Market Conditions: Chicago’s October Sales Rise 7.9% But Median Price Continues to Fall YOY
The “official” October sales data is out today. I cannot be near a computer this morning to post the actual data from the Illinois Association of Realtors.
So I will post G’s data for October from the past 14 years- which is always very similar to the IAR’s numbers- and provides a pretty clear picture of where the market stands so you all can discuss it (and I’m sure Gary and others will link to blog posts analyzing the data.)
I will fill in the post with some of IAR’s excellent commentary from their press release later today. I wouldn’t want you all to miss out on discussing the sales report in a timely manner.
As always, the median price can be misleading because it depends on the mix of what is selling. Right now, the distress properties, according to G, were 44% of October sales. You can bet that is having a major impact on the overall median selling price.
Here are G’s numbers (including for various neighborhoods- which the IAR never breaks out for us in their press release.):
October Chicago sfh/condo/th sales and median
1997 1,731 $129,900
1998 1,855 $138,000
1999 1,978 $159,500
2000 2,106 $174,710
2001 2,177 $200,000
2002 2,503 $215,000
2003 2,996 $236,000
2004 2,651 $241,000
2005 2,846 $268,500
2006 2,630 $278,000
2007 2,007 $285,000
2008 1,564 $261,000
2009 2,068 $215,000
2010 1,225 $183,000
2011 1,324 $162,000 (44% short/REO sales)
Lake View October condo/th sales:
1988 78
1989 86
1990 75
1991 64
1992 88
1993 101
1994 81
1995 127
1996 106
1997 131
1998 125
1999 111
2000 159
2001 131
2002 169
2003 180
2004 169
2005 207
2006 163
2007 147
2008 98
2009 124
2010 61
2011 70 (17% short/REO sales)
Lincoln Park October condo/th sales:
1988 78
1989 82
1990 78
1991 78
1992 85
1993 108
1994 92
1995 87
1996 94
1997 112
1998 76
1999 104
2000 94
2001 91
2002 97
2003 112
2004 131
2005 154
2006 98
2007 84
2008 62
2009 61
2010 37
2011 39 (15% short/REO sales)
Near North October condo/th sales:
1997 146
1998 152
1999 203
2000 196
2001 161
2002 260
2003 418
2004 238
2005 236
2006 215
2007 260
2008 150
2009 200
2010 124
2011 142 (26% short/REO sales)
Loop October condo/th sales:
2005 68
2006 268
2007 113
2008 53
2009 67
2010 34
2011 37 (24% short/REO sales)
Near South October condo/th sales:
2005 62
2006 139
2007 68
2008 78
2009 57
2010 33
2011 24 (63% short/REO sales)
Finally- as promised- here’s the data and statements from the IAR:
In the city of Chicago, October 2011 home sales (single family and condominiums) totaled 1,312, up 7.9 percent from 1,216 homes sold in October 2010. The city of Chicago median home sale price for October 2011 was $162,000, down 11.5 percent compared to October 2010 when it was $183,000.
“The increase in units sold in the city of Chicago continues to show the absorption of distressed properties in the market,” said REALTOR® Bob Floss, president of the Chicago Association of REALTORS® and broker-owner of Bob Floss and Son Realty. “Prospective buyers in the market are making investments that make sense long-term. Those who haven’t considered buying are encouraged to work with a REALTOR® to assess their individual buying power in today’s market and plan how they may make a purchase given historically low interest rates and their own financial ability.”
“Foreclosure and short sale inventories are working though the market, and buyers in the market are favoring lower-priced homes with close to 70 percent of homes sold in October priced below $200,000 statewide,” said REALTOR® Loretta Alonzo, CRB, GRI, president of the Illinois Association of REALTORS® and broker-owner of Century 21 Alonzo & Associates in La Grange Park.
Illinois Home Sales Continue Gains in October, Up 15.3 Percent [Illinois Association of Realtors, Press Release, November 21, 2011]
If this shows anything, it shows that it is a long way down. The economy was absolutely booming in 1999, one of the biggest boom times in history, and we are still above those levels. People buying right now into this artificially propped up market are marks/suckers. When eventually, after several more years, after all of the marks have got their fill and there are no more suckers left, prices will finally begin to really fall. So far we have only seen a little bit of froth come off the market.
Agreed. Prices will be so low they cannot give properties away. Although I’m seeing sales these days for less than the 99 price in some middle class areas and that’s my indicator that prices have fallen enuf.
Yeah, that’s what I came up with too. I posted my commentary here a couple of weeks ago along with the distressed sales and contract activity graph: http://www.chicagonow.com/getting-real/2011/11/october-another-weak-month-of-home-sales-in-chicago/
Notice that distressed sales % is higher than it was last year and also notice that contract activity is much stronger relative to history. What seems to be happening is that it’s taking longer for properties to close and more contracts are falling apart than historically.
The other thing is that G’s data shows that sales are at pre-1997 levels. It would be interesting to know just how far back you have to go to match it. But my point is that employment in the area is right around 1997/1998 levels so I would expect higher activity at this point.
The other thing is that I still maintain that reluctant sellers are supporting prices. Check out the historically low level of 2 – 3 bedroom condo inventory: http://www.chicagonow.com/getting-real/2011/11/will-record-low-home-inventory-levels-support-prices-in-chicago/
There are soooo many would-be sellers that either are staying put or renting their places out. I see it every day. After meeting with us they decide they just can’t handle it. Some are afraid of a short sale because it will hurt their credit rating. Others have so little equity left that if they can get any positive cash flow out of their place it represents a huge return on their equity. And others have too much cash on hand to qualify for a short sale and aren’t about to write a huge check at closing.
If you can buy for the 99 price or better you are getting a deal. These seem to be estate sales, long time owners and distressed properties prices may get better in the future but as I’ve always said, the lending issues have resolved for the most part and buyers can borrow only what they can afford. So the amount borrows pay per month will be relatively the same its just what you can buy for that amount will change.
“When eventually, after several more years, after all of the marks have got their fill and there are no more suckers left, prices will finally begin to really fall.”
“Prices will be so low they cannot give properties away.”
hahahahahaha – oh god – where do I begin……this is too easy – you guys want SO badly for the prices to come down it is pathetic. Just wishing it is not going to make it happen. Most buyers/sellers are not in tune with markets/financial forces, etc. – they move when they want/need to move – not much analysis goes into it. Because of this ignorance, prices will NOT go down. We are not dealing with a sophisticated investment brain trust – we are talking about the general population.
“People buying right now into this artificially propped up market are marks/suckers. When eventually, after several more years, after all of the marks have got their fill and there are no more suckers left, prices will finally begin to really fall. ”
So I should put my life on hold for how many more years exactly?
Just found an old post of G’s with October data going back further. We’re back to 1994/1995 levels of activity.
What? No numbers for Uptown?
“So I should put my life on hold for how many more years exactly?”
