Market Conditions: Is The Downtown Condo Market Doomed For A Generation?
Recently, the RedEye had an article about Chicago’s luxury apartment market.
It’s what we have discussed before. Generation Y want “new” and amenities and they don’t want to be locked into home ownership.
As we know, developers are responding by building thousands of new apartments downtown.
No one knows better than Jeremy Dubin that now is a great time to buy a house.
And yet Dubin, an @Properties real estate broker, sold his Roscoe Village townhouse in the spring and moved into his new place—a luxury apartment in Goose Island.
His 23-story building, SoNo East, opened in June, but it’s quickly becoming its own social network. Management hosts happy hours for its residents, who have access to a hot tub, fire pit, gym, billiard room and a four-story parking garage (one of the amenities that appealed most to Dubin).
But these high-end services don’t come cheap. Dubin said he pays $2,365 for his one-bedroom apartment—about $500 a month less than what he was paying when he owned his townhome.
Dubin said he plans to rent for a year and buy next year while he waits for a new construction condo. Yet he could save more by living in a place without a poker room or a round-the-clock doorman.
“If I was younger, I’d have a roommate. At 36 years old, I’m not living in a studio apartment,” said Dubin, adding that he appreciates that his rent is stable and there are no new fees like special assessments that sometimes befell him as a homeowner. Plus, living in a place with a sundeck “is like you’re on vacation.”
Remember our chatter about the high priced rentals at 1225 N. Wells Street in Old Town?
Many of you didn’t believe they were getting over $3 a square foot in that building, the highest in the city.
Surprise! The building is now 75% rented.
And 1225 Old Town, off Wells and Scott streets, began leasing its 250 apartments—ranging in price from $1,650 to more than $5,000—in the spring.
David Bach, an associate at Hines Interests, the developer of 1225 Old Town, said 75 percent of the rentals already have been claimed—beating his initial projections.
The building offers a pool, hot tub, Internet cafe with Wi-Fi, barbecue area, social lounge and demonstration kitchen that residents can reserve for parties. A boutique grocery will open in the spring.
“Our core demographic is the affluent, young professional,” Bach said. “A lot of people are a little disillusioned with the prospect of owning a home and don’t see it as the surefire investment it once was. They don’t see it as attractive to be tied down to a piece of property for a few years.”
With so many young people finding it easier to just rent (at least until they move to the suburbs and look at single family homes), will this sentiment doom the downtown condo market for a generation?
Why buy the 2/2 in the Sterling or 303 W. Ohio in River North when you can rent across the street without a 20% downpayment instead? (And many times the rentals are actually NICER.)
High rent society [Chicago Redeye, Tracy Swartz, September 12, 2012]
Dummies pay too much to buy a townhouse when the market is hot and pay too much to rent when the rental market is hot. And these people are ‘experts’ in real estate.
$2365 for a one-bedroom apt.? Time to get out the snake oil and make some sales!
Seriously, it doesn’t seem like a bad idea to rent until a person can buy a house that they can live in long-term. These places seem over the top, though.
I’ll tell you why it is better to buy than rent: long term gain.
Young people are becoming increasingly impatient and only looking for immediate gratification. This is extremely dangerous and will NEVER lead to long term success.
Take two places – one condo (400k) and one rental – both costing 2500/month (the rental is obviously going to be a little nicer). However, in 10-15 years, the monthly cost of the condo will likely be about 3000 (with increasing taxes and HOA) but the monthly cost of the rental will likely be much higher (probably 3500). In addition, a significant portion of the condo payment is going towards principal while the cost of the rental is completely lost. In 30 years, the condo owners expense goes down to 1000 while the renter will likely pay 4000-5000 for a similar place. In addition, the condo owner will have a place probably worth 1million dollars while the renter will have nothing.
I’ve said for awhile that there is a market for true luxury rentals catering to the young professional set. Much of the rental stock in Chicago has been the crappy DePaul walk ups or the old and outdated high rises. People are willing to pay for condo quality rentals. During the bubble (and now), a lot of people bought primarily because they wanted something that matched their income levels in terms of quality/amenities. About the only way to get it was to buy.
Now the situation is that those same buyers who might have dropped $400-$500k on a 2/2 still have the disposable income, but have realized that buying is a long term proposition, so they don’t necessarily want to be tied to the asset through ownership at this junction in their careers/lives. HOwever, they still want to live like they can afford the luxury 2/2 condo with non of the down side of ownership in a fleeting economy/job market. Higher end rentals make perfect sense for these folks.
The market will be bifurcated for awhile. People who are settled in their lives will continue to buy while those are still figuring things out/playing the field will rent. The short term buy and move in two years buyer is pretty much out of the market and was a construct of the bubble.
Russ – just give it a year or two – people’s memories are INCREDIBLY short. All people need to see/hear is that someone made XX amount of money selling their condo/house – and they will all start flocking to their real estate agents.
It all comes down to the economics of renting vs buying, down payment availability, and the flexibility offered by renting. With interest rates so low buying looks really attractive right now in many cases. The best way to analyze the alternatives is to use the NYT rent vs buy calculator: http://www.nytimes.com/interactive/business/buy-rent-calculator.html
And Clio makes an excellent point. So many people look upon their entire mortgage payment as an expense when it’s not. 43% of my mortgage payment is principal – forced savings. I don’t have the time right now to check but I do wonder how the NYT calculator treats the principal payments. I bet someone else here can answer that before I can.
