Market Conditions: March 2010 Sales Jump 49.7% in Chicago Year Over Year
The March sales data is out from the Illinois Association of Realtors.
Chicago saw year over year sales gains for the 7th straight month but median prices continued to slide.
In the city of Chicago, March total home sales (single-family and condominiums) were up 49.7 percent to 1,814 sales compared to 1,212 homes sold in March 2009, the seventh consecutive month of year-over-year sales gains. The city of Chicago median price in March 2010 was $209,000 down 4.6 percent compared to $219,000 a year ago in March 2009.
For the first quarter, sales were also up 41.6% compared to the first quarter of 2009. Median sales price declined 8.8%.
Year-to-date January through March 2010, home sales in the city of Chicago were up 41.6 percent to 4,241 homes sold compared to 2,995 homes sold for the same period in 2009. The year-to-date median price was $196,000, down 8.8 percent from $215,000 in 2009.
“The market has shown great resilience as homebuyers take advantage of the tax credit in its final weeks. We are seeing move-up and first-time buyers seeking the opportunities of the Chicago market,” said REALTOR® Genie Birch, president of the Chicago Association of REALTORS® and a broker associate with Koenig & Strey GMAC, Chicago. “We will be, however, watching the coming months closely as interest rates rise and their impact on current lending programs available for qualified homebuyers as well as those specifically looking to secure a jumbo loan.”
All Chicagoland counties saw sales increases year over year. The hottest county was Kane County, where sales soared 72.5% compared to March 2009.
Cook County sales were up 50.8% in March.
“Statewide and in the Chicagoland region we’ve seen double-digit sales increases for the past six months spurred largely by the tax credit and the strong buyer-market conditions, and the forecast for the next three months indicates this trend should continue,” said REALTOR® Mike Onorato, GRI, president of the Illinois Association of REALTORS® and broker-owner of Onorato Real Estate in Coal City. “Strong sales are working off housing inventories and helping to stabilize the market, although the number of foreclosures remains a concern as these distressed properties continue to affect prices. The declines in median home prices have moderated significantly from last year signaling a regain of consumer confidence about home purchases.”
Adds Onorato: “A window of time remains to get a homebuyer tax credit. Qualifying buyers must sign a contract to purchase a primary residence by April 30 but have until June 30 to close the transaction.”
Illinois Home Sales Continue to Post Gains, Up 32.8 Percent in March; Median Price Holds Steady at $148,500 [Illinois Association of Realtors Press Release, Apr 22, 2010]
Wow quite a spike from the bottom of the market, it will be interesting to see how the numbers fare at the end of this summer in say August, and September.
“The declines in median home prices have moderated significantly from last year…”
Great….things are getting worse more slowly.
Perhaps some segments of the market are at bottom…if declines have moderated significantly then we might be close to bottom. I think it will take a few years to begin inching up, but this might be an indication that now is the time to buy…IF you can actually afford it.
Last time I looked at this almost all the growth was below $250K and most of that even below $200K: http://www.chicagonow.com/blogs/chicago-real-estate-getting-real/2010/03/which-homes-are-selling-in-chicago.html#comments
I suspect that March is no different from February in this regard…which BTW explains the drop in median prices.
“…spurred largely by the tax credit and the strong buyer-market conditions, and … this trend should continue…”|”…signaling a regain of consumer confidence about home purchases.”
How does a trend spurred by the tax credit continue once the tax credit ends? Instead of the tax credit drawing buyers in, it’s the ending of it that signals the writing on the wall for sellers to drop price now or be stuck with it forever. This signals lack of seller confidence, i.e. capitulation.
The end result of ending the tax credit is cannibalizing sales from spring and summer. They do get one thing right though–it is a buyer’s market and It Is Time to Buy(tm) from now till later.
So Gary it looks to me like lower priced homes are selling briskly and not much else. It appears the market is being supported by it’s traditionally weakest segments: 1st home buyers and flippers.
1st home buyers will significantly decline as soon as the tax credit expires. Except great sales figs between now and June. Look out below after that.
Investors buying foreclosures will be the largest slice of the market after June 30. Considering that they buy on only on the cheap, they’re going to contribute to a crash in prices after the tax credit expires.
The IAR always likes to tout the increased volume numbers but never addresses the continuing decrease in median price. It seems simple that of course quantity goes up when price goes down.
We talked about this last month, but how much of the median price decrease can be attributed to the mix of homes sold vs. actual prices falling? Also, does anyone know how far median price has fallen since the peak?
Once the tax credit expires, there could be a lot more pain. Then again, median prices will probably go up due to fewer properties selling at the bottom. Young people under 30 are not in the “I have to buy” mentality anymore after seeing friends stuck in their places they bought 2-3 years ago, completely underwater. Young people are perfectly ok with living at home, or renting for the next few years.
My main questions are in relation to income levels and move-up buyers. Can income levels of potential buyers support the home prices we see on the market today at various price levels of inventory? I just don’t see income being high enough, based on discussions amongst friends in several professions including law, consulting, commercial real estate, accounting, and marketing research, who have all seen their pay drop dramatically, especially in the variable bonus component of pay. These are a large proportion of the job market, especially downtown, so how will their lower incomes drive home prices?
Can move-up buyers sell their current places at a loss and still have enough money left over for a larger down payment for a more expensive place?
Sorry, obviously I didn’t read Gary’s post before making mine.
