Market Conditions: Chicago December Sales Jump 39.8% Year Over Year; Median Price Slide Continued
Sales in Chicago rebounded in December from the dismal December 2008 number but median price fell 10.6%.
From the Illinois Association of Realtors:
In the city of Chicago, December total home sales (single-family and condominiums) were up 39.8 percent to 1,768 sales compared to 1,265 homes sold in December 2008. The city of Chicago median price in December 2009 was $210,000 down 10.6 percent compared to $235,000 a year ago in December 2008.
For the full year, sales were down in Chicago compared to 2008. Median price slid 22.4%.
For the year, city of Chicago home sales were down 7.4 percent to 19,401 homes sold compared to 20,946 homes sold in 2008. The year-end city of Chicago median price for 2009 was $225,000, down 22.4 percent from $290,000 in 2008.
“In the city of Chicago, December closed with nearly a 40 percent increase in units sold over the same period in 2009, indicating that the correction of the marketplace continues as distressed properties are absorbed by investors, and stimulus credit homebuyers continue to pave their way to making their purchases,” said REALTOR® Genie Birch, president of the Chicago Association of REALTORS® and a broker associate with Koenig & Strey GMAC, Chicago.
“We will continue to monitor closely the impact of the first-time homebuyer tax credit, as well as the evolving lending regulations, including FHA’s new guidelines, as we serve Chicago’s homebuyers in 2010.”
Statewide, sales also improved but there are concerns about the elevated unemployment rate which reached 11.1% in December, much higher than the national average.
“The continuation of positive changes in annual sales data recorded in the last three months of 2009 is forecast to continue through the first quarter of 2010 and there is evidence to suggest that median prices might be starting to inch upwards,” said Dr. Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory (REAL) of the University of Illinois. “Illinois’ March 2010 median price is forecast to be just above the level recorded a year earlier but Chicago’s median price will be down by just under 8 percent.”
Adds Hewings: “Illinois has recorded 24 months of job declines since the recession began in December 2007. Nationally, four in 10 of those currently unemployed have been in this position for more than 27 weeks.”
Illinois Home Sales in December Log Fourth Consecutive Gain; Year-End Home Sales Down 1.5 Percent in 2009 [Illinois Association of Realtors, Press Release, Jan 25, 2010]
I’ve been trying to tell you guys…
And the contract activity in December was up as well: http://blog.lucidrealty.com/2010/01/03/surprising-chicago-home-buying-activity-in-december/ so we will see strong sales continuing. January is shaping up the same way. Realtors and inspectors are very busy now.
And NO, I am not saying “buy now or …”
Jobs will come in time, people and businesses need confidence and this retarded senate healthcare plan and ‘new taxes’ plan is only scaring the shit out of business owners. Obmama & Co. need to stfu for a long time and let this turd work itself out.
The big question is prices, no? There is clearly pent up supply and demand–the market has not been functioning smoothly. Volume certainly has to go up eventually. Question is where prices go in short run and longer run.
Inventories (months of supply) are down as well in most neighborhoods which indicates supply and demand are coming back into balance. Of course, it’s possible that more supply comes on the market in the next few months than there is demand for. However, many sellers are at a point where they will either rent the place out or continue to live there because they can’t afford to sell. Not everyone wants to walk away or sell short. There are plenty of really responsible people out there that just can’t bring themselves to not paying off a debt.
Gary – Thoughts please…
Are prices really dropping as dramatically as the median price declines suggest? Or are distressed properties temporarily skewing the number downward?
There’s also a lot of people who have no choice but to sell short due to job loss, significant reduction in income, or job changes where they have to move out of Chicago, and the rent they would receive would not be even close to covering their monthly PITI and assessments. Selling short is not always about responsibility, as often people are left with no choice but to do so. Who knows, their credit scores may even recover faster than the value of their property would have…
Steve,
I never pay attention to median prices. As the data shows there is a shift to lower priced properties but that doesn’t mean the prices have fallen. As we’ve discussed here many times, with a mix shift downward it drags down the median prices.
Personally, I find the Case Shiller numbers more meaningful and we’ve seen that drift upwards in the last 6 months or so.
Regarding people moving: I’m seeing those people rent at a loss rather than sell short. Sometimes they just can’t bring themselves to lose money and other times they just can’t bring themselves to screw the lender.
At the end of the day, if you lose your job, how do you not do a short sale if your total monthly costs exceed what it would rent for by a significant margin? If you bought at the peak, your total payment could be double what it would rent for today.
Those people are not “screwing the bank”, they are looking out for their own best interests, which is what banks do at all times.
Thanks Gary,
I wonder at how much of the activity is distressed sales and how that pulls the median down in an alarming way. I’m currently under contract for a short sale two flat in a good northside neighborhood, priced 300k under what the seller paid for it a few years ago.
Gary Lucido on January 25th, 2010 at 10:45 am
Steve,
I never pay attention to median prices. As the data shows there is a shift to lower priced properties but that doesn’t mean the prices have fallen. As we’ve discussed here many times, with a mix shift downward it drags down the median prices.
I’m sure the inquiry is highly individualized to the specific circumstances of the deal in question, but are there any rough guides or rules of thumb for how much of a discount banks are willing to deal for?
I don’t think there is really a rule of thumb.
The banks are idiots. They sit on perfectly good offers as the market trends down and pipes freeze and then sell for less than what they could have gotten.
One would assume that banks are perfectly rational-but experience has proved the opposite……..
I think the biggest two factors that many fail to address:
-hidden supply: how many people haven’t sold because they plan to “ride out the market?” it’s gotta be a lot, and I’m guessing it’s going to have more of an impact on the mid to upper end of the market.
-interest rates: nowhere to go but up, but the don’t necessarily have to go up any time soon. big variable here.
