Market Conditions: After a Hot July, Will Chicago’s Housing Market Cool in August?
Housing is big news this week. Chicago’s real estate experts and some agents have been chiming in about July’s hot sales. The Sun-Times even put rising real estate prices on the front page.
From the Tribune:
Despite the positive report, the local housing market’s recovery continues to be uneven. Unlike eight to 10 years ago and except for investors, people who are priced out of choice neighborhoods are not looking at fringe neighborhoods in search of a good deal and future appreciation, said Zeke Morris, president of the Chicago Association of Realtors.
“We still need pioneers, people who are willing to take that chance in neighborhoods,” Morris said. “I’m happier that our median price is moving up. The only thing I caution people about is, the top half of the median is not the problem. The bottom half is the problem. How do we get prices at the lower half of the median moving up?”
In July, the median sales price of a home sold in the nine-county Chicago area rose 18.3 percent from a year ago, to $201,075, the Illinois Association of Realtors reported Wednesday. The median price of a home sold within the city increased 25 percent year over year, to $250,000.
While those kind of numbers seem reminiscent of the bubble years of runaway home prices, that’s not the case this time, real estate agents say. They add that homeowners who expect their properties to fetch unrealistically high prices are being urged to ratchet down their expectations.
“We’re not seeing prices skyrocketing,” said Michael Golden, a co-founder of @properties. “Pricing is still very moderate. The market today is much more thoughtful, much more careful, even though it is hotter than it was two years ago.”
The slower pace of activity that Prudential Rubloff agent Francesca Rose has seen in August is welcome because it means a more balanced market and a less-panicked buyer.
“The nervousness and the panic, people feel like they’re going to make the wrong decision,” Rose said, adding: “When we say it’s slow, it’s relative. It’s slow relative to April.”
The Sun-Times covers the bidding wars but also talks about slowing in August.
“The inventories are so low that there’s really no place for prices to go but up,” said broker Leigh Marcus of @properties. Marcus works Chicago neighborhoods from the South Loop to Rogers Park, and he reports brisk sales and bidding wars for homes with attractive features.
He handled such a sale in July for Joe Chasen, an options trader at the Chicago Board of Trade. Chasen said the Bucktown rowhome sold in three days and drew a strong response because of features such as a yard and rooftop party space.
Marcus said it sold for $861,500 and that six offers were made, all above the asking price.
Chasen said he bought a house in Glenview before selling in Bucktown and had to beat out other bidders. “I think I hit the market at a good time, just before interest rates began to tick up,” he said.
Marcus said the higher rates are just now having an effect. He said he detected a slowdown in sales starting in August beyond the typical impact of vacations and back-to-school preparations.
Wesbury, however, said the market will take the rates in stride. He said that with more confidence in place, “buyers are more willing to buy than back when rates were lower but buyers thought home prices might fall further.”
Will the experts be right about August cooling?
July’s heady housing gains in, around Chicago not expected to be replicated [Chicago Tribune, Mary Ellen Podmolik, August 22, 2013]
Housing market heats up in Chicago area with July sales up 36.1% [Sun-Times, David Roeder, August 22, 2013]
There’s a couple of interesting things about this article.
1) The owner in Bucktown sold his house and purchased another in…the suburbs! Glenview of all places! I thought that didn’t happen anymore because everyone was choosing to stay in the city?
2) “The median price of a home sold within the city increased 25 percent year over year, to $250,000.” I know the median reflects the mix of homes sold and not necessarily prices, but it means that low end/foreclosure/etc have really tapered off and the high end – the $861k house in Bucktown- is picking up the slack.
3) ““The inventories are so low that there’s really no place for prices to go but up,” said broker Leigh Marcus of @properties. Marcus works Chicago neighborhoods from the South Loop to Rogers Park, and he reports brisk sales and bidding wars for homes with attractive features.”
Doesn’t this sound familiar, like a familiar poster on this board? Somebody who says “don’t buy dumb” aka ‘attractive features’; or ‘no place to go but up’ like this poster says that his clients who bought smart even at the peak aren’t losing money? LP office for this @properties broker, just like the poster on this board; and the @ properties website of the poster claims that he also lives in lincoln park, just like the poster on this board? I think his hubris got to him and he decided to put his name out there in some article. I think DB realtor poster just outed himself.
Here’s the home the 36 year old U of I grad derivatives trader bought in Glenview
http://www.urbanrealestate.com/property/339-North-Branch-GLENVIEW-IL-60025-M2V7UID2ECF3G.html
http://www.redfin.com/IL/Chicago/1644-N-Paulina-St-60622/home/12792329
The home the trader sold.
Interesting how buyers are back to paying near 2006 prices for ‘choice’ properties. It sold for $861,000 after a purchase in June 2006 for $867,000. Not bad.
Purchase price of Glenview home: $1,550,000
Mortgage on Glenview home:
Recorded Document Type Amount
07/25/2013 MORTGAGE $1,240,000.00
20% is impressive, but 20% down on a million dollar home is a lot different than 20% down on my home. Seems a bit Gatsby-eqse. Living the high life on huge extension of credit.
The mortgage is an ARM but aren’t they all when you get into the super jumbo category?
HD–it’s the 2d to last Friday of summer; no reason to be such a crab.
also: “I know the median reflects the mix of homes sold and not necessarily prices, but it means that low end/foreclosure/etc have really tapered off and the high end – the $861k house in Bucktown- is picking up the slack.”
No, it doesn’t necessarily. It may mean that instead of a bunch of $195k condos and bungalows, most of the added sales were $275k condos and bungalows. Need to look at what happened to sales over $800k, alone.
I detect a bit of jealousy up here ^
Contract activity remains strong as I mentioned earlier this week. So August closings should be up by double digits.
Case Shiller comes out on Tuesday. Futures market says 4.2% over last month, which would be 8.1% year over year.
no jealousy. believe me I know that money isn’t everything in life. seems ironic that a hip city dweller buys a McMansion in Glenview.
and DB outed himself. what about that?
HD, sounds more like the trader is a lemming.
“20% is impressive, but 20% down on a million dollar home is a lot different than 20% down on my home. Seems a bit Gatsby-eqse. Living the high life on huge extension of credit.”
Is it living the high life or smart financial sense?
I have a friend who put down 60% on a $475k house in December 2012, they are early 30’s with two small kids. Combined income is around 200-250k (both spouese make about the same). They plan to update the kitchen and baths but if everything was brand new, the house would prob fetch 525-550.
Should they have borrowed more since rates were so low and invested the rest of the cash?
On the other hand another friend put 20% down on a $1M house has a jumbo at 3.75 but could have put 35% down. (one spouse makes a lot more than the other (200 or so and 40-50k) they also have 2 small kids)
Thoughts
or a typical trader who levers up the leverage. when a 860k house isn’t enough, it’s time to double the mortgage payment on a home that’s twice as expensive. Im not jealous, really, I’m just showing how the world really works.
I’m jealous : (
I dunno I’d rather keep the city home (whats wrong with it? unless you plan on having like 3 kids) and have a vacation house somewhere (+funds to travel to said vacation house)
That mcmansion is Zzzzzzz….
“1) The owner in Bucktown sold his house and purchased another in…the suburbs! Glenview of all places! I thought that didn’t happen anymore because everyone was choosing to stay in the city?”
A friend of mind sold his 1.3M LP SFH 2 yrs ago and moved to Glenview when he was in his early 40’s. Has 3 kids.
Glenview is filled with ugly dumps like this. It’s the north shore for the people who can’t afford the north shore. at least there are some older and architecturally significant homes on the north shore. this 2009 dump is a dump, the million dollar price tag not withstanding.
“the million dollar price tag not withstanding.’
It’s a house for those that spend $1.5M and want everyone to know the house is a $1.5M house. A $1.5M house in Winnetka, Hinsdale or some other place like that isn’t going to look like it cost $1.5M to the masses.
Anyway, I’d live in that house if I had $1.5M…or perhaps the guy that bought it has family/friends aroudn there. Don’t most people want to live near friends?
“Should they have borrowed more since rates were so low and invested the rest of the cash?”
Everyone knows what I think about that–**assuming they plan to stay for 20+**–shoulda taken the $380k conforming loan at ~3.25 for 30; if their horizon is shorter, get the cheaper time-matched ARM for $380k.
If I was going to spend $1.5 Million in a suburb, it certainly would not be Glenview.
“Everyone knows what I think about that–**assuming they plan to stay for 20+**–shoulda taken the $380k conforming loan at ~3.25 for 30; if their horizon is shorter, get the cheaper time-matched ARM for $380k.”