Indefinitely. You are ONLY allowed to buy at THE bottom. Everyone else is a sucker. Anyone that doesn’t buy the exact bottom is ruining their financial future, and will never be able to recover.
Renting does not equate putting your life on hold. Buy if its something you love, we bought only when we found something we could imagine living in under a lot of different scenarios so we know it is something we won’t “need” to get out of any time soon. Renting is a great option, unless of course you just need to own something.
It’s all relative. Some people thought they were getting deals in 2008/9 because they bought at 10% off. Now they’re in bad shape. Overpaying today will definitely put a buyer in bad shape down the road. Get a good deal today, stay there for a while, and you’ll probably be OK. but we’re talking 99 pricing or better. I’ve seen an estate sale in a close suburb listed in great but dated condition for 1/3rd off the next door neighbor’s 2003 price! So the buyer of that estate sale will be getting a deal unlike any buyer has seen, based upon my estimate, in 12 or 15 years. The long term owners have equity and lots of it. Will future owners sell for even less? Probably! But it’s hard to argue that getting a 1998 or 1995 price on a dated house is a bad deal even if there are better deals in the future.
“chuk (November 21, 2011, 8:16 am)
“So I should put my life on hold for how many more years exactly?”
Indefinitely. You are ONLY allowed to buy at THE bottom. Everyone else is a sucker. Anyone that doesn’t buy the exact bottom is ruining their financial future, and will never be able to recover.”
How much would it cost to rent something for a family of 5?
“Some people thought they were getting deals in 2008/9 because they bought at 10% off. Now they’re in bad shape.”
Yes, HD – you are absolutely right. Every weekend when I stay at my in-town and walk down the beautiful chicago streets and eat at the wonderful restaurants, I think “how unlucky I am – I am in such bad shape because I bought in 2009 – I wish I would have never bought my in-town – that way I could spend ALL of my time the suburbs”. God, you are a naiive youngster – take my advice – live NOW and don’t put too much thought/stock in the future – NOBODY knows what is going to happen.
Clio – again, a failure in logic. Simply because you think NOBODY knows what is going to happen doesn’t mean that NOBODY knows what is going to happen.
For example, I know that prices will continue to fall, albeit at a slow pace probably for many years. And I know that I could probably get a better deal tomorrow than I could otherwise buy today. So I will wait for years, maybe even a lifetime, before I decide to buy, if ever.
However, if a deal at better than 1999 pricing pops up somewhere I want to live, and I can afford it, and it’s in a decent school district, I might buy; doubtful, but in the realm of possibilities. This is no different than what I’ve said all along.
“they move when they want/need to move – not much analysis goes into it. ”
Then why aren’t they moving?
“prices will NOT go down”
clio never gets anything right.
HD – you miss my point entirely – I am not talking about MONEY – I am talking about LIFE. Nobody knows when and how things are going to change in your own life. Money is unimportant when you consider everything else in your life. You are absolutely obsessed with money and getting the best deal – you will soon realize that this obsession is going to cost you MUCH more than the money you save buying any property.
“How much would it cost to rent something for a family of 5?”
$7300 (that’s the standard answer, the real answer probably depends on your requirements for the family of 5)
“You are ONLY allowed to buy at THE bottom. Everyone else is a sucker. Anyone that doesn’t buy the exact bottom is ruining their financial future, and will never be able to recover.”
I agree that someone is a sucker if they buy when prices are still declining. The rest is nonsense.
“I agree that someone is a sucker if they buy when prices are still declining”
There folks are sometimes known as “value investors” 8)
$7,300 easily, and in the process, you’ll help make the JMM family trust increase it’s position from the top .04% to the top .03%.
“HD – you miss my point entirely – I am not talking about MONEY – I am talking about LIFE. Nobody knows when and how things are going to change in your own life. Money is unimportant when you consider everything else in your life. You are absolutely obsessed with money and getting the best deal – you will soon realize that this obsession is going to cost you MUCH more than the money you save buying any property.”
It’s funny what fear of loss techniques the shills will employ. So sad that the simpler “buy now or be priced out forever” is only a punchline today.
@Clio
Based on your statements, it seems that it is better for you that you are renting an in-town vs. owning an in-town.
“Clio (October 11, 2011, 6:39 pm)
Not really – I did a private sale of my unit at the palmolive and am now renting in a building 2 blocks away. The unit is the same size and costs the same as the assessments/taxes I was paying at the palmolive (around 3000). The only difference is that now I have several hundred thousand dollars that are no longer tied up AND I can move anytime I want. Renting is GREAT!!”
“Clio (October 11, 2011, 8:05 pm)
“Clio with a capital C is advocating renting? WTF?”
For certain people in certain areas in certain situations, renting is DEFINITELY better. For me (single guy who doesn’t entertain in the city and just needs a place to crash 5nights/month) renting absolutely makes more sense. For others (like you HD), buying makes much more sense. Real estate is not a case of “one size fits all””
With respect to:
““Some people thought they were getting deals in 2008/9 because they bought at 10% off. Now they’re in bad shape.”
Yes, HD – you are absolutely right. Every weekend when I stay at my in-town and walk down the beautiful chicago streets and eat at the wonderful restaurants, I think “how unlucky I am – I am in such bad shape because I bought in 2009 – I wish I would have never bought my in-town – that way I could spend ALL of my time the suburbs”. God, you are a naiive youngster – take my advice – live NOW and don’t put too much thought/stock in the future – NOBODY knows what is going to happen.”
Regarding the article itself.
I used to follow the “need to live in a property for at least 5 years” to break even on transaction costs.
With the market continuing to trend down, I personally would not purchase a property for my own use unless I was looking at 10+ years.
Of course YMMV
CLIO doesn’t know what clio or Clio or cliO is doing. Don’t you guys realize that the “clio”s of the world are all making fun of you (pontificating on real estate as if that is going to change your world – or the world of real estate)
“$7300 (that’s the standard answer, the real answer probably depends on your requirements for the family of 5)”
We like to live in the City and be near upscale retail, dining amenities and public transit.
“We like to live in the City and be near upscale retail, dining amenities and public transit.”
I wasn’t sure if you were asking a rhetorical question or not but I guess not. Man, it’s all over the board depending upon where you want to live, what kind of housing you want, and how much space you want. I’ve seen people rent 4000 sq ft newer SFHs in West Town for around $4500/month. Or you could rent Oprah’s co-op on East Lake Shore for $15,000/month.
@Vlajos
Its too open ended of a question.
GZ? Ander-ville? CPS an option? Need SFH w/ grass?
I can say that 4-5k a month starts getting you into the luxury range in Lincoln Park, but not the Mists of Avalon anonny section of LP
And if you want to cram into a 3 bedroom in the Heritage with a nice view you could do it for $5000/month.
Yeah, unless you’re spending $5,500 or more to rent a sweet pad in LP, you’re pretty much a loser in my eyes. Why bother living in a vibrant exciting urban area unless you’re going to live it up in luxury?