My take is that the upper middle to upper end of the market has some ways to go. Maybe 10-15% or so, I don’t know, but it will probably be spread out over at least a few years. I will keep casually looking until I find something nearly perfect, until then, renting seems like the better option.
Although it is comparing November national to December Chicagoland data, it appears Chicago is breaking out from the broader market:
Existing-Home Sales Tumble
“Home resales fell by 16.7% to a 5.45 million annual rate from an unrevised 6.54 million in November, the National Association of Realtors said Monday.”
http://online.wsj.com/article/SB10001424052748703808904575024974181771514.html?mod=WSJ_hps_LEFTWhatsNews
“And the contract activity in December was up as well…so we will see strong sales continuing. January is shaping up the same way.”
See what lowering prices will do? I believe I said that a year ago. I also predicted that the realtors will be heralding a turnaround when the M-over-M sales increase, even though last winter marked the lowest sales totals in Chicago in decades.
“Personally, I find the Case Shiller numbers more meaningful and we’ve seen that drift upwards in the last 6 months or so.”
Your tune will be changing soon. I predict that as the bottom end stabilizes the median will actually rise due to the continuing correction in the mid to upper price range. Regardless, CS will show declines again by the spring.
“Regardless, CS will show declines again by the spring.”
Its almost guaranteed to due to the expiring of the tax credit. 2010 is going to be a very weird year, likely with rapid declines by the end of the year.
““Home resales fell by 16.7% to a 5.45 million annual rate from an unrevised 6.54 million in November, the National Association of Realtors said Monday.””
To be fair, (the article said RE-sales) why buy something used when you can buy something new for the same price, or less? And deal with a lot less hassle?
dahliachi i think i know the building you’re referring to – it’s a nice building (i looked at it) but really, what will it be worth once you’ve fixed it up? and what comps are there to support the higher value? that neighborhood has physically nice buidlings but not the same pedestrian friendly advantages of andersonville proper, or points further south.
What I find interesting is that while the US proerty market is still in the dumps, the market in much of the world is booming, including Canada, australia, china, hong kong, and I read that the UK is today only slightly below its 08 peak. What gives???
“Although it is comparing November national to December Chicagoland data, it appears Chicago is breaking out from the broader market”
Go back a couple of years in the archives and you will see many who claimed that Chicago needs no correction because it had yet to begin and “it’s different here.”
There’s no breakout, there’s just different timelines to the inevitable corrections across the country.
Bob, those are apples and oranges. Chicago sales declined 5.3% from Nov to Dec 2009.
G is that seasonably adjusted? And what % of national sales are new construction? Just curious if you can find that out.
At the end of the day, they will try to skew the numbers in their favor to make it look like people should go out and buy. Do they think that potential buyers are that stupid to believe them?
“why buy something used when you can buy something new for the same price, or less? And deal with a lot less hassle?”
We’ve already discussed at length the risks inherent in purchasing new construction. Sorry but that route isn’t for me, I’ll happily take a “used” home that isn’t that old over new construction any day.
“Do they think that potential buyers are that stupid to believe them?”
Yes people are quite stupid! Look at our political system. Whoever buys the most air time will win the argument and support for office. People believe what they are told!
“We’ve already discussed at length the risks inherent in purchasing new construction. Sorry but that route isn’t for me, I’ll happily take a “used” home that isn’t that old over new construction any day.”
I also agree with you bob (as I purchased a resale of a property completed in 2005) but I think that when given a choice, most people would rather buy a new construction than something built in the 1990’s or earlier.
I don’t think that the tax credit expiring will impact prices across the board. Will it change prices on the low end – yes, sure. But the credit phases out at $125k / $225k of income, so it impacts homes going for less than $500k-600k? And at the high end of the range the $8k tax credit with $5-6k net impact will reflect ~1% of purchase price. You won’t notice that in all the noise in price variations from each negotiation.
So volume and maybe price for homes less than $500k MAY be impacted, but above $500k the credit expiring will have little impact.
The problem is that the new construction isn’t always built by a reputable builder. We had all these pick-up truck developers building that past few years, and then leaving a shoddy finished product after cutting corners. People bought the units because they thought the market would only go up and up and up.
Not only is the first time home owner credit going away in April but the Fed is scheduled to stop supporting artificially low interest rates (I.e buying mortgage bonds) in March.
I predict an interesting summer.
bubbleboi
Comps exist a block north and a block south…..and my selling price would be adjusted to less than prime part of the hood.
“G is that seasonably adjusted? And what % of national sales are new construction? Just curious if you can find that out.”
Sonies, Don’t know which you are asking about. The NAR resales number that “fell by 16.7% to a 5.45 million annual rate from an unrevised 6.54 million in November” is seasonally adjusted, the Chicago deline of 5.3% from Nov to Dec 2009 is not.
See the second graph here for your resale/new const question:
http://www.calculatedriskblog.com/2010/01/more-on-existing-home-sales.html
I saw an analysis on Seeking Alpha entitled “Is It Time to Buy a House Yet?”. After presenting charts, the guy concludes “Here we see that national home prices have already retraced to 2002 levels–about halfway down the slope to a full retrace [to 1994-7 pre-bubble prices].”
http://seekingalpha.com/article/184262-is-it-time-to-buy-a-house-yet
tay:”-hidden supply: how many people haven’t sold because they plan to “ride out the market?” it’s gotta be a lot, and I’m guessing it’s going to have more of an impact on the mid to upper end of the market.”
Thanks G, I can’t view that new construction graph at work for some reason (even though I can see the rest of the blog, wtf) but i’ll check them out later.
I was wondering about the Chicago sales being seasonally adjusted because more than likely the colder it gets the less people will be buying or moving, so those results are not shocking to me.
