Market Conditions: New Downtown Condo Sales Sink 73%
Gosh- a lot happens when I’m out of the loop for just a few days.
Thanks to G and others who posted the new downtown condo sales info in a prior thread (with links to the Crain’s article.)
I’m reposting it here for further discussion because of the implications for the overall market from these sales numbers. These numbers do NOT include The Spire and are for buildings with at least 25 units.
- First Quarter 2008 Sales: 201 units
- Second Quarter 2008 Sales: 126 units
- First Six Months 2008: 327 units
- First Six Months of 2007: 2,443 units
- Total number of new units expected by end of 2009: 9,528 units
- Total of those “unsold”: 33% (the others have contracts)
- Number of units put on hold this year: 10 buildings totaling 1,100 units
From Crain’s:
Sales are expected to continue to fall this year, making it unlikely that the market will reach a total of 1,200 contracts in 2008, far below the previous low recorded by Appraisal Research of 3,258 in 1998.
“This is just the bare minimum in terms of (sales) activity that a city of this size would support,” says Gail Lissner, vice-president with Chicago-based Appraisal Research.
“People want to know where the bottom is — if they knew where the bottom is, they would jump up and buy,” says developer Charles Huzenis, a principal in Chicago-based residential brokerage Jameson Real Estate LLC. “I don’t know when that day is, and I’m not predicting it.”
He concedes that slow sales have delayed the sellout of his 34-unit condo project at 50 E. Chestnut St. The luxury building, with 15 sales closed, was originally expected to be sold out later this year but now won’t reach that goal for another 12 months, he says. He has refinanced the development, lowering his interest rate and buying time.
Condo Chasm Hits New Low [Crain’s Chicago Business, Aug 18, 2008]- with an excellent bar graph depicting sales going back to 1997.
Many of the available units will go Section 8. Or at least they’ll try. I don’t know if there are enough Section 8 vouchers in the city to fill all the vacant condoze downtown.
I think the nice condos in desirable areas will have no problem selling, once the sellers get real about pricing. But the poorly built units in terrible locations (within throwing distance of the Kennedy for example) will not sell at any price and become welfare housing once the sellers abandon the places and quit paying taxes on them.
In other words, the buyers set the price. A concept many realtors struggle with.
I know no one will produce it, but I’d like to see that same Crain’s graph broken into smaller segments. North to Cermak, the lake to the freeway is way too diverse an area for good analysis, especially over a period like ’97-’08.
The housing bubble drove the prices up so high that people could afford to buy these condos only by resorting to funny mortgages which they ultimately could not make the payments on.
Now that these mortgages are not available any more and people have to finance with conventional mortgages, people can no longer afford to pay these high prices. The condos will sell once the prices (corrected for inflation) drop to pre-bubble levels. What is keeping them from selling at the present time is that the sellers are still in denial about the prices at which they can be sold and so far have still been unwilling to lower the prices to pre-bubble levels. Once the sellers adjust to reality and bring the prices down to realistic levels the condos will sell.
Homedelete:
You’re assuming that these buildings somehow turn into apartments (like Burnham Pointe is doing) and then many of them are Section 8 vouchers?
How will the developers pay their construction loans with that?
Sabrina,
You have to remeber that HD’s forcast is for a worldwide depression, no jobs, soup kitchens, etc. 1929 all over again only worse.
Locusts! Drought! Chaos! Rome is burning! Invest when there is blood in the streets I say….
The taxpayers will get stuck with the construction loan tab after the developers and banks fold.
I really have to wonder why more of these developments that aren’t early in construction and have less than half the units sold aren’t being halted.
Bob,
Many of the projects have already stopped. I have friends who work for some of the big developers in the city, they and are finishing projects and getting ready to look for new jobs, One may go to Dubai. Construction in the suburbs is dying, also know some suburban residental architects who have no work and have let go most of their staff. As I mentioned before the architects who are working on the Spire have stopped, I doubt that project will go ahead. My guess is that if the project isn’t out of the ground today; it will probably stop.
“Invest when there is blood in the streets I say…”
Where is the blood? Prices haven’t dropped much in Chicago yet.
It seems that there are many people here who think the only reason to build condos is to score some insanely large profit… These projects in the city are going to continue to be built and slowly, the units will be sold. Sold at fair prices, but the difference is that the developer/builder is not going to make a 45% margin anymore. They may make a few bucks or break even. As long as they don’t lose money, then they are fine. Plus, they like to keep their crews working rather than letting them go. During hard economic times, buisnesses buckle down, they don’t make a profit, but they also don’t loose their shirts….
Real estate, especially condo real estate, has always been a boom and bust industry. It experienced the same thing in the last bust of the late 80s/early 90s, in that example many developers did indeed lose their shirts.
The Chicago Coalition for the Homeless is way ahead of you. They pushed a bill in the Illinois Senate that would prevent associations from prohibiting rentals. It came very close to passing. They clearly see many of these units as future low income housing.
I know of a 18 unit condo conversion done around 1999 where the developer sold the last 4 units to a transitional housing not for profit.
I know of a 12 unit conversion where a unit was rented by owner to Section 8 receipents who turned out to be a drug dealers. It took the association a year to get them out.
I cannot predict the exact route to Section 8; I’m only predicting the future uses for those buildings.
“Sabrina on August 21st, 2008 at 1:34 pm
Homedelete:
You’re assuming that these buildings somehow turn into apartments (like Burnham Pointe is doing) and then many of them are Section 8 vouchers?
How will the developers pay their construction loans with that?”
______________________________________________________________
I’m probably one of the more pessimistic bears here, but, many of the other housing boards such as the hbb have made significantly more dire predictions than me – and they’ve generally been right.
My two most bearish predictions are 1) a return to 1999 prices in the frothier areas as prices overshoot the mean; and 2) 2013 will show the first signs of a turn around.
dvalsko on August 21st, 2008 at 1:38 pm
Sabrina,
You have to remeber that HD’s forcast is for a worldwide depression, no jobs, soup kitchens, etc. 1929 all over again only worse.
“My two most bearish predictions are 1) a return to 1999 prices in the frothier areas as prices overshoot the mean; and 2) 2013 will show the first signs of a turn around.”
Bear in mind, this is from a law clerk who a month ago demonstrated that he doesn’t know what compound interest is.
