Market Conditions: Chicago July Sales Fall 20.9%
As has been reported, the July sales numbers are out for Chicago. Median home price is holding pretty steady.
In the city of Chicago, sales fell 20.9 percent to 2,167 from 2,738, and the median price dipped 0.3 percent to $299,000 from $300,000.
Chicago area home sales drop, prices slide (Sun-Times, Aug 26, 2008)
So the Case-Shiller index just came out. Chicago has been flat for 4 months now. The decline can’t possibly be over, can it?
What decline? The majority of chicago neighborhoods showed flat pricing over the past 2 years. The majority of the decline came from all the same undesirable neighborhoods.
I fear that the flatness is just the standard spring/summer bump, but there are signs that it is bigger than the usual seasonal effect.
The Q2/Q1 growth rate has been about 2.5 points higher than the Q1/Q4 rate most years since 2000, except during 2006 (+0.3%) and 2007 (-0.3%).
This year, the difference is a full 6% (the 6.1% Dec-Mar decline became a 0.1% Mar-Jun decline). This difference has never been above 4%.
Dead cat bounce or actual recovery? Tough call.
I think that this is just a bounce, because the mortgage market is still disfunctional (and the wave of option ARM recasts is just starting).
It’s different here… Where have we heard that one before?
Bounce, its not getting easier to find loans.
If you have a job, a down payment, and a good credit score you can get a loan quite easily.
In the most abstract sense if you have job/down payment/credit score, yes, you can get a loan.
But relative to 3 years ago, that job needs to be higher paying, your down payment needs to be higher and your credit score needs to be higher. Meanwhile, unemployment has been rising. And i’ve been hearing more anecdotal stories about things not appraising out.
So yes, loans are still available for the most qualified applicants (duh?), but even for them the loan won’t necessarily be for the amount of money they need, or for the property you want.
Steve, so where did the buyers go then? Why are sales down 20% from last year? Do you think that the end of easy loans has had an effect? Sales will never reach the 06 peak again this century. And would love to see the number of people on the sidlines with a credit score above 700 and a decent down payment ready to buy.
I have not come accross one property that did not appraise out. If you have a good realtor you will not have to worry about what the appraiser thinks. Appraisers have no idea what they are doing in the first place.
I know I know… the chicago area will crash one of these days. Funny how it just has not happened yet and people are starting to talk about a nation wide bottom. Chicago will probably crash while the rest of the country heads back up 🙂
Steve are you lost? Who mentioned crash and appraisals? So if appraisers have no idea what they are doing in the first place, but you have never come across a property that did not appraise out, what are you telling yourself?
Quite frankly it is frustrating to watch nearly every Chicago stat crash except the one that really counts: median price. Chicago is the slowest moving train wreck, ever.
“Steve, so where did the buyers go then? Why are sales down 20% from last year? Do you think that the end of easy loans has had an effect? Sales will never reach the 06 peak again this century. And would love to see the number of people on the sidlines with a credit score above 700 and a decent down payment ready to buy.”
The buyers are with most of the sellers… on the sidelines. Volume is down across the board and it has had little affect on pricing. Obviously people listen to the news and have been sidelined while this plays out. Th ekey here is that volume is down 40% in some neighborhoods but pricing has held stable.
Certain parts of the country have outside infuences affecting demand. In Dallas you have prices increasing because oil is making everyone a bit richer. Same goes for Houston, Oklahoma City, Austin, ect. Other cities (Chicago, Boston, NYC, ect) have experienced a soft market but have remained relatively stable. This is from a continued demand for people to live in urban areas. Chicago has seen an increased demand from big money to live in luxury homes (see Lincoln PArk, Trump Tower, Gold Coast new construction). This trend will continue and will give Chicago a boost in demand that will help offset the softness from the financial crisis.
You don’t have to agree with me but as long as you choose a well established neighborhood where demand is high, you will be fine with your purchase. Don’t buy new construction in a neighborhood that is close to a good neighborhood. This is where the declines are coming from and where people are losing a ton of money. These areas as well as some crazy pricing on high rise buildings (back in 2005 & 2006) are where the declines are.
“Quite frankly it is frustrating to watch nearly every Chicago stat crash except the one that really counts: median price. Chicago is the slowest moving train wreck, ever.”
It is tough being wrong HD!