Yes, they plan to stay for 20+, and those are my thoughts exactly. With a 190k mortgage and 200-250k income youre leaving a lot of mortgage int deduction on the table and your ROI on the equity in the house is probably going nowhere real fast.
I don’t understand the appeal of Glenview except at the very low end with families trying to get their kids into New Trier.
jenny, I completely agree
kneel before Bernanke!
Bubble Blower Jr. has done it again.
DHS is preparing for the aftermath. shit is about to get real.
Completely agree about Glenview. It’s not much of a town.
I’d rather have the less McMansiony $1.5 mln house in Winnteka where there’s character and beauty, even if the house is smaller and less flashy. I hate McMansions in the first place.
Also, you can get very nice homes in the real NS for well under $1.5 if you know where to look. But whoever buys places like the McMansion is looking to show off their money, so they wouldn’t want a better deal.
I don’t think Glenview is new trier. it’s GBN or GBS. Glenbrook north or south. glenview and Northbrook is glenbrook. these types of words were totally popular in the NW suburbs. palwaukee (palatine and mileaukee). randhurst mall is rand road and elmhurst road. my favorite is the dumpy strip mall at Dundee and elmhurst – Dunhurst Shopping center.
“I don’t understand the appeal of Glenview except at the very low end with families trying to get their kids into New Trier.”
I don’t live in Glenview, near it or anything close but here’s my understanding. Most of Glenview goes to a Glenbrook HS (N or S). Both schools are excellent/top notch. Glenview is a large community and the SE portion of it looks old school with large/old trees. The taxes are cheaper than say Wilmette or Winnetka and youre still close to the city by car/train if you take 94. Ther further NW you go in Glenview it becomes ho-hum/blah.
Same deal with a N side neighborhood. Wha’t the point of North Center? It’s far from anything in the loop/downtown, far from any highway etc…The only thing it has going for it, is that’s the housing is cheap and the schools are supposedly decent for a CPS school, which I guess isn’t saying much.
show off their money? what money? there’s a $1.25 milmortgage on a $1.5 mil house. he’s showing off his debt. he might have some income and a nice bonus but he’s got quite the debt that needs to be fed.
“show off their money? what money? there’s a $1.25 milmortgage on a $1.5 mil house. he’s showing off his debt. he might have some income and a nice bonus but he’s got quite the debt that needs to be fed.”
Who knows. Perhaps he’s just like any other bloke, just with more income and assets. How’s that different from a professional wokring family in a $400k house and $300+ mortgage and ~100k income?
Everyone assumes that anyone that likes large and new homes likes to show off.
Looking to buy appears to know very little about Chicago.
“I don’t think Glenview is new trier. ”
There is a sliver that is–the little bit of GV east of Harms.
“The only thing [North Center], has going for it, is that’s the housing is cheap”
Haha; “cheap” compared to … what?
“the schools are supposedly decent for a CPS school, which I guess isn’t saying much.”
The schools are actually ‘decent’ for *Illinois*. Compare ‘decent’ly well to any school you pick, esp if one considers the low-income %, too.
The professionals in the $400k homes aren’t showing off their wealth, they’re living on the NW side of Chicago.
I don’t know about you guys but I wouldn’t want to owe anyone or anything a million bucks, unless I had it already available to pay and was just using the debt as an inflation hedge
“Here’s the home the 36 year old U of I grad derivatives trader bought in Glenview”.
He bought near the village of Golf metra stop which is 32 minutes to Union Station on the 7am train. Village of Golf is very small and has some farily expensive houses with lower taxes than in Winnetka/Glencoe/Wilmette. There’s not a whole lot of walkable things to do in that area though compared to to the 2 metra stops to the north.
You have to live in far east Glenview to be in New Trier – I think its east of Wagner Rd or even farther. Otherwise its primarily Glenbrook South with some Maine East section on the southern section of GV.
Prices and taxes in Glenview if close to metra are lower than Park Ridge, Arlington Heights and Elmhurst. Those are close comparable suburbs in terms of the residents.
“There is a sliver that is–the little bit of GV east of Harms.”
Oh boy, Dan would have a field day with your comment, anon(tfo) doth protests too much, methinks.
“there’s a $1.25 milmortgage on a $1.5 mil house. he’s showing off his debt.”
Maybe, maybe not–do you actually have any idea what he has in liquid assets?
“Oh boy, Dan would have a field day with your comment, anon(tfo) doth protests too much, methinks.”
You seriously think I live in Glenview?!????!!!?
I think its insane he paid $860 something for that Paulina place at any point in time and that the next buyer paid that too.
The real estate cheerleaders are out in full force in the media. Inventory hasn’t gone up as much because people are still not above water, especially the serial HELOCers….
If he’s a successful options trader (which it appears he is) then he probably has a lot more than you think HD.
it is NOT easy to be a winner on the long side of options, I can tell you that right now…
Yeah, in good years he probably made around $500K. He’s probably in the $2-4M range in liquid assets as long as he didn’t go crazy buying Gallardos and stuff.
“anon(tfo) doth protests too much”
ps: we’re all *definitionally* on the internet here; why wouldn’t I just look that up?
Dave M, it’s even stranger that he paid $1.5 Million for that dump in Glenview.
“Maybe, maybe not–do you actually have any idea what he has in liquid assets?”
I gotta call my buddies at the NSA for a favor to answer that question.
“You seriously think I live in Glenview?!????!!!?”
I think that Dan would accuse you of growing up in some self-segregating conclave in the NS due to your intricate knowledge of the boundaries of NT.
I’d like to see his garage and check out the cars he drives. Would it be comparable to a Lake Forest garage?
I saw a 22 year old kid driving an orange Gallardo a couple weeks ago when I was on my way to golf up in Glenview. He was parking it in a driveway where there was another Lamborghini in the garage. Not a very assuming house either – caught my by surprise. I’ve seen Rolls Royces, Bentleys, Gallardos, and Ferraris all over the north shore and not just in Lake Forest. There are only so many of those sold in the US, and probably less than 10% of those are in Illinois.
“If he’s a successful options trader (which it appears he is) then he probably has a lot more than you think HD.”
I’m sure he does have some dough. But not enough to support his lifestyle if he only put 20% down. You said it yourself, you wouldn’t want to owe anybody a million bucks. I’m sure he has a great income. but like most traders, they love to spend it all too. Plenty keep the 2-4 mil liquid asset and some just spend way too much
“your intricate knowledge of the boundaries of NT”
Someone once said something about it to me, and I checked it (city news bureau style) before posting.
You’re talking about the other Dan, I hope?
You don’t want to live in any section of NT west of 94. That’s where the poor people live and those kids will be ridiculed starting in kindergarden….
” I’ve seen Rolls Royces, Bentleys, Gallardos, and Ferraris all over the north shore and not just in Lake Forest. There are only so many of those sold in the US, and probably less than 10% of those are in Illinois.”
I don’t know about ferraris but there are plenty of banks bending over backwards to lend borrowers $100k+ to borrow cars. You can buy a Bentley for $1,200 a month. That’s less than I pay in a month for daycare. Hell, I’ll out out and buy a Bentley as soon as my kid enters preschool.
“You’re talking about the other Dan, I hope?
of course, you’re Dan #2
The one trader I know well doesn’t like monthly payments. He paid cash for his place, and pays his RE taxes once a year and prepays his assessments each year. He had seven figures in liquid assets by 28. Had some bad years here and there, but for every year he made $200k, he had a $900K year to make up for it.
“buy a Bentley as soon as my kid enters preschool”
why wait?:
http://www.cars.com/go/search/detail.jsp?tracktype=usedcc&csDlId=&csDgId=&listingId=122844304&listingRecNum=1&criteria=sf1Dir%3DDESC%26stkTyp%3DU%26crSrtFlds%3DstkTypId-feedSegId%26rn%3D0%26PMmt%3D0-0-0%26stkTypId%3D28881%26sf1Nm%3Dprice%26isDealerGrouping%3Dfalse%26rpp%3D50%26feedSegId%3D28705%26dlId%3D459110&aff=national&listType=1
“That’s less than I pay in a month for daycare. Hell, I’ll out out and buy a Bentley as soon as my kid enters preschool.”
Silly FOOL!!!!!
do you think it actually gets “cheaper”?
“do you think it actually gets “cheaper”?”
At least it’s figured into my property taxes. I dont’ live in the city anymore, so hence, no private school
“Vlajos (August 23, 2013, 10:58 am)
Looking to buy appears to know very little about Chicago.”
Ok, I’m not sure what that’s suppoesed to mean….
Anyway, if you make $400k a year, why wouldn’t you borrow $1M? If you make $100k a year, should you live in a paid off trailer you paid $20k for?
