Market Conditions: September Sales Plunge 26.9% YOY in Chicago
As expected, the September sales data was not good as sales in Chicago were down 26.9%, declined 22.4% in Chicagoland and fell 23.4% statewide compared to September 2009.
Even the IAR isn’t really trying to “spin” this one.
This is one of the more negative press releases I’ve seen from the IAR in awhile.
From the Illinois Association of Realtors:
In the city of Chicago, September total home sales (single-family and condominiums) were down 26.9 percent to 1,403 sales compared to 1,918 homes sold in September 2009. The city of Chicago median price in September 2010 was $180,000, down 20.0 percent compared to $225,000 a year ago in September 2009.
Year-to-date sales remain up 11.1 percent January through September 2010 with 15,285 sales compared to 13,760 home sales for the same period in 2009. The year-to-date median sales price for the city of Chicago is down 7.9 percent to $210,000 from $228,000 for 2009.
Here is the recap of September sales over the prior 4 years.
- September 2010: 1403- median price of $180,000
- September 2009: 1918
- September 2008: 1813
- September 2007: 2108- median price of $267,750
“Distressed properties are driving sales, putting pressure on the overall median price of homes sold in today’s market. A positive indicator that our market is moving as it should can be seen with a steady pace of units sold and existing inventory being absorbed,” said Mabel Guzman, president of the Chicago Association of REALTORS® and a REALTOR® with Su Familia Real Estate, Chicago. “With condo sales in the city of Chicago up over 11 percent year-to-date from the same period in 2009, we see an expansion of choices for potential buyers to jump in the market now and find great value for homes they may have not otherwise been able to afford.”
The expiration of the tax credit has also squelched demand.
“It’s clear the housing market benefited from the tax credit through the first half of the year and now we are feeling the withdrawal symptoms in the form of slower sales. Still this extraordinary buyer opportunity should continue as mortgage rates remain in rock-bottom territory as they were just last week averaging 4.19 percent for our region,” said REALTOR® Sheryl Grider Whitehurst, ABR, CRB, GRI, president of the Illinois Association of REALTORS® and the Development and Operations Coordinator for Traders Realty in Peoria. “Bottom line, home sales will struggle until jobs return to the economy, consumer confidence improves and foreclosures work their way through the system.”
We’ve also chattered about how continued high unemployment will put pressure on the housing market. The Illinois unemployment rate was still 9.9% in September, though that was down 0.2% from the year before.
“The slow pace of employment recovery is certainly dampening housing demand,” said Geoffrey J.D. Hewings, the Director of the Regional Economics Applications Laboratory at the University of Illinois. “In particular there is increasing concern that an employment rebound may not occur to any significant degree until late 2011. Forecasts for Illinois unemployment over the next 12 months continue to reflect the uncertainty in the economy; job growth is anticipated to be between a positive 24,000 and a negative 31,000.”
For some local Chicago context, “G” was nice enough to post the statistics over the last 22 years for closings of condos/townhouses in Lincoln Park in the month of September.
You can clearly see September 2010’s weakness in these numbers.
1988 104
1989 111
1990 72
1991 93
1992 109
1993 128
1994 140
1995 141
1996 132
1997 149
1998 119
1999 116
2000 130
2001 111
2002 136
2003 170
2004 182
2005 213
2006 104
2007 124
2008 73
2009 82
2010 45
Hewings added: “This has been a difficult quarter for the housing markets in Illinois and Chicagoland. The forecasts for the final quarter of 2010 suggest more of the same.”
High Affordability Conditions for September’s Illinois Housing Market; Sales Down for the Month, Stronger Year-to-Date [Illinois Association of Realtors Press Release, October 25, 2010]
Actually, they did try to positively spin it. “High affordability”, “Stronger YTD” I got a real chuckle out of that.
And I know for the city of Chicago that this is at least a 10 year low and I wouldn’t be surprised it it was a 22 year low like for Lincoln Park. My data only goes back 10 years. I’m just hoping more realtors leave the business now.
Who cares about these particular numbers? All it means is that there are many more sidelined buyers. At some point, they WILL get back into the market. There hasn’t been a population drop or huge increase in number of housing units – so this is just a temporary phenomenon.
The sidelined buyers are sidelined because sellers are too stubborn to lower their prices/accept lower offers. It will drag on the local economy for a long time as these properties fail to clear the market, and will eventually lead to even more distressed sales.
Amazing that today there is a low point, as there were many fewer condo units in the late 1980’s compared to today. I wonder how bad October through December will be compared to historical stats. Wow.
“The sidelined buyers are sidelined because sellers are too stubborn to lower their prices/accept lower offerst will drag on the local economy for a long time as these properties fail to clear the market, and will eventually lead to even more distressed sales”
Most sellers can likely hold out longer than buyers. Buyers WILL start to give in sooner than later.
Oh it’s going to be bad.
The only way out of the mess we’re in is to resurrect Countrywide, IndyMac and First Franklin along with the option arm loans. But doing that is like making a deal with the devil.
“Dave M on October 25th, 2010 at 7:50 am
Amazing that today there is a low point, as there were many fewer condo units in the late 1980’s compared to today. I wonder how bad October through December will be compared to historical stats. Wow.”
“Most sellers can likely hold out longer than buyers. Buyers WILL start to give in sooner than later.”
You are hilarious and ridiculous and clearly are incapable of seeing the facts of a situation as they are.
“Amazing that today there is a low point, as there were many fewer condo units in the late 1980’s compared to today.”
Not really. We’re at a 14 year low in employment – the absolute number of people employed. I think that explains a lot.
Where is anon(tfo) to come out and talk about north center land values these days? Last I checked you can get a SFH in Lincoln Park for 205k (on Ashland) and numerous multi-flats for 250k in LP as well.
This is the twilight of the real estate idols and its fantastic to witness firsthand.
“Who cares about these particular numbers? ”
Obviously people that read this blog who care about data points. And if you don’t like the numbers nobody is forcing you to read this blog.
Why does everyone think it is going to be so bad?!! I explained on another thread that foreclosures/short sales make up 0.5-1% of all properties out there. Even if banks have billions of dollars of foreclosures, you guys fail to realize that there are TRILLIONS of dollars in real estate out there. You guys are the ones always quoting percentages, etc. – do the frickin math and then you will realize that most people are going to be just fine. Think about it – how many people do you personally know who lost their job, took a substanital pay cut, are in foreclosure/short sales? Then think of all the people you know – the percentage of people in trouble is going to be really small.
I think like we were discussing a couple threads ago, there are several factors impacting this, many people who don’t have to sell aren’t nor are those who don’t have to buy (yes, Clio’s sidelined buyers).
As a result there are lots of distressed sales and there are a large number of Death/divorce impacted sales which may not be financially distressed but the sellers are somewhat in a corner trying to dump the property. In these situations there is not a lot of effort made to make the house more marketable and in lower price ranges they make up a significant portion of the market. This is likely what continues to drag down the market.
When we look at sidelined buyers we should ask what they would be looking for. If it is high quality homes of not gigantic proportion in well located, walkable areas then those properties could find some support when the market begins to behave more normally. This seems like a no brainer because I think I described a wide swath of potential buyers – the key is the market. Let’s see if what comes on the market is what these buyers want at the price they will pay. So far that has not happened and it will take some time for it to do so.
Realtors worry about volume, which is down. I don’t know a lot of people who would shed many tears over fewer realtors (same with fewer lawyers).
This does suggest that sellers are standing firm and buyers are increasingly frustrated because the lowball offers aren’t being accepted. Buyers are of course influenced by the “CNN Headline News” effect and want the SFH in Lincoln Park for 200k (e.g., what kind of a-hole buys now and doesn’t get a good deal right?). But sellers can live in their homes (mostly because everyone has to live somehwere) and with the economy and employment rebounding, can increasingly afford to do so. This is especially true at the high end, wall street and financial services are set for a record bonus year. Consulting is doing very well. Lots of professional services industries have right sized and are now growing pretty aggressively. I cannot say the same for manufacturing, but the $1M+ SFH in LP is not typically owned by a VP of manufacturing for xyz widget co.
I bet volumes languish for a while. Sentiment in the northern suburbs is this: i) gee, families typically don’t like to move during school year, ii) I haven’t sold my home yet and the school year is upon us, iii) I don’t need to sell my home because GSCO is paying $400k per employee bonus this year, iv) ergo, I am delisting and waiting until March. Trip to Hawaii remains unchanged despite real estate market conditions. Would be 30 something buyers looking for a home in Winnetka the can afford = wait until next year.
That’s just the high end, but honestly, improving employment has a more profound effect on middle class workers.
dollar is down 14% in the last two months, unemployment staying just as bad… I guess the lunatics were right… Obama is taking this country down the crapper and we’re all turds
“Obviously people that read this blog who care about data points. And if you don’t like the numbers nobody is forcing you to read this blog.”
It was a rhetorical question, Bob – another example of how finance people can’t see the forest through the trees
“Not really. We’re at a 14 year low in employment – the absolute number of people employed. I think that explains a lot.”
We are? Last time I checked unemployment was over 150bps better than the nadir.
Even if there are supposedly fewer total people employed despite the growth in white collar employment overall when comparing 1988 and 2010, I find it hard to believe that we are at a low today. In 1988, it would have been more of a stretch due to less safety in Lincoln Park for people who wanted to buy condos and townhouses in 1988 – less of the higher income earners wanted to live in Lincoln Park at that time. Amazing the sellers can hold out for so long.
“you can get a SFH in Lincoln Park for 205k (on Ashland) ”
Yeah, and you can get *acres* for $205k in Mongolia. What’s your point?
And, the 3 2-flats for $250k or less are a teardown on Ashland, a teardown on Clybourn and a decent looking place on a half lot (seriously–60′) right at the opening of the Redline tunnel. All *P*R*I*M*E* locations. Compared to Mongolia.
“Then think of all the people you know – the percentage of people in trouble is going to be really small.”
Actually I believe RE pain is actually much smaller of a subset than general economic pain these days. Most of my friends who lost jobs or are going through other economic hardship indeed aren’t RE owners. However this blog pertains specifically to real estate and it would be crazy to try to put a rosy picture on the Chicago RE market these days.
That’s classic: buyers WILL start to give in sooner or later.
Who will lend them the money? Who will make loans to the quarter of the population with credit scores in the 500’s? Who will make loans to those with a foreclosure judgment on their credit report? Who will make loans to the 17% of IL residents underemployed, unemployed, or no longer actively seeking work? Who will lend to the 10% of all credit card borrowers who have defaulted on their loans in the last few years? Who will lend to the 3 million people who filed bankruptcy in the last few years?
The point I’m trying to make is that the pool of qualified buyers keeps getting smaller and smaller. Most who were ready to buy took advantage of the tax credit earlier this year. Those on the ‘sidelines’ with cash in hand and good credit scores are few and far between. I’m one of them and I’m an outlier.
I’m not trying to preach doom and gloom, but the slow motion train wreck is happening before your very eyes – and there is no denying the double dip which will take prices to new lows.
“#clio on October 25th, 2010 at 7:56 am
“The sidelined buyers are sidelined because sellers are too stubborn to lower their prices/accept lower offerst will drag on the local economy for a long time as these properties fail to clear the market, and will eventually lead to even more distressed sales”
Most sellers can likely hold out longer than buyers. Buyers WILL start to give in sooner than later.”
