Market Conditions: Median Chicago Price Plunges in January
For many months we’ve been watching sales of single family and condos in Chicago fall sharply but prices remained elevated.
That looks like it’s about to change.
In January, median price finally followed sales to the downside as it fell to $206,250 from $290,000 in January of 2008.
Sales sank another 23.5% to 888 properties from 1,161 in January 2008.
“Recent good news about the federal stimulus law combined with President Obama’s plan to minimize foreclosures offer attractive incentives for first-time buyers and assistance for homeowners facing foreclosure,” said REALTOR® Pat Callan, president of the Illinois Association of REALTORS®.
“The results of the January sales survey confirm the level of recent buyer activity has been tentative and anemic. At the same time more and more sellers have reached the lowest price point at which they are willing or able to sell their home,” said David Hanna, president of the Chicago Association of REALTORS®.
“We wholeheartedly welcome the remedies such as the $8,000 tax credit for first-time home buyers in the 2009 stimulus package and the Obama administration’s most recent announcement for homeowner and foreclosure relief.”
Statewide Home Sales Down in January Compared to a Year Ago
Illinois Median Price at $149,900 [Illinois Association of Realtors Press Release, Feb 25, 2009]
I think this really highlights the flaw in the median price numbers. There is no way “home prices” fell that much in one year.
It’s amazing how the media keeps talking about prices plunging without addressing the fact that prices haven’t been sensible in years. Even if the median price did supposedly fall 28.9%, it’s because prices were ridiculous anyway.
An “attractive incentive” would be if I could afford a home in Chicago, which I still can’t.
If the REALTORS® want 3% commission from me, they should want prices to continue to fall.
So you want the article to read, “Median prices fell 28.9%, but prices were ridiculous anyway.”
LOL.
Gary:
What I think these numbers reflect are the type of housing that sold in January. The upper end isn’t selling so the median price is plunging.
I’d like to know how many of the 888 sales were “distressed.” Given the drop in median price, I’m assuming it was a huge percentage.
If Chicago is anything like the national numbers, where 45% of January existing home sales were distressed, then the “regular” properties simply aren’t selling at their asking prices.
Buyers want deals. But anyone who bought in the last 5 years, and is now selling, doesn’t want to lower their price (or sell for less than they paid.) So we’re still in a stand-off.
The banks are the only ones selling properties.
I read that in December, the median home price sold in Detroit was $7,500. The Case-Shiller numbers are a better gauge of the market, although lagged.
CS numbers for November came out on Tuesday. Pretty much as expected ~3%, down month/month.
Sabrina is right, the median number reflects what is selling. I have been repeatedly using the example of Old Irving, where last month the median listing price for SFH was $800k but only only home sold for $400 something. Buyers are looking for deal, and, buyers are using conventional financing. This is slaughtering the higher end of the pricing spectrum. In my opinion the best deals in housing in the upcoming years will be the higher end. The home that used to be listed for a mil will be $500k, and the $1.5 will be $900k, and the only way to get a mortgage will be to have a large down payment and verifiable income.
above should read “only one home sold for $400k something”.
Ain’t seen nothin yet… Are ya ready for the summer?
Yeah the only things selling now are bank owned $25k shacks in Englewood and Austin!
Sabrina:
“If Chicago is anything like the national numbers, where 45% of January existing home sales were distressed, then the “regular” properties simply aren’t selling at their asking prices.”
No, Sabrina. Chicago is quite behind the national numbers when it comes to distress sells. See bellow the expert from the NAR Press Release.
I agree with Ze Carioca. We haven’t seen anything yet. The high end will fall last, but it will fall hardest.
From the NAR Press Release:
“Distressed sales activity appears to be leveling off, although there are wide differences locally. For example, close to 80 percent of all sales are either foreclosed properties or short sales in Santa Ana, Calif., but less than 20 percent in the Chicago region,” Yun said.
This $8,000 tax credit (in it’s current form) is a joke. The credit starts phasing out at $75,000 (which I guess makes you rich), but ironically, most people that have enough cash saved for a 20% down payment probably exceed this income limit.
Are foreclosure sales factored into median price?
“Are foreclosure sales factored into median price?”
How would they not be?
“Buyers want deals. But anyone who bought in the last 5 years, and is now selling, doesn’t want to lower their price (or sell for less than they paid.) So we’re still in a stand-off. ”
Its not a question of want anymore. These sellers just cant’. They don’t have 40-50k sitting around to bring to the table especially in this economy.
Now if the realtors lowered their 6% commission to say 1%….
Sartre.. so logical leap from this… “Its not a question of want anymore. These sellers just cant’. They don’t have 40-50k sitting around to bring to the table especially in this economy.
At some point that’s why people just jingle mail the keys. Once I am negative I wouldn’t sweat it or even try to sell anymore. My loss is limited. Just send in the keys! This is why banks are pushing the gov’t to do ANYTHING to keep prices from falling. Think of the Gajillians in free puts these banks wrote. Think of the actual value (since it can be valued) if you placed those puts on the banks balance sheet as a liability. Wow!
“For example, close to 80 percent of all sales are either foreclosed properties or short sales in Santa Ana, Calif., but less than 20 percent in the Chicago region,” Yun said.”
But in California, the average home was over 17x income at the peak!
Here in Chicago, it was only 7x at the peak of the bubble.