“are there any rough guides or rules of thumb for how much of a discount banks are willing to deal for?”
You can probably get it for 80% of appraised value.
“At the end of the day, if you lose your job, how do you not do a short sale if your total monthly costs exceed what it would rent for by a significant margin? If you bought at the peak, your total payment could be double what it would rent for today.”
The rent option is for people who are employed but need to move. Rent might cover 70%+ of the total outlay each month and that’s good enough for many people.
“I wonder at how much of the activity is distressed sales and how that pulls the median down in an alarming way. ”
Hard to say how much is distressed, but again, there doesn’t have to be any real price erosion in order to bring down the median prices. Don’t get me wrong…there is some price erosion, but the big effect on median prices is that the low end is doing better than the high end.
“but the big effect on median prices is that the low end is doing better than the high end.”
Of course. Zero down loans via the FHA & the tax credit means any wet behind the ears 20-something white collar type can buy a 225k home.
“FHA Backs More Than Half of Loans for New Homes”
“Some 59% of new home buyers are using government-backed loans from the FHA and other agencies, according to a survey of home builders by John Burns Real Estate Consulting, an Irvine, Calif.-based consultancy. The FHA accounts for nearly half of all mortgages, while loans from the Department of Agriculture and the Department of Veterans’ Affairs account for another 10% of all loans for new homes.”
http://blogs.wsj.com/developments/2009/10/20/fha-backs-more-than-half-of-new-home-loans/tab/article/
The real good pickins aren’t going to be at the low end, they’re going to be 2014’s 600k house is going to be 2006’s 1.2MM house.
“hidden supply: how many people haven’t sold because they plan to “ride out the market?” it’s gotta be a lot, and I’m guessing it’s going to have more of an impact on the mid to upper end of the market.”
Yes…but the hidden supply is a result of sellers holding the line on pricing, which I believe is what is providing support at these levels.
“Your tune will be changing soon. I predict that as the bottom end stabilizes the median will actually rise due to the continuing correction in the mid to upper price range. Regardless, CS will show declines again by the spring.”
Why would that change my tune? I believe the CS index is a better measure…period.
“the Fed is scheduled to stop supporting artificially low interest rates (I.e buying mortgage bonds) in March.”
A lot of smart people believe the impact won’t be more than 50 basis points or so. If smart money believed the impact would be huge they would be dumping MBSs now and the rates would already be higher. The fed would have to be the entire market in order to have a huge impact.
“If smart money believed the impact would be huge they would be dumping MBSs now and the rates would already be higher.”
Whatever their baseline assessment of the impact of the end of the program, smart money is worried about outlier scenarios.
“A lot of smart people believe the impact won’t be more than 50 basis points or so.”
Smart money I think is moreso worried about what happens when the Fed has to start removing all this excess liquidity from the system and when. 1T is a lot of MBS to sell and I don’t think mainstreet America is going to led the Fed keeps its balance sheet inflated at $2T forever.
Theres already populist momentum to reign in the Fed. I can only hope it succeeds.
“‘Regardless, CS will show declines again by the spring.’
Why would that change my tune? I believe the CS index is a better measure…period.”
As excerpted, it should be clearer why G thinks you’ll change your tune. One of you will be right.
“Why would that change my tune? I believe the CS index is a better measure…period.”
This tune:
“I am going on record that we’ve bottomed”
“despite my belief that overall Chicago has bottomed”
“you probably missed me calling the bottom here a few months ago.”
“we’ve seen that drift upwards in the last 6 months or so”
Bob, I don’t think the Fed has a plan to sell the MBS. First, if they took a loss on the MBS portfolio the political backlash would be huge. Second, if refinancing activity even approximates its pre-collapse levels, much of the MBS portfolio will “evaporate” into the private sector in the form of refinancing. Of course, this assumes that there is not a sudden change in fixed income market conditions that closes the window on refinancing, i.e. sustained monetary tightening.
anon, you got it just like always.
If I knew you were around, I wouldn’t have walked away and not refreshed before hitting submit on my last post.
There is grumbling that the Fed will continue buying beyond March. If you believe markets are efficient, the fed not buying has already been priced in. Rates going up dramatically would not be a good thing right now and it would hurt any recovery further. The economy still seems too shaky for the Fed to allow dramatic increases.
Long term, the only thing that is really going to help housing is inventory (rather lack of). Once inventory starts getting worked through (including the shadow properties), then prices will be sustainable. I guess the good news is that building has all but stopped.
“if refinancing activity even approximates its pre-collapse levels”
Any report on what %age of the Fed MBS is ARM?
Also, do you forsee availability of lower-than-current mortgage rates over teh next five years? Not necessarily sharply higher, but does anyone refi for a higher rate?
Thanks for posting this article. He’s calling the bottom in 2014….I’ve been saying 2012-2013 or 2014 at the latest….and I’ve been saying that for years now.
“http://seekingalpha.com/article/184262-is-it-time-to-buy-a-house-yet”
Russ, crazy as it sounds, rising interest rates my help the RE market. Higher rates mean lower prices, but same monthly payment. Buyers need smaller down payments, which are easier to save, making it more realistic to jump into the property market; along with all the fence sitter waiting for lower prices.
anon (tfo), let me scramble to answer your (very good) questions. My guess is no, it’s not broken out separately. My first guess on the second is that the Fed may think there’s room for the Treasury/agency MBS spread to come in over the next year or two, and, assuming unchanged interest rate policy, that would lead to refinancings at the margin. Also the return of the trading-up homebuyer would generate refi’s too.