But if people prefer renting and buying is cheaper then it is a great time to be a landlord – except for the headaches.
“All people need to see/hear is that someone made XX amount of money selling their condo/house”
I’ll gladly pay to get that rumor going in my hood
Keep chasin that pink elephant, dumb masses!
2365 for a 1 br in sono? wow this guy is dumb!
I love this article. It’s so full of $hit
Ok, so the dummy in the article claims to have “sold his Roscoe Village townhouse in the spring “…
My records show that dummy’s home wasn’t a townhome in Roscoe Village, but a townhome in Kilbourn Court – abut 25 blocks or so west of Roscoe Village on Belmont – but who’s quibbling over a few blocks here or there?
And the sale, of course, the ‘sale’ in the spring. Well, it was a sale, but not a normal sale, a ‘Judicial Sale’ ordered by the Chancery Court of Cook County.. as in a foreclosure sale that happened sometime in February or March, and dummy had an order of possession entered against him in March.
https://w3.courtlink.lexisnexis.com/cookcounty/FindDock.asp?NCase=2009-ch-46293&SearchType=0&Database=3&case_no=&PLtype=1&sname=&CDate=
And of course, I don’t know if this means anything, but Kilbourn Court was a Dubin Residental development…same last night just a coincidence? Who knows…..who’s to say….
Why would anyone go on the public record with such crap?
Russ makes a good point. Most of my friends are upwardly mobile young professionals making great money, but nearly all of them are waiting to buy. One reason is that many of them travel for work and relocate from time to time. Also, young people are getting married later, and don’t want to purchase a starter condo on their own if they are just going to have to sell in a couple years. Once they get a couple promotions and are in a dual income situation, a large condo or single family home in the city is within reach.
To Sabrina’s question: I think the studio and 1 bed condo markets will probably have a hard time finding buyers but the large 2+ bed condos in nice buildings will continue to find buyers. Also, many of the younger generation (born in the late 70’s-90’s) are going to stay in cities for much of their lives. Some will move to the more affluent northern suburbs for convenience and strong schools, but very few will likely move farther out in search of a bigger home and a suburban lifestyle.
“Why would anyone go on the public record with such crap?”
do they papers even fact check anymore is is that a lost art or cost cutting measure?
“I’ll gladly pay to get that rumor going in my hood”
Sure, just pay someone $XX plus the bubble price.
“do they papers even fact check anymore is is that a lost art or cost cutting measure?”
The Red Eye is not a paper. Every article is a PR release written by the C student in your communications class.
“It all comes down to the economics of renting vs buying, down payment availability, and the flexibility offered by renting”
Do these upwardly mobile young professionals have good to stellar credit? that might factor in as well. I’m assuming the security deposits are much lower than even the lowest amount you would need as a down payment (Russ?) and what about student loan debt? would that factor into their decision to rent over buy?
Lb, the generation you speak won’t stay in the city, they’re already moving to the burbs, everyday I meet a city transplant in my town. The ongoing CPS debacle is proof positive that when chad and trixie have that first baby, priorities change and unless you have 750k to live in a SFH in a north side neighborhood, it’s the suburbs for you.
I don’t think the younger generation is looking for instant gratification anymore than the rest of us. The fact is that many of us 35 and younger have little or negative equity in real estate, do not have stable jobs and if we do have jobs, they are not full time positions. Moreover, many youths have extremely high student loan burdens and did not get the opportunities that their parents had. Put this all together and you have a young class of people who have very high debt loads, low incomes and little job security.
Is it any wonder they would choose to rent?
“Also, many of the younger generation (born in the late 70?s-90?s) are going to stay in cities for much of their lives. Some will move to the more affluent northern suburbs for convenience and strong schools, but very few will likely move farther out in search of a bigger home and a suburban lifestyle.”
In a typical one-sided myopic view of real estate, you fail to acknowledge the HUGE numbers of the younger generation who were born and raised in the suburbs who would NEVER EVER even consider moving to the city. The number of these people far outnumber the younger generation living in the city. Also, you fail to realize that raising a family in the city is INCREDIBLY difficult (unless you have a ton of money). You will see the majority of these people in the “younger generation” who SWEAR they will never leave the city actually moving out to the suburbs in about ten years when they have a spouse, two kids and realize that they just can’t maintain the lifestyle they expect in the city on less than 200k. It happens EVERY generation – the only reason this generation thinks it is different is because older generations didnt have the internet to express their opinion.
what I want to know is what yuppie is going to have money left over for a down payment when paying $2365 a fricking month (before utilities!!!!!) for a ONE BEDROOM in SONO…. SO-NO… Joes on Weed, VIP’s, Zentra, Crowbar, the OTB, crapple store, and a bunch of suburban retail chains, a few retardedly expensive dining options or terrible local fare and then the cabrini wasteland… yeah… this is CLEARLY the right financial thing to do!
I know the hood, I used to work in the NAC building @ sheffield and north, the traffic here is unbelievable
I’m paying LESS than 2350 in PITAMI for a 2/2 in an actually “cool” yuppie neighborhood! And $500 of that is ‘forced savings’ who’s the idiot again? This financial genuis who “sold” his place (to the bank!) LOL!”
Great article stinkEYE!
