Market Conditions: Is Chicago the Worst Condo Market in the Nation?
Thanks to all those who pointed out the continued decline in the March Case Shiller condo index for Chicago.
RyanC posted the link below to a SeekingAlpha blog post, complete with a great chart, on how Chicago’s condo market has taken a turn for the worst.
A few months ago, Gary Lucido, our resident real estate agent and expert, believed the market had hit a bottom. And he seemed to be right, until the last few months of data.
The SeekingAlpha blog implies Chicago is “re-busting” (i.e. double dipping):
In fact, prices are now down over 12% on a year-over-year basis and 4.84% since just last month.
To put that startling pace of decline in perspective, the recent price drop would put anyone who purchased a home within the last 12 months with less than 12% down under water while also stripping all the equity from any “buyer” who closed in just the last 30 days with less than 5% down.
Chicago condo (and single family home prices) are continuing to decline while other cities in the index are seeing more stabilization (or, in some cases, price increases.)
Is Chicago’s condo market now the worst in the nation?
Chicago Condos Re-Busting: More March Case-Shiller Analysis [SeekingAlpha, by Sold at the Top, May 26, 2010]
It’s going to be a great time to be a buyer this coming winter. More apartment towers are going up (Flair Tower, Parc Huron, Alpha K) along with other new towers that aren’t even close to being filled (757 Orleans, Silver Tower, Museum Park, 235 Van Buren). Also, with this state doing anything possible to kill all private businesses, we can expect lower prices and rents in the months to come because job gains aren’t coming anytime soon.
As a person who has “owned” (whatever that means at this point) my own home or condo in California from the age of 22 till 39, I became a renter when I moved to Chicago. What I could not understand about this condo market is that condo rentals in this city usually just barely cover the owners taxes and HOA fees. No tax deduction or rebate can make up for the huge difference in costs if one were to add extra burden of monthly payments to a bank so that you could have the priviledge of painting the walls whatever color you want. The 5 year old condo tower I rent in just recently had WJE engineers complete a survey that will require each unit owner to cough up an extra $9,600 on average for new waterproofing, caulking, and other repairs, so my “landlord” or unit owner has paid on average $4,900 a month to own the unit I rent AFTER deducting the income from my monthly rental payments. (approx. $7,300 a month total). Prices in my building would have to drop another 40% MINIMUM for me to consider buying. I enjoy the same views, common areas, parking, and neighborhood as the “owners” for 1/4 the cost.
The worst in the nation because the over building/ over speculation was the worst in the nation- the product of a rather beautiful city, a desirable place to live and work (mike HG is a blowhard)and a lot of prime waterfront vacant property just ripe for development. Just add the mortgage fiasco and presto we have this situation. Perfect for the renter as Morgan said. I sold my home and now rent and enjoy saving the difference.
I think things will continue to drop as more people decide to choose to “strategic default.” There is also a huge lack of move-up buyers because those who are able to sell can afford to bring money to the table at closing.
Any sectors that are hiring in Chicago more today than the previous 18 months? We need a big surge in hiring and employment to help out the real estate market.
I don’t know if you guys were in Miami or Las Vegas circa 2005 but they were definately more overbuilt than Chicago. The reason condo prices are still falling here is because we didn’t decline as soon as some of these other markets. Without looking at the data, I remember Chicago lagging the so called bubble markets by 18-24 months in terms of the real declines starting.
MG is right, Chicago is lagging the other cities. The boom is back in Vegas, MIA, and Phoenix.
Bagholders are chomping at the bit to pay 4k a month to own a 2/2 in an American Investco building.
comes down to your personal expectations, your building and the area of the city just to name a few.
we bought recently fully expecting a flat to down market in coming year/two but think we’ve got a good chance of being even/ahead of where we’d be in 5 years had we rented. and we plan on staying put for 3-5 years easy so I think if you have that time line there are definitely opportunities out there although plenty more i’d stay clear of.
and if we’re wrong, we’ll survive. building is well managed, funded and highly occupied. not that concerned.
Something to keep in mind.
If a 400K unit drops to 300K, then it has lost 25% of its value. In order to regain that 100K in lost value, that same property must now appreciate 33%.
So, once value is lost it is very hard to regain it (the same goes for stocks). As this article points out, with prices still declining many recent buyers may quickly find themselves owing more than their condo is worth and it will not be as easy to gain (appreciate) it back.