“or a typical trader who levers up the leverage. when a 860k house isn’t enough, it’s time to double the mortgage payment on a home that’s twice as expensive. Im not jealous, really, I’m just showing how the world really works.”
lol. why tie money up in asset that you can borrow against at 3.5% plus get a larger tax break when you can invest elsewhere at a higher rate? this guy borrowed over a million dollars at probably the most advantageous time to be a borrower in history. as long as he can afford the payment, and invests what he didnt put down as a down payment, this guy is way ahead of the game. he is the house; just like JP Morgan and Citi who borrow low and lend higher. im guessing this SUCCESSFUL risk taker understands a lot more about how a bond market works than HD.
looking to buy, I gotta love your false dichotomy.
Silly FOOL!!!!!
do you think it actually gets “cheaper”?
We definitely paid more for a nanny than what we just stated paying for daycare. So it is definitely not a increasing function.
” im guessing this SUCCESSFUL risk taker understands a lot more about how a bond market works than HD.”
Or the dude’s wife likes big flashy houses in Glenview – with a big yard for the kids – and he had to figure out a way to pay for it, hence, the $1.25 mil mortgage.
Your interest rate arbitrage scenario while plausible requires a higher interest than his mortgage rate, PLUS he has to pay taxes on the income from the arbitrage, probably at a high tax rate too because of the income level. Hardly seems worth.
I’m sure the dude makes a lot of money. Maybe even has money. But I’m just pointing out the ugly flashy house in Glenview. YOu come to your own conclusions.
Anyone see the GB Packer logo on the pool table? Think that helped or hindered the sale price? If its a slate pool table, sometimes those get thrown into the deal depending on the buyer’s preferences for the room.
Maybe Leigh Marcus should have priced the property correctly to start… Bidding wars are the result of under pricing of a property. While it sold for above the ask, could he have received an even higher bid if he priced the property correctly from the start? Bidding wars only reward 1 person, and that is the listing broker!
Seems like your MO Steve Heitman – it only benefits you!
What’s to like about Glenview?
Try this one on for size.
The City of Chgo’s Fair Housing ordinance makes acceptance of Section 8 as MANDATORY, under the theory it is discrimination based on source of income.
The Cook County Fair Housing ordinance was recently updated to make acceptance of Section 8 MANDATORY as well.
The Village of Glenview recently passed its own Fair Housing ordinance….in which acceptance of Section 8 is VOLUNTARY.
A real big FU to all the libtards.
Love it!
HD, you may think Glenview sucks, this house is ugly and showy, but that is just an opinion. East Glenview (East of Waukegan) has some very nice houses and neighborhoods. This house is by no means showing off money or being flashy in East Glenview. Just because you live in Lisle in a house that you had to install overhead sewers in after just purchasing makes you sound very jealous of this buyer. While you may not like the house, you are jealous that this person could afford it, and you with all those years of school cannot. Borrowing 80% of the value of this house with a 1.2 Million mortgage is a smart decision if he is comfortable with it. A good options trader can earn a return of over 10% without a huge amount of risk. There are a lot of crazy assumptions being made on here about someone as usual without any clue of what the truth is.
“Dave M (August 23, 2013, 11:06 am)…
The real estate cheerleaders are out in full force in the media. Inventory hasn’t gone up as much because people are still not above water, especially the serial HELOCers….”
This is specifically addressed in the article. The high end (ie GZ) is close to or above peak so there are very few people below water. The lower end is completely different. You sound like a “real estate doom and gloom” cheerleader. I would argue inventory isn’t up because RE sellers generally have to either 1. buy or 2. rent (have to live somewhere). Right now neither option is attractive (low inventory if they buy and sky high rent if they sell) so they stay put and inventories are low. There are buyers on the margin however as rates are low and buying is more economical than renting (w/ the caveat of staying for awhile). That is a rational explanation for low inventory that doesn’t involve some junk about “shadow inventory”.
I would be interested in market statistics based on the number of bedrooms in a condo in the GZ and the estimated rates of return owners had based on the year they bought. I still think 1 bedroom and 2 bedroom owners are in bad shape if they bought in 2006 at close to no money down, and did some sort of equity cash out in 2007 or early 2008. I really would like to see stats just for the GZ, exluding the rest of the city too.
“There are a lot of crazy assumptions being made on here about someone as usual without any clue of what the truth is.”
…yep, even for CC this one is bad…
“im guessing this SUCCESSFUL risk taker understands a lot more about how a bond market works than HD.”
I’ll take that side of the bet as well… guy ain’t a meathead, HD.
“if he only put 20% down. You said it yourself, you wouldn’t want to owe anybody a million bucks”
I don’t understand why not… at 3.5%, It’s what I would do. Aggregate the balance sheet… If ya got cash to cover the debt 1+ to 1 ya don’t even think about it.
I’ll confess to being ignorant in my comments above. I wasn’t aware of the east side of Glenview being nice. I was more familiar with the Glen and the horrible 1960’s subdivisions over by Golf Mill. If anyone here lives in Glenview and was offended, I apologize.
I say this because people are always making ignorant assumptions about where I live on the NS, and I shouldn’t be doing the same about other areas.
“Aggregate the balance sheet”
You wouldn’t want to do that.
homedelete, I wonder, if the occupation of the person changed from derivative options trader to doctor would you still be bashing him? Seems like your just jealous.
The area by Golf Mill is in the Maine East school district and I agree it is not very nice. East Glenview has some very nice areas.
“homedelete, I wonder, if the occupation of the person changed from derivative options trader to doctor would you still be bashing him? Seems like your just jealous.”
It’s not jealously or envy. That’s what people always accuse me of when I point out that options traders from U of I make millions of dollars scamming municipalities, pension funds and states out of billions of dollars as counter-parties to bad trades.
In fact, this guy allegedly makes MORE money than the same Doctor who sat next to him in intro to western civ 101 at U of I in 1995. The doctor went on to school for a dozen or more years and is arguably helping people; and the options trader went to school for four years and now is some whiz skimming money out of the market so he can buy a big home in Glenview.
My overall opinion, in case you haven’t noticed, is that the folks who work in finance or trade and make this kind of money are ridiculous. There’s all sorts of social ills that stem from the incredibly uneven distribution of wealth in this country and 36 year old options traders trading $850k houses for $1.5k houses for participating in financial wizardry is a good part of the problem. Trust me, it’s not jealousy.
Who knew that hd is a communist? Not me!
“While you may not like the house, you are jealous that this person could afford it, and you with all those years of school cannot. Borrowing 80% of the value of this house with a 1.2 Million mortgage is a smart decision if he is comfortable with it. A good options trader can earn a return of over 10% without a huge amount of risk. There are a lot of crazy assumptions being made on here about someone as usual without any clue of what the truth is.”
Trust me when I tell you that it’s not not not jealously. or envy. It’s more rage and disgust. I know I sound like a socialst. Maybe I secretly am!
” JJJ (August 23, 2013, 2:04 pm)
Who knew that hd is a communist? Not me!”
Huge fan of Tolstoy
“A good options trader can earn a return of over 10% without a huge amount of risk. ”
yet the rest of us have to suffer with near 0% interest as a result of the federal reserve and teh money changers skim from every one else with teh blessing of teh government!
OK enough of this, good weekend y’all.
“You wouldn’t want to do that.”
Figuratively.. in the head… not legally..literal
“the doctor went on to school for a dozen or more years and is arguably helping people; and the options trader went to school for four years”
ROFLMAO… how much harder is it to get a job on a major deriv desk than to be a doctor… not even close… and then to last more than a year on said desk..
HD, that is why this country is great because we all are entitled to our own opinion. I could not disagree with you more. You are assuming this person makes millions (I very much doubt he does) by scamming millions of dollars from whomever. How do you figure? If anything, options traders are some of the smartest and most honest in the financial industry. Options are essentially insurance policies, and that is exactly how those groups use them. You must also think that the insurance industry is all a big scam as well. Your general dislike for traders I feel is very misguided. The industry now is extremely difficult and there are very few people making millions of dollars trading in Chicago compared with 10 years ago. The wealth is concentrated in a few hands. While this homeowner probably does make a nice living, the owner of his company is probably the one making millions. The number of years someone spent in school does not and should not equal the amount of money they make or their value to society. Your are self righteous in thinking that a doctor or lawyer is smarter or should make more than someone else. There are many former lawyers who trade and many of them are options traders.
“A good options trader can earn a return of over 10% without a huge amount of risk. ”
yet the rest of us have to suffer with near 0% interest as a result of the federal reserve and teh money changers skim from every one else with teh blessing of teh government!