“The Red Eye is not a paper. Every article is a PR release written by the C student in your communications class.”
LOL, trib is getting worse than trying to read a Groove post
“LOL, trib is getting worse than trying to read a Groove post”
I do like the RedEye better than trib, though. At least I can find out where dollar beer night is.
Steven is right. Good post.
Hi,
I’m in my early 30’s and many of my friends have lived in the city since age 22 and are now buying homes close to where they grew up. Some have sold their condos and made a profit, others took a loss, and others rented.
In general, most of what everyone is saying is correct, particularly about down payments. I would say 1 in 2.5 of my age group receive their down payments from family.
Anyway, most of my friends and colleagues do not plan to live their entire lives in the city.
Icarus, most have very good credit, down payments, etc. This is the typical profile I see… They are late 20s or early 30s. Scored a job at XYZ Consulting firm, bank, law firm or middle management job. They usually make $100-$150k base salaries. in the past, they would buy a 2/2 in LP or some other greenzone hood for say $400-$500k. There are a couple of paths they take:
1) Hit the two or three year mark at McKinsey and then need to relocate because their industry job is in another city.
2) Buys a 2/2 and job is stable but now the one night stand has turned into the fiance/wife/husband. Need to move to a neutral place
3) Same as #2, but little Junior is on the way much earlier than anticipated. Hence the cribs in the bedrooms on Cribchatter.
Right now, it is better to just be a renter in these circumstances for these buyers because there is just too much instability in their lives. They may need to relocate. They are done playnig the field, so they will probably be settling down sooner than later. It is much easier to just rent something until they are more confident and stable.
However, these people make good money and are typically more mature, so they don’t want to live around a bunch of 23 year 6th year seniors at Depaul in some deferred maintenace walk up. Nor do they want to live in dusty high rise from the 70s either. They want something a little hipper and upscale that reflects where they are professionally, but don’t really want to be tied to owning a home just yet either. Luxury high rises that are on par with condos in terms of amenities fits what they need/want and they will pay the premium to get it.
When I do see them buying now, most are DINKs and they are skipping the 2/2s altogether going for the duplex downs, townhomes, and in many cases just heading out to Oak Park or burbs for a house.
weed’s isnt too expensive sonies. and the tamale lady comes by so there’s your dinner. soon enough you can buy a home in roscoe village (west) with all the money saved. (just dont try to double it at otb or you might end up in uptown)
Joe thinks the Cabrini wasteland is terrific…i hear he picnics there on Saturdays.
i’m just sayin.
Joe Zekas that is.
“When I do see them buying now, most are DINKs and they are skipping the 2/2s altogether going for the duplex downs, townhomes, and in many cases just heading out to Oak Park or burbs for a house.”
The majority of homes in my neighborhood purchased in the last few years are couples with young children. And they’re paying $200 psf or more for a little house on a tiny lot in the near suburbs with one or more metra stops.
“With so many young people finding it easier to just rent (at least until they move to the suburbs and look at single family homes), will this sentiment doom the downtown condo market for a generation?”
And what $150-300k down payment fund will they use to buy their “dream home” on the North shore when they’ve been spending outrageous sums of money on rent? Obviously everyone’s salary and spending/saving habits differs but I can’t help but laugh when my many of my friends (who earn at least 2x as much as I do) wonder how I’m ready to buy a place and they’re not. It’s because I’m not spending an extra $1500/month to live alone in a nice place, not that I even could if I wanted to 🙂
I have to wonder how this mentality among affluent Millennials affects my decision, and overall investment potential when buying a condo in the city. A part of me thinks that rents *should* go up in nice desirable condo buildings because of this flexibility young professionals want in their lifestyle, which tells me to buy now, rent when I move on. Yet couldn’t a significant trend in such mentality affect (depreciate) condo values in the future?
I’ve been reading this site for about a year now, and it’s interesting to see others’ viewpoints on my generation, mostly because of how accurate some of you are. I’m a 2011 law school grad who went straight through after receiving my bachelors, recently married, 26 year old. I was one of few graduates who were able to obtain that dream job where you immediately are making a six-figure income. Add that to my wife’s salary, and we are making a very good amount of money. However, as mentioned above, student loans are a monster for us. We did manage to find a single family house in a nice neighborhood for rent paying approx. 2500/month. That’s for 2000 sq ft and 3 floors of living space. We locked in an extended lease, because we knew we would want to stay put for at least a while.
After all of our expenses, we are putting around $2k into savings monthly. This money will eventually be for our down payment on a house- who knows where, but all of the typical comments here on CC are things we debate on a regular basis- schools, neighborhoods, getting the most out of our money, commuting times, etc. As much as I enjoy city life, I can see myself moving to a ‘near’ suburb in 3-5 years (I should add that I was raised in a suburb that CC’ers appear to dislike).
I realize I may be in a different position than others in my age group because almost all of my friends who have recently graduated don’t really have a plan for the next 3-5 years of their lives. It’s pretty much “I’ll rent here, and if I don’t like it, I’ll find a new place when the time comes.” Personally, I’m much more inclined to save as much as possible, drop however much required for a reasonable house that will serve as a place for my family to grow as well as a long-term investment. Just my $0.02.
And what $150-300k down payment fund will they use to buy their “dream home” on the North shore when they’ve been spending outrageous sums of money on rent?
