Market Conditions: In Chicago Neighborhoods, Sales Fall, Median Prices Rise

Perhaps you caught the “price pulse” column in the Chicago Tribune’s real estate section over the weekend.

It certainly has some interesting data regarding the three month time period from December 2007 to February 2008 (the dead of winter, aka, the “slow” period in Chicago real estate) compared with the same time period the year before (Dec 2006 to Feb 2007).

Here are some of the neighborhoods we’ve been discussing (the price is the median price, meaning half the homse sold for more and half sold for less. It also just includes the deeds recorded during the time period):

Lakeview

  • In 2006/2007: 460 units sold for a median price of $325,500
  • In 2007/2008: 359 units sold for $382,500

Lincoln Park

  • In 2006/2007: 354 units sold for $445,000
  • In 2007/2008: 236 units sold for $470,000

Near North Side

  • In 2006/2007: 852 units sold for $368,500
  • In 2007/2008: 781 units sold for $469,000

Rogers Park

  • In 2006/2007: 216 units sold for $239,000
  • In 2007/2008: 151 units sold for $230,000

Uptown

  • In 2006/2007: 222 units sold for $281,500
  • In 2007/2008: 204 units sold for $271,750

Lincoln Square

  • In 2006/2007: 158 units sold for $335,000
  • In 2007/2008: 164 units sold for $287,500

Loop

  • In 2006/2007: 485 units sold for $280,000
  • In 2007/2008: 505 units sold for $421,500

Near South Side

  • In 2006/2007: 269 units sold for $370,500
  • In 2007/2008: 309 units sold for $421,000

Hyde Park

  • In 2006/2007: 79 units sold for $250,000
  • In 2007/2008: 42 units sold for $262,000

Near West Side

  • In 2006/2007: 524 units sold for $330,000
  • In 2007/2008: 297 units sold for $324,000

West Town

  • In 2006/2007: 444 units sold for $382,000
  • In 2007/2008: 319 units sold for $400,000

Logan Square

  • In 2006/2007: 284 units sold for $362,000
  • In 2007/2008: 200 units sold for $332,500

Sales fell in nearly all of the neighborhoods listed above:

  1. Lakeview sales down 28%
  2. Lincoln Park sales down 50%
  3. Near North Side sales down 9%
  4. Near West Side sales down 76%
  5. West Town sales down 39%
  6. Logan Square sales down 42%
  7. Hyde Park sales down 88%

Editor’s Note: Thanks to those who pointed out my math above was faulty. Here are the correct sales decline percentages:

  1. Lakeview sales down 22%
  2. Lincoln Park sales down 33%
  3. Near North Side sales down 8%
  4. Near West Side sales down 43%
  5. West Town sales down 28%
  6. Logan Square sales down 30%
  7. Hyde Park sales down 47%

A few saw sales increases:

  1. Near South Side sales increased 15%
  2. The Loop also saw sales increased 4%
  3. Lincoln Square sales rose 3.8%

Median prices are all over the map, with many increasing during the period. As the Tribune says:

“Prices may reflect the types of housing sold, which vary according to locality and reporting period.”

Also- it sounds as if the higher bracket is selling quite well right now which will skew the median prices. From the Tribune:

Joanne Nemerovski, who specializes in high-end homes at Koenig & Strey, says she is having one of the best months in her career. Affluent buyers are now putting down 20 percent to 30 percent of the purchase price, she says, and many are able to break a jumbo loan in two parts—a conforming loan and a line of credit with a floating rate.

“It’s putting a crimp in the market but the market isn’t dead. It’s really busy,” Nemerovski said. “There are people who have to move for one reason or another. They’re getting divorced. They’re getting married. They’re having another baby.”

Chicago-area’s jumbo loan cap crimping home sales, agents say [Chicago Tribune, June 13, 2008]

Price Pulse: December 2007 through February 2008 [Chicago Tribune]

104 Responses to “Market Conditions: In Chicago Neighborhoods, Sales Fall, Median Prices Rise”

  1. A drop in sales coupled with a rise in the median price can mean only that only the more affluent buyers with cash are buying.

    And they are being much pickier and demanding more for their money.

    I’d like to see a rise in everyone’s expectations about how much and how good a dwelling they get for whatever money they pay.

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  2. Wow, around 100K increase in the Near North Side and 50K for Near South Side. I was expecting less especially for the Near South with all the doom and gloom postings regarding that area in this site.

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  3. Steven Heitman on June 16th, 2008 at 7:18 am

    I report it here and then the Chicago Tribune backs it up with a great article.

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  4. Laura: That’s what I thought the data was showing as well. Sales are falling dramatically in some areas, but median price is up which means more of the expensive properties are selling.

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  5. Umm… Not a math person, but shouldn’t a 50% drop in sales in LP be from 354 to 177? None of the percentage drops seem to line up with the actual numbers – are they calculated off different numbers?

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  6. Looks like the percentages were calculated as (New-Old)/New. Should be (New-Old)/Old.