D
“The housing bubble drove the prices up so high that people could afford to buy these condos only by resorting to funny mortgages which they ultimately could not make the payments on.
Now that these mortgages are not available any more and people have to finance with conventional mortgages, people can no longer afford to pay these high prices.”
Thanks for your analysis Captain Video, these are some really new, innovative thoughts. None of us here were aware of these factors, thanks for explaining this to us!
D
I know that was kinda mean but I couldn’t help myself…
Turn off the computer, get your 375 lbs fat ass out of the chair and get exercise. Seriously, your comments aren’t witty or funny; they’re juvenile and sophmoric. The sooner your comments stop, the better this message board will be.
“Deaconblue on August 21st, 2008 at 4:12 pm
I know that was kinda mean but I couldn’t help myself…”
I love how sensitive you are, it’s precious!
lets keep the analysis here progressive Captain Video. And let keep in mind that this is a chicago blog that should be analyzing neighborhood by neighborhood and skipping the noise (national metrics).
also, lets give more attention to Lakeshore East. Any more rumors from that pocket? For instance: I have been in the service elevator of the Chandler and its smaller than hell. No wonder the units can’t sell. What would you do with an 8 foot couch or a 15 foot table? Idiot planning. Not to mention lack of a cab solution over there.
G_rant
Lakeshore East is cool but they need to get that Treasure Island open, it’s a surprisingly inconvenient area considering how close it is to the Loop.
D
I’m not sensitive – you’re just an extremely irritating weaselly type of guy. I’m just telling you like it is.
“Deaconblue on August 21st, 2008 at 4:20 pm
I love how sensitive you are, it’s precious!”
dvalsko wrote: “Many of the projects have already stopped. I have friends who work for some of the big developers in the city, they and are finishing projects and getting ready to look for new jobs.”
I think a good bellweather is the size of the Sunday Trib RE section. Has anyone noticed that it’s literally 1/5 of the size it once was?
I worked for a condo developer a few years back and I remember the pricing of Trib RE ads were something like $5000 for a 1/2 page color ad, etc. This stuff was not cheap. It used to be guys like Enterprise, MCL, and all the rest had large full page color ads, week after week after week. No more.
What does that signal that these developers cannot, or are unwilling, to spend $10,000 on marketing each week?
homedelete,
If you wouldn’t respond to him he wouldn’t try to bait you so much. Its called not feeding the trolls.
This particular troll has no real interest in any topic other than what effect it may have on his 600 N Fairbanks condo. Any property that “competes” with his, in his mind, doesn’t measure up, and of course his little Streeterville world is immune from the housing collapse.
“If you wouldn’t respond to him he wouldn’t try to bait you so much. Its called not feeding the trolls.”
Dan wrote:
“I think a good bellweather is the size of the Sunday Trib RE section. Has anyone noticed that it’s literally 1/5 of the size it once was?
I worked for a condo developer a few years back and I remember the pricing of Trib RE ads were something like $5000 for a 1/2 page color ad, etc. This stuff was not cheap. It used to be guys like Enterprise, MCL, and all the rest had large full page color ads, week after week after week. No more.
What does that signal that these developers cannot, or are unwilling, to spend $10,000 on marketing each week?”
I was going to do a post on the size of the Tribune real estate section. It is miniscule now.
But it’s not just the full-page ads that are missing. Some brokerages, Keller Williams comes to mind, aren’t even advertising in the Sunday paper anymore (they do Friday or Saturday, I believe.) It must be cheaper on the other days.
Also, it’s pretty expensive for the agents to put a picture into the Sunday advertisement for their brokerage. One person told me it’s $350 a week. That’s a lot for agents that aren’t selling much these days.
My little world extends to many of the good neighborhoods in Chicago that have not dropped nor showed any signs of decline. Thanks for your input!
D
The numbers should be alarming-markets have to come into balance because of supply and demand (economics 101) with low demand the prices have to go down. A developer can only refinance if the banks will lend money and what bank wants to take over these projects? Wonder what will happen next year at trump tower? and how long can the developer hold out with a finished building only half sold- 50 east chestnut? will see
“Thanks for your analysis Captain Video, these are some really new, innovative thoughts. None of us here were aware of these factors,”
Clearly the many developers and sellers who refuse to make sharp reductions in the prices at which they are trying to sell the houses and condos and are still trying to sell them at bubble prices are not aware of this, or at least are behaving as if they are not aware of this.
“If they cut the prices they will buy.”
But they have to be sharp cuts to pre-bubble (corrected for inflation) prices.
Look at craigslist, even the listing prices for existing homes are holding firm….and we know how well that’s working out for them. This will be the winter of discontent.
In recent years, developers have not been making 30 to 40% profit margins on their condos – more like 15%, and i’ve frequently seen less than that. There was so much competition (resulting in increases in land prices) that it drove profits (and maybe even quality?) down.
But the profit margin is dependent on them selling out at their estimated prices and according to their estimated time frame. A modest price cut and a slightly longer holding period will quickly erase most if not all profit.
Just hazarding a guess here, but a 10% drop in prices and a 50% increased sell out time will sink most developments.
bubbleboi,
I think your analysis is spot on regarding profit margins. Addtionally, on my end I am not seeing any decrease in construction costs.
First Six Months 2008: 327 units
First Six Months of 2007: 2,443 units
That’s an enormous plunge. Words cannot even describe how terrible this is. The bottom has completely fallen out of the market. This is truly one of the scariest statistics I’ve seen in a while. It’s not like things are going to pick in a few months and all the units will sell for listing price; does anyone really believe that? Deaconblue?
I’ve got a contract on my desk for a 2db unit in a building downtown (I cannot say where). The k price is $537,000. It was bought as an investment and now the investor is trying to get out. Maybe if the developer cut the price in half i.e. $268k he would move more units; but at $537k all he’s got are cancelled investor contracts. By refusing to lower prices to affordable levels for non-investor sales, the developers are simply rearranging the deck chairs on the sinking Titanic. In short, the downtown market is TOAST.
I don’t see why people can’t accept differing viewpoints without plugning into juvenile comments.
Some think the market will remain steady, others think the floor will fall out. NEITHER view is unreasonable.
But while RE prices tend to be sticky, it is hard to believe that when your sales volume plunges that you won’t see prices, eventually, drop as well.
