Market Conditions: Condos, Condos, Everywhere
The Tribune’s real estate reporter Mary Umberger finally tackled the incredible condo glut in Chicago and the surrounding suburbs in Sunday’s ChicagoHomes.
Alan Yunek is convinced he snagged a bargain.
After spending two years methodically checking out an estimated 75 properties, he closed on a two-bedroom, two-bath condominium on the city’s South Side in July.
He knew the price was right.
But what sealed the deal was when the developer at McKinley Park Lofts threw in a second parking spot.
“That was pretty much the grabber,” said Yunek, an electrician. “I am ecstatic.”
One down, about 37,000 more to go.
At least that many condos and townhouses were on the market in the greater Chicago area Sept. 1, according to Chip Wagner, a Naperville appraiser, who said there undoubtedly are more because many developers don’t list all their for-sale properties in MRED, the regional real estate industry’s database.
The article has a nice table listing out the pipeline of proposed condo developments (as of July) from the Appraisal Research Counselors. It totals 16,024 condo units. Here’s the details by neighborhood:
- West Loop: 2,944 units
- Streeterville: 1,000
- South Loop: 8,479
- River North: 885
- Near North: 1,096
- Loop/Lakeshore East: 1,080
- Gold Coast: 540
“Price is key,” said Gail Lissner, vice president of Appraisal Research Counselors in Chicago, who studies the downtown housing market. “And then any type of incentive they can come up with that makes [a unit] more enticing or affordable.”
Wade through the sea of for-sale condo ads, and the variety is hard to miss: Closing costs, a year of assessments or a time share in any number of exotic locales. Offers of plasma screen TVs have become almost common, joined by free motor scooters and Rolex watches.
Incentives are nearly the norm in new-construction condos, according to Lissner and others.
But what about those people trying to sell their own condos (and not necessarily new construction)? These sellers are competing with the incentives from the developers.
“If buyers aren’t out there in the market in the first place, it’s hard to grab their attention,” she said.
Tell Kathy and Billy Litgen about it. They listed their Ravenswood Manor condo in February, with little response. Having purchased another home, they moved and now juggle two mortgages.
Real estate agent Christopher Motal recently took over the listing. Describing the vintage, three-bedroom, duplexed unit as “overpriced and empty,” he got them to cut the price and brought in a stager to partly furnish it.
That seems to have had some benefit, Kathy said. “People are staying longer, asking questions,” she said. “And twice, people came back for a second viewing.”
But still, she said, it’s slow. And she’s clearly frustrated.
“We loved it so much when we bought it in 2003; we were so happy there,” she said. “It’s hard to believe that other people don’t like it as much as we did.”
Condo/townhouse inventory in Chicago is 15,000 units– about an 8-month supply.
In the downtown, Gail Lissner with Appraisal Research Counselors, said that condos numbered fewer than 50,000 in 1990, and number 98,000 today. By 2010 there will be 110,000.
But some developers are still able to move product.
Developer Bob Horner said his company, Winthrop Properties, has sold an average of a unit a week at Printers Corner, an 88-unit building in the South Loop.
He theorizes that’s because the building has been completed and buyers have something tangible to size up, as opposed to buying from blueprints.
“Most buyers out there today have a relatively urgent need to buy,” he said. “People have a good sense of what they’re getting.”
And, he said, his clients are mostly first-time buyers, a demographic that’s highly desirable because they have no existing condo to sell before they can buy again.
How soon will the market in Chicago recover?
Lissner looks at 2010 for the downtown.
“We’ll see a record number of units completing construction in 2008 and 2009, and very little that will be completed in 2010, so we’ll be using up this excess inventory,” she said.
Developer Horner is looking at early next year.
“I have a theory and an optimism that once we get through the election—whoever wins—there will be more of a sense of certainty than we have been living with for a year and a half,” he said.
And the silver lining? The pent-up demand from buyers who are stuck on the fence, said Horner.
“There’s only so much you can delay before you have to decide,” he said.
Glut Reaction [Chicago Tribune, Sep 14, 2008]
And the silver lining? The pent-up demand from buyers who are stuck on the fence, said Horner.
Not this again. In the past 7 years, ANYONE that wanted to buy was given as much money as the wanted to go buy a place. ANYONE. To think that there is pent-up demand for condos is delusional.
What we have are too many condos too fast. They will all be purchased eventually, but there will always be too many as long as you build them faster than you sell them.
Maybe he was refering to “sellers?”
“There’s only so much you can delay before you have to decide,” he said.