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  7. Maybe the near north side numbers are so skewed because many of the new developments closed on their higher more expensive floors than they had a year ago. just type in 60611 into the Chicago tribune closings and you will see what i mean. 240 E Illinois in particular.

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  8. Yep. But it was done properly for the increasing neighborhoods, which makes me wonder if there was an attempt to get the numbers to say what someone wanted them to say — since the decreases looked bigger, and the increases looked smaller.

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  9. Median prices are a far better indicator than mean so I trust the data. No crash and burn for the near south side yet, but when you consider that at an annual rate maybe 1,200 are being sold yet several thousand (5k+) are scheduled to come online in the next few years in the downtown area I can’t help but think its in the works.

    Areas with what I consider unreasonable appreciation: Lakeview, Near North Side, Loop, Near South Side. Yes LV is a nice neighborhood but I don’t think fundamentals are in line with a 20% price increase y/y.

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  10. Think about it…

    People prefer new construction to old. New construction is priced higher than old. When sales slow down, older construction takes the hit first. Ergo, median prices go up.

    Just a theory.

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  11. Please don’t place much if any credibility on the median price data. An increase does not mean that prices are going up. More likely it means that the mix is shifting to higher end homes and this could be happening while prices are declining and the median can still go up.

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  12. Maybe if they build a 20 foot high electric fence around LP and LV the median prices will continue to rise while the rest of the city declines. If they can build a fence high enough it might work to contain the bubble to neighborhoods east of Ashland….

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  13. Steven Heitman on June 16th, 2008 at 9:49 am

    Homedelete – Let’s not forget that areas outside of LP & LV appreciated at rates much higher than what LP & LV experienced. They are due for a correction.

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  14. I wouldn’t get too smug on thinking real estate is out of the woods yet….Alt-A resets are just starting and many more resets over the next 2-3 years. The fundamentals all indicate more declines ahead, probably substantial declines in FL, CA, NV, and AZ with continued moderate declines in IL.

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  15. The key word is INVENTORY. Is it increasing or decreasing? This will tell you which direction prices are headed. If new condos are coming on the market much faster than people are buying them, what does this do to prices? Bueller?

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  16. Steven Heitman on June 16th, 2008 at 10:28 am

    It is all about supply and demand. Transaction are down in LP & LV but is the inventory. We will have to see how this plays out.

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  17. David (the first one) on June 16th, 2008 at 10:45 am

    Pete,
    Inventory is not only related to construction (indeed, there seem to be units getting built faster than people want to buy them), but also to the number of current owners trying to sell. In a buyer’s market, many potential sellers, who may otherwise be trying to sell, will just ride it out for a few years. Sure there is a baseline of people who need to sell (as the article mentions), but plenty of owners can comfortably wait it out and not further flood the market will available properties. So there is a certain element of self-stabilization going on. Even during the go-go boom years when construction was just ramping up to try to meet demand, if every current owner tried to sell at once, prices would have plummeted.

    That said, the Near South Side has an absurd amount of construction, so that seems most likely to have a price shock resulting from a supply-demand imbalance sometime in 2008/2009 as the current crop of high-rises reach completion.

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  18. Rich and well to do yuppie professionals will keep the northside strong. They are recession proof. We should place all of our hopes on that tiny sliver sized demographic to save the day. No worries that the financial industry, a major source of young professionals, is losing money hand over fist this year and they are laying people off and will likely reduce hiring in the future. Prices will remain strong! No worries that large law firms have started culling the associates because there isn’t enough work. Or that advertising revenue is starting to get beat down; that won’t affect the LV and LP because ‘it’s different here’!

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  19. Steven Heitman on June 16th, 2008 at 12:05 pm

    Homedelete – Now we know where youa re coming from. It is not just the over priced housing market but the entire economy that is crashing. If this is the case housing will not become more affordable for you because your law firm will most likely fire you.

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  20. At my ad agency, we’re busy propping up prices in Bucktown and Logan Square.

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  21. Steven Heitman on June 16th, 2008 at 12:41 pm

    Is Homedelete bitter?

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  22. No I’m not a bitter renter. I’m a happy renter getting my kicks out of making fun of FB’s and underemployed realtors. Last week the FB who bought a very similar unit in my building lowered her price $20k and fired her realtor after 6 months on the market. Oh did I mention she’s asking less than she bought for 2.5 years ago from the developer? All the while my very affordable rent has stayed the same.

    I hope you appreciate my comments because I’m going to keep repeating them until it sinks in. The real estate market is a slow-motion train wreck. No market will be immune. There is an affordability problem in Chicago that is slowly being remedied. LV and LP are not immune despite what you think, hope or believe.

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  23. Thanks for pointing out my math was faulty on this post. Sorry- it was late at night and I really shouldn’t be using a calculator past 10:00 pm.

    I have corrected the sales decline percentages now.

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  24. “There is an affordability problem in Chicago that is slowly being remedied.”