“If you have a job, a down payment, and a good credit score you can get a loan quite easily.”
For a house, maybe. For a condo, things get much uglier because many lenders are now paying attention. Despite having 20% down (and enough cash to go to 40% down), 830+ credit scores, and needing only a conforming loan at 2x income, we needed to go through several lenders before we found one who was happy with the three years of board minutes, expenses, and budgets for the association that we could provide.
All the lenders were looking for an association reserve fund large enough to cover 10 months of operating expenses (presumably a GSE requirement). This was an issue because the association has made the choice to fund multi-year major maintenance (tuck pointing) as part of the main budget — as a result, the reserve fund is about 8 months of assessments, 9 months of budgeted expenses, or about 3 years of operating expenses (ex tuck pointing). With a reserve fund large enough to pay for a new roof, gutters, and common appliances, there is little enough risk. Convincing a lender of this was difficult however.
HD said: Quite frankly it is frustrating to watch nearly every Chicago stat crash except the one that really counts: median price. Chicago is the slowest moving train wreck, ever.
No need to worry HD, I hear that the end is near, word on the street is that a large tract along East Lake Shore drive is going Section 8. Affordability will be here soon!
“I have not come accross one property that did not appraise out. If you have a good realtor you will not have to worry about what the appraiser thinks.”
The one we bought failed to appraise. It came in a couple $K below the contract price (which was a bit below the list price), but we were fortunately looking for about a 78% loan. Even with the low appraisal, we ended up on the right side of 80% and could close.
I know of NUMEROUS properties that have not appraised out. Obviously for confidentiality reason i cannot give them out but i can guarantee it is becoming a more frequent problem.
I have a developer friend who converted a 5-unit buildng to condos (in an established, desirable neighborhood) and sold 4 out of 5 units at asking price of $525,000. He found a buyer for the 5th unit at a contract price of $525,000, but the appraisal came in at $475,000. The buyer got nervous, the deal did not go through. They found another buyer at $495,000 and are taking it because it’s the last unit and the buyer is qualified. In them meantime, they spent/wasted alot of time wrestling with the first deal.
There are SO MANY reactivated listings on the MLS these days – buyer gets scared, doesn’t get financing, doesn’t appraise out.
Kevin – “Despite having 20% down (and enough cash to go to 40% down), 830+ credit scores, and needing only a conforming loan at 2x income, we needed to go through several lenders before we found one who was happy with the three years of board minutes, expenses, and budgets for the association that we could provide.”
I have done 30+ transactions this year and have not had 1 client have any problem with financing. Your association experience is NOT at all normal and you must have been looking at a building that was flagged. The avg down payment for my clients is 10% and credit scores are all in the 700’s.
I am actually taking the opposite approach of Mr. Heitman. I’m looking for distressed properties in maybe less than perfect locations, but at extremely compelling prices. The market will come back (one of these years) and i think it stands to reason that these properties will appreciate more than propeties that depreciated very little in the downturn.
HD said: Quite frankly it is frustrating to watch nearly every Chicago stat crash except the one that really counts: median price. Chicago is the slowest moving train wreck, ever.
Why is this so frustrating? I think a stable housing market is a good thing. Oh I guess if you are wishing for housing prices to significantly decline so that you can afford a property out of your price range; then your comment would make sense.
“Your association experience is NOT at all normal and you must have been looking at a building that was flagged”
I’d love to know what for. This is an unbelievably stable building in Gold Coast — a dozen units, including 3 that haven’t resold since conversion in the 1980s and another 6 that haven’t sold since 2003. One unit currently on the market. No lis pendens or liens against any unit in the recorder’s database.
“So the Case-Shiller index just came out. Chicago has been flat for 4 months now. The decline can’t possibly be over, can it?”
Gary,
Case shiller for chicago experiences most declines post august. Rest assured the index will be below 140 this time next year.
I’m waiting for signficantly overpriced properties to return into my price range. I have no intentions of bailing an underwater overextended homeowner out of his mortgage equity withdraw mistakes.
“Oh I guess if you are wishing for housing prices to significantly decline so that you can afford a property out of your price range; then your comment would make sense.”
Steve
“So if appraisers have no idea what they are doing in the first place, but you have never come across a property that did not appraise out, what are you telling yourself?”
