Market Conditions: Chicago Homes Sales Soar 41.5% While Prices Fall (Again) Year Over Year
The Illinois Association of Realtors just released the February home sales numbers (as someone posted to yesterday in the comments- so thanks for the reminder.)
Once again, Chicago home sales jumped sharply as compared to February 2009 sales while median price fell again.
In the city of Chicago, February total home sales (single-family and condominiums) were up 41.5 percent to 1,225 sales compared to 866 homes sold in February 2009, the sixth consecutive month of year-over-year sales gains. The city of Chicago median price in February 2010 was $176,500 down 19.3 percent compared to $218,625 a year ago in February 2009.
I know many of you aren’t paying much attention to the median price right now as the sheer number of distressed sales are wrecking havoc with that number.
How much of the increase is due to the tax credit?
“A positive upward trend was seen in the month of February as condo sales in the city increased over 40 percent from the same period in 2009,” said REALTOR® Genie Birch, president of the Chicago Association of REALTORS® and a broker associate with Koenig & Strey GMAC, Chicago. “The tax credit has been a tremendous help for those homebuyers on the fence. With interest rates still favorable, and a month left before the tax credit expires, those considering making a purchase should do so now, to take advantage of these great opportunities while they are still available.”
Meanwhile, Crain’s is reporting on new life in the upper end custom home business. However, the examples in this latest article only talk about suburban building (no mention of new city mansions).
“Houses around here have started selling again. We’re coming out of this dark period we’ve been in,” says Patrick Richter, 58, owner of Richter Builders LLC in Libertyville. He founded the firm in 1978 — by his calculation, five recessions ago. At one time in the 1990s, Mr. Richter was building in a dozen local subdivisions simultaneously. A year ago, he didn’t have a single new client in sight.
“The phone had stopped ringing,” he says.
Now he has nine active clients and is so encouraged that he’s breaking ground before summer on his first spec house — with no contract buyer — in nearly three years. It will be spread over 4,400 square feet and carry a price of nearly $1.5 million. “By the time it’s finished, I’m confident there will be a buyer,” he says.
Mike Avis, a Lake Bluff homebuilder, sold his last new house in Highland Park two years ago for $2.6 million. The phones went silent all last year, but now he’s working on plans for homes for three clients.
“The banks are putting them through the ringer and the loans aren’t all finalized yet, but this is the most hopeful I’ve been in a long while,” says Mr. Avis, 45.
One big impediment is the pool of luxury houses still for sale. Christopher Huecksteadt, director of Houston-based market researcher Metrostudy, estimates there are 386 new homes priced above $800,000 for sale around Chicago. Only 322 new homes priced above $800,000 sold all of last year. “We’ve got over a year’s supply of luxury homes available already,” he says. “So why build more this year?”
Have we seen the bottom in the upper end market?
Illinois Home Sales in February Mark Sixth Consecutive Gain; Up 15.7 Percent from a Year Ago [Illinois Association of Realtors, Press Release, March 22, 2010]
Housing market shows some activity at high end, despite glut of unsold homes [Crain’s Chicago Business, H. Lee Murphy, March 22, 2010]
I think this is just more of whats to come. we have hit a floor for sales volume, but not for prices which will continue to inch downward until properties get back in line with rents and incomes
14.6% DQ rates on mortgages in IL.
What will happen to volume as soon as the tax credit expires?
Who in their right mind would sign a contract on 5/1 rather than 4/30? The tax credit is merely shifting demand forward and volume will ultimately drop again.
Eventually, banks will start increasing rates because they can make more money off it. This will happen when the hundreds of forclosures in which the banks currently posses, are bought up (after they are slowly trickled on the market) which will establish a baseline.
Prices will only continue to drop on places that were overpriced in the bubble, specifcally on the 350K+ 1 bedrooms, and 500k+. If you can find a good deal, purchase it immediately.
This is coming from a personal friend who is a very reliable, inside source in NYC….
It’s going to get ugly come May 1st for the lower end of the market. Prices are going to drop another 5% overnight. It really must suck if you bought between 2006-2008.
Does anyone have any insights on the lack of move-up buyers, which is affecting the $400-700K housing market in a very negative way? How many first time buyers can afford a $700K house? Not many. Many of the would-be move-up buyers bought between 2005 and 2007 and have negative equity in their current places and would have to come out of pocket to sell their place when factoring in real estate commissions. Then they’d have to have significant savings to have 10-20% down, and also potentially deal with the high jumbo mortgage rates. Many more reasons exist, which is why I think prices will drop more.
After a while the ‘real estate prices are going to drop like crazy forever’ mantra starts sounding a lot like the ‘real estate prices are going to go up like crazy forever’ matra from a few years ago.
Eventually, everything is cheep enough for someone to buy it.
“Metrostudy, estimates there are 386 new homes priced above $800,000 for sale around Chicago.”
Yeah, and there are thousands of re-sale houses priced above $800k around Chicago. Sure, the 322 sale counts only new homes, but the market is new + re-sale. A few counts of $800k+ listings (all from Redfin):
LP: 248
LV: 126
GC: 163
Naperville: 221
Highland Park: 182
HD —
Did you notice the 33yo options trader with the 3.3M Glenview spread, replete with nanny and personal chef.
Classic.
Let’s try to come up with an example then, with a time study for a married couple –
2006 – purchase of condo in the city
– Married couple 27 years old
– Savings of $50,000 before the down payment
– Bought a 2/2 condo in the South Loop for $430,000, with 5% down
– Combined HH income is $140,000
2010 – want to move to burbs
– Married couple is 31 years old, and has a child
– Savings of $40,000
– South Loop condo is worth $350,000 at most, maybe $325,000
– HH income is $92,000, as wife works 60% time, and husband receives a paycut and no bonus
What do they do? They need to pay to sell their place, and then come up with a down payment on a house for the burbs. If they can’t borrow $ from parents, these people are out of luck. They were prime move-up buyers a few years ago, and now they no longer exist. This is wreaking havoc on the market and it will get worse.
The tax credit is not affecting sales in Chicago proper imho. It might be out in the exurbs or lower priced areas, but most of the people who are buying right now in the city (Greenzone)I come across would do so without it. The qualifying is so stringent that people who “need” the tax credit are not likely to qualify for financing anyway.
Pricing is getting very attractive across the board and as we continue to work through inventory, we will continue to see some stabilization.
What I see happening more than anything is the crappy, over priced developments are being exposed and a shake out of the on the edge buyers.
I don’t think we are going to see continued price drops in the conforming market, but there will be continued pressure on the jumbo priced properties due to financing restrictions. It is simply too hard for people to come up with the required down payments right now.
The difference between the two mantras is that one is supported by fundamentals like supply and demand and the other is supported by wishful thinking i.e. “we’re working off an entirely new paradigm” and “people are going to live with their parents until they’re 40”.
As of right now there is a 14.6% DQ rate in IL; shadow inventory of millions of properties; record high foreclosures; unemployment of nearly 10%…
It’s not about homes getting so cheap that it’s like they’re giving them away for free. It’s about the tens of thousands, if not hundreds of thousands, of MLS inventory and shadow inventory, being released into the market, and prices will stabilize at a point where the homes currently listed at ridiculous wishing prices eventually sell at the prices at which regular homes are selling for today.
“Tom (tfo) on March 23rd, 2010 at 8:34 am
After a while the ‘real estate prices are going to drop like crazy forever’ mantra starts sounding a lot like the ‘real estate prices are going to go up like crazy forever’ matra from a few years ago.
Eventually, everything is cheep enough for someone to buy it.”
“After a while the ‘real estate prices are going to drop like crazy forever’ mantra starts sounding a lot like the ‘real estate prices are going to go up like crazy forever’ matra from a few years ago.”
Too true.
When you think about it, it’s pretty likely that there will be an “increase” in median price in May and after–assuming there will be a big drop in volume–because the mix of sales will shift away from the entry-level buyer using the $8k as a large part (or all) of their down payment. So the median price “decrease” of February is an artifact of the changed sale mix, not a genuine trend.
