Market Conditions: Best Developer Quote of 2009
The Chicago Tribune recently had an article about getting more for your money in the real estate market- especially in those homes priced between $200,000 and $300,000.
But one developer says to look beyond the actual selling price of a home when you’re house hunting.
Nick Gouletas of American Invsco also suggests shopping by monthly mortgage payment, not by the home’s purchase price. This opens the doors to deals such at that at American Invsco’s 200 N. Dearborn building. Its 10-year, interest-only, 2.5 percent mortgage enables a buyer to pay $865 a month for a $519,400 condominium.
“Then, you get a home with the works – granite, marble, etc. – but with a monthly mortgage payment that’s the same as though you bought a $171,198 home with a standard, 6.5 percent, 30-year loan,” Gouletas explains.
More bang for home buck [Chicago Tribune, Leslie Mann, May 22, 2009]
Yeah, and then you can never sell it. Sounds like a deal!
Yes the guy is an ass but technically if you stay in the home for 30 years he is correct. Having said this, please do not do one of these deals. it is a rip off!! :))
Given American Invesco’s track record, in a few years that $519,400 condo will be worth only $171,198.
The Case Shiller index was released today. Chicagoland came in at 122.34, a 3.14% decline. Pricing is now at July 2002 nominal levels.
Chicagoland fared better than Phoenix (-4.52%), Miami (-3.51%), Detroit (-4.85%), Minneapolis (-6.07%), and Las Vegas (-3.82%). Chicagoland fared worse than every other city.
On a different note the Case Shiller index just came out. Chicago prices are back to July 2002 levels and have fallen 18.6% YOY and 27.4% from the peak: http://blog.lucidrealty.com/chicago_real_estate_statistics/
I knew that the Tribune posted ads on the front page of their paper, I didn’t realize that you could now pay for an advertisement inside an article.
We’ve all established that AmInvesco= the devil. My question is about the bank providing the financing. How is there anyone at this bank stupid enough to provide this lending. Have they not learned their leason?
The bank is sharing in the profits when they sell this over priced crap. They make their money up front…
This guy should be put in jail.
July 2002, this must be the bottom because prices are near or at the long term trend line! So what if the data shows prices on an unabated cliff dive; it’s all about the trend line. There is a small window of opportunity to buy NOW while we’re at the bottom; you’ll be kicking yourself when prices shoot back up later this year.
Case Schiller – Honest question for you guys. The information released was from properties that went under contract Jan and Feb of 2009. If we remember correctly the financial markets and equities were up side down at the time and most of the home sales that did occur were distressed properties.
So the question for all of you is how far has the market really dropped? The market is a very different place than it was in Jan & Feb of 2009. Where will the index be when May #’s come out 3 months from now?
I will go out on a limb and say the index will have improved when May #’s come out.
What do you guys think? We can come back to this when the numbers come out and keep track of who is stupid and who is not.
Sounds like fun, right?
Seasonality, Steve, you should be able to answer your own question.
And as far as very different, I think you mean, slightly up from last winter’s record lows but still lower than the Spring 2008. Yup.
“The market is a very different place than it was in Jan & Feb of 2009. Where will the index be when May #’s come out 3 months from now?”
Homedelete – You are about 3 months late, but that is what you get when you live act on numbers that are 3 months old.
The stock market is about at the bottom 3 months ago as well. Can I still get dow 6,500 today?
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homedelete on May 26th, 2009 at 7:34 am
July 2002, this must be the bottom because prices are near or at the long term trend line! So what if the data shows prices on an unabated cliff dive; it’s all about the trend line. There is a small window of opportunity to buy NOW while we’re at the bottom; you’ll be kicking yourself when prices shoot back up later this year.
Later this year? Even if the economy started getting better and people started hiring driving the unemployment rate down to Stock market gains, job hiring, confidence restoration, spending.
Thats going to take at least a year from whenever step #1 happens.
“Seasonality, Steve, you should be able to answer your own question.”
Seasonality does that affect prices but only volume HD. If it did affect pricing I would buy every December and sell every May.
BTW, this American Invsco deal is a pretty clever gimmick. The present value of the mortgage subsidy works out to about $82K at a 5% discount rate. So all they have to do is sell the places for $82K more than they otherwise would and they break even. Then they compare it to a place purchased with a 6.5% mortgage, which is way too high, and it looks like a great deal.
Regarding the future direction of the Case Shiller index. First, it has very rarely gone up since we started the decline. Only a few months here and there. Second, look at the employment graph at the bottom of the page I linked to above. Employment in the Chicago area is lower than it was 10 years ago. Now, think we have more capital tied up in housing than we did 10 years ago? There’s a fundamental mismatch. Prices aren’t going up any time soon. They may not drop a lot more but they’re certainly not going up.