    No, there isn’t. There is an oversupply problem. Please show me evidence that Chicago isn’t affordable when many, many other cities have carried higher price/income ratios indefinately. Also, the peak of ARM resets was in March and April, they will not reach those levels again for the forseeable future. That means by first quarter of next year most of the forclosures caused by ARM’s will be out in the open. This won’t affect Chicago like the coastal cities, though, because people weren’t reaching for housing here like they did elsewhere.
    D

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  25. Steve Heitman on June 16th, 2008 at 5:43 pm

    Homedelete – You better get used to that studio!

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  26. Since folks seemed interested I posted some information on the Lakeview market conditions:
    http://blog.lucidrealty.com/2008/06/16/lakeview-housing-market-immune-to-chicago-woes/

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  27. “Also, the peak of ARM resets was in March and April, they will not reach those levels again for the forseeable future. ”

    Ha! That’s funny. Google the suisse credit arm reset chart and note the explosion of arm resets from the alt-a and option arm loans that dwarfs the subprime mess. I spoke at length with an REO attorney today. She said that she receives 100 REO files a month but only closes on 60 leaving 40 remaining in inventory. She says that the banks are taking a bath on most properties and she doesn’t see the volume slowing down for many months, possibly years to come, based upon what she sees further up the pipeline. She said she’s just a small fish in a big sea of REOs and if their numbers are anything like hers the market will be screwed for a while. So yes, the oversupply problems are contributing to the market problems. But affordability is a problem too. Read the Crain’s story below…


    Home affordability improves slightly in Chicago area
    By: Alby Gallun Jan. 31, 2008

    (Crain’s) – The residential real estate slump is making the Chicago area a more affordable place to live, but homes will remain out of reach for many middle-income buyers unless prices fall further.

    HOME AFFORDABILITY
    Homes in the Chicago metropolitan area have become slightly more affordable in the past two years, but are still far less affordable than they were in the 1990s.
    Affordability index
    Chicago area U.S. average
    1st qtr. 1990 115.5 110.4
    1st qtr. 1995 121.2 132.3
    1st qtr. 2000 133.9 130.4
    1st qtr. 2005 109.7 116.6
    1st qtr. 2006 95.2 106.8
    1st qtr. 2007 98.4 110.7
    3rd qtr. 2007 97.2 109.4
    Sources: Moody’s Economy.com, Homes for Working Families
    An index of home affordability for the Chicago area has improved slightly after bottoming out in the first quarter of 2006, thanks in part to falling homes prices here, according to a new study by Moody’s Economy.com and Homes for Working Families.

    The area’s affordability index in third-quarter 2007 was 97.2, up from 95.2 in first quarter 2006, but well below levels exceeding 140 in the late 1990s. A number below 100 means a median-priced home in a market is unaffordable to a household earning the area’s median income.

    Chicago “is unaffordable, there’s no question, but it’s certainly not one of the worst markets in the country,” says Amy Hosier, director of research and policy for Homes for Working Families, a Washington, D.C.-based non-profit organization that promotes affordability.

    You May Also Like

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    Indeed, while the Chicago index is below the national average of 109.4, it’s far below the nation’s most expensive housing markets. Eight of the nation’s 10 least affordable markets are in California, including San Francisco, with the lowest index, 43.5.

    Falling home values are good news for some families who were priced out of the market in the recent housing boom. A key index of Chicago-area home prices declined 3.9% in November from the year-earlier period.

    “I would think that prices are going to fall further,” says Ms. Hosier. “I think they need to to get people purchasing.”

    Related story: Index of Chicago-area home prices falls in Nov.

    The recent decline in mortgage rates also will boost affordability, but the problem is that lenders have tightened their lending standards following the subprime crisis, preventing some buyers from qualifying for loans, Ms. Hosier says. Moreover, the deteriorating economy could curb income growth, further hurting affordability.

    The Chicago area’s median household income is $64,113. But a household needs to earn an annual salary of $80,667 to afford a home selling for the Chicago area’s median price, $290,550, according to Homes for Working Families. That’s well beyond the reach of the average police officer, who earns $58,910, or the average family therapist, who earns $42,590.

    People earning the median income or less are “going to be strapped well into the future,” Ms. Hosier says. “

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  28. Great data Gary. Thanks for providing the link.

    It looks to be a sellers market in some categories in Lakeview right now. There is under 6 months worth of inventory. Very interesting indeed.

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  29. Homedelete, you just don’t seem to get it- there are many cities that are permanently more expensive than Chicago and people are able to pay. People simply pay a higher percentage of their income in some places than others. Chicago is barely “unaffordable” based on this article’s metric, which probably understates affordability in the first place since it makes for a more interesting research topic/article. Chicago is very affordable compared to a lot of cities, we are spoiled to be able to live in such a great city for such low costs. Not to mention, you know as well as I do that the “median” income in Chicago is meaningless since we are talking here about the north side. Do you think the incomes of those on the south and west sides should average into the equation when discussing the north side?

