Market Conditions: 4th Qtr Downtown Condo Sales Crash Through the Floor
Given everything going on in the financial markets, it’s not surprising that fourth quarter condo sales in the downtown corridor crashed.
Crain’s reports that quarterly sales were actually a negative 253 sales as units that were formerly under contract fell out of contract and new sales stalled.
For the entire year, only 644 new construction condos sold. That is down from the peak in 2005 when 8,162 condos sold. It is also 83% lower than 2007 when 3,724 units sold.
Another 4,734 condos are expected to be completed this year downtown. This is on top of thousands of other condos that are completed but haven’t yet sold.
Amid the turmoil in the financial markets, “people were just frozen in their tracks” in the fourth quarter, says Appraisal Research Vice-president Gail Lissner.
Compounding the problem, the supply of new condos continues to grow as developers finish projects started during the boom. Downtown developers will complete 4,734 condos this year, 42% of which remain unsold, according to Appraisal Research. The supply of unsold condos is especially high in South Loop and West Loop developments.
“There’s going to be much more intense pressure in those developments due to the lower number of units under contract,” Ms. Lissner said at a Tuesday luncheon presentation.
Unable to pay back construction loans, many developers have already asked for and received loan extensions from their lenders. That number is likely to grow, but lenders eventually will be forced to foreclose if sales don’t pick up.
The good news is that many developers, unable to get financing, have scrapped plans for new projects. That means supply will taper off next year, a key step toward bringing the market back into balance. Downtown developers will complete just 620 units in 2010 and 86 in 2011.
“Thus, it is likely that there will be better absorption of unsold inventory in 2010, helping to sell out this overhang of unsold units,” the Appraisal Research report says.
Downtown condo sales show net loss in 4Q [Crain’s Chicago Business, Alby Gallun, Feb 17, 2009]
Nothing to worry about, the Olympics are coming…
John
“The good news is that many developers, unable to get financing, have scrapped plans for new projects. That means supply will taper off next year, a key step toward bringing the market back into balance.”
Even the people at Crain’s are idiots. Supply tapering off will bring “balance”? No, lower prices (or MUCH higher rent inflation) will bring balance.
Yeah, build fewer units for a year or two and then all of a sudden it will make sense to spend 50% more to own a place than rent it. Yeah, less construction means it now makes sense to spend 4-5 times your annual income on a condo.
How much does construction have to taper off for negative sales to start working down the existing inventory? I think my calculator is broken…
John
Think we got a theme song… Anyone remember that Bananarama song… “Cruel Summer”
Developers should start hawking their unsold units in churches. Because from the stats above buying a downtown condo right now would be nothing other than a huge leap of faith.
I am not a doom and gloomer. I am seeing an uptick in people wanting to buy. However, the lending environment is going to make it worse. Banks are throwing the baby out with the bath water and it is going to make it worse.
It is becoming very difficult to get financing on condos in Chicago even for the most credit worthy borrowers. The required down payments are the show stoppers for many of the young first time homebuyers since you pretty much can’t get financing without 10% down now on condos unless you get an FHA loan which has a max loan amount of $365k now. Most of the idiot developers didn’t do the things necessary to get their projects FHA approved and are now scrambling to figure out how to do it.
In addition, loan level pricing on condos from Fannie/Freddie are making the rates much higher on condos, not to mention PMI costs increasing and becoming non-existent for borrowers with less than 700 FICOs is definitely putting a damper on financing.
This doesn’t even include the lack of decent jumbo financing for condos…
Prices are definitely going to be coming down in many projects. I wouldn’t touch a large generic new construction high rise project with a 10 foot pole.
La la…nothing to see here…..
http://www.youtube.com/watch?v=rSjK2Oqrgic
damn, this is quite the predicament. I have a bundle of cash that i’ve wanted to put in the stock market b/c of historical lows and long term outlook, but the draw of getting a 2/2 in LP or 3/2 north of there for 250-300K in 2010 is also extremely enticing.
time to go to vegas and double down.
