Second Biggest Story of 2010: What Will Happen to All the Million Dollar Homes?
We’ve chattered about the glut of million dollar homes many times over the past two years.
In fact, many of the properties we’ve followed priced over a million dollars over the last few years remain on the market.
Most at risk, however, appear to be million dollar new construction homes in neighborhoods where a million dollars was not common before 2004 and now there are simply too many properties in that price range.
Some of you might remember this 5-bedroom new construction home in the North Center/Lincoln Square neighborhood at 4125 N. Oakley.
See our July 2008 chatter and interior pictures here.
In July 2008, it was going to foreclosure auction. Many of the posts to the original thread are worth checking out as a lot of you thought it would sell for around $1 million (and one poster thought I was crazy for implying it would sell for 35% under what was then the current list, or around $800,000, in that neighborhood.)
Let’s not forget, however, that we were originally talking about the property in July 2008, which was pre-the Lehman collapse.
No one bought it at the courthouse and it eventually reverted back to the bank.
The bank finally sold it in June 2009 for almost $200,000 under the foreclosure auction price.
4125 N. Oakley: 5 bedrooms, 3.5 baths, 2 car garage
- Was listed in July 2008 for $1.249 million
- Foreclosure auction price in July 2008 of $1,009,500
- Did not sell at auction
- Bank owned as of January 2009
- Sold in May 2009 for $834,000
- Taxes are “new”
Will we be seeing more of these kind of sales and price reductions in the upper bracket in 2010?
Yes we will see more of this. Particularily in areas where these homes probably shouldn’t have been built. This means neighborhoods where these homes are the top of the market, or fringes of more expensive areas.
In prime core areas we won’t see it as much as the market is supported by more underlying demand. The more prime and core, the less likely we will see.
Happy new year and good luck to all of you in 2010, I enjoy reading your posts.
there are plenty of listings in prime areas that are in la-la land.
Agree with Matt that it’s area dependent but I’ll go a step further and say that I think you’ve got several other things going on as well. So many of these new construction homes have hair on them. I don’t know this property in particular but you start looking at a lot of these and they have significant construction flaws or weird designs.
In addition, I think people are reassessing their needs and thinking that maybe they don’t need the $1MM plus home. Maybe they’re afraid they will lose their jobs. When I look at what’s going under contract in December (post expiration of the original tax credit) I see great activity on everything except the $1MM SFH.
$1M is once again a lot of darn money for a house.
The conditions that created a large and liquid market for upper-bracket houses were anomalous, and now no longer exist. Those conditions were super-easy credit extended to anybody who could stand upright and sign a contract.
We’re reverting to normalcy. That means large downpayments for upper-bracket properties, reflecting the fact that the jobs that support houses like these are not easy to replace, and that only a tiny fraction of the home-buying population can carry a mortgage that is $800K or more. An old real estate man in Lake Forest told me, back in the 80s, that the minimum downstroke for a house costing $500K or more at that time was 50%. These days, it is very difficult to get a jumbo mortgage, and underwriting standards are much tighter than they were in 2005 or thereabouts.
In my view, all residential areas in Chicago with upper bracket price points will continue to see modest price pressure throughout 2010 (unless of course they are represented by a broker with a super Selling System or an otherwise oversized for sale sign). However, I think many of the suburbs have leveled, especially North Shore lake-side communities. The sheer number of SFH’s in Kenilworth, Winnetka and Wilmette that have gone under contract recently is surprising.
I think the best predictor for upper bracket is the S&P 500 which has performed heroically. While wealthy families may not have all their wealth back, they certainly seem to be feeling better about things.
GLS
“there are plenty of listings in prime areas that are in la-la land.”
I don’t disagree that there is plenty of over-priced inventory in upper bracket in prime areas. But I dont think you will see any fire sales. Too many bidders as soon as the price gets reasonable. And if there are, typically either on fringes or something wrong with product.
we need to bring back “the real info” from that previous chatter, what a hilarious poster
“Too many bidders as soon as the price gets reasonable.”
I would agree there is modest pent up demand from DINK families that just got the $300k Goldman bonus (or K&E bump to local partner, etc) but can’t afford a $2M SFH in ELP, but there aren’t many of these. My bet is, in the city, this layer of bidders gets exhausted pretty quickly and prices slide further.