    As for ARM resets, you are a lawyer and have demonstrated that you know nothing about finance. I know a ton about economics and follow the market for a living and I can promise you the peak in ARM resets was earlier this year, regardless of what some lawyer you know told you. Do you really think that just because you know one lawyer with lots of forclosures in the pipeline that you can extrapolate that across the whole economy? That’s incredible naive and sloppy analysis.
    D

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  30. Steven Heitman on June 16th, 2008 at 9:33 pm

    I can confirm that the peak in resets occured in March of 2008. The rate drops considerably over the next 12 months. Homedelete is a “world is coming to and end” guy. He is most likely a 1st or 2nd year attorney who spends too much time listening to people in his office try and become experts in economics.

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  31. homedelete on June 16th, 2008 at 11:24 am
    Rich and well to do yuppie professionals will keep the northside strong. They are recession proof. We should place all of our hopes on that tiny sliver sized demographic to save the day.

    … AND KEEP TAXING THEM!

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  32. Deaconblue :

    People simply pay a higher percentage of their income in some places than others. Chicago is barely “unaffordable” based on this article’s metric, which probably understates affordability in the first place since it makes for a more interesting research topic/article. Chicago is very affordable compared to a lot of cities, we are spoiled to be able to live in such a great city for such low costs.
    ————

    AAAAAAAAAAAHAHHAHAHAHAH **THAT** has to be the funniest thing I have read in a looooong time. Drink that Kool-Aid, boy, drink it down!

    All the foreclosures and REO’s that are popping like weeds PROVE that you are completely off your rocker. “Simply paying a higher percentage of income” has proved disasterous. If it was affordable then LP and LV and all those “bullet-proof” hoods would have next to ZERO foreclosures. A quick look at reatytrac.com is all the proof you need to throw your argurement out the window. Too actually suggest “streaching” in today’s market is a good idea shows that you just crawled out from under a rock. Please go back under it, wait 20 years, the market might be better then. Good Lord…………….

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  33. Steve Heitman on June 17th, 2008 at 6:43 am

    It is strange how there are no active banked owned properties in LP. How come we don’t have so many foreclosures/

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  34. This is getting so old. Your arguments are little more than personal attacks. Go back to YoChicago! and post your ‘analysis’ there. The Crain’s article comports with everything I’ve been saying all along and you discounts its value. My analysis after talking to an REO is better than your “I can promise you the peak in ARM resets was earlier this year” despite the infamous bubble chart. http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html You sound so foolish. A return to affordability and the increase in foreclosures is not the end of the world. I’m sure it’s the end of the world for your personal kool-aid drinking finances but most of society will do just fine.

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  35. “It is strange how there are no active banked owned properties in LP. How come we don’t have so many foreclosures”

    Prove it.

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  36. Realtytrac shows 100+ bank owned properties in 60614

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  37. Homedelete: Thanks for linking to the Credit Suisse chart. It’s really stunning when you see the re-sets laid out like that.

    The story hasn’t ever been just about the subprime. It’s about buyers in all categories feeling the squeeze. The “crisis” just started in subprime first.

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  38. HD:

    I guess you’re using a different definition of “peak”. The peak on that chart is past; there is another, smaller peak in the future, which will likely be time shifted forward (and therefore flattened some) as the Option ARMs reach their max amounts.

    That said, I do agree with much of what you’ve said about the continuation of the problem–this ain’t nearly over, no matter what anyone wants to believe.

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  39. Steven Heitman on June 17th, 2008 at 9:19 am

    Homedelete – Your chart show the peak happening in Nov of 2007. Also please list a view addresses (other than Fullerton / Clybourn) or LP homes bank owned. I just searched and did not find any.

    Here is a nice article on why the better neighborhoods in Chicago will out perform http://online.wsj.com/article/SB121366811790479767.html?mod=hps_us_inside_today

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  40. Countrywide reports that they own 2015 N Howe (SFR) and 2428 N Marshfield (duplex).

    National City reports that they own 2000 N Lincoln Park West #1114 and #1214.

    I’ve found four, and I’ve only looked at two lenders.

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  41. Steven – The peak in ’07 was for subprime arms. These were 2 and 3 year arms in most cases. The peak for prime and Alt-A’s is coming. Affluent areas will see more pain from these.

    I got a 5 year arm at 3.25% in Summer of ’03. I was tempted to buy more house at the time but opted to just buy something I could afford even after the adjustment. Do you think I was the exception or the rule? The next year should be interesting.

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  42. Keep in mind that “subprime” includes extremely non-comforming loans given to unqualified buyers of any income level.

    For example, if you make $125K a year and have a FICO of 700, you could get a 30-year fixed of $300K, after a reasonable downpayment, and that would be a prime loan.

    But many folks did not do that. If you did what these folks, and got a $700K or $800K loan with your $125K income, as many over-reaching people did, well, that option ARM that made it possible to borrow such a high multiple of your income was a subprime loan.