“entry-level buyer using the $8k as a large part (or all) of their down payment”
I’m pretty sure that Illinois doesn’t loan out the $8k ahead of time like other states are doing.
Can someone please tell me what the “Green Zone” is? (In reference to Chicago geography/real estate.) Is this “inside the boulevard system”?
Greenzone means typical neighborhoods that Yuppies like that aren’t off the beaten path – Lincoln Park, Lakeview, Bucktown, Gold Coast, etc. It is a play on the Iraq war about the greenzone being safe for journalist, etc.
I don’t know of any lenders that are allowing the credit to be used as a down payment. Haven’t seen a single one allow it. You either have the money for the 3.5% down and reserves or you don’t. The credit doesn’t really play into it for 99.9% of FHA deals.
Green zone neighborhoods – Lakeview (to 4200N), Roscoe Village, Lincoln Park, Old Town, Gold Coast, River North, Loop, South Loop to 1800S, West Loop to 1300W, River West, Andersonville, Lincoln Square, Bucktown to 2200W, portions of Wicker Park, and portions of Logan Square.
This describes us to a tee!
We recently sold our condo (had to scratch up a bit of cash to bring to closing), and are currently renting (which the owner is desperately trying to sell in a short-sale, but that’s another story) while house-hunting. We had hoped we would be “move-up” buyers, but are essentially starting over, have re-saved a down payment. The thing is, it is darn near impossible to find a 3BR home, priced around $350K in an area that doesn’t suck! (And no, we have no un-realistic expectations of living in the green zone) There seems to be tons of unsold inventory starting at the 450K minimum price point. It’s quite frustrating to be told by everyone that it’s such a buyers market, when for many of us, it’s still a “crappy overpriced houses” market. I think if you have $600K to spend, you have endless options, but for us, sadly no…….
“Does anyone have any insights on the lack of move-up buyers, which is affecting the $400-700K housing market in a very negative way? How many first time buyers can afford a $700K house? Not many. Many of the would-be move-up buyers bought between 2005 and 2007 and have negative equity in their current places and would have to come out of pocket to sell their place when factoring in real estate commissions. Then they’d have to have significant savings to have 10-20% down, and also potentially deal with the high jumbo mortgage rates. Many more reasons exist, which is why I think prices will drop more.”
The credit gives you some extra financial cushion. Lots of first time buyers are going “all-in” so this gives them around a 3 month or so safety net in case of a job loss to pay their mortgage and be able to eat.
Bucktown Green Zone
Sorry, missed some punctuation there
Bucktown = Green Zone ?
““Does anyone have any insights on the lack of move-up buyers,”
Yeah we over inflated their numbers with cheap financing, then we built tons of places that were not really “move up” homes and sold them at “move up” prices
So are there lots of people “moving down” then?
Bucktown is debatable green zone. I will pull it off my list due to the safety issues in the neighborhood. Same for WP and Logan Sq.
“Bucktown is debatable green zone. I will pull it off my list due to the safety issues in the neighborhood. Same for WP and Logan Sq.”
Is Bucktown/Wicker (not the fringe areas) less “green” than South Loop (above 18th)? My feeling (not having looked at stats) is it’s the other way around.
I’m not arguing Bucktown/Wicker are “green”, just that if they are not, then not clear that S. Loop should be.
“Bucktown is debatable green zone. I will pull it off my list due to the safety issues in the neighborhood. Same for WP and Logan Sq.”
You shouldn’t do that. It’s not really about “safety”, it’s about where UMC white-ish people would spend $500k+ to live. B’town, WP and Eastern Ukie Village all qualify as does a bit of Logan.
I think green zone also denotes some level of safety, but also class. It’s a different crowd in BT, WP, LS than LP, GC, WL.
Don’t they do a household income analysis on the census? That would be interesting to see by neighborhood.
Dave M: I thought so too – for some reason my memory of the 2000 census was that it was much larger. This year’s questioneer is much smaller.
“I think green zone also denotes some level of safety, but also class. It’s a different crowd in BT, WP, LS than LP, GC, WL.”
Then you’ve narrowed it beyond what I had thought is the common meaning here. And excluded most of your own definition of the area.
Yes, there is HH income by census tract info–the CPS “tier” data has it; you’d (clearly) be surprised by some of the B’town census tracks. But the HH income should be segmented b/t renters and owners for a “truer” picture. But that’s not readily available.
Finally, “safety” is relative. If you consider B’town “unsafe” within the context of the city of Chicago, then you don’t really understand how unsafe most of Chicago (by square miles) actually is. The Baghdad Green Zone ain’t “safe”, it’s just relatively safe and where all the “UMC white-ish people” who aren’t heavily armed hang out.
If you look at I-CAM, Bucktown is not as safe as you would think. It depends on the block obviously, but there are still some very sketchy parts of Bucktown.
Also, I don’t consider it to be Bucktown west of 2200W. You can call it Humboldt Park or West Bucktown, or section 8 land for all I care.
You get can HH income distributions and per capital income by census tract through a few sites. CPD has it on their crime tracker analysis. I am sure you can find it elsewhere.
The census tract analysis is helpful as it really isolates true neighborhoods. For example, you can see Graceland West is a fairly affluent area, though collectively north of Irving Park you woul otherwise miss that.
I do not recall any HH income questions on the latest census.
In response to Special K. The married couple should sell their place, rent for 5 years, save $100,000, then buy their house in the suburbs that they want. Or hope their parents/relatives lend them 50 grand+
Is the green zone a CC term or is it common parlance in circles that do not include me?
“If you look at I-CAM, Bucktown is not as safe as you would think.”
Most recent two week period, 1/2 mile radius of:
2200 N Leavitt–31 incidents, 22 of which were Larceny (including several along *Elston*, ie clearly not B’town).
2000 N Larrabee–30 incidents, 22 of which were Larceny.
800 N Michigan–85 incidents, 68 of which were Larceny. A decent portion of this area is lake, which *partially* (not completely) offsets the greater density.
So, B’town is as “safe” as Lincoln Park and “safer” than GC/S’ville/RN. Which just means that either (a) I-CAM isn’t a very good tool for this comparison or (b) you think B’town/East Humboldt is *really* safe.
“Is the green zone a CC term or is it common parlance in circles that do not include me?”
CC term. If you hear someone using it in real life, it’s most likely some friend of tehGroove.
I’ve heard it in real life, probably got it’s start here though. They used to use the term in LA too.
Regarding the census — in the past, there has been a long form and a short form. The vast majority of households received the short form and a smaller subset received the long form. This year’s census is short form only (possibly because of socialism, or maybe the death panels, who knows?). So, no household income data will be collected.
That sounds very republican to not collect HH income data…
“That sounds very republican to not collect HH income data…”
The feds will still generate HH income data somehow, which will require *more* “statistical sampling” than the old way, which repubs frowned on b/c of “statistical sampling” “errors”. So it is both repub and not.
The long form census is now covered by a different survey sent to 250,000 US households monthly – which keeps the data more current. The Census believes that census participation rates dropped heavily due to inclusion of the long form. For every 1% point increase in by-mail participation, the Census saves $83 MM.
Businesses rely heavily on the long form in decision making – after all, wouldn’t you prefer to move or open a business in an area that is well educated with a median HH income well above the metro average?
Similar (but not the same) homes:
Outside green zone – http://www.redfin.com/IL/Chicago/3628-N-Kedzie-Ave-60618/home/13456451
inside the green zone
http://www.redfin.com/IL/Chicago/3908-N-Paulina-St-60613/home/13387607
Question #1 on this year’s sentence(paraphrased): How many people, total, live in your home?
Question #2 (paraphrased): How many people live in your home that you did not include in your answer to question #1?
My brain nearly imploded thinking about this question, not to mention the hours and hours of committee meetings that went into forming it just right. We’re doomed.
Anon(tfo) have you seen the CPS clout story in today’s trib? I thought you’d be all over that.
