Market Conditions: Is It Now “Cool” to Rent Instead of Buying?
The Chicago Tribune had an article on Sunday about the new luxury downtown rental buildings and how hot they are with prospective tenants, despite an unemployment rate over 10% in the city of Chicago and sky high rental prices including studios for $1500 and 1-bedrooms for $2000 a month.
Unlike the suffering condo market, the rental market downtown is hot, and observers say the newest projects — which carry eye-popping rents that top out at $5,000 a month — should be more than 90 percent leased in the next 12 to 15 months.
“We were building right through the recession which wasn’t so great but we opened up at the beginning of a fundamental economic recovery in Chicago,” said longtime developer Steven Fifield. “Is there a huge recovery, no. But there are fewer people buying condos and more people renting.”
Leasing agents currently offer the typical one to two months of free rent associated with new buildings, but those concessions are fading as certain floors or units rent. While they sell the sizzle of condo-quality kitchens and baths, eco-friendly design, party rooms and personal trainers, building developers and managers also are looking ahead to rent increases. Without construction in the pipeline, the market expects significant market-rate increases by spring 2012.
“I think the landlords are starting to regain control,” said Lauren Dolan, manager of Flair Tower, 222 W. Erie St. “A year ago, some properties were waiving three months’ rent or throwing in all utilities. We’re pulling away from that now.”
Prospective renters also appear to have once been prospective condo buyers but the downturn in the condo market is actually making renting appear more attractive as its easy to move in and easy to move out at a moment’s notice.
When he decided to make a move this spring from Schaumburg to Chicago, Andrew Connell never considered buying a condo. Instead, he signed a two-year lease for a two-bedroom, two-bathroom unit at 215 W. Washington St., where he pays more than $2,000 monthly.
One downside is the outdoor swimming pool doesn’t get much direct sunlight. But that pales in comparison to what some of his friends are enduring. “I’ve got a few friends who’ve bought places and now they’re stuck because they can’t sell,” he said.
It also appears that River North and the Loop amenities are pulling people away from the popular near North Side neighborhoods.
Remember when it was big news that people were moving into the loop? Now, an apartment building opens, and no one even notices.
When she was transferred by her company from southern Florida to Chicago in March, Kentucky native Lindsay Larsen had two days to find an apartment. She eschewed neighborhoods like Lincoln Park and Lakeview, and toured a dozen buildings in the Gold Coast and River North before settling on a $1,480, 550-square-foot convertible on Flair Tower’s eighth floor.
“I wanted to be downtown by the young professionals and all around the action,” Larsen said. “There’s monthly events, wine nights. In the winter, everyone hibernates. It’s nice to know you’ve got a party room, flat-screen TVs, a pool table. That was a huge selling point for me.”
Will this housing downturn make renters out of a whole generation of possible condo buyers who will then bypass condos to go directly into buying their first house?
Downtown Chicago rental market soaring [Chicago Tribune,
The benefits of renting seem to be overshadowing the decreasing benefits of home ownership. Renting gives you a LOT of freedom: freedom to leave whenever you want, freedom to negotiate rents, freedom to NOT deal with any problems with the house/condo/apt, freedom NOT to worry about long term problems with the structure of your dwelling, freedom NOT to worry about appreciation/depreciation. I own several properties an am extremely jealous of my tenants (they can call me with ANY problems, don’t do maintenance, and can break their lease/not pay rent with no enforceable penalties – the courts/laws favor renters).
The benefits of ownership (tax writeoff/appreciation) seem to be dwindling in this era of significantly increasing taxes and depreciation.
I guess the only way I would own right now would be if I knew I was going to stay in a place for several years (of course, who knows anymore) OR if I was really set on customizing a space to my life.
Oh well, I should be happy that I am not starving…. whatever
The trib just can’t help but shill. And this article wasn’t even in the RE section – it was in the business section. The shills claim that these high end apartments will be 90% leased within 12 to 15 months. Sounds a lot like wishful thinking to me.