@HD
FWIW I only threw out the 4-5k range since the OP mentioned “…near upscale retail”
No one is smart enough to buy at the bottom on purpose. Also, how are you going to define the bottom? Housing is not a commodity. The median price may bottom out but that has nothing to do with the individual property that you want to buy and you can’t necessarily project the macro RE market on to a very local/individual purchase. Houses aren’t pork bellies.
This isn’t to say that the data isn’t important and points out larger trends, but at the end of the day, the decision to purchase is more based on where someone is in their life versus data on a spreadsheet. For some people, it is the perfect time to buy and for others they are absolutely better off renting. The decision to buy is much more emotional than I think people realize.
Mortgage rates were almost twice as high in 1999, so it actually is even cheaper now if prices are back to 1999.
While I don’t necessarily agree with Clio entirely, life does move too fast and if you are constantly waiting for everything to be perfect, you’ll never get anything done because not matter what you do, it will never be the perfect time for anything. Buyers who are looking ten years out are probably going to do ok buying now versus short term buyers.
clio is quite sad, he has created multiple login names so all his comments will get about 4-5 thumbs up instead of the usual multi-thumbs down
I think that is the saddest thing I have ever seen on the internets
sadder than 2girls1cup?
I guess I’m confused by this whole conversation…..
I bought a 3/2.5 duplex in January of this year from a bank (foreclosure) in cash. I put an additional 25% of my purchase price into making renovations/ updating. I then did a cash out/ refi with a large, conservative bank (rhymmes with Ace) that did an appraisal which allowed me to take all of my cash back out and yet allowed me to have a mortgage with 70% LTV. My mortgage payment including HOAs/ taxes is $1500/mo. Yet, by the logic of some people on this site, I have made a mistake and doomed myself and my family to a horrible finacial future. Can someone please tell me where I can find a newly renovated 2000+ sq ft, 3 bed, 2.5 bath, with covered secured parking , and a 5 min walk from the Damen Blue Line for $1500 or less????
My only point in this post is that looking a macro data for individuals is stupid. There are good and bad deals in every neighborhood in this city and metro area. There are places that may not recover to bubble prices for 20 years or more, but the fact of the matter is people like certain neighborhoods and have their laundry list of wants in their home. I find it unlikely that people are going to stop buying in prime neighborhoods to the extent that there will be a further significant loss of home equity.
I’m not saying prices won’t stay put for a while relatively speaking, but to sit and argue that every person buying now is a sucker is a bit silly.
@CH sadder than that guy who chops off his own wang with a hatchet
“I agree that someone is a sucker if they buy when prices are still declining.”
Nonsense.
“I agree that someone is a sucker if they buy when prices are still declining.”
Does that make someone a sucker if they sell when prices are still rising?
“Money is unimportant when you consider everything else in your life.”
Except you need money to buy a house. So you may be at a stage in life where you want/need to buy a house. But that doesn’t mean you can.
Ok, so it sounds like rent for my family of 5 would be about $4500/month. Wow, I’m damn happy I just bought a house. All that interest and real estate taxes to write off, plus total payment is less than that.
@Vlajos
“All that interest and real estate taxes to write off, plus total payment is less than that.” and a potentially declining asset
@MikeinB
“My only point in this post is that looking a macro data for individuals is stupid. ”
If that is your “only point”, then you would believe that the distressed sales does not affect pricing in the real estate market, and yet it clearly does since you yourself purchased a foreclosure.
Looking at macro data (for individuals) is not stupid.
I’m sure you can rent a place for five in Rogers Park for far less than $4,500. But then you have to live in Rogers Park (which isn’t all that bad, actually, but it sounds like you want Lincoln Park).
I agree with Clio and others who say you can’t put your life on hold forever. I know people who said stuff like, “I’ll get married when I can afford to” or “we’ll have kids when we can afford to.” But there’s never a perfect time. And sometimes they waited so long they couldn’t find the right marriage partner, or they got too old to have kids easily and had to do in-vitro and spend thousands.
Buying a house is definitely a different proposition than marriage or having kids, but it is unfortunate that people put it off because the time isn’t perfect. I have nothing against renting, and buying isn’t for everyone, but if owning a home is your dream and you have enough money to make it happen, I don’t think you should wait around for years hoping to find the lowest price. Like anything, including stocks, no one can always buy at the bottom and sell at the top.
“and a potentially declining asset”
and a potentially increasing asset
Can’t argue with the numbers, not to mention the bleak long-term economic outlook (including weak employment, plus huge student loan burdens on many would-be buyers).
That said, at the risk of echoing Clio, what’s one to do? I’m not saying that one should buy now, price volatility be damned, just so that one can “own” and live the high life. But if one has high expectations as to where one lives (in terms of the location, the property itself, or both), there’s simply a short supply of suitable rentals.
I’ve set forth my own (admittedly unique) circumstances and reasoning before, but will do so again:
1) Looked at a dozen rentals in 08 (in the mid $2,000 range), mostly junk (either nice places in marginal locations, or marginal places in nice locations). Almost signed a lease on a place, which we would have regretted (though I’d bet it still rents for around the same today). At the last minute, we found a really great place, and signed a lease.
2) After about a year, we looked at a couple dozen places for sale. Some great places, but all typically had some fatal flaw – almost always the lack of parking. Buying was tabled for another year.
3) After a couple of years renting, the landlord, who had otherwise been pleasant to work with, was growing increasingly unaccommodating, partly due to me being a somewhat demanding renter, and partly (I think) due to his frustration of having purchased at the peak and being unable to flip the place (or rent for far more) as he had envisioned. He became unwilling to meet even reasonable requests and, more importantly, he indicated that we could be asked to leave so that he could move into the unit with his own family (and, having a child, and given how difficult it was to find a nice rental in the first place, that sort of instability was not desirable).
4) So we started looking again, with the goal of finding a place meeting all of the Unicorn Criteria,* all at an amount that was essentially the same as our rental. We found such a place, and pulled the trigger.
5) It’s now been a year, and I’d say that we could sell our place for what we paid (and that’s after putting roughly $10k into the place) fairly quickly, perhaps for $10k more if we held out. We’ve paid about $7k toward principal, and I’ll look forward to claiming a sizable interest (and tax, etc.) deduction on my 2011 taxes – a benefit which I do not have with my other major debt (student loans). My payments toward principal will increase substantially in the coming years. After a few years in the place, if we sold for what we paid, we’ll pretty much get our down payment back after closing costs. Add another year or two, let alone any appreciation at all, and we might just walk away from a closing with a nominal “profit.” Alternatively, we wouldn’t sell, but could easily rent it (assuming we want/need to live elsewhere) for the carrying costs plus a bit more to cover upkeep.
Again, it all came down to (i) high expectations (or standards, if you will) and (ii) stability. It is a rare event to see a place for rent that meets all of the Unicorn Criteria for under $3k, and I’ve seen only a few places for sale over the last year that meet them, only one of which I would have purchased. Buying was thus the only way to get the type of place we want. And, while I do miss being able to call and pester a landlord every time something goes wrong, I don’t miss the potential for getting a call telling me to pack up our stuff and get out.