I wouldn’t expect 80% short sales like Cali, but over the next year I’d probably expect that 20% to increase quite a bit.
Ze, I agree with your assessment, thats how things rolled in leading decline states like CA, FL,AZ. Wonder at what point mortgages will be made non recourse, or does refi do that already?
OBAMA’s elimination of the mortgage interest deduction for the wealthy is going to further depress real estate markets. We are going to bail out the low-end uneducated buyer and completely disincentivize those with the capital to catalyze the market from investing. If you factor out the interest deduction, owning property is less attractive relative to other asset classes. This is some of the most short-sighted political thinking I have ever seen.
First time buyer incentives aren’t going to work. We depleted the first time buyer pool over the course of the last decade!
Traditionally first time buyers have been in their 30’s, lower lending standards allowed people in their early and mid 20’s to buy homes with little or no money down.
In the “new economy” banks will not lend unless you have 20% down. It is going to be years before first time homebuyers develop enough savings to produce a down payment. How are these non-existent first time homebuyers going to help the housing market? It is the first time homebuyer that killed the market!!!
Sorry for the rant but this whole country is turning into the Post Office.
Ze,
And the sad part is government is crafting its policy responses on a limited study off of data in Massachusetts a few years ago when underwater people generally did not walk from the deal en masse even when they had the option to. The problem with this data is that they probably weren’t underwater as much as many today AND you needed to be creditworthy to get financing back in this timeframe.
When you remove the creditworthy criteria, IMO all bets are off. People will start walking away from their mortgage obligations en masse, IMO, once it becomes clear that keeping up your end of the deal will cost you tens or hundreds of thousands of dollars.
You nailed it Ze. Banks need that extra cash that they would not get, if the government did not give homedebtors false hope that it is worth keep paying mortgages on houses that are, or soon will be, underwater. The government goal is to help banks, not homedebtors.
homedelete,
I think the size of fall will depend largely on area. I see 1MM homes in LP and 1MM homes in Bridgeport, same thing with 250k condos. The bubble made marginal neighborhoods have pricing on par with more desirable neighborhoods. These marginal neighborhoods are gonna crash much harder. Not all neighborhoods are created equal.
Limited available financing, over building and lack of credit worthy borrowers will make real estate difficult to sell for the foreseeable future. I had a guy yesterday who bought a two-flat on the far north side for $500k in 2006. Not one of the nice two flats but the boxy ones that are all over skokie. I asked how much he got in rent for both units: he said $2,000 if both units are leased. I asked how much the mortgage was: he said $3,500. I asked how he paid the difference. he said he borrowed the money, from his credit cards, from his primary residence, from his family. Yesterday in my office he capitulated. I didn’t quite ask why he went on for so long but the obvious unstated answer that I got was that he was holding on to it b/c real estate goes up, and he was hoping his capital appreciation would outperform all the money he put into it. I feel bad for the guy, but, on the other hand, he made some pretty stupid stupid business decisions. Now who’s going to buy his two flat for what he paid? Who has $500k lying around to purchase a cash flow negative property? Who is going to lend a buyer 100% or 90%of the purchase price for a cash flow neg property? The answer is nobody, nobody will do that. He’s going to miss his first mortgage payment this month and jingle keys the building back to the lender. Lord only knows how many more people are out there like this.
Speaking of 500k two-flats I wonder how the Crain’s story of the paralegal turned out…did she find a greater fool, is she still in possession covering the difference or is it going into foreclosure?
Homedelete,
I think the credit rating system needs to be refined substantially. I have never missed a bill and because I added my wife on my account for a credit card, my credit score dropped 50 points. I pay a monthly fee for one of those credit monitoring services so I know nothing suspicious is going on.
I also love the difference in credit scores between the 3 reporting agencies. One agency was 100 points lower than the other two agencies because it appears that most of my credit is not showing up on their report so I look like I have not credit history. Always fun stuff to fix…..
I expect to be called an IT CONSULTANT® from here on out. Yes… you have to say the REGISTERED part of my title when you talk with me.
“Hello Stephen, IT CONSULTANT REGISTERED. Can you come kick ass on my IT project?”
Sorry Stephen, it won’t do.
In order to qualify for such treatment the minimum requirements to obtain the corresponding title should not exceed a 6 week course and a test. For an IT CONSULTANT you need at least a bachelor in computer science, so you do not qualify.
Sarcasm off.
stephen, you also need to demand 3% of the cost of every project you work on as your fee, then and only then you can put a itconsultor (TM) behind your name.
You guys are right, the real fireworks are still to come. No one should fear missing the bottom on housing prices, as it will be around for awhile.
GDP fell by a revised 6.2% annual rate in Q4. This is terrible data and I’ve never seen anything like this before
Will the dow go below 7,000 today? It’s at 7,055 right now.
Hmmm. I wonder if anyone has calculated how much wealth has been destroyed since DOW 14000.
I also wonder if I’ll be able to buy a 250K SFH in Chicago one day in a hood without random gunfire.
“Will the dow go below 7,000 today? It’s at 7,055 right now.” Maybe if the A/d’s get worse, right now its not too bad only 2-1 negative. And watch the S&P instead of the Dow, its a MUCH better indicator of how the stock market as a whole is doing.
Oh and we could see a decent bounce at 740 on the S&P. If we don’t, prepare for another crash. 🙁