“”I think the landlords are starting to regain control,” said Lauren Dolan, manager of Flair Tower, 222 W. Erie St. “A year ago, some properties were waiving three months’ rent or throwing in all utilities. We’re pulling away from that now.”
Ron DeVries, vice president at Appraisal Research Counselors, predicts that downtown apartment rents could rise 3 to 4 percent this year and at least 5 percent next year. “There’s just not a lot of new product and people are looking for high-quality product right now,” he said.”
“Not anymore. Unlike the suffering condo market, the rental market downtown is hot, and observers say the newest projects — which carry eye-popping rents that top out at $5,000 a month — should be more than 90 percent leased in the next 12 to 15 months.”
Just curious- what happened to supply and demand- If this article is true than won’t a potential renter look at the condo oversupply before some of these rental buildings? Dont see them rented in 12 months. Lots f options out there and there are not enough new people moving into the city.
1500 for a convertible in Flair Tower? Notice she was from out of town.
For 1500, you could be in Streeterville.
And this is only for the downtown rental market which is really only going to have those people who want to be that close to work office.
And the downtown rental buildings are going to have to compete with Condo owners who can’t sell and are just going to ride it out (rightly or wrongly) and rent their units.
The economic occupancy net of concessions is still probably less than 75% for these buildings. Ok for a brand new building, but far from stabalized. It will be interesting to see if they get their rent growth. It does seem like slightly older buildings like The Streeter are pretty full.
I can tell you this – I own a 1 BR in Streeterville. Had it on the market for 45ish days to sell – one showing (price was the 2nd lowest in the bldg for 1 BR too).
In 10 days, I had 20ish showings to rent it.
Needless to say, it’s under contract for rent right now. $2Kish sounds right too.
$17,760 a year/$49.30 a day for the priviledge of paying an unrelated person’s mortgage with no asset at tbe end of the lease term.
OK yes, GREAT idea!
Either the boom is back, or there are going to be lots of landlords with squatters living in their apartments in a year.
This is going to end badly.
I’ve seen the kinds of people that pay $2000 a month for a 1 BR in Chicago.
It made me run like hell and buy.
I would love to see the day those brand new buildings have 90% occupancy. I went to the En V leasing office with a colleague who’s moving here in Sept last week. We looked at a 1BD on the 3rd floor for $2400….and that was a pre-lease special. This unit is the exact same size as my Streeterville unit and I pay half.
“…there are going to be lots of landlords with squatters living in their apartments in a year. This is going to end badly.”
I believe you are correct in your prediction and agree 110%! The most basic of tenant maintenance will be the last thing people who are losing their jobs will be worried about.
I currently require a 60 day notice and have recently increased the deposit amounts to 150% of the monthly rental amount. And I do not negotiate any rents…for any reason.
So far all my places are filled, but I do worry about the condition of the place once they submit their notice to vacate.
chichow on June 14th, 2010 at 7:05 am
1500 for a convertible in Flair Tower? Notice she was from out of town.
For 1500, you could be in Streeterville.
And this is only for the downtown rental market which is really only going to have those people who want to be that close to work office.
And the downtown rental buildings are going to have to compete with Condo owners who can’t sell and are just going to ride it out (rightly or wrongly) and rent their units.
____________________________________________________________________
There are a ton of great condo deals in Streeterville, River North and New East Side. The places are all nice, but the problem is I don’t want to have to check the CCRD website every few weeks to make sure my landlord isn’t going into foreclosure. My wife’s friend (who was 7 and a half months pregnant at the time) got booted from a foreclosed condo with 72 hours notice.
And Lauren – I looked at En V when I was moving and laughed at the prices. Sure it’s nice, but it’s not in a great location and it’s amenities certainly don’t justify the $1000 premium over older Streeterville, River North and Gold Coast units.
Uh, it’s not that I don’t believe you, but I’ve never heard of that. 72 hours is a ridiculously short period of time. We’ve got cases of squatters living in REO properties for weeks if not months and we’re still trying to get them out.