Are we at a point where the thought on the street is that you better be prepared to remain in a property for 10 years, rather than the traditional 5 years?
good question, Dan…I think odds favor the shorter end of the range…
my main confidence comes from having the “expert” on the Depression, Ben “Helicopter” Bernanke, on the job and in my corner…and now with Janet “I’d go negative if I could” Yellen as his wingman, I don’t think anyone should underestimate the willingness of the Fed to do what it does best:
destroy the dollar.
Chicago overbuilt… simple as that. Way too many high rises claiming to be “luxury” condo buildings. I do expect a few of them to go back to being rentals – American Invsco.
Working on a deal in Museum Park. One of the towers is 40% rental!
There were also a ton of small condos built in questionable areas as well and I suspect many of those are having a big impact on the statistics.
Fraud and speculation was rampant as well.
I don’t think all is lost, but it is going to take some time to work through all the inventory. It is more important than ever to buy in a good location, good building, and plan for the long term.
I wouldn’t worry as much about buying now in a good neighborhood if you get a good “deal”
I would worry about over buying your budget in a marginally gentrified hood though, Logan Square area bordering Humbolt, the “Far” west loop, and south of 22nd st in the Sloop would be areas I would be worried about continuing to lose value as they aren’t the most desireable areas.
The suburbs and especially condos in the suburbs will get crushed over the next 5 or so years because who wants to live in a condo in elmhurst when you can have one in the city for nearly the same price
“What I could not understand about this condo market is that condo rentals in this city usually just barely cover the owners taxes and HOA fees.”
In some high rises that might be true (still a bit of a stretch I think) but in smaller buildings I don’t think that’s true at all. Our tax + HOA is under $500/mo and we each rented similar places in the same neighborhood for $1600/mo recently.
When we were shopping I compared list price/estimated annual rent for lots of properties and they were usually in the 12 to 14 range, which is at or below the long term average in Chicago and most of the country I believe. Just gotta make sure you don’t get nailed on assessments (or subtract assessments from your estimated rent to do the comparison)
Question for those more versed in CS methodology than I. How do first time sales (new construction) affect CS numbers? When I read the methodology a while back I thought it was based only on resales (or at least very heavily on resales). When the above referenced new high rises cut prices further to finally sell out, how will that affect the CS numbers? How have the past price cuts affected the CS so far?
Yes, guilty as charged! Now I’m saying we’re NEAR a bottom 🙂 Who woulda thunk – other than the rampant bears here? Condo prices are back to August 2001 levels! My long term chart with both the condo index and the SFH index and trendline is the first graph on this page: http://chicagohousingstats.com
From a personal standpoint, I’ve been renting since 2000 and I’m now making offers on some townhomes/SFHs that are distress sales because with a 7 year ARM at 4% it would actually be cheaper for me to own than rent. But if someone believes I can do better renting I’m all ears. I need 3000 sq ft.
Full 3000sq ft? Will 2600 due? Price range? Parking?
oh no. you sucked me back in.
wonder if i can block this site on my laptop…hmm…
DC, the unit I am renting has HOA fees of $975 a month and taxes of about 7,600 a year, so you are technically correct, my rent of 2,200 a month is slightly more than the owner’s taxes and fees. As I mentioned above, of course, the owner did not pay cash, so he still is making BIG payments on this unit he purchased near the top in 2005 and therefore is underwater. He bought the unit as a “investment” btw.
I will concede the point as it relates to high rises. I don’t think the negative of high assessments is appropriately discounted for very often.
High rises are a money pit. There are some nice benefits to them, but by in large, it seems you better off renting if you want a high rise in this market.
I prefer the walk ups with low assessments. It seems they hold their value better.
Hi DC –
In reference to your quote:
“Our tax + HOA is under $500/mo and we each rented similar places in the same neighborhood for $1600/mo recently.”
Which neighborhood are you in? I am curious to know. I’ve been looking at studios, 1 BRs and 2 BRs in Edgewater, Rogers Park and Albany Park in all types of buildings – vintage and high-rise, and all in the under 100K price range, and it’s not that easy to find something with monthly assessments and real estate taxes coming in under $500.
I’ve found that if they do, they are in some far-flung location in Rogers Park with gang activity nowhere near the El. Or the condo association has imploded. Or the owner is responsible for paying either electric or gas heat, which is expensive and adds to your monthly costs.
There’s always some sort of “catch” it seems…
Thank you.
As far as rates may accountant friend created an Excel spreadsheet to help compare a 30-year compared to a 7-year ARM for me. It is pretty cool. If anyone with a website wants to host it or if anyone is wants a copy email me at jimbobob at gmail. It really helped make me see how much you can save with a 7-year ARM. Not sure if it has any bugs in it but I didn’t notice any.