ChiGuy… I love watching people stand in front of a trend… 9 out of 10 will be like getting run over by a freight train… Good Luck!
Listen to the Wu and they will give you sound advice.
CREAM (cash rules everything around me)
Dolla dolla bill yall
HD might be able to afford a place in the next 3 years. Woo Hoo!
Edumakated,
You are correct that the financing environment is making matters worse but let’s face it 10% down is pretty reasonable. Buyers need to have skin in the game. 10% is not even enough. And the government’s attempts to put people in homes with 3.5% down is only encouraging people to take risks with my tax dollars. Market forces always beat governments.
Gary, I so agree. Please let this experience be the death of less-than-10%-down purchases. And even 10% should be the exception, not the rule. It takes only minor swings in the market value for homes to put owners underwater if they have less than 10% down.
and yet American Invesco still peddles their bullshit graphs showing downtown as every increasing.
ever*
Wait guys, you’re missing the point: OBAMA IS GONNA PAY YOUR MORTGAGE!!
“The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowers’ payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower’s income, with government sharing the cost to further cut the rate to 31 percent. ”
http://bloomberg.com/apps/news?pid=20601087&sid=a5xBdiMqKaqY&refer=home
Go out a buy, regardless of affordability, and then afterwards, Obama will lower your payment to no more than 31% of your income. I’ve always wanted to live in a $500k condo; too bad I make only $2,000 a month. Obama’s gonna lower my payment to $600 per month! SECTION 8 for everyone, Hooray!
Section 8 for everyone, Hooray!
Section 8 for everyone, Hooray!
It sure sounds like the lenders are acting rationally for the first time in many, many years. Why would they act any other way when lending large sums towards a depreciating asset? No skin, no in.
Prior to the bubble, there was a high bar in place for nonconforming loans for a reason. Lenders chose to ignore that when they believed it wasnt their money at risk. They arent likely to make that mistake again in our lifetimes.
Yawn. There is still a long way to go in this correction.
(apologies for no working apostrophe key)
G… whats an apostrophe?
p.s. 2 beers for you later today on Avenida Atlantica!
The biggest issue is the fact the sellers are still trying to turn a 10+ percent profit on something they bought a few years ago! No one should pay more in 2009 than someone did in 2005, let alone 1998.
Ze, its amazing how many memories I had forgotten which your references shake loose. Obrigado.
G.. well one last one for you… http://www.rio-carnival.net/photos/Salgueiro/slides/Salgueiro%2013.php
Did I mention how shitty life is down here 🙂
Btw.. I think I just saw that Allen Sanford guy… Confirmed on a flight to Rio de Jeneiro, first class, sitting next to Sally Ann Cavanaugh..
HD:
IF you saved over $100K for the DP on a $500K house on $2K/month, kudos to you.
Your sarcasm is misplaced, though. the loan modifications are for existing mortgages not for future new mortgages.
You also forget to mention it’s not a 1 stop shop for loan mods, it is for people who have been “responsible”. While I don’t really agree with it either way either, you sound like Rush Limbaugh with your one-sided and flawed logic propagana.
“And the government’s attempts to put people in homes with 3.5% down is only encouraging people to take risks with my tax dollars. Market forces always beat governments.”
Well actually there is no risk to tax payers with FHA. You see, when you do a FHA loan, you need to have up front 1.5% mortgage insurance premium paid up front at closing, for our place that we are purchasing it was about $5500 bucks, also FHA people have to pay an additional PMI which is about 9% of your P&I payment every month. So, if you default on the FHA loan, the mortgage insurance company eats the bill, not the taxpayers.
Chi Guy…
“it is for people who have been “responsible”.”
Do you fail to see the humor in that??? I am literally laughing.. Thanks!
Sonies.. And who has been backstopping the insurers, banks, GSA’s…
Do you just purposely always say stupid shit because Heitman hasn’t posted much lately??? I mean I know I purposely strive for complete and utter immaturity and irresponsibility so maybe you do this on purpose.