“My wife’s friend (who was 7 and a half months pregnant at the time) got booted from a foreclosed condo with 72 hours notice. “
Yeah saving money is now “cool”
wtf happened to America?
Damn you Obama!
I think it’s prety cool to live at home with Mom and Dad.
I’ve said it before and I’ll say it again as a renter for the past 7 years who just bought…If you can find a good deal on a place, then it is worth it to buy. Renting just throws away money (though it may be less money thrown away). If you buy, you have a chance of recovering that, or possibley, making money.
It’s all about YOUR scenario.
Just looked at the En V website….for that level of rentals, I would expect more than some soft core porn shots of the tenant/models. Ridiculous…
“I think it’s prety cool to live at home with Mom and Dad.”
Is there anything cooler than free rent and suppers?
A-Fed,
“If you buy, you have a chance of recovering that, or possibly, making money.”
A lot of people took the chance to make money on real estate and failed. Hence the more affordable prices in today’s market.
Dan – People were ignorant though, thinking that they were going to make 100k+ in a few months on a place they couldn’t afford – that is why they failed. Not living within their means…
But the point is it’s a gamble, a chance whereas with renting, you have absolutely no chance of recovering that.
@ Sonies- We are still pletny american. Just look at all the people at En V and Alta K paying double market rate rent for their units just to live like 007
“A lot of people took the chance to make money on real estate and failed.”
There are, but as A-Fed pointed out these were the uninformed and ignorant people who went along with the scheming lenders and brokers/agents, and bought way beyond their means with no realization of what they were doing had a huge chance of failure.
At the same time, there are those who played by the rules, educated themselves as to the condition of the industry, bought for way less than they were approved for, had a good down payment and finally, going the DIY route.
I am close to a newly married, RE virgin couple who did what I suggested above. After 9 or so months, they received a bank appraisal of 45% above their purchase price.
So not everyone lost big and are now forced to being life long renters with no chance of ever owning again.
What started as an idea of living better than the Jones’ and bragging about what a RE success they became, they are now struggling to pay that $1450 rent for a 550 sq ft condo. Must be fun!
I say if your young and single RENT!!! If your young and just married RENT!!! If you want a 1br RENT!!! If you plan to stay in your place for 5 or more years BUY!.
“We are still pletny american.”
Thats an insult and they are not only Americans, they are ignorant Americans.
Groove:
“I say if your young and single RENT!!! If your young and just married RENT!!! If you want a 1br RENT!!! If you plan to stay in your place for 5 or more years BUY!.”
Testify brother….testify!
AMEN
“Yeah saving money is now “cool”
wtf happened to America?
Damn you Obama!
The White House has been very thrifty with their spending havent they? I bet that is were people are taking their cues from…
“The White House has been very thrifty with their spending havent they? I bet that is were people are taking their cues from…”
lol thankfully someone caught my sarcasm
So the Chicago Tribune yelled “buy, buy, buy” from 2000-2009. They were wrong. Now the are yelling “rent, rent, rent”. Is there a pattern here?
I bet I can find a story from 1998 about buying as much tech stock as you can, and another story from 2002 about selling as quickly as you can.
I will say one thing and HD will hate it. if i was renting now i would positively be looking to buy a SFH or a TH outside the overpriced “green zones”.
I really don’t think rates are going to get any cheaper, yeah and home prices may still fall a bit. but the ratio between rates and prices at this point are looking good. maybe next year housing will be cheaper but mr ben will eventually start raising by .25 or .5 so maybe in two years the money you saved on waiting will be a wash with the higher rate by then.
I know, i know HD it sounds like the “buy now or be priced out forever” shill. there comes a point in life if your looking to settle in that buying and staying for 5 years or more is a good idea. i think now is a good time.
THIS RANDOM THOUGHT EXCLUDES ALL CONDOS AND ANY PLACE IN NORTHCOSTCO
“Is there anything cooler than free rent and suppers?”
Yeah there is, my Dad packed in my lunch today two (TWO!) mini-bagels with bacon, egg and cheese. They were delicious. I’m beginning to question my motivation for moving out. Maybe I should cancel my contract.