Look at the picture on page 5 of the print edition. There’s a picture of fat ass Mr. Yunek standing in a parking space and his oversized Lincoln Navigator taking up the entire second space. I’ll tell you right now, if this guy is an electrician (in this market?), and he looks like that, and he drives a behemoth of a gas guzzling vehicle, and now he’s buying condos as well, you can make your own decisions about the financial sense of this guy. I’ll you though, the Trib was scraping the bottom of the barrel to find buyers for their story.
Yeah, and the guy spent 2 years looking at 75 places. He either needs a life or a good agent.
From Lucid Realty (commenting on the Trib’s article) WHAT A JOKE!!!!!
1) Alan Yunek probably feels pretty good about spending 2 years looking at 75 different units, but if he had worked with an agent he could have saved himself a lot of time
2) Why are people buying new places before listing their current homes? They should first spend some time becoming familiar with the market, then list their place, then go back to looking, and only buy after they have sold their current place. You can buy much faster than you can sell.
3) The media needs to stop reporting these useless median price trends. They don’t tell which way prices are heading. They are influenced by the mix of units sold.
I love the rationale the sellers who are stuck use when their property doesn’t sell. Its NEVER the price but always “It’s hard to believe that other people don’t like it as much as we did.” I guess statements like this just reinforce the fact that most buyers in the boom had no financial sense (and still don’t).
The only people who believe that buyers have an urgent need to buy or that there is this huge pent-up demand are those who have real estate to sell.
“We loved it so much when we bought it in 2003; we were so happy there,” she said. “It’s hard to believe that other people don’t like it as much as we did.”
Maybe others would like it as much as you did if you offered it at the 2003 price.
Interesting thing on the Ravenswood Manor property, it’s currently listed at $260K. The prior sale in 2003 was $250K, so they are not asking much above the 2003 price. And still having trouble selling, apparently (although I don’t know how long they have been at the current price).
I never quite understood why people thought it was OK to pay hundreds of thousands of dollars for a glorified apartment. I mean seriously, the PITI + HOA on the condo is probably well over $2,000 a month but a comparable rent would be $1,200 or so. The only difference between the two is granite countertops and newer drywall.
homedelete, I could not agree more. I see this all the time. This only made sense when prices were appreciating at 10%+ annually. Once the money train left the station for the last time, buying in most urban areas made no sense at all. I too am waiting for prices to come down to the point that there is some real financial advantage to buying as opposed to renting for less. It’s nice to be able to save some cash rather than being a debt slave.
Homedelete – Why are you so vitriolic in your disgust for a man who you don’t know? Is calling this man a “fat ass” necessary to your assessment of his decision to buy a home? How does your gratuitous insult add to your financial analysis?
“Homedelete – Why are you so vitriolic in your disgust for a man who you don’t know? Is calling this man a “fat ass” necessary to your assessment of his decision to buy a home? How does your gratuitous insult add to your financial analysis?”
A picture is worth a thousand words….From the picture I see this guy consumes twice as much food as my entire family, he has a car that uses probably three times as much gas as both cars in my household, he needs not one but two parking spaces and the guy looks like a complete gangbanger.
And on top of that the guy pays $255,000.00 for a two bedroom new construction condo in McKinley Park. He’s the beacon of hope for the housing industry. The knifecatcher of today and tomorrow.
YUP! Sunshine just around the corner folks! Nevermind that today was the biggest stock market drop since the 9/11 attacks. NOPE EVERYTHING IS ROSES.
PLEASE BUY FROM ME. You know, before the price increase comes!
Where’s that Deacon Blue guy when we need him…to assure us everything’s gonna be fine?
The housing market is going to turn around soon and you’ll have missed out on this limited opportunity. So, you better act now!
Somehow, borrowing money to buy a declining asset looks less attractive now…LOL
Let’s try and keep discussion of the people in the article out of the discussion. It’s not relevant what kind of car they drive.
“It’s not relevant what kind of car they drive.”
I’d argue with that particular point, but the more general point is absolutely correct. The people involved (even if “outed” by the Trib) should be kept out of it. However, their cars (and jobs — see the paralegal condo owner months ago) can indicate a lot about what is wrong with this market.
That said, this owner’s fancy gas guzzler is not currently causing a problem. Remember it if gas goes to $10 and he enters foreclosure next year, however.
“Let’s try and keep discussion of the people in the article out of the discussion. ”
Ok.
I’m not saying that discussion about people in these articles who bought a new house without selling the first or who seem to have a profession that would not allow them to afford their home etc. should not be discussed.