OK enough of this, good weekend y’all.”
Ok, I understand now. You prefer a Socialist type society and I prefer Capitalism, that which made our country great. A difference of opinion.
Laker: You’re kidding yourself if you think trading is capitalism. It’s crony capitalism. These banks rarely lose money trading. And when they do its either a huge screw up aka London whale, or a computer error aka goldman’s loss the other day that was nearly completely undone (in options none the less!). There are stories upon stories of the huge scam the financial markets have become. This is well documented. Calling it capital is just wrong, because its not. It’s more akin to socialism for the wealthy, but I digress.
“Homedelete (August 23, 2013, 2:33 pm)…
Laker: You’re kidding yourself if you think trading is capitalism. It’s crony capitalism. These banks rarely lose money trading.”
So you think banks should be losing money trading? Cause if they are supposed to lose money trading they shouldn’t be banks.
when banks consistently make money nearly every day of every quarter you have to ask yourself whether the deck is stacked in their favor. no bank should be that consistent. the game is rigged.
haha homedelete you are so misguided its not funny. If someone is good at something it must be rigged. Yep. I’m in this industry and the big banks are from being the best at what they do, in fact they are very inefficient at it.
On a side note, if people did things to lose money then that probably isn’t the smartest thing to do is it?
*only the government can do things that lose money and call it a success.
homedelete, how have the people of France reacted to President Hollande’s super socialist platform? How has that 75% millionaire tax rate held up?
“homedelete (August 23, 2013, 2:52 pm)…
when banks consistently make money nearly every day of every quarter you have to ask yourself whether the deck is stacked in their favor. no bank should be that consistent. the game is rigged.”
Apple makes $$ every day. Is their business rigged too?
I am not talking about big banks, I am talking about this person and traders from the Chicago exchanges. The idea that “meatheads” are making millions trading nowadays is simply false. The big players having advantages and almost never having a losing day is one thing, but lumping the rest of the trading world into that category is unfair. The people in the industry outside of the major players have to be extremely smart in order to be successful. They take risks and generally earn whatever they make.
Where do Ambulance Chasers fall in the grand scheme of things?
hd – you really have no clue what this guy does for a living
ambulance chasers are a step above realtors. realtors and dog groomers are the same.
Just did Google street view on a random street in East Glenview a few blocks west of the Edens and it looks quite nice. I guess I learned something new today!
“Huge fan of Tolstoy”
and this makes you a communist? You know he dies before SFSR was formed, right?
Damn by this logic I was a communist at 9 as I called my doll Natasha after Natasha Rostova 🙂
“Apple makes $$ every day. Is their business rigged too?”
You are distorting what HD said. He said banks not a bank. Sure Apple makes money but many other companies go bankrupt. If all businesses always make profit and none ever incurs a loss then you have to agree there is effectively no risk in the market place.
Hmmmmm…and the government-sponsered Mortgage Interest Deduction (MID) on our intrepid trader’s $1.25 million mortgage is NOT socialism? HomeDelete is dead right. Take away MID and the “free-market” fundamentalist piggies on this blog would be squealing bloody murder! If you take MID you’re a welfare-queen. We all are.
so my question… there are billions of dollars floating around… most people have the financial sophistication of HD (not good). Many people that think they are financially sophisticated, by the standards of someone who truly is, don’t know shit. So what do you pay someone who is “really” capable to protect billions of dollar of a companies assets and risk control, particularly when that risk is derivative derived which is by far far far and away the most complicated area of all of finance…???
What a wonderful shtick…create an overly complicated and opaque financial instrument and pay the “smart” people big bucks to manage them for us.
“What a wonderful shtick…create an overly complicated and opaque financial instrument and pay the “smart” people big bucks to manage them for us”
So on July 4th weekend, Coca Colas sales can swing 10’s of millions based on whether the average temperature is in the 90’s or 70’s and they want to hedge that risk operationally.. that’s schtick??? The examples of the operational need for hedging is endless….
So someone capable of understanding this.. or you… what do you pay?
…what if you are an airline and you have forward sales for October at 75% capacity.. fixed price on those sales at average revenue per passenger of X, and todays fuel price suggests expense of .82X all in, with variability of fuel being .02X per dollar. So a move in oil of $9 wipes out all profit. If you are manaing that airline don’t you want to lock in fuel with a forward hedge? Aren’t you responsible as a manager to do just that? Don’t you need a market to do that? Don’t you need someone capable to execute that for you?
Embarrassing to need a stoner to ‘splain this shit to you…
Fine…let the “masters-of-the-universe” hedge everything up to and including the dinkle-berries hanging from my socialist butt. But should the “public” have to bail out the counter-party infinity-squared that is responsible for the other side that bet (AIG anyone??)
“Hmmmm…and the government-sponsered Mortgage Interest Deduction (MID) on our intrepid trader’s $1.25 million mortgage is NOT socialism? HomeDelete is dead right. Take away MID and the “free-market” fundamentalist piggies on this blog would be squealing bloody murder! If you take MID you’re a welfare-queen. We all are.”
If this trader makes as much as many on here think he does, that deduction fades away quickly.
“It’s not jealously or envy. That’s what people always accuse me of when I point out that options traders from U of I make millions of dollars scamming municipalities, pension funds and states out of billions of dollars as counter-parties to bad trades.
In fact, this guy allegedly makes MORE money than the same Doctor who sat next to him in intro to western civ 101 at U of I in 1995. The doctor went on to school for a dozen or more years and is arguably helping people; and the options trader went to school for four years and now is some whiz skimming money out of the market so he can buy a big home in Glenview.
My overall opinion, in case you haven’t noticed, is that the folks who work in finance or trade and make this kind of money are ridiculous. There’s all sorts of social ills that stem from the incredibly uneven distribution of wealth in this country and 36 year old options traders trading $850k houses for $1.5k houses for participating in financial wizardry is a good part of the problem. Trust me, it’s not jealousy.”
you clearly have no clue how the listed options space functions nor do you have any idea what a CBOT local’s role is in the market. these guys take risk and allow pension funds/bank/etc to eliminate or mitigate their risk. they are vital to the efficiency of our economy. CME/CBOT interest rate options are some of the most liquid and efficient markets in the world. it is very difficult to make money down there and it is getting harder every day as the options pits lose edge. if this guy is a 1%’r, it is bc he is good at what he does—taking risk and managing it profitably. he isnt “scamming” anyone. get a clue before stereotyping an entire industry with your hyberbole.
“Fine…let the “masters-of-the-universe” hedge everything up to and including the dinkle-berries hanging from my socialist butt. But should the “public” have to bail out the counter-party infinity-squared that is responsible for the other side that bet (AIG anyone??”
Again, this trader is not a big bank. Taxpayers will not be bailing out any small traders or trading firms. The exchange and clearing firm will never let them put the trades on that would be that large. On the other hand, there is real risk to taking the other side of a hedge trade. You may get edge on the bid/ask spread, but how do you get out for a profit? Managing a large option book that results from taking the other side is a complicated and risky business.
“But should the “public” have to bail out the counter-party infinity-squared that is responsible for the other side that bet (AIG anyone??)”
No, they should have been put 6′ underground..
“Huge fan of Tolstoy”
I believe that’s spelled “Trotsky”.
miu–please note.
The “good at what he does” argument is a red herring. Plenty of people are good/great at what they do and they don’t make obscene amounts of money like the financial wizards doing ‘god’s work’. The sector is extremely overpaid and because they have the money they get to write the rules to benefit them financially. I suppose the world has always been this way but its gotten so out of whack and so many others suffer. 75% taxation of the wealth is not the answer but making the rules so that the few don’t own so much is a step in the right direction. Talk to Detroit and the pensioners who will suffer because the city has to pay the investment bankers to exit derivative deals that went sour.
“when banks consistently make money nearly every day of every quarter you have to ask yourself whether the deck is stacked in their favor. no bank should be that consistent. the game is rigged.”
Everyone seems to think that the game is rigged but no one can explain how it’s rigged. There’s all this talk about the damage that high frequency trading is doing but for the life of me I can’t see anything wrong with it. As an investor what do I care if someone makes a penny on millions of shares? And if they drive the price of a stock down below it’s fundamental value that creates a buying opportunity for me.
Flash crash screws people with stop losses? Well, stop losses are a really bad idea. You got what you deserve.
Options traders make millions for doing nothing? Providing liquidity to a market is not nothing. In fact, the options market doesn’t have enough liquidity. Check out the spreads.