Russ, I understand what you’re saying, and of course what you describe is the baseline expectation. But reality can and does choose its own way to unfold…
Also, with respect to whether the Fed will resume buying, if it does I think there will be a lag. The program will end, the Fed will watch market conditions, if it doesn’t like the result and the macroeconomic picture doesn’t improve, they may judge that they need to get in again. But in the meantime there is potential for an unexpected, adverse market reaction.
HD:
I don’t totally disagree, but the problem is that lower prices are leaving a lot of people underwater which is having a ripple effect.
To me, inventory seems to be the biggest issue. Supply and demand is all out of wack. I believe the demand is there, but there is simply too much stuff. I was driving through the South Loop and could not believe how much high rise crap was built there.
Before the easy financing, the lack of inventory in many markets kept prices going up and stable. Then we got everyone and their personal trainer turning into RE Developers and they next thing we know we have thousands upon thousands of units and not enough people to fill them or pay inflated prices for the places. Prices had to come down to get inventory back in line.
“Thanks for posting this article. He’s calling the bottom in 2014….I’ve been saying 2012-2013 or 2014 at the latest….and I’ve been saying that for years now.”
Maybe 2014 if the government hadn’t taken multiple interventionist steps in the market to support false pricing at the expense of taxpayers. Since fall of 2008 and especially during 2009 I’ve pushed back the bottom at least another year. 2015 is my guess, could be later depending on what the government does and the interest rate & employment scenario.
Remember the market has been prevented from finding a true equilibrium as our legislators have made it a priority to support speculative pricing in real estate as long as it is politically tenable. Any bottom has been deferred by this amount of time.
Gary:
“Yes…but the hidden supply is a result of sellers holding the line on pricing, which I believe is what is providing support at these levels.”
This is ridiculous. Many can “hold the line” on pricing all they want, but they are going to look pretty silly amidst the foreclosures and true desperate sellers that can’t. You see this all the time — properties that are listed for a good 15-20% above what any reasonable person would pay for them, just hoping to find “the right buyer.”
The market will take care of this. Either these people will have to hold for a VERY long time to get the price they want, or they are going to be forced out of their homes. People lose their jobs, get relocated, retire, whatever, all the time, you can only “hold the line” for so long.
anon (tfo): Only fixed-rate securities are eligible for the Fed buying program.
http://www.newyorkfed.org/markets/mbs_faq.html
“Also the return of the trading-up homebuyer would generate refi’s too.”
Understood–you’re using refi as shorthand for all payoffs of performing loans. That certainly is more likely than pure refinancings staying at the 03-07 pace, esp. as I expect that the share of ARMs, esp short locked ARMs, among the 09 vintage is below the share in 03-07.
“Also the return of the trading-up homebuyer would generate refi’s too.”
I saw a flock of Dodo birds flying near the lake today, too.
“The program will end, the Fed will watch market conditions, if it doesn’t like the result and the macroeconomic picture doesn’t improve, they may judge that they need to get in again.”
I consider your position to essentially be the devil. I’ve already written my local representatives regarding the Fed and will continue to do so if they try to create additional trillions out of thin air in an attempt to manipulate a market. Its phantom money and its a huge inflationary and economic risk to America going forward for a very limited benefit.
“To me, inventory seems to be the biggest issue. Supply and demand is all out of wack.”
Months of supply and market times for 2 and 3 bedroom condos is getting better all the time, indicating that they are getting in whack.
“This is ridiculous. Many can “hold the line” on pricing all they want, but they are going to look pretty silly amidst the foreclosures and true desperate sellers that can’t. You see this all the time — properties that are listed for a good 15-20% above what any reasonable person would pay for them, just hoping to find “the right buyer.””
I should have been more clear. These sellers are holding the line by taking their properties off the market. They simply won’t sell at the bid.
“Only fixed-rate securities are eligible for the Fed buying program.”
Well, that has to reduce the expected rate of refis. Not necessarily from the pre-crash level for similar loans, but they can’t reasonably count on heavy churn.
There are lots of sellers who dipped their toe into the water so to speak and then when they found that they couldn’t sell for what they wanted they delisted.
Here’s a home I would be interested in buying:
http://www.redfin.com/IL/Chicago/4215-W-Grace-St-60641/home/13459242
This seller listed from Feb 09 until August 09 and after a couple price reductions they delisted.
You know they wnat to sell but can’t get the price they want which was the $469k they paid in 2000 plus some. As we know any home priced above the 20% down payment +$417k mortgage is comatose.
This presents a problem.
There are literally tens of thousands of these properties. So yes the market is tightening up between supply and demand because there are tens of thousands of sellers sitting on the sidelines waiting for a ‘better’ market. However, i can continue renting just as long, if not longer, than this seller wants to pay the mortgage note and $8,000 taxes every year.
[HD’s house]
So, for discussion’s sake, if you felt that prices were going to be flat (inflation +/- 25 bps, max) for the next 10 years, what would you willingly pay for that house, HD?
the $469k they paid in 2000 is still a little rich for my blood; but it’s a $2,560 monthly payment with taxes after putting 20% down.
As long as wages stay relatively flat (along with virtually everyone I know) – the deals in 2014 will be homes like this in the $300’s.
I would ‘snap’ this home up if it were listed for $399,000.
IIRC this was listed in the $700’s and then the $600’s before being delisted.
I bet somebody would snap this up it were priced at 20% down plus $417k mortgage. Which again is rich for my blood but some feel no compunction about the $2,700 or $3,000 a month mortgage.
I mean somebody would ‘snap’ it up today in the $500’s but heading back into the $400’s in the upcoming years.
Bob, I am not describing what I think should be done, I am describing what I believe will be done. The Fed’s actions are fraught with unintended consequences, some of which are already coming home to roost. However, the fact remains that our system as a whole does not have an adjustment mechanism that works for underwater homeowners — they are merely pitted between the opposite extremes of feeding the beast or walking away and ruining their ability to borrow. So some kind of gradual reform is required.