I think Case-Shiller is overrated.
Gay – Where are salaries and interest rates compared to 10 years ago? Don’t forget all of your variables…
Each CS number is a 3-month overage, so it’s 2 months lagged.
Still, we will not see an appreciable recovery until real income starts rising.
The guy from American Invsco is honest in his statement. Buyers just need to do their homework. There is an American Invsco style seller in every industry and it is up to the buyer to figure it out. From an ethics standpoint do I disagree with his approach, of course.
Good lord….when will these declines stop! This housing market is like running a race with no idea where it ends. The lack of an understanding on what will end it and when seems most painful. The “what” has to be jobs and the when is anyone’s guess.
The bankruptcies of Chrsyler and GM will have an adverse impact on Chicago real estate. There is an incredible number of young people from Michigan who move to Chicago each year. The bankruptcies of GM and Chrysler should adversely impact this unfortunately.
I have a rental condo in the city and cannot believe how difficult it is to find a tenant this year. I have tried advertising in a college newspaper, condo.com, Craigslist.com, and the buidling association website.
Where will the index be when May #’s come out 3 months from now?
-aren’t there futures markets that predict this?
I think seasonality would affect prices. the reason you don’t buy in Decemeber and sell in May is b/c there are no guarantees it would sell, which is a pretty risky investment. But, don’t you think that if a seller doesn’t sell by Oct, they are going to drop the price to unload it before the winter? or do you think the sellers that are out there right now would rather hold on to their houses for 6 months until spring comes around?
“You are about 3 months late, but that is what you get when you live act on numbers that are 3 months old.
The stock market is about at the bottom 3 months ago as well. Can I still get dow 6,500 today?”
Steve, I understand what you mean but using the Dow as an analogy is very poor. Home prices don’t move like the stock market does.
Zajas – I do understand. Just making a timing point…
I second Zejas- the equity markets crashed b/c the fear of insolvency and nationalization of our largest banks. that fear has subsided for a while. the housing market, on the other hand, has no better fundamentals now than it did earlier.. mortgage rates will stay sub 5% at least until the end of the year. you get the $8K until Dec. the IL unemployment is predicted to rise over 10%. still over 12 months of inventory…
Futures is a good way to look at predictions. I don’t know how liquid the C/S futures are, but that would be a way for anyone who is really confident about their predictions (and if their predictions are different from the market price for futures) to make a little money.
There is some seasonality in pricing (less than in volume but still some). I haven’t examined how they do it, but C/S release a seasonally adjusted series. There are too many frictions to arbitrage the modest seasonality effects.
“Don’t forget all of your variables…”
Where was the global economy at 10 years ago? What was consumer confidence 10 years ago? What were the lending criteria and standards 10 years ago?
Steve,
Salaries may be up but unless the employed people are owning more than one home in the city that’s not going to fill all the homes we built.
DZ,
I tried playing with the Case Shiller futures. Totally illiquid. For all intents and purposes there are no futures.
Futures markets are never 100% in predicting the future.
Thank god the housing market is one step closer to nominal 1999 pricing…
Even if the CS numbers increase slightly over the next few months, this is not enough for me to pull the trigger on a SFH. I believe the specter of 10+ unemployment by the end of the year and the upcoming Jumbo resets in 2010-2011 to be much more significant.
Too bad about the lack of liquidity. Futures are a useful data point on predictions (although they can be very wrong, as the stock futures surely were a couple of years ago) but my main point was that in a liquid market they are a great place for people who are truly confident about their projections to place real bets rather than internet bets.
Joe,
Jumbo resets aren’t going to do a thing as interest rates are at historic lows. If you mean Alt-A and option-ARM recasts, then yes, those will default en masse. Plain vanilla resets won’t have an impact, courtesy of your tax dollars at work.
If Chicagoland follows the trend of last year we should see stabilization for a few months soon, maybe for the next six. However using last year as a proxy for this year could be very flawed.
Bob,
I used the term “Jumbo reset” incorrectly. I was referring to the Alt-A and option-ARM resets that would most likely affect SFH pricing in Chicago.
Historically low interest rates are not enough to make me buy a home priced at bubble levels. As such, the American Invesco scam mentioned in this article has absolutely no influence on me (other than generating a feeling of disgust).
Havent we learned from past Invesco properties? 3660 N. LSD, 345 N. LaSalle were all very heavy incentive laden projects. They are now two of the biggest short sale/foreclosure buildings in the city. They suck.