Elliott – If you think that they are saving up $150K to $300K to buy the dream house you are crazy. Not every home in the burbs, even in the north shore starts at $750K+. The burst of the bubble has made things up there far more affordable. I suspect that many are showing up with half that amount. A $450K home is at $90K down with 20%. Still a lot to save but not $300K large.
I can see why younger professionals would be gun shy in terms of buying… while I agree w/ Clio’s math and Gary’s assertion that a mortgage is forced savings, the recent past has shown how a purchase could also ruin a young couple. Had my wife not gone back to grad school a few years ago, we probably would’ve bought a 2/2 back around 2007, 2008 — say $350k w/ 10% down.
Where would we be today? Probably underwater and have a hard time trying to sell and upgrade to something that would suit needs once kids come into the picture. Even if we chose to hold the smaller property, we probably wouldn’t have the down payment for a second property, couldn’t re-fi the first and pull out enough either.
Fortunately, we sat on the sidelines through the bubble and most of our down payment money has been sitting in Apple stock all these years, so once she’s finally finished with school and has a job again, we’ll be in good shape to buy our longer term home.
“and then the cabrini wasteland”
Don’t you mean “Target”? Coming soon!
“they’re paying $200 psf or more for a little house on a tiny lot ”
$200 psf isn’t too far off city cost, in the nicer hoods, too. I wouldn’t pay $200psf to live in Niles, HD. No offense.
“and then the cabrini wasteland”
Of course, Target coming soon. What area of Chicago can you live in where you get a mix of local stores/restaurants, chains, close to downtown for commuting and all walks of life living in large apartments, walkups, SFH and “high rises”? To me that’s what urban living is all about.
To me, if you live in Roscoe Village or something, you might has well live in OakPark.
“$200 psf isn’t too far off city cost, in the nicer hoods, too. I wouldn’t pay $200psf to live in Niles, HD. No offense.”
I paid $315/sqft to live in the burbs. $225/sqft if you count my finished basement area.
“A $450K home is at $90K down with 20%”
I’d get as close to $417 as I could, with as cheap as money is right now. Really, $45k, or less. With Elliot’s rent cost delta, that’s doable in about 2 years, just by being Bob-ish about rent.
3) Same as #2, but little Junior is on the way much earlier than anticipated. Hence the cribs in the bedrooms on Cribchatter.
And to think, Sabrina probably was just using crib as euphamism for home when she started this, but given the number of nurseries that pop up in the listings…
“$200 psf isn’t too far off city cost, in the nicer hoods, too. I wouldn’t pay $200psf to live in Niles, HD. No offense.”
I GOT RIPPED OFF!!!!!!!!!!!!!1
“$225/sqft if you count my finished basement area.”
Could you fit through the windows without squeezing? Is the ceiling at least 7.5′, except occasional bulkheads? Then, to me, it counts, at least sort of.
Actually I paid between $150 and $175 psf for above grade space as the assessor computes it but with an extension renovation (electric overhaul, some plumbing, some HVAC, drywall/painting, combo of new and refinished floors, brand new kitchen – based upon today’s going prices it’s probably a little north of $200 although lately due to a lack of inventory I’m seeing more and more $250-$300 psf ft closing for similar homes, and it’s not always renovated space either. Then every so often there’s a $180 deal. I needed $200 per sq ft for the appraisal post-construction for the loan to go through, and I just barely got it, but they used comps from a cold period when the market was really really slow so I was a little worried, but it all worked out in the end.
“Could you fit through the windows without squeezing? Is the ceiling at least 7.5?, except occasional bulkheads? Then, to me, it counts, at least sort of.”
Yes, yes. but the assessor doesn’t count it.
“The Red Eye is not a paper. Every article is a PR release written by the C student in your communications class.”
When the idiotic Red Eye does a cover promoting the rental market, it’s probably a contrarian indicator. All of these luxury high-rise renters get raped when they go out for local drinks in their expensive hoods. We’re talking about $7 beers and $10 drinks……a BASIC on the rocks margarita at the new Blue Agave at K Station is $9!! Add that obligatory dollar tip, and we’re talking about $10 a drink. The bartender there told me she believes the 20’s punks that rent there are subsidized by parents. The rest of the renters there are late 30’s and early 40’s and more subdued in lifestyle.
HD: good job outing the real information about the Dubin-dude.
$450K is still not getting much on the North Shore or even the annoying striver burbs like Deerfield, NBK, Glenview, where you’re likely going to be near a former teardown/mcmansion, some of those are very nice and cost over $1 million. It remains to be seen what they ultimately will resell for, they are holding their own still.
“Actually I paid between $150 and $175 psf for above grade space as the assessor computes it but with an extension renovation (electric overhaul, some plumbing, some HVAC, drywall/painting, combo of new and refinished floors, brand new kitchen – …”
This is why it’s so hard to get started on the Wiki. Just the HD page changes so much between how little he paid for his place, how little he reno’d, how little his monthly nut is and yet how big of a deal he got in Palatine/Niles/Buffalo Grove.
“This is why it’s so hard to get started on the Wiki”
Just the framework, then add a subhead of “Controversy over Homedelete’s suburban home” citing each contradictory statement, along with he various statements about the percentage of his posts which are misdirection.
HD: good job outing the real information about the Dubin-dude.