* Unicorn Criteria:
– 2 bed
– 2 bath (though a 2.5 is pretty much required)
– garage
– kitchen cannot be open to living room (it can be open to dining area)
– some type of outdoor space
– no duplex down, and no ground or first floor (and if there’s floors above, there must be concrete flooring, i.e., no vintage places with people walking overhead)
– ELP: While the western-most border varies depending upon where the property is located north to south, ideally it should be under/within one block of (or located directly on) the park, and no farther than two blocks (three blocks for a truly extraordinary place)
– Under $3k/mo (assuming 10% down)
Now that’s just stupid.
http://www.bloomberg.com/news/2011-11-21/sales-of-existing-homes-in-u-s-unexpectedly-increase-to-4-97-million-rate.html#
Prices drop; sales increase. Then stagnation. The prices drop more, and sales increase.
“chuk (November 21, 2011, 11:09 am)
“and a potentially declining asset”
and a potentially increasing asset”
“Now that’s just stupid.”
Nope. But you are. You think house prices will go down forever? You can’t be that dumb.
Houses are not cars or computers. Cars and computers are a declining asset (spare me the antique car argument). Houses will fluctuate in price. They will go through periods where they decrease in price. And they will go through periods where they increase in price.
Interesting numbers. It is always enlightening to look at the trends.
FNMA/FMAC; what is going on with the GSEs? Is there a decent chance the federal government will get out of the mortgage business? My understanding is the Republicans and Obama favor pulling the plug on Fannie and Freddie but liberal Democrats are opposed. I really don’t know what the chances are but, if this happens, I think the pool of potential buyers will be further limited.
“Is there a decent chance the federal government will get out of the mortgage business?”
I’m not sure how that can happen anytime in the next 10 years. No one is going to buy the junk they have on their books.
I love the pessimism here: “Only a FOOL buys a home now!”.
Market bottoms are characterized my mass pessimism, and we are pretty much there.
Would I buy at 2002-2005 prices? Hell no. But this is a great time to carefully and slowly shop for an estate sale or distressed sale with a plan for a longer term hold.
Houses are that hot girl/guy you always wanted to date, but they were in a relationship. As soon as you get in one, they break up with their sig other. In other words as soon as you buy a house, you’ll find one you like better, maybe even for less. 😀
“Houses are not cars or computers. Cars and computers are a declining asset (spare me the antique car argument). Houses will fluctuate in price. They will go through periods where they decrease in price. And they will go through periods where they increase in price.”
I have to agree with clio/CLIO/Kleeoh/whatever, in that you’re dealing with your life, as in quality of. Sure nobody wants to loose money in real estate, but do think you’ll actually make money on your house when they close the lid at your wake? When I add up my purchase price, interest, property taxes, maintenance, utilities, renovations, insurances, appliances/tv’s/kitchen/baths that have been updated yet again, furniture, window coverings, countless trips to the hardware store, on and f’ing on over the last 20+ years of ownership in *prime* ELP… I’d break even. Then what?
Maybe it’s because I’m in my 40’s (think one of the clios is too) and I’ve been doing this a bit longer than most here, but what I’ve witnessed as someone who’s *very* financially conservative, is that in the end ownership reduces down to degrees of loss for the 99% of us who *didn’t* (more likely couldn’t) buy a 5th Avenue co-op in the early 80’s for say $800k, and sell it to a Murdoch for $14M this year. If prices roll back to 97, 92, hell 82 levels, I hope that this 2001-08 bubble notion that homeowners should/can/will make money from the sale of their home is rolled back too. Trust me, 20 years ago NOBODY thought they’d actually make money by buying a run-down house in say LP, and the few that did, lost it in the next bigger better stronger house(s) they’re currently stuck in. At some point, you’re going to have to get on with your life.
@Chuk
“Houses are not cars or computers. Cars and computers are a declining asset…
and yet we have IRS form 4562
“clio is quite sad, he has created multiple login names so all his comments will get about 4-5 thumbs up instead of the usual multi-thumbs down
I think that is the saddest thing I have ever seen on the internets”
Just need multiple devices, not multiple “logins”.
“Houses are that hot girl/guy you always wanted to date, but they were in a relationship. As soon as you get in one, they break up with their sig other. In other words as soon as you buy a house, you’ll find one you like better, maybe even for less. ”
I intend to live where I live, until I die. I am not attached to many things, but my home, I love.
“and yet we have IRS form 4562”
Yup, and all those people that bought before 2006 got to depreciate their purchase while still enjoying an increase in the selling price.
Hi, Ze!
You didn’t have any money with Jonny C, did you? Or you the beneficiary of that “commingling”?
“You think house prices will go down forever? You can’t be that dumb.”
I reckon prices will go down only as long as credit is constricted, as long as deleveraging is in process, since prices are set at the margin. Imho the great leveraging-up cycle began in the early 80s and, excepting the brief 89-91 period & the LTCM aftermath, there’s been nary a bear market in credit ever since — that is, until Autumn 06 when the credit spigot was rudely turned off.
So in general I think housing prices will rise again when ‘innovations’ like AAA-rated, structured CDOs can once again be fashioned out of no-doc, stated-income, option-pay ARMs, or when inflation-adjusted incomes steadily increase, whichever comes first. So, no, I don’t dumbly think “house prices will go down forever” — just a while longer.
“Hi, Ze!
You didn’t have any money with Jonny C, did you? Or you the beneficiary of that “commingling”?”
Crazy story. Needed to lock up everyone 2-3 years ago. It’s so far down the rabbit hole right now. Why even work? Save at ZIRP, and worry all night about your money disappearing.
@chuk
really? really?
The point of counter argument is that like a car or computer, a house is an asset that depreciates through normal use / wear and tear.
and if you must go down your rabbit hole, then you should use 1998/2000 pricing instead of 2006
chichow: “and yet we have IRS form 4562?
chuk: Yup, and all those people that bought before 2006 got to depreciate their purchase while still enjoying an increase in the selling price.
“a house is an asset that depreciates through normal use / wear and tear.”
Yes, but that doesn’t mean the PRICE of it will. You are talking apples and oranges.
“and if you must go down your rabbit hole, then you should use 1998/2000 pricing instead of 2006”
Actually, I had type 1998 originally, but the truth is, 2006 buyers that sold in 2007 probably made a profit too. Just because we are at/below 2000 prices doesn’t mean that someone didn’t buy in 2003 and sell in 2007 for a nice profit while still taking the depreciation.
It is very simple. If you bought a house in 1990, you could have likely sold it for a higher PRICE in 2000, even though the “value” of it has depreciated due to wear and tear. I bought my condo in the early 90’s and sold it in the early 00’s for double what I originally paid. And the only thing I did to it was paint the ceiling when my washing machine leaked through. I assure you that place was in worse condition when I sold it vs when I bought it.