Ah….the decline in housing prices reflect only homes that have actually sold. For every house the sells there are at least 6 to 10 others priced in la-la land. And volume continues to be far below peak. G pointed out that in some cribchatter neighborhoods sales of SFH’s are at *generational* lows and a few properties under contract hardly mitigates that fact. Further significant price declines are inevitable. Unless of course the bulls are suggestion that the higher priced unsold homes in prime neighborhoods have enough money to hold out another 10 or 20 years….
JMM “I think the best predictor for upper bracket is the S&P 500 which has performed heroically. While wealthy families may not have all their wealth back, they certainly seem to be feeling better about things.”
Thats a great observation JMM! The S&P has performed “heroically” as you say. In fact, it has performed so well, it is back to 1997 levels! I dont know about you, but 12 years of flat returns isnt exactly heroic. (are you a financial advisor?)
As for your call on the North Shore bottom in the 1m plus range, I disagree. There have been some deals lately, but there is a ton of inventory that will be coming on the market in the spring. Going back to your S&P analogy, I would say that these areas are going back closer to 1997 levels then where they are now. In fact, if you look at closings, the houses that are trading are the extremely well priced ones.
As for my new sign on Halsted and my MGG Homeselling system, I will be rolling out a new website soon with tons of other stuff for you to hate on… I will keep you posted. Here is a link to my CNBC interview with Larry Yun yesterday too if you would like to hate on that as well.
http://www.cnbc.com/id/15840232?video=1371474864&play=1
Matt G: The single best thing you could provide in addition to good photography would be a floorplan (even approximated) for your properties online.
Well, that and a super huge sign proclaiming the MGG Homeselling system of course.
Actually, the S&P is at early 2004 levels. It’s also up over 65% since March 2009. How have home prices performed over the same period? Let’s assume you were actually making a relevant point, which you weren’t, most of the buyers for this product were still toiling in grad school in 1997, not investing their nest eggs.
You should stick to your Super System (I liked the chapter on Omaha Hi Lo) lest you forget people invest money over time and not all at once 13 years ago.
Wicker:
Every property will have floor plan and individual website starting in 2010, like http://www.1866halsted.com.
And super huge signs.
Thx for feedback.
“And super huge signs.”
Not if the drunk revelers and homeless people that roam the quiet LP streetscape have their way.
“As for my new sign on Halsted and my MGG Homeselling system, I will be rolling out a new website soon with tons of other stuff for you to hate on… I will keep you posted. Here is a link to my CNBC interview with Larry Yun yesterday too if you would like to hate on that as well.”
LOL, thats some good stuff there. Matt you are my new Idol! Dont worry about the haterade drinkers brush them off and you do you. (wow i sounded ghetto there).
Matt do you really think the north shore is heading even lower? I have secretly had my eye on glencoe and Kenilworth. Up to greenbay road have hit a price range i could afford.
and if it gets lower then any yokel yahoo joe hillbilly/ghetto thug can get in. The wouldnt it loose the “exclusivity” of it?
Back to the property.
What do you call it when you have the “recessed ceiling” Or is it just “recessed ceiling”???
And then style wise are you supposed to be consistent? in terms of the look?
Is the RC style the next step up from having crown moldings all around?
JMM
JMM-
“Actually, the S&P is at early 2004 levels. It’s also up over 65% since March 2009.”
S&P first hit 1100 range in 1998. What is your point regarding home prices vs. equities since Marcg 2009?
I think you might be a financial advisor! You know, telling people the S&P historically averages 8% annual gains. That has worked out great since 1997-98!
“It’s also up over 65% since March 2009. How have home prices performed over the same period?”
I am on record on national TV as being relatively bearish on residential real estate. I advise my clients accordingly. This rhetorical question is out of context and meaningless.
Keep hating.
“I have secretly had my eye on glencoe and Kenilworth.”
Groove, West Kenilworth (the Kennel) is a great neighborhood and one of the best schools in the state, and it is K-8. The houses in the lower end of the price point typically need rework and renovation, so the price points are deceiving unless you have looked at them and are happy with what you get. Taxes are also comparably high given assessed values (we chattered about an example of a $1M house with 40k in taxes). An older 3-4 br house on a 50×125 lot can be had for $500-$600k. Larger lots on the west side trade above $1m (80×160) and usually have 4-5 bedrooms.
This area, and the communities around it, are focused on schools and families and it is a good place to raise your kids. Any focus on exclusivity (along financial or far less savory grounds) and social standing are relics from our parents era, though most residents tend to be wealthier and have high paying professional jobs.
“I think you might be a financial advisor! You know, telling people the S&P historically averages 8% annual gains.”
