Market Conditions: Foreclosures up 78.9% in Lake Forest in First Half of 2010
Normally, we don’t chatter much about what is going on in the suburbs but someone sent me this article from the New York Times examining the increase in foreclosures in Lake Forest and I thought it was worthy of discussion about the upper end of the market, in general.
You know what they say- if it’s happening in Lake Forest- then what affluent neighborhood/city is “safe”?
From the New York Times Chicago News Cooperative:
“In the first half of 2010, the largest increases in new foreclosures occurred in the region’s middle- and higher-income communities,” according to a report this month by the Woodstock Institute, which tracks housing trends in the region.
DuPage County was hardest hit in the Chicago metropolitan area, with a 74.8 percent increase in new filings in the first six months of 2010; Lake County, home to Lake Forest, was second, with a 64.9 percent jump. But in Lake Forest, the increase in the number of foreclosures was a jarring 78.9 percent.
An examination of real estate transactions in Lake Forest through the end of July found that of the 127 houses sold this year, 18 of them, or 14 percent, were either in foreclosure or were transferred on so-called short sales — that is, when the selling price falls short of the amount owed on the mortgage.
As we saw in the recent Chicago Journal piece about the increase in foreclosures in the green zone areas while they are starting to die down in the harder hit subprime areas of the far west and south sides, so too have the foreclosures and distress sales started picking up in the more affluent areas outside of the city.
The numbers in Lake Forest are comparatively small — 34 foreclosures this year compared with 11,103 in Chicago, according to the institute’s tally — but the impact has been especially nerve-racking.
Two years ago, the words “foreclosure” and “short sale” did not exist in the local real estate lexicon, said Dick Christoph Jr., a Realtor with Coldwell Banker in Lake Forest.
How did this come to pass in Lake Forest, where people are not only wealthy, but also like to think of themselves as wise in the ways of money?
The culprits, real estate experts say, are interest-only and no-down-payment loans, which were popular with high earners who saw the housing bubble as a way to enhance their wealth.
From the mid-1990s until the bubble burst two years ago, it was virtually impossible to lose money in real estate in Lake Forest.
“You’d ask someone how they were doing, and they’d say, ‘Oh, I made $100,000, $200,000 this year, but my house went up $200,000,’ ” Mr. Christoph said. “So they started spending like they were earning $400,000 a year. In reality, they were living above their means.”
But some real estate agents, including Mr. Christoph, are advising underwater sellers to consider a walk-away. “The banks will hate me for saying this,” Mr. Christoph said, “but if you can’t ride it out and you’re going to be caught in a short sale, quite frankly it makes sense to stop paying the mortgage.”
“A lot of people just got caught up in this thing,” he added. “They’re not bad people; it’s not a deadbeat scenario. You have to protect yourself and move on.”
The article describes how some homes on Lake Michigan which would have sold for $10 to $11 million previously are now being “whispered” about being for sale for $4 million to $5 million.
If these kind of reductions are happening in Lake Forest, what does this mean for Chicago’s high end market?
Far from poor, real estate woes nip at Lake Forest [New York Times Chicago News Cooperative, Tom Hundley, August 7, 2010]
does this mean I can buy a mansion for 100k in L.F.? This is such a ridiculous misinterpretation of data, I don’t even know where to begin. In true numbers – the 78% increase equates to an increase of about 15 foreclosures in Lake Forest this year. The media really needs to stop the fear-mongering and sensationalization. They are confusing the typical buyer and making things worse in the market (creating unrealistic expectations for buyers).
lol so they went from 10 forclosures sold to around 18 forclosures sold… WOW
talk about fudging numbers to make them sound shocking
“the 78% increase equates to an increase of about 15 foreclosures in Lake Forest this year.”
And the first half of last year was artificially suppressed by the foreclosure moratorium. Completely useless “stat”.
Useless stat but I think the point they are trying to make has more than a small bit of truth to it.
The WSJ ran a piece like this on Kenilworth a year ago. It’s always interesting to see such “gilted” places experiencing some bad news, however misguided the analysis is.