There’s crime in all parts of the city. I think of “Green Zone” just being safe from street shootings, crack houses, frequent armed robbery, forced break-ins, or rapes. Its a difference between crimes of opportunity (i.e., drunk and opening my wallet full of hundreds on the street at 3am) vs. everyday danger (i.e., am I going to get hit by a stray bullet coming home tonight).
if somebody else fill out your form (census) is that a fraud?
“CPS clout story”
It’s not as bad as I had imagined it. And, since the Trib has an incentive to make it seem *worse* than the facts would necessarily support, seems really just par for Chicago. As I’ve mentioned before, I know un-clouted people who got kids into magnet elems just by being persistent and friendly with the principal.
And, I try to avoid starting off-topic school discussions (the applicable local elem is on-topic for any SFH or condo pitched as being as big as an SFH).
“There’s crime in all parts of the city. I think of “Green Zone” just being safe from street shootings, crack houses, frequent armed robbery, forced break-ins, or rapes. Its a difference between crimes of opportunity (i.e., drunk and opening my wallet full of hundreds on the street at 3am) vs. everyday danger (i.e., am I going to get hit by a stray bullet coming home tonight).”
Exactly.
“if somebody else fill out your form (census) is that a fraud?”
Are they a resident of the address or acting as your agent, with your approval? No. Otherwise, maybe.
blah blah blah… its like I read the same thing everyday here.
“In response to Special K. The married couple should sell their place, rent for 5 years, save $100,000, then buy their house in the suburbs that they want. Or hope their parents/relatives lend them 50 grand+”
This is the NOW generation Dave and don’t you know that owning is a status symbol? They can’t show their face among their friends unless they own. So they should buy and instead just borrow 50 large from their parents/relatives. Afterall its only 50 grand right?
So is it better to own and have no saavings, than to have $100,000+ in the bank/investments and rent?
In New York, it is perfectly acceptable to rent. It’s kind of funny how all the people I know who own, as 2-3 months away from financial ruin, as they bet it all on the real estate market, and if they lose their job, they are toast. Pretty much would have to start over…
Why does real estate use median instead of mean when comparing yearly sales?
Because mean is easily skewed by outliers.
It is perfectly acceptable to rent in NY because unless you make significant coin, buying is pretty much out of the question mere mortals. Average condo is $1,000,000 and that ain’t nothing special in Manhattan. The places people bitch about on here being expensive at $400k-$500k would easily be $1.5-$2 million in Manhattan if not more.
In most cities, not buying generally makes you look like a failure. Not saying that is the case, but that is how I think many people look at it. If you haven’t bought a place by the time you are say 35, people tend to assume you aren’t really successful in your career.
There is absolutely nothing wrong with renting and I think more people shoudl consider it. Buying is not a short term proposition and too many people bought in the short term and now they are stuck. If you can’t stay in your place at least 5 – 7 years, it really does not make sense to buy. Never did, but those that did and got out in time just got lucky for the most part.
The RE crash is going to force people to really consider if we need 1 bedroom and more short term condo like purchases. THe market got entirely over built with glorified apartments versus homes for people to live in for an extended period.
“but that is how I think many people look at it. If you haven’t bought a place by the time you are say 35, people tend to assume you aren’t really successful in your career”
I agree with Russ here. But I think as this downturn drags on and there is no v-shaped recovery in housing prices it will eventually permeate the public consciousness that this old paradigm is no longer true.
“…Chicago median price in February 2010 was $176,500 down 19.3 percent compared to $218,625 a year ago in February 2009.”
Down 19.3% from Feb 2009? Is that not shocking to anyone else? Prices a year ago were already well in the tank and now we’re nearly 20% below that. To put some numbers on it, a 20% drop is a $500,000 condo now selling at $400,000.
I see the point of an earlier poster who said that the median price numbers may be pushed down a little bit by a high number of lower-priced sales because of the greater incentive of the first-time homebuyers credit. But I don’t think that accounts for nearly all of the drop.
I also don’t think neighborhood prices are falling uniformly, as prices in the South Loop have surely dropped more than those in the much debated Greenzone.
But, overall, a 19.3% median price drop indicates to me prices are definitely still falling and I’m not sure of an argument that could show otherwise.
Take this situation comparing 2 people who both moved to Chicago at age 23, 6 years ago, starting with around $5,000 in their pockets, with jobs earning $50,000-55,000 per year.
Both of them rent an apartment their first 2 years in the city, at which point they have both saved an additional $20,000. Person A decides to buy a 2 bedroom condo and rent out the second bedroom to person B for $700 per month, but person A’s total monthly payment is $2,700 monthly. He put down 5%, leaving him with less than $8,000 in savings at that point.
After 4 years of ownership, person B’s condo has dropped $50,000 in value, and he has only saved an additional $5,000. Person B has saved an average of $12,000 per year, of which he invested monthly into stocks and bonds, of which his investment accounts have reached $80,000, despite the market drop and subsequent gain of 2009. Person A has around $14,000 in savings.
From a net worth perspective, person B has $80,000 and person A has negative $36,000 in net worth. Who is better off?
Dave:
For that same example, I can give you others where the owner got out in time and made $100k with no money down of their own. It all depends on timing. Some people are better off renting and some are better off owning.
Most 20 something single folks are better off renting imho. They don’t have a long enough time horizon to compensate for major life changes – weddings, kids, etc. This is why 90% of the condos on CC have baby cribs. People didn’t consider what a PITA it is to have an infant living on the top floor of a 3 flat with no elevator and a small extra bedroom. So now they gotta move…
“I see the point of an earlier poster who said that the median price numbers may be pushed down a little bit by a high number of lower-priced sales because of the greater incentive of the first-time homebuyers credit. But I don’t think that accounts for nearly all of the drop.”
I would wager that the unit mix *more* than accounts for it. Volume was up 41%–I would wager that most of those 359 additional sales were in the sub-$150k range–probably 2 out of 3–and that would *easily* shift the median down 20%. It’s a bogus number unless you know the curve is “normal”, which I *guarantee* it wasn’t.
Well of course – Person A is better off. Renting is like flushing your money down the toilet. Why would a young professional want to rent? There’s no cache telling friends that you rent in Lincoln Park.
But in all seriousness, a lot of the median drop is coming from outlier neighborhoods. Two flats are selling gang busters in portgage, albany, rogers, and even indepenence park, old irving, etc, are selling in the $200’s or less, which in some cases are providing a cash flow positive situation. (Figure $1,500 PITI and rent both units for $1,000 a piece). These same buildings were selling for $300-$500k to real estate savvy investors who held on to them for fleeting capital appreciation (which many never got).
If brick two flats in outlier neighborhoods are selling in the $200’s that doesn’t bode too well for frame SFHs in those hoods, even if they have granite countertops and SS appliances.
“But, overall, a 19.3% median price drop indicates to me prices are definitely still falling and I’m not sure of an argument that could show otherwise.”
That’s the problem with them reporting these damn median price numbers. If people start to buy more hamburger and less filet and therefore the median price of meat sold goes down that does not mean that meat prices are going down.
“that does not mean that meat prices are going down.”
Yes it does as both fillet and hamburger are subsets of meat.
Bob,
No it does not. There is a huge difference between “median prices” going down and “prices” going down. When you say that meat prices are going down most people interpret that to mean that the price of hamburger is going down and the price of fillet is going down – not that people are shifting to lower quality meat but the prices of the individual types are staying the same.
“There is a huge difference between “median prices” going down and “prices” going down.”
Duh.
If the market is hamburger, ribeye and filet, and in period one the prices are $3, $7 and $12 and 5 units sell, split 1, 1, 3, the median price is $12 and the average is $9.20. In period two, prices are $5, $10, and $15 and 7 units sell (+40%! Hurrah for cattlemen!), split 4, 2, 1, then the the median is $5 (down 58%! Meat be cheap! How come I can’t afford it now?) and the average is $7.85 (down 15%! Meat be cheap! How come I can’t afford it now?), even tho the prices of each type are up 67%, 43% and 25%.