For me it comes down to whether or not it is cheaper to rent or own. When you are looking for 3000+ sq ft of space and interest rates and prices are as low as they are right now buying trumps renting. It took 10 – 11 years for me to be able to say that. And I’m not really worried about further price declines over the next 5 years. The only thing that scares me about owning a home once again is the maintenance. Entropy is a bitch.
@Chuk
Perhaps Sabrina can chime in with her stats, but I’m pretty sure it was something like over the long haul Chicago real estate prices go up maybe 2% p.a. which is basically flat considering CPI/inflation.
and of course you can cherry pick a property for 2003 – 2007 in terms of making money. And its not really fair since you are cherry picking 2007 as a peak, but still I’ll play along.
Let’s use G’s stats as provided by Sabrina at the beginning of the post
bear in mind this is a back of the envelope and not considering everything individual to the nth degree
price change 2003 236k – 2007 285k = 49k
transaction cost 0.06 x 236k = 14k
delta per year (49k – 14k) / 4 = 8.75
so 3.7% gain per year or 1.7% greater than Sabrina’s number during an immense bubble.
(Note that a 1 year CD in 2006 was easily 4% and I’m liquid)
@Chuk
So for your case of 1990 – 2000 you rode the wave up and made out.
Now the market’s continuing to move down
2007 2,007 $285,000
2008 1,564 $261,000
2009 2,068 $215,000
2010 1,225 $183,000
2011 1,324 $162,000
so when you say
“chuk (November 21, 2011, 11:09 am)
“and a potentially declining asset”
and a potentially increasing asset”
from a strict rent vs own #’s question, why would you buy the asset (house) when the trend is moving down?
I love all the chatter…
My prediction is that we are mimicking Japan. The Nikkei hit it’s high in 1989 and ended it’s first lost decade at the end of the 90’s
The US’s lost decade was the 2000’s…..Home prices are currently deflating and will not rebound for a generation…if ever. Japan’s real estate hasn’t come close to recovering and it has been 20 years.
“Perhaps Sabrina can chime in with her stats, but I’m pretty sure it was something like over the long haul Chicago real estate prices go up maybe 2% p.a. which is basically flat considering CPI/inflation.”
In other words, over the long haul, you agree that it is not a declining asset.
“and of course you can cherry pick a property for 2003 – 2007 in terms of making money.”
No. You are the one cherry picking. You could have bought any time from 1950 to 2007.
“And its not really fair since you are cherry picking 2007 as a peak, but still I’ll play along.”
Who said anything about fair? I just said you have an asset that could “POTENTIALLY increase in price”. I didn’t say it will. I didn’t say it would beat the stock market. I didn’t say it would beat inflation. I didn’t say it wouldn’t go down.
Perhaps you need to revisit the comment you are referring to:
“and a potentially declining asset”
and I said:
“and a potentially increasing asset”
You are reading far too much into it.
“(Note that a 1 year CD in 2006 was easily 4% and I’m liquid)”
I like how the bears focus on leverage on the way down, but completely ignore it on the way up…
“from a strict rent vs own #’s question, why would you buy the asset (house) when the trend is moving down?”
1) You have to factor in future rent increases. When you buy you lock in your costs. The right way to do the analysis is to use the NYT rent vs. buy calculator.
2) Because it’s impossible to determine trends until you have a ton of data and then the trend only lasts until it stops. With the way prices have been flopping around (and going up recently) you can’t say the trend is down.
“Home prices are currently deflating and will not rebound for a generation…if ever”
Define “rebound”. I doubt we will ever top the bubble prices. That doesn’t mean prices won’t go up from some level for a generation.
“from a strict rent vs own #’s question, why would you buy the asset (house) when the trend is moving down?”
Do you remember 1989? The trend was way down then. Turned out to be a great time to buy. Do you think the people that sold in 2000 really cared if they bought in Jan 1989 or Dec 1989?
Let’s see:
If you are not beating inflation, then I consider it to be flat. You’re not making out because your $$$ doesn’t buy you any more than it did before.
And I’m using your example not mine: “doesn’t mean that someone didn’t buy in 2003 and sell in 2007 for a nice profit ”
Regardless we’re not having a personal email chit chat and CC is a public blog so I’ll just leave it at we disagree.
When you buy the only costs you lock in are principal and possibly interest component of the mortgage note. All other costs (taxes, hoa, insurance, energy, etc) are subject to fluctuate just like renters.
“My prediction is that we are mimicking Japan.”
um, no not even close
“My prediction is that we are mimicking Japan. The Nikkei hit it’s high in 1989 and ended it’s first lost decade at the end of the 90?s
The US’s lost decade was the 2000?s…..Home prices are currently deflating and will not rebound for a generation…if ever. Japan’s real estate hasn’t come close to recovering and it has been 20 years.”
The problem with this is, Japan has no population growth. It may be negative at this point. Not the same in the US.
“When you buy the only costs you lock in are principal and possibly interest component of the mortgage note. All other costs (taxes, hoa, insurance, energy, etc) are subject to fluctuate just like renters.”
Usually the interest component/opportunity cost of the equity is the biggest piece and utilities should be a wash whether you rent or own. Like I said it’s more complicated so you should use this tool: http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Is there anything interesting going on in the chukdc-chichow debate? On a v quick skim, having trouble identifying the core dispute between them.
I agree with Vlajos on Japan. We have population growth, which they don’t have. However, the biggest similarity is the old folk demographic. The US will look like a nursing home in a decade just like Japan does today and those old folks are going to suck a giant portion of the current consumption power away from the youngsters (who are also, in many cases, saddled with a mortgage sized student loan burden). In addition, the old folks are going to start unloading assets such as houses and stocks, which could also have big implications for youngsters buying those asset classes today.
Biggest difference I see is that our printing press is way bigger than Japan’s (hence the Yen is all the way up to the 70s versus the dollar) and the fear of the printing press plus super low interest rates prompted me to buy notwithstanding my continued bearishness regarding US asset prices for the foreseeable future. However, I do note that my brother in law got a 30 year mortgage in Japan in 2% range, so we may have yet to see the bottom even on interest rates, but as clio pointed out, not everyone wants to put their life on hold for years waiting for the bottom to be found. Who knows, some other bubble could come along any day now cause everyone to miss the bottom and put us back in 6 or 7% 30 year mortgage environment. If I knew the answers, I would be running a giant hedge fund and driving a Lambo rather than wishing I was as rich as clio.
“Is there anything interesting going on in the chukdc-chichow debate?”
No
“On a v quick skim, having trouble identifying the core dispute between them.”
I think house prices can go up or down, and he thinks they can go down or up.
My conclusion is that chuk’s infinitesimal distinctions cannot be seen by the human eye.
“Just need multiple devices, not multiple “logins””
not even that.
