Crain’s: 2d Quarter New Home Sales Plunge 39% in Chicago
Finally- we have some real data.
Crain’s is reporting that new home sales fell 39% in the city of Chicago to 852 in the second quarter. This includes the entire city- not just the downtown- and presumably includes condos, townhouses and single family homes.
As has been stated several times over the last few months, about 6,000 new condos and townhouses will come on-line in just the downtown alone this year- with, according to Crain’s, 30% of those unsold (and how many of those “sold” will close on those contracts?).
Crain’s sales numbers come from a second quarter report from real estate firm Tracy Cross & Associates in Schaumburg. From Crain’s:
Contracts for new homes in the city totaled 852 units in the quarter, down 39% from the year-earlier period.
“The city’s recovery will take longer,” Mr. Cross says. “A number of projects will be in the troubled zone.”
Some already are. The delinquency rate for construction loans in the Chicago area surged in the first quarter to 8.4%, from 5.5% in fourth-quarter 2007 and 2.8% in first-quarter 2007, according to Foresight Analytics LLC, an Oakland, Calif.-based research firm. Though the data includes both commercial and residential projects, condo developments account for a large share of the delinquencies.
The city isn’t the only area feeling the sting of the housing slowdown. The entire region is seeing a massive slowdown:
At the current rate, contracts for new homes in the Chicago area will total 8,328 units this year, down 75.0% from the market’s peak in 2005 of 33,287, according to Tracy Cross.
“We are at the lowest point we can possibly be,” Mr. Cross says.
If sales don’t pick up, he estimates it would take 99 months to sell the 63,222 new homes built or planned for the Chicago area.
Prices in the Chicagoland area also continue to drop. For new single family homes the average price dropped 10.2% to $316,385 from a year ago. According to the report, for townhouses and condominiums, the average price, excluding the Chicago Spire downtown, declined 10.0%, to $387,423. (Crain’s did not provide City of Chicago-specific average prices.)
“There’s been enough price adjustment in the market” to stimulate sales, Mr. Cross says.
Is this a once in the lifetime event we are witnessing with this housing slowdown?
Take a look at the graph in the article and judge for yourself.
Home Sales Slump Slows [Crain’s Chicago Business- July 21, 2008]
The city should step in and decrease, or at least delay, some of the upcoming new condo builds to slow down the entrance of new condos going up – these developers are getting in over their heads and then ending up in bankruptcy; guess who doesn’t get paid – all the workers and contract companies they hire to do the work. Let’s not forget the banks that then don’t collect the millions they lend out.
The trickle down effect on these developers still moving forward in an already overstocked market is hurting more then just “new sales”
I know not everyone will agree with what I’m saying, but this has much larger effect on us then just overstock.
When will it all end? I have not sold a thing in months and can’t make my own interest only 5/1 arm payment. Help!
From the Crain’s article. Are they saying that 30% of the new condos coming online are sold or unsold? Do we have 1,800 units available or a total of 4,200?
Thanks!
This is exactly why I feel that even desirable projects (600 N. Fairbanks, 340 OTP) won’t even hold to construction prices. Too much supply, too little demand.
99 months of inventory. Incredible!
The 75% drop since 2005 is staggering. With a cheap dollar and so many international tourists in the city, I hope the international tourists decide to buy.
99 months of inventory seems a little ridiculous. Its probably not that bad as developers are walking away from a lot of projects (Waterview Tower) or will convert to rentals instead (Terrapin’s South Loop project).
The rentals will still put downward pressure on prices but the cancelled & abandoned projects won’t. Theres no way if you look at YoChicago’s high-rise map that many of those are going to be built to spec.
“From the Crain’s article. Are they saying that 30% of the new condos coming online are sold or unsold? Do we have 1,800 units available or a total of 4,200?”
There are 6,000 new units expected to close THIS YEAR. (Not simply being built and will come on the market at some time in the future- these are coming on THIS YEAR.) This includes 757 N. Orleans, 520 S. State and a host of other buildings.
This does NOT include building like WaterView Tower, the Spire, the Ritz etc- that are all still under construction and not expected to begin closing until late 2009, 2010 or 2011.