Unfortuantely, no and I don’t even own equities. Upper bracket confidence in home purchasing tracks the S&P performance. People have short memories. They are also emotional, which allows you to stay in business. Keep selling the dreams Mr. National TV superstar!
MG sure does like to talk about his tv appearances.
JMM
I don’t disagree with your point. Fun chatting with you. Happy new year.
Me and my ego are going to go make some signs!
MGG
“I am on record on national TV as being relatively bearish on residential real estate. I advise my clients accordingly.”
Like advising your client to list a place 10% more than the market peak of 2006? Or advising a year before to list 20% more than the market peak in a failed process? Maybe that is where the relative part comes in?
If I hired the Super Selling System Superstar, I’d rather have him focused on selling/showing my place than appearing on CNBC.
JMM-
We are actually working on an offer for that property.
Heitman-
When you get the opportunity or courage to go on CNBC with chief economist of National Association of Realtors then you can talk. You wont even use your real name on Cribchatter.
MGG
“We are actually working on an offer for that property.”
Would have never guessed it by how much you plug it on a blog that is not actually even read by any real buyers. But I suppose your client’s rant entitled “this is who I am” on this blog might have induced some offers. Good work! Does the buyer get to keep your sign?
“When you get the opportunity or courage to go on CNBC with chief economist of National Association of Realtors then you can talk.”
and i again i laugh and call you my CribChatter hero Matt.
JMM,
“The houses in the lower end of the price point typically need rework and renovation”
That doesnt bother me at all (did almost all the reno myself on my current house).
and about the taxes being WAY higher, i am ok with that some what too. It cost money to run the Best School district in the state.
my dilemma is we would have to change our current lifestyle for that price range, do i really want to do that? I am super darn happy with it now.
“It cost money to run the Best School district in the state.”
It isn’t the best, but it’s good. As a product of it, I can personally vouch for this.
Why would you have to change your current lifestyle? I am sure any SF house in the city would get you most of the way towards a starter home in this area.
what do these signs look like? are you going aping chaz?
also, is lawrence yun always talking out of his ass? looks like you were getting ready to question his final statement before they ended the segment.
the property on Oakley was the first cribchatter i commented on. anon tfo did a good job breaking down why it was only ridiculously priced not super super ridiculously. though judging by its final sales price, he may have been wrong.
I have been reading this website frequently mostly because I am in the market. As one of the DINK’s seaching for a 1-1.5M dollar homes, I am occassionally/frequently shocked at the number of homes in just Chicago priced at above 1 Million (I think I calculated over 700 in the down season early this month). Can’t believe there are really that many families with incomes of $300k, and downpayments of $200k looking to buy in Chicago (not suburbs). And I definitely can’t believe these people want to pay that much to live in some of the neighborhoods offering these houses.
We have looked extensively at 60614 and just the # of million dollar homes on the NW side of LP is staggering. As an admittedly new observer, I have to think there is still a large correction in this market to come.
It isn’t the best?
Wait your right Sears was the the 3rd best non test in school in the state, and New Trier Is the best non test in school in the state.
So i guess with Sears Slipping pretty bad (test score wise) the last few years i guess the best in the state would be……Lincolnshire or Hinsdale?
“Why would you have to change your current lifestyle?”
Your talking a 500-600k home with burb taxes, compared to my home in the hood where my taxes are like 3k a year. i wrote this in a previous post somewhere i will try to make it short. Wife is a stay at home mom, we spend money (not borrowed money) like its 2007!!!!! our mortgage is a very small piece of our monthly budget. to get in a half million dollar home, she will have to back to work, vacations will be cut we will have to watch what we buy.
Dooode i cannot be that family that dining out is chilli’s or for high class we go to Outback. I live in a city with the greatest restaurants anywhere i just cant go into a Red lobster with my head held up high.
Groove77: I hear ya on Red Lobster but holy crap are those biscuits good. My grandma gave me a gift card and I think I clogged a few extra arteries that day.
“holy crap are those biscuits good”
I think you can buy them frozen at dominicks or jewel. I swear i saw them in our freezer once? but i will ask the wife later if she remembers.
P.s. i still have to go to red lobster once or twice a year when visiting family in the far burbs.
those biscuts with extra butter and a few corona’s are a guilty pleasure 🙂
i think they closed all the red lobsters in the city.
“the property on Oakley was the first cribchatter i commented on. anon tfo did a good job breaking down why it was only ridiculously priced not super super ridiculously. though judging by its final sales price, he may have been wrong.”