The reality is the suburbs have completed decoupled from Chicago real estate. There are lots of reasons for this, all well noted in previous posts, but the bottom line is LF real estate is no harbinger of high end city real estate. If anything, its issues are driven, in part, by older families migrating to the city.
In addition, there are fewer young families able and willing to move there, which will put more downward pressure on prices. The wealthy suburbs lagged the city in terms of foreclosures, but only because they had more financial resources at their disposal. Many have lost their jobs and/or seen significant declines in income. More to come.
thoughts on this?
I’ve wondered if traditionally the Lake Forests of the world used to be overwhelmingly comprised of both old money and the sharper/wealthier new money types. The types of people that could afford and desire to get into the community weren’t the types that were going to be taking financial risks that could break them.
Fast forward to the end of the 90s and early 00s and there was a lot of wealth created for people that had no experience or business having it. It would follow that these are the LF types who are now running into problems.
Or, it could just be that the finance world was rocked in ’08 and a bunch of execs lost jobs or took massive pay cuts and it’s now trickling down to LF. I would think that the doctors/lawyers/old money of LF shouldn’t really be having problems.
“I would think that the doctors/lawyers/old money of LF shouldn’t really be having problems.”
You are right – the vast majority of folk living in these nice areas are doing just fine w/no risk of foreclosure, etc. The people in trouble are those, like you describe, who wanted to “buy in” w/o the considerable assets or sustainable income to accompany it.
I would love to see a statistic on incomes of individuals over $300,000 in the Chicago metro area in 2007, with a case-schiller like analysis showing their change to 2010. Would there be growth? Also, same analysis for the $175,000-250,000 segment.
“I would love to see a statistic on incomes of individuals over $300,000 in the Chicago metro area in 2007, with a case-schiller like analysis showing their change to 2010. Would there be growth? Also, same analysis for the $175,000-250,000 segment.”
I think accuracy would be severely lacking!!!
“thoughts on this?”
Currently for sale in Lake Forest:
24 condos under $350k. 48 under $750k.
11 SFH under $350k. About 100 under $750k.
Proposition: the increase in foreclosures *may* be in the not-fancy part of Lake Forest.
““I would love to see a statistic on incomes of individuals over $300,000 in the Chicago metro area in 2007, with a case-schiller like analysis showing their change to 2010. Would there be growth? Also, same analysis for the $175,000-250,000 segment.”
I think accuracy would be severely lacking!!!”
b/c many of them have meaningful non-reported income? b/c I think that, were one to have open access to 1040s, you could get really good, accurate info on that.
” the increase in foreclosures *may* be in the not-fancy part of Lake Forest.”
of course that is the case (as it is in most areas)!!! the problem is that buyers come in thinking they can move into the nicer areas/buildings and get the same prices. There just are not that many distressed nicer homes in nicer suburbs/buildings. The few distressed properties in the nicer areas either get snatched up fast or are still not that great of a bargain!!
Volume in the North Shore is being driven by large price cuts rather than foreclosures. Foreclosures may make up 35% of sales in Cook County, but certainly not in Winnetka or Lake Forest When sellers make 15-20% price cuts, there is ample demand for the homes and bidding wars often ensue. Many of these sellers have lived in the homes for years and have no debt, or minimal debt. Its just a function if they want to place a “market” sell order or not. Many of the 2006 vintage buyers that do have more considerable debt do not want or need to sell at a loss. These are not 2/2 condos, they are homes people plan on living in for 20 years, and the majority have liquid reserves to whether a bad economy. But there is starting to be more capitulation by the motivated sellers to meet demand, often in the form of large price cuts, which generally work very well.
You would think that people trying to sell their personal residence WOULD lower asking prices. After all, the losses they take on their current house will make up for the low price they pay for their new house. In addition, there may be tax advantages to these losses.
Hey Sabrina. That was my tip.
I agree that the 78.9% statistic is pretty misleading, considering the actual numbers.