My personal opinion is that this winter alone will see the market in higher end areas of Chicago drop 10%. This isn’t unreasonable to me at all, and I think is conservative. When you have no sales volume where else do you think prices are headed?
Investor,
I think you are right. Looking at historical case shiller for chicago, it seems like the bulk of declines happen between sept-feb period, the index then flattens (as in this year) or rises slightly (2007).
Sabrina asks how a developers will pay his obligations wit Section 8 vouchers.
Easy, really easy.
The reason we have had so many neigbhorhoods polluted with large numbers of voucher tenants is that a landlord can make way more money off Section 8 than with market rents.
For example, I pay about $850 heat included for a lovely 4-room one bed in RP. I am fussy. I am demanding. I and my fellow tenants demand clean, carpeted hallways, nice finishes, repairs done in a timely fashion, and freedom from vermin infestations, noise, dirt, and crummy neighborhs. And we won’t pay more rent than we can possibly get by with, because we are not subsidized and the money has to come straight out of our bank accounts.
However, if you are not terribly picky about your tenants, you can elevate the rents considerably, for the amount of rend HUD will pay on a voucher is dependent upon area averages. Therefore, your crappy 4-room 2-bed rathole in a highcrime neighborhood will pay you $1400 based on the area average for a 2-bed apt, even if the halls and vestibules are filled with offal and the place looks like a hovel. The tenant pays only a quarter her income and HUD picks up the rent, which means that the tenant is paying only, say, $200 a month, and HUD is paying another $1200 for an apt that, were it left to the mercies of the free market, would be lucky to fetch $500 a month, if anyone would live in it at all.
Theoretically, dwellings eligible for voucher rents must meet codes and abide by rules, but that’s pretty theoretical. HUD conducts almost no inspections of “project” Section 8 buildings. Moreover, a place can meet all applicable codes and rules, and still be an ugly, cheerless, tiny, inadequate dwelling that no middle-class dweller would want. There are no rules saying the lobby has to have appealing decor, or that the apartment has to have nice cabinets or be well-painted.
So you see the role that Section 8 plays in driving rents northward and wrecking neighborhoods. It is easier for a large landlord to make money off Section 8 than by market rents, and much easier to overcharge for a particular rental, especially when enforcement of HUD rules and local housing codes is so lax.
Were it not for Section 8, all rents would be much lower, and we would have seen far fewer fine old neighborhoods blighted over the last 40 years. There wouuld have been no financial incentive to do this.
Excellent analysis Laura. Also lets not forget that the section 8 voucher program basically subsidizes the reproductive and breeding habits of those in society most inadequate to be reproducing.
What winds up happening is lower income people are forced into single parent households and incentivized to have more kids as their subsidies increase.
So you have larger families in the projects (single parent families mostly) than middle class families and they become havens for crime as those projects kids grow up one day.
Section 8 does nothing but perpetuate poverty and crime and is one of the leading factors behind the decline in urban areas.
I know for a fact that if you try to evict a Section 8 tenant for whatever reason (non-payment of rent, destroying the apartment, etc), the Legal Assistance Foundation of Chicago steps in and drags the eviction out for months, possibly years. They says they’re doing it to protect ‘the children’ meanwhile the tenant gets to live for free off the landlord’s back. It’s a joke, I’ve dealt with dozens and dozens of section 8 cases and I would never, ever, rent to a section 8 tenant. There’s a reason you can get above market rates, because the risk ranges from headache to nightmake.
sorry, nightmare, not nightmake…..hahah typos
*subsidizes the reproductive and breeding habits of those in society most inadequate to be reproducing*
WHEW! There is something so un-PC about that!! The truth is so unpoular.
Where is Steven Heitman now? I thought this was one of the areas that wont be affected? 41 comments and he’s nowhere to be seen. I wonder why. I live right acrossed from MoMo and I can tell you 70-80% of the west facing units are all sitting empty.
“Many can’t go there; and many would rather die.”
“If they would rather die,” said Scrooge, “they had better do it, and decrease the surplus population.”
To put Laura’s point more bluntly, you’d only see Section 8ers in downtown condos if the market rents for those units were well below the Section 8 rate for a unit with that number of bedrooms (Sec8 rate is something like $1400 for a 2bed, as Laura points).
I just don’t see rents in these new buildings falling below say $1200/month for 2beds in these buildings, the point at which Sec8 might seem like an attractive option for the property owner.
People here get all wet about collapsing condo values, but what’s happening to rent in the Chicago market? I am definitely not under the impression that rents have been notably declining anywhere. It just changes the economics of who’s an owner and who’s a renter; difficult financing but strong rental rates just mean that more and more property will come under the control of market players with a great deal of equity and lower financing requirements.
While property values will fluctuate based on the availability and cost of financing, I could only see rental rates in the good neighborhoods plummeting in the case of a very sizable contraction in the regional and national economy, which, knock and wood, has not happened.
Appraisal Research Counselors has released their 2nd Quarter apartment report. http://www.chicagorealestatedaily.com/cgi-bin/news.pl?id=30631
Effective rents (less incentives) at downtown apartment buildings:
2Q2007 Class A $2.30 psf
1Q2008 Class A $2.29 psf
2Q2008 Class A $2.31 psf (+0.0% YOY)
Occupancy rates
2Q2007 Class A 95.4%
1Q2008 Class A 91.9%
2Q2008 Class A 91.6% (-4.0% YOY)
Interesting quotes from the article:
“And while the economy contracts, a record 1,974 apartment units are scheduled to hit the market this year. In 2009, developers will complete as many as 2,421 new apartments — which will be a major test of demand.”
“As if the economy and over-development weren’t enough to worry about, apartment landlords are facing another big challenge: the condo market.
In the 12 months ended June 30, there were 3,728 downtown condos rented out as apartments through the Multiple Listing Service, up 50% from the previous 12-month period. Had those 1,241 additional units been rented in traditional buildings, the number of downtown vacant apartments would have been cut in half, Appraisal Research says.”
Given the ever-increasing shadow market of condo rentals and the new rental bldgs under construction, we should see a downtown Class A occupancy below 85% by late next year.
Just like condo sales, this is a simple supply/demand imbalance. Rent drops are inevitable and they will put additional downward pressure on sale prices. Go to the bathroom, flush, and pay particular attention to the water in the toilet for a physical representation of this phenomena.