By the way, I am shocked how many people in my generation (around 30) still buy into the real-estate-as-an-escalator-to-riches mindset. For my part I feel very lucky to have dodged the bullet thanks primarily to my having been a bit too young to buy. But I have friends, in San Francisco no less, who are working like crazy to put together a down payment to get back on the real estate train. They learned the lesson of the boom and paid little attention to the collapse… Now they want to get in.
“I bet somebody would snap this up it were priced at 20% down plus $417k mortgage.”
$521,250. The magic number.
Is this the one we discussed before? If so, I think they paid too much in 2000, and not b/c of their re-sale issues. Short lot, on the alley, etc.
“But I have friends, in San Francisco no less, who are working like crazy to put together a down payment to get back on the real estate train. They learned the lesson of the boom and paid little attention to the collapse… Now they want to get in.”
Yes- I have seen this all over the place here in Chicago as well. There is no fear.
No fear that prices could drop further. No fear that prices could stay stagnant for 5, 10 or 20 years. No fear that real estate could EVER be a losing investment (even though people are losing their life savings around them every day).
There is still the belief that real estate leads to riches and that if you don’t own, something is wrong with you.
That is why, in my opinion, this bubble has a long way to go before it hits the bottom.
The housing obsession continues on.
http://www.nytimes.com/2010/01/24/business/economy/24view.html?em
It may be time for a double dip.
“$521,250. The magic number.”
Lol not quite. A definite delineation point, to be sure, but nothing magic about it.
JUMBO-20%
Bankrate.com shows a 480k jumbo loan with 20% down (600k house) for 5.75% APR. 5.625% with a point, essentially. Thats a 20% down jumbo.
JUMBO-5%
5% Down
Bankrate.com (aside from likely fraudulent First Bank of Hedgeswisch advertising 5.51% APR) lists Northern Trust at 6.52%.
CONFORMING-20%
Bankrate shows conforming loans of 417k for 4.85-5%.
CONFORMING-5%
Bankrate shows vendors with FHA loans for 5.15% & 5.23% and regular 30years for 5.23%-5.5%.
Conclusion: while there is a definite financing differential between conforming and jumbo low down loans, for loans with a substantial downpayment there is not a large premium for jumbos.
Conclusion 2: the government and taxpayer dollars are paying for the premium between the what the private market would provide on the lower interest rates offered by low downpayment FHA loans and I suspect this default risk is not priced in correctly and will result in a massive taxpayer bailout.
consider: http://www.zerohedge.com/article/bottom-home-prices-decade-away
November Case-Shiller just came out and Chicago is at 129.39, a decline of 1.1% from October, which itself was a decline of 1% from September.
This must mean that the bottom is in! Buy now or be priced out forever!
“Bob on January 26th, 2010 at 8:03 am
November Case-Shiller just came out and Chicago is at 129.39, a decline of 1.1% from October, which itself was a decline of 1% from September.
“
“Bankrate.com shows a 480k jumbo loan with 20% down (600k house) for 5.75% APR.
CONFORMING-20%
Bankrate shows conforming loans of 417k for 4.8[75]%.”
The monthly difference b/t the two is almost enough to pay your rent Bob. $600. The Jumbo is 27% more a month to finance 15% more principal (at a rate that is 18% higher).
But, yeah, $438,947 is also a magic number.
Case Schiller for Chicago will fall even further when the tax credit expires in a few months. It’s just the falling knife syndrome at this point. Buy now and you have to catch the knife and avoid cutting cut up. It’s almost like buying a car. Once you get the keys, it’s already worth less than you paid for it…
The 11/09 seasonally adjusted condo index for Chicago declined 1.6% from 10/09 and has set a new bottom for this ongoing correction at 134.46 (0.6% below 4/09.) The non-seasonally adjusted condo index declined 1.8% from 10/09 and is now only 1.2% over the 4/09 bottom.
The tiered indices also illustrate that the low tier (less than ~ 190K) has risen off the bottom at around twice the rate of the mid and high tiers (both of which are negative MtoM.)
homedelete,
regarding your desired property and house buying plans:
“the $469k they paid in 2000 is still a little rich for my blood; but it’s a $2,560 monthly payment with taxes after putting 20% down.
As long as wages stay relatively flat (along with virtually everyone I know) – the deals in 2014 will be homes like this in the $300’s.
I would ’snap’ this home up if it were listed for $399,000.”
I have to respectfully disagree. You say you are happy to rent because prices are continuaing to fall and will do so until 2014. Four years is a long time to “sit it out”, renting an apartment, waiting for the numbers to work for you. In my experience, things never turn out exactly as planned, and you will be making substantial lifestyle sacrifces that simply aren’t justified by the economics. As a young professional, your income should be rising commensurate with your age and experience. Yes, you may be saving some by waiting, but you are sacrificing alot too. Waiting for the lines to cross in perfect unison is waiting for godot. It usually doesn’t work. I am tired to waiting and watching and am going to buy now. As long as I don’t have a short term horizon, and can afford the payments, I’m not going to worry about achieving a “home run” in my real estate decision making process. To do so, you will be paradoxically caught in the direct converse of the “buy now or lose out forever mentally”, namely “don’t buy now as prices are sure to go lower.”
“and you will be making substantial lifestyle sacrifces that simply aren’t justified by the economics.”
Only if one’s current rental is somehow inferior than the property one aspires to buy. In today’s climate renting is cheaper, even given comparable goods (ie: granite countertops in the rental is still likely less expensive than granite countertops in the buying).
“To do so, you will be paradoxically caught in the direct converse of the “buy now or lose out forever mentally”, namely “don’t buy now as prices are sure to go lower.””