“Amazing the sellers can hold out for so long.”
A few words here: extensive government intervention. Our government has been playing kick the can down the road for quite awhile as it pertains to people unable to pay the mortgages they signed up for. That strategy of kick the can can only go on for so long and when the bill finally comes due it is of course worse as it exacerbated the situation.
“right at the opening of the Redline tunnel.”
I know this house — Yellow frame, run down rental. A fixture of the community.
“However this blog pertains specifically to real estate and it would be crazy to try to put a rosy picture on the Chicago RE market these days”
Again…forest through the trees…..
This will be fun to watch as it goes down more and prices will drop yet again. Unfortunately, I see another government intervention on the horizon, as they “can’t let too many people lose their homes”…
“extensive government intervention”
Extensive would be writing down principal amounts. Low interest rates are nice and all but …
“I know this house — Yellow frame, run down rental. A fixture of the community.”
There are multiple multi-flats in LP now for under 300k. You can search the MLS yourself. And not all of them back up to the El tracks either anymore.
“Who will lend them the money? Who will make loans to the quarter of the population with credit scores in the 500’s? Who will make loans to those with a foreclosure judgment on their credit report? Who will make loans to the 17% of IL residents underemployed, unemployed, or no longer actively seeking work? Who will lend to the 10% of all credit card borrowers who have defaulted on their loans in the last few years? Who will lend to the 3 million people who filed bankruptcy in the last few years?”
Nobody – but they WILL rent (remember, rentals are a part of the market – as fewer people are able to afford to BUY, rental demand MUST increase). Again, the population is not decreasing (and certainly not in the chicagoland area and the number of housing units is not getting any larger).
http://finance.yahoo.com/news/Home-sales-up-10-pct-in-Sept-apf-920478324.html?x=0&sec=topStories&pos=main&asset=&ccode=
NAR says “sales up 10% in september!!!!” sounds a lot better than down 20% YOY lol
“We’re at a 14 year low in employment – the absolute number of people employed.”
The number for Sep-10 is higher than Sep-09, so that can’t be true:
http://www.bls.gov/news.release/pdf/empsit.pdf
Employed
Sep-09 139,079
Sep-10 139,715
Sep-09 138,768 (SA)
Sep-10 139,391 (SA)
“This will be fun to watch as it goes down more and prices will drop yet again.”
Hate to cut into your “fun” – but this is not going to happen. Prices and sales WILL rebound faster than you think. Interest is high (even though activity is low) – ask any realtor.
“Unfortunately, I see another government intervention on the horizon”
If the tea party candidates win big next week and stay true to their principles hopefully this will not happen.
The political landscape is about to change, hopefully, and likely for the better.
No more excuses. Its just too bad they can’t repeal the healthcare bill that mandates insurance for the healthy to subsidize the lifestyle habits of the big mac eating obese Americans.
“Interest is high (even though activity is low) – ask any realtor.”
My interest in Playboy bunnies is quite high as well but that doesn’t affect the fact that I’ve yet to hook up with one.
“Who will make loans to the quarter of the population with credit scores in the 500’s?”
the 25% of all people with credit scores in the 500’s are called renters, and since 50-60% of chicago rents, that is a totally pointless statistic.
It’s amazing how you can point to low interest rates, better unemployment, increasing financial activity – and yet, the real estate market is still in the dumps. The only cure for the market’s ails is significantly lower prices.
“The only cure for the market’s ails is significantly lower prices.”
prices have already dropped (for the most part) how much lower are we going to go?
““right at the opening of the Redline tunnel.”
I know this house — Yellow frame, run down rental. A fixture of the community.”
Wrong one–it’s an unpainted frame with a blue-ish lintel at 1870. For sale for $242, in a supposed “approved” short sale.
“There are multiple multi-flats in LP now for under 300k.”
Now it’s $300k. Next it will be another 20% higher. And you’ll claim that one should *deduct* the cost of demolition from the cost basis of acquiring a buildable lot.
And, for the extra $50k, we add another on Bissell (70′ lot), at the redline mouth and one on Wilton (75′ lot), also against the el. And the previously (another thread) mentioned 60% lot on Sheffield. Also, the Ashland teardown is on a 103′ lot. Yep, we’re spoiled for choice in the under $300k teardown in LP–the best–by far–is the Clybourn one, as you get 150′ depth.
“No more excuses. Its just too bad they can’t repeal the healthcare bill that mandates insurance for the healthy to subsidize the lifestyle habits of the big mac eating obese Americans.”
I’d be THRILLED to see Congress try to repeal Medicare. Absolutely THRILLED!
(not that I think Medicare should be repealed, but that would be fantastic theater)
“Not really. We’re at a 14 year low in employment – the absolute number of people employed. I think that explains a lot.”
“We are? Last time I checked unemployment was over 150bps better than the nadir.”
I’m looking at employment, not the unemployment rate. The unemployment rate is hard to interpret because the denominator is suspect. And I’m looking at this for the Chicago PMSA from the BLS query tool. August 2010: 4382917(P) vs. July 1996: 4400042
anon- you granny killer!!!!
“the 25% of all people with credit scores in the 500’s are called renters, and since 50-60% of chicago rents, that is a totally pointless statistic.”
Wait … Are you saying that the median Chicagoan doesn’t own a home? I had NO IDEA, what with all the focus over the years on what the median Chicagoan can afford to spend on a home.
“And, for the extra $50k, we add another on Bissell (70? lot), at the redline mouth and one on Wilton (75? lot), also against the el. And the previously (another thread) mentioned 60% lot on Sheffield. Also, the Ashland teardown is on a 103? lot. Yep, we’re spoiled for choice in the under $300k teardown in LP–the best–by far–is the Clybourn one, as you get 150? depth.”
I look forward to your paragraph regarding examples of this to grow as time goes on. In fact one day it may well be a thesis.
in Illinois they should cut state pension benefits for current workers and current retirees. That would solve the budget crisis. Also raise the retirement age for government workers to something similar to the private sector. My friends in NJ told me they are attempting to do just that, regardless of what the government unions say or attempt to do.
Sonies, most homeowners in foreclosure have credit scores in the 500’s due to missed mortgage payments.
During the boom you could borrow 95% ltv with 580 credit score. Homeowners with 580 scores.
I’m a renter and my score is 804 and my SO’s is 796.
See? You erronesously assume with no basis in fact that renters have lower credit scores that owners.
The median chicagoan owns a home…. in jefferson park or portage park or Belmont Cragin or Logan Square
“anon- you granny killer!!!!”
FACT: Cat food is worse for your health than big macs. I’m tired of paying for healthcare for people with poor diets!
Also tired of paying for ED med so Sun City Lotharios can spread the clap, thus further increasing the medicare tab.
“See? You erronesously assume with no basis in fact that renters have lower credit scores that owners.”
you must be a terrible lawyer because that arguement would get laughed out of court…
you are erroneously assuming that renters have higher credit scores because they haven’t missed mortgage payments, and that your situation where you have two people (out of millions) that rent and have decent credit scores makes my arguement void… LOL
“Interest is high (even though activity is low) – ask any realtor.”
Although I like Bob’s response much better I will tell you that if you ask this realtor (I hate to identify myself as that but what the heck) he will tell you that there is little serious interest out there as evidenced by the lack of volume. Buyers are on the sidelines waiting for more realistic pricing. Now, I will admit though that if we reach a tipping point and it looks like we are in for sustained price increases then all this sidelined interest will materialize into real interest and everyone will pile on. It’s like the stock market…once prices start to rise everyone piles on. But I don’t see prices rising any time soon.
” The only cure for the market’s ails is significantly lower prices.”
…..or increased ease of getting a mortgage (increase credit availability)
“The sidelined buyers are sidelined because sellers are too stubborn to lower their prices/accept lower offers”
Dave M, many buyers cannot afford to lower their prices.
For the sake of arguement, Going forward, lets define Clueless_Seller as the seller who thinks their property is worth more than market value despite even the most generous CMAs available and hasn’t dropped price at all or realistically in over 100 days. There is also Hapless_Seller, the seller who isn’t necessarily underwater but owes X on her property but cannot afford to sell it at X-$50K or more because that would drain her downpayment for her next home.
B: “I look forward to your paragraph regarding examples of this to grow as time goes on. In fact one day it may well be a thesis.”
I’m done until such time as you don’t make a WILDLY inaccurate claim about the availability.
S: “The median chicagoan owns a home…. in jefferson park or portage park or Belmont Cragin or Logan Square”
That’s “typical”. Median, as you know, has an actual meaning.
D: “in Illinois they should cut state pension benefits for current workers and current retirees. That would solve the budget crisis. Also raise the retirement age for government workers to something similar to the private sector. My friends in NJ told me they are attempting to do just that, regardless of what the government unions say or attempt to do.”
The funny thing is, two or three major law firms looked at the supposed constitutional prohibition on reducing current employee pensions and said it was bunk. Think the answer is different for the already retired. If Brady had the ba… testicular fortitude to say that was a cornerstone of his plan, he’d get my vote (over any other objections I might have to him); same with ANYONE (not a nazi) running for Chicago Mayor. As it is, we are presented with feckless-dee and feckless-dum, and deserve better.
Show me something that says renters have lower credit scores and then you can win until then ill keep repeating that plenty of homeowners with score scores in the 500’s borrowed and bought during the boom. Should they have stayed renters? Maybe, but it depends on from what perspective you’re looking at things.
“there is little serious interest out there as evidenced by the lack of volume”
Gary, “interest” and “sales volume”, though related are not the same thing. Buyers aren’t buying because:
1. credit is tight
2. they are being brainwashed that they should be able to get a SFH in Lincoln park for 200k. They are waiting patiently for that “gem” to appear. Sorry to burst THEIR bubble – but ain’t going to happen!!!
Again, this is like going to a club and waiting for the hottest person to appear so that you can make your move. What you end up with, at the end of the night, is yourself.
Wait,
breaking news: http://finance.yahoo.com/news/Home-sales-up-10-pct-in-Sept-apf-920478324.html?x=0
home sales are up 10%!!!
THIS is exactly why you can’t trust the media – you can manipulate data and put a positive or negative spin on anything. To all the sellers out there, hold on to your prices, the market will be better in the spring. To the buyers, buy now – interest rates are low and prices are NOT going to go down.
There are two things killing the market right now.
First, it is a lack of confidence. Buying a home is a long term play now and many people are unsure about their employment future/stability – even those that can clearly afford to buy now. As a result, they aren’t buying. The only people buying right now that I am seeing are those who are putting down roots for the long term. This obviously spells disaster for the…
Sellers of condos in the city – most notably the McCrap Box 2/2s. Many want to sell and move on but can’t because they can’t get the price they want to finance the move or may not be in a position to take the financial hit. Many could take the financial hit but won’t because they either rather die by a thousand cuts renting their units with a small loss each month or just can’t get over the emotional hump of having to bring to closing $50k to sell their place.
I think stability is the key. Prices are low(er), money is cheap (damn near free), so there is obviously something else keeping people out of the market.
I think clio should open up a home lending bank.