Gary, what do you think has actually happened to prices, regardless of what the IAR is reporting? If the same exact place was on the market now, 6 mo., 1 year, 2 years, etc. ago, what would have happened to it’s selling price? Do you think different price levels have experienced different levels of price drop? If so, in what way?
Dave M: I think prices will crash in july/aug/sept and throughout the winter as investors no longer have to compete against 1st home buyers. Today’s investors buy very cheap – not like investors of the past who overpaid with funny money.
Investors are arguably the lowest priced portion of the market. With no one to compete against them for entry level homes expect them to gain a larger market share, and buying cheaper and cheaper foreclosures and other distressed properties. Which will further drag down the median priced home market. That’s the so called ‘double dip’ when 50% of the existing real estate market is investors buying foreclosures and distressed sales. mark my words.
How much of the decrease in prices is attributed to the purchase of distressed, short saled or bank owned properties?
curious if there is a stat for that out there
If prices do crash the way homedelete is saying, we can all buy 2 or 3 at that point.
Is the decline in income for white-collar professionals in the city something that will come back and recover quickly, or is it a longer term problem? Who can afford all these $750,000+ homes, when no one is earning as much as what people in their same job earned 10-20 years ago adjusted for inflation?
Dave M on April 22nd, 2010 at 9:40 am
Can move-up buyers sell their current places at a loss and still have enough money left over for a larger down payment for a more expensive place?
@Dave…… Big problem and will take years to stablize. There are two factors the fuel the move up buyer. 1. Appreciatation of their current home which funds the larger downpayment in the future home.
2. Income growth.
I don’t see either of these improving anytime soon.
So people that are living in homes that they think are worth $500-800k are pretty much screwed and stuck where they are at for a long time? It seems like a great opportunity to buy a place a year from now, when more buyers “have to sell” due to life events/moves out of state/retirement, etc.
in general the real estate industry cannibalized itself – they fueled this unending desire for appreciation so that buyers didn’t care about anything but moving up after 2-3 years, and when it stopped, the wheels came off the car at 100 miles per hour. It’s fun to watch this, and I wish the market had been allowed to correct itself much quicker. Get rid of all these credits and let it all flush through the system so the market is working again.
Sure, you can buy 2 or 3, provided you have the income to buy 2 or 3, or LOTS OF CASH, neither of which 99% of the Chicago population has.
To answer your question: Yes, in general, they’re stuck. For a long time. Everyone will find a different way out – some will be creative. Expect foreclosures to continue at elevated levels for years, lots of short sales, sellers bringing cash to the closing tables, defaults and BK’s of second mortgages, possibly housing swaps, many will just stay put, possibly even large scale principal reductions. life will go own but few people will monetize the paper equity they once believed they had.
“Dave M on April 22nd, 2010 at 10:00 am
If prices do crash the way homedelete is saying, we can all buy 2 or 3 at that point. “
the Calculated risk blog a had great entry about having 2 bottoms,one a volume bottom and one a price bottom. I think we probably have hit the volume bottom, jsut not the price one for awhile yet
Haywood – Sounds interesting, have a link? I looked over the site and nothing jumped out at me.
I am only looking to buy distressed properties.
You and everybody else, Humboldt1
So basically your advice is to save your cash for 6 – 12 months from now and then there will be a good time to invest? I don’t see how fundamentals would have changed much at that point, unless prices drop another 15% at a minimum.
RE_Novice,
I think the Case Shiller index is the best indicator of what’s going on with prices – not that it’s perfect. But it’s showing prices continuing to drop. There’s no question that prices are a lot lower than 2 or 3 years ago – probably off 25%. Hard to say what is going on by price point. But personally I think prices are very close to a bottom – just because they have already bounced off one bottom and are so far below the trend line.
Too much of any realtor’s opinion on prices is based upon limited data and what has happened lately. Last year I saw sellers opting to hold off selling. This year I’m seeing sellers willing to take the hit to get on with their life.
“Gary, what do you think has actually happened to prices, regardless of what the IAR is reporting? If the same exact place was on the market now, 6 mo., 1 year, 2 years, etc. ago, what would have happened to it’s selling price? Do you think different price levels have experienced different levels of price drop? If so, in what way?”
RE_Novice,
Looks like this system doesn’t like when I post from a different location. An earlier post must have ended up in Sabrina’s spam folder.
I think the Case-Shiller index, while not perfect, is the best indicator of prices and it shows continuing declines. However, we are well below trend so I suspect we are close to a bottom. Plus we already bounced off one bottom last year.
In general prices are down 25% from the peak of 3 – 4 years ago. Difficult to say what is happening by price point but I suspect the lower price points have experienced more deterioration. Too much of what a realtor thinks is based upon their own limited data set and what they have been experiencing recently. Last year I saw sellers willing to wait to sell. This year I see them trying to get out so they can move on.
“Gary, what do you think has actually happened to prices, regardless of what the IAR is reporting? If the same exact place was on the market now, 6 mo., 1 year, 2 years, etc. ago, what would have happened to it’s selling price? Do you think different price levels have experienced different levels of price drop? If so, in what way?”
Not sure CS works at all for many condos now. I see rents of $2200-$2400 for 2/2s in nice neighborhoods routinely now. That equates to well over 400k of purchase price (a very good level for a condo except maybe for a 3br), so I think rent/buy parity is equaled or exceeded by the current rents.