Lotta competition. And an REO discount. For someone that wanted new construction in the Coonley AA, they got a pretty good deal–relatively speaking (ie, still pricey, but there’s nothing cheaper–both new and 5 BRs–on offer). And they set a really tough comp for all the other similar homes nearby. Compare this one to the Leavitt/Berteau place that sold for ~50% more.
Where’s the usual “Case Shiller Tuesdays” downers at? Making up more excuses as to why home prices are actually increasing? Guess what, the government isn’t going away any time soon, so take advantage of it while you can, they are going to control every aspect of your life sooner rather than later so you may as well live it up until we go BK!
CS is down YOY; the CS analysts themselves say that the results are flat; Yet Bloomberg spins it: the headline says prices up from last month (even though ever so slightly!)
For such a simple number, why are there 3 differing opinions?
anon (tfo), what’s the situation with Coonley? Is it a school you test into? Is there a neighborhood component? Thanks. Always appreciate your insight into CPS.
As for Case Shiller, I will make the same point I always do. Case Shiller is either trending slightly up or flat, but it is at nominal 2003 or so prices. I would generally be happy to pay nominal 2003 prices. I tend to think Case Shiller will go down again. As Sonies notes, the gov’t is helping to keep prices up, through a variety of measures. I think that’s not sustainable but could be wrong.
There aren’t many livable properties for sale at nominal 2003 prices. At least not on the north side of this town. The turnkey properties at 2003 prices usually go under K in a matter of days to weeks. I’m not quite ready to buy but I will be when I have a decent mix of properties to choose from at 2003 prices or better (I like 1999 prices if I were to call a bottom). But right now the only properties I’ve browsed on RedFin are still 2005 + 10% or 2003 prices + $75k to bring the property into the 21st century. Neither of those are very appealing. There’s only been one livable property I’ve seen in my area that didn’t need a lot of work AND was price reasonably. $369k and it sold in 10 days. That was like 3 months ago and nothing else comparable has hit the market since.
“For such a simple number, why are there 3 differing opinions?”
Cognitive dissonance and innumeracy. Or deception.
The Chicago CS SA index is down 1% from Sept to Oct. It is also a moving 3-month average. Considering that it was up 1.2% MtoM each of the previous two months, it looks like the trend is not the previous bottom callers’ friend.
The index should find a new bottom for this correction in the Feb index, or March at the latest.
Yeah, Case Shiller for Chicago was down today but still up 6.9% from the April low. I find it hard to believe that we can go lower than April since it was 10.4% below the trend line and the trend line moves up every month (by definition). The only thing that has me concerned is the employment situation in Chicago. Not good.
“anon (tfo), what’s the situation with Coonley? Is it a school you test into? Is there a neighborhood component?”
Neighborhood school with a gifted program–hardest gifted program in CPS to get into this school year (a *lot* of the older kids do not live w/in the current attendance area). Pretty strong parent org, almost entirely made up of parents of kids ~4th grade and younger. Principal has been there 3(?) years and is sharp and strong.
“the trend line moves up every month (by definition)”
So, it’s an inflation-assumed trendline, regardless of a (possibly) deflationary economy?
Well, the trend line is based upon the historic data, which was influenced by past inflation. Right now I think inflation is a bigger risk than deflation and oil, gold, and the dollar reflect that.
“the trend line is based upon the historic data”
Does the trendline strip out the last 8 years, or does the bubble get baked in?
Inflation is by far the largest economic risk at the moment. We monitized too much debt, and the Fed lacks the resources to mop-up all of that liquidity. The result will be higher interest rates, debt buyers will demand higher yields on treasuries and mortgage rates may double.
http://www.bloomberg.com/apps/news?pid=20603037&sid=a7I0yRLF4adQ
In terms of the $1 MM SFH, the S&P 500/stock market theory has some merit as it relates to home purchases. Many wealthy (top 10-20% income earners) households have high net worths, but are relatively cash poor. Most of their net worth is tied to non-liquid assets (real estate, family business, etc) or marketable securities that significantly declined. I’ve seen plenty of personal financial statements where the net worth was in excess of $5 MM with liquid assets of less than $200,000 (often including retirement accounts and cash value of insurance policies).
Nope. I based the trend on the 12 years from 87 – 99: http://chicagohousingstats.com see the first graph, red curve.
“I based the trend on the 12 years from 87 – 99”
Thx. But it doesn’t appear to match the 87 data line–looks about 10% high.