It’s almost like the Chicago News Cooperative is serving up red meat to the rest of us slobs. The prols want to see rich people suffer too. It’s the job of a good journalist to stir up a little class resentment, jealousy, shadenfreude, etc. Keeps things interesting.
MG with some knowledge about my hood.
I would echo his analysis, however, I would also say people who list their places on the North Shore definitely want to move in a timely fashion. Things like school calendars are taken very seriously up there. I know people who have sold at a discounted price just to be able to move and get kids settled in the new district before school. For a lot of families, the kids are everything.
When I first bought our present home, I thought I was an outlier for having a mortgage, etc. This was before the days of CCRD online of course. I came to realize most people have only modest wealth and that a fair number of folks up there are simply high income, not high wealth. Maybe the 50+ set, but the 30-40 something families are spending a lot to keep up with the action and the home is part of that.
I think the biggest difference is the incomes. With a 300k-500k annual income, you can take the hit and save it back, whereas household equity for an upper middle class family (100k ish) is much larger piece of the overall nest egg.
Lastly, in certain neighborhoods there is a snob perspective to pricing. Realtors perpetuate that to a degree I’ve found. East Winnetka, Kenilworth, East Lake Forest, etc. The house *should* be worth a certain amount for the privilege of living there. Unfortunately, we’re back to intrinsic value and with an aging housing stock those prices are only going one way.
The difference between a new construction SFH in LP or LV versus a renovated home in Winnetka is staggering. The aging stock up there will be a source of downward pricing pressure for decades to come I think.
“After all, the losses they take on their current house will make up for the low price they pay for their new house. In addition, there may be tax advantages to these losses.”
You’re a pretty terrible realtor if you don’t know about 1031 exchanges
“The difference between a new construction SFH in LP or LV versus a renovated home in Winnetka is staggering.”
Can you elaborate?
So wait, JMM, you’re saying that there is a difference between a new construction home and a 100 year renovated home? I don’t believe it, how can that be true? You’re blowing my mind here.
“The difference between a new construction SFH in LP or LV versus a renovated home in Winnetka is staggering.”
In my experience and opinion, renovations in Wilmette, Winnetka, Kenilworth, Glencoem etc. rarely equal the quality of new builds in the city. Unless it is an absolute gut, which you do not see many of and are as expensive as new construction, significant compromises are made. New construction is rare given the market and local ordinaces are very restrictive on what can be done in certain towns.
Even with a full gut, room sizes are infrequently changed and the bathrooms (think 2 baths for a 6 bedroom house, for example) are almost always a problem and mismatched for current family lifestyles. The concept of a master bath and suite is completely absent in most layouts. Ensuite baths are rare. Basements are another issue — low ceiling heights not to mention a lack of a sump, ejector and/or drain tile system mean full buildouts downstairs are impractical. Sewer issues and water table issues in that area create additional problems. Windows are rarely redone and are often deficient and/or antiquated in the lead glass plus storm window configuration. Good luck with a slate roof that is 80-100 years old. The 100 year stucco can be a real issue on the exterior as well.
Lots of these homes are beautiful on the outside but a mess once you open up the walls. Interior living spaces are spruced up and modernized, but the overall “quality” is not there from a modern element and system perspective.
HD —
In fact there is a popular view that a properly renovated home is better than new construction, but given the issues highlighted that is not the case. If the quality was as good, no issue, but again that is often not the case, largely because of the cost.
Some people do not mind older layouts, but most families I know would prefer a modern approach to living.
“In fact there is a popular view that a properly renovated home is better than new construction, but given the issues highlighted that is not the case. If the quality was as good, no issue, but again that is often not the case, largely because of the cost. ”
Concur. *very* easy to spend $100psf (or much more) for reno that involves any structural/foundation work.
Gee, why didn’t they do the stories on Highland Park and Glencoe? I’m sure the editors wouldn’t embarrass “those” suburbs but don’t mind dumping on WASPs.
“The WSJ ran a piece like this on Kenilworth a year ago.”