I don’t know that the Jeremy Dubin listed in the article is any close relation to the developer… I used to be friends with a different Jeremy Dubin, whose uncle was the developer and who did work for the company as an accountant. I can’t imagine that two close cousins would have the same name, which leads me to believe this isn’t the developer’s son, nephew, etc.
“Yes, yes. but the assessor doesn’t count it.”
That’s a separate win, as you get usable interior space w/o being taxed on it!
There’s two jeremy dubin’s listed in ccrd with different middle initials. One of them has a land trust and the other has this foreclosure. I don’t know if they’re related, but I do know that I’ve got the right jeremy in the article. he has an agent’s page too, look it up.
“All of these luxury high-rise renters get raped when they go out for local drinks in their expensive hoods. We’re talking about $7 beers and $10 drinks……a BASIC on the rocks margarita at the new Blue Agave at K Station is $9!!”
Its whatever the market can withstand. If you can’t handle it, move out to Lake in the Hills and enjoy $3 cocktails. Better yet, move to Roscoe Village and get cheaper food/drinks/meter parking. If you wanted “value” Chicago probably isn’t the place for you. I’m sure you know all this, it just irks me when people complain about it.
FYI, I have zero ties to K Station or Blue Agave.
I do think it’s silly for most people to pay for top-end amenities and luxury rentals. If you’re going to rent, find a decent place in a good neighborhood and start putting money away for a down payment. Going for $2.3k 1br rentals is insanity. I also view my principal payments as forced savings and I plan to stay in my condo as long as possible (I’m not underwater, so it is a choice). Given what’s been happening to rents recently, I’m very happy to be in a fixed-rate mortgage.
” I also view my principal payments as forced savings”
Principal payments as forced savings is a myth, a rationalization, it’s not true. Especially not in a declining market because ‘equity’ disappears. It’s better to look at your mortgage principal as a ‘repayment of debt’.
For example, if I pay $500 towards principal, but my house declines in value $600 this month (which is a mere .002% decline on a $300,000 house), then it’s pretty much a wash.
Case-shiller has chicago down 1.84% YOY. A $300,000 house is now worth $294,480. That $500 per month towards principal ($6,000 in a year) now only has a whopping $80 left. Yup, forced savings of ‘$6,000’ yields only $80 in actual home value savings. It’s like flushing money down the toilet.
“$600 this month (which is a mere .002% decline on a $300,000 house”
Math is hard, Barbie!
“$600 this month (which is a mere .002% decline on a $300,000 house”
“Math is hard, Barbie!”
HD, did you rely on a calculator a lot in math classes?
Sorry, I just cut and pasted from the calcuator without removing da zero – it’s a mere .02%, not .002%, 2/10ths of 1% not 2/100ths of 1%.
I think we should all chip in a get HD a leapfrog.
“I think we should all chip in a get HD a leapfrog.”
Brad should contact the CEO and ask for a charitable donation.
God damn it cut me a break here folks, math IS hard.
“Yup, forced savings of ‘$6,000? yields only $80 in actual home value savings. It’s like flushing money down the toilet.”
Your briain must have gone down the toilet with your leapfrog… your assumption assumes your amoritization schedule doesn’t get better AND home prices are going to keep going down at least 1.8% per year until 2042, clearly, you are the genius
Is this rental data from the article accurate?
It seems low:
$1,004: Median rent in Chicago in 2010
$1,023: Median rent in Chicago in 2008
$880: Median rent in Chicago in 2005
$1,173: Average rent in Lincoln Park for January-March 2012
$1,154: Average rent in Lincoln Park for January-March 2009
$774: Average rent in Rogers Park for January-March 2012
$776: Average rent in Rogers Park for January-March 2009
$862: Average rent in the Near South Side for January-March 2012
$851: Average rent in the Near South Side for January-March 2009
$990: Average rent in the Near West Side for January-March 2012
$937: Average rent in the Near West Side for January-March 2009
maybe its per person?
I dunno, all the Cribchatterati carping about how other people choose to spend their money strikes me as odd or sour grapes. Maybe Dubin’s** tearing it up as an agent. Maybe his rich great aunt passed away and left him a bunch. Maybe neither are true, but he’s not going to have kids, and is content to spend his own money on himself in the here and now.
**Obviously, HD’s sleuthing proves that Dubin is a bad example for me to use, since six months ago he didn’t have enough to pay his mortgage. (Or he’s an a-hole and did have enough but decided he wanted to move east and the cheapest way was to stop paying his obligations.)
But in general, if someone’s got the money and/or simply finds utility in an amenity-rich 1-bedroom rental, why call them stupid? Dubin’s not the only one to earn the fthe Cribchatter community’s ferocious disdain. If we all did and thought the same, the world would be a boring place.
Two thumbs up to HD for the fascinating back story on Dubin though – I did get a kick out of that.
“Principal payments as forced savings is a myth, a rationalization, it’s not true. Especially not in a declining market because ‘equity’ disappears. It’s better to look at your mortgage principal as a ‘repayment of debt’. ”
The point is that your principal payment is not a cost. It does not impact your net worth. It basically takes money out of your pocket and puts it away. And repaying debt is economically equivalent to saving – it’s just on a different side of your balance sheet.
You also can’t assume that the market is going to decline forever.
“And yet Dubin, an @Properties real estate broker, sold his Roscoe Village townhouse in the spring and moved into his new place—a luxury apartment in Goose Island.”