“People didn’t consider what a PITA it is to have an infant living on the top floor of a 3 flat with no elevator and a small extra bedroom. So now they gotta move…”
I think every couple who *now* has kids and purchased a top floor condo expected (or still expects) to buy a house in Hindale or other suitable upscale suburb (you pick’em).
It isn’t a surprise to them (it wasn’t to us). Who wants a big house, old stodgey neighbors and high property taxes before you *need* it? Besides, the city used to suck and be crime ridden. Most people 10-20 years ago planned to move out.
“Most people 10-20 years ago planned to move out.”
20, for sure. 10, maybe not so much.
Some of the examples in this thread with younger first time condo homeowners are, unfortunately, all too real.
But it’s not just the south loop and some of the more fringe neighborhoods where people are severely underwater. Take a look at most of the condo listings in Lakeview (go back and look at the prior purchase price and the mortgages). I would say at least 80% (and that’s on the low side) bought within the last 5 to 6 years and nearly all of them are underwater- many just don’t know it yet (as they’re listing for way above what they paid and have a slim chance of selling.)
There is massive wealth destruction going on with those 20 and 30-somethings who put maybe $40k or $50k down and now will see it wiped out.
My question is- why aren’t we seeing more short sales in Lakeview where so many are underwater? Will it take a year or more before they figure out they’re going to have to bring cash to the closing? Will we then see a deluge of short sales (and sharp price declines) in Lakeview in 2011 and 2012?
Sabrina,
There are many reasons. First, many people don’t want to do a short sale because of what it does to their credit. Others can’t do a short sale because they might have enough money to bring to closing (just don’t want to) or they can’t prove hardship in another way. It’s one thing to WANT to move and another thing to HAVE to move because of a job change or a divorce.
So they just leave the place on the market hoping that someone will recognize their unique value.
BTW, folks, March appears on track to be another blowout month in Chicago. Contract activity is way ahead of last year.
I realize that people are hoping for a buyer. But at some point, because of life circumstances, they WILL move (mainly because they’ve had a baby- as was discussed earlier on this thread. Yes- over 50% of the condos for sale all have a baby in the second bedroom- or so it seems.)
Yes, short sales hurt their credit- but isn’t that the only solution? Why would they lose their downpayment AND give the bank even more of their cash just to close the deal and walk away? I find it hard to believe by next year many of these sellers are going to be doing that. Most don’t have $20k or more sitting around to hand over to the bank. They need it for their next downpayment on the suburban house.
This is why I’m finding it interesting.
Many of these sellers are underwater by at least 10% or more.
Denial?
But look at how long it’s taken Rogers Park to get down to the levels it’s at- at least 3 years. So it will take as long, if not longer, in the more “prime” neighborhoods.
“BTW, folks, March appears on track to be another blowout month in Chicago. Contract activity is way ahead of last year.”
Gary, you have to admit that of course March will be better than last year, when financial armaggedon was upon us and NOTHING was selling.
A better way to look at it is to see what happened in February the last 3 years:
February 2010: 1225 properties sold
February 2009: 841 properties
February 2008: 1412 properties
We’re still running under 2008 numbers. The IAR didn’t break out the individual condos/SFH numbers in their press releases in 2007 or I would post that number too.
Is this a “blowout” month?
Compared to last year- it’s a whole lot better. Otherwise, not so much.
Interesting point, Sabrina. These stats always compare year-over-year, but that doesn’t always seem like the most accurate depiction of the situation.
By looking at trends over the last 3-5 years, we can see that we’re dramatically improved over last year but still trying to claw our way out of the deep end. Either way, I’ll take the market movement as positive news. At least buyers aren’t scared any more.
Sabrina,
A lot of these people are stuck stuck stuck. I don’t know what’s going to happen to them but everyone will handle the situation differently. There will be those
– who suck it up and stay (and improve the schools and form more cohesive neighborhoods in the process);
– others will do short sales;
– some will bring money to the table at closing; others will just walk away;
– even more will go bankrupt (so many are juggling CC, student loan & car debt anyways);
– some will have their parents bail them out;
– others will settle their second mortgage for a fraction of what they owe,
– some will get loan mods with principal reductions
In order to do a short sale you need a compelling reason to move – e.g. job change or divorce or you can’t afford the place any more. In addition, you have to prove hardship, which means you can’t have the money – unless you can hide it. So people with money need to bring it to closing.
“Is this a “blowout” month?
Compared to last year- it’s a whole lot better. Otherwise, not so much.”
Well, I think when you are looking at the kinds of percentage increases that we are seeing vs. last year that bodes well for a market bottom. It’s a blowout in terms of a huge increase over last year. Heck, we’re going to be below 2006 sales rates for years.
This is completely anecdotal, but we looked at many, many, many townhouses and duplex uppers until we found a place we liked. I went back and checked the addresses of the places we toured. Most are now under contract (or have closed) and all are in the 400K-700K “step-up” range, so someone is buying them.
(All were in LP, LV, NC, or LS)
Some properties are selling in that price range you mentioned. But it continues to be, in my opinion, one of the most difficult price ranges.
It’s hard to get a loan. You have to have a significant downpayment. That excludes most moving “up” from the $400,000 condos.
It also depends on if you’re talking $500k or $700k. Big difference.
“and the average is $7.85 (down 15%! Meat be cheap! How come I can’t afford it now?), even tho the prices of each type are up 67%, 43% and 25%.”
I call BS on your example. If prices of each type are UP then meat prices have risen (DUH). Gary said that if the mix changed then the price of meat had fallen, which IS NOT TRUE, ITS ABSOLUTELY NOT TRUE AT ALL. ALL ARE DEFINED AS MEAT.
In your example the price of each subset of meat DID NOT FALL AT ALL. So please understand basic math before trying to school me.
Lets say the price of all three stays the same, but quantity instead shifts from 3 fillets to zero fillets but these go over to hamburger. We have (3*4, 7*1 & 12*0) total market at 19.
Quantity is constant but all three subcategories are CATEGORIZED AS MEAT. THE PRICE OF MEAT WENT DOWN AS ALL THREE ARE CATEGORIZED AS MEAT & QTY WAS CONSTANT. Quantity remained constant the price of meat went down from 46 to 19, a 59% decline.
Meat market = P*Q(whatever meat subset).
Sounds like you’re subject to the same interpolation errors as Gary AND of the false belief that real estate segments are separate, discrete segments and not part of a broader spectrum or continuum. I’ve got news for you they’re part of a broader spectrum/continuum.
Hey Gary, anon(tfo), if my rental were not a rental but a small condo would it be in a separate, discrete segment of real estate if it didn’t have hollywood lights in the bathroom but I instead put up fluorescent lights instead?
In all honesty theres no doubt in my mind during the bubble it enabled consumers to make irrational decisions with regard to pricing and reality as financing gimmicks allowed those with less economic sense than credit worthiness to buy and bid up whatever they wanted. But your meat example proved that even educated people can fall victim to this: “separate, discrete segments” false paradigm.
Once we return to true financing guidelines, I think prices will start to return to rationality along a spectrum. There won’t be easy bank money able to allow dipshyts to pay an extra 40k for a 10k renovation job. Unfortunately we’re not quite there yet (the FHA still needs to go broke and exit the market).
Bob,
I think our problem is a difference in definitions. As you define the price of meat…no one is interested in that price. Who cares that average meat prices went down since you can’t buy average meat? People buy hamburger and they buy fillet and those are the prices that they are interested in. If you want to talk about how average meat prices change in a way that is useful to people you have to construct a basket of meat with fixed proportions from one period to the next.
The thing is Gary while there were three discrete definitions of subsets of meat it is less clear with regard to housing. Sure you can define by number of bedrooms, location, amenities, etc. But overall I think the RE market is less prone to interpolation down to segments than something like meat.
Someone could invent any number of reasons to justify why a lower comp in their area doesn’t apply to them. Just as during the bubble they’d never follow this logic and cling to any comp setting prices on the way up.