“Buyers aren’t buying because:
1. credit is tight”
I disagree. Personally, I’m not seeing that. As you point out, I do see people waiting for really good deals and either they will eventually get them or they will go home alone. I think deals will get better but I don’t think they’re going to find 20% lower prices.
I think the bigger issue is that so many people can’t afford to move up. Their equity is wiped out in their current place so they have no down payment for the next place. Or they can’t write the check they need to get out of the current place – i.e. their equity has gone negative.
“Show me something that says renters have lower credit scores and then you can win”
ok after about 3 seconds of googling, turns out owners have on average a 55 points higher credit score than renters
http://realtytimes.com/rtpages/20060828_renterscore.htm
A new study, based on a nationally-representative sample of three million individual credit files, concludes that it’s not even close: Homeowners may lug around substantially bigger household debt loads, but their average credit scores are 55 points higher than non-owners.
The study was conducted by Experian Consumer Direct, a subsidiary of Experian, Inc., one of the three national credit bureaus, as part of its “national score index” research. The scores computed were not Fair Isaac (FICO) scores, but Experian’s own proprietary version that uses similar weighting factors such as outstanding credit debt balances, historical repayment performances, utilization of available credit, and length and type of credit. Experian’s scoring system runs from 330 to 830, with higher scores indicative of lower risk of default.
Homeowners in the study had average credit scores of 713, while renters scored an average 658.
case closed!
RE bears are likely correct that prices will come down further. As an example of this, I offer the fact that I am under contract to buy at a steep discount to previous prices. The last assets that I bought at what I thought were steep discounts were the following stocks: AIG/C/AHR (bankrupt commercial mortgage REIT). I also backed the truck up on Lehman bonds. I also got lucky on a lot of bonds way under par (Ford at 24 cents on the dollar, Etrade at 60 cents on the dollar, C at 85 cents on the dollar and a bunch of munis) but those were all my wife’s picks. I am the kiss of death. Sellers – get out now.
Gary, Russ – you’re only seeing the people who are qualified and are interesting in buying and moving up – so your opinion is biased towards that reasoning, and there’s nothing wrong with that. On the other end of the spectrum is the tapped out consumer that I see on a daily basis – they are walking into my office, not yours, so my opinion is biased in the other direction.
However the truth is probably somewhere in the middle. I like to use the younger employees in my office as an example. They don’t really make enough money to buy a suitable 2/2 or SFH in the city but they’re not ready to move to the burbs. They’ve been paying down credit cards and student loans so they don’t have much saved. They’re worried about their jobs so they’re not interested in buying and its the farthest thing from their mind. Their $60k down payment (20% of $300,000) has already been pledged to the student loan companies and credit card companies as principal and interest for the next 10 to 15 years. These are the people we need to enter the market and soak up much of the excess inventory and they just aren’t doing it.
Permabear, congratulations on your purchase!! Yes, there are some deals out there, but prices are unlikely to drop further. Sellers who are underwater but who can afford payments, are unlikely to cut their losses. People who absolutely don’t need to move are not going to cut their prices. Investors who are in it for the long haul might be testing the water but are unlikely to lower their prices. The people who WILL lower their prices are those who need to move (b/c of job), those who lost their homes b/c of foreclosure (usually low end), and those who don’t need to worry about money (very rich people or estate sales which comprise a small percentage of the market. All told, prices are NOT going to decline – seriously all you have to do is to factor in this psychological effect/force, and you will see that broad price declines just aren’t going to happen.
“Yes, there are some deals out there, but prices are unlikely to drop further.”
I can’t wait until you have to eat your words in….less than 24 hours time.
Two words: cognitive dissonance.
Sonies: The data is old, 2006 old, and may not even be relevant to today, but, I know when to give up on a losing argument, and your link makes your case. Congrats.
Upon further thought (it is monday morning so I’m a bit slow) as homeowners are foreclosed, they have lower credit scores and they reenter the rental market, further lowering the average FICO score of borrowers.
However, remember, you were once a renter and you had good credic too.
“Yes, there are some deals out there, but prices are unlikely to drop further. Sellers who are underwater but who can afford payments, are unlikely to cut their losses. People who absolutely don’t need to move are not going to cut their prices. Investors who are in it for the long haul might be testing the water but are unlikely to lower their prices. The people who WILL lower their prices are those who need to move (b/c of job), those who lost their homes b/c of foreclosure (usually low end), and those who don’t need to worry about money (very rich people or estate sales which comprise a small percentage of the market. All told, prices are NOT going to decline – seriously all you have to do is to factor in this psychological effect/force, and you will see that broad price declines just aren’t going to happen.”
Wasn’t all of this true before prices did actually decline?
As I’ve said many times before, one of the biggest deterrents for me is that listing prices are all over the place. Some are at current market prices, many others (I think majority or substantial majority, w/in my price range) are way over. It’s a pain in the ass to try to shop around with that kind of dynamic (I have other personal idiosyncratic issues such as we don’t really know where we want to live). I don’t know if sale prices will go down much further, but I do think listing prices will. Case Shiller says sale prices are at nominal 2003 (or whatever it actually is) prices. That’s not where most list prices, including a small discount, are at the moment, at least where I’m looking.
further lowering the average FICO score of RENTERS, sorry, time for another cup of coffee and get my eyes off this site for a few hours.
“It’s a pain in the ass to try to shop around with that kind of dynamic (I have other personal idiosyncratic issues such as we don’t really know where we want to live).”
No its really not. Search the MLS and put a price cap that meets your budget. Its very easy using the MLS to see which homeowners are living in fantasyland and which ones actually want to move their place and are able to do so.*
*one exception is short sales hard to sell whether these actually result in a deal being done anywhere close to the MLS ask price.
“Two words: cognitive dissonance.
G, I couldn’t have summed it up better (but I will try) – For those who don’t know, cognitive dissonance is when one desires something, finds it unattainable, and reduces one’s dissonance by criticizing it. There ARE a lot of buyers who are experiencing this right now. Recognition is 99% of healing – understand this, go out and buy the home that YOU want (despite the price) and you will begin to feel better. Don’t worry about what the rest of the market is doing.
“go out and buy the home that YOU want (despite the price) and you will begin to feel better. ”
This is sage advice and absolutely true. However I can’t find that seller who agrees with your logic and is willing to sell me that 500k house for 250k.
“For those who don’t know, cognitive dissonance is when one desires something, finds it unattainable, and reduces one’s dissonance by criticizing it.”
Like desiring higher real estate prices, not finding them, and saying that the change is just around the corner and will be *huge*?
“However I can’t find that seller who agrees with your logic and is willing to sell me that 500k house for 250k.”
…. and you never will. However, try to find a way to creatively finance the deal and you WILL be OK. If you wait, not only will you be throwing away money on rent, but you really do run the risk of being priced out (because of increasing rates/prices). More importantly, you put your life on “hold”. Time is really important. You have to “seize the day” and stop wasting valuable psychological/emotional time on fretting about where and what you are going to buy. Just do it!!!
“No its really not. Search the MLS and put a price cap that meets your budget. Its very easy using the MLS to see which homeowners are living in fantasyland and which ones actually want to move their place and are able to do so.”
I’m not saying it can’t be done, just a pain. For places with prices that are too high, I could try to figure out who at least has room to deal. I still don’t know if they actually will. I’d rather shop in a market where most prices are realistic. If we had any particular urgency about buying, I would deal with it and find a place.
“No its really not. Search the MLS and put a price cap that meets your budget. Its very easy using the MLS to see which homeowners are living in fantasyland and which ones actually want to move their place and are able to do so.”
I think DZ means in pegging what the actual going market price for the relatively narrow type/quality of house he is looking for is in the various hoods he is considering. Especially in a fairly slow market, where there just aren’t many closings on houses that satisfy type/quality + location + price range to use for comparison.
“Like desiring higher real estate prices, not finding them, and saying that the change is just around the corner and will be *huge*?”
Like the media, you can spin almost anything any way that fits your agenda!!
“I think DZ means in pegging what the actual going market price for the relatively narrow type/quality of house he is looking for is in the various hoods he is considering.”
Again, wasting of valuable emotional/psychological energy trying to find the best deal at the expense of doing more enjoyable things (assuming that DZ doesn’t like doint this). Also, remember that “market price” changes daily.
“Like the media, you can spin almost anything any way that fits your agenda!!”
You mean like your response to G?
Or did you miss his point (as you often do)?
“I think DZ means in pegging what the actual going market price for the relatively narrow type/quality of house he is looking for is in the various hoods he is considering. Especially in a fairly slow market, where there just aren’t many closings on houses that satisfy type/quality + location + price range to use for comparison.”
That’s a factor, although I have a sense of what I think the (realistic, not what I would like) market price should be. Not to say the seller will agree.
I’ve rethought. I think the issue is more we don’t know where we want to live. There was the bell house that was priced fine and we didn’t buy it. There are many houses in btown that have been listed close to current market but not sure we want to be there and those short lots (open house at pulaski elem this Sat BTW). Not sure we want to be in Logan, and there are very few houses in our price range in Logan, and I am a little uncertain about pricing there (I thought the sale price of the 2501 Fairfield house we’ve talked about was too high).
What do you think will be the NEW correlation between interest rates and housing prices? I tend to think that the higher the rates (in a non bubble inflating environment) the lower prices will need to go to compensate a stretch buyer (who is not expecting appreciation) to purchase a home. So when the IAR says its a great time to lock in low mortgage rates, are they ignoring the fact that most people are looking at monthly payments to measure affordability?
I would rather be stuck with a high interest rate that I can refi later than a too much principal.
Also there was an interesting article in the WSJ today about how limiting tax destructibility of mortgage interest may be included in the deficit commission’s recommendation in December.
“Or did you miss his point (as you often do)?”
No, the G man and me are totally on the same page (as usual)!!!
“I think DZ means in pegging what the actual going market price for the relatively narrow type/quality of house he is looking for is in the various hoods he is considering.”
Well if your criteria is too stringent no you’re not going to find a deal on exactly what you’re looking for.
For my criteria I’ve found a place that fits the bill (other than poor floorplan) for 225k, and another place that doesn’t quite fit all my criteria (no parking) for 125k. Guess what for 100k less I’m going to renting parking.
“Also there was an interesting article in the WSJ today about how limiting tax destructibility of mortgage interest may be included in the deficit commission’s recommendation in December.”
The deficit commission is a giant joke as it’s a toothless dog. No politician in their right mind would approach the sacred cow of the mortgage interest deduction as it affects too many middle class wallets and the middle class is conditioned to vote with their wallet. Part of the reason our country is in the dire financial straits it is these days.
“Part of the reason our country is in the dire financial straits it is these days”
but how does this affect our individual lives? Think about it. Has the recession or dip in real estate prices REALLY affected you – or is it mostly psychological? Have you significantly changed your habits?
Almost everyone I know (actually EVERYONE i know) from the poor (who make 15k to the rich who make 1million plus) have NOT changed their habits one bit. Psychologically, they may feel poorer, but it doesn’t really translate into real loss.
“but how does this affect our individual lives? ”
I was frugal and had to look around and shop for deals before. These days I no longer need to–deals are everywhere for the basket of goods & services that I use. I really thought my budget was barebones before this great recession hit but now I’ve found out it can and did go lower.