“First Six Months 2008: 327 units
First Six Months of 2007: 2,443 units ”
What exactly is this measuring, new condo closings? Did you ever stop to think of how many buildings were delivered last year compared to this year? Think about how many buildings were finished in the South Loop, Streeterville and River North last year compared to 2008. Just because fewer buildings are being completed this year than last, does that mean housing is going to plummet? I don’t understand what your point is.
D
DB–
You can’t even be bothered to think about anything before posting your rants now, can you? It’s sales figures, i.e. contracts, not closings, as has been made abundantly clear in multiple places.
Quit trolling. Unless you don’t have anything better.
You must be blind. Or intoxicated on kool-aid. Or a combo of both.
Sales volume is the writing on the wall. If you still don’t understand, please refer to G’s description of the physical representation of the phenomena.
“Deaconblue on August 22nd, 2008 at 2:22 pm
“First Six Months 2008: 327 units
First Six Months of 2007: 2,443 units ”
What exactly is this measuring, new condo closings? Did you ever stop to think of how many buildings were delivered last year compared to this year? Think about how many buildings were finished in the South Loop, Streeterville and River North last year compared to 2008. Just because fewer buildings are being completed this year than last, does that mean housing is going to plummet? I don’t understand what your point is.
D”
Deaconblue:
On other boards they say RTFA!!!
I’m not trolling, I was asked to comment by our good friend HD. Anyways, what you are measuring is NEW CONSTRUCTION contracts/closings/whatever. my point remains the same- all this reflects is how many new buildings have went to market this year compared to last. We all know that new projects are all on hold and very few have been brought to market this year, so wouldn’t it make sense that less units went under contract than in 2007? Do you guys have any critical thinking skills at all?
D
DB incorrectly speaks for everyone by stating “We all know that new projects are all on hold and very few have been brought to market this year”
Wrong again, DB.
“Gail Lissner, Vice President of Appraisal Research Counselors, said 2008 is the biggest year so far for downtown condos. Her firm says 5,984 units will come on the market this year. That compares with 4,794 last year and a projected 4,160 next year.”
(from this article: http://www.chicagotribune.com/business/chi-wed-condos-chicago-may14,0,6755090.story)
Laura – I think you are missing the point of Sabrina’s post. If you turn the building into a rental property, you can’t pay off the construction loan.
The owners would have to refinance the building to pay off the construction loan.
Not sure how the markets would react.
DB–
Nothing you post can get me to agree with you at this point. (Even if I sort of do.) But post asking “what is this post discussing”, get called a troll. Iron-clad law.
Laura – I think Sabrina’s point was you can’t pay off on the construction loan by renting the units out.
I’m not sure how the finance markets would/are viewing condo to rental for financing
Just so I am not, yet again, accused of taking the DB’s comment out of context, he also put it this way:
“Think about how many buildings were finished in the South Loop, Streeterville and River North last year compared to 2008. Just because fewer buildings are being completed this year than last, does that mean housing is going to plummet? I don’t understand what your point is.”
Nope, he doesn’t understand.
G– what does “come on the market” mean? Does that mean the initiation of sales marketing or delivery of completed units? It’s very different for purposes of this discussion. From the context of the article and what I know about the numbers, Lissner’s numbers are for completed units–which isn’t what DB is saying (**shudder**) when he says “[bring] to market”.
Are you talking about new projects or completed ones? Make up your mind!
Sabrina said the numbers do not include the Spire sales, so clearly she believed we were discussing PRE-CONSTRUCTION sales! Thus, all you are doing is comparing how many pre-construction sales went under contract last year compared to this one. All that does is tell us that fewer new buildings went to market this year than last, which we already knew and tells us nothing about the future of Chicago prices!
Even if these numbers included both pre-con and completed new unit sales, by not adjusting for the number of buildings brought to market you render the data meaningless. Get your head out of your arse!
D
Ha–sorry G, but you and DB are talking past one another (yes, b/c DB maintains a moving target, but still).
“what does “come on the market” mean?”
That’s exactly my point and why I asked for clarification. Lissner’s numbers don’t tell you whether they are counting completed units or pre-con units brought to market or both. Since Sabrina stressed that Spire units are not being counted, that implies we are talking about pre-con units as well. The entire argument is completely different depending on what “brought to market” means!
D
Seriously, is a clarification really necessary? Sales volume dropped off a cliff. No excuse, spin, or clarification is going to change the fact that sales are down a whopping 73% in the Loop.
Way to avoid any semblance of thought, HD. Several valid questions have been raised and the data is meaningless until we know exactly what it is measuring. Maybe they don’t teach critical thinking at University of Phoenix Law School.
D
Were there really 3258 “new” condos in 25+ unit buildings in 312 east of the Kennedy being sold in 1998? Wow.
If you find the data meaningless then you’re the person without critical thinking skills. Do you really thing that Crains would write a front page article using, in your words, “meaningless” data? Pick and choose your battles, DB.
“Do you really thing that Crains would write a front page article using, in your words, “meaningless” data”
Wouldn’t be the first time a publication has done something like that. Happens more than any of us would like.
Homedelete said:
“That’s an enormous plunge. Words cannot even describe how terrible this is. The bottom has completely fallen out of the market. This is truly one of the scariest statistics I’ve seen in a while. It’s not like things are going to pick in a few months and all the units will sell for listing price; does anyone really believe that?”
HD- I agree. The numbers are truly breathtaking. We are watching an unprecedented housing bust which hasn’t been seen since the 1930s.
It is truly mindboggling how quickly the sales have completely dried up. If you strip out the Spire, it’s even scarier. Think about all the high rises currently under construction that are closing this year or next that have had virtually NO sales:
55 E. Monroe
757 N. Orleans
The Silver (on Ohio in River North)
The Legacy (Loop)
Library Towers (South Loop)
The Astoria (South Loop)
The Vetro
550 N. St. Clair
Avenue East
Walton on the Park
Trump Tower
Aqua (will be interesting to see how many of those units get closed on)
Park View
Lofts of River East
600 N. LSD (the second tower which is only partially sold)
10 W. Delaware
The Ritz
Those are just the buildings I can remember off the top of my head. Divided by 126 units that is 7 sales each building for the busiest quarter of the year in Chicago’s housing market.
Scary.
“Way to avoid any semblance of thought, HD. Several valid questions have been raised and the data is meaningless until we know exactly what it is measuring.”