    This is the sickest part of the whole debacle, that many people borrowing with option ARMs for 5, 6, or 7X their incomes didn’t have to do this to have many housing choices and buy a reasonable place.

    As for the “ding” on their credit scores due to the inevitable defaults and foreclosure: that little “ding” is a really nasty blow to their credit. A foreclosure is worse than a bankruptcy. These people may never again be able to borrow to buy a house on decent terms.

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  43. You can look up Countrywide REOs at http://www.countrywide.com/purchase/f_reo.asp

    National City posts theirs at http://www.ncmcreo.com/

    Many other lenders have similar sites. Google is your friend.

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  44. “Here is a nice article on why the better neighborhoods in Chicago will out perform http://online.wsj.com/article/SB121366811790479767.html?mod=hps_us_inside_today

    That article is about Los Angelos???

    Regarding the Suisse Credit chart, the subprime reset peak happened in November; it generally takes a while AFTER the reset for the default and foreclosure to happen. So we’re still right in the middle of this mess. Furthermore, there is another wave of alt-a and option arm resets right around the corner. Businessweek citing Fitch says that 80% of option-arm borrowers pay only the minimum payment. (http://www.businessweek.com/magazine/content/06_37/b4000001.htm) You are watching the Titanic hit the iceberg. If Steven thinks that credit is tight now just wait and see what it’s like in 2009/2010.

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  45. Businessweek says that 80% of option arms make only the minimum payment… (businessweek.com/magazine/content/06_37/b4000001.htm). Look at the chart and think about that comment and make your own logical conclusion.

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  46. “It is strange how there are no active banked owned properties in LP. How come we don’t have so many foreclosures”

    “Prove it.”

    What a bunch of BS. That sounds like the realtor that told my parents that there are never foreclosures in Brudgeport. I found 50 in 30 seconds.

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  47. BTW, 180 Bank owned in 60657 (lakeview)

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  48. “What a bunch of BS”

    Stevo’s big on making naked assertions, claiming that there is either ample or no evidence and then refusing to back it up. I also like his “not on Clybourn or Fullerton” afterthought. Do we get to count condos on Diversey (also in the ’14), or are those also “exceptions” Stevo?

    Still waiting on the 5 gainers for every loser in the ’14, Stevo.

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  49. Steve-o, your article link is a story about Los Angelos….how exactly does this explain “why the better neighborhoods in Chicago will out perform”???????

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  50. It’s always “different here”. Every market on the way down had some sort of rationale explaining why prices couldn’t fall. Look at Miami. There are plenty of reasons why prices weren’t supposed to fall, like retiring boomers, rich foreigners, etc. But fall they have. In many cases by 40-50%. Obviously they never should have been that high to begin with. No matter how many wealthy people there are in a given area, prices will fall if the area is flooded with an oversupply of housing.

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  51. I still don’t think Chicago will be as bad.

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  52. Jason,

    As a recent buyer I would pray for the same. HAHA Just Kidding

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  53. Steven Heitman on June 17th, 2008 at 11:39 am

    You guys are funny. 1st the article was about the US and the trend back to urban areas. 2nd, please send me some addresses of bank owned Lincoln Park properties.

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  54. “2nd, please send me some addresses of bank owned Lincoln Park properties.”

    Stevo–Do your own research!

    And, no, Chicago won’t be as bad as Miami. Anyone who thinks that is delusional. Chicago is not nearly as overbuilt (relatively) as Miami and the wage base is better, too.

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  55. Yes, and chicago is still cheap compared to other cities. (I don’t mean to say everything is roses though.) And Stephen, touche!!

    Don’t have time to post all of the forclosures. Each one has to be researched individually. Oh what the hell, without checking out everything, here’s a bone 14-28-312-064.

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  56. anon, I agree to a point. I don’t think Chicago will fare as bad as Miami, but I think some parts will get hit a lot harder than others. There is so much overbuilding going on in the South Loop and Near North that both areas will get hit hard. They are both very viable neighborhoods in the long term, but short term they will take a beating on price due to excessive inventory. I think farther out areas like Rogers Park will not only tank, but will take many years to recover since they are far from the city center and better deals can be had closer.

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  57. “2nd, please send me some addresses of bank owned Lincoln Park properties.”

    I believe Kevin did above.

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  58. Homedelete, thank you for the link to the ARM reset chart. It looks like a lull in resets now, but the next wave of mortgage resets for prime, alt-A, option, and unsecured is coming. These may have a greater impact on higher priced properties. I’ve been thinking of buying a second home in the downtown area of Chicago, but this data has helped me decide to rent instead.

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  59. Canada’s third largest city is having a strangely similar experience to the USA’s third largest city:

    “There are massive levels of new construction about to hit the condo market. There are a record 3,000+ condo units for sale in the resale market. This is relatively small in comparison to the whopping 20,000+ multi-family residential units that are in construction, approved or proposed for Calgary.”

    http://calgaryrealestatemarketblog.wordpress.com/

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  60. Why don’t those people just refinance now into a 30 year fixed?