Ready to answer yet?
Valasko, a stable market is when median incomes track median prices. 4-5 times median income is only a stable market for used home sales people.
We are just entering a stable market, when sales (and prices) go back to long term trend line.
oh and btw, mortgage fraud is still soaring. Caveat Emptor.
“The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007”
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24878823
From sartre’s link:
“Florida had the largest volume of mortgage fraud in the first three months of 2008, accounting for about 24% of the national total.
Second was California, which was followed by Illinois”
It’s different here.
SH said: “I have not come accross one property that did not appraise out. If you have a good realtor you will not have to worry about what the appraiser thinks. Appraisers have no idea what they are doing in the first place.”
Ditto for most Realtards®…
Look, over here is a bathroom with dual sinks and a bay window over there…duh.
Here are the YOY mls numbers for July for some specific areas (attached single family sales):
Lake View 7/07=275 7/08=216 (-21.5%)
Lincoln Park 7/07=167 7/08=119 (-28.7%)
Near North 7/07=277 7/08=251 (-9.4%)
Loop 7/07=113 7/08=69 (-38.9%)
South Loop 7/07=93 7/08=107 (+15.1%)
satre,
You also need to look at the median house size in square feet.
1973 the average size house was 1,445sf.
2007 the average size house was 2,064sf.
If People want a larger house and are willing to allocate more of the income to the increase in size, this will push the index up. Again in the end supply and demand will set prices in the future.
I keep staying that affordability is out there, its just that everyones housing expectations on this site are not what they can really afford. Thus the wishing of the market down.
I am not a housing bull, and beleive that housing will be flat for many years to come. I just don’t belive it will fall off a cliff.
satre,
The housing sizes noted above are median, and not average.
You can go to the US government census bureau to review.
valasko,
Thats an unfair comparison. You are comparing house size increases from 1974 to current with house prices increases in the last 8 years. A fair comparison will be house size increase from 2000 with price increases since then.
satre and HD,
Have a great week and weekend, off to my ever decreasing in value eastcoast vacation retreat.
valasko, you too 🙂
I’m jealous, valasko. I’m married to a career that takes up all my time and never gives me a moment’s rest. Good job security, I guess.
When even the greatest optimists are predicting at best the market being flat for the next couple years, you know the chances are it will decline.
“I keep staying that affordability is out there, its just that everyones housing expectations on this site are not what they can really afford. Thus the wishing of the market down.
I am not a housing bull, and beleive that housing will be flat for many years to come. I just don’t belive it will fall off a cliff.”
Finally someone who is actually talking some sense!
“Quite frankly it is frustrating to watch nearly every Chicago stat crash except the one that really counts: median price. Chicago is the slowest moving train wreck, ever.”
HAHAHAHAHA!
I love how G reverts back to volume every time we show him that prices aren’t dropping. It’s great because he is just proving our point- in market’s like Chicago, volume dries up in housing downturns but prices remain mostly flat, particularly in good neighborhoods. Thanks G!
D
It took 7 years for this bubble to peak, yet people expect to see all the declines in 1 year. Settle down with a nice ringside seat and watch the show thats about to start.
“in market’s like Chicago, volume dries up in housing downturns but prices remain mostly flat, particularly in good neighborhoods”
I am seeing serious (50-100k) price drops in ‘good’ neighborhoods…
there’s no point comparing this with past downturns, The number of 0 down and IO mortgages written this time, create a lot of incentive to walk. And walk they will….
sartre,
Exactly right. These things take time to sort out. I saw dark clouds on the horizon last summer when the ABCP market blew up but was unwilling to short then. Don’t want to be in a position where a short term sh squeeze wipes me out.
Right now the Fed’s strategy is to puff a lot of hot air about how they expect inflation to moderate so they won’t have to raise rates. Unfortunately for them words don’t generally have an effect on inflation, interest rates do.
Ben Bernake can expect whatever kind of inflation he wants, hell he can expect the sky to be green if he so chooses. At their last meeting in their minutes: “said they expect inflation to fall as economic activity “was likely to remain damped for several quarters.”
LOL! Only when its convenient for the Fed do they attempt to link economic growth with inflation. Remember the 1990s???