“Nope. I based the trend on the 12 years from 87 – 99”
Gary, another way to look at it would be to put the Case Shiller series in nominal terms and then do the trend. This will give you a real (i.e. not nominal) trend. Otherwise, if you think housing prices should be expressed in real terms, and if your trend is measured in a period with higher (lower) inflation than present, it will tend to overstaten (understate) what price increases should be relative to the real, not nominal, historical trend.
I’m not sure it’s a big effect. Inflation was probably higher in late 1980s and early 1990s, but averaged over the 87-99 period maybe not by that much.
“Wait your right Sears was the the 3rd best non test in school in the state, and New Trier Is the best non test in school in the state.”
Actually, it’s somewhere further down the list…
http://www.suntimes.com/news/education/1854925,top-100-elementary-1009.article
Only salt on Sears is the kids can be a little, well, as you’d expect — sheltered. One mother I know joked that her 1st grade daughter came home and asked her why they didn’t have a Range Rover (though I am sure this stuff happens everywhere).
“Your talking a 500-600k home with burb taxes, compared to my home in the hood where my taxes are like 3k a year.”
It is a step up to pay the taxes no doubt. The flip side is you can equitize 50% with your kitty and be very comfortable. At the end of the day, its a wonderful neighborhood that is far cheaper and more grounded than comparable areas on the coasts.
JMM were you at sears mid/early 80s?
they ran us over in football. Pat Ryans kid was gigantic for his age.
“far cheaper and more grounded than comparable areas on the coasts”
There no longer is a comparable public school district in California.
Maybe Bellevue, WA. Maybe West Linn, OR.
why is that? no waspy enclaves in cali?
Beverly Hills 90210
too Jewish?
anon,
The trend line won’t hit all data points but it is a best fit. I ran an exponential regression. Seems to be a pretty good fit.
DZ,
Yeah, I suppose so but that would be a lot more complicated 🙂
“Seems to be a pretty good fit.”
It always does when it supports one’s opinion.
“One mother I know joked that her 1st grade daughter came home and asked her why they didn’t have a Range Rover”
sheeple mentality there. For some reason about 5 years back in winetka/wilmette i saw everyone there had a Rover LR3 (or is it called Discovery). It was like the twighlight zone. I guess they all moved up to Range’s now.
After i move there I would love to see that little girl ask her mom why she doesnt have a ’85 caprice classic on 22in rims. (dont laugh its my cousins car he would visit twice a month).
anon will get me on this, but i will say When did homes in north center/lincoln square get over a million?
4125 N. Oakley at 800k is still head scratching for this area to me.
“Nope. I based the trend on the 12 years from 87 – 99?
Eliminate the bubble years of 1987-88 and 1999 and base it on 89-98 and 10/09 should appear to be slightly above the trend line.
“Nope. I based the trend on the 12 years from 87 – 99?
Eliminate the bubble years of 1987-88 and 1999 and base it on 89-98 and 10/09 should appear to be slightly above the trend line.
Actually, I just checked my work and 99 was not included. I used 87 – 98.
1987-88 were bubble years, too.
Regardless of the trendline, what the bubble giveth, the bubble shall taketh away. Welcome back to 1999.
I read a post on the HBB today saying that in some areas, south Florida prices are as same nominally as 1992 and still headed down.
Sonies all extraordinary govt intervention in the housing sector is being removed in the next 4 months except HAMP. Guess where rates are headed then? Guess where prices are headed?
You don’t have to go to FL to see that, HD. Just head down to Englewood or Roseland. Harvey, Dixmoor, Chicago Hts, Calumet City, Dolton and Riverdale, too. Plenty of examples in those places.
If you plot Chicago CPI and Chicago Case-Shiller on opposite y-axies, you will see that CS crosses CPI in 2003 with a peak in 2006. CS came back into line with the CPI at some point in 2008. (Note: I only looked at Oct 87 through Oct 09).
Historically, CS tracks CPI. Right now, we are in a period of “over correction” from that trend. So, there is either: 1.) pent-up demand waiting for more stability; or, 2.) we are experiencing a more permanent realignment. Data are available to support both conclusions. I think there is pent-up demand and that we will remain slightly below the trend line for several years, but that’s just speculation.
In any event, I see no data indicating that prices should go down to 1999 levels per homedelete’s guessed bottom. In order for that to occur, we would have see another 24% drop in the CS. We’re currently 22% down from the peak . . .
I don’t know bob, but I bought TBT & TBF a while ago… perhaps you should too if you’re so confident? And higher interest rates doesn’t 100% corrilate to home prices decreasing. If inflation or a weak currency increases rates, home prices and other hard assets can increase in nominal value.