Err more prone to interpolation rather. The blurrier the segments the easier I think it is to make generalizations about the whole.
“There is massive wealth destruction going on with those 20 and 30-somethings who put maybe $40k or $50k down and now will see it wiped out.”
Really? This is not massive wealth destruction because it was not massive wealth to begin with, both on an individual and aggregate basis. I know people hate losing money and its all relative, but in the grand scheme this is small ball.
I feel for them, but these people will absolutely start over. 40k is not hard to save over a few years for someone who is responsible, has moestly good career prospects and has a long career runway.
I agree with JMM. I lost a similar amount a decade ago (no it wasn’t dot-com related I saw that bubble it was 9/11 related and I was on margin). It sucks for sure..but its not the end of the world.
The thing is there is a difference between losing 40k in a brokerage account and losing 40k in real estate valuation. When you lost 40k in a brokerage account you can just close it and move on with your life. If you’ve lost 40k on your piece of property you have no similarly simple exit process.
Bob,
While houses are less discrete than meat – you can’t put a $295K house in a different category than a $300K house – looking at median prices still suffers from the same problem that the meat example does. There is clearly a difference between a $500k house and a $300K house and as demand shifts from one end of the spectrum to the other it skews the median/average numbers. The Case Shiller index attempts to get around this problem by creating their index based upon resales of the same house.
JMM,
Two things happened. First, there was a massive wealth shift from investors to homeowners that couldn’t really afford homes (yet those investors are characterized as predatory). Also a shift from homeowners moving upscale to homeowners moving downscale (the wealth destruction that has been referenced above). Second, there was massive wealth destruction because in the end resources were poured into poorly constructed homes and many homes were destroyed by vandals or the homeowners themselves.
Bob’s example reminds me of my own situation. I lost $90K in New Jersey’s real estate deflation in 1993 (imagine if I had invested that over the last 17 years). That was a wealth transfer from me to the previous homeowner.
““There is massive wealth destruction going on with those 20 and 30-somethings who put maybe $40k or $50k down and now will see it wiped out.”
Really? This is not massive wealth destruction because it was not massive wealth to begin with, both on an individual and aggregate basis. I know people hate losing money and its all relative, but in the grand scheme this is small ball.
I feel for them, but these people will absolutely start over. 40k is not hard to save over a few years for someone who is responsible, has moestly good career prospects and has a long career runway.”
You don’t consider it massive wealth destruction if nearly every owner of condos is losing $50k in Lakeview?
Yes- they can resave the money. But if they’re saving $2k a month it will take them 2 years to just get back to break even. (And good luck actually saving the $2k. Most aren’t even funding their 401ks let alone saving thousands.) From the 20-somethings and early 30-somethings I know- they have little cash so losing $50k is a huge deal.
It’s not like they can go and buy another property after losing this much cash.
If you ask these younger people “hey- by next year, you’re going to lose $50k in your stock account and it’s not going to come back”- you think they could easily absorb that loss? I don’t think so.
Look at all the 100% financing loans from 2005-2006 on many of these properties. Losing $50k on that same property is a HUGE deal. Huge wealth destruction.
Debt debt debt. That’s what’s holding this generation of 20 and 30 somethings back. I know few 20 and 30 something are debt free, usually because they’re parents paid for everything. But the ones I know have student loans, credit cards, cars, and/or an underwater mortgage (maybe two!).
These are debts that will need to be repaid. Repayment of these debts, with interest, really cut into future earnings and savings. The generation above us had it easier back in the day, they had a rising housing market, a rising stock market, annual payment increases at their jobs, no student loan debts, credit cards didn’t exist, housing was actually tied to household income (and the exurbs at the time, which are today’s suburbs, were CHEAP). As long as they put some decent money today they earned money and today many boomers are sitting pretty…pensions, social security, paid off expensive home in a nice area, etc.
this 20 something 30 something generation doesn’t have that same situation. First of all, a college education is ncecssary to get a decent whereas it wasn’t as necessary 30 or 40 years ago. Secondly, they graduate undergrad with an average of $20,000 or more in debt and take wages of $30 or $40k a year, if they can find a job at all. Graduate students have way way more. One of my bosses graduated Northwestern in the 70’s and he paid for it on his own while working. No debt for a law degree. His same degree costs $40k a year now. Next, Boomers are refusing or can’t retire and jobs aren’t opening up, and the ones that do are being shipped overseas. Then factor in the credit card debt and other debt and we’re all in the whole. Consumer debt has risen steadily upwards since the mid-90’s (even in the 80’s) And that debt is somewhere, and a lot of it is in my generation’s hands. I know plenty of people my age, close friends, making $60,70, $80k with $40, 50 or more in credit card debt. and car notes, and student loans, and mortgages, etc.
This generation is in for a real shocker. The numbers just don’t work out. The ponzi scheme is over. Many in my generation won’t be able to make enough money to pay off their debts and live a lifestyle similar to their parents.
The way to truly make money is by investing over the long-term in whatever you are doing. People who tried to make a quick buck in 2005 or 2006, that didn’t get out, are now losing their shirts. I have no problem with that, and it is fun to watch. Much of the destruction of wealth is of silly money, or money that those people shouldn’t have had anyways, because they were not smart enough to make long-term, calculated decisions, consistent with their life situations and goals.
I just wish the government would stop bailing them out, and also wish the FHA program would stop lending to the level they are.
What would happen to prices at the lower end of the market if FHA was cut by 50% overnight?
“This generation is in for a real shocker. The numbers just don’t work out. The ponzi scheme is over. Many in my generation won’t be able to make enough money to pay off their debts and live a lifestyle similar to their parents.”
I agree 100% HD. Anyone in Generation X and Y without debt, has enormous advantages but everyone else will be on the treadmill.
“These are debts that will need to be repaid.”
Nope. Only debts that really _have to be_ repaid are student loan debts, which will follow you to the grave. All other debts are absolvable under the right circumstances. (Although for absolving child support it involves multiple stints in the slammer so I don’t recommend that either).
“Many in my generation won’t be able to make enough money to pay off their debts and live a lifestyle similar to their parents.”
Actually I’m thinking its going to be most in our generation. And I’m only 30. When I talk to younger people I realize they’re infinitely more up the creek than even we are. Imagine being an undergrad graduate of Northwestern these days with 100-200k of student loan debt and few job prospects.
I am very confident in this economic downturn it won’t turn around by consumption increases as: 1) credit is already contracting as it had been extended beyond what is prudent and 2) consumers are saddled with ever increasing debtloads from, chiefly, education.
“I agree 100% HD. Anyone in Generation X and Y without debt, has enormous advantages but everyone else will be on the treadmill.”
I really dont see the advantages i have Sabrina? I actually see the people with debt and underwater having the upper-hand and i am the one with less options.
i know i’m a little doom and gloom but recently some life changes have come about and i’ve crunched the numbers over and over again, and it’s tough. habitable sfh’s in areas with neighbors similar to me are still really expensive, and anytime any property, matter how crappy, appears for less than $300k, some young couple (or an investor) buys it immediately. The crunch in numbers for other life expenses, and the steady or slowly declining incomes..and it’s not a pretty situation, and I’m one of the people my age who has it good. I know people who’ve lost tens if not a hundred thousand on their down payment or are laid off for 6 months or more, or have credit card debt nearly equal to their yearly salary, and most, more than 80% of the lawyers I personally know have student loan debt usually at least 100% of their yearly salary. Now matter how you crunch the numbers, the numbers just don’t work. The generation before us relied cheaper goods and services, and plenty of inflation (in retrospect partially due to the availability of credit) to buoy their net worth up. a lot of boomers wasted it all but a lot of them have significant net worth. The way things are looking now, my generation doesn’t have that same luxury, we’re drowning in debt, we have little savings, our incomes are not going up, we earn literally nothing on our savings and it takes years to double (this BS they tell you about 8% return). The numbers just don’t work out. Japan had the same problem, the japanese housewives were getting so little interest in teh bank accounts that they started playing the carry trade and investing abroad, which was confounded the gnomes of zurich. but whatever, I got a busy day today, which starts about right now.
hd,
You need to look at the glass is half-full sometimes. If you’re just treading water in life just to stay afloat but everyone else is seemingly drowning, that makes you all the better off in comparison. In the land of the blind the one eyed man is king.