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  61. They may not be able to refinance — they certainly would need to be below 100% LTV, and might need to be closer to 80% LTV. With market prices sliding in many areas, they might not be able to get an appraisal to go through.

    Example: as far as I can tell, my landlord bought this place with a 100% loan last year. He is on the edge of foreclosure, and has it on the market. We were interested and had it appraised — $250K below what he paid. If he tried to refinance, the new lender would figure this out and be willing to loan him far less than he currently owes.

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  62. Usually, there’s a 2% cap on how much the interest rate can increase with an ARM. 3/1 ARMs from 05 might not to up that much. Mortgage rates then and now are fairly similar. 5/1s from 03 will probably go up more, but there’s that 2% cap that people will generally run into. On a $417k note, 2% extra will be $695/month. I have a tough time believing that somebody who has made 60 straight payments is going to be pushed over the edge by $700 when there hasn’t been any increase in the past 5 years. Maybe I’m wrong.

    More likely, people who are getting swallowed now are chronic spenders who cashed out their equity to buy a BMW and spent last month’s mortgage money on a blowout vacation. The free money is definitely gone, and — horror of horrors — people who abused it will go back to the way they lived before it existed (with a much lower credit score to boot).

    It won’t stay like this forever, though. There have been credit crunches before, and the market has always found a way to digest them. Just like the bears on this forum talk about how the downturn is “different this time,” the mortgage lenders will start relaxing their lending standards (again) justifying their actions by saying “It’s different this time.”

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  63. JC:

    It’s not the standard ARMs that are teh next problem–it’s the Option ARMs. If you look at the CS chart hd linked to, the OAs are the teal bars–not as big as the subprime mess we’re currently working through, but more likely to be 80-90+% defaults. And the problem with them isn’t so much the re-set on the rate, but the full amortization of the loan–most will be facing a near doubling of their minimum payment.

    Also, much of the subprime had some period of teaser rate that expired with a significant hike in the monthly for people who weren’t really capable of making the lower payment. That’s a lot of the defaults nationwide.

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  64. “$250K below what he paid” holy shi%$!

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  65. Every A Paper or Alt-A loan that I originated in ’02-’04 had a 5% cap for the first year and 2% every year after that. A lot of them were interest only as well. I have been out of the mortgage business for a while but, I don’t think Int only is still an option. Almost everyone did an 80-20 at that time. Even 80-15’s were rare from what I saw.

    Factor in how many were stated income, No Doc or other products that aren’t available now. Many of them were completely maxed at the time. I think you will be surprised at how many people won’t be able to swing even a 6% 30 year fixed.

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  66. 5% Cap? Damn…what’s the point? To save the borrower in case mortgage rates go beyond 10%?

    Shows my ignorance to the kind of garbage that *was* available, I guess…

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  67. I have a friend with a family and two kids who bought his first house with no money down financing using an option arm and after his third kid was born, bought another larger house on another no money down option arm. He thought he would just rent out the first and be a landlord but now he hates that second job. Anyway, he’s got option arms on two houses and he’s trying to take care of his family and do all the right things but he’s making the minimum payment on both loans, just like 80% or 90% of all option arms. He’s going to be totally screwed when the loan fully amortizes after reaching 125% or when the interest rate resets. He’s still got a couple of years before the resets and the larger payment but when he does he’s screwed. It’ll take him a few months to run through his savings, empty his small retirement, borrow money from family, put both houses on the market, etc, but eventually he’s going to miss one payment and shit rolls downhill from there. I feel bad for the guy and I never tell him this stuff to his face but it’s in the back of my mind everytime I see him. There is a human side to this market mess, especially when it’s just for a guy trying to provide for his family. Yeah, financially he’s not the sharpest knife in the drawer but it’s hard to blame the guy for wanting to provide for his family in whatever way he thought best.

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  68. Regarding the WSJ article on urban living linked to by Steven Heitman: I don’t buy it. Tomorrow at 7 AM try to leave the city on either the Eisenhower or the Kennedy and ask yourself what is going on. For some reason there are people living in the city and working in the suburbs. If people want to reduce their commute there are a bunch of people that are going to need to move to the suburbs.

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  69. hd: “it’s hard to blame the guy for wanting to provide for his family in whatever way he thought best”

    Man, you’ve gone soft.

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  70. On a positive note I never originated one option arm in ’02 – ’03. I worked for a decent sized banker and they pushed them all of the time but they just weren’t that popular. I think they were more popular in high cost areas. They may have also increased when Prime and Alt-A arm rates increased.

    When I was in the biz they had a hefty prepayment penalty as well.

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  71. Lots of people commute to the burbs. Traffic on the inbound Kennedy at 7 am is far lighter than the outbound and it was like that before IDOT started work on the Edens.

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  72. “Traffic on the inbound Kennedy at 7 am is far lighter than the outbound”

    Express lanes(?).

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  73. Steven Heitman on June 17th, 2008 at 4:19 pm

    Homedelete – You are an idiot.