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Iron Fist on May 26th, 2009 at 9:38 am
Havent we learned from past Invesco properties? 3660 N. LSD, 345 N. LaSalle were all very heavy incentive laden projects. They are now two of the biggest short sale/foreclosure buildings in the city. They suck.
And thats without a 2.5% IO loan. These loans are only going to those who will actually live in the unit too, perhaps if it were some rich investor with 75% down. But you know these people are just going to hand it back in a few years.
Wasn’t telling people who could afford $170k homes that they could buy $500k homes exactly what led to the real estate bubble in the first place? Has Gouletas learned nothing from the past 2 years?
Yeah what a deal… its like those morons that use funny financing to buy a new car at a higher price than they cant really afford and cars always depreciate. Just like these crappy rental invsco scamjobs!
84 month financing Sonies. Yeah buddy!
Oh and remember those golden days when you could roll your old car’s balance into your new car loan, achieving over 100% LTV on even car loans?
GOTTA GET ‘DEM SPINNIN’ RIMS, MAN! DUBS FTW!
The rolling over car notes was much much more common than you would think.
Need to read article in NYT Sunday paper re: rising foreclosures for prime mortgages due to rising unemployment.
Stop looking at stock market as indicator of economic recovery, and look at continually rising unemployment rate, rising commercial real estate default and foreclosure rates, rising credit card default rates, and financial instability of many corporations.
And our government and the Fed can’t seem to make the causality connection that super low interest rates and almost free financing for so long basically pulled in/borrowed consumption from future periods. Who woulda thunk?
You would be astonished how often it really does occur exactly like that…
homedelete on May 26th, 2009 at 7:34 am
July 2002, this must be the bottom because prices are near or at the long term trend line! So what if the data shows prices on an unabated cliff dive; it’s all about the trend line. There is a small window of opportunity to buy NOW while we’re at the bottom; you’ll be kicking yourself when prices shoot back up later this year.
Yeah in the stock market you call it the suckas rally.
Heitman, the maket is up today. I think you should buy a home today.
Damn R’s
>Good lord….when will these declines stop!
Since these comparisons are YOY, I don’t think we will stop seeing drops until maybe December 2009. Then it will be around zero for a while. Maybe a long while. I think the headlines of HOME PRICES DROP BY 80 THOUSAND PERCENT!!!! have a negative effect on consumers. Ha, I wonder why.
It’s an Invsco property….enough said.
You’ve gotta give the guy credit for creativity. However, I sure hope no one falls for it.
“Yeah in the stock market you call it the suckas rally.”
Only for the guys that buy it late… i learned loooong ago 99% of the time to remove my opinions and just watch the tape.
The funny part about the market lately is its completely disconnected from economic fundamentals. We all know how that story “decoupling” eventually pans out..
Random question: what does the (tfo) behind certain handles mean? I should turn in my internet license but my searching has come up empty.
“I have a rental condo in the city and cannot believe how difficult it is to find a tenant this year.”
Have you tried reducing the rent you are charging?
the fu$king original
Bummer, was hoping for The Frugal Oenophile
Reduce the rent? Hahaha.
Captainvideo didn’t you know that the discipline of economics is below the domain of mini Trumps and other miscellaneous land barons?
Don’t you know real estate is completely different and operates in a surpadimensional brane beyond the realm of both newtonian and einsteinian physics as well as economics?
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“CaptainVideo on May 26th, 2009 at 12:47 pm
“I have a rental condo in the city and cannot believe how difficult it is to find a tenant this year.”
Have you tried reducing the rent you are charging?”
That’s just what I was thinking;
How big, how much, and where??
I am looking for a 2 BR Gold Coast condo right now. Funny how many people says they won’t deal on rent. We’ll see when push comes to shove but I am determined to get under $2k with parking included. I have identified 50+ potential units and the negotiations are about to begin. I will never understand property owners that will let a unit sit for months rather than drop rent 10%. From what I see on the MLS there is at least three months of inventory, maybe more. Let the games begin.
Drew
Drew, I’m sure you can find a 2br in GC w/ parking. It won’t be in a high rise (assessments will kill that option) or recently updated, but you’ll find it.
and as far as push comes to shove, good luck. in the end you are the one looking for a roof over your head. who knows what the landlord’s intentions/motivations are.
I guess it makes some landlords feel better to not lower their listed rental rate, but to instead throw in 2-3 “free” months on a 12 month lease. I’d think they would be better off just dropping the price, but what do I know about renting out an apartment.
Speaking as a (very fortunate) owner with many units offered for rent, I take a different view on how to price each property. For me it is more important to price a unit based on a ‘targeted segment’ of renters that I desire to have living in and caring for my investments than it is to fill the units at a lower price just to say they are full. I can approach the situation in this manner because I am lucky enough to own all my places with no mortgages hanging over my head. I don’t need these rent payments to keep the properties or to survive, but rather to have them going towards the upkeep of my houses and for purchasing and renovating more property.