Again the crux of your argument rests on the presumption that he is renting an inferior product than that which he aspires to buy, which may be true. But he could still solve all of the problems you pointed out by merely renting a place very similar to that which he aspires to buy.
“I’m not going to worry about achieving a “home run” in my real estate decision making process”
There will be few, if any, “home runs” in purchasing real estate within the next decade. I think HD might be more worried about getting a bunt and a base hit vs. a pop fly to between first and second. He seems on track to get a base hit as he is waiting for the right pitch–he may even get a walk.
Desteve I respect your opinion but you sound a little impatient. The issue I have is that the neighborhoods where i want to buy haven’t decreased to the point where new residents can afford to buy so only the low end homes are selling. I’m waiting for sustainable prices to return however long it takes. You said that my income should increase but among many professionals pay has been frozen or reduced. I may have to wait years for a substantial incerease in pay and so are a lot of people. I’m not going to buy today with the hope that my mortgage payment will become more affordable in the future if my payment is a budgetary stretch today.
homedelete,
Exercising practical economics is wise. Waiting for a bottom
IF you are in a position to afford to buy now is not in my
view, as life is too short. But, I agree that I am assuming that a SFH is more desirable than most apartments.
A SFH is only more desirable than most apartments IF it makes sense economically to buy a SFH. Right now, as I repeated have said, it does not. in the neighborhoods I follow on the NW side most of the inventory is crap. It’s mostly overpriced, the ‘deals’ are in terrible condition and there is substantial shadow inventory waiting to be released. It doesn’t make sense. I constantly see people who ‘stretched’ their monthly payments to get into a SFH at an inflated price and now they’re feeling the pain. The mere fact that I can ‘afford to buy’ doesn’t mean anything if I’m going to overpay by a couple of hundred thousand dollars compared to the guy down the block with the same income who happens to be 10 years older than me and bought in 2000 rather than 2010. Neighborhood pricing (outside of gentrification) needs to be sustainable so that new households can move in and takeover when older households leave. It’s the continuum of life. A home buyer’s equity is appreciation from inflation and from paying down the mortgage principal. Too many people are still in fantasy land thinking that they’re entitled to an inflated value.
Here’s a great house and a great example:
http://www.redfin.com/IL/Chicago/4043-N-Kenneth-Ave-60641/home/12572951
Here’s a nice little 4/2 bungalow for a family. These owners even have children themselves as you can see from the pics. They bought at the height of the bubble in 2006 for $388k and apparently did some updates. Now they want $450k! What young couple can afford this?? How is this sustainable? How is the next generation of families supposed to buy into the neighborhood when an updated bungalow is $450k?
Contrast that with this POS which is now under contract for $250k on the next block over.
http://www.redfin.com/IL/Chicago/4037-N-Kolmar-Ave-60641/home/13481188
This is the stuff that sells, the lower end POS; the $450k updated bungalow just sits.
The market will correct and two personal professional families around $100k or more will be able buy decent homes in safe NW side neighborhoods in the $200s and $300s. The middle class and working class families can buy homes west of Cicero in POrtgage Park in teh $100’s and $200’s. Unfortunateyl, those homes are still listed in the $300’s and $400’s and the residents of that community cannot afford to live there either, hence, the foreclosures.
HD:
I can’t believe you didn’t snap up the “pos” (it isn’t, unless it has structutal issues, it’s just ugly inside)–it was listed for the same price it sold for in 1999. And with 80-100k for reno, you’d have a nicer house than the one on Kenneth.
So, back to our epic disagreement, if you are talking about a subset of “typical” NW-Side houses selling for ’99 prices, I could even buy that. But typical won’t equal median, or average, or CS-index.
“This is the stuff that sells, the lower end POS; the $450k updated bungalow just sits. ”
Because a rehabber is hoping to take that 250k POS, sink less than 100k into it and turn around and resell it for 400k. Even if their math isn’t perfect thats still a 150k profit cushion for cost overruns or cutting price, etc.
Err 50k profit cushion, likely more as it won’t cost 100k to rehab.
“But typical won’t equal median, or average, or CS-index.”
I could easily see the CS-index going back to 99 prices in nominal terms. The suburbs are getting hit a lot harder than green zone hoods we talk about most of the time on here. Unlike the green zone city hoods most suburbs aren’t terribly differentiated. Which means demand is all the weaker.
“I could easily see the CS-index going back to 99 prices in nominal terms.”
Sure, sure. Just rambling that one measure being at 1999 levels does not mean everything else will be too.
HD wants the 450K house for 300K.
NO but the average will be. Why live in a home priced at 2006 levels when you can buy a house down the street priced at 1999 levels. Buyers will sacrifice for amenities for location and location for price. They did on the way up and they will on the way down.
That 1999 priced house is priced right at 1999 prices but it needs some significant work. The house has an in-law arrangement with a full second kitchen in the basement. ergh. We need similar homes, with updates somewhere in between the $250k POS and the $450k house in the $300’s. THe problem is those houses don’t really exist even though that’s what the market is clamoring for.
“#anon (tfo) on January 27th, 2010 at 3:17 pm
“I could easily see the CS-index going back to 99 prices in nominal terms.”
Sure, sure. Just rambling that one measure being at 1999 levels does not mean everything else will be too.”
I just don’t think the average house will be rehabbed, nor can it be at 300K in these locations, unless bldg materials, labor or land is permanently cheaper.
revassal – building materials, labor and land are permanently cheaper.
The price of lots i.e. tear downs have been reduced; labor is much much cheaper with all the unemployed contractors and they’re practically giving materials away because no one is remodeling or building.