Deaconblue- the data is measuring the number of contracts signed on new construction buildings. That is it. That’s why the data for those units “unsold” (which is only 30% of the 6,000 expected to come on-line) doesn’t tell us as much because many of those will fall out of contract before closing (either because the investor realizes it can’t be flipped or some buyers won’t be able to get a mortgage.)
If you read YoChicago- they have been doing updates on downtown highrises that they talked about 6 or 8 months ago. For some of th buildings, either the same number of units are still available or there are even MORE units available- because some units have fallen out of contract in that time period.
And about your comment that the data doesn’t tell us anything because so many projects are being cancelled- look around you. There are construction cranes everywhere. (See my other post for the nearly 2 dozen buildings that are currently being built- and there are more than just that list.)
These contracts reflect those buildings.
As Appraisal Research said: this is a RECORD year for new construction units that are coming on the market (i.e. closing). There are MORE coming to market this year- DB- than last year. Yet sales have, as the numbers above point out, fallen off a cliff.
YoChicago just ran a list of buildings that are trying to sell units but aren’t being built: http://yochicago.com/today/high-rises/we-love-lists-construction-free-zones_7566/
Mandarin Oriental
Peshtigo
The St Clair at Cityfront Plaza
9 W Erie
The Huron
Catalyst
Eco18
Glashaus
Park 1000
X/O Condominiums
Lincoln Park 2520
The Winchester
Bluewater 5440
Solstice on the Park
That’s 14 buildings, and I see almost no overlap with Sabrina’s list. Now we’re down to about 4 sales per building, over the last 6 months.
Clarification: those buildings are selling units but do not seem to have ongoing construction. They are (presumably) going to be built.
Wow affordability is right around the corner, I can’t wait. Soon I will be able to afford that penthouse apartment on East Lake Shore Drive…….
Kidding aside. These numbers are not great, and no matter how the bulls try to spin it, its bad. And I would strip out the Spire….. that project is toast in my opinion.
Those of you who haven’t closely read the Crain’s article may have missed why the Spire is receiving special treatment in this count — they did not report numbers in the same way as everyone else:
“Irish developer Garrett Kelleher reported 358 sales at the Spire during the first six months of the year, but he didn’t break out results by quarter.”
“They are (presumably) going to be built”
HAHAHA! I assume you’re joking. At least half of them are D-E-D for the current building cycle–there is NO WAY they all get construction financing, even if they have “firm” commitments.
The most glaring example is the ~30% built Waterview tower–with Shangri-La taking space, a (supposed) loan commitment from a Chinese bank and a ton of money in the ground (I’ve heard $50mm++), they still can’t get a construction loan finalized. What’s going to happen to projects without anything done?
What’s everyone think is the ONE most likely to be built project on Kevin’s list?
Do you really think that 73% less units have “come to market” to substantiate a 73% drop in sales? Use whatever defition of “come to market” you want, pre-con or completed or both. If I had access to the MLS and interns like G, I’d get some hard data for you.
A 73% drop in sales is big news – regardless of whether its means pre-con or completed. It means the market for new condos downtown has nearly disappeared. What’s more astounding is that it hasn’t been a slow winding down, but an abrupt plunge off a cliff.
Like I said before I’ve got a contract on my desk for a $537k condo ‘downtown’ and the ‘investor’ desperately wants out. A similar contract passed across another lawyer’s desk a few days ago. The buyer signed a contract last year for a building down the block the ‘investor’ wants out too.
What I haven’t seen come through this office are closings for condos downtown that people actually plan to live in.
What I have seen are closings for fire sale priced REO’s in bad areas.
I generally don’t get hard numbers across my desk like some of you with access to the MLS, but I do see trends that are reflected in the data. One file here doesn’t make a trend but a file here and there for months at a time does.
The other trend I see is bankruptcy. Consumer and business. It’s everywhere. 50% of the files I touch have a BK involved somewhere in the mix of parties.
Laura – I think Sabrina’s point was if they start to rent, they don’t have the money to pay off the construction loan.
I’m not sure what the market would be to refinance the loan in a conversion to apartments
When you look at the list of buildings you see how absurd the mania really was. The list above from YoChicago only shows condo buildings that haven’t broken ground yet!
The biggest development near me, Lincoln Park 2520, made me wonder who these 350 people were that were going to buy the units there starting in the 500s. The pinnacle of absurdity. Not a one from the list has starter condos below the 230s I believe.
Guess developers are finally getting the message that wealth distribution in America is a pyramid and there isn’t much room at the top. It would’ve been helpful if they got this message five years ago.
“A 73% drop in sales is big news – regardless of whether its means pre-con or completed.”
No, if it’s only counting the number of pre-construction sales contracts closed this year vs. last, it’s not big news at all. We all know that most new buildings aren’t selling, this isn’t a newsflash! You seem to forget that news publications constantly cherry-pick the most extreme data points they can in order to create a scary headline.
D
As has been pointed out to you several times now, it is not “pre-construction sales contracts CLOSED this year vs. last,” it’s preconstruction sales contracts WRITTEN. Unless you think there is some kind of scarcity in available supply (which is laughable), this is horrible, horrible news for the downtown condo market, no matter how you try to spin it, “Whirlin'” Deaconblue.
“50% of the files I touch have a BK involved somewhere in the mix of parties.”
As I’ve said all along, when you are constantly face-to-face with worst case scenarios, you tend to think that these outcomes are more likely to occur than they really are. Personally bankruptcies are certainly up, but part of that is because they are changing some bankruptcy laws so there has been a rush to declare before the rules get tougher.
Bankruptcies always go up during economic downturns, but this cycle hasn’t been unusually bad. Back in the early 90’s the percentage of mortgages in default was about 4% and right now it’s only a little over 2%. For reference, it was 10% in the great depression.
D
Also, it’s not “pre-construction,” it’s “new construction.” There are plenty of completed units, sitting empty, waiting for their first buyer. (So again, it’s not like there is a lack of supply. The fall in sales is demand-driven.)
“it is not “pre-construction sales contracts CLOSED this year vs. last,” it’s preconstruction sales contracts WRITTEN.”
You guys keep saying the same thing over and over! All that tells us is that fewer new buildings have been brought to market!
Of course it’s demand driven, no one is denying that! The point is that we don’t know exactly what the data is measuring. “New construction” is not the same things as “pre-construction”!
