Market Conditions: The Luxury Market Might Not Be as Hot as Everyone Believes
With all the cheerleading going on, you’d think the luxury market was sizzling hot.
But is it?
Crain’s does it’s mid-year update on the luxury market in the Chicagoland area.
While sales are up 14% from a year ago, and are much higher than the dark years of 2009 and 2010, they are still well under the 2006 peak.
A total of 228 homes sold for at least $1.5 million during the first six months of the year, a 14 percent jump from the 200 homes sold over the same period in both 2012 and 2011, according to brokerage Baird & Warner Inc., which analyzed information from Midwest Real Estate Data LLC.
While that number represents a gain from a low of 168 sales in the first half of 2009, it’s well below the 381 in the first half of 2006, when the market peaked, said Jim Kinney, vice president of luxury home sales at Baird & Warner.
“Everyone’s dancing around saying, ‘Happy days are here again,’” he said. “A 14 percent increase is great, but it’s not anything earth-shattering and it’s certainly not a return to pre-crash-type numbers, so I think we’ve got a ways to go.”
Lincoln Park was the most active neighborhood/city with 45 sales over $1.5 million. Winnetka and Hinsdale tied for second with 27 sales each.
According to MRED, 898 homes are listed for at least $1.5 million in the Chicago area, which translates to a 25-month supply based on current sales trends.
“Any time you get under double digits (in months) for supply numbers it starts getting to be a very, very healthy market,” Mr. Kinney said. “A lot of the stuff in the city is starting to favor the sellers,” partially because there’s less available land to build on.
That’s not the case in the suburbs, where supply continues to outpace demand in many areas. Burr Ridge was the weakest high-end market in the first half of 2013, with 168 months’ worth of inventory — enough to last 14 years based on current sales trends, according to Baird & Warner. Only two Burr Ridge properties listed for at least $1.5 million have sold so far this year.
Does this data also include condos or is this just single family homes? The article isn’t clear.
Most of the unsold condos in the new construction Ritz building and 2550 N. Lincoln Park are not even listed on the MRED so they would not be included in “inventory” calculations. There are over 150 of these in this price range that would be considered part of the “luxury” market.
Adding those to the calculations probably nearly doubles the number of luxury condos on the market.
But either way- inventory is higher than most people think.
With high inventory levels in the luxury bracket, is this the only part of the housing market where you can still get a deal?
Luxury home sales rise 14 percent in the first half [Crain’s Chicago Business, Abraham Tekippe, July 9, 2013]
These numbers are incorrect because they only reflect the luxury RESALE market – remember that most people who are spending 1.5 million or more are going to want to build their own house. For example, in a three block area around my house (oak brook), there are 9 new houses being built (representing 15% of the neighborhood). These houses range in price (my estimate) of 2.5-4 million but their sales will never be “recorded” (because the owners bought tear downs and then constructed their own houses). This happens more than you think…people want new and they want custom.
Why are these articles comparing numbers to the peak of the market? Isn’t that quite possibly the dumbest number you could use as a reference point?
What happens to those “custom” homes when they are resold? Is that where the deals are in the luxury market?
“Why are these articles comparing numbers to the peak of the market? Isn’t that quite possibly the dumbest number you could use as a reference point?”
Very good point and I agree. The question is why Sabrina keeps using the peak numbers to show we are not back to normal levels. Why is the peak what we consider normal? The fact that we are not back to peak numbers furthers my point that this time is different and we are experiencing a very controlled market and appreciation in prices. If we get back to peak levels I would be getting out of the market.
The biggest difference today is that buyers are qualified by lenders and not just given rubber stamped loans. The banks caused the housing collapse by lending to anyone and with no money down. If a bank offered me a $2 million (no recourse) loan to throw into equity markets I would take it and make risky investments (what’s the downside). At least today the banks are being regulated and have actual criteria to follow on who they lend to and who they don’t. Regulation good. Deregulation bad! At least in this case…
I agree with sonies and steve heitman.
I third the motion about comparing things to the peak being dumb. I clicked over here to make the exact same comment.
Also, the suburbs are a very different market than the city. There are so many outdated and overpriced homes on the market in the suburbs – Oak Brook comes to mind.
Chicago has only a 7.4 months supply of homes above $1.5 MM and I can tell you that some of the newer Lincoln Park homes have sold very fast. New construction in Lincoln Park in the $3 – 4 MM price range has been very hot. For instance, 1909 N Fremont, listed at $3.3 MM went under contract in 3 weeks.
Totally agree with heitman
sonnies too!
Helmethoofers is gone and SH returns, and everyone agrees with him? This place gets more bizarre every day.