Also in between work gigs there is significantly more bench time. So much so that I am considering changing my profession from merc to FTE.
On the whole its a net wash for me, but I really feel bad for those who should be starting off their careers these days but aren’t because there are no jobs available and they’re living in their parent’s basements.
Clio – if you don’t know any one who has been profoundly and severely affected by this recession than either a liar or a heartless, self-centered individual. All you have to do is open your eyes. Or watch the first piece of last night’s 60 minutes about the 99ers. Those who have exhausted their 99 weeks of benefits and cannot find employment.
I would be offended by your ignorance if I was less cynical of a person.
“limiting tax destructibility of mortgage interest may be included in the deficit commission’s recommendation”
Mortgage interest deductibiliity (NICE typo, btw) is already limited to $1.1mm in principal debt.
Also, assume that the 01/03 tax cuts fully expire. There’s a phaseout for *all* deductions–yes, at a fairly high AGI, but still.
That would be the vehicle for limiting deductibility–a gradual reduction in the cap (which *could* just be no indexed growth) and a gradual *decrease* in the AGI that triggers deduction phaseout. And they could add some or all mortgage interest to the AMT exclusion. All of those things would be moving more in the direction of a flat tax.
“(NICE typo, btw)”
I wish I could say I did that on purpose but the ol right click spell checker got me on that one…
I think you would need to figure out waht the natural balance of renters to owners is to determine how overbuilt our inventory is. All those years of free money tipped that balance in favor of building condos / SFH stock.
Hd- you do know that 4 million people are hired every month right? problem is, is that 4.1 million people are fired every month…
there is no reason someone needs 99 weeks of unemployment.
take a job that pays less for crying out loud
“All you have to do is open your eyes. Or watch the first piece of last night’s 60 minutes about the 99ers. Those who have exhausted their 99 weeks of benefits and cannot find employment.”
My eyes ARE open – I cetainly don’t need “60 minutes” to tell me what is happening around me. I am not blind or self-centered and I can HONESTLY tell you that nobody I know has TRULY been affected by the recession. Yes, their 401ks and bank accounts are lighter and yes, they FEEL poorer and my have less of a paper net worth – but really, they haven’t changed their lives that much. Seriously, ask yourself whether YOU have changed your life/lifestyle that much in the past few years. I’m sure the answer is “no”.
In principle I would love to see them limit mortgage interest deductibility. Why should the government subsidize home ownership? However, if they did that, more people would rent because landlords could deduct interest. It would be asymmetrical.
Unless you’re in your 50s and competing for the same jobs as 30 year olds.
Guess who gets the job?
I have a 50 year old aunt and she’s been interviewing for 2 years. Not a single offer. hundreds of people applying for the same job. My aunt could have been on 60 minutes last night
The NYT postulated a few months back that some of those affected in their late 50’s may never find work again.
“#Sonies on October 25th, 2010 at 10:01 am
Hd- you do know that 4 million people are hired every month right? problem is, is that 4.1 million people are fired every month…
there is no reason someone needs 99 weeks of unemployment.
take a job that pays less for crying out loud”
I also have two neighbors in their 40’s who can’t find work. been looking for a year and a half now. Very well qualified, college educated, nobody wants to hire the 45 year old barrista. They want the 25 year old.
“That would be the vehicle for limiting deductibility–a gradual reduction in the cap (which *could* just be no indexed growth) and a gradual *decrease* in the AGI that triggers deduction phaseout. And they could add some or all mortgage interest to the AMT exclusion. All of those things would be moving more in the direction of a flat tax.”
I think this may be the best way to deal with limiting MI deductibility yet. Cap it and have no adjustment for inflation.
Problem is, much like the AMT, people start howling when they start being impacted by it.
Hasn’t happened yet with SS benefits though and that’s why eventually everyone is going to be paying taxes on 85% of them, so I think it is possible. But people pay attention to large tax hits more than SS benefit tables so who knows.
“The only cure for the market’s ails is significantly lower prices.”
No, increased confidence is the cure. Several periods of flatish prices and reduced fear of technical overhang will help.
Market psychology is everything. This is not solely a fundamental issue anymore.
“take a job that pays less for crying out loud”
Amen. Rememnber the BS discussion about the CPA who wouldn’t take an 80k job because in the bubble they had a 120k job? The people who make the most in this world are those who recognize you will have good periods and bad periods. Stay in the game and create your own luck I say.
“I also have two neighbors in their 40’s who can’t find work. been looking for a year and a half now. Very well qualified, college educated, nobody wants to hire the 45 year old barrista. They want the 25 year old.”
barrista? LOL tell them to get a sales job, they are always hiring and it will likely pay better than serving coffee to d-bags
“The only cure for the market’s ails is significantly lower prices.”
Correction:
The only cure for HD’s relatively average income and perceived lack of success (on a relative basis) coupled with the desire to buy a home…
…is significantly lower prices.
“Market psychology is everything. This is not solely a fundamental issue anymore.”
You mean don’t look at the man behind the curtain?
The sad thing is the Fed agrees with you and has been trying to stabilize house prices from falling further. Which I cannot get my head around–no policy makers were calling for lower home prices during the boom.
Maybe the Fed knows something much of middle America doesn’t quite know yet: given the globalization trend the past 20 years we’re now a nation that depends on asset bubbles for our economic growth?
The government needs to get away from using the tax code as a means for social engineering.
Homeownership is good for society in that owners take care of their property better. Less trash, more concern about their community, etc. However, we also have to realize that not everyone is qualified or responsible enough to be a homeowner. There shouldn’t be a social stigma to renting.
The problem is if you are still renting by your mid 30s, the odds are it is a reflection of your lack of personal and professional success (at least how society at large views it). Sure there are a lot of people renting now who could buy, but the market psychology is keeping them out. However, in general, most people buy when they are ready to settle down as long as their means allow it.
It wouldn’t bother me personally, if we got rid of the deduction but it isn’t likely to happen. The NARs pockets are too deep.
“The government needs to get away from using the tax code as a means for social engineering. ”
Couldn’t agree more. The tax code should be only and solely focused on funding the government. Over the years it has become an enormous beast that our government uses in an attempt to engineer societal outcomes.
The problem is most Americans either benefit from this financially (are vested) or do not understand the terrible unintended consequences of such social engineering.
“No, increased confidence is the cure. Several periods of flatish prices and reduced fear of technical overhang will help.”
C’mon everyone, all together now: We think we can, we think we can…
“We think we can, we think we can…”
HOPE & CHANGE! HOPE & CHANGE!
“No, increased confidence is the cure. Several periods of flatish prices and reduced fear of technical overhang will help.”
Many years with flat nominal prices and more than de minimis inflation would be a sizable price drop.
Hahahaaha. That’s hilarious. I don’t know what ‘society’ you live in but it’s not the society I live in. The ‘society’ I live in views home ownership during the last 8 years as a joke that has left people trapped in their condos, underwater, paying expensive mortgages and fearful of losing all their paper equity. In fact I’ve seen thousand of people go into foreclosure – how’s that for personal and professional failure?
Lack of buying as a reflection of lack of personal and professional success is old school thinking. So backwards and old school. Needs to be updated. In fact the younger generation doesn’t look at it that way at all.
“The problem is if you are still renting by your mid 30s, the odds are it is a reflection of your lack of personal and professional success (at least how society at large views it). Sure there are a lot of people renting now who could buy, but the market psychology is keeping them out. However, in general, most people buy when they are ready to settle down as long as their means allow it.”
“Couldn’t agree more. The tax code should be only and solely focused on funding the government. Over the years it has become an enormous beast that our government uses in an attempt to engineer societal outcomes.”
It’s called fiscal policy and it is a pretty important part of the governmental process. Anyway, too late to undo that tool.
“C’mon everyone, all together now: We think we can, we think we can…”
If you stop and think about it, you will realize that fear of continued price declines, and not the perception that prices should decline, is the only thing holding buyers back. In fact, if this weren’t the case you could have never had a bubble to begin with. All the arguments about cheap credit, etc. are minor in comparison to psychology.
If people believe prices will rise, they will find a way to buy. If they believe they will stay flat, some will buy. But if they believe they will fall, they will hold off.
“Many years with flat nominal prices and more than de minimis inflation would be a sizable price drop.”
In fact, inflation would increase home prices largely by definition. Both rents and imputed owner-occupied rents are in the CPI.
But keep it in real terms. So, real prices being flatish obviates your non-value-added point anyway.
“is the only thing holding buyers back.”
I disagree and partially due to Russ’ point. People by their mid-30s want to buy because its whats expected of them to maintain their perceived social tranche in society (solidify them as solidly middle class). I don’t think your typical consumer, even of RE, instead thinks like a RE investor which I think is what you are suggesting.
I think what is holding buyers back are other factors, chiefly their financial situation, whether it be tied to another property, lack of sufficient income or assets to put towards real estate, or lack of funny credit which allowed far more people to play in this space than should’ve reasonably been able to.
“It’s called fiscal policy and it is a pretty important part of the governmental process. Anyway, too late to undo that tool. ”
No its called statism and look how well that worked out for American society lately.
“I think what is holding buyers back are other factors, chiefly their financial situation, whether it be tied to another property, lack of sufficient income or assets to put towards real estate, or lack of funny credit which allowed far more people to play in this space than should’ve reasonably been able to.”
There is a lot of disagreement on this topic. On the margin, some buyers are held back by the above — no doubt. But, I’d argue the majority of the funk is people who don’t want to get burned twice or would feel like an a-hole taking a loss on RE in 2010.
People are absolutely hate realizing losses. It is the number one difference between successful professional traders and all other professional traders plus amateur day traders.
If I knew I could avoid a loss today by postponing my trade until tomorrow, why wouldn’t I do it?
“In fact, inflation would increase home prices largely by definition. Both rents and imputed owner-occupied rents are in the CPI.
But keep it in real terms. So, real prices being flatish obviates your non-value-added point anyway.”
If you assume nominal home prices are flat, which you is what you have said in the past, then increases in inflation can’t be due to home prices. By assumption.
Assuming flat real prices for 5 years is very different from assuming flat nominal prices, if inflation is non-negligible.
Duh –
http://pewsocialtrends.org/pubs/?chartid=542
Housing prices and mortgage debt combined with outstanding consumer debt and student loan debt are the “only thing holding buyers back”, not market psychology.
Like I said – the future generation, today’s 20 somethings, have already mortgaged their down payment money in the form of student loans.
Credit cards, car payments, student loans, rent, flat incomes….
Sure, if you’re only speaking about the top 10% high end properties, maybe, but if you’re talking about the other 90% of the market….it’s much more than psychology.
It’s debt.
“No its called statism and look how well that worked out for American society lately.”
Angry white male jibberish. But, it worked in 1994.
Yeah, they just walk away from it instead and it becomes the bank’s losses. How many mortgages are 30+ late at this point in the mortgage crisis? It’s a few 10th’s of a percentage better than it was last year? BAnk of America has $54,000,000,000 of mortgages in it’s foreclosure pipeline that have yet to be filed? Come on. The high end who can afford to take a loss might hate realizing it but everybody else, the other 90%, many are choosing (or involuntarily choosing) to default.