SFH’s under $1-1.5M in good neighborhoods are moving very quickly now. Two in North Center traded with less than a month of market time. You don’t see that kind of activity unless the market has turned. The data lags, but just wait a few months. And those who predict the credit has everything to do with it (on price, not volume) are fooling themselves. 8k matters not to a 800k home buyer, and I am not even sure they’d qualify.
Really? I’m not seeing any of this. I have friends in the rental market and they can get a 2/1 with parking and central air for $1500 or less in all the trendy north side neighborhoods. Sure, if you are going to rent a 2/2 condo they are trying to get more because they have to try and cover their mortgage. Some renters will pay more for granite counter tops.
For the 1 bedrooms, rental prices are WAY lower than what it is to buy. Same on the vintage 3/1 units (probably 30% or more lower to rent than to buy.) All of this is on the north side. If you go west to west town/wicker park/bucktown, the spread is even wider (much cheaper to rent than to buy.)
As for SFHs in the upper bracket moving “quickly” now- that’s not what I’m seeing. Gary- do you track this bracket at all?
Yes, sales have picked up versus a year ago. I’m seeing $5 million gold coast homees selling when NONE sold last year. This is an improvement. But there are homes around $1 million that have been on the market for years in many north side neighborhoods. Years.
2 houses in North Center- a neighborhood popular for its schools- does not make a market. Also, most of the SFHs that are selling are selling for significantly under the prior purchase price (if within the last 5 years.) It’s all about getting a “deal” now for buyers.
And sorry- I disagree that credit has nothing to do with it. 20% down on an $800,000 house is not doable for most power professional couples who just haven’t saved anything.
JMM,
How does a rent of 2200 equate to 400k value? Remember, many assessments are 500 plus. You also have taxes of 4-8k for such units. You also have to put 25 percent down for non-FHA approved units. You need to factor in the opportunity cost of this capital.
I bought a place for 360k and with 20 percent down. It has rents of 2350 and my mortgage and taxes are 1900 per month (on 5.25 mortgage). You add in the utilities of 350 and I make 100 per month. This is not including the opportunity cost of my 72k cash down payment.
Most of these 2/2 condos downtown only make sense below 300′ if rents exceed 2500 and even then they aren’t the best investment.
Gary,
What trend lines are you referring to? Most economists believe we have yet to return to long-term trend lines, though we are somewhat close on rent/own ratios.
HOWEVER, rents continue to drop and so will prices. I expect another 10 percent down here in Chicago
I don’t know if $1MM SFHs are moving quickly but my purely anecdotal sense is that they are at least moving more quickly than a year or two ago. I also think some, maybe much, of that is coming from lower pricing by sellers. Take the listing below, which we’ve talked about. At $1.2MM it seemed way too high. At $1.0MM it seemed like a serious contender, and now it’s under contract. Some other places have also started on the market at less ridiculous prices and gone under contract quickly, although there are certainly lots of clearly overpriced (IMHO) houses sitting out there indefinitely.
http://www.redfin.com/IL/Chicago/3847-N-Janssen-Ave-60613/home/13384216
Sabrina,
My information on high end properties is somewhat anecdotal. I know of a cream puff that sold without ever hitting the market. However, my analysis shows that volume above 250K isn’t really much higher than last year.
Humboldt1,
If you go to chicagohousingstats.com (can’t put a link there or I’ll end up in approval limbo for having 2 links in one thread) and look at the top graph you’ll see a red trend line. I derived that from the first 12 or 13 years of the Case Shiller for Chicago. We’re well below that now.
First of all, $500 assessments are ridiculously high for anything other than a full service elevator building. I am talking walk ups. Plug $2200 into a rent/buy calculator and tell me how you do not come up with 400k @ 5% mortgage and taxes of 1.25% of PP? Opportunity cost of capital, at least in the money markets, is almost nil. If you know you can make 15% in the equity markets, then you shouldn’t have a hard time affording a house because Fidelity has a PM job waiting for you.
If anyone thinks savvy young people aren’t paying $2,200 / mo for well-appointed, well located LP / Oldtown 2/2’s with parking, please let me know because that is news to me. Again, this equates to around $400k at purchase — making up hypotethetical $500 monthly association fees and/or significant special assessments and miracle opportunity costs doesn’t make it not the case.
Sabrina, aren’t you basically saying houses in neighborhoods that aren’t attractive to families (the overwhelming buyers of SFH’s) aren’t selling? Isn’t that a maxim that should always be the case? And isn’t the conclusion here that the market is back for attractive places that are priced fairly? A lot of crap got sold in the bubble, but absense of that crap selling now doesn’t mean the market is on its death bed.
The guy who buys an $800k home is probably also selling a less expensive home – possibly to a first time home buyer or to somebody else who is selling to a first time home buyer. With the first time home buyer removed from the market for a few months after the tax credit expires, the slowdown will effect price and volume in all market segments, including the $800k homes that almost necessarily works its way up from the low end.
And those who predict the credit has everything to do with it (on price, not volume) are fooling themselves. 8k matters not to a 800k home buyer, and I am not even sure they’d qualify.”
I totally disagree. In this market the 800k home buyer can do without 8k in purchase price on the sale (which is all this is right). He or she or they likely need to trade up due to family reasons. 8k doesn’t make or break anyone at this price point. The 8k decrement is not material to the 200k (25% equity) you might put in the 800k house.