I agree with Vlajos who agrees with sonies and steve heitman
I think the real estate market is being primarily driven by people buying homes to rent out. This is primarily happening in the non luxury market because the lux market caters to buyers rather than renters. Therefore there is higher demand for non lux properties and lux properties are selling at a slower pace.
I of course agree with myself as well.
“The question is why Sabrina keeps using the peak numbers to show we are not back to normal levels. Why is the peak what we consider normal? ”
Because she is biased.
Come on Sabrina… I know you agree as well. Just say it and we can all be happy on this bright and sunny day. The housing market and general economy have stabilized and are improving. The Fed (as much as we all hate them) seem to have made the right decisions and the dooms day scenario appears to be off the table. Turn that frown up side down and have a drink or two. Happiness is a good thing…
I dunno, the general economy does seem to be improving, but not all segments of society are benefiting equally. Working two low income part time jobs may mean that you’re not unemployed, but I wonder what will happen in the long term to the housing market if the middle class continues to contract.
There is a $3.3mm place in my hood (OTT) that was bought in 2007 for $900k and rehabbed. It is currently under contract. If it sells close to list it will be the first house with a 3mm handle to trade in OTT. The high end is extremely strong. This economy is very different than the past – its almost like 2 separate economies. One with skilled labor that actually has pricing power and one with unskilled labor that is getting killed by cheap labor oversees / immigrants. All of my friends (lawyers / consultants / finance) are busier than ever. Firms were gutted so much in 2008/9 that the people left are highly trained / rare (because so many were fired at the time) / and in demand. Strolling around LP Zoo last weekend you wouldn’t know there were 70+ shootings in the city. Just like looking at the $1.5mm+ market you would never know there are still many $200-400k places still way underwater.
This is one really surprises me.
http://www.redfin.com/IL/Chicago/1650-W-Winona-St-60640/home/13403492
“The question is why Sabrina keeps using the peak numbers to show we are not back to normal levels.”
In an attempt to validate her ridiculous ideas.
“In an attempt to validate her ridiculous ideas.”
Now Now……… lets be nice to the host she is entitled to her own opinion…….
“In an attempt to validate her ridiculous ideas.”
Her ideas are not ridiculous.
“lets be nice to the host she is entitled to her own opinion…”
And therefore, she is entitled to be correct as well.
Corrected….that is.
“Her ideas are not ridiculous.”
You’re right. The path to riches starts with being a lifelong renter.
“The housing market and general economy have stabilized and are improving. The Fed (as much as we all hate them) seem to have made the right decisions and the dooms day scenario appears to be off the table.”
Aw, Steve Heitman, I was agreeing with you, too, until you rolled this out.
General economy is showing pathetic improvement, particularly from the standpoint of about 80% or so of the pop. Growth is so slow that we probably won’t reach pre-bust employment level for many years. Wage share of GDP is gliding downward. And even if you agree with “tapering” sentiment, it’s hard not to admit that the Fed completely fucked up the roll-out of that policy shift. And why have we depended on the Fed to address a depression that called for expansive fiscal policy in the first place?
Yoss’s tale of two cities is emblematic of our burgeoning plutocracy. Yes, real estate has been stabilized in the nicer parts of America. Yes, the rent-seeking professions continue to extract rents. The rest is eyewash.
Vlad Jose, I saw that Winona listing, too. Dumbfounding. But, like they say in real estate, always own the most expensive house on the block.
I think thats what your realtor told you, not someone with a lot of money… 🙂
“General economy is showing pathetic improvement, particularly from the standpoint of about 80% or so of the pop. Growth is so slow that we probably won’t reach pre-bust employment level for many years. ”
Again, why are benchmarking normal employment at the peak levels. Unemployment was low in the peak years as a result of all the crazy money flying around the housing market. Strip out the GDP contribution from home equity loans, developers, wall street BS, ect, and I bet the boom years only saw 2% GDP growth as well. Maybe the same for unemployment… 4% should have been 5 – 6% without all the funny money working through the system.
“benchmarking normal employment at the peak levels”
Fair complaint, except that:
A. Employment level during the RE bubble, while good, was NOT peak.
B. Employment levels are in no small part a consequence of policy. Nor does a policy unemployment target of between 4% and 5% require fanning speculative bubbles.
““Her ideas are not ridiculous.”
You’re right. The path to riches starts with being a lifelong renter.”
The path to riches doesn’t come from paying 1.5x to 2.0x the prinicipal loan amount in interest to bankers.
the path to riches comes from being the banker collecting the interest.
“The path to riches doesn’t come from paying 1.5x to 2.0x the prinicipal loan amount in interest to bankers.”