“People are absolutely hate realizing losses. “
“Assuming flat real prices for 5 years is very different from assuming flat nominal prices, if inflation is non-negligible.”
Yet nominal = real in a zero or near zero interest rate environment. Look at the yield curve.
“It’s debt.”
Yet savings levels are at recent-record levels and consumers have shartply reduced debt?
Does not compute. Need G’s spreadsheet to compute.
“If people believe prices will rise, they will find a way to buy.”
Beanie babies, perhaps. Housing that requires a job and downpayment to get a mortgage, not so much.
“The high end who can afford to take a loss might hate realizing it but everybody else, the other 90%, many are choosing (or involuntarily choosing) to default. ”
I’d argue walking away from being under water is actually marking a gain to market. The IRS agrees – Cancellation of Debt Income. Not sure how IL as a recourse state handles it, even though recourse is not often granted for 1st liens.
“Housing that requires a job and downpayment to get a mortgage, not so much.”
Yet unemployment is decreasing, personal incomes are up and investment returns are significant this year?
Most first time buyers seem to get help from their parents anyway. Another poor legacy of the baby boomers.
“Angry white male jibberish. But, it worked in 1994.”
Except the economic backdrop is quite a bit different than 16 years ago.
And you seem to believe in the fairy tale that policy makers have these tools and wield them with scalpel like precision whereas at best its a hatchet. At worst its more like a hammer–a doctor operating with a hammer.
“Housing that requires a job and downpayment to get a mortgage, not so much.”
Pent up demand?
“And you seem to believe in the fairy tale that policy makers have these tools and wield them with scalpel like precision whereas at best its a hatchet. At worst its more like a hammer–a doctor operating with a hammer.”
It supposedly prevented a depression and 25% unemployment, not to mention the attendant issues that would impair growth for the next 30 years in this country. Other than that, it sucks.
“Yet nominal = real in a zero or near zero interest rate environment. Look at the yield curve.”
Are you agreeing with me? Are you saying anything other than that you (or market) thinks there will be negligible inflation?
“http://pewsocialtrends.org/pubs/?chartid=542”
Normally I don’t bother with your innane third party references, but this time I clicked through and saw that mortgage debt increases as home prices increase.
Honestly, I learned something just now. I would have never expected this relationship. Instead, I would have expected debt to decrease as prices increased. After all, as inflation drives home prices higher throughout the 20th century, I would have expected new buyers to actually borrow less to buy at an increased price. Go figure.
“It supposedly prevented a depression and 25% unemployment, ”
I know and it was also responsible for preventing my burgeoning professional baseball career from taking off.
“Are you agreeing with me? Are you saying anything other than that you (or market) thinks there will be negligible inflation?”
I’m saying flat prices against a backdrop of zero inflation means nominal and real are the same.
I am also suggesting you have no justification to suggest flat nominal equates to a real decline, especially when “periods” = months not years. Unless you have some sort of inflation outlook the market does not. I’d be on the phone to Soros if that were the case.
“I know and it was also responsible for preventing my burgeoning professional baseball career from taking off”
And it caused my child to get waitlisted at Stanford. It was either TARP or sunspots.
“Pent up demand?”
I’m sure there is some. Problem is, cheap and easy credit created a previous distortion in demand that developers anticipated would continue seemingly forever. Pent up supply is the much bigger reality.
“If you assume nominal home prices are flat, which you is what you have said in the past”
No I suggested nominal is flat if inflation is zero. Therefore real would be flat.
If inflation, prices will increase such that the real… is flat.
Thanks for wasting everyone’s time with this.
“It was either TARP ”
It was TARP. Remember Hank Paulson was going to kill the puppy if it wasn’t passed and it delayed armageddon, along with 25% unemployment until late 2012.
Society would’ve stopped functioning if the bankers were not bailed out and heavily indebted companies like General Electric weren’t able to issue debt with a government backstop. Poor GE.
“Pent up supply is the much bigger reality.”
Yet no one has a gauge on pent up demand. As far as I know, no reliable data exist to quantify it. It could be as big or bigger than shadow supply. Look at historical volumes and assume the decrement goes to pent up demand. Sure some of that rolling off is BS second home purchasing, but it seems to me that it would amount to a very large number.
“If people believe prices will rise, they will find a way to buy. If they believe they will stay flat, some will buy. But if they believe they will fall, they will hold off.”
I don’t think so – you give people too much credit. I think that if there was a way to get them into home ownership, the majority would take it (for whatever reason). They are too stupid/lazy to analyze home prices, the market etc.
“They are too stupid/lazy to analyze home prices, the market etc.”
I agree with clio on this point. The typical RE purchaser has never thought like an investor and likely won’t any time soon.
Many of the RE aficionados on this site do indeed analyze properties from a investor’s standpoint I’ve noticed.
“the other 90%, many are choosing (or involuntarily choosing) to default. ”
Where do you get this idiotic number? I have shown over and over again that foreclosures/shortsales and people in danger of foreclosure comprise much less than 95% of the properties out there. People are not defaulting left and right (as the media likes to make us think). However, if you scare enough people, they WILL start defaulting because they are fooled by people like you that spout this type of nonsense (that 90% of people out there are defaulting). Pure, unadulterated jibberish.
You joke but the CP market freezing up was an ominous sign.
The reality of government finance is that entitlements drive a huge portion of the deficit and accumulating debt. Entitlements are faux income because no economic activity is generated from the income.
I say we cut them all — I’d love to sack pensions in the state of IL for starters. Screw all the firefighters and police officers, but most of all the teachers. Teach them what it is like in the real world where all you have is a crappy 401(k) that was cut in half last year.
Bob does that agree to your libertarian ways? Just don’t expect prompt service when you call 911 or your house is on fire. Unions have a certain way of expressing their displeasure.
“They are too stupid/lazy to analyze home prices, the market etc.”
So the adage that “housing never goes down” had nothing to do with the bubble? I think people were doing what they were told was good for them in the long run. Buy a house and it will be the best investment you can make. Credible sources spouted the same BS for decades. It was as ingrained a financial philosophy as any I know.
You and I both see the Pew Research graph – and yet the seemingly exponential increase in mortgage debt over the years means nothing to you? It’s not even a straight line which would roughly track inflation – mortgage debt shoots up seemingly exponentially.
I don’t blame you for being behind recent trends. You’re probably in your 50’s, you’ve always lived in a world where it has been ‘normal’ for decades where consumers take on seemingly larger and larger debt loads and growth has been fueled through that.
You’re comments show an obstinate resistance to change. You refuse to accept that the old way of thinking, is well, old. During the middle ages if you suggested that serfs should be freed, your ideas were considered preposterous. Today if anyone suggests that consumers are too leveraged to borrow to restart the ponzi scheme, it does seem preposterous. But it is true.
“Bob does that agree to your libertarian ways? Just don’t expect prompt service when you call 911 or your house is on fire. Unions have a certain way of expressing their displeasure.”
Absolutely and eff em. My house would be insured and already the CPD doesn’t return my phone calls when my car gets broken into. Already the scheduling people running the CTA intentionally put three buses in a row on Friday evenings to try to stick it to us. Eff em. Eff every last one of ’em.
The more the unions try to act up the more it makes me want to see them feel some real pain.
“I’m saying flat prices against a backdrop of zero inflation means nominal and real are the same.”
I’m pretty sure I said nothing different, yet you seemed to manage to disagree anyway.
“I am also suggesting you have no justification to suggest flat nominal equates to a real decline, especially when “periods” = months not years.”
I didn’t realize several periods meant months. You think 6 months of flat prices will resolve everything come springtime?
“If inflation, prices will increase such that the real… is flat.”
I didn’t realize that inflation was determined solely by housing prices, not by the prices of other goods and service, nor by measures of imputed rent that may differ very substantially from housing prices in the short run.
“You’re probably in your 50’s”
LOL. My derisive commentary toward baby boomers should suggest I am solidly Gen-X, probably younger than you, albeit many of my neighbors are in fact in their 50s, vote republican and generally are resistant to change because their security in life is already set in stone — perhaps its rubbing off?
“and yet the seemingly exponential increase in mortgage debt over the years means nothing to you? ”
Actually, a constant percentage increase over 30+ years or periods will increase the apparent slope of any chart. I know you are financially challenged, but do me a favor, open Excel and start with 100. Increase it 8% each year for 40 years. Graph it. Look familiar? Compounded growth mean anything to you?
“The more the unions try to act up the more it makes me want to see them feel some real pain.”
I agree 100%. Cutting or eliminating these entitlements would improve the fiscal state of our government dramatically. It pains me to see corporations freeze pension plans yet government does nothing with entitlements. People hear headlines but have no idea its not so much current spending but the incredibly expensive entitlements that are impairing our governmental budgets.
“I didn’t realize several periods meant months. You think 6 months of flat prices will resolve everything come springtime?”
Who said anything about 6 months?
Why do government employees need unions, I thought the government was all knowing and always does whats best for everyone /barf
Gen X but your kid was wait listed at Stanford? I doubt that you’re younger than me!
“Gen X but your kid was wait listed at Stanford? I doubt that you’re younger than me!”
I’m generation x (1965-1976) and MY kid just started college. However, it is not that surprising that you wouldn’t be able to grasp this.
True on age (HD is a myopic lawyer, with coke bottle glasses I am sure to boot), but I was joking about Stanford. Read the thread. How TARP kept my child out of the college of their choosing? Do you really think that is a serious point? Is Bob a professional baseball player?
“Cutting or eliminating these entitlements would improve the fiscal state of our government dramatically.”
I’m not just talking about entitlements I’m talking more broadly just about government spending/jobs. Our government isn’t run nearly as effectively as private enterprises and it shows.
There is no real rhyme or reason you should have schoolteachers in Illinois making six figures. Nor 911 dispatchers in Cook County earning 200k/year because they get unlimited overtime.
Agreed Bob. You’d have to dismantle the machine though. It is a tall order.
“Do you really think that is a serious point? ”
You used the fallacious argument that it kept unemployment below 25%–I call BS on that (via my ridiculous baseball career claim). That’s (25% unemployment, blood in streets,etc) is like saying the stimulus didn’t work because it wasn’t big enough. You set up the context of defending a position that realistically cannot be defended because we don’t have multiple realities.
I hope TARP and any bailout becomes the equivalent of career suicide for any elected representative.
If we’re going to have a good ol’ financial crisis the firms that were involved in orchestrating this economic quagmire should be held to account. That includes going insolvent and holding liquidation auctions for failed firms.
That includes watching a few more wall street firms blow up, and watching the entire Wall St business model basically implode overnight under the weight of its excessive leverage. (A whole bunch of unemployed i-bankers would likely drive down that 500k/yr remunaeration that seems to be par for that industry)
We never had that–we had golden parachutes and handouts and now these firms can issue debt at even lower, unnatural, rates as they have the implicit backing of the USG. They’re ratcheting up leverage yet again.
“Is Bob a professional baseball player?”
The real question is “would he be if TARP hadn’t been implemented?”.
“The real question is “would he be if TARP hadn’t been implemented?”.”
I’d be starting center fielder for the Rangers and unemployment would be around 25%.