You all are a bunch of dumb gen-Xers who are still anchored to bubble pricing. Sub 200k 20yrs ago to 700k+ today shows what idiots you all are and how overleveraged our financial system to the point of insolvency. I can’t begin to properly elucidate how foolish most of you are and you have no idea why house prices were so low back then. I’ll give you credit monkeys a hint: in Chicago house prices had to be low to compensate for the increased expenses elsewhere & hardships of city living.
but think of the windfall the next generation will get when these geezers finally kick the bucket, they don’t have to pay for ANYTHING now and just save save save
PermaBear has it right re. macroeconomic fundamentals. He’s crystallized the problems this country faces. It’s actually a deflationary prognosis, or it would be if energy prices hadn’t quadrupled in the last decade, along with sharp rises in other commodity prices, due to strong dermand from China. The U.S. would do well to develop more of its own natural resources, which would create lots of jobs and keep commodity prices down.
“My conclusion is that chuk’s infinitesimal distinctions cannot be seen by the human eye.”
chichow : “and a potentially declining asset”
chuk: “and a potentially increasing asset”
The distinction seems pretty large to me.
You’re right, we are not turning japanese, we are turning into something far more horrific where the upper classes own a majority of the wealth, inflation through currency debasement, is rampant, and there us a permanent underclass living off the dole. The state exists with a formidable military to pursue the interests of the landed wealthy. Rome circa 350 AD.
Of course it does.
“The distinction seems pretty large to me.”
Of course it does.
“You’re right, we are not turning japanese, we are turning into something far more horrific where the upper classes own a majority of the wealth, inflation through currency debasement, is rampant, and there us a permanent underclass living off the dole”
jesus christ, man – stop already!!!! you are so miserable – how the hell can anyone stand to be around you?!!! enough – seriously, for your own sake, forget about money and problems and enjoy your family and what you have.
“You’re right, we are not turning japanese, we are turning into something far more horrific where the upper classes own a majority of the wealth, inflation through currency debasement, is rampant, and there us a permanent underclass living off the dole.”
Don’t worry HD. The same disparity of wealth happened in the 1920s and then the 1930s came. Look at the mansions that were built in the 1920s- many of which still stand today. Think of all the marble and craftsmen that were imported just to build those homes! But it took over 15 years to wind its way through the system.
What a lot of people don’t realize about the 1930s was that it wasn’t so much the Great Depression from 1929 to 1933 that wiped people out. It was what happened long afterwards- in the double dip of 1937-38. Stocks got hammered again. Housing wasn’t coming back (yet.) People who had hung on through the worst of it earlier in the decade could no longer hang on. That’s when, according to Wikipedia, the Wrigley’s abandoned that mansion on Lincoln Park that was just featured here a week ago. They didn’t leave it at the height of the Depression. It was years later.
Whoever was looking for a rental that could house a big family, I found it in today’s Sun Times. In beautiful south suburban Riverdale. a 5 BR house, only $1,500 a month! What more could you ask?
Yes sabrina, you are right. There is a guy named edgewaterjohn on the hbb who has been saying since about 07 that it will not be the depth of the recession that causes the most harm, but the length of time it lasts. Underwater homeowners are looking at 30 years to pay off their mortgage but I suppose a lot will throw in the towel long before then.
By the way- as far as the holiday schedule is concerned this week:
There will be NO posts on Thanksgiving.
But given that some of you will be working (and/or relaxing after doing your black friday shopping binge)- there WILL be posts on Friday. I will probably do a bunch of recent sales however- as I have some I haven’t had time to post yet.
“What a lot of people don’t realize about the 1930s was that it wasn’t so much the Great Depression from 1929 to 1933 that wiped people out. It was what happened long afterwards- in the double dip of 1937-38. Stocks got hammered again. Housing wasn’t coming back (yet.) People who had hung on through the worst of it earlier in the decade could no longer hang on. That’s when, according to Wikipedia, the Wrigley’s abandoned that mansion on Lincoln Park that was just featured here a week ago. They didn’t leave it at the height of the Depression. It was years later.”
People don’t realize that it wasn’t until the END of World War 2 that the Depression ended in 1945. The war prolonged it another 5 years, and there were years of rationing etc. during 1941-45. Some of the mega-mansions in the Hamptons didn’t get truly upgraded with modern HVAC etc. until the early 1980’s when corporate raiders had the new big money.
I have a grand prediction. Prices will eventually fall to the same level they were at when unemployment last hit 9%.
Adjusted for inflation of course. It’s funny to hear people talk about 1999 levels as if that should be a bottom, when the economy was better in 1999 than it had ever been, unemployment then was about 3%, interest rates low, stock high. For a real bottom we might be looking at 1982 prices people! For all the suckers and marks looking to “make money” by living in a house, reality will very sloooooowly sink in over the coming years.
1982, eh? Do a search for the “Case-Shiller 100-Year Chart” and you will see that the projected correction levels off at around 1997. But if you are right, the “standard house” in the US will cost $120k. Yeah baby.
“It’s actually a deflationary prognosis, or it would be if energy prices hadn’t quadrupled in the last decade, along with sharp rises in other commodity prices”
something about that sentence, Ze finds entertaining.
“For all the suckers and marks looking to “make money” by living in a house, reality will very sloooooowly sink in over the coming years.”
One might argue that the above sentiment best describes the holdouts, i.e., those who consider themselves to be deeply prudent, financially conservative real estate market observers, who are happily renting, awaiting the magical “bottom,” or whatever pricepoints or market conditions they feel signal that the time to buy has finally arrived.
Definitely Ze’s strangest, and possibly highest yielding investment of all time.
With pleasure, I once again get to bring up my previously mentioned semen tank. Less than a year ago, I realized one bull was so exceptionally more highly regarded than all others, sired ridiculously more expensive babies, led the rankings for 7 straight years, but oddly the price was no more expensive than many other bulls. Ze picked up a bunch of sperm for R$50 a dose. Well, Ze is now liquidating the farm so Ze goes to price out the semen for sale, and sees that last month this bull died. Now, R$500 a dose.
That is one heck of a return on sperm!
http://www.crvlagoa.com.br/meucarrinho.asp?Op=Add&idA=1187&TipoS=CONVENCIONAL
The 1999 figure comes from the case shiller chart which shows a very prounced change in the upwards trend around 1998 or 1999 nationally. What the bubble giveth, the bubble shall take away.
“One might argue that the above sentiment best describes the holdouts, i.e., those who consider themselves to be deeply prudent, financially conservative real estate market observers, who are happily renting, awaiting the magical “bottom,” or whatever pricepoints or market conditions they feel signal that the time to buy has finally arrived.”
The strategy has worked for me so far. When I first found cribchatter I was considering a 232k purchase in Vetro about 3.5 years ago. Now for a similar payment (due to lower i) I can get a 1/1.5 in Legacy. Booyakasha.
“The strategy has worked for me so far”
The key words being “so far”…… I could say the same thing about BUYING real estate in the 1990s/2000s. What is impressive is to know when to get back in the market…….. also, remember that if you sit on the sidelines you will always be safe, it may not always make you happy and definitely never make you rich.