Talk about ridiculous. Where do you get such incorrect numbers? 1984? A $300k mortgage over 15 years will have a total of $72k in interest. Renting that place for $2500 a month will cost you $450k in rent over 15 years.
With a 30 year mortgage, you would pay $215k in interest vs $900k in rent.
I am confused how can you pay more interest for a 15 year mortgage vs a 30 year one?
“I am confused how can you pay more interest for a 15 year mortgage vs a 30 year one?”
You don’t. My example has 72K interest for 15 year. 215K interest for 30 year.
These low rates, chuk, have been a small blip in the interest rates spectrum over the last 30 years. And those low rates only applied to those with the best credit. Forgetting to pay a parking ticket, and the subsequent ding on your credit report, can cost you thousands of dollars in extra interest.
7.5% interest, which was not too uncommon throughout the 00’s for someone with less than perfect credit, would require $455,000 in interest on a $300,000 loan, if they didn’t refinance. We’re talking about the average joe here, not just the most perfect home owner with 800 credit scores and above.
http://www.mortgage-x.com/general/historical_rates.asp
Yes, but I am talking about today.
TODAY, Sabrina advocates renting over buying
TODAY, Sabrina claims renters have a financial advantage over buyers
“Talk about ridiculous. Where do you get such incorrect numbers? 1984? A $300k mortgage over 15 years will have a total of $72k in interest. Renting that place for $2500 a month will cost you $450k in rent over 15 years.”
Your math assumes that rent doesn’t change over that period and excludes property taxes, assessments (if applicable) and any home repair/renovations. Over 30 years you are looking at at least 1 major renovation including replacement of every major appliance and mechanical system. While you are probably still ahead in the end owning, the numbers aren’t as drastic as your simple math makes it sound.
Vlajos, how about a 30 room mansion at 3700 W Granville for a cool $3M? Now this place is ridiculous!
http://www.redfin.com/IL/Chicago/3658-W-Granville-Ave-60659/home/13516975
“Your math assumes that rent doesn’t change over that period and excludes property taxes, assessments (if applicable) and any home repair/renovations. Over 30 years you are looking at at least 1 major renovation including replacement of every major appliance and mechanical system. While you are probably still ahead in the end owning, the numbers aren’t as drastic as your simple math makes it sound.”
I wasn’t doing a cost benefit analysis. I was just refuting HD’s claim that interest was 1.5-2x principal, instead rent was more like 1.5-3x principal.
In 30 years the dow jones should be around 120,000
so yeah… I’m sure rents will totally be the same…
“so yeah… I’m sure rents will totally be the same…”
Assuming rents go up 3% a year, one would pay around 1.4mil in rent over 30 years instead of 900k in my example.
Yes, those renters sure have it all figured out. Oh, I forgot, they are investing the extra money they are “saving” by not having a mortgage. Nevermind the fact that it is cheaper to own than to rent, so there are no savings to invest.
I invested my savings from renting, in owning. that’s how I got A downpayment
“TODAY, Sabrina advocates renting over buying.”
You’re putting words in my mouth.
I said if you’re going to be moving in 3 to 5 years then you are a fool to buy. And how many people stay in that 2-bedroom condo longer than 5 years? Not many. Don’t be a fool. Plenty of lovely high rises being built everywhere with the exact same kitchens as the condo. Just rent it and be free. So when you get married you can go and buy that house in the suburbs and not have to worry about selling for a loss on the condo.
BUT- I’ve always said if you’re going to stay somewhere longer – like 10 years- then sure, why not buy? There were plenty of deals a few years ago (now- not as many, but you can still find some.) And you have to live somewhere. If you have kids already- then the suburbs are a no-brainer just for the schools.
Too many 20-somethings have been brainwashed into believing (STILL!!! Even after the massive bust) that buying a condo is the best thing they can do financially when it’s the worst thing. They should be renting and saving money for the downpayment on the real property they will want to buy when married.
“You’re right. The path to riches starts with being a lifelong renter.”
It’s completely irrelevant to my financial future if I buy or if I rent. Renting gives me way more freedom to move to take the higher paying job in numerous cities (or even the suburbs) then buying does. As someone who has lived in several major metropolitan areas myself- and who has moved for job reasons- it’s all about maximum flexibility. The old way of buying a house at 25 and staying in it for 30 years is long gone. That is the baby boomer generation- not Generation Y.
You’ve been brainwashed Chuk. Brainwashed by NAR and the IAR to believe that “owning” is somehow better. For some people- it’s the ONLY way they can save money so when they are 65 at least they “may” (and that’s a big “may”) have the house paid off. They won’t have any savings but they’ll have a $300,000 asset (or whatever it is) sitting there. And that’s better than nothing.