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  74. Steven – what the hell is your problem? Get a life. Stop with your personal attacks.

    anon – its not just express lanes. The reverse commute is worse nowadays. Ask anybody who makes the reverse commute and they’ll say its worse.

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  75. Steven you need to chill the fuck out. This is an internet message board. If you don’t like it go back to yochicago! with all the other kool-aid drinkers. Seriously, you’re getting on my nerves. I come here to sometimes post my comments and thoughts; I’ve only been posting for what, about a week or two? And I got this asshole on my case for everything I say. You called me an idiot.

    Are you a teenager? Did they close your myspace account so now you come here? You’re a god damn fucken bully and you need to grow up and act like someone your own age. I don’t know how the hell you even have any clients with your asshole attitude. You need to fucken stop these personal attacks. I never thought I’d have to say this on an internet message board. I’ve been on the net since 1995 and no one’s ever had a problem with me. And, I can honestly say I’ve never met an asshole as big as you. I don’t know who the hell you are, I don’t know why you chose to attack me but it needs to stop. Is there a moderator for this board? I think someone should start moderating ’cause there’s always the one asshole that has to wreck it for everybody.

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  76. The reverse commute is indeed awful, as is Heitman’s presence on this website.

    I make that commute occasionally when I have a client in the suburbs; I wouldn’t even consider a full-time suburban job. However, many people don’t have that choice yet still appreciate the many benefits of living in the city. Kudos to that.

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  77. Editor’s Note:

    Let’s try and keep it civil here folks. The debate over what the housing market will or will not do is an interesting one so let’s not resort to personal attacks on each other.

    There are a lot of people providing good information here about the mortgage market, the housing market in their neighborhood etc.

    And I should also say- that foreclosures are occuring in EVERY neighborhood- from Lake Forest, to Lincoln Park, to the Gold Coast, to River North.

    To think otherwise, is not being realistic. There are plenty of Ed McMahon’s in Chicago too.

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  78. go away Heitman

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  79. “Too actually suggest “streaching” in today’s market is a good idea shows that you just crawled out from under a rock.”

    I love being insulted be people who can’t even spell above a second grade level.
    D

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  80. I do the reserve commute every day and it stinks, but the express lanes do have a huge effect in making the outbound seem worse than the inbound.
    D

    P.S. HD you’ve got to pull your life together, an anonymous message board should not be sending you off your rocker like that…

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  81. “reserve commute”? And one post after insulting someone else’s spelling. Oh, the humanity!

    A good example of why not to pick on spelling in a comment thread.

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  82. DB is just the backup commuter for someone (or some group).

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  83. I like having Steven here. It is nice to have some different perspectives. It certainly beats reading a bunch of doom and gloomers mocking the decorating of places they will never be able to afford.

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  84. Kevin,

    Many of us doom and gloomers can afford. Especially on the low end. Its just that rent-own parity is so out of wack you would have to be an extreme right-brained person disconnected from financial reality to want to own these days. It just doesn’t add up.

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  85. Steven Heitman and homedelete should get together and go bowling.

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  86. Mine was a typo, his was bad grammar. Whats does it mean that I’m a “backup commuter for someone (or some group).” What the heck does that mean? Anyways, Burt is absolutely right, this board is 90% people who can’t afford any of these places and are routing for the market to collapse. It’s really pathetic.
    D

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  87. DB: “routing”??

    Another typo? Or bad grammar? Again, pointing out the irony.

    reserve=backup. Duh. A joke based on your misspelling (typo or otherwise). Not a very funny joke, but I think Kevin knew that.

    Most folks don’t exactly proof their posts, so picking on typos or bad grammar is too easy (and pointless and petty). Consistent misuse of a word is another story. “Too” for “to” and “streaching” for “stretching” are typos not misusing words.

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  88. “#
    Deaconblue on June 18th, 2008 at 4:52 pm

    Mine was a typo, his was bad grammar. Whats does it mean that I’m a “backup commuter for someone (or some group).” What the heck does that mean? Anyways, Burt is absolutely right, this board is 90% people who can’t afford any of these places and are routing for the market to collapse. It’s really pathetic.
    D”

    With the exception of yoChicago and a handful of other websites, much of the web is rooting for the market to collapse. Trying reading comments on real estate stories at WSJ, the trib, fark, topix, etc, and you’ll see that the posts on cribchatter are fairly representative of the general mood of posts across the web.

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  89. Steven Heitman on June 18th, 2008 at 6:13 pm

    Homedelete was going to have us all over at his place but there was simply not enough room.

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  90. “Homedelete was going to have us all over at his place but there was simply not enough room.”

    Actually my parent’s basement isn’t big enough for everyone and they go to bed at nine anyway.

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  91. YoChicago is hilarious. It’s proof positive that denial isn’t just a river in Egypt. It’s run by a long-time real estate developer, so naturally he thinks real estate only goes up (or at least wants everyone else to think that).

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  92. “With the exception of yoChicago and a handful of other websites, much of the web is rooting for the market to collapse.”