According to Crains (and other sources that have had the same numbers)- 30% of the 6,000 are “unsold”. That is 1800 units that need to be sold.
But, not being discussed, is that a big percentage of those units that are “sold” will probably not close because the flippers either can’t get the loans now or they realize they can’t flip the units.
So I would expect that 30% unsold number to grow. We’ve seen this even with the buildings that have already closed (such as the Vetro) where they were originally 50% sold and are now, months later, seeing fewer closings.
Also not being talked about- how many rental units will this create? There are several new apartment buildings being built in the South Loop along with all of these condos that will need to be rented. How many $2000 one bedrooms do they think will rent?
Bob: Waterview Tower would NOT be included in these 6,000 units as it’s not expected to close until at least 2010 (and now probably later due to the recent delays.)
“The city should step in”
Sadly, aldermen already do that. There are some anti-development aldermen who have been elected for that purpose (even in wards where development is still justified).
That aside, why should the city do anything? Developers are entitled to start doomed projects; banks are entitled to make poor lending decisions. Let these losers do their jobs poorly if they so choose.
Let’s have some faith in the market.
I say bring on the drop. Just the other day on CL I saw a beautiful 1br at Vetro at the terrace level with an awesome 630sf terrace. For a 670sf unit it was a little pricey for my tastes at 270k but without the bubble these things would have never been built. Cut the price 10% and throw in parking and now we’re talking..
http://chicago.craigslist.org/chc/rfs/759854726.html
Bob: Really? You’d pay about $350/sq ft of interior space there?
Anon,
I value the terrace and the location is pretty good. If you count the private terrace its really around $175/sf. But I’m also not going to catch a falling knife so won’t buy until things stabilize.
The city should step in
Since we’re well on the way to a socialist economy, can we at least get some free healthcare out of the deal?
“The city should step in”
No problem as long as the developers are willing to share their profits from last 10 years with the tax payers.
I love how they try to spin the “deceleration” of sales declines as a positive, as if we should just ignore the continued decline overall. The deceleration can continue but it would still lead to zero sales in the end.
A couple of quotes from Tracy Cross are real gems:
“There’s been enough price adjustment in the market” to stimulate sales, Mr. Cross says. I think it is more accurate to state that there hasn’t been enough price adjustment in the market to stop the decline in sales.
“We are at the lowest point we can possibly be,” Mr. Cross says. Now this is just utter nonsense. If a 10% price adjustment has slowed the rate of sales decline a little, how will the sales decline not continue down to zero if this is the “lowest point we can possibly be?” Either prices continue to fall and the sales decline decelerates further, or prices do not fall and the sales decline accelerates.
The only rational conclusion is that these sales figures will only lead to an acceleration of price decreases.
The Fed and the US congress all seem eager to help privatize profits and socialize losses, so I’m sure Chicago can join in on that as well. After all, it’s only the taxpayer’s money.
Yes of course prices will drop, all of us in the industry (sans a few self-deceived) know this.
Expect these poor performance figures to continue until the end of the year.
I’ve been saying it for some time now. Wait until this winter, that’s when you’ll see real pain.
This is the best news I’ve heard all week. I’ll drink one for price declines! Affordability is a gonna come knockin’ on our door sooner than most people thought! Oh yeah!
And when homes become more affordable, more people will want to buy them, which will lead to great volume! Banks will originate more loans, realtors will close more sales and the economy will improve!This is truly great news for everyone!
Homedelete is a Tool!
Oh Steven, when will you shut the hell up and return to the cave from which you came? You boorish troglodyte…
Ha ha, Steven has been peddling his bullshit on this blog for a long time and he cant face the facts. We’re in a shitty market and the numbers are proving his peddled bullshit wrong.
Compared to other cities (NY, SF, Boston), it is relatively easy to get permission to build a new high-rise in Chicago. That’s why there is such a glut of new construction in the central city. For buyers, this is good because it keeps a lid on prices. As soon as prices go up a certain amount, new projects will soak up the demand. Not so great for sellers, because they are always competing against newer buildings.