“Is there anything cooler than free rent and suppers?”
There is nothing wrong with being in your early 40s and living in your parent’s basement….just as long as they have cable.
If renting is throwing money away, then what do you call taxes and assesments on a purchased condo? It’s not like you are getting additional benefits, such as backyard and garage with SFH. No, you are still in an apartment, possibly with fancier finishes and amenities. But now, if anything goes wrong in the building, it’s your problem, too.
Good time to buy a discounted sturdy house with two-car garage and a double-lot for your victory garden, greenhouse, and chicken coop. Oak Park has a chicken consultant to aid new urban farmers. Urban homesteading is the new trend; check the number of new titles at Borders re: same.
“If renting is throwing money away, then what do you call taxes and assesments on a purchased condo?”
taxes theorhetically are to pay for infrastructure services you use, and a large portion of my assessments go to my gas, cable, internet, and water bills…. so I wouldn’t call all of it wasted money and believe it or not, when you’re renting you’re paying those taxes and assessments too! Just not directly
Quite often, those in the market looking for ‘deals’ outside the green zone are required to search far and wide. Many REOs are vacant and trashed with lots of rehab and remediation needed. Most of the deals have multiple bids, often snapped up by all cash purchasers who put lipstick on a pig only to flip the property a few months later to a naive homebuyer with 3.5% down an FHA loan.
Yet there millions of property in the shadow inventory and millions more in the loan mod program.
And furthermore, according to statistics, the loan mods work best are the loan mods that reduce principal…..that’s right silly, no bank actually forgives principal, they give underwater borrowers a ‘principal balance modification deferment’ which principal upon which they collect interest and the balloon the unpaid at the end of the 40 year note. SO for example, in HAMP, if you owe $200,000, are one year behind, the bank will reduce your principal upon which you pay interest to $100,000, lower the interest rate on the $100k to 2.0% for the first five years (goes up a little each year thereafter to 5.0% or so), and extends the terms of the loan for 40 years.
This ‘extend and pretend’ encourages homeowners to walk-away at some point in the future…5 years maybe, 10 years, 5 months? who knows. You can buy a ‘deal’ today and 5 years from now your neighbor with a HAMP loan walks away and you’ve got another foreclosure in your hood.
it’s not a good time to buy, it’s a terrible time to buy. It’s just not safe for most people to buy. Say what you want, but you’re living through the bust, you didn’t create it. You can ignore the evidence all around you, so be it, but don’t delude yourself. You too will be underwater for years and years to come.
Hey HD I found an article for you, on yahoo finance its called “Leverage Baby!”
http://finance.yahoo.com/banking-budgeting/article/109770/leverage-baby?mod=bb-budgeting&sec=topStories&pos=5&asset=&ccode=
Renting is just a different way to finance a place to live. It’s no more throwing money away than paying interest on a mortgage. The real issue is if you stay in a place for 5 or more years and your rent keeps going up then you may have been better off buying. Also, people like to own a place so they can change it and decorate it.
I’ve been renting for 10 years now but for the first time I think it’s possible for me to buy cheaper than I can rent and I’m on the lookout. The place I’m living in now is getting pretty worn out and I’m certainly not going to pay to fix it up.
“it’s not a good time to buy, it’s a terrible time to buy. It’s just not safe for most people to buy”
i really dont agree with you here, i really think its a good time to buy if you are planning to hunker down in the place for 7 years or more. (which usually means a SFH not a condo). Even if prices will drop another 10%, why play the future gamble game waiting when prices (in some places) are decent.
If my wife kid and I were renting now, you would suggest us to continue to renting in hopes things fall further and Bercrackie doenst raise the price of money? Why speculate like the bubble buyers did, why not now? you dont think i can get a good deal (not great deal) on a good home in Jeff Park or Oriole park, and if i was going private school couldnt i get a great deal on a beautiful french tudor in Schorsch Village or in Galewood?