Anyone who spends $100k on Undergrad is an idiot…. hell $50k on undergrad is stupid. If you get in to a top tier grad school, I can justify it, but that much in undergrad student loan debt is just plain dumb especially if you aren’t going to Harvard or peer schools.
Some of you guys are depressing and need get out and live a little. I would hate to live my life as a miser holed up in a rental studio. Yeah, some people made some bad decisions and are probably screwed, but I don’t think it is all doom and gloom.
Hopefully people will learn a few lessons from this mess and start living simpler lives that aren’t so materialistic.
“From the 20-somethings and early 30-somethings I know- they have little cash so losing $50k is a huge deal.
It’s not like they can go and buy another property after losing this much cash.”
You prove my point. They have little cash — therefore its not significant wealth destruction. Besides, who said a 25 year old should buy a property? They can rent, save and buy a house when kids come along. The school loan argument is a MUCH bigger deal to them than losing 25k on a crappy condo they can just walk away from.
“If you get in to a top tier grad school, I can justify it, but that much in undergrad student loan debt is just plain dumb especially if you aren’t going to Harvard or peer schools.”
Business school doesn’t exactly pay out either Russ, especially in this economy. 100k plus significant opportunity costs? No thank you.
“Only debts that really _have to be_ repaid are student loan debts, which will follow you to the grave.”
Pretty sure Obama has made student loan forgiveness one of his priorities.
“And I’m only 30.”
Weird. Reading your posts I always assumed you were 50.
I think any debt forgiveness if wrong – people should pay for the consequences of their poor decision making. It just perpetuates ultra-risky behavior.
“I think any debt forgiveness if wrong – people should pay for the consequences of their poor decision making. It just perpetuates ultra-risky behavior.”
Indeed. And what do they think is gonna happen to undergrad prices when they start handing out loans that don’t really have to be repaid? In what way is that “making college more affordable”?
“I think any debt forgiveness if wrong – people should pay for the consequences of their poor decision making. It just perpetuates ultra-risky behavior.”
yep, and thats why underwater bastards are in better and have more opportunities than I.
JMM, that is why I said TOP TIER graduate schools. Yeah, it is tougher out there, but those students are getting good jobs and good pay packages still. Maybe not their dream job at Google, but the employment prospects for $100k+ jobs are very high.
If it isn’t one of the very top schools, it certainly isn’t worth $100k.
Debt forgiveness is OK just as long as the opportunity to borrow recklessly in the future is severely curtailed. It takes both a borrower and a lender to make a bad loan and both should suffer.
None of us are holed up like a miser in our rental studios in Uptown. Yet, with student loan debt and a moderated priced SFH with a 20% down payment (like the ones featured on CCC) and I’ll be 33 and half a million in debt. Sure that’s roughly 3x HH income but half a million dollars is a lot of money. That’s a lot of money, a tremendous amount of money, and repaying that debt will severely curtail my and anyone else in my position’s consumer spending and ability to save.
Russ, Spending $100k on undergrad a lot easier than you think, school tuition has risen 3x the rate of inflation. Loyola was $14k a year in 1995 and $19k in 2000 and I just looked, for the class of 2011 tuition is $31,040 plus fees, room and board. http://luc.edu/bursar/tuition_2010_2011/tuition_undergrad.shtml
Should no one go to Loyola, NW, DePaul, Columbia, or any of the other private schools in the area? should we just shut them all down and force all those but the extremely wealthy to go to the state schools of NOrtheastern or UIC or Northern IL?
It’s insane, it’s a fricken ponzi scheme, and the madoff scheme is over. 500 years from now historians will look back on madoff as the guy who best describes the time we lived in.
“Dave M on March 24th, 2010 at 8:49 am
I think any debt forgiveness if wrong – people should pay for the consequences of their poor decision making. It just perpetuates ultra-risky behavior.”
I would not hire someone who was bailed out of their undergrad loans by the government. That is just plain wrong and is pure socialism.
Russ,
Be sure you aren’t believing the marketing brochures from those schools. They’re quite selective in picking the winners in their salary data and there’s a lot of self-selection bias going on.
I went to a top-tier graduate school and can attest that among me and most of my classmates a few years out the comp isn’t anywhere near the averages they claim (although I am biased towards those that remained in Chicago). Even accounting for the 10% of the class making 300k/year on Wall St.
These ‘top tier’ graduate schools really are masterful in data manipulation, in my opinion, both in business and law (very few law grads go on to make 150k/yr straight out is my suspicion).
If you don’t get recruited in high finance or consulting and aren’t on scholarship the ROI really doesn’t make sense. Now getting two years out of the workforce is a priceless intangible benefit though 😀 If you’re company is paying for it however I’d highly recommend it but you will work your tail off juggling school & work.
Dave M, the government isn’t bailing out the student, the government is bailing out the banks and the investors.
Loyola is $31,040 a year plus fees, room & board, book, etc. I’m sure depaul, NW, Columbia, north central, roosevelt, all the same.
Times that tuition by four years.
These loans will never be repaid by the debtor in their lifetimes.
Again, it would be a bailout of the banks.
I know lawyers who still have their student loans in deferment or are on graduated repayment plans and they’ve been out for years.
“In your example the price of each subset of meat DID NOT FALL AT ALL. So please understand basic math before trying to school me.”
Dude, Gary wrote “There is a huge difference between “median prices” going down and “prices” going down.” I put together an example where median prices went down but *prices* went up, plainly demonstrating the “huge difference”.
So please understand basic reading comprehension before trying to object to my example.
Dave M I agree but the sad reality is you’d have no way of knowing this. Welcome to the USSA, Komrade!
“Dave M, the government isn’t bailing out the student, the government is bailing out the banks and the investors.”
Well, first off, the government isn’t bailing out anyone. You and me are the ones paying that bill. The government has no money.
And second of all, the ones getting bailed out if student loan forgiveness comes to be are both the bank and the student, since the debt will be repaid and not by the one who took out the loan.
HD:
I am sure people can spend $100k on undergrad, but there are choices. Loyola and DePaul are great school and all but no way in hell I would pay that much to go there. It offers no advantages imho versus going to a cheaper alternative.
$100k to go to Harvard, Princeton, Yale, etc… maybe. $100k to go to Loyola? Out of your freaking mind. Harvard clearly offers an intangible above Loyola. What does Loyola offer over say UIC or maybe another cheaper alternative?
The problem is that the public has been duped into believing that every college is worth these asinine tuition bills when they aren’t. Since anyone can get a student loan, the schools can get away with inflating the cost to attend. Unfortunately, many of these students and parents find out how much their degree in art history is really worth at graduation.
“None of us are holed up like a miser in our rental studios in Uptown.”
I am holed up like a miser in my rental studio in Lakeview. Managed to get debt down from ~84k at an average weighting of 6% to 16k at 1.6% in 3 years. But I guess I am among the small minority of Americans who prioritizes getting out of debt above lifestyle/consumption.
“But I guess I am among the small minority of Americans who prioritizes getting out of debt above lifestyle/consumption.”
who also doesn’t pay parking tickets
Another problem is because student loans are non-absolvable lenders flocked to provide them. They aren’t totally risk free as the student could die, but even in cases where the student stops payment for a period of time the lender is allowed to tack on plenty of fees to more than compensate investors for the interruption in cash flow.
In my opinion no loan should be risk free to a lender. Not even US Treasury debt that is priced as such. Other countries have defaulted so it should not be outside the realm of possibility that the US government defaults at some point in the future. Much crazier things have happened in this world.
HD: “but recently some life changes have come about and i’ve crunched the numbers over and over again”
Congratulations!