“Personally bankruptcies are certainly up, but part of that is because they are changing some bankruptcy laws so there has been a rush to declare before the rules get tougher.”
Evidence, please? The new bankruptcy law, tightening personal bankruptcy, went into effect well over a year ago. Who are “they,” and “which” are “they” changing?
HD says: Like I said before I’ve got a contract on my desk for a $537k condo ‘downtown’ and the ‘investor’ desperately wants out. A similar contract passed across another lawyer’s desk a few days ago. The buyer signed a contract last year for a building down the block the ‘investor’ wants out too.
What I haven’t seen come through this office are closings for condos downtown that people actually plan to live in.
HD you probably haven’t seen a closing for a condo in downtown that people actually plan to live in because it seems that all you deal with are people in foreclosure. That doesn’t represent the entire market. I currently closed on a condo in downtown Chicago, you can come over and meet me and many of the other people in the building who have recently closed and live in the building as well.
Well, then, your answer is “new construction.” Again, you’ve been told this, and it says so clearly in the piece.
Now please try to explain to me why it makes ANY difference at all, when the denominator is the same in both years.
Once again, I see trends. A few years ago I saw people overextending themselves to get into homes/cars/lifestyles they couldn’t afford. Now I’m seeing a trend of these very same people filing bankruptcy. Two years ago I didn’t file a single bankruptcy. Today I have two dozen on my paralegal’s desk in the process of being filed. I saw an opportunity and I seized it. I was never a bankruptcy attorney but I saw many of the firm’s clients experiencing financial trouble. I utilized the resources and expertise of the lawyers in my mid-sized firm and now we’ve got a bankruptcy practice that didn’t exist two years ago. The real estate practice, commercial and residential is pretty much decimated except for the REO’s. The bankruptcy practice is making inroads towards replacing that lost revenue stream. The tort litigation practice is starting to hurt because insurance companies (who usually pay most of the final settlement in torts) are short on money. Cases that would have settled two years ago are being dragged to the eve of trial in the insurance companies efforts to conserve cash. Enough about my firm, I’m going out to eat with the SO.
Also, DB, where exactly are you getting your data about residential mortgage delinquencies? Because the official statistics show clearly that residential delinquencies haven’t gone above about 3.5% since they started getting collected (in 1991)–until last year. Now, they are well above 4%, and in fact have been spiking sharply upward for about the last year.
http://www.federalreserve.gov/releases/chargeoff/delallsa.htm
See also Calculated Risk’s chartp0rn on delinquencies:
http://calculatedrisk.blogspot.com/2008/08/fed-delinquency-rates-increased-sharply.html
I remember living up in LP by LP2520 back in 06 when i was blind to the bubble and always thought to myself, 750,000 1 br condos? DAMN! I laugh at it now and can’t wait to buy there for pennies on the dollar.
Kevin,
While trying to find where DB might have gotten his stat about delinquencies during the Depression (answer: out of his ass, since a) nobody kept track and b) estimates that exist aren’t apples-to-apples), I found this: http://research.stlouisfed.org/publications/review/08/05/Wheelock.pdf
It’s an interesting comparison of this housing market/credit situation with that of the Great Depression, written by an economist at the St. Louis Fed a couple of months ago. I always take the ol’ “Greater Depression” alarmists with a grain of salt, but… let’s just say this makes for interesting reading, and I think you might enjoy (since you are the only one around here who seems to get as much out of the Fannie/Freddie threads as I do!)
Don’t get ahead of yourself, Chiguy. Dimes on the dollar. 😉
Nice find, Kenworthey.
Wheelock finds a lot of parallels between the Great Depression and today. Lots of short-term non-amortizing mortgages with seconds (and thirds) to get around 80% LTV caps. Fun stuff like that.
One statistic I found particularly telling: foreclosures peaked at 1000 per day.
Recall that California hit 1300 per day in the last few months, and CA today has about half the population of the urban US did in 1930. (CA today has about 1/4 the population of the entire US in 1930.) Today’s overall foreclosure rate isn’t too high (yet), except in minor fringe areas like Florida and California…
Homes are more affordable now so what is the problem? No one bailed me out of the few tech stocks that I owned that tanked in 2000/01 so why should anyone bailout these homeowners?
John, well said. For some folks (usually the one’s with vested interest in real estate) its a ‘crisis’ if a median income families can afford a median priced home. Politician who utter platitudes about ‘home ownership’ are just pimps for the real estate lobby (the biggest and richest lobby in washington btw). Their answer is to make bigger debt slaves rather than let prices adjust. Wall street likes to rant ‘free market’ when times are good, but stands begging bowl in hand when their f’k ups threaten their bonus and hamptons pad.
But fear not, The wheels that are in motion cannot be turned back. Japan tried it and failed, it only extended the pain for 10 years. I am sure our ‘worthy’ elected conmen from BOTH parties (can anyone tell the difference btw?) will do even better.
In order for the real estate market to return to economic health, the prices have to drop back to the pre-bubble (corrected for inflation)level. Too many sellers are still in denial and trying to sell at or near bubble prices; therefore we have a large number of houses/condos that are remaining unsold. Eventually the sellers are going to have to accept reality and the prices will drop to the level at which houses/condos are once again affordable to people using traditional mortgages. That will be a very good thing.
However, if prices drop to pre-bubble levels, that will cause significant pain for a large number of people, especially those who cannot refinance out of toxic mortgages.
In all the years I have been watching markets I have rarely seen a correction of a highly frothy market back to just equilibrium. I would have to guess this one would qualify and we will see this one overshoot also.
HD- I always say “show me where the most pain is caused and that is where the market is going to go”. Markets are evil that way. Also if you look at it from a global purchasing power perspective that house is already worth much less right now than it was in ’04.
“In order for the real estate market to return to economic health, the prices have to drop back to the pre-bubble (corrected for inflation)level.”
What would that be exactly? 2003? 2005? I heard someone say it should go back to 2001 prices plus inflation, but as someone ready to jump back in, I am becomming a little anxious since some units in my building I lease in are approaching 2004 prices.
HD said – “However, if prices drop to pre-bubble levels, that will cause significant pain for a large number of people, especially those who cannot refinance out of toxic mortgages.”