“You’re a pretty terrible realtor if you don’t know about 1031 exchanges”
1. I’m not a realtor
2. 1031 exchanges are really only good for INVESTMENT properties in delaying recpaturing depreciation and avoiding capital gains taxes on profit. I was talking about people selling of their PERSONAL residence.
3. Also, if you are taking a loss on a property, why would you want to delay your tax write-off.
I have been reading the Chicago New Cooperative stories pretty regularly and think across the board the reporting is just ridiculous on arts, health care, real estate, politics, you name it. I had such high hopes when it first started but now think it’s the final nail in the NYTimes coffin; I’m canceling my subscription.
“I’m sure the editors wouldn’t embarrass “those” suburbs but don’t mind dumping on WASPs.”
Funny but I think it is more that KW’s income statistics are so high that it is an easy target (just like Lake Forest has a reputation, but no one would know to knock on say Bannockburn). This is obviously because KW is a small little pocket right on the lake. If you took the same pocket out of Glencoe or HP and incorporated it into a town, that too would rank as one of the highest median income cities in the U.S.
3. Also, if you are taking a loss on a property, why would you want to delay your tax write-off
I’d suspect that income tax rates for top earners are going to rise in next few years. Delaying a write-off for a moment, say a year or two, might be worth the wait.
Also some earners might want to wait as they will have large increases coming from the sale of a business or a large bonus payout that will hit in the following year. One of my employees is set to grab a substantial bonus for his efforts in 2010. It will be paid in February. The bonus is not insane but it will dramatically improve his income in 2011 over 2010. I’d suspect that this happens frequently enough to warrant a delay for a few individuals.
BTW as long as there are people having children who are living in the city or in less affluent suburbs there will be some that want to move on up and “flaunt their perceived success.” Because of that factor and the great schools there will always be demand for the North Shore. It might not rise dramatically but there will always be a premium for that area over other burbs.
Most homes go through some type of change in the first two years of a new owner and not all will need full gut rehabs. Some will need updating to meet todays lifestyles other owners will learn to adapt to the home.
Where are all the chatters that were hating on the new construction cinder block homes in LV LP and BT in this thread? They predicted that those would all be gone in 30 – 40 years. To be fair I’d suspect that some of the North shore homes will also come down due to un-expandable layouts, poor construction, or poor maintenance. That is evolution and has been happening for decades!
In my opinion most of the foreclosures in areas like Lake Forest are in fact due to owners walking away through choice rather than force. They don’t see why they should pay the mortgage on the $11mil they borrowed when the house isn’t going to sell for more than $5mil any time soon, so they walk away and buy a new home, getting way more bang for their buck than they were getting and paying half as much for it. The stigma has gone from foreclosure, and attached itself to staying in a home that you’re paying too much for when you don’t have to.
“In my opinion most of the foreclosures in areas like Lake Forest are in fact due to owners walking away through choice rather than force. They don’t see why they should pay the mortgage on the $11mil they borrowed”
Even if ALL of the houses that had $5mm mortgages on them in Lake Forest had been foreclosed, that would not be enough to be “most” of the 2010 f/c in Lake Forest.
“In my opinion most of the foreclosures in areas like Lake Forest are in fact due to owners walking away through choice rather than force.”
Isn’t Illinois a recourse state technically (if not in practice, at least in the past)? Is it really that infeasible to pursue someone if you have millions at stake and they have hard assets? Is there caselaw that makes this difficult or just the effort to pursue?
It is a recourse state but chancery courts here rarely grant this on a first mortgage.
^^
In today’s environment riddled with class envy I could see their attitude changing on these $1MM+ properties. Especially on $5MM-$11MM properties.
The voter base may demand the courts enforce the law and pursue defaults on these high end properties. I bet many of those people have the assets behind them to make the bank whole in any case like Jennifer said.
“It is a recourse state but chancery courts here rarely grant this on a first mortgage.”
Is this true in cases where the homeowners can be shown to clearly have money to pay? Or has it never really come up in the past?