From the WSJ tonight: “In their latest monthly reports, Fannie and Freddie disclosed that they cut back on commitments to buy mortgage securities in July. Those purchase commitments, net of planned sales, totaled about $16.3 billion, down from $55.1 billion in June. The companies are providing less support to the mortgage market, while reducing their capital needs.”
Now that doesn’t sound good for housing.
Who is the best person to talk to about buying forclosure units in Chicago?
“Now that doesn’t sound good for housing.”
Nothing has sounded good for housing for the past year, but in Chicago median prices in good neighborhoods have held up! All these negatives are contributing to the reduction in sales volume, but not yet in average prices.
The inflation numbers will improve once the YoY comparisons in food and energy get better over the next 6 months. There is nothing more deflationary than a credit crunch and slowing economy. Take a look at agricultural stocks and commodities over the past couple months. It looks like a classic bursting bubble. The lower prices will work their way into a lower CPI soon enough, the Fed is definitely more worried about growth than inflation.
D
Watch the 10-year to see where inflation will head. Not much of a worry at the moment…
“Who is the best person to talk to about buying forclosure units in Chicago?”
Deborah: There is no foreclosure “guru.” If you want to buy bank-owned units, you can get an agent to help you find those. They are listed on the MLS.
If you want to buy units going into foreclosure (at the auction)- you can get lists of those from the public record (and at some “pay” sites.) There are foreclosure auctions every day at the Daley Center.
I agree with Deconblue on the improvement of inflation.
The government stepped in using SEC and CFTC to reclassify the hedge fund speculator’s accounts from hedger to speculator. That basically limited their positions. Also the funds are reducing their positions as they are afraid of further government clamp down. Global recession will reduce demand too.
However, housing market and mortgage market is F&(&*&( as we all know it. Look at how much Fannie and Freddie are worth. The market has priced in a government take over. They will reduce their commitment to buy and that will be the final indicator that the housing will not recover in next 3-5 years.
Deaconblue on August 26th, 2008 at 8:05 pm
“All these negatives are contributing to the reduction in sales volume, but not yet in average prices.”
I see you now agree with what I have been saying all along. The price declines are inevitable.
They are inevitable? Let’s see, in past housing downturns in Chicago, volume contracted but prices didn’t drop in the good areas. So far in this cycle, the exact same thing has happened. Sorry G, but the burden of proof is on you to explain why “this time it’s different.”
D
“Let’s see, in past housing downturns in Chicago, volume contracted but prices didn’t drop in the good areas.”
Data, please?
Without it, your conclusion is meaningless.
“So far in this cycle, the exact same thing has happened.”
“Who is the best person to talk to about buying forclosure units in Chicago?”
Deborah: a few thoughts for you. First, for whatever reason foreclosures tend to be really trashed. So you should decide if you’re up for a project or not. Then, I would think about financing this. Since it will require work you either have to have the cash above and beyond your down payment or you will need to get a special loan – e.g. the 203(K). Might want to have a quick talk with a lender before you even consider pursuing this.
Then there’s the whole issue of a foreclosed condo. Is it the only foreclosure in the building? If not, what is happening to the association as assessments are not collected? If this scares you (it scares me) then you’ll want to stay away from any building that has multiple delinquencies/foreclosures in it.
Deaconblue:
This time it’s NOT different. Prices, even in “prime” buildings like the John Hancock (which was prime in the 1970s and 1980s) dropped like a rock in the last big condo bust in 1980s.
I can’t find an active link to this Crain’s article from 2006, but here’s an excerpt:
‘Bloodbath’ ended first condomania
By Alby Gallun
June 19, 2006
James Kinney, now president of Chicago-based brokerage Rubloff Residential Properties, paid $68,000 for a condo at 1030 N. State St. in 1979. Based on comparable sales in the building, he estimates the unit was worth just $42,000 by the mid-1980s. He held on, selling it for about $84,000 in the mid-1990s.
But during the price plummet, “there were owners in tears,” recalls Ms. Benson, the residential broker.
Speculators intending to quickly flip units got stuck, either selling at a loss or renting them out. Developers were forced to hire auctioneers to sell off excess units in the glutted market. Dark humor circulated in the real estate world. “What’s the difference between herpes and condos?” went one joke. “Herpes you can give away.”