I am really curious what prices will be like this time next year. I ended up buying a SFH because between the tax credit and low interest rates I was able to get a turnkey 3000sf with a yard, two car garage, 3 blocks from the blue line (my door-to-door commute is under 30 mins) for under $2,300 a month with everything (taxes, mortgage, insurance – after putting 20% down). Maybe next year I could get the same thing for under $1,800 – who knows. But I bought thinking we would stay at least 10 years and we are very happy and we can well-afford it.
Chichow,
Yeah, need at least 3000 – maybe can get away with 2900 with the right layout. Want a 2 car garage. Willing to spend up to the upper 700s for the right place but the wife wants to stay south of the Eisenhower and east of Ashland. Kind of narrows it down a bit.
It seems that that live in a turnkey SFH anywhere in an area of the city where you won’t be shot, killed or burglarized on a regular basis, buyers generally needs to spend about $2,300 or more per month. 3,000 sq ft is sort of big, I imagine that’s probably probably including a finished basement too (maybe?). IMHO that’s a fairly high barrier to entry.
“I was able to get a turnkey 3000sf with a yard, two car garage, 3 blocks from the blue line (my door-to-door commute is under 30 mins) for under $2,300 a month with everything (taxes, mortgage, insurance – after putting 20% down). “
–I would worry about over buying your budget in a marginally gentrified hood though, Logan Square area bordering Humbolt, the “Far” west loop, and south of 22nd st in the Sloop would be areas I would be worried about continuing to lose value as they aren’t the most desireable areas.–
What do you think the right price point would be to begin regentrifing these areas including south of Chicago Ave and to Western Ave. 250-450 as oppossed to 400-650? Lot of empty duplexes over there. The area was making progress…I would hate to see all of it lost.
‘I imagine that’s probably probably including a finished basement too (maybe?).”
Yes, including a finished basement. But it has windows with a decent amount of light and 8.5ft ceilings so I count it ;p
@DC – The Case Shiller method specifically states that it does not consider new construction properties.
Additionally, and to the original poster, the Case Shiller method does not sample condominiums (nor co-ops, multi-units or any other property that cannot be identified as a single family).
This is specifically stated on page 5 of their methodology.
I don’t understand why commenters here aren’t “naming names”, in the interest of assisting those who read this blog for information.
“Morgan” talks about a condo tower he lives in with big assessments for structural problems. Which one?
“old hickory” is in a building he finds “well funded and well managed”. Which one?
“russ” says one tower in Museum Park is 40% rentals. Which one? What about the others? Where’s he buying then?
No reason not to name names, it helps us all!
“I don’t think anyone should underestimate the willingness of the Fed to do what it does best: destroy the dollar.”
All the various measures of core inflation show that the U.S. economy is currently experiencing DISINFLATION, which if it continues will eventually lead to DEFLATION. How is that destroying the Dollar? What we need is a more expansionary monetary policy to make the economy grow faster and bring the unemployment rate down.
IT’S THE JOBS, STUPID!
The Fed has already proven they are unable to manage the long-term health of the economy without being influenced by short-term moods and politicians. We don’t need an expansionary monetary policy–we need fiscal discipline in government and a neutral monetary policy from the Fed.
They need to contract the monetary base back to what it was in August of 2008.
“I don’t think anyone should underestimate the willingness of the Fed to do what it does best: destroy the dollar.”
Not if the ECB destroys the Euro faster. Yeay Greece.
We moved back into the Chicago market after selling our house in out of state at a small loss last spring. So far there is no compassion between renting and buying a condo in our ‘hood (E. Rogers Park.). We have 2300 square feet plus parking for $1700 a month in a building that was recently converted (all the condo details) but not sold as condos. There are similar properties for sale on our block for what would account to 1500 more a month for us with a good 20% down payment. It’s a no brainer at this point. . . Of course in our immediate neighborhood people are still trying to sell at 2006 prices.
There is real statistical data and unsold auction results that suggest that almost all properties in Chicago are being artificially priced by 50%. But there is also a limit to how low things can go before an investor buys the property. Some areas of Chicago are near the bottom, but more expensive areas are artificially maintained by Fed leveraging and bank artificial pricing. Both the fed and banks can maintain this artificial pricing only for so long. They may be able to do it til unemployment and credit gets better but if they let go the price will drop on the most expensive real estate. You can say the bottom is here and will be here for a while. As we have seen “the crash” keeps happening year after year with different results in different areas of the city. instead of one big crash we have multiple bottoms.