Futures traders control the price of oil? That is one of the dumbest ideas I’ve ever heard. I’ve never heard anyone explain a mechanism by which that occurs. The contracts always settle at the spot price and the spot price is determined by REAL supply and demand and with oil you can’t create artificial demand unless you own a salt mine that you can dump the stuff in.
Wealth inequality creates social ills? Well, if the deck is really stacked against certain groups then yes. But I don’t see a stacked deck – unless you call the natural progression of technology a stacked deck. Or perhaps the fact that we have a government run educational system that doesn’t meet the needs of the 21st century is a stacked deck. But there’s not a grand conspiracy that is leading to a caste system in the US.
“Talk to Detroit and the pensioners who will suffer because the city has to pay the investment bankers to exit derivative deals that went sour.”
This attempt to make the investment bankers out to be bad guys way oversimplifies a complex situation. Many years ago I worked in corporate finance at Sears. I was doing interest rates swaps a few decades before they were called derivatives. Sears issued floating rate debt and swapped it into fixed rate like Detroit did. They entered into huge amounts of swaps at a time when fixed rates were at their peak of the last century. As an entry level finance guy fresh out of Kellogg I was able to see the stupidity of what they were doing but was not in a position to stop it. Their problem was not the swaps it was their naivety to believe that they could time the market and the fact that the guys running the show there weren’t all that bright. As I was leaving the company their swap portfolio was underwater by $250 MM but it wasn’t underwater by any more than their fixed rate debt would have been if they had been forced to buy it back in the market at prevailing rates.
Detroit’s situation is different in that there were clauses that protected investors from credit downgrades. The existence of these clauses makes sense since the counterparties were swapping fixed vs floating and not credit. If the finance guys in Detroit were too stupid to realize this clause existed and the potential ramifications then it’s unfortunate that the people of Detroit elected officials that didn’t know how to run the finances of the city but that’s the way the universe works.
“Talk to Detroit and the pensioners who will suffer because the city has to pay the investment bankers to exit derivative deals that went sour.”
And if they’d made more ‘traditional’ pension investments, like commercial real estate in the region (including Detroit), would that make it ok to zero them out?
how is the market rigged? Should I start with the clandestine ways or just the institutionalization….let’s see, insider trader…how about the LIBOR scandal? How about the conflicts of interest inherent in the system aka clients as muppets. what about the fed funds zero % rate? or the revolving door between the regulators and those whom they seek to regulate? the game is rigged in every way which is why absent a major blow up, or fraud, the system produces so many people who seem to make buckets of money.
I konw these particular issues may not apply to this individual buyer in glenview, but outside of professional sports (and start ups that actually make it big) I can’t think of too many industries where 36 year old big 10 grads can make this kind of money except the system that produces financial wizards and derivative traders. I understand that trading has utility but it produces these obscene disparities in income for the lucky or connected few. it’s almost beyond justification that this type of income can be skimmed off teh system by so few people.
“I can’t think of too many industries where 36 year old big 10 grads can make this kind of money except the system that produces financial wizards and derivative traders”
HD., stop whining,
You want to make more money, start a business……..
Barriers to starting a business have never been lower, and the age at which this can start has never been younger. Teenagers are doing it ……….. and not being traders………
Adam Hildreth
In 1999, at only fourteen years old, Adam Hildreth together with his six friends launched the famous English social networking site Dubit. Dubit became one of the most popular websites in 2004. By 2005, Dubit had a net worth of more than 3.7 million dollars. Adam later founded Crisp thinking, which developed software that protected people from online predators, online harassment and spamming. He is ranked 23 in the top 100 richest young people in the UK according to the 2011 Sunday times rich list.
Adam Hildreth is estimated to have a net worth of 38 million dollars.
Sean Belnick
When he was only 14 years old, Sean Belnick created bizchair.com, an internet retailer for all types of furniture. Sean Belnick began with an initial investment of 500 dollars and ran his business operaions from his bedroom. In 2004, he moved into his first warehouse and by 2009, he had more than 702,000 square feet of warehouse space from the initial 40,00 square feet. In 2010, bizchair had sales of more than 58 million dollars.
Sean Belnick’s net worth is reported to be 42 million dollars
Fraser Doherty
Fraser Doherty is the CEO of Super Jam. This Scottish young star was taught jam making by his grandmother when he was 14 years old. He started producing jam and selling it in the neighbourhood. He left school at the age of 16 to fully concentrate on super jam. In 2007, he began supplying super jam to 184 Waitrose stores. Nowadays Fraser Doherty currently supplies to all major UK stores and had sales of over 1.2 million dollars in 2011.
Fraser Doherty is worth 2 million dollars.
Cameron Johnson
In 1994, at only nine years of age, Cameron Johnson began making money by selling invitation cards. By eleven years old he had saved up enough money to form his company, Cheers and Tears. Cameron then participated in several ventures including creating EZ mail, an email forwarding software, surfingprice.com, an online advertising company. By fifteen years old, he was receiving monthly cheques of up to 400,000 dollars.
oh on one other thing HD,
You are part of the slimiest professions out there, so don’t point fingers.
What profession is the word shyster associated with?
There is good and bad in all industries………..
Yeah most politicians are lawyers! End of discussion!
Hilarious…. As if HD ever won 100 million dollar settlement he would refuse his 30%. Yeah, Peter Angelos for humanitarian of the year… He helped soooooo many people.
Hilarious…. As if HD ever won 100 million dollar settlement he would refuse his 30%. Yeah, Peter Angelos for humanitarian of the year… He helped soooooo many people.
Besides, I bet 95% of people that try to make a living as a trader last less than a year, and probably about 5% of the ones that last make 95% of the money. So you are basically bitching about 1/4 of a percent of the people that enter being successful. I’d say 36 in a 1.5 million home is not that group anyway. Now remember all the convos about getting into an ivy, then getting even an interview to get on a major desk, then getting past those 19 interviews, then being able to make it on that desk … Start multiplying the percentages and you are complaining about someone that is a complete outlier.
GZ you miss the point. The fact that its difficult doesn’t make it ok. It just means they can keep all the money for themselves.
Oilc those are isolated examples. Look at the number of children and young adults living in poverty on the south side and west side with a strait face and tell them to ‘stop whining’ and they blow your head off with a shotgun. How about finding a way for society to better crappy schools instead of making millionaires out of .001% of a select group of upper middle class teenagers. I have it better than 95% of the county. I’m at least man enough to realize how fundamentally unfair the system is for everyone else. Turnoff Fox News for 10 mins.
” insider trader…how about the LIBOR scandal? How about the conflicts of interest inherent in the system aka clients as muppets. what about the fed funds zero % rate? or the revolving door between the regulators and those whom they seek to regulate? the game is rigged in every way which is why absent a major blow up, or fraud, the system produces so many people who seem to make buckets of money. ”
That’s not a rigged market. In the case of insider trading or LIBOR fixing it’s breaking the law. You can always make money breaking the law. Fed funds is government interference which always creates winners and losers but the average Joe is getting helped and hurt by that.
The revolving door…a bit more complicated. The ex-government guys are hired because the laws are so complex that they are the only ones who can interpret them. Are they influence peddling? Don’t know for sure but doing so puts someone at risk of going to jail.
But the wealth inequality in our society is not being driven by any of this stuff. It’s the result of a serious skills mismatch and a broken labor market and people not willing to take some of the higher paying jobs that are out there.
I love the ad hominin personal attacks on lawyers. Still doesn’t address the philosophical question whether its ok to have a financial system that gives such a large chunk of the world’s wealth to such a small group of people. It’s really not all that different than the favored knights of william the conqueror taking all of England for themselves and enslaving the native population. 1000 years later those social systems are in many respects still in place where many of the blue blood families with Norman pedigree control a good chunk of the wealth.
I love the irony of a Kellogg grad (Gary) and a trader (gringo) and a financial advisor (Sonies) all telling me that its OK that those doing ‘god’s work’ should be paid obscene amounts of money.
It’s ridiculous to talk about the skills mismatch in a broken labor market. The economy is barely producing jobs and the jobs that are being created are mostly low paying or part time jobs. This is undisputed and from the bls itself.
GZ seems to think its OK because it’s hard. It’s also hard to be a top pole vaulter and win an Olympic gold medal. Why can’t they be paid obscene wages? Because its not god’s work?
And the argument that its illegal is irrelevant to whether its rigged or not. It’s still rigged even though its illegal
And as far as the hft….it’s basically front running trades. And skimming off the top. Hft aren’t just ‘good’ at what they’re doing. They always make money. Always. Just like the casino always makes money in the long run. The games are designed so the house will always win in the long run. And it seems the traders (or just the ‘good ones’) seem to always win.