I agree that the $8k has little effect for the buyer of an $800k house; but the $8k is important to those farther down the home ownership ladder, and it trickles up. Very rarely do $800k home purchases come out of isolation; they’re not complete immune from the lower rungs of the ladder, in fact, they depend on it.
The two condos I was considering in RN both went under contract last week. Hopefully both buyers overpaid, I can’t wait to see the sales price. And of course I can hope for the sales to fall through for lack of financing and then I can wait for the price to bleed some more.
I think the credit does have a larger impact than most would realize as it does affect the whole market. Realtors thrive on volume, not on pricing, so it made no sense why they hyped up the industry to drive up prices so much. After quite a few years, and some funny lending, the wheels fell off, and they canibalized their own industry. Genius.
There are just so few buyers who can afford to buy $700k+ properties these days compared to 3 years ago. There’s a world of hurt that is just beginning to be seen.
I agree there are fewer buyers who can afford 700k properties (or 800K whatever the litmus is) than before, but they are definitely out there, there are more than there were last year and many have been holding off while their families grow and the 2/2 condo gets all that much tigher for a growing family.
With regard to credit, I think things are better than at any time since the crisis. Jumbo pricing is in the mid 5% range, a spread that has narrowed dramatically to conforming. Sure you need good credit, but we’re talking about good credits at this price point. At the other end of the spectrum, FHA financing up to 410k is ridiculously easy money with a modest spread. More condos that not are getting FHA approved. On top of all that, sellers are more realistic now so deals are comigng together.
Lastly, the buyer for an 800k property is usually buying on income — income that somehow outlasted the great recession and is now probably poised to grow rather than shrink. At that income level, the downpayment is less tied to sale of real estate (though maybe it matters a bit) and more tied to savings from bonuses, options, and/or plain old fashioned frugality. For a couple earning 300k combined (and they do they exist — it’s natural for all of us to see things from our own income perspective, but there truly are more people making more money than any bear who posts here realizes), saving 150k for an 800k place over several years is no major feat. Plus the S&P is up over 40% from a year ago and significantly up from the nadir. It’s also up over 5 years ago, which RE is clearly not. So people have more wealth and if they were dollar cost avg saving, they may have done very, very well over the last year. Net, the 8k credit is chump change for this buyer. Plus, people really do need to buy houses based on family changes, etc. This demand is real, and pent up in my view.
The cynical side of me wonders whether people will want to buy houses after the national guard moves into Chicago to stem the gang / drug violence — that’s another story. My sense is they will, as long as that is its “some other neighborhood’s problem”…
“saving 150k for an 800k place over several years is no major feat”
That’s my whole point. Even at the elevated income levels- it still takes several years to save the downpayment. That’s why there won’t be a rush of people going out and buying upper end properties (and this we can tell from the inventory levels.)
Credit has loosened up but it’s not that loose. And interest rates will be rising which will push a bunch of people down the ladder in terms of what price point they can afford.
I also think those moving up to the upper bracket are selling a condo or some other property first- and that’s much more difficult these days (and they could also take a loss on that.)
There are, of course, houses selling in the upper bracket. But with people being required to put down 10% or 20% (or more)- there are simply fewer who have the financial means to do so now without saving for quite some time.
You know- like the “old” days (i.e. the 1990s.)
“I totally disagree. In this market the 800k home buyer can do without 8k in purchase price on the sale (which is all this is right). He or she or they likely need to trade up due to family reasons. 8k doesn’t make or break anyone at this price point. The 8k decrement is not material to the 200k (25% equity) you might put in the 800k house.”
There are income limits on the $8000 credit and the $6500 move-up buyer credit (as well as you would have had to own for 5 years to get the move-up credit.)
How about the black male who clobbered two young white girls’ heads with a aluminum baseball bat, robbed them and left them in pools of blood at 1800 N. Damen, a well-traveled stretch of Damen Avenue that is lined with high-end boutiques and bistros frequented by the clueless white liberal Obama-loving crowd? Then the knife attack along the Chicago Riverwalk right under the Michigan Ave. bridge? It’s not just in the ghettos anymore.
“If anyone thinks savvy young people aren’t paying $2,200 / mo for well-appointed, well located LP / Oldtown 2/2’s with parking, please let me know because that is news to me. Again, this equates to around $400k at purchase — making up hypotethetical $500 monthly association fees and/or significant special assessments and miracle opportunity costs doesn’t make it not the case.”
They’re not “savvy” if they’re paying this.
It’s hard to find a 2/2 with parking in Old Town or LP for $2200. It’s probably more (because the parking and the second bathroom.) But I haven’t looked in those neighborhoods in awhile (for rentals.) You can easily get a 2/2 in most of the new construction high rises with parking and granite counter tops, views, stainless steel etc. for around $2200 a month (and less if you want the South Loop.)
It’s still about coming up with the $50,000 or more for the downpayment. And it’s still about “how long will you live there?”
Anything less than 7 to 10 years and you’ll lose money. You’re not losing money renting. Both the rent and your mortgage payment are going into thin air.
It’s still way cheaper to rent- even in the nicest neighborhoods in the city (once you add on transaction costs, opportunities lost etc.)