Is “Goose Island” the name people are using for that area now? Aside from the island itself, I’ve never heard it referred to as an official “area” or neighborhood before. That said, I like it; (love Goose Island Brewery!)
I don’t *Care* if Dubin is paying too much for rent, but I think the mentality behind it is pretty ridiculous and stupid, that’s why I said, “Dummy”. I don’t make moral judgments, only judgments as to a debtor’s wisdom.
I can’t assume that houses will decline forever, but I can assume that for many underwater homeowners or homeowners in a declining market, the ‘forced savings’ portion of their mortgage payment isn’t savings at all, it’s Equity, which as we know, is just a figure on a figure of paper until you *liberate* it via a HELOC.
“Case-shiller has chicago down 1.84% YOY. A $300,000 house is now worth $294,480. That $500 per month towards principal ($6,000 in a year) now only has a whopping $80 left. Yup, forced savings of ‘$6,000? yields only $80 in actual home value savings. It’s like flushing money down the toilet.”
I think purchasing power is probably down about 2% year over year as well. I think a better comparison of renting versus owning is to factor in the opportunity cost of the principal, rather than assuming inflation or deflation of home values.
The opportunity cost for people with debt is their borrowing cost. So if you have a mortgage at 4% (and that is your only debt) and you have $100K in your home, your opportunity cost of that $ is $4K per year. So you need to add $333 per month in opportunity cost to the total cost of homeownership, less principal paid, less cash value of associated tax deductions, and compare the result to the cost to rent. For me the total cost is around $1700 (thats with the opportunity cost of the equity in my home) versus the $2700 or so I would have to pay to rent a comparable place.
@JP$ Your calculations make no sense. (1) The opportunity cost is the potential sacrifice in making a particular choice. (2) The annual interest you pay on a home is not a straight 4% of the total value borrowed to buy the home. It changes every year. ——- The opportunity cost of buying versus renting is (1) investing the $50 or $100k down payment for a basic condo in the stock market for potentially wild short and long term returns in this manic depressive market (2) reduced flexibility; the need to sell or rent the real estate if you need to relocate for work or kids (3) a smaller cash cushion in case of job loss, health crisis, or another need for cash (4) the cost of maintenance — yes that gets built into rent, but if its a disaster its all cash out of your bank account right away. Maybe there’s a fifth and six, but you get my point.
Ah, I love it when CC goes Rental. So adorbz. <3
Very few people want to deal with:
~ A board of curmudgeons dictating rules
~ Special assessments
~ Spending on their own maintenance
~ Selling when they need to move
Realistically, I could make that list 30 points longer and more detailed, but it'd be lost in the chat. For the youngin's a condo (and yes, we're comparing condos to lux rentals) is a lot of work. The luster of homeownership or DEATH! is gone. It's no longer a taboo to rent. One of my favo examples is an ex of mine who bought at Park Place to the tune of $500K to only not be able to sell and be like "the sun bleached my furniture :(" and "this pergo is poppin up like crazy :(" which eventually turned into "I should have rented; I could totally live in your place." A little backhanded, but hey, I don't have half a mill looming over me like the Sword of Damocles.
EVERYONE has heard this story, and it's far easier to b^tch and moan to some management agent or landlord than deal with it on their own dime. In time, yes, you will see those buying again, but then they'll faceplant into a brick wall once they realize that they simply cannot blitzkriegb*tch their way out of a situation but have to PAY for it, and back to renting it goes. No more googling "renters' rights!!!" once you own, children.
I'll never understand those that toss THOUSANDS in rent for small apartments like SoNo when they can get something far more budget conscious, but I can with one thing: the CRLTO. So not only do ytou have the freedom from personal responsibility, but you also have a weapon to browbeat your landlord. Chicago is a very renter friendly environment. Homeowners and especially condo owners should be more invested in nerfing the ordinance if they ever dream of homeownership popping hot again. Until then, it's a rental world.
“I can assume that for many underwater homeowners or homeowners in a declining market, the ‘forced savings’ portion of their mortgage payment isn’t savings at all, it’s Equity, which as we know, is just a figure on a figure of paper until you *liberate* it via a HELOC.”
So by this logic if you have a $100K stock portfolio that loses $12K in value over the course of the year and meanwhile you put away $1K per month from your paycheck into 5 year CDs you haven’t saved anything? I beg to differ and I think most people would.
“Is this rental data from the article accurate?
It seems low:”
I thought the same thing Milkster. The article doesn’t say if this is for studios, one bedrooms, or a combination of ALL properties. It’s bizarre. It lists no source.
It’s also strange that the article is about the new condo towers downtown but it’s telling us the average rent in neighborhoods that are NOT downtown and don’t have luxury high rises (like Rogers Park.)
The market for smaller buildings is different- as someone pointed out in one of the comments.
The article did give these stats:
38% of Chicago’s rental market are buildings with 2 to 4 units
30% are in buildings with 5 to 49 units
21% are in buildings with more than 50 units
Gary, you’re breaking even in your scenario no matter anyway you look at it. You started the year at 100k and finished the year at 100k.