You’re missing the forest for the trees. Extrapolating future prices merely from looking at a historical trendline on a chart is closing your eyes to the rest of the evidence out there.
There are 4,000,000 foreclosure this year alone. Illinois is no. 5 in foreclosure behind the big four of CA, NV, FL and AZ, all states with large speculative bubbles. Sales volume remains abysmally low most everywhere other than lower priced areas. Rents are trending downward. Incomes are down or stagnant in many industries. Consumer credit has just come off all-time highs but still weighs down consumers. Today’s professionals and college grads graduate school carrying large debt loads that significantly reduces their future home buying power, myself in some ways included. Hiring in certain industries has been reduced or cut back. There are something like 18 million vacant homes across the country. There are vacant condos and sfh’s all around the city in all neighborhoods, and they aren’t selling.
“In any event, I see no data indicating that prices should go down to 1999 levels per homedelete’s guessed bottom. In order for that to occur, we would have see another 24% drop in the CS. We’re currently 22% down from the peak . . .”
“There no longer is a comparable public school district in California.”
There are plenty — Marin County or Palo Alto Unified up north and Orange County, San Marino / La Canada, La Jolla down south. The east coast is even easier, but as an example, Bronxville Unified.
“JMM were you at sears mid/early 80s”
A little after that so did not really know his kids, but it’s a small town and I think they lived on Melrose.
“There are 4,000,000 foreclosure this year alone.” They are still increasing in IL.
“There are something like 18 million vacant homes across the country.”
Yet some still claim there is pent-up demand and prices won’t fall much more. I say there is no pent-up demand at current prices. I also say that the bubble robbed future demand with easy money and dough4dumps continues to rob future demand from first time buyers. Just watch how d4d peters out before it expires.
HD – You aren’t looking at enough data points. First, we may be fifth in foreclosures, but we are tied for 10th in the CS composite 20 for largest value declines from peak – and our value decline is below both the composite 10 and 20. (Also, is your stat. in total foreclosures or per capita?)
So, why would Chicago maintain values better than some of these other areas? First, Chicago has a much more robust economy than those other markets, evidenced by our unemployment rate. In 2004, we had the highest unemployment rate of LA, Chicago, Phoenix, Vegas and Miami. Now, with the exception of Phoenix, the next closest MSA’s unemployment is a full percentage point higher.
Second, Chicago’s growth was more organic (i.e., population growth closer to natural rate as opposed to in-migration). People were building houses in Miami, Vegas, LA and Phoenix with the assumption that northern states would continue to export population to the sun-belt – that trend halted.
Third, related to #2, we never experienced the same level of speculative construction.
Fourth, a lot of the growth in Chicago (at least the city) was urban, as opposed to sprawl. We never had as much available land. A lot of the construction in the city also replaced existing stock, with the exception of the downtown market. That’s why the heat maps show a much LOWER foreclosure rate per capita than many of the suburbs.
Your estimate would require Chicago to drop a total of 40% from peak to trough . . . and the rate of decline either slowing or beginning to reverse. The historical housing stock, employment and demographic data just don’t support your theory at this point.
“why is that? no waspy enclaves in cali?”
Prop 13 + State revenue/spending problems that make Illinois seem well run. The PSs in Cali have been in decline since the early 70s. Which ins’t to say all the schools are bad; just that there aren’t any districts as good top to bottom as New Trier.
Oh there are plenty of million dollar estates for sale in far flung out counties not near any major highway or amenity; i just had one roll across my desk a few minutes ago. The Chicagoland sprawl extends all the way to the WI border, northwest to the WI border, West to nearly DeKalb, Southwest to manhattan and south to peotone. Beyond that it’s cornfields (or soybeans) for hundreds of miles in any direction. there’s no shortage of land.
There’s no shortage of available units in teh city either. The south loop for example, the 8 or so empty or partially sold condo buildings in my neighborhood alone, and the rest scattered around the city; along milwaukee ave. There are far more houses than household. SUpply and demand alone will continue to drop prices.
“Fourth, a lot of the growth in Chicago (at least the city) was urban, as opposed to sprawl. We never had as much available land. A lot of the construction in the city also replaced existing stock, with the exception of the downtown market. That’s why the heat maps show a much LOWER foreclosure rate per capita than many of the suburbs.”
HD – in order for home values to decline at that level, we would have to see a much worse economic deterioration — or for the economy to stay this bad for a very extended time.