By the way- I’ve been talking to a lot of apartment rental agents recently and most have told me the rental market is awful because renters in Lakeview and LP can’t come down with first month’s rent PLUS the security deposit (usually second month’s rent.) One agent told me that if they try and get more than a month’s security deposit- they can’t even rent the place (no one has the money.) So, they’re all waiving the security deposit just to get someone into the apartment.
Kind of tells you what’s going on with the 20-somethings out there right now.
And everyone thinks they can suddenly come up with the cash to buy a condo? ha! It’s laughable.
“It’s still way cheaper to rent- even in the nicest neighborhoods in the city (once you add on transaction costs, opportunities lost etc.)”
No, it isn’t. $2200 / mo for a condo equates to what PP? I will let you throw that out there, but I bet its over 400k. We’re at rental/purchase parity.
“And everyone thinks they can suddenly come up with the cash to buy a condo?”
Easy. Here is how:
FHA approved building. 3.5% and 410k in financing gets you a PP of $424k and change. With a 15k downpayment. That’s a signing bonus at a professional services firm out of college.
“It’s not just in the ghettos anymore.”
Never has been. Chicago is a violent city. However, reminding people makes them scurry to, gasp, Northbrook.
By the way, no one pays more than one month’s security deposit. They can’t rent it because its “off market” to demand that.
They can always go beg mom and dad for the money for the down payment.
There aren’t that many people with combined incomes of over $300K that want to live in the city, compared to 2-3 years ago. Variable comp is way down across the board for all but a few professions.
“FHA approved building. 3.5% and 410k in financing gets you a PP of $424k and change. With a 15k downpayment. That’s a signing bonus at a professional services firm out of college.”
Really? Right out of college? Making- what- $70k a year? (and that is less than 1% right out of college- if they’re making that salary and they’re all in NY- not Chicago.)
PULEASE.
Don’t even make me laugh. All the recent college grads I know – if they have jobs- are lucky to be making $35,000 or $40,000. Tops.
This example of financing, however, is another reason why prices will continue to go lower in Chicago and other cities because this “easy” financing is going to go away. And when it does and people have to come up with “real” downpayments again (please, oh please, bring back the sanity!) they won’t be buying overpriced condos. I guarantee it.
Also- anyone buying a condo now (unless they’re going to live in it for a long, long time) is walking into their own financial doom. Interest rates will be going up. That means prices have to go lower since incomes won’t be going up much. In two or three years they’ll be underwater. But, oh, what does it matter? They’ll walk away because they only have $15,000 in the game on their $400k asset.
We’ve learned nothing from the bubble.
But we soon will.
Who gets $15K signing bonuses at this point, especially on an after tax basis? What kind of professional services firm is that?
I’ve seen quite a few buildings not get FHA approval. Even if they do, this is the next sub-prime disaster waiting to happen.
By the way- I know plenty of landlords trying to get more than a month’s security deposit. Like I said- the landlords can’t even get a month now. Look around craigslist. Look at all the listings for “no security deposit.” It’s the only way they can rent the unit. The vast majority of renters don’t have $4000 (or more) just sitting in their bank accounts.
And this includes those with roommates. They are lucky they can scrap together $1500 for the first month’s rent.
I agree Dave M. FHA is a disaster in the making but the government won’t stop it because without FHA NOTHING would be selling. Literally. Nothing. No one has the downpayment and no one except the government will lend with that little down.
While transaction volume would certainly be lower without FHA I don’t think it would be zero. Literally nothing = 0.
No there would still be transaction volume. In 2009 FHA only backed 18.7% of the market.
http://www.hud.gov/offices/hsg/comp/rpts/fhamktsh/fhamkt0110.pdf
There is likely a flow-up effect where volume would indeed fall by more than the FHA market share amount if removed because most need to sell their current house to buy another property. But its a stretch to say that transaction volume would be 0 without the FHA.
I’d guess transaction volume would be 30-40% lower without FHA loans.
You are right Bob. I was exaggerating. But transaction numbers would be much, much lower (especially in the conforming loan range.)
Here’s some data from March on FHA loans:
At the end of March FHA had 6,114,452 mortgages outstanding with an unpaid principal balance of $805.6 billion. One year ago there were 4,904,167 FHA mortgages on the books with an unpaid balance of $577.2 billion. This is an increase of nearly 25 percent in the number of FHA loans and almost a 40 percent increase in the portfolio value.
The saddest part is the lack of press and the federal government basically silently allowing the FHA portfolio (of mostly poor quality mortgages) to continue to grow.
Most of the current administration’s programs in response to the financial crisis extend government support through the end of 2012.
Look for the FHA time-bomb to quietly build up pressure yet the government to continue to grow more involved in the housing market up through 2012, conveniently leaving a worse problem for the next administration or second term.
The FHA will certainly need a bailout in the future and the mainstream media will be parroting the line that they have been in other areas of the crisis–“Perfect Storm” and “Nobody could’ve seen this coming”.
FHA is a time bomb just like sub-prime was. It will need another government bailout and prices will decline all over the city yet again. Total genius move yet again.
So what Sabrina? The FHA program got aggressive at the bottom, and now that prices have stabilized and the economy is improving, that move will likely appear heroic and TARP-esque in year or so.
I understand you and the band of sycophants are perpetually bearish even when presented with facts to the contrary, but let’s all admit your critical assumption on FHA is simply that prices will decline rapdily from current levels for no apparent reason. I don’t think anyone credible sees that, especially as unemployment drops, the economy improves and inflation remains in check. Where is the ticking time bomb, other than you saying so?