The rehabbed house with a family of four (like this family) will need a household income of about $100k a year to realistically and sustainably pay for a $300,000 home. 20% down and a $240k mortgage with PITI is still $1,700 bucks a month or so which is still more than most people in the neighborhood pay in rent. This is sustainable. If you think it can be done cheaper then you’re stretching your budget pretty far.
The mere fact its a broker/seller/own with a 2006 purchase should tell you it is significantly overpriced for neighborhood incomes and probably his own too.
The FHA madness and loose lending standards increased lending standards to up to 45% of gross, not net, income. These FHA borrowers miss one payment and they never catch up beause they’re so far behind. It’s madness.
Housing prices used to be sustainable. There used to be a default and foreclosure rate of less than one percent. It’s up past 10% now.
People lost their homes because of divorce, death, health issues, sustained job loss. Nobody lost their homes because the payment was too unsustainably high to begin with.
“I just don’t think the average house will be rehabbed, nor can it be at 300K in these locations, unless bldg materials, labor or land is permanently cheaper.”
Land is semi-permanently cheaper in OIP and similar areas. Until there is another boom, there’s no way to make money on a $300k+ lot anymore. Brand new ~2000 SF house on one of those blocks could sell for $325-350, still, tho, right? So the land is “worht” about $100k.
I think a brand new 2K sq ft. house would sell for 400K.
True the land (with teardown is worth 100K now) but I think it will be back up to 125-135 soon; cause people are flipping at 100K for 2nd tier locales. If you further out, I am sure you can get land+td/rehab for 25K in Humbolt, etc.
in westtown and uki land is still 250-300K.
In reality there is no tear down value in OIP anymore because one is tearing down. FHA buyers and investors are rehabbing instead. Those properties are going in the 200’s and $300’s. There are no $100k lots but they aren’t building new 2000 sq ft homes either.
Regardless, at the end of the day, prices need to reflect what people can sustainably pay. Today’s prices aren’t sustainable; especially anything at a 2006+ some price, as evidenced by the ridiculous foreclosure and shadow foreclosure rate.
reV: “in westtown and uki land is still 250-300K.”
Yeah, and in Bell attendance area, it’s still ~$500k, for better locations (eg, not next to apartment buildings).
But those westtown/ukie lots were $500k+ three years ago. And I don’t see them being $500k+ again anytime soon. And OIP teardowns were $300k. And West Humboldt were over $100k. So that seems like a semi-permanent reduction in one of your three cost elements.
hd: “In reality there is no tear down value in OIP anymore because one is tearing down.”
But you can back land price out of the rehab places, too, or you can imagine what someone would pay for a lot after a housefire. If you agree with Vassal that a brand new 2000 SF house would be ~$400k, that indicates a land price of $100-$150k.
HD,
Once again, you have proven that you have no idea what you are talking about. Good contractors are still working and have not reduced their prices-maybe they have not raised them.. Also building materials are still expensive and not being ‘given away’
People on this board continually underestimate how much it costs to do a good rehab.
“The price of lots i.e. tear downs have been reduced; labor is much much cheaper with all the unemployed contractors and they’re practically giving materials away because no one is remodeling or building.”
“People on this board continually underestimate how much it costs to do a good rehab.”
That’s my impression, too, but there’s a lot of sentiment here for ~$50/SF at cost for a thrifty gut rehab, or a pretty nice non-gut.
What’s your feel, dahlia? Use whatever example you like.
Hahahaha dahliachi you obviously don’t live in the same reality I do.
Talk to my BIL’s contractor employer who went out business in May of 2008 and my BIL hasn’t had a full time gig since. No jobs. My sister called me yesterday and wanted to apply for jobs in North Carolina because no one is hiring in IL. His company must not have been ‘good’. His unemployment has NOTHING to do with the real estate depression. it’s because he’s not ‘good’.
Did you ever think, maybe for a second, that you’re just overpaying?
Check out this:
http://www.homedepot.com
Oooooh…Moen faucets: NEW LOWER PRICE
http://www.homedepot.com
Ceiling fans : 40% OFF
Washers/Driers: 100$ off plus 10%
Deals everywhere.
“#
dahliachi on January 27th, 2010 at 5:34 pm
HD,
Once again, you have proven that you have no idea what you are talking about. Good contractors are still working and have not reduced their prices-maybe they have not raised them.. Also building materials are still expensive and not being ‘given away’
People on this board continually underestimate how much it costs to do a good rehab.
“The price of lots i.e. tear downs have been reduced; labor is much much cheaper with all the unemployed contractors and they’re practically giving materials away because no one is remodeling or building.”
“Talk to my BIL’s contractor employer who went out business in May of 2008 and my BIL hasn’t had a full time gig since.”
So, is the out-of-biz k’or still willing to bid on projects?
Here’s some more deals:
576 items at Lowes all with new lower prices:
31% off tile, 21% off carpet
21% of blinds, etc.
Deals abound
http://www.lowes.com/pl_New+Lower+Price+Items_4294832078_4294937087_?cm_cr=Homepage-_-Web+Activity-_-Homepage_Area7_Activity-_-HomePage_Area7-_-12102_1&cm_cr=Homepage-_-Web+Activity-_-Homepage_Area7_Activity-_-HomePage_Area7-_-12102_1
My brother-in-law is a carpenter who at his last job worked as a general contractor; the company laid off all 30 people one day in May 2008 and basically went under. I helped him get unemployment. The owners had some tax problems on top of that so the company is totally out of business. literally closed up shop. He’s been doing side jobs since. He can pretty much do anything and he has a couple of guys he hires as subs I guess you would say but that’s all people are paying for is unbonded uninsured nobody’s who will redo a bathroom or a room here and there for cash on the side, nobody wants to even pull permits, because the villages (suburbs) get all involved and since they got so much time on their hands they’re real busy bodies.
it’s sort of sad watching that family lose pretty much everything. There’s just no work. Few people are taking out home equity loans to pay for rehabs or updating, and the flippers are doing it themselves nowadays instead of outsourcing things to GCs or subs. ANd there isn’t much new residential construction much of anywhere, lots of half built houses. It’s sad it really is but for those with cash right now there are plenty plenty of deals.