I’m not talking crazy talk here. These are issues addressed by many, including 60 minutes stories and journalism. It’s not like I’m the only person in the world who shares these views.
Homedelete, I know you’re not the only one saying this stuff but you’re getting this from left leaning journalists that never took an economics course and know that stories of a rigged economy sells.
The labor market is broken. Companies make poor hiring decisions and keep bad employees and good workers have trouble finding out about the real jobs. Meanwhile lots of jobs are going unfilled. Try scheduling a refrigerator repairman or an electrician or a plumber. Why does my 19 year old daughter get paid $12/ hour for babysitting? Why are we paying $14/ hour in Dallas for a woman to give my mother a little more attention in a nursing home? Why aren’t people jumping at the long haul truck driver openings? Why can’t companies hire CNC operators? And why are there so many realtors making less than $30,000 per year when there are clear alternatives? You’re not watching the right news.
It’s not for you or me to decide what is an obscene amount of money. The market decides. Why doesn’t anyone ever complain about how much Tiger Woods or Oprah Winfrey or Kim Kardashian make? One could argue they aren’t worth it.
There’s a difference between a market being rigged and people breaking the law. Rigged implies that there are sanctioned systems in place to give an advantage to an elite group. I don’t see that. And I’m not sure that HFT is really front running. If it were it would be illegal.
And I forgot the maid that we pay $20/ hour. What’s that all about?
^^^ I’m with you dude. imo the Sun-Times story creates a false impression by uncritically quoting the realtor’s preferred narrative of events:
“[Real estate broker Leigh] Marcus said [Joe Chasen’s Bucktown house] sold for $861,500 and that six offers were made, all above the asking price.”
I don’t say that’s false, only that given the other details & blather in the story, omitting the fact that Chasen sold his house after seven years for less than he paid would have cast a different light on the data point he is meant to represent.
And btw I’m curious to know what drove the value of Chasen’s Glenview house up from $650k in 08 to $1.55m. wow. On the surfact it looks like he got bagged. But I’ll presume he’s no rube in such things.
whoops.
“^^^ I’m with you dude ” was meant for HD, not that I can’t find something to agree with in Gary’s rap too. gimme a minute. (I’ve got to type faster.)
As per hft, Michael Lewis’ recent Vanity Fair story on Sergey Aleynikov misses the target. No one’s surprised to learn that Goldman is vindictive. Lewis should have focused instead on Misha Malyshev, who afaik had never traded a stock before 03 but made $1bb during 08, while his boss Ken Griffin was busy overseeing the loss of $1.5bb via their tried-and-true bond arb strategies.
http://articles.chicagotribune.com/2010-10-19/business/ct-biz-1019-chicago-law-20101019_1_jace-kohlmeier-citadel-files-computer-files
hd, kid dynamite put up a good post on banks’ “perfect quarters.”
http://kiddynamitesworld.com/big-bank-perfect-trading-quarters-the-real-story/
KD sez bank earnings are mostly a function of the shape of the yield curve, so when the Fed’s QEs steepen the yield curve it makes borrowing short & lending long more profitable, and also drives up asset values, the impaired collateral already on their books. Nothing new here. The cut rates 24 times between June 89 and Sep 92, taking the funds rate from nearly 10% to 3%, putting a floor under asset prices (mostly real estate), saving Citicorp, and giving credence along the way to notions like “the Greenspan Put” and “buy the dips.”
Warren Buffett’s views on hedging sound closer to Gary’s; and are opposed to Z’s. Here’s Buffett:
“Well, when we buy the Burlington Northern, they’re hedging diesel fuel. Now what I tell them is I wouldn’t do it if I were them but it’s entirely up to them. I mean, diesel fuel’s a big cost for them and they’ve got pass-through costs to some of the people that use the railroad and they don’t have pass-throughs so they’re exposed partly. The only, I tell them if they really don’t want diesel fuel on the market we’ll just close up the railroad and then all trade diesel fuel all day, you know. And if they don’t know it, they’re going to be out the frictional costs over time. The reason many of them do it is that they want, the public companies, they want to smooth earnings. And I’m not saying there’s anything wrong with that but that is the motivation. They’re not going to, they’re going to lose as much on the diesel fuel contracts over time as they make but they can protect themselves just like Coca-Cola does on foreign exchange and they make a big thing of this. I wouldn’t do it, they do, but all kinds, most companies want to do that. … It’s a common practice. It’s overdone in my view, but it is the response to the fact that the market doesn’t like the fact that diesel fuel could affect the earnings of Burlington or Union Pacific up and down in some quarter when really over time they’re not going to make any, you know, they’re not going to save any money by doing it in my view.”
http://dericbownds.net/uploaded_images/Buffett_FCIC_transcript.pdf [p. 13.]
Z: “…what if you are an airline and you have forward sales for October at 75% capacity.. fixed price on those sales … todays fuel price … of .82X all in, with variability … So a move in oil of $9 wipes out all profit. If you are manaing that airline don’t you want to lock in fuel with a forward hedge? Aren’t you responsible as a manager to do just that? … Don’t you need someone capable to execute that for you? Embarrassing to need a stoner to ‘splain this shit to you…”
Gary: “Sears issued floating rate debt and swapped it … I was able to see the stupidity of what they were doing but was not in a position to stop it. Their problem was not the swaps it was their naivety to believe that they could time the market….”
Wojo.. he really is not saying anything different… he is just viewing it from “need” if portfolio is as widely diversified as his.. now the manager at BN doesn’t have that luxury so he hedges his risk. Some companies believe shareholders buy the company for the risk, some companies believe their business is the production of the product and not the market risk… case by case..But if all risk can’t be passed through, try selling a 5 year contract for widgets made with adamantium, with adamantium prices moving 100% a year without locking in material costs.. You could never price the contract or compete for the business.
Gary, the problem with economics and business courses is that they mostly teach the same theories and groupthink. and don’t forget that god created economists to make astrologers look good.
Yeah, but there are a few truths that we hold as self-evident (and they are well established)
1) There is no free lunch
2) Supply will equal demand in a free market, with price as the arbiter
3) Money always flows to where it is most welcome
4) People always pursue their self-interest
5) Politicians can not override the laws of economics any more than they can override the law of gravity
6) For every law there are unintended consequences
“Why doesn’t anyone ever complain about how much …Kim Kardashian make[s]?”
Plenty complain about it; it’s a f’ing travesty. Her, her family and all the MTV show morons getting rich because bigger morons watch them of teevee. End of days, man.
“And btw I’m curious to know what drove the value of Chasen’s Glenview house up from $650k in 08 to $1.55m. wow.”
Teardown. Listing sez the house was built in 08.
“The economy is barely producing jobs and the jobs that are being created are mostly low paying or part time jobs. This is undisputed and from the bls itself.”
You’re not reading the BLS then HD.
We are at FULL employment for those over age 25 with a college degree. Those are jobs where you need to have skills. The unemployment rate for those in that category last month was just 3.8%.
The real problem is with those with no education. Those without even a high school degree have been hovering at 11% to 12% for the last year. It was 11% last month.
The economy is having a real problem with those without any skills. If they get a job, they are stuck in low wage temporary service type jobs.
Gary is right that there are weird imbalances. The trucking companies have started their own truck driver schools because there is a shortage of qualified drivers (so much so that it’s impacting their business.) It can take a couple of months to get certified to drive a truck so now the companies themselves are trying to train people and will pay you to be trained. Why isn’t anyone doing it?
There are shortages of electricians and plumbers and the trades also but that is due to the housing bust and those workers getting into other lines of work during the dark times. The homebuilders all reported higher labor costs last quarter because they are having to pay workers more due to the supply and demand imbalance.
How many buyers are dropping out of the race here in Chicago? This article from the LA Times says it’s 1 in 6 out there. But the prices and bidding wars are even more ridiculous there.
They’re building 6,000 apartments in downtown LA and we’re building 5,000 in downtown Chicago. There’s now less pressure on rental prices (which is what I think is about to happen in Chicago as well.)
Investors have also been buying up more of the SFH in SoCal than here in Chicago. But rents are flat in the SFH market out there now.
Translation in LA: it’s now better to be a renter than a homeowner. Will that also be the case soon in Chicago? All of my friends who are looking for rentals right now are saying it’s pretty dead out there. No pressure to sign a lease right away. But maybe they are looking in less popular neighborhoods.
“The rental market provides a stark contrast to the red-hot housing recovery. In Los Angeles County, apartment rents have risen only slowly, with an expanding supply of rentals holding down prices. In downtown Los Angeles, an apartment building boom has even driven rents down by 5% over the last year, to an average of $1,990 in the second quarter.