This has all been discussed in a hundred other CC threads. Anyways, yes: there are many upsides to renting, in terms of finance and freedom, especially when the real estate market sours or remains uncertain. But if one is rather picky about where one lives (in terms of location, condition of the dwelling, stability (not being asked to move out), immediate neighbors, etc.), given the pricing and rates over the past couple of years (and today), buying a condo is still the way to go.
But unlike SFHs, for a condo, buyers should privilege location – in a big way. And they should not have been, nor should they be, putting down 20 percent (unless it’s a huge, family sized condo, in a spot where one would happily raise a family).
While everyone’s beating the drum for renting…let me renew my request for help in finding a Unicorn Criteria compliant 3 bed. It was hard enough to find a 2 bed that met the UC – and buying was really the only way to do so.
Oh sure, cop out and move to the suburbs so little Ashley can have a “good” education rather than show some “brass” (Thanks Bill Clinton!) by sticking around in the city and agitating for better schools for ALL children of Ashley’s generation.
So much for activism and idealism… btw where are the “Occupy” folks now anyway? Renting $2500 apartments?
“btw where are the “Occupy” folks now anyway?”
Squating in Rogers Park with their big LeapFrog protfolio.
“While everyone’s beating the drum for renting…let me renew my request for help in finding a Unicorn Criteria compliant 3 bed. It was hard enough to find a 2 bed that met the UC – and buying was really the only way to do so.”
Anonny: You’re looking in a different market. You’re looking outside of downtown in the neighborhoods. I was specifically asking about the downtown market. It now makes no sense to buy a condo you might only live in 2 years when you can rent something just as nice (sometimes nicer) and only put down $600 in order to move in.
People have FINALLY figured it out that buying a condo is a long term investment. Even 5 years isn’t long enough to make money anymore. And how many people are living in a 2/2 for 7 to 10 years? They’re just not.
Living in the neighborhoods is different. The rental stock is different (although if they build the 3 or 4 rental high rises on the old Children’s Memorial site, then that could change the equation in LP). Sure, the rentals in the 2 or 3-flats usually aren’t as nice as buying. And you, in particular, are looking in a neighborhood that has few rentals anyway (it is mainly SFH with some condos thrown in.) So to keep saying, “you can’t find what I want to buy as a rental” is a little misleading.
In the case of downtown- you can find the EXACT SAME PROPERTY with nearly the same views and finishes in a rental building. Why not just rent it? It makes sense.
@Anonny, question about your Unicorn Criteria. Is it Unicorn because you cannot find it at your price range or becuase it cannot be found at all?
“let me renew my request for help in finding a Unicorn Criteria compliant 3 bed. It was hard enough to find a 2 bed that met the UC – and buying was really the only way to do so.”
Still don’t understand your plan. You’re moving out of current place to rent before buying a new place? Why?
Is this the application year for parker/latin or whatev?
“So by this logic if you have a $100K stock portfolio that loses $12K in value over the course of the year and meanwhile you put away $1K per month from your paycheck into 5 year CDs you haven’t saved anything? I beg to differ and I think most people would.”
This is a good analogy. When we “save”, sometimes we are unlucky enough to lose some of the money, but our original intention is to put the money away for later use, and that it will at least keep its value if we are not putting it in a very risky investment, and that is the best comparison to what the principal part of your mortgage payment is. There is no doubt that if you buy real estate cautiously right now, you are not going to lose money, even if it will still not appreciate for a while. In that way, it is not even comparable to a risky stock market investment. But one thing I noticed in that New York Times rent/buy calculator someone gave above: http://www.nytimes.com/interactive/business/buy-rent-calculator.html
is that they assume around a 4% return on the “Lost Opportunity Cost” column. To be sure, if I could get 4% return on a low-risk investment right now, this would be an accurate way to compare costs, but since I am barely eking out 1% on a money market fund right now, and I do not want to put the money in a risky investment, it is not an accurate comparison. If I bought a 2bd 2ba condo in Lincoln Park or Lake View with low assessments and $6,000 property tax for $400,000 right now and paid in cash, my carrying costs would be only around $600/month, and the Lot Opportunity Cost on the $400,000 would be only an additional $3,000 (1% interest minus tax), yielding a total cost of of around $850/month. What rental unit, pray, could I get for $850/month?? And if that condo rose in value even a tiny bit, the monthly cost would turn out to be even less.
“Is this the application year for parker/latin or whatev?”
Yes.
“Still don’t understand your plan. You’re moving out of current place to rent before buying a new place? Why?”
Unfortunately, that will likely be the case (though likely not until spring 13, perhaps later). We’ll need to sell our current place before we can buy again, and I don’t see how we could do so without moving into a short term rental after the sale (I don’t envision being able to go straight from the closing on our current place to the closing on the new place). And if we can’t sell our current place within a reasonable time frame for a certain amount, we’ll just rent it out for as long as necessary. That would mean we’d be renting elsewhere for even longer (in, again, what would likely be a suboptimal residence).
“Is it Unicorn because you cannot find it at your price range or because it cannot be found at all?”