    Yeah, what’s your point? Anonymous message boards attract people who are glad the market isn’t doing well. Am I supposed to be convinced because losers on the internet think the world is coming to an end? Whenever the stupid masses all buy into a theory, it’s always time to take the other side of the trade.
    D

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  93. Are you going to bet against oil too?

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  94. Betting against oil would be totally different. A drop in oil prices would be great for our economy and for American consumers. You are routing for a drop in housing, which would create a nasty recession and would be horrible for all Americans. Big difference!
    D

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  95. DB: “routing” (again)

    I don’t think that word means what you think it does.

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  96. Well YoChicago’s bias is evident. Its a sponsored blog: sponsored by developers. If you take the commentary at face value and just use the site for what it is (highlights new developments) it can be an interesting read. I like architecture so I’m glad YoChicago exists. Would I ever trust them for buying advice? Of course not.

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  97. The “stupid masses” still think it’s a great time to buy. We ARE on the other side of that trade. Most of us will gladly switch sides for a good deal once conventional wisdom says that buying a house is a terrible idea. This will probably be around 3-4 years from now. You’ll know the market has bottomed when parents tell their kids to never buy real estate when they grow up. That will truly be a great time to buy.

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  98. If the stupid masses are still buying, why are sales so low and inventory so high?

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  99. Pete,

    This is because most of the stupid masses that wanted to buy did. They are now trapped in their domicile if they bought within the past 2-3 years, or have little equity to show if they bought 4-5 years ago. They are trapped in their residence and can’t upgrade until they find a bigger fool to take their place off their hands without them suffering a loss. Theres just no more dumb money coming onto the market, or at least very little compared to during the boom.

    And it won’t take parents telling their kids real estate is never a good investments. The stories from peers and older siblings will do enough to stifle the demand and the incoming trickle of demand. Unlike the “look at my condo I am so cool” parties that celebrated homeownership during the boom by 20-somethings, instead the reverse will be them telling their friends they can’t go out as much or can’t do certain things (because they’re financially ruined). It will be a much more sober mood when many realize they likely made the biggest financial mistake of their lives (short of divorce) if they need to move anytime soon.

    They’ll pay a steep price for acquiring all of the traditional trappings of a responsible adult and “contributing member of society” by including loan-ownership. I doubt they’ll care what ma and pa think about them then as their capital losses will probably weigh heavier on their mind and lifestyle.

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  100. DB, the damage to the American economy occurred through the run-up in values during the housing bubble. The inevitable correction, although temporarily painful for many, will result in a stronger economy in the long term.

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  101. “DB, the damage to the American economy occurred through the run-up in values during the housing bubble.”

    I don’t understand what your point is. If housing collapses, as many here would like it to, that would be horrible for the economy. If housing simply goes sideways for several years, like it historical does after a run-up, we will still be able to bring things back to normal without the carnage that so many people here seem to be ROOTING for.
    D

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  102. I agree with Deaconblue when he says “If housing simply goes sideways for several years, like it historical does after a run-up, we will still be able to bring things back to normal without the carnage that so many people here seem to be ROOTING for.”

    I, like many others, would like to see the market rid of all poorly thought out mortgages and a return to something close to own/rent parity. However, to wish for a crash would cause problems as this would push the market way too far the other way and cause a monstrous recession (once you change the perception and back it up with dropping prices, the market will STAY in that direction for a VERY long time… more than any one wants).

    What the market needs (over the next couple years) is a further correction in the stock market (maybe 1100 as the low?), a flattening in reasonably priced housing markets, and a sharp but orderly price drop in overpriced markets. This MIGHT even help fight inflation and return the market to affordability without a deep recession. Anyone wishing for any more has absolutely no idea what they are wishing for.

    Homedelete, the Option-ARM thing is definitely scary and we should hope that this is sorted out without the need to use taxpayer dollars. Additionally, we should NOT hope for their financial demise (although we should have little sympathy for those that do end up in foreclosure).

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  103. “I agree with Deaconblue when he says “If housing simply goes sideways for several years, like it historical does after a run-up, we will still be able to bring things back to normal without the carnage that so many people here seem to be ROOTING for.””

    Saying that real estate stays goes sideways after a historical run up is exactly like saying “real estate never goes down.” It’s just another NAR sound bite without any discussion of what it means. No one here is rooting for carnage i.e. Detroit; but people are rooting for a return to affordibilty where an average family can buy a 1920’s bungalow on the northwest side for less than $300,000. If you call that carnage that we have an academic dispute over the meaning of the carnage.

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  104. I’ve received some insider RE forecasts from a couple of the largest investments banks. Both see housing as taking a very bad turn this winter, and then again (even worse) for the winter of 2009. Ultimately, off the top of my head, they expect a return to 2003 prices by 2009.

    I’m not so comfortable with saying that the housing market will be sideways, not sure why anyone would be. Perhaps if the gov intervenes things won’t be so bad. But as of now it looks bad, very bad.

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