Rents also declined in the single-family home market, where an influx of cash investors is driving up prices for home buyers. These new investors, including some cash-rich Wall Street firms, have scooped up properties to hold and rent.
Erin Keegan and her fiance decided to keep renting after losing bidding wars on a home — twice.
The couple, who rent a small house in West Adams, lost out to an investor when they tried to purchase a two-bedroom Victorian last summer. This year, after the home was rehabbed and relisted for sale, their second offer couldn’t compete with a buyer paying $56,000 more than the asking price.
“I just couldn’t believe it sold for that much,” Keegan said. “That was definitely the nail in the coffin.”
In comparison, the rental market seems sane.
The tide of investors is boxing out prospective buyers but creating new opportunities for renters. The median rent for single-family homes in L.A. County fell 4.1% last quarter compared with the same period last year, according to real estate website Trulia. Contrast that with the county’s 29% year-over-year median home price gain in July.”
http://www.latimes.com/business/la-fi-better-off-renting-20130825,0,5103842.story
Coincidentally, the NYT also had an article this weekend about some rents starting to soften in NY- but only in select buildings and locations.
http://www.nytimes.com/2013/08/25/realestate/surprise-no-rent-increases.html?pagewanted=all&_r=0
“Lynda Lippin, 47, lives in an alcove studio at 8 Spruce, officially known as New York by Gehry at 8 Spruce Street, with her husband and dog, a onetime stray. After two years, she still carries around the silver Tiffany key ring she was given when she moved in, a square in the shape of the tower. She speaks fondly of the private residents-only viewing party held not long ago for a $35,000-a-month penthouse, where cheese and wine were circulated amid the unobstructed 360-degree views. She attends the buildingwide barbecues, where gourmet ice-cream sandwiches are handed out. And even though she doesn’t regularly go to the building’s gym, “it is lovely to stare at the snow falling on the glass ceiling” while swimming in its heated pool.
Last month the managing agent e-mailed her to say that if she committed to her two-year lease by mid-July, rather than wait until it expired at the end of October, she could renew at her current rent, around $3,300 a month. Her annual $300 per-person amenities fee would also be waived.
“I couldn’t believe it,” said Ms. Lippin, a master instructor at Real Pilates, a studio in TriBeCa. “I was stunned, actually.” She signed the lease immediately.”
Maybe the imbalance has something to do with going to an interview with a mouth dull of gold teeth. A doo rag on your head and pants that start below your ass. Some people here are unemployable regardless of the unemployment rate.
I hear ya Z, anon.
OT: Crains has a story this week that made me laugh out loud (though it shouldn’t).
The Obama administration disbursed $169 million to Chicago in 2009 via “The Neighborhood Stabilization Program” to acquire & renovate foreclosed homes. The city said it hoped to bring as many as 2,500 housing units back to life.
As of late June 2013, however, the program has yielded only 538 rehabbed units, and only 205 of those units have found renters or buyers.
Here’s Crain’s:
“Taking a home from foreclosed and vacant to sold and occupied can take years. In Chicago Lawn, [non-profit organization] Mercy Housing acquired a single-family home in the 6300 block of South Campbell Avenue in 2009 for $19,000 and transferred it to developer late that year for $10, public records show. After rehabbing the home at a cost of $297,407, the developer sold it in April for $85,000.”
And here’s the house, which for 85k looks very nice indeed:
http://www.redfin.com/IL/Chicago/6324-S-Campbell-Ave-60629/home/13988511
The rehab cost $300k and it sold for 85. That is insane. I dunno if I should laugh or cry. (laughing is better)
6324 S Campbell has an interesting ccrd file:
12/23/91 — house trades for $35,000.
12/26/91 — mortgage for $31,500
06/12/07 — house trades to Warren Nickel for $225,000
06/12/07 — Warren Nickel takes out mortgage for $213,750.
05/23/08 — lis pendens filed by Indy Mac Bank
05/29/09 — judicial sale to Indy Mac
09/21/09 — Deutsch Bank, warranty deed, $19,000
A man named Warren Nickel is cited in this article about mortgage fraud:
http://articles.chicagotribune.com/2005-12-29/news/0512290215_1_mortgage-fraud-home-loans-street-gang
I have serious doubts the rehab cost $300k for that house. They could have built a new house on that lot for $300k.
Never fails. The government can figure out more ways to piss away money trying to do what a smart business person can do on their own. Check out what this guy is doing with distressed homes: http://www.frankmontrohomes.idxco.com/idx/12987/featured.php Pretty impressive.
Gosh darn them guv-mint spenders. While an unchecked deregulated “market” in 2008 destroys (1) $648 billion in slower economic growth (2) 3.4 trillion in real estate wealth (3) 7.4 trillion in stock wealth and 5.5 million jobs. Granted (2) and (3) are rebounding because said wasteful guvmint is buying $85 billion a month in bond purchases via QE2/3/4 whatever. And talk of “Tapering” QE has Mr Market’s panties in a bunch.
http://www.pewtrusts.org/our_work_report_detail.aspx?id=58695
“While an unchecked deregulated “market” in 2008”
It wasn’t deregulation that caused that problem but a failure to properly apply existing regulations and the government’s role in creating the problem is well documented. Fannie, Freddie, Community Reinvestment Act, FHA.
“destroys (1) $648 billion in slower economic growth (2) 3.4 trillion in real estate wealth (3) 7.4 trillion in stock wealth and 5.5 million jobs.”
A lot of that wasn’t real to begin with. Using the word “destroy” is misleading. It was a bubble so you were erasing false wealth which was “created” by those same factors.
“Granted (2) and (3) are rebounding because said wasteful guvmint is buying $85 billion a month in bond purchases via QE2/3/4 whatever.”
Just wait until the Fed loses their ass on those purchases as rates rise and you’ll see how wasteful it was.
And what relation does the low end of the employment spectrum have to do the with housing discussed on this blog? There’s plenty of affordable places outside the green zone. Also most folks working the low end of the spectrun shouldn’t be buying homes, which is one of the things that got the housing market in trouble in the first place! Like ze said, there are some folks who are unemployable, and there are also folks who should never own a home!
Also thats gotta be a typo, no way that was a 300k renovation… 30k maybe…
Ah yes…More Fox News fabulous CRA nonsense??
This from Sheila Barr…a REPUBLICAN appointed by BUSH.
“…only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending. The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules”.
http://delong.typepad.com/egregious_moderation/2008/12/barry-ritholtz.html
So they are only 25% responsible? I don’t get what your point is
Okay…so let’s just take the “guvmint-screwed-it-up” fallacy to its logical conclusion. With GSE’s (Fannie/Freddie) now holding 90% of mortgages (because Mr. Market is too chicken-shit to invest) what should Mr Market do to get the evil “guvmint” out of housing?
Without the enabling and all the ridiculous programs involved, the forcing of lenders to lend to people with no money, and then the government guarantizing everything and not bothering to audit themselves (common occurance with government policies), the recent housing bubble probably wouldn’t have happened.
As for our exit today? Heh, the government is not interested in reducing its influence at all. Yeah they’ll “talk about it” but talk is cheap.
“(Mr. Market is too chicken-shit to invest) ”
Mr. Market is never too chicken shit to invest, it just does’t like the level. At the right level the money always pours in…
“what should Mr Market do to get the evil “guvmint” out of housing?”
Fannie and Freddie will be replaced by true market institutions, which will result in higher mortgage rates. Even the most left leaning politicians agree with this now. In addition to other things mentioned above I don’t even think mortgage interest should be deductible but that will never change – except maybe they’ll cap the amount of mortgage you can deduct interest on.
“Mr. Market is never too chicken shit to invest, it just does’t like the level. At the right level the money always pours in…”
Mr. Employee isn’t to lazy or undertrained to work, he just doesn’t like the wage. At the right wage, you’ll always fill that vacant position.
Sabrina : “Gary is right that there are weird imbalances. The trucking companies have started their own truck driver schools because there is a shortage of qualified drivers (so much so that it’s impacting their business.) It can take a couple of months to get certified to drive a truck so now the companies themselves are trying to train people and will pay you to be trained. Why isn’t anyone doing it?”
Who should be paying to train truck drivers, if not trucking companies? And if they cannot find qualified workers for what is a pretty grueling job, maybe the wage is too low?
In general, you pay for your own education and general training. Hospitals don’t pay for doctors and nurses to get degrees, neither do law firms pay for law school. Why would a trucking company pay for truck driving school? They do it because they currently have to to lower the barrier of entry to get people to do the job. It is a form of increasing wages.
” Hospitals don’t pay for doctors and nurses to get degrees,”
No, they get paid to train doctors through federal funding via medicare for residency slots. but that’s neither here nor there.