After adding 13,820 condos to the downtown market in the 1970s, developers added just 5,429 in the 1980s, according to Appraisal Research. The nation’s top converter in the 1970s, Chicago-based American Invsco Corp. — which aspired to become the “General Motors of real estate” — saw its far-flung empire shrink to a fraction of its size as the market tanked. “In ’80 and ’81 it was a disaster,”recalls its chairman, Nicholas S. Gouletas. “Before that it was wonderful.”
Deborah – It is not quite as scary as Gary is making it out to be. Bank owned properties create tremendous opportunity to create equity with your purchase. To earn this equity you have to do your due diligence on the unit, building, and the area to ensure you are getting what you think you are getting. Most bank owned properties are in bad shape but if you are looking for a high-rise in the Loop, River North, or South Loop chances are the unit is move in ready and not trashed at all. Financing is the most difficult part when it comes to a foreclosure. It is not impossible but you just have to be prepared.
No one is giving away free money out there so you do have to do your homework to ensure you are actually receiving the perceived value from the foreclosure. Be sure to chose a realtor that really knows what they are doing. Most are just looking for that quick commission and may not do the necessary research to assist you.
Best of luck!
Foreclosures are a pain in the butt. They’re almost always sold ‘as is’ and dealing with the bank is a nightmare. Don’t expect timely a response regarding any issue. Expect to be frustrated. You will probably have difficulty obtaining financing. The woman in the office next to mine is the attorney on hundreds of REO files and we talk shop on regular basis so I know what I’m talking about.
Sabrina,
Say it ain’t so!
Sorry DB, but the burden of proof is on you to explain why “this time it’s different.”
Hey Sabrina & G – Where were interest rates back in 1980? Just curious what caused the quick devaluation of properties?
Hey G – “this time it’s different.” It is different and here is why. See below and then tell me things are the same as 1980.
Bank Prime Loan Rate Changes: Historical Dates of Changes and Rates
1976 – 6.25%
1978 – 11.75%
1980 – 21.5%
1982 – 11.5%
1984 – 10.75%
1986 – 7.5%
1988 – 9.5%
1990 – 10.0%
1992 – 6.0%
1994 – 8.5%
1996 – 8.25%
1998 – 7.75%
2000 – 9.5%
2002 – 4.25%
2004 – 5.25%
2006 – 8.25%
2008 – 5.0%
I don’t know that people are saying that today is just like 1980. I’d argue that today is more like the mid-1970s — low interest rates now but an oil shock will lead to high inflation (and interest) rates in a few years.
Stevo:
So mortgages are available at lower interest rates in ’08 than in ’06?
Another factor to consider: a couple years ago you could put $0 down with a sub-700 credit score and pay only 5-6%. How much would you need to pay to get that loan today?
Can someone with a 660 credit score and $0 down get a mortgage for ‘only’ 12% today? 20%?
June 2007: $360k at 9.95% with a 551 FICO. Guess where this mortgage is today?
Spin spin spin – you guys will never be happy…
Kevin & Homedelete – Hence why the less desirable neighborhoods are hurting. The sub prime market is tied to less desirable markets…
Anon – The rates listed are prime. Mortgage rates are about .25% higher than what you could have received in ’06.
Of course, LP and GC are special because no one there is subprime.
Hopefully no one there needs conforming loans either.
Fannie and Freddie purchased only $16.3B of mortgages in July, down from $55.1B in June. That can’t be good for the conforming market.
http://www.marketwatch.com/news/story/freddie-pares-mortgage-commitments-fannie/story.aspx?guid=%7BBBEBCFE3-C79D-4AA5-878C-81625967CD94%7D&dist=msr_5
Kevin – No one I know is having any problems getting a loan.
SH says prices won’t drop in desirable areas during the current market correction because “this time it’s different.”
DB says prices won’t drop in desirable areas during the current market correction because this time it isn’t different.
Seems to be a problem between our housing bulls. At least DB has begun to qualify his ‘prices won’t drop’ mantra with “yet” and “so far” in his comments. Maybe they can work this out?
Steve,
When you say things like “no one I know is having any problems getting a loan,” it means one of two things:
a) you are lying, in which case there is no need to pay attention to you, or
b) you live/work in such a rarefied environment that your experiences simply don’t apply to the other 98% of Chicago/the world, therefore there is no need to pay attention to you.
Which is it?