Most economic indicators now point to growth (or at least stabilisation), consumer confidence is up with the stock market and most economists predict a decline in unemployment (which will lead to a decline in the foreclosure rate).
You are estimating depression level drops when we seem to be well past that.
Why is this a precursor to further price declines? What about supply and demand? What about the shadow inventory of 1.5 or 4.0 million homes (depending on who you ask) that will eventually trickle into the market place? Won’t these situations continue to adversely affect prices?
“HD – in order for home values to decline at that level, we would have to see a much worse economic deterioration — or for the economy to stay this bad for a very extended time.”
I think market segmentation will become more dramatic. The loop has too much available supply and too many units bought at the peak. Combined with the high assessments, these don’t look like good deals to me. Because of this, the buyer’s risk is still high. And all of the units/buildings are rather generic.
But condo’s in 4-12 unit buildings have lower assessments, are in great neighborhoods with good access to transportation. SFH’s are becoming affordable again for DINKs. I think those segments will maintain value well and are close to stabilization.
Banks will not release all of the units on the market at once . . . they will release them slowly to prevent further deterioration of value.
So long as employment improves, that strategy will work. Which means, we are either close to the bottom or through it, AND we will see value appreciation at a rate below inflation until either: a.) population growth catches demand; or, 2.) older stock is taken off-line.
“just that there aren’t any districts as good top to bottom as New Trier.”
That just simply isn’t true, but on balance Illinois has far better public schools than California. Palo Alto Unified is easily on par with the New Trier township. The fact that it sends 20 graduates to Stanford evey year has little to do with proximity (as it is across the street). LA has a few very good districts as does OC and SD.
What you do not have in California is the Maine Souths or Glenbards that we have here. It’s completely bianary — either elite wealthy districts or stand and deliver type schools.
“Nope. I based the trend on the 12 years from 87 – 99?
Eliminate the bubble years of 1987-88 and 1999 and base it on 89-98 and 10/09 should appear to be slightly above the trend line.
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G, why don’t you want some bubble years, to make a representation of the market you will have to include some of tghe bad with the good. Seems your comments can be used for your thoughts as well.
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“Seems to be a pretty good fit.”
It always does when it supports one’s opinion.
Well golly gee revassal, perhaps that was my point? Maybe there is hope for you afterall.
Sorry, I meant to end that with a ?
“It always does when it supports one’s opinion.”
The data was the basis for my opinion, not the other way around. Anyway, if I eliminate 87 and 88 (which I don’t believe to be appropriate) it doesn’t have a dramatic affect. It brings the trend line down to where we are now.
In my opinion the only thing that would allow us to form a new, lower trend line is if Chicago took on permanently lower economic importance in the country. I do believe that is possible with some of the misguided policies and some of the structural problems. However, I’m not prepared to bet against the city just yet.
“Banks will not release all of the units on the market at once . . . they will release them slowly to prevent further deterioration of value.”
Not quite. The banks with REOs can’t explicitly collude I believe as that would be illegal. And its tough to implicitly collude either with so many players in the game. That may be what is happening now but I don’t think the bankers are really calling the shots here. They’re extending and pretending because without that strategy they’re toast.
The waves just keep on coming. Those million dollar homes are crashing as we speak. The biggest crash will be the condos, especially the concrete, low-ceilings, heavy maintenance, high rises build in the 60s and 70s.
“The banks with REOs can’t explicitly collude I believe as that would be illegal. And its tough to implicitly collude either with so many players in the game. That may be what is happening now but I don’t think the bankers are really calling the shots here. They’re extending and pretending because without that strategy they’re toast.”
I have actually heard stories that banks are withholding foreclosures and/or listing them at higher prices initially so that they don’t crash prices down more than they already are. This is especially true in condo buildings.
It’s not “collusion” because they’re all doing it without talking about it with each other.
there is a chance that the banks will sell large portfolios of REO to investors who then turn around and rent the units out to generate yield, waiting for prices to come back before they actually sell them on the market. My guess is there won’t be a flood of REO assets on the market – it’s not logistically or economically feasible.
Howard is correct That is exactly what is happening at my bank. We are creating large portfolios of properties (mostly condos) that have only one property per building but numerous properties in total. These are sold to investors who have cash to rent them out for 10 or so years with plans to sell in a decade. This will prevent the flood of units to the market as many hypothesize on this site and it prevents one owner/investor from owning too many units in one building with hurts mortgage financing for other units etc…
Sabrina says “I have actually heard stories that banks are withholding foreclosures and/or listing them at higher prices initially so that they don’t crash prices down more than they already are. This is especially true in condo buildings”
Nice try Sabrina but the information from you stories is not true. For the past 12 months banks have priced their inventories at far than less than market values. Hence the 20 offers they often get in the 1st few days.