Live and learn. I did from my tech stock investments. I lost more than most of these home owners. The big ones that need to learn are the banks that loaned money to investors, that is always a risk. People got greedy, they knew they couldn’t afford that house(s) and did so anyway since it was “a ticket to wealth”. Homes are a sign of wealth and storage of wealth, not a big creator of wealth (maintaining them can be a real money pit!). So many people are psychologically anchored to the top bubble price that they thought their home was worth. Heck, I’m still anchored to my telecom stock prices!!! Oh if only I had sold! LOL The most the government should do is facilitate the transition from a bad loan to a 30 year fixed since that really is the one issue that is freezing up the markets…you planned on refinancing later but can’t since no bank will loan and you may be underwater now. Many people will be stuck in their current homes for the next 10 years, but so what? Why should the rest of us pay? The number of people who are trying to pass their loss onto the banks is unreal….moderately wealthy people are hiring lawyers in Florida to force a short sale, etc. It is now every man for themselves in the big bubble markets of Florida, California, Las Vegas, and Phoenix.
Homes are now more affordable, that is deflationary which will permit low interest rates to hang on longer and with the lowered demand in for housing materials, that is deflationary too. People have adjusted their driving and are using less oil for the first time, the U.S. savings rate has gone up in the last 2 quarters (was negative for a bit in 2005) so we’re getting are balance sheets back in order (will take a while) Who knows the current crisis could be the slap in the face wake up call we needed to avert an unavoidable depression. Now if we can only get the Fed Govt to be fiscally responsible again we will be OK…..the transfer payments are going to kill us. I am not planning on receiving one penny of social security since we just can’t afford that AND the paying the deficit at the same time unless we get hyperinflation or enormous economic growth neither of which are probable.
Prices are going to move to BELOW the long term trend line in real dollar terms when this is all said and done. Why? We have returned to traditional lending standards of almost 20% down and it is going to get even tighter in some markets where 25%-30%+ is being required and so lending will be more conservative than traditional standards, historical oversupply in houses that will take a long time to absorb, and the dismal (even negative) savings rate that reveals that it will take a LONG time for people to save up for the down payment that is now being required let alone paying off some of their other debt. So, lending is back to traditional standards or more strict and people simply don’t have the down payment coupled with an historic supply of housing? Supply is huge, demand has tanked, prices will go below the long term trend line which is inflation+maybe 1%. So, 2001 prices+inflation (2001 real dollar prices) is completely probable. Could get go below that as this thing unwinds. And if anyone thinks the Fed Govt can really do much other than soften the blow a bit and facilitate transactions is delusional. I’ve heard numerous people state the election will “change” things in housing…these people need to go back and take high school civics. Other than transfer payments from those that earned money to those that don’t…that is the only “change” a Robin Hood government to tax and give away. Time for workfare.
“Just like condo sales, this is a simple supply/demand imbalance. Rent drops are inevitable and they will put additional downward pressure on sale prices. Go to the bathroom, flush, and pay particular attention to the water in the toilet for a physical representation of this phenomena.”
Probably the funniest comment I’ve ever read on CB. True too.
John,
Well said.
John,
The only reason personal savings showed an uptick is the rebate checks. We need to discount the latest data as it is skewed by government handouts. Social security also is not as dire: there is expected to be enough receipts to maintain benefits at a 77% level compared with todays benefits I read somewhere.
As far as lending getting more conservative, I’m not sure. The government seems to have a very vested interest in ensuring conforming loans are available and are on the sidelines waiting to bail out FNM & FRE. I’m not sure we’ll see lending standards more conservative than 20% down and cheap financing up to 420k so long as the government wants to play in the sandbox. In fact they even tried to get Fannie and Freddie to touch the jumbo market to no avail.
Bob – It depends on where you are located. I just spoke to a branch manager at a major bank in Florida and they are writing ZERO mortgages for second homes in my area, ZERO. Primary residences are lucky to have to put down only 25% and won’t even consider in the new condos. Maybe the govt will step in, but right now the private sector banks are telling us something.
If you really think we will be able to support all the non-saver retirees with med benefits you are mistaken.
Hey now! I said social security I didn’t say anything about medicare. Yes MC is a ticking fiscal timebomb.
” there is expected to be enough receipts to maintain benefits at a 77% level compared with todays benefits I read somewhere.”
It will be 77% of the amount people will be entitled to AT THAT TIME. Since the amount people will be entitled to increases eacj year with the nominal wage rate, this will be significantly higher than it is today. The 77% of the amount people will be entitled then is more than 100% of what they are entitled to today.
And the year that the Social Security fund is expected to run out of money keeps being moved farther into the future and therefore needs to be treated with a high degree of skepticism. This is because the projection is based on an unrealistically low estimate of how fast the economy is expected to grow.
“” there is expected to be enough receipts to maintain benefits at a 77% level compared with todays benefits I read somewhere.”
It will be 77% of the amount people will be entitled to AT THAT TIME.”
Cites, please? How do you know what the source that the first poster read “somewhere” didn’t account for increases in obligation? Seriously, this is an interesting conversation–but it doesn’t help to just cut evidence out of whole cloth.
That being said, if the number really is 77%, that’s actually a huge, huge decrease in standard of living for those who rely entirely on social security. On the other hand, if people don’t expect SS to cover them, they’ll be less likely to rely on it (for instance, by working longer into their old age). I’m not saying it wouldn’t be bad–really bad–for the USG to default on its debt obligations to SS, but if it does (by, for instance, simply converting it into a means-tested welfare program), the world wouldn’t end…
speaking of bailouts, now GM and ford want 50B ‘loan’ from US goverment….GM loses money on every car they sell. I guess they will make it up in volume.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aY4154PYXWD8&refer=home
The official source of social security projections is the annual OASDI Trustees Report:
http://www.ssa.gov/OACT/TR/TR08/index.html
They forecast out to 2085 and document their assumptions in great detail. They project income (to govt) and cost (from govt) as a percentage of payroll, which avoids the worst of the inflation question.
Their projections (Table IV.B1) are for income (taxes) to be about 13.25% of payroll, while cost (payments) rise to about 17.5% of payroll by 2085. That is about a 4% shortfall, and taxes cover about 75% of payments.
In the Miami area, financiers/banks/whoever have started to stop the money flow on buildings…. I know of one $300M+ building that just stopped about four weeks ago on the 11th floor…..supposed to go up to 55 floors. Hence, it looks like it will sit like that for awhile until the developer can get money…and of course actual sales!