Tarp isn’t the problem as it saved the financial system and somehow the government actually “made money” on that program… ARRA is the giant stinking turd that our children will be paying for down the line
“Tarp isn’t the problem as it saved the financial system ”
Tarp was the problem due to the moral hazard it brought.
It solidified the current financial system and rewarded those firms which took on too much excessive leverage at the expense of those firms which were not as risk-seeking.
It now allows all major financial players to issue debt at even cheaper rates. And all major financial players now have the implicit backing of the US government.
Do you really think their debt is priced properly for the amount of risk they are taking?
“The real question is “would he be if TARP hadn’t been implemented?”.”
Not really. He called it a burgeoning professional career, which implies there was one, or a semblance of one, to begin with.
That it did not take off does not mean it did not exist. Again, to use your overly anal analytical analysis of every assinine statement (that is alliteration for you non-literary types).
Ah Anon. The master of “if A then B, if not B then not A”…
well its not like we could have thrown a few hundred thousand bankers/mortgage brokers/politicians to the gulag… although sometimes I wish we could have as the world would be a better place
“Not really. He called it a burgeoning professional career, which implies there was one, or a semblance of one, to begin with. ”
You’ve outed me–I’m Kenny Powers. And my career aspirations were as serious as your claim of 25% unemployment if TARP hadn’t been passed.
Ok but a lot of smart people think TARP saved a lot of pain. And as Sonies notes, it wasn’t as costly as it could have been. Hindsight is probably about 40/20 right now, but if I squint, I see a reasonably good deal there.
I guess it’s a generational thing. I was born less than two year after the ‘1965-1976’ and my children aren’t anywhere near college age. In fact, if you were in the middle of the Gen X, 1971, you would be 39 today, meaning that your 18 year old child was born when you were 21. So yes it’s plausible. Even if you were born in 1968 you would be 42 today, and your college age child would have been born when you were 24. I always forget that it was common to have children young back then. Today child birth more is delayed.
“clio on October 25th, 2010 at 12:03 pm
“Gen X but your kid was wait listed at Stanford? I doubt that you’re younger than me!”
I’m generation x (1965-1976) and MY kid just started college. However, it is not that surprising that you wouldn’t be able to grasp this.”
it was common to have children young in 1992 ?
or is clio precocious
“I guess it’s a generational thing. I was born less than two year after the ‘1965-1976? and my children aren’t anywhere near college age. In fact, if you were in the middle of the Gen X, 1971, you would be 39 today, meaning that your 18 year old child was born when you were 21. So yes it’s plausible. Even if you were born in 1968 you would be 42 today, and your college age child would have been born when you were 24. I always forget that it was common to have children young back then. Today child birth more is delayed.”
Among people with clio’s profile (I know, I know, clio is sui generis, but you know what I mean), I’d say having kids that young is pretty uncommon.
“Tarp was the problem due to the moral hazard it brought.”
Do you think behavior during the bubble would have been appreciably different whether people thought there would be some kind of backstop like TARP or not?
I got into a substantial discussion with my father in law who was visiting this weekend. He is a successful surgeon, has made a lot of money in residential and commercial real estate since the 1990s, but I could tell he didn’t accept the notion that he made money during a bubble.
He doesn’t understand why my wife and I are hesitant to buy real estate. Let’s first ignore the fact she has 200k in med school debt so even though we have the cash for a decent purchase, I don’t think we have the balance sheet for it, and I like having “F-You” money around if I decide to go sell mangoes someday. His principal arguments were “look at all the money I’ve made!” and “rent is throwing money away!”.
Then I showed him a few things.
http://mysite.verizon.net/vzeqrguz/housingbubble/
This helped me to show him how he made his money, and how lucky I think he is to be 55 and a surgeon.
Then I took him to the New York Times Rent vs. Own calculator and showed him the time it would take to break even if I bought my apartment from my landlord at a 20% discount (80k less) to what he paid in 2005 (1% housing appreciation and 3% rent increase, both aggressive in my view) – The answer – 23 years. I don’t want to live in a 2Bed/2.5Bath in Lincoln Park for 23 years.
He was still hanging on to the “throwing money away” argument, to which I argued that my landlord pays 40% of his rental income to me purely to cover HOA and Taxes. When he told me “yeah but those costs are tax deductible!” I asked him whether he thinks it is better to take a tax deduction or to avoid the expense all together? Got ’em.
Several gin and tonics later, he conceded that it doesn’t make sense for my wife and I to buy at this stage in our lives, and when it does, buying in a city should be out of the question – “These prices are totally inflated!” Says the guy who lives in a million dollar house on a golf course in the South who has to drive 15 minutes on a highway to go to the grocery store.
If other 28 year olds like me are having this conversation with their spouses and families, I think the 2bed/2bath condo market is going to convert to rentals in the next 3 years. Anyone want to start a “For Rent By Owner” apartment management (not sales) business with me?
“Do you think behavior during the bubble would have been appreciably different whether people thought there would be some kind of backstop like TARP or not?”
The moral hazard I was referring to more applies to lenders continuing to lend money to what should’ve been failed financial institutions at rates that are not commensurate with the level of risk said firms are undertaking with this capital.
I agree with everybody here.
“Then I took him to the New York Times Rent vs. Own calculator and showed him the time it would take to break even if I bought my apartment from my landlord at a 20% discount (80k less) to what he paid in 2005 (1% housing appreciation and 3% rent increase, both aggressive in my view) – The answer – 23 years. I don’t want to live in a 2Bed/2.5Bath in Lincoln Park for 23 years.”
I simply do not believe it. What is your rent and what is the 20% discounted purchase price?
Btw, HOA is not tax deductible, so that further strengthens your argument.
“what is the 20% discounted purchase price?”
“a 20% discount (80k less) to what he paid in 2005”
Looks like that would be $320k, but if you would like to wait for G to use excel to confirm, I’d understand.
“my children aren’t anywhere near college age.”
So you are either divorced (surprise surprise) or have kids out of wedlock, since you just got married. Perhaps the divorce took a toll and you had to sell your house, and are now renting, and are bitter as a result?
Also, you do realize having children f’s you more financially than making a slight timing mistake on housing, don’t you? $250k per child or more at upper middle class standards. LOL. I am all for having children but talk about trees for forest.
Some rounding in there Anon, but you’re right on. $1,950 on a 310k purchase price. Used real taxes and HOA, which are killer to the analysis.
I read that but it didn’t seem right. I cannot believe @ 320 you wait 23 years? What is the rent? $500?
Must be a wacky HOA and/or taxes. $400k rent/own works on 2k of rent for most LP 2/2’s… And I am talking about $250-$300 in HOAs, not a skinny HOA.
“I read that but it didn’t seem right. I cannot believe @ 320 you wait 23 years? What is the rent? $500?”
With the clarification that the net rent is ~$1150, it’s a sub 4.5 cap rate–which, using 1% price and 3% rent inflation would be a pretty long break even period, but still seems to rely either on a mystery component or some bad numbers.
Joe–what mortgage rate did you use?
$270 HOA and 6k taxes. I just realized I fat fingered the taxes, which gets me to 13 years. Still sucks.
Ok I had to look this up.
Rent = 1,950
Purchase = $310,000
Tax Rate = 28%
HOA = $500 (excessive)
Buying = 2%
Selling = 5%
Mortage = 4.25%
Down = 20%
Taxes = 2% (excessive)
Renov/maint/insurance = 0.5% (rarely true and conservative)
Opportunity cost = 4%
Inflation = 2%
Appreciation = 1%
Rent Inc = 3%
Break even is 10 years. But the HOA and taxes are nuts. Just go buy another place. I used HOA as the lever and @ $750 / mo I got to 20 years. Good lord.
JMM: I’ve got quite a few baby momma’s which explains why I’m broke all the time. I got a high lawyer income but with all the child support withholdings I cannot afford to buy and I’m secretly wishing for prices to crash so I can buy a SFH on my meager income, so when my children visit me they don’t have to sleep on the floor of my crowded and dingy studio in uptown. Amazing, you got me all figured out/.
“$270 HOA and 6k taxes. I just realized I fat fingered the taxes, which gets me to 13 years. Still sucks.”
What interest rate? What inflation rate? I can’t replicate that.
Those taxes are insane. Taxes are off because the homeowners exemption has probably not been applied for. Assessed value gets reset upon purchase so you could appeal.
@ MV of $310,000, AV = $31,000. Taxes should be around $4500 before the homeowners exemption. That should not deter your purchase or find another place that is not getting ripped off by the assessor.
I toggled 270 and 6k and I am at 5 years.
I think you should reconsider your math but if people are making buy decisions off the NYT calculation, we have bigger issues.
HD, no I knew you were bitter all along. Child support payments suck, or so I have heard.
Joe is deadbang on.
No one has a crystal ball, but I would predict that after a few blips upward or downward, prices trend flat for the next 3-5 years (at minimum).
I found something–very, very small-that I surprisingly agree with Clio on: many people are ignorant of what is happening in the market. They simply aren’t quite as rational as they should be in that they fail to research or know their market before buying/selling.
However, even if people don’t always act rational (i.e. the last real estate bubble) they tend to do so over the longer haul (i.e. residential real estate prices trends near inflation over the last, what?, 80 years).
Even if we were to see a positive shift in demand in the short term (over next 6 months to 1 year) there are so many sidelined sellers–folks we don’t hear about as much as sidelined buyers–that it’s reasonable to expect any increase in sales units or sales prices would lead to more properties coming on the market that otherwise would not….in turn adding more supply.
In sum, none of this is really clearing out for a good time to come until we start seeing units selling to move old inventory and the newest inventory quickly. Whether this requires a shift in demand (more buyers, more interest, wage inflation, decreased unemployment, etc) is debatable to me. What I think is real is sellers aren’t going to be in the drivers seat for at the very least 3-5 years.
Just my two cents.
Armchair Economist
“I don’t want to live in a 2Bed/2.5Bath in Lincoln Park for 23 years. . .He was still hanging on to the “throwing money away” argument. . .”
Joe, you make many great points, and I can certainly relate to the conversation/debate you were having with someone who’s only profited from real estate. That said, as I’ve noted on here several times recently, while this downturn has made for some great rental bargains, I would argue that, provided that the right combination of factors line up, buying might be the way to go if one plans to be in a place for at least a few (but ideally a few more than that) years.
I looked at dozens of places two years ago, then about a dozen places a year ago, but all were still priced too high. I’ve thus been quite content to be renting a great 2/2 in ELP for between $800-$1,000/mo less than it would cost me to “own” the place. (But note that while it is a really great place, I rent parking a block away, and it has neither central air nor in unit w/d; it’s also in Alcott attendance area.) Again, I’ve been getting a great deal on this rental, but I’ve nonetheless been paying $30k/year, for nearly three years. After writing $90,000 in checks for rent (plus $2,400/yr for parking), I have to admit that there’s something to be said for the “throwing money away” concept. I’ve also had the prospect of my landlord wanting to downsize from his current home and move back into my current rental presented to me (and while I realize I could quickly rent elsewhere, I was really hoping that I’d left that sort of instability/transient/nonsense behind). I’m thus buying a place that will run me about $250 more a month than my current rental.