The bigger reason why prices in the city will decline, if at all, is rising violence and declining services. These are very real factors.
I honestly feel that if it weren’t for awful traffic, Chicago prices would be 25% lower.
JMM,
Supply and demand. More foreclosures, less demand = lower prices. There is 3 years of shadow inventory.
I’ve posted the link below two or three times before yet no one wants to acknowledge that fact that 3 years of shadow inventory WILL affect prices in all categories of homes.
http://www.housingwire.com/2010/02/16/shadow-inventory-of-homes-to-take-nearly-3-years-to-clear-sp/
“I don’t think anyone credible sees that, especially as unemployment drops, the economy improves and inflation remains in check.”
This guy, the senior vice president of real estate sales for Altisource Portfolio Solutions, a leading provider of real estate, mortgage, asset recovery and customer relationship management services – believes there is up to 5 years of shadow inventory.
http://www.housingwire.com/2010/03/25/altisource-svp-powers-sees-five-years-of-shadow-inventory-in-worst-case-scenario/
Even if you argue the banks will drip out the inventory as slowly as possible…..how slow can they really go? Can they drag it out for 7 years? 10 years? Do you still expect foreclosures to be effecting the marketplace for 10 years from now?
Amhurst Securities sees “massive shadow inventory” of 7 million homes which will is almost 1.5x the number of homes sold in the US every year.
How stable is the market really when there are millions of home owners who haven’t paid a mortgage in a year, two years or longer?
http://www.businessinsider.com/henry-blodget-massive-shadow-inventory-overhang-will-keep-pressure-on-house-prices-2009-9
A lot of landlords are eliminating security deposits to avoid possible violation of the Chicago Residential Landlord and Tenant Ordinance. The Ordinance is strict and, at present, does not include any “right to cure” language. However, this could change and, if it does, more landlords would likely require security deposits for their rental units.
“Where is the ticking time bomb, other than you saying so?”
There are a number of them in the Chicago market including:
1. Huge numbers of people underwater and, in the condo market, wanting to move so they don’t raise Baby Olivia in a one or two bedroom condos with no parking. Look around at the condos for sale in Lakeview right now. A huge percentage are already listed at or below what the seller paid in the last 5 years and they’re not selling at those prices.
2. Rising interest rates. Canada will likely be raising in June and analysts expect the Canadians to be around 1.5% by the end of the year. How long will the US wait to follow? (granted- Canada’s economy is much more stable than ours is right now.) But there won’t be cheap money for forever.
3. FHA tightens further. They keep raising requirements and fees to try and contain growth but there just aren’t loans out there without the government backing.
4. Shadow inventory of foreclosures will drag prices down further. As Homedelete points out, the number of homes that will come back on the market at much lower prices is huge. This could drag out for years- but that also means prices will continue to move lower, slowly, for years. I wish they would just get it over with.
Sabrina:
We are seeing a loosen on our end in regards to loans. Several of the mortgage insurance companies are now allowing 5% down on condos again. This is what pretty much killed the condo market here because you couldn’t get mortgage insurance on condos without 10% down and many of the MI companies went to 15% down. The only option was FHA for the most part which is what was driving the growth in FHA.
The MI companies are now telling us that they are seeing stablization and have begun to start offering 5% down again on condos in Chicago for conventional mortgages.
“For a couple earning 300k combined (and they do they exist — it’s natural for all of us to see things from our own income perspective, but there truly are more people making more money than any bear who posts here realizes)”
Oh noes, you too, JMM. Any of them interested in or already living in Avondale? Even at half that HH income?
Anon(tfo) –
only the progressive ones!
“Oh noes, you too, JMM. Any of them interested in or already living in Avondale? Even at half that HH income?”
“Don’t even make me laugh. All the recent college grads I know – if they have jobs- are lucky to be making $35,000 or $40,000. Tops.”
Every single friend I know from school that graduated with a Comp Sci degree is employed around the country for 2x that. But yes, business/LAS majors are screwed.
My law clerk is 2008 big 10 grad. $25,000 a year.
So YMMV.
Liberal arts, grad, unfortunately. Lots of those in the marketplace.
Simon,
The key to a good job is to go to college and get a “hard” degree. Engineering, hard sciences, etc. You don’t even have to work in that field. Actually, I know a bunch of people that make more money in other fields than they ever did as an engineer. Nothing says “I’m smart and work hard” than an engineering degree. Employers can’t get enough of people with these backgrounds.
The real problem with people that make a lot of money is that they aren’t stupid. You aren’t going to get them to buy an overpriced condo based on their emotions. Oh, and they really really hate deceptive real estate advertising. Like the open house I went to in my neighborhood yesterday. Claimed it was a 2BR, except the second bedroom had french doors that opened to the living room and had no closet. I was excited to finally see a 2BR that came close to the price I pay to rent. Now I know why! Guess I’ll just continue renting.
“They’ll walk away because they only have $15,000 in the game on their $400k asset.”
Can anyone elaborate on the cost of walking away? I have a few friends who bought during the bubble and they are now underwater. But they aren’t walking away nor do they plan to. There are consquences, no? It is not like they can walk away, rent for 2 years, and easily buy a new place when they start popping out kids – right?
“Liberal arts, grad, unfortunately. Lots of those in the marketplace.”