ALL IS UNDER THE ASSUMPTION THAT BUYER DOESNT OVEREXTEND TO BUY. (STAY IN MEANS)
“If renting is throwing money away, then what do you call taxes and assesments on a purchased condo? It’s not like you are getting additional benefits, such as backyard and garage with SFH. No, you are still in an apartment, possibly with fancier finishes and amenities. But now, if anything goes wrong in the building, it’s your problem, too.”
If renting is throwing money away, then what do you call taxes and upkeep on a purchased SFH? It’s not like you are getting additional benefits, such as a doorman and a pool. No, you are still in an apartment, possibly with a garage and more room. But now, if anything goes wrong with the building, it’s your problem entirely.
(note: I do prefer SFHs, but damn, that was some nonsensical horse crap)
“taxes theorhetically are to pay for infrastructure services you use, and a large portion of my assessments go to my gas, cable, internet, and water bills…. so I wouldn’t call all of it wasted money and believe it or not, when you’re renting you’re paying those taxes and assessments too! Just not directly”
That’s true, but I’m still paying less for a comparable dwelling. Water and trash removal are usually included, gas and cable depend on the landlord. And I have zero repair costs when anything goes wrong.
I just don’t see the value of buying a cookie-cutter studio/convertible/1 bed in this market. If it’s a larger place and you are planning to stay in it for a long time, fine. But if you only need to live there for a few years, you’ll throw away more money when if you buy.
Of course, in the article, it says to borrow money on a 0% balance transfer and park it in a bank account earning 2%. Yeah he makes only a couple of hundred bucks but it’s easy money he says. God, when this sort of nonsense qualifies as sensible financial planning and advice, we’ve got a long way to go.
And it’s not exactly risk free. Be late on pay minimum payment or miss the 12 month deadline to transfer to another card and you get whacked with a crapload of retroactive interest and late fees that totally negate the couple of hundred bucks he might have earned.
Linda – There is no point in buying a cookie-cutter studio/convertible/1 bed in this market unless you can steal it from the bank/seller and it is in a HEALTHLY building. That was one of the whole issues with the bubble – people making ignorant decisions.
Personally, I do not see the point in purchasing a 2bd in this market, let alone anything, unless you can get it below market value (whatever that is) but I think in the future, it will be easier to sell and rent a 1bd vs 2bd (imho) and the profit margins will be larger.
Speaking only for myself, I was SO much cooler when I was renting. . .
Yeah, nothing wrong with renting. I don’t know why some folks are so bent up to buy something, especially if they can’t afford a single family or a decent sized 2/2. Makes zero sense to me to buy a 1 bed/1 bath unless you plan on being a single cat lady and live in for 15 years.
Unfortunately, owning a home is a status symbol and many people feel like if they don’t own something, it reflects on them as a professional failure. However, I know a couple of professional couples who are renting (incomes > $200) and they won’t buy until they decide on a real single family home versus a condo.
Condo ownership as a starter home was a colossal failure. Condo ownership used to more of a luxury play in most cities, not a starter home. My guess is that it is going to go back to that model.
I’m a finance guy not a shill agent living on fantasy island reading the Secret.
The risk reward ratio of renting vs buying for mobile people is clear- you rent. Hence, the DT market is a rental market. If you include the hassle and stress, interest paid to the bank (which can be three times the actual cost of the house) taxes, maintenance, and black swan $10k+ costs, renting is the way to go. If you were born in Chicago and have never seen the ocean you should buy- a house in a suburb. The Chicago buyer is the suburban lifer- this is not SF (peninsula) or NY (Island).
When you run the numbers the only people that make money in real estate are the banks and the real estate agents/brokers. If you are willing to suffer in a house for twenty years (chaining yourself, career, and family to the all powerful house) letting the house make all your important decisions for you and giving the bank 3X the worth of the house in interest payments then chain yourself up, you may make a dollar (proof the shill real-estate is correct), but if you want a life rent and enjoy. Freedom or imprisonment- the rest is all propaganda.