Sabrina provides us with a steady supply of doom-and-gloom threads, and I always sense that some special delight is taken when there’s any data indicating that times are tough in the nicer areas, especially LP. But at no point in my search over these past couple of years have I detected any great pressure from allegedly mounting wave of shortsales. Please, please, Sabrina, HD, Bob, or any of the mighty real estate bears on here (and I do value your insights, which have challenged me to be cautious for years now), can you point me to a rental opportunity that meets the following:
1) 2/2 (in move-in condition)
2) In unit w/d and central air
3) Garage
4) At least a tiny bit of outdoor space (suitable for a grill and a small table/few chairs)
5) Not on the ground floor
6) Kitchen is not in the living room
7) In Lincoln attendance area
8) In ELP (ideally two and no more than three blocks from the park; it could be four or maybe five blocks, depending on how nice the route to the park is, but the place would need to be that much nicer, and with more than a “tiny bit” of private outdoor space)
9) No more than $3,000/mo in rent.
“Please, please, Sabrina, HD, Bob, or any of the mighty real estate bears on here (and I do value your insights, which have challenged me to be cautious for years now), can you point me to a rental opportunity that meets the following:”
I believe that job description comes with a commission.
Please note that the use of the number eight and a paren inserts a smiley icon (I wasn’t trying to be cute, or even ironic).
Yeah as I said when I was asked, look it up yourself.
ELP is a ripoff. Lincoln is a ripoff. There are plenty of 2/2’s in ELP that trade in and around 400k. I have a hard time believing they cannot be bought for PITAA of less than 3k. Before tax deductibility. Hell I know people who rent houses in Lincoln park for 3,500.
http://www.redfin.com
The filters I hear are really helpful.
This one:
http://www.redfin.com/IL/Chicago/1925-N-Sedgwick-St-60614/unit-2/home/13344311
seems to have everything except the separate kitchen.
And that’s the extent of the free looking.
“can you point me to a rental opportunity that meets the following:”
Even if I could use my powers for good I wouldn’t.
Seriously though this is the kind of specific query that would best be left to a star agent very familiar with the area. Not sure if Ames/Wong/etc do rental work but possibly.
A lot of this stuff is likely never going to be advertised on craigslist.
Yeah sorry us talking CC heads aren’t a genuine substitute for a real expert with their pulse on the market for a query such as yours.
“Yeah sorry us talking CC heads aren’t a genuine substitute for a real expert with their pulse on the market for a query such as yours.”
If he offered NYC-style rental commission, I’m sure someone would step up.
is your link a rental, tfo?
“is your link a rental, tfo?”
Nope. For sale. Don’t believe Redfin does rentals.
“And that’s the extent of the free looking.”
I’m going to assume from that it’s not trivial to find what anonny is looking for. Not my neighborhood at all.
For apartments, not a lot on craigslist period. But based on these, I’m guessing there’s got to be something in the just around $3K range from time to time.
http://chicago.craigslist.org/search/apa?query=lincoln+elementary&srchType=A&minAsk=2000&maxAsk=4000&bedrooms=
“I’m going to assume from that it’s not trivial to find what anonny is looking for. Not my neighborhood at all.”
Need a better search engine than RF, and the alternatives I’m aware of are not reliable (in Chicago, at least) on the key points of cac, w/d and not-open kitchen. So it involves looking at every damn listing, which is boring.
While we are at it. Does anyone have 2007 or newer Bentley Continetal GT for under $30,000. If so, please post a link. Thanks.
If not, Bentley prices must be headed for a severe correction.
on a side note, cars are way too fricking expensive right now… 40k for a mustang or camaro? 30k for a camry or accord? 50k for a pickup truck? get real, that’s insanity
anonny – your wish list is lengthy, like mine was, and after a year of walking around and kicking the tires, making a few offers on short sales and realizing the lower price wasn’t worth the PITA or the risk (given that a lot of short sales seemed concentrated in the same buildings), I decided to just look at normal transactions where I wasn’t going to have to deal with the bank or a mini auction scenario and just buy something where the seller realized they lost and were ready to move on at a reasonable price (basically same as nominal 2001 price in my case). Prices need to come down a little bit more, but the quantity of cash on the sidelines is enormous and every prospective buyer is waiting and waiting for that great deal that might never come because the really good deals lead to multiple bids and go under contract immediately (see for instance, that thread on here about the $300k 2/2 in the Caravel that was under contract in no time).
Marginal buildings and marginal locations are still going to get hit (e.g., South Loop, West Loop, the American Invesco buildings in River North, etc.), but good properties in good locations aren’t suddenly going to plummet another 25% or anything because there is a lot of money in this town, even with the crappy economy and Uncle Sugar will take all actions necessary to attempt to prevent too much further asset value depreciation (e.g., QE2, blank checks to Fannie, Freddie and the FHA, etc.). The Fed clearly is attempting to punish risk-averse savers and reward those who borrow money and is willing to engage in incredibly reckless expansionary monetary policy to achieve its goal of returning the banks to solvency with as little pain to the banks as possible and I think that 5-10% annual inflation is what they are pulling for – I want that 4.25% 30 year mortgage as a hedge against that policy move and the rent increases that will follow.
“The Fed clearly is attempting to punish risk-averse savers and reward those who borrow money and is willing to engage in incredibly reckless expansionary monetary policy to achieve its goal of returning the banks to solvency with as little pain to the banks as possible ”
I do wonder what the Fed’s exit strategy is with regard to eventually shrinking it’s balance sheet back to pre-crisis levels or anywhere close. I often wonder if they even have an exit strategy or are just winging it. The scary thing is signs point to the latter.
anon(tfo):
“If he offered NYC-style rental commission, I’m sure someone would step up.” Believe me, as someone made a living from rental commissions in NYC for a couple of years, I’ve approached this whole undertaking with that sort of zeal (though it’s not quite the same, given the lack of rent controls).
“http://www.redfin.com/IL/Chicago/1925-N-Sedgwick-St-60614/unit-2/home/13344311
seems to have everything except the separate kitchen. And that’s the extent of the free looking.” Not bad, though I’m curious how they come up with 3,300 sq/ft. And it is an open kitchen. And it doesn’t have a garage. (And while it’s not on the ground floor, it couldn’t get much closer.) And it’s for sale, not for rent. Again, not a bad looking place, but I wouldn’t rent it for $3,000.
JMM:
“ELP is a ripoff. Lincoln is a ripoff.” Can you suggest any alternative areas to live? If I didn’t value the park/lakefront/zoo/elementary school so much, there are lots of areas I would consider…but they’re not in IL, let alone Chicago. (Though if I could swing the Parker or Latin freight, ELV or the northeast section of the GC would work fine as well.)
DZ:
“I’m going to assume from that it’s not trivial to find what anonny is looking for. Not my neighborhood at all.
For apartments, not a lot on craigslist period. But based on these, I’m guessing there’s got to be something in the just around $3K range from time to time.”
Yes, those two listings that are above my budget are nice. If I were to go above my $3,000 max, that would open up lots of options. Alas, I have a budget, and a max. The place for $2,200 is just not happening.
Anonny–I think 2250 N CLEVELAND Avenue Unit 2, Chicago 60614 meets your criteria. It’s listed at $3,195 on the MLS, but it’s been active for about a month so I bet you could get it down to $3,000.
And anonny if someone on this board finds what you’re looking for for christs sakes buy them a chili’s giftcard or something..
Wait a second, I have all Anonny’s requirements, but I want it for 2k. Deal me in guys.
“or is clio precocious”
I think you meant “precious” … and yes, yes I am..
“While we are at it. Does anyone have 2007 or newer Bentley Continetal GT for under $30,000. If so, please post a link. Thanks”
JMM – I don’t understand where this is coming from – but I actually DO have a 2005 Bentley Continental (silver tempest) w/ 35k miles. I’ll take 75k for it (that is the cheapest you will find out there!!).
“Can you suggest any alternative areas to live? If I didn’t value the park/lakefront/zoo/elementary school so much, there are lots of areas I would consider…but they’re not in IL, let alone Chicago. (Though if I could swing the Parker or Latin freight, ELV or the northeast section of the GC would work fine as well.)”
Annony – sounds like the school district is important to you. The NE section of GC would put you in Ogden which is arguably as good as Lincoln. They are now following the IB program beginning in 1st grade. If they aren’t officially certified yet, they will be within a year I believe. Great school as far as publics in the city go.
Here is a 3/3 with in-unit W/D, great location near park/lake/zoo, parking and outdoor space for $3K. Window cooling and small bedrooms, but a nice unit on a gorgeous block.
http://www.realtor.com/realestateandhomes-detail/1511-North-Dearborn-Parkway-Unit-3_Chicago_IL_60610_M71318-50853
BS Clio. Look at the economy. Housing. Unemployment. Give me that car for 30k and you have a deal.
Otherwise, its only a matter of time until it gets repossessed.
“I got into a substantial discussion with my father in law…. He is a successful surgeon, has made a lot of money in residential and commercial real estate since the 1990s…. He doesn’t understand why my wife and I are hesitant to buy real estate. Let’s first ignore the fact she has 200k in med school debt ….”
Joe, wait a minute, there are so many things wrong with this scenario, I hardly know where to start:
1. Your wife’s father who is this rich surgeon did not pay for her medical school or will not pay for it now? That’s all you have to tell this DB if he starts sking you/lecturing you about buying a house.
2. Rich older people don’t remember the struggles that they had when they were younger. Luckily, I am connected and cognizant of that fact and am very grounded – but others around me are clueless. Last week, one of my partners told a secretary (who was wondering about refinancing) to just pay off her house and be done with it. The stories go on and on. So – your FIL (I learned that abbrev here last week), may not remember what it was like.
3. You should not argue with your FIL – if he has a lot of money he could make your life very nice later on. You don’t have to kiss up to him, but you don’t have to argue either.
4. You actually should listen to what he is saying. His daughter (your wife) may not realize how much her income is going to go up. I’m sure she could pay off those loans in a couple of years and then you DO have a significant income. Once things get paid off and basics are bought, you would be surprised how fast money accumulates. Just look at all the doctors out there over the age of 45-50 – NONE of them are struggling at all!!!
OK I’m done… for now
“Window cooling and small bedrooms, but a nice unit on a gorgeous block.”
Nope. Anonny is pampered and wants all of the accoutrements of their (likely) previously suburban upbringing. Needs central a/c.
“BS Clio. Look at the economy. Housing. Unemployment. Give me that car for 30k and you have a deal.
Otherwise, its only a matter of time until it gets repossessed”
uhhh I don’t think you can (or anyone would) buy a Bentley if they had to take out a car loan…..
Here’s a link for the rental on Cleveland http://www.urbanrealestate.com/property/2250-N-Cleveland-Unit-2-CHICAGO-IL-60614-CGNDZIACPHXO4.html
Tight credit means the Bentley will surely be around 30k by next spring. Just a matter of time Clio. I am practically willing this one.
“Nope. Anonny is pampered and wants all of the accoutrements of their (likely) previously suburban upbringing. Needs central a/c.”
And thus now we know why people buy condos. Rentals tend to suck.
“Rentals tend to suck.”
Not if you’re renting a nice condo.