The pause in some of these projects is way overdue.
You guys are off the wall. Yes I agree the numbers do not paint a pretty picture, but to compare us to Miami is just plain stupid. I am sure Mayor Daily will allow all the new deveopments to go section 8 with the olympics coming. You guys again are just funny.
I want a 2 bedroom at 600 Fairbanks for under 400k. Is this possible in the next 2 years?
DB: “Personally bankruptcies are certainly up, but part of that is because they are changing some bankruptcy laws so there has been a rush to declare before the rules get tougher.”
This is monumentally stupid, DB. The rules got “tougher” in October 2006. There isn’t any rush to file AFTER it gets harder to obtain a discharge–and even if there were, it wouldn’t take 18 months for the rush to start. Now, every time someone disagrees with you, there’s something to point to about how you are uninformed about current events and therefore inherently unreliable.
SH:
The Olypmics will not be coming to Chicago. The IOC said that other four candidates are better qualified. The IOC said Rio has the best chance because it recently hosted the Pan-American games successfully. Daley can try as hard as he likes but hizzonor can’t get everything he wants.
HD
Read todays tribune. I’m not sure where you got your IOC info but Chicago has always been the favorite.
http://www.chicagotribune.com/business/chi-sun-olympics-wrap-aug24,0,2479174.story
ANON – No one knows where HD gets his BS. He makes it up as he writes. Seems Brazil will have it tough because of sucurity and those basketball photos making fun of the Asians.
They are out!
I am beginning to this HomeDelete is just a bitter person. He seems to hate Chciago (see post he made up above) and is hoping our housing market crashes.
Poor HD, he is so mad all the time! LOL!
I read that Rio was the front runner in the Trib a few months back. The comment was made by a few people on the IOC.
Stay current HomeDelete. All of your posts seem to have old or incorrect data.
http://www.chicagotribune.com/business/chi-sun-olympics-wrap-aug24,0,2479174.story
What happens to the Chicago housing market if Chicago is announced as the winner in 2009? I will kick out my teneants and rent my units for $10k per week. Maybe the developers are keeping the units vacant for this very purpose 🙂
SH – You are an idiot. Keep on investing in real estate. It couldn’t happen to a nicer guy.
This is unquestionably the worst housing market since the great depression and SH thinks the olympics will be his savior. Wow. Talk about pinning your hopes on the wrong donkey, either way it just make him an arse.
Hey John – “This is unquestionably the worst housing market since the great depression” Again show me the dtat to support prices crashing in Chicago?? Oh yes, you made this up like your brother homedelete.
There are 167 active and 247 pending units from 0 – 1000 north, 0 – 400 south, east to the lake, and west to Lasalle.
Oh the pain…
It was Spain making fun of the Asians.
getting it wrong while ridiculing somebody else for getting it wrong… Is that ironic? somebody ask alaniss morisette.
I’m planning on attending a foreclosure auction to educate myself about the process. I am hoping to pick up some incredible bargains in the next few years! But I think I’ll wait until the alt-a fiasco plays itself out…
And by incorrect and old data you mean the 6 hours since the sunday paper was delivered to my front door. a few weeks ago rio was the front runner. as of this morning the trib says Chicago has the lead.
TOMASO – You will not find any bargains at an auction.
No bargains, huh? Well, I’m just going to wait and see how anxious the banks get to rid themselves of REO properties as this bust plays out. I’m in no hurry. Just thinking I might watch and wait, and in the meantime educate myself a bit.
It’s hard to come by bargains at auctions, but they are there. It requires patience, knowledge of the market and the specific properties, and an understanding of the legal aspects.
So if it’s hard to come by bargains at an auction does it then follow that an auction is the best way to get rid of a property that won’t move? Maybe that’s the solution.
Steve Heitman – according to my MLS, there are over 500 active attached (condo/townhouse) listings in the area u described (search limit exceeded). if you narrow it to two bedroom units, there are 462 actives, and 124 pending. not such a bad ratio.
I agree that it’s hard to find deals at auctions.
At foreclosure auctions, most of the properties were financed to the hilt and the outstanding mtg is higher than the value of the property. If the first mortgage holder different than the second, then maybe there’s an opportunity there.
And at the non-foreclosure auctions i’ve been to, the reserve prices are always at a higher price point than i’ve been willing to pay.
There are a lot of auctions going on in FL right now for properties not in foreclosure, and it does seem they help to move a property (from what I am told). A lot of independent auction houses have sprung up. It seems that the perception is that auctions provide below the market purchase opportunity, and then there’s the whole psychology of buying at an auction and getting swooped up in the emotion.
It might not be such a bad idea for some auction houses to test the waters in the downtown Chicago market and see if it takes.
SH claims “There are 167 active and 247 pending units from 0 – 1000 north, 0 – 400 south, east to the lake, and west to Lasalle.”
Yeah, right. What is it with realtors(tm) and deception?
I just can’t let lies like this stand. If you haven’t already convinced yourself that Steve Heitman has a huge problem with truth, please spend a minute and fact-check this claim:
“There are 167 active and 247 pending units from 0 – 1000 north, 0 – 400 south, east to the lake, and west to Lasalle.”
Jameson has a really snazzy “coordinate search” engine that gives partial MLS results. See http://www.jameson.com/search/index.cfm?selecttab=coordinates
If memory serves, LaSalle is at 150W. I’ll divide the search into four quadrants, with no constraints on price, BR, or BA:
0-1000N, 0-150W — 278 properties (247 condo/coop)
0-1000N, 0-1000E — 1261 properties (1203 condo/coop)
0-400S, 0-1000E — 74 properties (72 condo/coop)
0-400S, 1-150W — 23 properties (20 condo/coop)
To my eye, it looks like Steven is off by an order of magnitude on the active count.
A different way to check this — zip code 60611 is almost entirely within Heitman’s boundaries (roughly 200N to 1200N, 0E to the lake). Jameson reports 1103 properties in 60611.
Please check the facts and decide for yourself. It seems to me that (like many unrepentant Realtors), Steve makes up whatever numbers serve his cause and refuses to back them up by providing sources.
I’ve never trusted realtors farther than I can throw them – even before the housing bubble. When the sale of a particular property means a huge commission check, you tend to be a little loose with the facts in order to make the deal happen.