A Local, so what you’re saying is that the same banks who packaged up and sold the underlying mortgages are now again packaging up and selling the deeds from the very same defaulted mortgages?
Oh, this won’t end well.
Fake steve Heitman,
I dont know about the pricing “scam” they are pulling, but i am witnessing the holding on to inventory thang.
Just in my area i can see 5 boarded up houses, that have been that way since the spring and I still have not seen them hit the MLS. 1 house i can confirm foreclosure cause the owners told me themselves and 1 other house i coached the owners kid. Thats 5 houses boarded up since the spring not on the MLS and many more boarded up after that i dont see on the MLS.
not all of the may be foreclosures.
“Nice try Sabrina but the information from you stories is not true. For the past 12 months banks have priced their inventories at far than less than market values.”
“Nice try Sabrina but the information from you stories is not true. For the past 12 months banks have priced their inventories at far than less than market values. Hence the 20 offers they often get in the 1st few days.”
Wrong Steve. I can show you a hand full of listings right now that are being controlled by the banks where they listed for a higher price and are slowly lowering over the course of several months specifically so that they don’t crush down prices too quickly in certain buildings. They are NOT selling with 20 offers in the first few days.
I’ve been told (and shown this) from numerous agents who are involved with listing foreclosures.
Take a look at 10 E. Ontario- for instance. The smaller sized 1-bedroom foreclosures used to be priced around $200k and now, after about 12 months or so, the banks have slowly been lowering prices to $150k. They will likely go lower than that in the future (though some ARE selling at these prices.)
The banks have dozens of these units.
The banks (with govt assistance) are trolling for bagholders during this period of extend and pretend.
Fish take the bait. Higher functioning mammals don’t.
I know for sure banks in Las Vegas are holding inventory off the market so as to keep supply as low as possible. I don’t know if this is happening in Chicago but I would be surprised if it wasn’t.
The housing situation in the 800k-1.5mil range is an interesting one. Most of the buyers in this price range are wealthy but not rich. They are mostly lawyers, doctors, lower-higher level finance guys, or small business owners. All of these professions face some uncertainty over the foreseeable future, and at the very least, we aren’t going to see the typical new crop of successful early 30’s families that have the same cash to burn as we have over the past 20 years.
When you add in the fact that interest rates have nowhere to go but up, and there are LOT of people who overextended themselves and would love to get out but are still waiting for a miracle, it scares me about buying in this price range.
I am looking for a place in Chicago in the range I listed above. I’ve been looking for about a year and a half, and I’m still renting. I spend a few minutes each day browsing properties online and I’ve visited a handful as well. I consider myself “cautiously pessimistic” and I have decided that I will wait for a “dream property” at what I think is a relatively decent price.
Question for “A Local”
When a bank sells a portfolio of condos, how are the sale prices for the individual props recorded? I mean, if the bank sells at a deep discount, it never hits the MLS but can’t someone still determine the sale prices from public records and use those as comps?
“When a bank sells a portfolio of condos, how are the sale prices for the individual props recorded? I mean, if the bank sells at a deep discount, it never hits the MLS but can’t someone still determine the sale prices from public records and use those as comps?”
Sounds like they are modifying the condo dec to make the (say) 50 REO condos out of 100 total condos a single condo, thus making the investor/buyer of the 50 units responsible for ~50% of assessments, but only the owner of 1 out of 51 condos for individual loan UW purposes.
But that’s me making an educated guess, not *knowing* how they are doing it.
Hmm… let’s see…
– 10.2% unemployment
– A surplus of housing invenory for SALE AND for RENT
– Interest rates can only go up
– Oh, and A BUSHEL of loans with interest rates to change (go up) in 2010 and 2011
THEREFORE…
– Too many houses on the market (w/ more to come)
– It will cost even MORE to borrow to purchase a home ONLY if you have a job.
Conclusion: All of this is a recipe for more foreclosures… and the downward spiral continues…
Rock Out.
– FiPod Mark
I’ve been looking at houses in the 1-2 mil range for quite a while now. My issue is that they are still overpriced, it’s definately gonna be the last mkt to take the hit because most of those people can afford to wait this out. I think it’ll be 2013 when that mkt finally bottoms out. Not to mention sfh on the northside in this price range are kinda limited.