Russ: “$50k on undergrad is stupid.”
So, undergrad is stupid? Find me the college that is less than $12,500/year, all in, for a kid from Illinois. And don’t tell me that “it’s stupid to live someplace other than your parents’ house during college”, because, frankly, that’s stupid.
“$100k to go to Harvard, Princeton, Yale, etc… maybe.”
How ’bout $200k, b/c that’s closer to what it costs.
Also, I’d just like to add that everyone I have met who received their undergrad at Depaul is a complete and total mouthbreathing idiot.
I am seeing the light at this point. We have become a socialist country if student loans are going to be forgiven because the banks are being bailed out and allowed to do so.
Bob:
I have to disagree about the job stats at graduation, but I do agree that the post grad salaries aren’t as high on average from my anecdotal info of seeing everything from Partners salaries at major strat firms to CxO’s who were my classmates.
I haven’t seen too many b-schoolers with $100k in debt. A few, but most seem to have around $50k. Plenty of lawyers with $100k plus though!
Anon:
it might cost $50k now to go to college. However, I still believe folks need to put more of an effort to find scholarships and other aid. Every school simply is not worth what is being charged and at some point you have to go from getting in to a dream school to choosing based on the economics which is what I see too many people not doing.
I agree with Bob on the job stats after graduation from B-school, especially if you don’t go into consulting or finance (wall st or trading). In particular, the stats are bleaker for this year than ever, with much lower signing bonuses, and starting salaries about 10% lower. The only exceptions are consulting and Wall St related jobs. Some of the consulting firms are still paying for the 2nd year of b-school if you accept an offer with them after your summer internship. All in all, the return on investment has declined, as education costs continue to rise 5-10% a year, but the gains to be had have declined.
“I haven’t seen too many b-schoolers with $100k in debt.”
My debt was more 60k b-school & 24k car loan. But I did know one guy who graduated with 195k in combined student loans (undergrad and b-school) all the while trying to raise a family.
He got lucky and got a Wall St job (at a firm that’s still alive) so I’m sure it worked out but man talk about looking down the barrel, so to speak. I’d never want to have the burden of six figure student loan debt even, but that’s what I’m hearing from even undergrads these days.
At some point other non-professional trade occupations start to make a lot more financial sense, even if sociologists consider them a “lower social status”. Plumbers, metal workers/pipefitters/etc appears to have a far better ROI these days than dropping 200k to goto Northwestern and come out earning 50k.
“it might cost $50k now to go to college. However, I still believe folks need to put more of an effort to find scholarships and other aid. Every school simply is not worth what is being charged and at some point you have to go from getting in to a dream school to choosing based on the economics which is what I see too many people not doing.”
Sure, but that doesn’t change the reality. UIUC total cost of attendance for a freshman this fall ranges from 27,082 to 31,810. Sure that includes a fair amount of $$ that can be economized, but 4 years of tuition *alone* (not including required fees) is over $60k for a Chem/Life Science/Business/ Engineering student (ie, someone employable at graduation). UIUC is a *good* school, but it’s not a “dream” school for most and should, imo, be the baseline for comparison for above-average, college-bound Illinois HS students.
Basically the entire ROI of higher education got way out of wack not only because of government subsidies to lenders and schools gouging on tuition but also that there seems to be mass promotion of higher education in our society as a way to a better life and upward social mobility. I call BS on this presumption these days.
I’d rather be a jr plumber at age 22 earning $20/hour than a 22yr old recent grad with 200k in debt jockeying for one of the few available 30-50k desk jobs.
Jesus christ, how the hell are schools “short” on funds? When I started at UIUC i think it was 12k a year (room & board & tuition)for in state students?
The hell with healthcare costs, what about education costs, talk about insane inflation, wtf
As has been shown with real estate Sonies when you provide unlimited credit to uninformed consumers they make irrational consumption decisions that would’ve never been made by a cash investor. Because the cash investor was shrewd enough to build up his cash pile and realizes its his money 100% on the line at risk.
The uninformed consumer for a variety of means makes invalid assumptions about the probabilistic outcomes of assuming debt (either positive bias about future prospects or a high personal discount rate to not care much about the future consequences of their decisions).
“UIUC total cost of attendance for a freshman this fall ranges from 27,082 to 31,810”
“Jesus christ, how the hell are schools “short” on funds? When I started at UIUC i think it was 12k a year (room & board & tuition)for in state students?”
WOOOOOOOOOOOOW thats ridiculous inflation! i wanna say i was dropping 8k-9k a year (didnt go in freshman year so didnt need to pay room and board for a dorm). and that wasnt that long ago
Re: college costs. Most top tier private colleges cost $50K/year now (I know first hand). I’m not sure it’s worth it in this day and age of just-in-time knowledge but try explaining to your wife and daughter that the daughter is going to go to a lower tier school than the one she got into. Hell, they wouldn’t even consider saving $80K by going to Carnegie Mellon (partial scholarship).
Sonies,
It’s interesting that the two areas of our economy that have not experienced productivity gains are health care and education. Something is seriously wrong with these schools. I’m sure that they have more invested in buildings/ student than when I went to school. When I’m done fixing the real estate industry I’m going to fix higher education.
That’s part of the cost of raising kids. For the kid born today, their parents will have to shell out $450,000+ for their college at a private school and $175,000+ at a public school.
“When I’m done fixing the real estate industry I’m going to fix higher education.”
I want to read the blog on that one, Gary!
(P.S. thanks in advance).
The things that have been rising at levels that are unsustainable percentages over and above inflation by a significant margin: higher education, health care, weddings, and real estate. It’s funny what happens to these when they just can’t keep increasing at these levels….
“I’m sure that they have more invested in buildings/ student than when I went to school.”
Yeah they’re building luxury dorms.
http://archives.chicagotribune.com/2009/sep/17/news/chi-purdue-posh-dorms-17-sep17
When I was in a dorm air conditioning was a luxury.
Talking about higher education: I just found out that my son has been accepted to grad school at NYU. No idea if they are going to give him any money. After four years at USC, the idea of supporting him in NYC at NYU for two years creates great fear. I’ll be working until I’m 80. Oy vey!!!!!
I was an Engineering undergrad at UIUC from 1988-1992, and I paid a total of $23k for 4 years (plus 2 summers) worth of tuition and Room/board. I also worked at various places (minimum wage was $3.35) for street cash.
I find it interesting to compare the ratio of family income to UIUC tuition, from 20 years ago to today. Looking at my own family, tuitions have outpaced incomes on an accelerating curve.
As long as I’m being an old reminiscing fahrt, when I was in Urbana/Champaign, I paid $175 / month rent in a shared 5 bedroom house. It was actually a nice place.
Things won’t be fixed until we face the reality that these things (tuition, healthcare, real estate, weddings (lol?) need to approximate real incomes to some sensible level.
The only way to get there is temporary (generational?) pain of re-adjusting. The various bailouts just keep the credit spigots wide open and delay the inevitable and make it worse.
Also the real growth of at least one of these categories (tuition) is largely prone to societal re-jiggering by liberals picking and choosing certain characteristics to hand money to (minority, low income parents, scholarships, etc), creating an uneven playing field entering adulthood.
Weddings I really can’t say far outpace inflation–you can get a cheap wedding these days you just can’t have any party involved or their parents with a prince or princess syndrome. Adults are supposed to get married not kids pretending to be adults.
http://webdocs.registrar.fas.harvard.edu/ugrad_handbook/current/chapter7/tuition_fees.html
Harvard’s tuition
It’s a ponzi scheme and now that the government fixed student loan lending with the health care bills, there’s no end in sight to the ever increasing tuition.
“when I was in Urbana/Champaign, I paid $175 / month rent in a shared 5 bedroom house. It was actually a nice place.”
that price didnt change in the late 90’s either. my most expensive rent in champaign was $325 for a HUGE newly updated two bedroom second floor of a house on Randolph with garage a yard free laundry and all util’s included (even cable).