HD’s logic is perfect.
1- If people had to put up 20% the house never would have gotten to 500k in the first place.
2- If you don’t have 20% you should not be buying a place for 500k.
3- If you pick door # 3 and Monty Hall asks you if you want to switch to door #2 after he shows you the Turtle Wax behind door # 1 do you switch???? Ah logic!! I love math!!!
Lol damn, busted! 🙂
I see people all the time who make $60k and live in $350k or $400k homes. They’re all looking for loan mods. Now the gov is going to pay for it.
“#
ChiGuy on February 18th, 2009 at 11:13 am
HD:
IF you saved over $100K for the DP on a $500K house on $2K/month, kudos to you.
Your sarcasm is misplaced, though. the loan modifications are for existing mortgages not for future new mortgages.
You also forget to mention it’s not a 1 stop shop for loan mods, it is for people who have been “responsible”. While I don’t really agree with it either way either, you sound like Rush Limbaugh with your one-sided and flawed logic propagana.
“
Ze,
I have literally gotten into arguments with b-school profs over #3. The real answer is it shouldn’t matter.
I’ve never seen the show but if the host always offers the opportunity to switch doors, regardless of what you door you picked initially your odds of winning big will be 50% at that point. Feel free to try to explain otherwise. Maybe he doesn’t always offer this option is the only conceivable way those profs could’ve been right, IMO.
In all seriousness, I see ‘debt people’ all the time underwater on their mortgage. They’re mortgage payment takes up usually 50% to 60% of their take home income, especially since overtime and hours and bonuses have been cut. They cannot afford their mortgage and fall behind. Now thanks to Obama, all I have to do is send in a couple of paystubs and blame the ‘evil’ mortgage broker for getting them into an unaffordable loan, and, Obama will reduce their mortgage to 31% of their income. So yes, there will be plenty of people with option arms who make $24k a year and have mortgages 8-10x income who will get loan mods. It’s just sickening to be honest although it’s going to make me some money. I guess I’ll hold my nose b/c we all gotta pay our bills somehow.
Sonies,
The mortgage insurers are going to need to be bailed out pretty soon. Show me one whose stock price is above $2. Guess who will eat the mortgage insurance industry losses when they are bailed out?
Taxpayers.
Bob.. gotta go run for a bit.. I once figured out an easy way to explain it.. Always switch! Will illustrate later.
Bob – I guess I could have been more sarcastic in my text. Oh well.
Ze,
Here’s why you should always switch:
Assume for the math to be more obvious that you have 100 doors and one of them has $1,000,000 dollars behind it. You pick door #47.
Now the host reveals every other door except #47 and #32. Wouldn’t you switch now?
When you chose door #47 your chance of winning was 1 out of 100. (very low).
Now your chance of winning goes up to 99 out 100 by switching to the other door.
You’re betting on the fact that you had a lesser chance of picking the correct door initially.
Bob,
There are no “opinions” in math – only correct and incorrect answers. Those B-school professors must have had a good laugh over your stubborn ignorance. The Monty Hall problem is an example of Bayes’ theorem:
http://en.wikipedia.org/wiki/Bayes'_theorem
As a “simple” explanation: imagine you had 100 doors with a prize behind 1 door. You choose a door and Monty closes 98 other doors leaving the door you chose and one other. Do you switch? Of course you do. As for the original Monty Hall problem – your original probability of choosing the prize was 1/3 and the probability of the remaining door having the prize is 2/3. Cheers!
The housing market cannot begin to recover until all this stupid bailout talk goes away. Sellers will cling to wishing prices as long as there is hope of the government coming in and making everything OK. Once the consensus is that there will be no bailout (or an ineffective one at best) prices will fall to levels people can actually afford since sellers will realize their peak bubble valuation isn’t coming back anytime soon.
Bri Bri,
But in the example the profs used in class there were 3 doors. So pre-ante you have a 33.3% chance of winning. Lets say you pick door 1. Then they open door 3 and its not a winner.