But the kind of car they drive, what they look like, etc. isn’t relevant to what is happening in the housing market. If someone wants to drive a gas guzzler- then that’s their choice. Of course, consumer choices can impact housing as we’ve seen (with some people no longer able to afford both car payments AND housing payments.) But that wasn’t the point of this article.
In all fairness, when people on this site discuss “rental” vs “purchase”, I wish they were referring to an “apples to apples” comparison of like housing products when discussing pricing differential between condo and apartment. Not all rentals are condos converted to rentals by individual speculator-owners. Many Chicago rentals, excluding purpose-built new condo construction (not gut rehabs) units, don’t begin to compare w/condo-quality construction. Newer units that were originally built as rental housing are small, cheaply finished, and inferior to purpose-built condos, much less SF units. But let’s remember that most of Chicago’s rental housing stock is contained in much older MF units, in 2-flats, 3-flats, 6-flats, courtyard buildings, and in other older buildings that failed to be converted during the Housing Boom. Many of these units are in poor condition, worn, clumsily remodelled (if at all), and NOT COMPARABLE TO CONDO UNITS.
When we were looking in lakefront neighborhoods for a 3-flat to buy, I was dismayed by the generally poor condition of buildings and their units. We were looking in trendy neighborhoods that were appealing to yuppies like us, with strong rent histories. Yet walls, kitchens, bathrooms, floors, ceilings, etc. were all often appalling bad, both aesthetically and in condition of finishes. A lot of rental housing in Chicago is depressingly bad.
People buy to have some degree of control over their home, some degree of “design quality” regarding their home’s interior finishes, and some degree of allowed personalization of that home. Dirty paint, chipped cabinets, 15-year old appliances, odd carpet, scratched floors, holes in the walls/ceilings, poor heating, no air conditioning, bad landlords, bad tenant neighbors, etc… it’s no wonder that people want to buy their home.
Huh? Most condos discussed here have rent comps available for a similar unit in the same building, if not for the unit itself. It couldn’t be more of an “apples to apples” comparison. Where there are condos, there are condos for rent.
abc and G are both right. There are a lot of dumpy rentals and there are a lot of nice condos. Apartment rentals generally are of lower quality and condos rentals are generally of higher quality. Condos generally rent for a slight premium over standard apartments.
However, people on this board are lamenting the difference between the condo rental price and the condo owning price i.e. the difference between rent and a mortgage for the same unit. It’s much cheaper to rent than to own.
If someone voluntarily agrees to be in a news story, they are fair game. Although one of the comments probably crossed the line into being personal (the weight comment), the vehicle comments are fine.
When I was pondering a move out of Lincoln Park a couple of months ago I spent several alternately depressing and exciting days looking at rentals on the north side. I quickly learned to avoid all ads that smelled of desperate owners trying to cover their nut. (In person screwed buyers are easy to spot by their haunted eyes, extra jovial manner, and an overall moist appearance caused by being underwater for two years.)
I only looked at vintage buildings and it was a little sad to see the number of crappy conversions and ham-fisted, penny ante rehabs: kitchens “opened up” and “Home Depot specials” (granite countertops and dark 42″ cabinets) dropped in. Details and interest stripped away and replaced by…nothing, really.
The dealbreaker on rental condos is really twofold. One, the owner goes into foreclosure and doesn’t tell you, and you have the sheriff knocking on your door telling you to get your stuff and get out. Two, an HOA board composed of a dozen absentee landlords is just a recipe for chaos and decay. Many of the condo conversions of recent years will eventually find their way back to single ownership, I think, but it may take decades. Thanks for the high times, Alan Greenspan, you couldn’t-make-it-as-a-musician homunculus.
Somebody just brought to my attention other kinds of mortgages that will be affected by the financial turmoil: ARMs.
A lot of ARMs are tied to LIBOR. The LIBOR rate jumped from 3.11% last week to 6.44% this week, an unprecedented leap.
If LIBOR doesn’t come down to near its older level, there are going to be a lot of ARMs resetting who are going to get hit with crazy rates. People with prepayment penalties may have no choice but to send in the keys.
Sorry Bob,
LIBOR (london interbank offering rate) sets to reflect borrowing of different maturities. The rate you quoted is the overnight rate which was severely impacted by the Lehman bankruptcy. The 3M setting was at 2.87 this morning. That said, expect rates to rise though as the Federal Reserve is focused on taming inflation oil prices not withstanding. The party is over for credit – banks balance sheets are severely impaired and there is no mortgage securitisation mechanism. Expect mortgage rates to be here or higher for the foreseeable future.