I remember when I was an undergrad though & the libarts undergrads not going to lawschool said it wasn’t “about money” and they wanted to “do what they love”. I had no idea so many people loved being Starbucks baristas or 2k/mo law clerks.
Bob, I don’t think they have a choice. There quite simply aren’t any jobs for many college grads. My law clerk is lucky to have a job and knows it. The alternative is to move back home to the south suburbs.
homedelete: Is there am effective way to search NODs (notice of defaults), lis pendens, and upcoming foreclosure auctions for a given city within Cook Country, (i.e. Evantson or Glenview or whatever)???
How does Realtytrac compile this info? Are they the only firm that has it automated? How do they do it?
As an armchair type, I stopped by ccrd and county clerks’ respective offices, they have no “search” capability, I was told that I would have to purchase the Chicago Law Bulletin every single day and read through all the public notices, which are apparently never organized in any rational format. They are not published by location, city, etc.
How can one streamline this info gathering process, and as I mentioned, how does Realtytrac.com do it, if it’s all still manual entry? There has to be a better way.
Anyone?
here’s another example:
http://park-ridge.cook.il.foreclosuredatabank.com/
How do these people compile and automate this data? whereas an armchair person is told they have to do it manually using the Chicago Law Bulletin? (I’ll go blind look at that small print every day).
Government is pulling the life support off of the housing market this year:
http://online.wsj.com/article/SB10001424052748704388304575202332735443388.html?mod=WSJ_hps_LEFTWhatsNews
I suspect all those who bought within the past year assuming the government stabilized this huge market via its interventions were indeed suckers. Because really without the government support, we’re just left with a bad economy.
Dan,
You have to pay for realtytrac to compile the data for you. There may be a handful of others that do it. Its worth the money if you’re looking to scout foreclosures.
Crains has a map that shows recent foreclosure filings by zip. those are also hand entered which explains why it’s updated only once a week.
“How do these people compile and automate this data?”
If you buy all the data in CSV (or any other “standard” format), yuo can sort it all into your database which already links every PIN with an address and then pull it out that way. Once you get the database started up, it’s reasonably easy (if not necessarily cheap) to maintain, but you need to start it up.
$2k/mo is more than my non-engineering friends make 🙁
Tipster, at least the place had a window in the bedroom! You can always change the doors and build a closet, can’t add a window though.
anon (tfo): I don’t follow that. If you could kindly explain that further…how does realtytrac get the data in any form? I didn’t get the feeling the County Clerk or ccrd has the data in CSV form or any form for that matter. How do these companies get the raw data, other than manual entry via the Chicago Law Bulletin? Plus the Chicago Law Bulletin only publishes foreclosure auction notices, whereas Realtytrac offers info on NOD and lis pendens filings. How do they get the info, and then dump it into their database? Manual entry? I’m still confused. Thanks much.
“I don’t follow that.”
Okay, a little flippant. Maybe not from Cook County, but it’s the same idea, and the same principal title companies operate on–get the data set started and maintain it. And, if you think that there is not a TON of muni/county data available for purchase that is not generally advertised as available, you’re fooling yourself.
I know for sure you can buy the Cook County Assessor’s Database. The data is of course “free”, but they charge a very large processing fee. Somewhere in the neighborhood of $50k. At least they used to. Not sure if it is cheaper now or whatever. They may even has a subscription service at this point. I imagine the CCRD might have a similiar setup. But the way it was priced made too cost prohibitive for the arm chair type.
I will try to find out some more info from the CCAO as my interest is peaked.
Just found out it is $5k a year for a single user license to the CCAO database. Not sure exactly what the gives you but still expensive unless you have a way to manipulate and use that information to make up for the cost.
“I suspect all those who bought within the past year assuming the government stabilized this huge market via its interventions were indeed suckers. Because really without the government support, we’re just left with a bad economy.”
Indeed suckers, because the broader market (which is up vs. 5 years ago and 40% LTM) is dead wrong. Amazing how a few disgruntled would-be real estate owners in Chicago griping about how little they can afford have it all figured out.
It’s true — the secrets to the world are there before us, you just need to know where to look.
JMM:
I think there is a difference between buying a house you might live in for 10 years and buying a condo where, really, the pain is quite severe. People don’t live in condos long. 3 years. 5 years. Especially if it’s the 1 bedroom or 2 bedrooms/1 bath. There’s a reason most of these properties were apartment buildings until 6 years ago.
I know many people who are learning severe life lessons because they bought into the condo dream in Chicago in the last 5 years. It will take them years to get back the money they lost.
And this market isn’t done correcting itself either.
I really wish people would buy a property to simply live in. But the vast majority can not. They still see dollar signs and appreciation and how much they’ll “make” in 5 years. Just live in it!
The housing obsession that is still going on is truly remarkable given the price declines nationwide. What will it take before people are truly afraid of buying real estate? I don’t know. But we will see that eventually. This happened after the Great Depression where some people never bought property again.
Sounds like a bunch of sour grapes to me. Pronouncements, not supported by breadth of fact, that thinly veil the financial insecurities or failed aspirations of their authors.
And how silly is it to say something like “What will it take before people are truly afraid of buying real estate?” Did you really ask that question? Not surprising when you also attribted all sales volume to FHA financing. Give me a break.
RE has turned around. Get over it.