Now its post-ante and you have a 50% chance of winning. Were you to switch to door 2 now, you’d still have a 50% chance of winning. It doesn’t matter in this scenario whether you switch.
Bob,
Assume there are 3 doors, A B and C. After you have made your initial choice of door (lets assume you chose A) there are 3 possible scenarios. 1. You made the correct choice and the other doors contain nothing. 2. You made the incorrect choice and door B has the prize. 3. You made the incorrect choice and door C has the price. In scenario #1 Monty will open either B or C. If you switch you lose. In scenario #2 Monty will open C. If you switch you win. In scenario #3 Monty will open B. If you switch you win. So – 3 scenarios and if you switch you win in 2 scenarios vs. winning in 1 scenario if you stick with your original choice. Thus if you switch your probability of winning is 2/3 vs. 1/3 if you stick with your original choice. This is a fact not an opinion.
Bob,
It still matters.
There are three different universes, in each one a different door, A, B, or C is the winner.
You always start by picking door A.
If you don’t switch:
In Universes A you pick A. And then are offered B after seeing that C is a loser. When you don’t switch you win!
In Universes B you pick A. And then are offered B after seeing that C is a loser. When you don’t switch you lose.
In Universes C you pick A. And then are offered C after seeing that B is a loser. When you don’t switch you lose.
But if you do switch:
In Universes A you pick A. And then are offered B after seeing that C is a loser. When you switch you lose!
In Universes B you pick A. And then are offered B after seeing that C is a loser. When you switch you win!
In Universes C you pick A. And then are offered C after seeing that B is a loser. When you switch you win!
THUS, ex ante you win 2/3 when you always switch but only win 1/3 if you never switch.
And what you should do ex ante is what matters, not post.
(also bad c&p made for some repeated typos, heh, universes)
Bob.. The way bri explained it is perfect… Everytime you do it with 3 doors people do exactly what you did so I do the same and expand the example to 100 doors. With 100 doors your first pick is 1% chance of being correct. Since he must leave the prize by narrowing the other 98 away he has told you exactly what door it has to be with almost 99% certainty. Just because it is 3 or 100 it still works the same but with three it is 33% vs 50%. You switch. Think about it from 100. It is not binary of 3 it doesnt work and 100 it does. The more doors, the more reduced, the more certain your odds of winning are if you switch. Thats all it boils down to. Always found it funny that this is probably the most argued logical reasoning question in history. Bri.. you win a Cosmopolitan on me for doing the 100 door thing 🙂
kp.. curious.. did you go to vandy?
monte hall problem
bob, you are correct, but only because of the way the question was stated. most arguments over this question happen because the question is asked in an ambiguous way.
for example, take the gameshow deal or no deal. lets say you pick case #10 & you go through playing the game and open every other case except for #3. There are two values left on the board, $1,000,000 & $1 — howie offers you the option to switch, should you?
the answer is, it does not matter, there is a 50% chance you have 1mm and 50% chance that you have $1.
Bri Bri — the answer in your example 50% as well…
here is why
The problem should be stated:
You are on a gameshow. There are 100 doors, behind 99 doors you will find the local paper. Behind one of the doors you will find 1,000,000. You pick door #47. Your door remains closed. The host offers to open 98 losers and leave only your door (#47) and one other. Should you stay with door #47 or switch to the door that is remaining after he opens the 98 losers?
The answer to this question is that you should definitely switch. The subtle difference is that the host guarantees that he will show you only losers.
When you initially pick, you own door #47 and a 1/100 shot of winning 1mm. The host owns every other door and a 99/100 chance of keeping 1mm. By offering to switch AND reveal 98 losers, he essentially offering you all of his 99 doors.
The number of doors is irrelevant, 3, 100, or 1,000,000, the logic is the same
I am not sure if i cleared things up or made them worse, but that’s generally how it goes with this question.