I think another CC regular dubbed it “unicorn” because of how restrictive/picky I was being. We did in fact find a 2 bed that met the UC, and before pulling the trigger, my challenge to the Chateratti (and myself) was to try and find a true comp to rent instead (in which case weI would have held off on the purchase and rented). I’ve really only seen a few places for sale over the past couple of years that meet all UC, and I’ve not seen any rentals (though I haven’t really looked at UC compliant 2 bed rentals in a while). The UC compliant 2 bed could have had a monthly cost of no more than $3k/mo, be it as a rental or a purchase (with roughly 10% down). Still not sure about the max on a three bed, but I imagine we’ll try to limit it to $3,500/mo (likely again assuming roughly 10% down), but who knows. The UC for the 3 bed would be:
* Elevator building or RH
* If in a building, the building can be in LP on Lakeview Ave or LPW, or in the GC between (roughly) Goethe and North and between Dearborn and LSD)
* If in a RH, between Wrightwood and Fullerton – east of Clark; between Fullerton and Armitage – (roughly) east of Lincoln; between Armitage and Eugenie – (roughly) east of Sedgwick
* 3 real bedrooms (i.e., not a place where a family room/den directly off the living room is deemed a bedroom), including at least one bedroom with an in suite bathroom
* At least one other full bathroom to serve the other two bedrooms
* A powder room/half bath
* Kitchen may be open to dining area, but not to living room; provided, however, that if there’s a family room or some separate area to place the t.v., it can be an open kitchen/dining/living area
* In unit w/d
* Central air (though for the right unit in a building, through-the-wall units might be acceptable)
* One garage parking space
* Private outdoor space, ideally big enough to squeeze a cafe/small table with four chairs and a grill (as I’ve stated before, this Unicorn Criterion could be waived for a place like that co-op on Fullerton, or the PH at 2600 N. Lakeview, neither of which are remotely within our range)
Thanks Anonny. What I was getting at — and i may not articulate this properly so bare with me — was criteria that was dependent on how much you’re willing to pay, i.e. 3/2 cost X, 3/2.1 cost X+Y verus they just don’t build them that way in this part of town no matter how much you pay unless you custom build, i.e.
“Kitchen may be open to dining area, but not to living room; provided, however, that if there’s a family room or some separate area to place the t.v., it can be an open kitchen/dining/living area”
why are you moving I thought you were so “NYC” and were going to do the “city living” thing in your 2/2 in “ELP”
“We’ll need to sell our current place before we can buy again, and I don’t see how we could do so without moving into a short term rental after the sale (I don’t envision being able to go straight from the closing on our current place to the closing on the new place).”
As a renter==loser, I’ve never really considered it, but how do people normally deal w this? Are they qualified for the mortgage on second home in addition to first? Or do they close on first and then move quickly? It’s not like most people that move homes take a rental in between, is it?
“What I was getting at — and i may not articulate this properly so bare with me — was criteria that was dependent on how much you’re willing to pay, i.e. 3/2 cost X, 3/2.1 cost X+Y verus they just don’t build them that way in this part of town no matter how much you pay unless you custom build”
He said he bought one that was UCC, and that he has seen a couple more since. So not imaginary but rare, like the eponym.
“Are they qualified for the mortgage on second home in addition to first? Or do they close on first and then move quickly? It’s not like most people that move homes take a rental in between, is it?”
If you have a competent loan officer, they can run the numbers both ways: 1) keeping your first place and 2) selling it. In pre-bust or “normal” markets, it was common to put an offer on a home you want to buy with a contingency that you need to sell your place first. In a good market this shouldn’t be a problem, it just makes timing tricky. Nowadays you can still ask for that contingency but the seller will usually stipulate that the place is still on the market and if a more qualified buyer (someone who doesn’t already own, i.e. Loser DZ) comes along, they can break the contract.
“I think another CC regular dubbed it “unicorn” because of how restrictive/picky I was being.”
That was me.
And it most certainly included the price. Otherwise, there’s no combination of features that’s *impossible* to get–just might mean buying Vince’s Palmo unit and doing a gut rehab, or Wrigley’s floor on Goethe and spending another $10mm.
“Are they qualified for the mortgage on second home in addition to first? Or do they close on first and then move quickly?”
In addition to what Icarus sez, believe that you can do the “qualify for new, based on PSA for old” and set up basically simultaneous closings.
“Oh sure, cop out and move to the suburbs so little Ashley can have a “good” education rather than show some “brass” (Thanks Bill Clinton!) by sticking around in the city and agitating for better schools for ALL children of Ashley’s generation.”
I think the name you are looking for in this milieu is “Hannah” (or something similar).
Yes, Hof, we know you prefer nice Ustasi names with lots of jays, kays and zees.
How can you call the location of SoNo “Goose Island”, unless it is actually located on the island itself? The proper name for that neighborhood is “Little Hell”.
And the name “SoNo” is so blackboard-scratchingly annoying, that I’m embarrassed for everyone involved: the developers, the agents, the tenants, etc.
“given the pricing and rates over the past couple of years (and today), buying a condo is still the way to go.”
It’s stupid to buy a condo if you’re single unless the cost of ownership is far less than rent. This isn’t the case in the GZ but I have seen properties outside of it where this fits. It’s even stupider if you’re a single guy because when you find Miss Right chances are your place won’t be up to par for desired for cohabitation for both of you for long. So you’ll wind up selling within a few years and taking a hit even if RE stops it’s decline (unlikely) because transaction costs are material.
And Gary if you socked away 12k in CDs but your portfolio declined 12k your financial position didn’t improve (excluding effects of deflation if that hit your basket of goods).
Deflation hit my basket of goods quite strongly the past five years. (ie: why learn/bother to cook with daily deal sites?)