“Steve Heitman on August 27th, 2008 at 9:27 am
Kevin – No one I know is having any problems getting a loan.”
You might want to square that up with what the lenders say.
“As expected, bankers were particularly vigilant on home loans. Nearly three-quarters of the respondents said they had tightened standards on prime mortgages. More than 84% said they had tightened nontraditional mortgage standards, and 85.7% said the same for subprime mortgages.” http://www.financial-planning.com/asset/article/648161/fed-survey-highlights-bank-gse-disconnect.html
Note, too, how bankers are still delusional that “fraudy and phoney” will save them.
I simply said no one I knew had a problem getting a loan. It is certainly more invasive than it was last year but they all ended up with funding.
SH is so rich from real estate that he’s one lending. He provides full service real estate: realty, seller financing, and drywall/construction/plumbing/back porches and more!
100% First Class AAA Rated Realty Services by Steve Heitman. He does all things real estate related.
I bought my first condo in 1986, paying less than the seller’s outstanding mortgage amount. And that was when people paid 20% down payment deposits for their mortgage loans. Needless to say, unit appraised at purchase price. Let’s not forget that condo bust.
And I was moving to Chicago from Stamford in 1986. I rented a condo in Stamford; the owner bought at $50,000 in 1984, three years later the unit could have easily sold for $115,000. After ten years of ownership he finally sold the nicely improved unit at $55,000 – with a sigh of relief. Yes that was a roller-coaster ride.
See Chicago Tribune article on Chicago Housing. Take that HD!
http://www.chicagotribune.com/business/chi-wed-buyer-seller-struggle-aug27,0,3852060.story
The tug of war between buyers and sellers is a reflection of Chicago having avoided the excesses of the housing boom. Prices here never skyrocketed the way they did in other parts of the country, so they didn’t crash after the credit crunch hit and the economy turned sour.
But escaping the worst of it seems to have made it more difficult for players here to adjust to reality, and the sales activity in other markets today magnifies the Chicago area’s stagnancy.
The latest indication came in a report Tuesday showing that home prices nationally dropped a record 15.4 percent during the second quarter from a year earlier, while home sales have shown a bump in activity.
Locally, however, the logjam appears to be continuing. Midwest Real Estate Data LLC reports that the number of deals in the nine-county Chicago area has dropped almost 30 percent in the January-to-July period this year compared with 2007, and average market time has increased by more than a month. Prices have barely budged: The median sale price slipped from $250,000 to $247,500.
Interest rates will be going up within the next 6 months as the Fed’s concern with inflation trumps growth. Mortgage rates will be at least 1% higher on July 1, 2009 than they were on July 1, 2008. Combined with the return to traditional mortgage lending standards and the only solution for increase the pool of buyers is further price declines, plain and simple as that. There is NO WAY the pricing bottom will occur before July 1, 2009.
Once other comment, the least desirable neighborhoods are always hit first during a real estate downturn. Likewise, the more desirable neighborhoods always follow that lead later. It ain’t different this time.
G said- “At least DB has begun to qualify his ‘prices won’t drop’ mantra with “yet” and “so far” in his comments. Maybe they can work this out?”
I love to see it when people start arguing semantics, that’s a surefire sign of desperation as they try to change the scope of the argument away from the fact that they are wrong! Thanks G!
“Interest rates will be going up within the next 6 months as the Fed’s concern with inflation trumps growth. Mortgage rates will be at least 1% higher on July 1, 2009 than they were on July 1, 2008.”
Question: What do Fed actions and mortgage rates have in common? Answer: Nothing! Mortgages rates are primarily based on the 10 year note, while the Fed controls short term rates. Thanks for your forecasts, John, you have established about as much credibility as the homeless lady who lives in my alley.
D
P.S. Here is a quote from Ben Bernanke in the NY Times today: “Mr. Bernanke, in a speech here, said that inflation is likely to moderate as commodity prices come down and the dollar stabilizes.” I guess you know better than him? I bet he knows where mortgage rates come from!
http://www.nytimes.com/2008/08/25/business/economy/25fed.html?_r=1&ref=business&oref=slogin
“Interest rates will be going up within the next 6 months as the Fed’s concern with inflation trumps growth. Mortgage rates will be at least 1% higher on July 1, 2009 than they were on July 1, 2008.”