Trucking pay is very low and the job sucks, and there aren’t enough qualified candidates with CDL’s and perfect criminal / driving histories to get the job. Most truck drivers are self-employed with their own rigs and get paid per mile, and they bear the costs of repair, health insurance, etc. It works well for drivers in rural areas with low costs of living and is unworkable for drivers in higher cost areas of living.
Whenever people say there aren’t enough workers to fill the jobs, they’re really just complaining that they cannot hire the top quality candidates for the wages they want to pay. At that point it becomes a business model problem and not a lack of qualified workers problem.
Gary: higher interest rates as a result of private market forces would likely result in house values dropping to make up for the higher interest rates. And cheaper housing would favor the savers who can put down larger downpayments, thus borrowing less money over all and paying less interest even with the higher rates. In theory of course.
“Mr. Employee isn’t to lazy or undertrained to work, he just doesn’t like the wage.”
Ze is too lazy at any price…
People also give the factitious argument that there aren’t enough tradesmen and that’s why it’s so expensive and more people should go into the trades because ‘it pays well’. This is not true – there are plenty of tradesmen out there – its just that there is such a high amount of overhead to run such a business that it will never be cheap and more entrants into the marketplace will result not in price competition but in more people trying to eat the same pie. Tradesmen have high insurance costs, vehicle overhead, gas, tools, licensing, employees, payroll, advertising, etc. I heard that an HVAC shop with 24 hours service needs to earn $200 an hour for every call to make a profit because of all the fixed costs. It’s hard to produce that kind of revenue consistently so the HVAC guys are out of work and go from shop to shop all the time. DOn’t get even me started with the union trades….the seniority rules are ridiculous. The 30 year veteran gets all the work and is making $100,000 a year but the guy 10 places down the seniority rung (usually the guys in their 30’s) are working 15 hours a week earning $32,000 a year – in a good year. Unions will always cannibalize the junior members for the senior members. Always, thats how seniority works.
The union pension funds are extremely underfunded. Its almost as ugly as the state of IL pension funds.
Gary, sorry to come to this late (just read the whole megillah), but you do realize that the whole Fannie/Freddie/CRA/Benghazi explanation of the subprime crisis has been thoroughly debunked, right?
It really was a grift — or if you like, a series of interrelated grifts — that were not so much illegal (although there was plenty of that behavior) as they were violations of what you might call the social compact.
Grifting is probably not what the trader who bought this ugly house does for a living. However, it is a salient feature of high finance. If you don’t believe me, I got a parking meter deal to sell ya.
“but you do realize that the whole Fannie/Freddie/CRA/Benghazi explanation of the subprime crisis has been thoroughly debunked, right? ”
Nope. Have not seen that debunked.
” the factitious argument”
Love it. Seriously.
HD, that is the story for almost any business. The costs will eat you alive. On a small scale, the costs are very large. Even in the trading business. A trader at a typical prop firm can expect $10,000 to $20,000 in expenses per month and keep 50%. Or, they can expect a salary of about $1000 per week, with the hope that after expenses are deducted they may receive an end of year bonus of $50,000 to $100,000 after the desk has made $10 to $20 million. Owing a business, whether it is trading or anything else is very difficult.
Gary, permit me to belabor:
“Only one of the top 25 subprime lenders in 2006 was directly subject to the [CRA].”
Read more here: http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#storylink=cpy
“…the default rates on GSE mortgages were far lower than on those bought and issued in the private market. In 2004, the GSE default rate was 4.3 percent of their mortgages compared to a default rate in private industry of 15.1 percent of mortgages. In 2005, the GSE default rate was 7.8 percent—high and disturbing; but in private industry it was 28.7 percent, the source of the severe crisis. In 2006 and 2007, default rates reached 13.2 and 14.9 percent in the GSEs and 45.1 and 42.3 percent in the private market.”
Read more here: http://www.nybooks.com/blogs/nyrblog/2011/jul/13/why-fannie-and-freddie-are-not-blame-crisis/
And, of course, we know it wasn’t the loan losses themselves but rather the cratering of the derivatives — which is to say, the very existence of the derivatives weapons of mass destruction, such as the “Magnetar trade” — that almost caused the global finance system to go bye-bye.
See: http://www.nakedcapitalism.com/2010/08/more-debunking-of-the-freddie-and-fannie-caused-the-crisis-meme.html
Basic question: If the GSEs were mispricing risk, why didn’t their MBS fall apart sooner? They’d been buying mortgages for more than a decade, and the CRA had been on the books since, what?, the 1970s. And weren’t all those CDOs composed of private label mortgages?
The part of this that does not make sense is who determines what is justified to make. You think anyone who is associated with finance or trading is screwing somebody and does not deserve a high payout. Yet, you are upset if someone associates you with scumbag lawyers who screw people over. The employee will always think that the employer is making too much without working enough, and the employer will always think that the employee is not working hard enough to earn their wages.
“The part of this that does not make sense is who determines what is justified to make.”
That’s why it’s a free market.. If I’m overpaid you remove me for someone else. If I think I am underpaid, I find someplace else to pay me what I deserve… I think most people get what they deserve.
As for HD.. just learn to ignore him when he gets all pissy (can change vowel to u) over this issue…
“Trucking pay is very low and the job sucks, and there aren’t enough qualified candidates with CDL’s and perfect criminal / driving histories to get the job.”
Then the salaries will go up as will the benefits. It’s supply and demand HD. And right now, the trucking companies are being impacted because there aren’t enough drivers.
“Whenever people say there aren’t enough workers to fill the jobs, they’re really just complaining that they cannot hire the top quality candidates for the wages they want to pay. At that point it becomes a business model problem and not a lack of qualified workers problem.”
I disagree with this. There was a company that does welding looking to hire in Pennsylvania but welding is a lost art. The pay was good. You could make $70,000 a year after you went through the 18 month apprentice program. But the company couldn’t find anyone who wanted to wait 18 months to make the big money (the apprentice program paid half)- nor could they find anyone to commit to the 18 months.
So sad.
I’ve heard of similar stories from ComEd. That’s not an easy job. You have to climb telephone polls in dangerous situations. But the pay is good (especially if you get overtime). You can make close to six figures (and the ones I know doing it don’t have a college degree.) But, again, they can’t find enough younger people willing to put in the time to do the training and the physical nature of the job.
There are plenty of jobs that lack qualified workers- especially in tech or in new areas like SEO or social media. Try finding someone who actually has training in social media. I tell every young person I know to somehow get experience in it because every single company, big and small, is hiring a social media director.
Actually, whenever anybody argues that there aren’t enough workers to fill jobs they are citing anecdata to bolster an argument that the unemployment problem now is structural.
Also, lots of people do get paid what they don’t deserve. “Deserve” of course being a loaded term. Let’s just say certain professions distort the labor market by securing statutory protections for their jobs from competition. Medical and legal professions come to mind. And, to be fair, also the Teamsters who drove trucks for Hostess. Until some bright boys in private equity legally and with malice aforethought went to the trouble of voiding their contracts.
I’m not necessarily against those distortions. The free market is an ass; left to itself, it just creates crises that the public sphere has to resolve.
Nonchatterer,
It’s late so I can’t spend a ton of time on this. Let me provide a couple of links:
http://online.barrons.com/article/SB50001424052748704330804577138723743869622.html#articleTabs_article%3D1
http://online.barrons.com/article/SB50001424052748703805304577124680888608936.html
http://online.barrons.com/article/SB50001424053111904414004578016373986855276.html?mod=BOL_twm_col#articleTabs_article%3D1
And here is an interview with Alan Greenspan a couple of years ago by Maria Bartiromo:
Alan: Fannie and Freddie is really one of the critical causes of the problem.
It wasn’t really until September 2009 that I could say that and the
reason essentially is that in 2009 Fannie Mae reclassified a huge amount
of its so called prime security portfolio and made it sub prime. And all
of this stuff got securitized and the demand for Fannie and Freddie –
because HUD’s affordable housing goals were rising very significantly –
the only way they could meet the affordable housing goals was by
wholesale purchases of the debt of low and moderate income homeowners.
And so what they bought was mortgage backed subprimes in volumes that
amounted to close to half of all the net issuance in 2003 and 2004. That
essentially broke the back of the market, and a previous subprime market,
which was frankly a functioning market. It was small. It was those
homeowners which were between…which couldn’t afford the 20% down payment
but could afford the monthly service payment. They were doing fine until
the pressure from securitizers on the mortgage lenders became intense
and they all went to adjustable rate mortgages. And that was the seeds of
the crisis.