only way they might sell.
I doubt sub-dividing will ever happen in the towns referenced in the article. Oakbrook, Lake Forest, South Barrington, etc would never do that. In Chicago, many of the 1mm+ properties are condos/townhouses so there is nothing to divide!
“West Bucktown” = Humboldt Park. Nothing there is worth $2 million, even if it includes bullet proof glass.
Agreed on the concern with retirees wanting to down size. I think the reality is that they are stuck for a number of years because sellers have a set price in their mind that they would like to realize as they head into retirement. Also, conservation initiatives (tankless hot water heaters, solar, new light bulbs, new windows, additional insulation, etc) will contribute to lower operating cost. I drove past a 2,200 sqft house in a “green” neighborhood recently in Michigan that was advertising a daily operating cost of $1.06 for energy (I believe this included gas, water and electric).
” I think the reality is that they are stuck for a number of years because sellers have a set price in their mind that they would like to realize as they head into retirement.”
Yep. Many of these boomers were counting on the house appreciation to finance a fair portion of their retirements. I think the theory was that the more expensive the house was, the more it was going to appreciate and they could live now in luxury while funding their golden years. But…how long can you/will you want to put off retirement?
The sad thing is that this idea used to work for middle class Americans. Buy a city bungalow, have a family, live there for 30 years, pay off the mortgage and then, when you sell it, have a nice nest egg to help with retirement. Too bad we became a nation of speculators!
“One should probably expect the spread between conventional and Jumbo to increase over time.”
Howard I actually expect the opposite (the spread to narrow) and heres why: currently the government is aggressively pushing down conventional rates via quantitative easing. Its my understanding this is targeted squarely at conforming loans.
In the jumbo market where there are no government programs in place to maintain volume or stability, rates are still set by the private market (not the government) and commensurate with the risk profile of the borrower (instead of a government bureaucrat in DC which is what is currently setting rates on conventional mortgages).
Once quantitative easing is removed and conventional mortgages are no longer subsidized I expect rates to spike to also reflect the risk profile of the borrower.
“Anyone wanting to live large should simply rent out a house – not purchase, for at least the next 5+ years.”
Agreed 110%. There isn’t really a true housing “market” right now with the FHA originating a significant percentage of the loan volume and the crazy tax credit. The government can’t spend forever and its best to rent now and as long as the government thinks they can dictate the real estate market.
““Anyone wanting to live large should simply rent out a house – not purchase, for at least the next 5+ years.”
Agreed 110%. There isn’t really a true housing “market” right now with the FHA originating a significant percentage of the loan volume and the crazy tax credit. The government can’t spend forever and its best to rent now and as long as the government thinks they can dictate the real estate market.”
I disagree, the government CAN spend forever and continue to weaken the dollar to the point of significant inflation. Hard assets are where you want to be. So find an affordable place, get yourself a 30 year fixed, a nice free 8k from uncle sam, and enjoy the ride. Its going to be interesting.
hey homedelete –
nice Frederick Allen quote…very appropriate. I always liked that book – read it a few times — I may have to dig it out and read it again.
Matt said, “There is also a shadow inventory of homes held off the market due to conditions, that will eventually come on the market.”
Very true. Honestly, I think that’s true in just about every level of the market… from high end to low end…
half the shadow will be wrecked. I wouldn’t worry about moldy/leaky McConstruction as competition.
Foreclosure Epidemic Reaching More Expensive Homes
http://finance.yahoo.com/news/Foreclosure-Epidemic-Reaching-usnews-843552170.html?x=0
Interesting article. Politicians seem to write policy while looking in a rearview mirror. This has never been a subprime issue. It was a mortgage value greater than market price situation and I have seen articles with research to prove this. Of course unemployment would be an issue on the mortgage market. If you do not have a job and housing sales continue to be tight, there is no way to pay your mortgage and getting out would probably mean taking a loss but you probably do not have cash to bring to the table. Jobs….jobs ….jobs
The fascinating thing about politics to me is that it is the one area of life where a smile, handshake and speech mean more than a resume. In a city like Chicago, no one would hire you if you do not have the right academic background, work experience and other credentials. Most of these politicians do not have the background to run a $100,000 budget let alone $1 trillion for health care.
I like the castle. Could see a very successful Eyes Wide Shut-type sex party being hosted there.
FHA Backs More Than Half of Loans for New Homes
http://blogs.wsj.com/developments/2009/10/20/fha-backs-more-than-half-of-new-home-loans/
FHA Head Rejects Calls for Higher Down Payments
http://blogs.wsj.com/developments/2009/10/20/fha-backs-more-than-half-of-new-home-loans/
FHA Flunks Audit on Quality Control
http://blogs.wsj.com/developments/2009/10/20/fha-flunks-audit-on-quality-control/
Villa Taj vailable again for $7m:
https://www.redfin.com/IL/Burr-Ridge/6501-S-County-Line-Rd-60527/home/26791349
Villa Taj sold for $3m:
https://www.chicagobusiness.com/residential-real-estate/giant-mansion-burr-ridge-sells-multimillion-dollar-loss-again
That’s under $100 psf!
Nice place for a harem.