Nope, but I went to Duke. Maybe it is a southern thing? 🙂
Actually, now you’ve got me curious as to why you’d ask that question…
Kp.. something you said once before and the way you chimed in on Monty Hall.. Thought you were a good friend from way back…
BTW.. Is it true Duke blows and State swallows 🙂
kp-
Just curious…who was the prof? I learned that same riddle from a relative who just happened to teach MBA students at Duke a few years back.
I don’t wanna say that it’s hard to stay optimistic, but it’s getting hard for me to stay optimistic.
I’m afraid that my bong is going to have to come out of retirement. I blame it on that damn Phelps kid, I completely forgot that I had one laying around.
Wait a sec, maybe it’s time to find a new industry. The Financier biz appears to be lucrative.
anon 3:52 – I finally got it. Thanks!
shhh! no one tell first midwest bank whats going on . This is a smart tip from the mortgage page.
http://www.firstmidwest.com/personmortgage.asp
Smart Tip:
THE LEVERAGE OF BUYING UP
Like any other investment, your home will be worth more over time. And it pays to buy early, even if the home is modest and the down payment low. Here’s why: In a few years you realize a return on the entire value of your home, not just the down payment. That’s leverage. By selling your home and using this leveraged equity as a down payment, you’ll find it possible to buy up to a far more expensive home than if you had waited the same time to afford a nicer first home.
“Like any other investment, your home will be worth more over time. ”
In that case I’ve got some LEH, SIRI & IMB stock to sell to First Midwest Bank. Never been a better time to buy!
Is there some kind of regulator or government agency I can call about that web page? It really irks me its still up and financial unsavvy people might make disastrous financial decisions based on it. Its actually quite disturbing in light of the current environment.
I thought there were regulators in place from protecting local bankers from becoming bucket shops promoting pump & dump schemes?
err regulators should’ve read regulations & protecting should’ve read preventing.
Anon.. Bob… I have watched guys with PHD’s and engineering degrees argue this one incessantly with out accepting the answer no matter how it is explained, it seems there is a trigger in the brain either allowing you to get it or not get it, so I know where this goes. They actually do psychological research on why people refuse to accept this. There is no similarity between this and the Howie Mandel question to which you are correct is 50/50. The major difference is Monte CAN NOT show you the prize. In Howies game (I think and have never seen.. there is a prize under every case and Howie doesn’t care which is opened and when) Monte HAS TO show you only losers, he CAN NOT open the prize door. When I reach a point where people refuse to accept the answer I propose reality (much as I told Sonie to go to the bank and ask for 100k cash.. btw. people hate reality)
Get a friend and have them play it with you then don’t switch every time and you will miraculously watch your win percentage move to 33%. This will bother you so you will keep going and you will only move closer to 33%. If this does not occur please tell me as I will owe a damn hell of a lot of people I never hired apologies. But I know I am safe.
Actually you don’t need a friend you can sit there and do it by yourself.
Maybe one last way of explaining it intuitively is to go with the obvious. You pick door 1 and know you got a 33% chance of getting it right. You know there is a 66% chance it is behind the other 2 doors. After he eliminates the turtle Wax behind door # 2, by switching to door # 3 you are really still buying the package of door 2 and 3 that you knew was 66% before.
Go 50 trials by yourself and you will never doubt it again. You will still be bothered by it though no matter that you proved it to yourself. Kinda cool.
“I propose reality”
Your “ask for a raise” test for inflationary urges was another dose.
“Bri.. you win a Cosmopolitan on me for doing the 100 door thing”
Ze, I’ll have to take you up on that next time I’m down there. I was last there with two friends in November and cashed in a bunch of points for the J W Marriott on Avenida Atlantica. My first trip down there I did the hang-gliding over by Leblon where you land on the beach. That was a great experience.
Fannie May is also requiring as of 3-01-09 developers to have 70% of their units pre-sold for the property to qualify for a conforming loan!-otherwise, no loan funding at the closing table!!!! And no individual or entity can own more than 10% of the units-so no more bulk sales and finally, no more than 25% of the units can be non owner occupied/rentals!