What is impressive is to know when to get out of the market. Clio doesn’t know anything.
If we didn’t have people who took chances and went against the grain, there would be no progress. If the world were full of HDs and Gs, we would still be sitting in caves, eating berries and wondering when the (insert anything here) is going to improve. Risk takers do not get the credit they deserve. HD, you will always be “safe”, but, with your attitude and personality, you will never be rich (which is ok – just accept it, though).
Clio is just jealous that I have gotten so much right about the RE market, such as knowing when to get out. Clio never gets anything right.
Never said I wouldn’t be buying. It just so happens the properties within my reach are getting better.
On a related note one of my siblings recently bought a house. It was a foreclosure or short sale & she used an FHA loan to get it for ~1997 pricing. It was 65$/sqft & obviously its a cheaper city but it is nicer quality than the house she was renting & cheaper than that. She’ll be fine.
Now I have to spend more $ on her xmas gift as its also a housewarming gift…grr…back to drinkin natty ice for a bit.
I’m picturing everyone on this site sitting around in caves eating berries. HD’s cave is near a future expressway overpass and annoy has real unicorns running through his.
“If the world were full of HDs and Gs, we would still be sitting in caves, eating berries and wondering when the (insert anything here) is going to improve.”
the good news is that if prices keep going down for forever, i will be able to afford TWO houses!
“annoy has real unicorns”
Heh!
The house I’ve got my eye on will sell for $170 psf in a nicer middle, upper middle class suburb. Which is still pretty expensive but below the median but well above surrounding areas.
http://www.redfin.com/cities/6/chicago
Check this out for median ppsf of chicago suburbs (i know, i know, but it is what it is…)
And this for chicago neighborhoods and zips
http://www.redfin.com/neighborhoods/29470/IL/Chicago
basically if the median is in the high 100’s it is probably a nice area, some really nice areas break into the 200’s and the really really expensive areas are in the 300’s.
The green zone, the little sliver of land in the chicagoland area that it is, for the most part seems to have a high ppsf but a lower median price. That’s all the 1000 sf or larger 2/2’s selling for $200 psf or more.
“basically if the median is in the high 100?s it is probably a nice area, some really nice areas break into the 200?s and the really really expensive areas are in the 300?s.”
YOU ARE SO GOD DAMN STUPID!!! The medians in that worthless chart include condos (studios, etc.). Look at the median for oak brook – 475?!!! Are you kidding. You can’t buy a decent livable house for under 1 million. The cheapest house in OB (w/ OB schools) is 550k (and that is land value). Useless chart even made more useless by a moron
Clio –
you never get ANYTHING right. PRICE PER SQ FT.
Oak Brook Real Estate $475,450 $166 psf
So wait a minute, Oak Brook has a lower price per sq. ft than Park Ridge or Arlington Heights? HOW CAN THIS BE POSSIBLE!!!!
HD – YOU are the one who is the moron. Price psf is only useful when comparing condos in similar buildings – you CANNOT apply it to condos in different buildings or houses (where yards and property size also matters). YOU absolutely know nothing about real estate. Your biggest problem is that you have a modicum of analytical skills, a little intelligence but don’t have the proper training in analysis and aren’t smart enough to know how to apply it. I truly am not trying to insult you – but you bring it on yourself.
Individuals can look at macro data to find trends, to see if they’re getting a deal relative to the neighborhood, to see if they improve a home without pricing themselves out of the market. My foreclosure purchase shouldn’t impact my neighbors whom have similar units. The unit was orginally done with cheap finishes and a few terrible design flaws which made it seem unappealing. My unit sat on the market before I purchased it because people don’t want to deal with banks as sellers, have no vision for what a home can be with work/money, or simply don’t have the cash to make a home “theirs.” Now that it’s completed, I’ve actually raised the avg per sq ft price inmy neighborhood based on the bank’s appraisal. Granted, I’m not looking to sell so it’s not real change. A foreclosure has an actual impact only when its an exact or similar comp for a non-foreclosure (ie in a S Loop high rise, for example) One off foreclosures in desirable neighborhoods shouldn’t have the impact you’re indicating.
“My only point in this post is that looking a macro data for individuals is stupid. ”
If that is your “only point”, then you would believe that the distressed sales does not affect pricing in the real estate market, and yet it clearly does since you yourself purchased a foreclosure.
Looking at macro data (for individuals) is not stupid.
VA:F [1.9.11_1134]
LOL at clio trying to correct others when it is repeatedly shown that he doesn’t get anything right.
“Adjusted for inflation of course. It’s funny to hear people talk about 1999 levels as if that should be a bottom, when the economy was better in 1999 than it had ever been, unemployment then was about 3%, interest rates low, stock high. For a real bottom we might be looking at 1982 prices people!”
ftr, Jan-87 case-shiller + CPI = 106.73. Jan-00 cs + CPI = 131.49.
Based on non-rigorous review of pre-87 info, 82 prices were slightly below 87 prices in real terms. So, maybe dipping below c-s 100, but not too much.
“One might argue that the above sentiment best describes the holdouts, i.e., those who consider themselves to be deeply prudent, financially conservative real estate market observers, who are happily renting, awaiting the magical “bottom,” or whatever pricepoints or market conditions they feel signal that the time to buy has finally arrived.”
In one camp you have “prudent, financially conservative” and in another camp you have people leveraging up at high multiples into a cash flow negative asset, and thinking that being long RE just like 65-70% of the population is a way to “get rich”. haha It’s funny to watch bubbles deflate. ‘
If buying a house is your best idea for getting rich, you’re not getting rich.
November Chicago sfh/condo/th sales and median
1997 1,363 $125,500
1998 1,660 $142,995
1999 1,743 $155,000
2000 1,743 $175,000
2001 1,659 $185,000
2002 1,900 $209,900
2003 2,210 $230,950
2004 2,692 $255,650
2005 2,613 $274,900
2006 2,232 $282,542
2007 1,859 $289,900
2008 1,093 $222,500 16% (short/REO sales)
2009 1,905 $215,000 29% (short/REO sales)
2010 1,185 $180,000 39% (short/REO sales)
2011 1,379 $160,000 43% (short/REO sales)
November Chicago condo/th sales and median
2010 651 $225,000
2011 742 $189,900
Lake View November condo/th sales:
2004 178
2005 178
2006 115
2007 118
2008 67
2009 115
2010 58 12% (short/REO sales)
2011 63 19% (short/REO sales)
Lincoln Park November condo/th sales:
1988 70
1989 64
1990 44
1991 54
1992 69
1993 100
1994 68
1995 76
1996 65
1997 67
1998 85
1999 76
2000 83
2001 75
2002 70
2003 83
2004 94
2005 123
2006 91
2007 64
2008 30
2009 59 10% (short/REO sales)
2010 38 11% (short/REO sales)
2011 46 17% (short/REO sales)
Near North November condo/th sales:
1997 123
1998 131
1999 153
2000 166
2001 126
2002 209
2003 232
2004 368
2005 287
2006 230
2007 262
2008 94
2009 155 19% (short/REO sales)
2010 111 31% (short/REO sales)
2011 124 20% (short/REO sales)
Loop November condo/th sales:
2006 109
2007 108
2008 35
2009 62 13% (short/REO sales)
2010 40 23% (short/REO sales)
2011 48 44% (short/REO sales)
Near South November condo/th sales:
2005 42
2006 113
2007 154
2008 36
2009 66 12% (short/REO sales)
2010 22 23% (short/REO sales)
2011 30 40% (short/REO sales)
I’m glad to see the median return to 1999. I feel vindicated. I’m starting to think that 1996 is the new 1999.