Of course the ‘good’ contractors are probably getting by, and as in every industry, just like mortgage brokers, only the strong have survived. Russ made it through thankfully but many did not. I’m sure dalachi’s friend or buddies who are contractors are getting by but for everyone of them there are 30 people who lost their jobs at the various other companies that have gone out of business.
“So, is the out-of-biz k’or still willing to bid on projects?”
when i mean worked at as GC he set up the projects, hired and supervised the subs, etc, but he was employed for a company that was hired by homeowners to do the rehab or remodel. It was pretty successful for many years. But now with no HELOC’s there’s no work. there’s only cash deals on teh side for homeowners who want a new bathroom or kitchen.
“nobody wants to even pull permits, because the villages (suburbs) get all involved ”
Also, you get your assessment bumped up and hav to pay more taxes.
“Good contractors are still working and have not reduced their prices-maybe they have not raised them.. Also building materials are still expensive and not being ‘given away’”
I’m guessing either you only pay top of the line for union labor or really aren’t shopping around. Unemployment is so high among the crafts trades that you’d have to be a fool to be paying 2006 prices.
These people are scrambling to get 800hrs of work in a year.
HD,
First let me say that I am truly sorry that your BIL lost his job. I have many bright, capable, friends and a close family member who have also been cast out of work in this downturn and I understand how very painful it is.
Back to the topic at hand: A few sale items do not a cheap rehab make.
I just completed a full rehab ( all systems) of a smaller( approx 3000 sq ft) three flat. The finishes are the least of it! Yes, I got great deals on nicer Moen faucets, Kohler sinks and ss appliances, nice countertops, solid wood kitchen cabinets,ceramic and marble tile (at Tile Outlet).
What you really pay for is the labor, quality (nice millwork and tile work) and systems. I spent approx. 200k total and I was basically the GC, hiring the electricians, masons, roofer, plumber, window guy, siding guy, etc. myself. My carpenter hired the drywallers, tapers, etc. If I would have taken the GCs bid I most likely would have paid 240k.
Even if you do the work yourself, it’s not free because you are not making money working other jobs.
dahliachi –
i got a little ranty, that happens, sorry! anyway, you got a high end quality rehab for $200,000 for a 3,000 sq ft place which comes out to what, $66.00 a sq ft. That sounds pretty reasonable to me. In fact that to me sounds like you got a deal. $200k isn’t a small sum of money nor is $200k cheap by any means but spreading that out over 3,000 sq ft is very reasonable especially if it’s quality high end stuff. There a million guys who would have bid on that job.
I doubt you could have gotten that job done for $200,000 in you had tried doing it in 2004 or 2005 or 2006. My BIL was making $32.00 an hour or something like that working for that company. My sister said that the only jobs she sees posted anywhere are for $12.00 to $14.00 an hour. And these are coming from the contracting companies that have survived the fallout. It’s scary. $12.00 or $14.00 an hour for skilled construction work. And like Bob said, they’re struggling to even get 800 hours a year of that.
My father does HVAC and things are as slow as can be. Very very slow. So slow he gets laid off and then rehired a few times a year slow. Few want to pay to have their furnace replaced. Few can pay. During the boom he had a great commercial HVAC job doing maintenance at various box stores and businesses. This job with overtime paid $75,000 plus benefits. His territory included ValuCity, Circuit City and WaMu. All we all know all three are no longer in business. So the contract with this commercial HVAC was canceled and he had to return to residential HVAC making whatever low wage that pays. And like I said above, even that is hurting because no one wants to pay to fix their HVAC. Lots of deferred maintenance. It’s messed up out there, it really is, so many people are hurting, unemployed like my BIL, underemployed like my father, or gave up looking for working entirely like another family member of mine and went on social security instead. The U-6 no. has got to be well over 25% because that’s all I see. I know my view is skewed and it’s difficult to reconcile this with people buying homes, rehabs, ‘deals’ everywhere, $450k bunglows, $2,000,000 homes in my neighborhood, LP maintaining top value…..$450k 2/2s all around the green zone. Cognitive dissonance or something, I don’t know. Record foreclosures, elevated bankruptcies, record credit card charge offs, yet green sprouts and a growing economy, and even in some places, rising home prices!
wow, that was lengthy, i probably sound a little like westloopemo or Ze!
My plumbers, roofers and tuckpointer have not lowered their prices.
I worked with the same people in 2004 and 2006.
I just want to be clear that my job looked ‘cheap’ because I did a lot of work myself in hiring, sourcing, buying, overseeing, etc. It was ‘medium’ end. High quality work, all up to and/or beyond code, but not fancy.
Now when I visit open houses I can really see where they cut corners.
homedelete,
Your points are very well stated, and that is pretty much what I was trying to say in my earlier post — I say if you are in a position to buy, go for it because there are so many inconsistencies and ironies about what’s going on out there, that you can never be exactly right. I do feel that the days of short term flipping-type ownership are gone for the foreseeable future. I, for one, can’t wait for 4 years to get perhaps the best deal possible, or manage a rehab job to get a great value. I did a house rehab 3 years ago and it turned out well — but I made alot of mistakes, things that turned out differently than we imagined they would, material choices that looked alot better in the showroom, warehouse or online. And as stated in one of the posts above, all of this is extremely time consuming. And weeding
through all the crap for sale out there doesn’t make it easier. Whew!