I had about $30k in b-school debt, mostly for living expenses over the two years. I was fortunate that the consulting firm I worked for paid for my tuition. I had about $10k in undergrad debt.
School cost so much because most universities are research centered and we have to pay the salaries of professors who couldn’t make a living in the real world. No one is going to pay you except a university to study the mating habits of fruit flies.
This combined with easy student loan credit allows all schools to charge more than they are really worth which is further exacerbated by the fact that everyone thinks they need a college degree even if their “degree” is just a glorified high school diploma in the real world.
I agree with Bob that trade schools are starting to make more sense from an ROI perspective and we have to get away from the notion that every kid needs to go to college.
I just want to know how in the hell UIUC is short millions of dollars
Fruit fly professors aren’t studying fruit flies unless the Feds, state, or private sector is paying for it through research grants or contracts. In fact these grants make money for universities and are used for supporting graduate students in the sciences. And, no grants equal no promotions; no tenure; no job. The professoriate is among the few up or out careers in this country. There are many, many Phds in both the sciences and the humanities earning $30-40,000 a year as lecturers and adjuncts who will never, ever have a chance to get a tenure track position. All in the name of cost containment.
Mike Shedlock (Mish) had an article recently about post-docs coming out earning 35k, which is to be expected for around 3 years, but then remaining post-docs due to lack of positions available.
Imagine having a PhD and the associated debt and squeaking by earning 35k/year for the foreseeable future. Damn that would suck.
At my previous job at a large engineering firm, on of my managers stated that he would almost never consider hiring a PhD. This bias was based on his personal experience.
“Imagine having a PhD and the associated debt and squeaking by earning 35k/year for the foreseeable future. Damn that would suck.”
If you’re post-doc’ing in a science/eng.-field, you shouldn’t have been paying tuition since, at least, the end of the first year of the phd program (when you earned your masters) and *should* have been earning enough for student-budget living expenses from TA’ing and grant-working the whole time.
If not, that’s an indication of the general marketable value of your phd.
“At my previous job at a large engineering firm, on of my managers stated that he would almost never consider hiring a PhD. This bias was based on his personal experience.”
As an MBA I believe I’ve experienced this bias from those who don’t have it in the past. Its tough to tell whether that was actually his experience with PhDs or whether he had degree envy or just figured they were too expensive to hire vs. some undergrad.
A lot of people, for whatever reason, feel intimidated/are threatened/are adverse for whatever reason to those that would be reporting to them if they have higher education credentials.
I think a lot of it has to do with the manager’s perception that they had no problem getting to where they are at with just a bachelors so why did this person feel the need to take time out to get more and why should they expect more money as a result?
As a manager I would think I would be getting a steal getting a PhD for even 2x the wages of an undergrad. It is incredibly easy to get an undergrad these days in most fields (engineering/science aside) but a PhD in say, business or economics you know is very intelligent.
“a PhD in say, business or economics you know is very intelligent”
I know some who would assert that they’re fools (relatively speaking) for assuming the opportunity cost of the additional degree.
“I know some who would assert that they’re fools (relatively speaking) for assuming the opportunity cost of the additional degree.”
That I believe is incredibly narrow minded as he is inferring they haven’t comprehended ROI just because they haven’t led their life to maximize it. Not everyone is in business to maximize their ROI (myself included). Some just like working with complex problems or systems.
I mean if someone offered me a huge raise then yeah I’d probably take it if it was work I liked. But even though strat consulting pays well in excess of my niche, its just not work I enjoy doing. Neither is doing due diligence on debt offerings for 80hrs/week.
But if they’re a boss and they assume everyone has remuneration or ROI as their sole metric then I’d hope they work in a field where most others have that as well. Otherwise they’re probably a crappy boss.
Bank of America to start reducing mortgage principal
http://www.dailyherald.com/story/?id=368324
In a former life I hired a few analysts. It was very difficult to find people who were smart, knew the statistical tools, and also had good intuition. I interviewed many PhDs in math and undergrads. I never hired a PhD – not because I had a bias but because they inevitably lacked intuition. They were very theoretical and couldn’t solve simple problems. They looked at the tool set as if it were a series of black boxes. On the other hand the folks with undergraduate degrees and coursework in econometrics blew these PhDs out of the water.
“In a former life I hired a few analysts. It was very difficult to find people who were smart, knew the statistical tools, and also had good intuition. I interviewed many PhDs in math and undergrads. I never hired a PhD – not because I had a bias but because they inevitably lacked intuition. They were very theoretical and couldn’t solve simple problems. They looked at the tool set as if it were a series of black boxes. On the other hand the folks with undergraduate degrees and coursework in econometrics blew these PhDs out of the water.”
I realize you may be shorthanding, but PhDs in math know nothing about empirical statistics/econometrics if they are any good. Few undergrads know enough statistics or econometrics to do anything serious (if you just want someone to put together spreadsheets or run some basic regressions almost anyone smart and detail oriented can do it). Many PhD statisticians and applied economists are very good (some are too academic) but you have to pay them a fair bit too.
“I know some who would assert that they’re fools (relatively speaking) for assuming the opportunity cost of the additional degree.”
Dunno. They’re presumably doing it primarily for the ability to be an academic, which is a whole different life choice. It is a big chunk of your life although you probably don’t have to pay (for PhD in econ or business) anything out of pocket if you’re good.
“Few undergrads know enough statistics or econometrics to do anything serious … Many PhD statisticians and applied economists are very good (some are too academic) but you have to pay them a fair bit too.”
May not be true today, but for most of the past 20 years there have been more astrophysics PhDs working on Wall Street than in anything actually astro or physics related.
“Dunno. They’re presumably doing it primarily for the ability to be an academic, which is a whole different life choice. It is a big chunk of your life although you probably don’t have to pay (for PhD in econ or business) anything out of pocket if you’re good.”
Subtle point that in hiring someone with a biz/econ PhD, you may know they’re “intelligent”, but may be worse than useless in an actual for-profit venture. Those who do “get” both sides of it generally do extremely well, tho. But they’re far outnumbered by the mostly-useless eggheads.
Yeah, there are some really good PhD types out there that can do practical work but they are all working for the hedge funds. Those guys never interviewed for my jobs. And the math PhDs I interviewed supposedly had done work in statistics but my sense was that they fed data into a black box and didn’t understand what was coming out of it.
Dave M, to bring the conversation back to where it started, I can comment on the lack of move-up buyers because I’m trying to become one. In my case, it’s not a question of $ (I was lucky enough to move here from a more expensive market) but of inventory: I need three bedrooms and a good school district, and I’m not seeing squat. Out of nine school districts, only one of them consistently has anything remotely suitable. My theory is that the families who would normally sell me their fab pad and move to the suburbs just can’t afford to move.
Home Hunter,
you will be able to find something – time is on your side, and people are going to eventually decide to bail on their places due to financial hardship or a myriad of reasons which will lead them to cut 15-20% of the price of their place in order to sell. In addition, more properties will come up for sale in the next 30-60 days.
The lack of move-up buyers is funny to me, because these same people who would have been “moving up” a few years ago and loved talking about it, now are in a situation where they need to swallow their pride.
Bah, I missed this conversation. I have a Ph.D. I have a husband who is an applied math guy. His company also struggles to find people who can do the applied math/stats stuff.
Right now is a horrid time for people with doctorates. Universities are hiring fewer and fewer tenure track positions and making do with adjuncts. I’m looking for an academic administration position and recently found out that one of the ones I applied to had 500 applications – all from newly-minted PhDs really looking for academic positions.
With the addition of online programs at the for-profit, not-for-profit, land-grant, and state schools, we’re churning out so many that we don’t have the jobs for them. Plus, if you don’t come from the traditional system, you don’t have the option of living on a TA or RA salary because those jobs don’t exist. You just pay your 100K in tuition and hope it makes sense.
If I knew this would be the job market in 2010 back in 2001, I wouldn’t have gone. I already had an MBA and that would have been good enough.