“I’m glad to see the median return to 1999. I feel vindicated.”
I fell that you are being intentionally innumerate.
Thanks for the November sales info G (especially the part about the short/REO sales.)
It really tells you all you need to know that it is dramatically increasing in the GreenZone now- especially in the “neighborhoods” like LP and Lakeview that seemed to be going through the bust relatively unscathed as far as foreclosures. That is NOT the case anymore.
In fact, I was just commenting to someone that it suddenly seemed like 40% or 50% of the condo listings in Lakeview were short sales. I have no idea if that is true- but it seems like it is just based on looking at what is available. Of course, this is the low inventory period and the properties that are on the market right now are on the market for a reason (so not surprisingly, if you’re in distress, you’re on the market.)
This is a bad sign for the north side neighborhoods. Once the foreclosures/short sales start there really is no end to it until the entire building/neighborhood is in pain. Of course, for those buyers waiting on the sidelines, it means further price declines are coming.
I was playing around with redfin the other day and was absolutely floored to see the number and price of units for sale outside the green zone. I never really looked outside so even when people (Sabrina in particular) were talking about all this cheap inventory I didn’t fully appreciate it. When you get to the other side of 90/94 there are all kinds of green houses on the map, in a low price range, while there is next to nothing in the green zone. I’m sorry, that just can’t continue. I hope things melt down next year because I’ve got my down payment and want to get back to the city at the right price.
Yep. Plenty of things to buy in the outer neighborhoods (most of it coming WAY down in price now.) That still isn’t happening in the green zone- to the same extent. We’re starting to see a lot of pressure on prices of 1 and 2-bedroom condos. 3-bedroom units are holding up much better (for obvious reasons- as you might actually live there for more than 3 years.) Townhouses and SFHs are holding up much better as well for the same reason.
There is still more demand than there are properties for the “cheap” SFH or townhouse. That’s going to keep pressure on prices to stay elevated.
The median may be 1999 pricing right now, but what will it be in June/July 2012? Better or worse? This is getting ugly. Are the SFH sales following a similar trend in pricing, or is it like the rest of the country where the 1% is doing well, and everyone else is dropping/falling behind?
I think prices in many sections of the Green Zone were simply unsustainable due to not high enough household income for the number of owner occupied properties, and job losses, transfers, divorce, death, etc causing many properties to have to be put on the market. Luckily many owner occupied SFH properties were purchased more than 7-10 years ago, and they will survive. Condos are more transient overall and I would expect a lower average tenure of ownership than a SFH.
It’s interesting how a different environment and peoples different experiences frame a problem differently.
My wife is helping her brother-in-law look for an apartment right now. Between him and his wife their income is only about R$2k a month. Years ago they “bought” their apartment, which they just went to contract on @ 470k (this apartment would rent for about 2k). The bank will lend them 100k @ approx 11%. SO… had they not “owned”, they would have “zero” net worth and be paying their entire monthly net just for rent. They would be able to look for a place that cost about 100k, which does not exist outside of a slum. Prices here rose again 1.4% last month following 1.6% the preceding month, so now they are caught without a home in a rising marketplace, and are getting very stressed about getting knocked out of the market, if they don’t pull the trigger on something soon.
Monthly return on capital here is about .8 to .9 of a percent which makes their b/e on this about 7% home price appreciation. 6-7% inflation is a very comfortable level for people down here. Another year of 15-20% on homes, and they are pretty much out of the market.
“Prices here rose again 1.4% last month following 1.6% the preceding month, so now they are caught without a home in a rising marketplace, and are getting very stressed about getting knocked out of the market, if they don’t pull the trigger on something soon.
Monthly return on capital here is about .8 to .9 of a percent which makes their b/e on this about 7% home price appreciation. 6-7% inflation is a very comfortable level for people down here. Another year of 15-20% on homes, and they are pretty much out of the market.”
Ze- how is this sustainable then? Your wife’s in-laws seem to have done everything right and yet they can’t keep up. How can anyone else?
I’ve been meaning to ask you about the slowdown going on down there. Third quarter GDP was pretty shocking- as it suddenly went into the negative. That’s the first time for negative growth since the height of the recession. Brazil grew at 7.5% in 2010 and now may only grow at about 3% in 2011. 2012 is not looking much better. Granted, 3% isn’t awful- but it certainly is NOT supporting housing prices jumping 20% a year either.
I also saw that the government cut taxes on a bunch of “housing” related items (new refrigerators, stoves, w/ds). That’s a sign that demand is slowing dramatically for household goods. They’re trying to prop it up.
Have you noticed the slowdown? Evidently, no slowdown is noticable in housing (yet.)
Brazil is like most other latin turd world countries. The central bank will spur inflation to try to devalue their massive foreign debts eventually resultung in a currency crisis. Surprised you are unaware of this very common scenario ze.
What exports does Brazil even have?? Do mangos keep for that long on a boat lol
“Ze- how is this sustainable then? Your wife’s in-laws seem to have done everything right and yet they can’t keep up. How can anyone else?”
They can not. It makes little sense to me on a national level. They were just lucky enough to have been owners. Now instead of being broke, they have about a half million reais. Prices just posted .52 of % inflation for Nov or 6.64% for the past 12 months. This alone seems to support half of 1% of the monthly increase. Inflation is simply built into the system down here. If the real weakens it all makes sense. If the real gets stronger, well then things are even more in crazy land down here.
Truth is… last 2 months have been a complete waste of my time, so not up to speed as much. Domestically I don’t have a strong opinion at the moment. But what I see near me, in Rio, is actually a speeding up. Lots of strength. Almost every penthouse in the buildings near me have turned over in last 2 years and been re-done. Some very nicely. Lots of turnover. A great deal of new boutiques and restaurants as well. Entire new subway system going in. All the parks are being renovated. streets, water systems, police now everywhere – homicide was down about 17% last year (where I am, is completely contained and you can move around 24/7)…Don’t see this stopping for another 7 years (post Olympics).
“What exports does Brazil even have??”
If you think that. It explains large portions of why you are where you are, when you are.
“Surprised you are unaware of this very common scenario ze.”
Just lend indexed to their inflation rate + 5% (NTN-B 2015’s). If your monthly costs are pretty low, relative to your interest return on assets, what exactly do you want, Bob?