Question: What do Fed actions and mortgage rates have in common? Answer: Nothing! Mortgages rates are primarily based on the 10 year note, while the Fed controls short term rates. Thanks for your forecasts, John, you have established about as much credibility as the homeless lady who lives in my alley.
D
P.S. Here is a quote from Ben Bernanke in the NY Times today: “Mr. Bernanke, in a speech here, said that inflation is likely to moderate as commodity prices come down and the dollar stabilizes.” I guess you know better than him? I bet he knows where mortgage rates come from!
Thanks for the link Steve. Good article.
One thing I found humorous about it was the byline: “In rocky local real estate market, neither side appears to be willing to face reality”. It almost seems worded as if both sides have equal leverage in this downturn, they don’t.
When we think about it, no buyers have to “accept reality” and many sellers don’t either. Buyers can continue to rent and sellers that don’t have to move soon can continue to live in their property.
The only people who have to “accept reality” are flippers/accidental landlords caught holding negative cash flow properties and those sellers that must move soon. This subsegment of sellers definitely has to “accept reality” at some point, and lets not forget the bank REOs, too.
Who will blink first?
DB,
A Times reader, eh? Ouch! Yeah I read that quote on WSJ.com yesterday and already posted a comment on it. Basically Ben is stating his hope with that statement. Its the best possible outcome. He is hoping to calm the markets and that inflation will moderate so he can keep interest rates low enough long enough to slowly ease us out of this financial malestrom. The thing about best case scenarios is that they often don’t come true.
He really can’t impact inflation with his words however, only via policy/interest rates movements. And while fixed mortgage rates do move in tandem with the 10-yr note with surprising correlation, lets not forget there are a whole bunch of other mortgage products that more closely mirror short term fed rates. Chiefly ARMs. Also at some point the short term rates start to have an effect further out on the yield curve although never nearly as much as the nearer term.
The one indicator we should all be following is inflation because thats the key to the fed moves. The fed at some point is going to have to be more hawkish on inflation: America won’t stand for prolonged 5.5% YoY CPI increases without voting our legislatures out of office every election.
DB still has nothing to support his claim that “in past housing downturns in Chicago, volume contracted but prices didn’t drop in the good areas.”
I think he made it up.
Didn’t Bernanke also say that the mortgage crisis was contained?
G,
Last time I checked the continent of Antarctica and the other 7 planets didn’t have a mortgage crisis! 🙂
Nice 60 minutes reference. Well done.
It makes me cringe to quote the Times, believe me!
D
G, it’s common knowledge that Chicago does not have the ups and downs that many other major cities do. YOU have provided NOTHING to prove me wrong! An don’t try to tell me that one anecdote from a Tribune article from years ago means anything!
D
DB, your claim was that “in past housing downturns in Chicago, volume contracted but prices didn’t drop in the good areas.”
Sorry, the burden of proof is on you.
I think you made this up.
Bob,
The inflation numbers are currently elevated for two reasons- oil and food prices. Look at a chart of corn, oil and other commodities over the past month. They have plummeted. They don’t need to even fall anymore, because within months the YoY comparisons will start to look much better. Core inflation, which measure everything else, has been much better controlled YTD.
D
G, sorry I don’t care what you think. You are the one with ready access to the MLS. If you are really a real estate “consultant” as you claim, wouldn’t you have historical information about the market you live in at your fingertips? You must be a pretty crappy consultant if you rely on anonymous message boards to gather information from!
D
That’s a weak deflection, even for you, DB.
It just confirms what I expected, you made it up.
You keep challenging me to provide data, but I’m afraid I don’t have it at my fingertips like you do. If you are really a consultant and really think I’m making it up, you should easily be able to prove it! I can’t believe you claim to be a real estate consultant and you don’t even have data the market you are consulting on! You are such a fake! Why don’t you have your “interns” look it up tomorrow! $10 bucks says you are Steve Heitman’s intern!
D
DB:
Are you 11 years old? I’m sorry to tell you that the burden of proof is yours. G is merely giving you enough rope to hang yourself. And you’re doing it well.
In what way? I explained myself clearly, G simply disappears whenever you challenge him. He’s never once explained all the inconsistencies with his story and this proves it even further. You guys are pathetic!
D
DB makes up data as it suits him. Wasn’t it just a couple of days ago that he pulled numbers completely out of his ass re: historical rates of mortgage defaults?