Granted I am not a conventional owner, but I think I speak for all owners when I say it is more important to have tenants who are capable of caring for a home as if it were their own than it is to reduce the rent amounts and take your chances at renting to just anyone as they usually end up trashing your houses.
Cheap rents = a quickly run down house that loses it’s value in a short period of time. Higher rents = quality tenants who will care for your investment and guarantee that they retain their value down the road…at least until they are sold!
Raise rents to attract better tenants?
What a laugh. Thanks for that.
I’m paying $1900/mo. for an 1100 sq.ft. 2bdrm loft in River North w/parking. I do see the rental market being similar to the purchase market though — lots of inventory and no one reducing prices.
Whatever happened to pricing for risk?
“Cheap rents = a quickly run down house that loses it’s value in a short period of time. Higher rents = quality tenants who will care for your investment and guarantee that they retain their value down the road…at least until they are sold!”
G,
I had a better laugh from the comment yesterday, something along the lines of: “you can’t infer your landlord’s intentions and it is YOU who needs a roof over your head”. LOL! Excellent logic to show who is in charge of this market: mini landlords.
First off I am not pressured to get a roof over my head. I have a home in TX and this apartment is because I am spending more and more time in Chicago for work and am getting bored with hotels. So when push comes to shove I am in the drivers seat with 50+ properties to choose from. I tend to think of myself as a near idea tenant: executive, 780 FICO, no kids, no pets and I’ll only be there 10 days a month, but that doesn’t mean I intend to pay more, in fact quite the opposite. I know I am desirable because I will not damage the unit and because I can pay. That means I pay less. The only question is how much less.
The funny thing is I am more worried about the financial stability of potential landlords. I should be running credit checks on them as their bankruptcy would be quite inconvenient for me. LOL
NOT raise rents G, I just do not lower them. I set rents after I complete the renovations based on what I have paid, what I have invested and the segment of that market I am seeking.
Just wondering G, as much as you contribute here and the depth of knowledge you have of the industry (?), do you actually own a home? More than one? While it is easy to look up pricing on properties discussed here, it is quite another to actually own many houses and to be able to come out on top of your transactions. Don’t attempt to dump on me for what I have accomplished and for what I have learned in 25+ years of actively participating in this industry.
While I appreciate your views normally, I don’t think you have any idea of this portion of the business.
“Pete on May 26th, 2009 at 6:59 pm
I guess it makes some landlords feel better to not lower their listed rental rate, but to instead throw in 2-3 “free” months on a 12 month lease. I’d think they would be better off just dropping the price, but what do I know about renting out an apartment.”
Pete- the reason landlords throw in free months is so that when it comes time to renew the lease, the rent is set at the higher monthly rent, which the tenant has been paying, rather than the average monthly rent, which would be hard to increase psychologically.
It’s not to make the landlord ‘feel better’, jeez.
I see what you are saying drew, and I do agree you would be an idea tenant. But you lost me at saying that because of your standing you expect to pay less for quality housing. While I seek tenants of your standing, I would not reduce your rent because of who you are. If you are indeed at that level, you expect to pay a bit more $$ for quality housing. Of course you can pay a lower amount of rent, but being a home owning executive now, would you really be happy with a lower quality unit?
In the end, you pay for what you get regardless of who you are…
G is a former landlord who is very bitter.
Hehe that was the impression I was getting….that or he has no idea of the business other than C&P-ing sales numbers and facts.
Everyone in my building pays lower rent than other buildings in the neighborhood. The building is always full and when a unit comes up for rent my landlord has plenty of applicants to choose from. My landlord said he’s had only one eviction in 26 years. It’s called enticing high quality creditworthy tenants with lower rents than comparable units in the area.
WL, I dump on you for the ridiculous nonsense in your posts.
That same nonsense leads me to believe little else from you.
G, as I stated on another thread, delusional sour grapes…only this time add ‘denial ridden……..’.
Don’t hate me because I am beautiful….hate me because I have a mind!! LOL for the day!! Thanks
Sure thing there WL. Your posts speak for themselves.
Bitter former landlord?
As opposed to not selling everything by 2006?
MADFLY, that’s funnny coming from a condo “investor” who bought during the bubble.
Good luck with that.
G- see my other post.
Holla back when you have made your first million.
(crickets chirping)
cat fight!!
“Holla back when you have made your first million.”
RE C&P-ing pays that much?? You kidding?
One born with it and the other just imagining it.
I’m impressed.
No, you’re depressed.