What I don’t get is why RE agents talk the same rosy crap when things are going well or poorly, at least stock brokers and used car salesman admit to some obvious realities/changes that exist in the market. Its like Hot Tub Time Machine 2007 talking to RE agents- you feel you want to tell them the bad news about the death of the real estate market but your scared that it might shatter their world so you keep agreeing until you can walk away and then look at your wife and give a whimsical smirk and say to her “Wow! that was scary and creepy”. I guess they are hoping there are a lot of unemployed buyers out there. Reality is at a stand off with fantasy. I know if I had millions of dollars I would choose Chicago with its great year round weather, easy commute, rock star lifestyle of beach and skiing within a 2 hour drive and the center of world culture and entertainment. Thats right its the second city, the affordable city, where you don’t overspend or make your “statement” real estate purchase. Its a conservative town.
Building all those 3bd in the city for over $1mil is ape’y. I hope the banks who will soon own all this property are less delusional than the agents.
Those curious to know the cost of renting vs. buying should consult the calculator appended to the NYT article: “Is It Better to Buy or Rent?”
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
I don’t know about the “coolness factor,” but renting certainly is the smarter option. Nobody knows how long they’ll have their job, whether or not they’ll have to move (And move quickly), and even fewer people relish the prospect of paying broker fees if they should have to sell a place that might sit on the market for 2+ years or longer. I think there’s an overwhelming feeling that prices are going to drop further because prices were way to high to begin with. To quote an investment banker friend of mine said a few years ago “you think prices are low now? wait another 2-4 years things are gonna get really cheap.”
Being an early 30’s “late bloomer” and watching same age friends of mine trash talk renting while they paid out the nose for piles of cheap drywall aka new build condos that they now pay very high mortgages on property worth much less than they paid… …I have to say I’m VERY PROUD to be renting these days.
I should also mention… NOt only do people not know how long they’ll have their jobs, whether or not they’ll need to move quickly, or whether or not they can sell their homes within 2 years or less… …but nobody knows how many of their potential neighbors are going to “walk away” from their mortgages.
Did anyone else catch the 60 Minutes episode titled “Walking Away” [from your mortgage]?
http://www.cbsnews.com/video/watch/?id=6470184n&tag=cbsnewsMainColumnArea.5
For homeowners, its kind of like a 13 minute horror flick narrated by Morley Safer.
As a current renter and a two-time homeowner, I agreed with much of the article. Though we live far from the glossy loop and w loop towers there is absolutely no comparison between buying and renting cost wise for me. If I went out and paid within 10% of list of a comparable apartment to the one I am currently renting in E. Rogers Park I would have to pay at least 1k a month more with taxes and assessments included. Sure maybe not throwing money “away” (and where is away anyway?) but definitely a HUGE monthly expense. When we first bought in Chicago in the late 90s it was dumb not to buy. . . but these days it’s much more difficult to say, at least until I can be more sure that we’ll be able to stay put for a while this time.
Ok, gotta say major props to Sabrina for this blog – really entertaining. I’ve been lurking for a few months and I saw some EnV comments on this thread so I thought I’d jump in. Geronimo! I’m renting at EnV September 1st and and went to the open house today. Folks, this place is PLUSH. Maybe I don’t get out much but I was blown away by the finishes and the amenities. Really fancy stuff. The lobby looks like one from a W Hotel and the 7th floor common area has an outdoor gas fire pit with designer furniture on the inside. They haven’t finished much else but by the looks of things today, the gym and the pool on the roof will be pretty swank. The apartments look gorgeous but maybe I’m just easy to please. They have bamboo flooring and you can choose an accent color for one of the walls. The dark grey looked great. Even the hallway carpeting was cool with this kind of tree design. I’m really looking forward to the move-in. I don’t think I’m anywhere near as cool as the place I’m moving into so I guess I gotta step it up some 🙂 Unrelated: if you all ever meet at a pub, I have to be there – you guys are ruthless 🙂
I’m with Groove on the Rent Vs. Buy smackdown. If I had listened to all of you back in 2001 and rented instead, I wouldn’t have made the pretty penny that I did when I sold last summer.