“Tight credit means the Bentley will surely be around 30k by next spring. Just a matter of time Clio. I am practically willing this one”
I don’t think so – you forget that people who own Bentleys own them outright. They will just keep them in their garage. The Continental is probably the most AWESOME car I have owned. It is an absolute pleasure to drive, ridiculously powerful and the nicest ride/sound system around, etc.. The Lambo gets more looks, but after driving it into the city, I need to see a chiropractor and also start anticoagulation for my DVTs – it is NOT a comfortable car at all!!.
“Annony – sounds like the school district is important to you. The NE section of GC would put you in Ogden which is arguably as good as Lincoln. They are now following the IB program beginning in 1st grade.”
Bucktown and Pulaski Elem, which is NOT arguably as good as either of those but you can buy a SFH (cottage) for your budget.
“you forget that people who own Bentleys own them outright. ”
Yes, but the shadow inventory of would-be Bentley sellers out there is staggering.
Well just got back from attacking a burrito at Chipotle and across from me was a younger couple meeting with their realtor and from what I eavesdropped they are looking to buy a condo or put an offer in on one in the green zone.
Volume may be down but there are still transactions taking place.
“from what I eavesdropped they are looking to buy a condo or put an offer in on one in the green zone”
You didn’t stop them??
“You didn’t stop them??”
No their Realtor looked like he could kick my a$$ and Bob knows better than to mess with a guy who could kick his ass’ livelihood.
Two things:
1.first, the best overlooked post in this thread: anon’s post about paying for Ed drugs for sun city lotharios. Hilarious.
2. Everyone is talking about how hard it is to get to get a mortgage. Any thoughts about the role the appraisers play? We just refinanced and the appraisal came in significantly Higher than I thought it should. And I pay a Lot of attention to sales in the neighborhood. I don’t think these appraisers have any idea what they are doing.
Clio: ” Just look at all the doctors out there over the age of 45-50 – NONE of them are struggling at all!!!”
I can’t tell if you are being sarcastic… but I have many doctors/surgeons in my extended family. Most of them have had some type of financial difficulty with their practice. One cousin had all of his office equipment hocked out on a loan by his office manager without his knowledge. Another had a receptionist who forged his signature on checks over a period of 5 years before being discovered. Another had a business partner (fellow dermatologist) pull a gun on him.
It’s not an easy business to be in. And the standard of living for doctors/surgeons has definitely decreased over the past 30 years. The debt from med school, the malpractice insurance requirements, and the difficulty getting reimbursed makes for unhappy docs.
Sales transactions are still happening. It’s not like the market is completely shut down (at least not in most neighborhoods) – it’s just that in today transactions are the slowest they’ve been in more than a decade. And the transactions that are happening are tilted towards multi-units and the lower end of the market.
“Well just got back from attacking a burrito at Chipotle and across from me was a younger couple meeting with their realtor and from what I eavesdropped they are looking to buy a condo or put an offer in on one in the green zone”
Wow – stop the presses!! Bob heard that somebody was putting in an offer on a condo – this must mean a complete turnaround in the market!!!! Are you serious with this post? Are you kidding? Did you really think that nobody is buying anything? Or is this a joke?
“Most of them have had some type of financial difficulty with their practice. One cousin had all of his office equipment hocked out on a loan by his office manager without his knowledge. Another had a receptionist who forged his signature on checks over a period of 5 years before being discovered. Another had a business partner (fellow dermatologist) pull a gun on him”
Yeah – and if they have been in practice for over ten years, they are definitely millionaires (almost certainly multimillionaires)- no question about it. Don’t let them fool you – they are also some of the best liars out there (ohh my malpractice, ohhh my kids eduction… ohh I can’t afford this or that – complete B.S. )The “unhappiness” of doctors comes more from increasingly idiotic rules and the takeover of the practice of medicine by adminstrators who don’t know wtf they are doing.
“We just refinanced and the appraisal came in significantly Higher than I thought it should. And I pay a Lot of attention to sales in the neighborhood. I don’t think these appraisers have any idea what they are doing.”
I’ve been hearing these stories as well. Someone I know who just bought a condo in Lakeview 6 months ago got an appraisal for the refinancing and it came in $40k more than what she just paid.
“Did you really think that nobody is buying anything? Or is this a joke?”
I would think my anecdotal observations from during the height of the bubble would be a bit different these days but apparently not. There are still bright eyed, bushy-tailed 20-something professional couples who want to own a condo for a few years and are eager to do so.
I just hope they don’t get a bailout in five years time if the market continues to deteriorate and they want to hightail it out to the burbs after the kiddos show up.
““Pent up demand?”
I’m sure there is some. Problem is, cheap and easy credit created a previous distortion in demand that developers anticipated would continue seemingly forever. Pent up supply is the much bigger reality.”
Looks like credit is going to get even tighter still. From Bloomberg:
Already beset by billions of dollars in forced buybacks, originators have imposed standards on new loans that are stricter than those set by mortgage buyers and insurers, according to Todd Chamberlain, an executive vice president who oversees mortgage lending at Birmingham, Alabama-based Regions Financial Corp.
“This industry has to stand up and say, ‘Enough is enough,’ ” Ron J. McCord, chairman of Oklahoma City-based First Mortgage Co., said during a panel discussion with lender executives at the Mortgage Bankers Association’s annual conference in Atlanta, drawing applause from the audience. “We’re trying to be out here lending to help this recovery.”
http://www.bloomberg.com/news/2010-10-25/mortgage-lenders-say-enough-is-enough-as-buybacks-curb-loans.html
Thought the crew would like this note: the taxi cabs in Boston & NYC both had the scrolling headline more like the NAR’s: Housing sales spike 10%.
There are properties that appraise higher. However, the bigger issue is that appraisal quality is way down due to the implementation of Home Value Code of Conduct (HVCC). This regulation was born out of Andrew Cuomo investigating WAMU along with Fannie Mae and Freddie Mac for putting pressure on appraisers to over value properties to make deals work.
HVCC puts up a firewall between the loan originator/realtor and the appraiser. Basically, it is no longer permissible for a loan officer to have any contact whatsoever with the appraiser. The appraiser is also randomly selected and ordered through an Appraisal Management Company (AMC).
The problem is the appraisers no longer have to be concerned with producing a quality report since they are going to get paid regardless of the quality of the appraisal. In the past, Loan Officers established business relationships with appraisers they trusted. In addition, the AMCs have put price pressure on appraisers. In the past, an appraiser might make $300 bucks per report. Now the AMCs are taking $150-$200 bucks off the top and paying the appraiser $150. As a result, a lot of quality appraisers have left the business. In addition, the AMCs focus on cost so they will send the cheapest appraiser. What this means is that it isn’t common for some appraiser based in Joliet to get an assignment to appraise a condo in Lincoln Park.
Most appraisals these days err on the side of undervaluing a property. Appraisers don’t get in trouble for being too conservative, but will for over valuing a property. Generally speaking, if an appraiser values a place for more, it probably is worth more as there is no incentive to inflate the value.
>>”However, the bigger issue is that appraisal quality is way down due to the implementation of Home Value Code of Conduct (HVCC)”
Quality is way down because appraisers are actually doing their job instead of “hitting the number”?
We know what happened due to all the “quality appraising” that went on the last few years. Good riddance, I say.
>>Thought the crew would like this note: the taxi cabs in Boston & NYC both had the scrolling headline more like the NAR’s: Housing sales spike 10%.
Spike?
Are we living in Soviet Union?
“Appraisers don’t get in trouble for being too conservative, but will for over valuing a property. Generally speaking, if an appraiser values a place for more, it probably is worth more as there is no incentive to inflate the value.”
Thanks Russ – this definitely has been my experience. Appraisers are ridiculous now. I now make it a point to have a representative present when a appraisal is being done on any of my properties. It is amazing how much these guys can be influenced. They are pretty nice people and really appreciate any “help” you can give them with coming up with a value/price. I would seriously advise anyone who is getting an appraisal to be present when it is being done. There is an art to influencing the appraisal without being annoying or too aggressive. Wait a minute…. I just hit on a great business idea.!!!!
Side-note: has anyone here seen the excellent doc feature “Inside Job” at the Music Box Theatre? It explains very well how the whole economy (including of course real estate) got to where it is now. A VERY scary movie, just in time for Halloween!
Sartre:
It is even worse, except now it is on the down side. Essentially, HVCC has driven on the good appraisers out of the business by reducing the compensation.
As I said, a lot of this stuff sounds good on paper to people who don’t do deal with these things on a daily basis, but the actual results are something entirely different.
Unfortunately, you won’t know until you try to go refinance or buy a home and the appraiser from bumblestank botches your transaction because he is unfamiliar with the nuances of school districts, etc.
Oh, you also get stuck with the bill for the shitty appraisal.
Yeah I saw Inside Job last week. I still can’t tell if the world is run by fools, crooks, or both. The chief lobbyist for the financial services industry was a real snake. Ultimately I thought the dean of Columbia’s B School came off worse than anyone else. Well maybe Mishkin was worse. Let’s face it, Columbia sucks.
October condo/TH/SFH closings for City of Chicago
1992 1,094
1993 1,238
1994 1,187
1995 1,580
1996 1,475
1997 1,731
1998 1,855
1999 1,978
2000 2,106
2001 2,177
2002 2,503
2003 2,996
2004 2,651
2005 2,846
2006 2,630
2007 2,007
2008 1,564
2009 2,068
2010 1,187
Yowsers!
“2009 2,068”
“2009 2,068” —- Awww look at all the lil’ monkeys who were hoodwinked by the bureaucrats in DC into thinking everything was alright. Too bad there’s not an endless supply to that monopoly money.
“It is even worse, except now it is on the down side. Essentially, HVCC has driven on the good appraisers out of the business by reducing the compensation. ”
The bad news is that we’re in for a prolonged downturn with a lower standard of living for younger American generations.
The silver lining is that we’ll be able to stomp out the paradigm of the young idealists who don’t understand unintended consequences and somehow got it into their heads the government can and rectify problems effectively and should do so.
In effect, possibly the end of statism as we know it, or at least for a generation or two.
October condo/TH/SFH closings for City of Chicago
1992 1,094
1993 1,238
1994 1,187
1995 1,580
1996 1,475
1997 1,731
1998 1,855
1999 1,978
2000 2,106
2001 2,177
2002 2,503
2003 2,996
2004 2,651
2005 2,846
2006 2,630
2007 2,007
2008 1,564
2009 2,068
2010 1,187
Wow! Thanks for the info G. I knew it had fallen off a cliff.
I wonder how much the foreclosure moratorium played on the closings numbers (since they make up 40% of these sales?) It’ll be interesting to see. Also- the 2009 number is interesting because that was the first tax credit at work (though you had to close by the end of November- but people were buying in October as well.)
“Side-note: has anyone here seen the excellent doc feature “Inside Job” at the Music Box Theatre? It explains very well how the whole economy (including of course real estate) got to where it is now. A VERY scary movie, just in time for Halloween!”
I saw this as well. Everyone should see it. Very well done. The scary thing is outside of Ken Lewis at Bank of America, ALL the CEOs of these companies that almost brought down the country are still in their jobs. ha! ha!
Also- didn’t you think while watching it “I don’t believe a word they’re saying about the foreclosure-gate stuff.”