I also think it’s funny that he’s gone from betting you two months of his income that you are an intern in a basement somewhere, to betting you only $10 that it is so. Every time you agree to his bet (and I count three times now that he’s extended it), he simply disappears, or pretends to forget he made the bet in the first place.
But then again, you’d behave in a panicky, petulant, irrational way, too, if you’d invested in 600 N Fairbanks at the top of the market.
How could we ever see who won the bet? He’d have to reveal himself, which he won’t (and shouldn’t). I’m happy to take that bet! He’s never once explained himself and everything he claims has been contradicted. Come back when you can afford to buy a place, losers!
He’s said to you multiple times he is willing to meet up with you to settle the bet. I volunteer to witness. Indeed, I’d pay money to do so!
Oh, and you claim that you purchased at 600 N Fairbanks at 1X your annual income. Even assuming the lowest price developer’s unit, this means you claim to make at least $350,000 a year. Two months income, then, puts the bet at about $58,000.
G, will you buy us all drinks after?
Sabrina can you make these bickering comments disappear? it really detracts from the the useful commentary on the site.
I highly doubt that DB makes $350k a year. If he really made that much money he would be working his butt off right now or he would have enough influence to be in Denver. He’d have little time to pick fights with bigger dogs on anonymous internet boards. That’s the beauty of the internet. You can be whoever you want. He may not even own a unit at 600 N. Fairbanks for all we know or can tell.
sorry, bubbleboi… I promise never to bait (or get baited by) Deaconblue or Steve Heitman again. It *is* annoying.
Hey Bob – You are wrong about the ARMS thing. ARMS are currently priced quite similar to the 30 year fixed. ARMS are out and have been for some time. The variance is about 1/4 of a point where it used to be closer to .875%.
HomeDelete – I make over $350k per year and I love being on this board. I make my money doing exactly what you tell others not to do. I think it is funny…
Steve, DB,
I think I am beginning to see the crux of your argument on interest rates and it somewhat makes sense even if I don’t completely agree. Basically if market interest rates remain low due to investor fear, this will keep mortgage rates depressed. But the counter is that as more and more financial firms go under, this will limit the supply of mortgages.
Also the yield on the 10-year is comparable to the lowest 2003 levels, yet today you cannot get a 15-yr fixed mortgage for 4.125 or a 30-year for 4.625 as you could briefly at the bottom of the 2003 cycle.
When you look at the max term chart on yahoo for the 10 and 30-year the long-term trend since clearly points to a downward trend since 1984. I hope it doesn’t end up in a Japanlike scenario.
The fed is basically out of ammo to stimulate growth by cutting rates and now the whole country is feeling the effects of throwing around cheap money subsidized by the taxpayer. I am surprised and disappointed they settled on an artificially low 2% rate vs. the 3-3.5% they should be thinking about.
So let me hear what you think:
(if it is a long response, please email me at aleks.lang@gmail.com
I’ve heard that most banks are not giving loans to second homes or Non-Owner Occupied Properties, and if they do, they require 20-25% down. Is that true? It is obvious that we won’t see 0% or 5% down for a long time. Do you think that projects that will start closing in 2009 – 2010 will be much healthier and more attractive options since people who purchased there would have qualified under standard mortgage guidelines (20% down), would occupy the unit themselves, and would less likely have their unit foreclosed?
Thanks.
Aleks – It is real simple and short. Banks, bond investors or whoever, will NEVER loan money for purchase of real estate like that for 20-100 years, and that is being conservative.
“Do you think that projects that will start closing in 2009 – 2010 will be much healthier and more attractive options since people who purchased there would have qualified under standard mortgage guidelines (20% down), would occupy the unit themselves, and would less likely have their unit foreclosed?”
Projects that sell out in 2009-10 will be healthier than those that have closed since the early 2000s. However, a building that is completed with only half or 3/4 the units sold will still be in trouble — the developer has to turn things over to an owners’ association within a couple of years, and that may lead them to drastically cut prices as that deadline passes. (The developer seems likely to run a much less maintenance-oriented board than competent owners would.) There would also be a fear of a developer LLC going bankrupt while still owning many condos — they would stop paying assessments, in addition to the usual problem of not being there to sue for bad building.