“Indeed suckers, because the broader market (which is up vs. 5 years ago and 40% LTM) is dead wrong. Amazing how a few disgruntled would-be real estate owners in Chicago griping about how little they can afford have it all figured out. ”
I’m talking real estate. Are you saying real estate owners that bought five years ago are up? I’m not seeing that in broader real estate indices.
Equities? The S&P was at 1,200 at 12/98 on the way up (tech bubble), at 1,200 again on 3/01 on the way down (tech bubble burst), at 1,200 again on the way up (RE bubble) on 10/05, at 1,200 on 9/08 on the way down (RE bubble burst). And you’re trying to say that everything is peachy just because its at 1,200 because the government spent trillions of dollars? Sounds like a lot of volatility to me to be back where we were in 1998. Could’ve done a lot better investing in interest bearing bank accounts or even Munis.
Its plain to me the housing market is being supported by massive government programs and once removed, while I am no economic genius, I suspect housing will resume its decline.
Housing to Test Economy’s Post-Stimulus Strength
http://online.wsj.com/article/SB10001424052748704388304575202332735443388.html?KEYWORDS=housing
“That’s the nagging question right now,” says Yale University economist Robert Shiller. “How much of the strength in the housing market is just the perception of government support?” he said. “I do have concern about a double dip.”
Sorry JMM, I’m going to go with Shiller on this one. We’ll know by the end of the year but I’m predicting a very rough housing market to resume in earnest.
Oh yes and JMM on the S&P’s crossing 1,200 at various points I’ve referred to their respective bubbles as tech and real estate (RE). I am referring to the current bubble we’re in as the “government spending” bubble. I do expect a leg down as we’ve seen in the other bubbles when the government spending bubble bursts.
Shadow housing people!!! Up to 5 years inventory! Housing has not turned the corner. You’re looking in the wrong places JMM.
JMM, sounds like your job or a large portion of your investments is somehow related by the real estate industry in some large way. If the government dropped all support today of the real estate industry and pulled the mortgage interest deduction, what would happen to the housing market? It’s been artificially propped up for years.
Chicagoland Case-Shiller came out today and is at 122.57, a decline from January of 2%. Still above its localized low of 122.37 in April of 2009, however (grrr Gary Lucido still hasn’t been proven wrong.. yet).
JMM as the Iraqi Information Minister: Real Estate is fine! The S&P is fine! Everything is fine and theres nothing to see here folks, move along! There are no Americans in Baghdad!
http://www.welovetheiraqiinformationminister.com/images/07-minister.jpg
Chicagoland Case-Shiller for condominiums came out today and is at 124.61, a decline from January of 3.15% and a new localized low. Chicagoland condominium values are back at July, 2002 values.
I remember July 2002 fondly as I was about to start an overseas assignment. Looking bad I sure am glad I never heeded the siren call (or catcall) of purchasing a condominium as a means to get rich.
These days I’ve seen New Homes Notebook interview professionals in the industry and they stress that purchasing real estate is restricted to “mature” people. I’m not sure what they mean by mature but I’m sure glad I’m not one of them!
For condominiums the Case-Shiller Index started tracking their valuations in January 1995.
For the period January 1995 through September 2006, a total of 141 observations, the Case-Shiller condominium index declined in only 18 of those months (12.76% of the time).
For the period October 2006 through February 2010, a total of 41 observations, the Case-Shiller condominium index declined in 28 of those months (68.29% of the time).
I see nothing to indicate that the trendline will reverse. The trend had previously reversed in the periods May-Sep 2007 and May-Aug 2009 but these reversals did not stick.
Bob: Where was Chicago in the 20-city index? Last month we fell the most in the country. Did that trend continue?
Chicago was at #17 in the 20-city index at (-2.03%). The steepest drops were in Portland, OR (-2.44%), Minneapolis, MN (-2.15%), and Cleveland, OH (-2.13%). San Diego was the only city in the index to register a month over month gain at (+0.62%).
The overall 20-city index was down slightly at (-0.85%).
A big green shoot for bulls, however: nine out of the 20 areas in the index had sequential year/year gains which are reflected in both the 10 and 20 city index showing slight year/year gains. Chicago was not among those areas–for single family homes according to the index Chicago hasn’t had a year/year gain since April 2007.
A fascinating book titled One Hundred Years of Land Values in Chicago by Homer Hoyt was published in 1933 by the University of Chicago Press.
JMM, you should read it. You can do so for free on Google Books. Booms and busts have been a part of our city since the beginning, and they take a long time to play out. This particular boom/bust period is far from over. Some, not all, real estate is done dropping. The rest will take many years and many successive knife-catchers before it is done.
http://blogs.wsj.com/economics/2010/04/24/number-of-the-week-103-months-to-clear-housing-inventory/tab/article/
I officially decree and declare that housing that hit bottom! $800k houses will sell like hotcakes!
The WSJ calculates only 103 months worth of shadow inventory – 9 years worth of foreclosures in the pipeline at today’s sales rate!
The bottom is in! Buy an $800k pad in lincoln park NOW or be priced out forever!
LOL. I feel like I am up against the Taliban here.
Ok, I don’t totally disagree with the group think on this board, but it’s fun to mix it up every once in a while. Don’t get me completely wrong — I do think there is some way to go, but it also seems true that some buyers are definitely more confident with premium properties in sought after areas. Whether these will appraise out is another story. I have heard appraisals have been sinking lots of deals recently.