Real estate has been a loser asset for the last 100 years. I know you’ve seen Robert Shiller’s chart graphing it out Chuk. If not- here it is again:
http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
Real estate does nothing for decades. But because of what has happened in the last 15 years you’ve been brainwashed into thinking that it’s “normal” for prices to go up 10% a year (or 20% or 30%). It’s not. And it’s not sustainable without massive government intervention.
We are in for many decades of nothingness with real estate (once the government gets out of it.) Of course, we all need somewhere to live (which is why we are chattering on CribChatter) but if I want an “investment” I’ll get a real one.
“Nevermind the fact that it is cheaper to own than to rent, so there are no savings to invest.”
It’s still cheaper for me to rent than to own my exact same square footage and amenities in my neighborhood (even with low interest rates.) But I don’t live in a luxury high rise where rents are skyrocketing. When rates were at record lows it was getting close to parity though. But now that they’ve spiked- renting still wins out.
“Again, why are benchmarking normal employment at the peak levels.”
Peak employment was in the 1990s Steve. NOT 2007.
“The housing market and general economy have stabilized and are improving.”
Then why is the Fed at emergency monetary policy? You do realize that’s what it’s doing, right? It’s QE policy has never been attempted before.
But what do I know. Everything seems so…normal.
By the way- where are all those on the sidelines who are going to jump in now that rates are rising?
Apparently- they’ve decided to wait on the sidelines a little while longer because mortgage applications have fallen 4 straight weeks. In June, they declined 28% from the month before (although they were still up 4.5% from June of 2012- but the market wasn’t “hot” back then.)
So where are they? I thought they read on their iPad that rates were rising and even though they weren’t in the market to buy, they immediately called a realtor and a mortgage broker so they could buy that house before it was too late.
Hurry sideliners!
But whoops- I guess that’s not what happens.
Because there is no such thing as a buyer sitting on the sidelines. The buyer is either a buyer or not a buyer. The “sideline buyer” is a myth as the data is now proving.
No one is jumping in.
If the rent vs. own example is a $360k dwelling in Chicago, it is likely a modest one (i.e., rental equiv is well short of $2,500/mo). It’s probably old, which means maintenance costs will run about 3.5% of purchase price a year. Taxes might run to $7,000/yr if it’s a SFH, less if a condo. These costs alone add up to $1,633/month. Seems to me that you should either subtract that from the rent or add it to the interest figures in your analysis. I’m agnostic about whether principal and down payments get better return in RE rather than other investments.
Perhaps orthogonal but nonetheless true: Renters are better than homeowners at remembering that housing is consumption, so they tend to consume less. Let’s say your HHI is such that $360k is as much house as you can afford. At that income, if you’re spending more than $1,800 on rent, I submit that you are not very canny with money; spending $2,500 (in Chicagoland) you’re a fool.
“They won’t have any savings but they’ll have a $300,000 asset (or whatever it is) sitting there. And that’s better than nothing.”
So what savings will they have if they rented instead? Where does the renter get this magic savings from? Please show your math.
“If the rent vs. own example is a $360k dwelling in Chicago, it is likely a modest one (i.e., rental equiv is well short of $2,500/mo).”
Not sure where you get that idea from. My 2/2 was much less than 360k, and I get $2200 a month in rent. And again, my example was not to compare rent vs buy. It was just to point out that HDs figures for interest were way off.
“Real estate has been a loser asset for the last 100 years. ”
It’s amazing you still don’t get the issue after all this time. I am not talking about investing excess cash in a investment property vs investing in the stock market. I am talking about a PRIMARY residence. You will need to spend $xxxx per month on housing. The only question is is it more advantageous to do it with an equity stake or by renting. Over time, the overwhelming answer is owning. That does not mean that real estate is a superior investment to gold, stocks, pork bellies, etc.
You know what else has been a loser asset class? Cars. Does that mean it is wiser to rent a car than it is to own one? After all, if you don’t like the color, you can just rent a different one next week.
“In June, they declined 28% from the month before”
So when Apple sells a zillion phones the first month they launch a new one, and the next month they sell 28% less, does that mean its a flop? Or is it just that the first month sales are so skewed in comparison?
Yes Sabrina, where are these savings all these renters are getting. I will again give you my own example and you can help us all understand.
Purchase Price $170k (cash)
Taxes $2,400
Assess $121 monthly
Rented it in 1 day for $1,680
Show me the renter savings you are referring to?
“Yes Sabrina, where are these savings all these renters are getting. I will again give you my own example and you can help us all understand.”
I’m saving plenty Steve. The same way I would be saving if I owned. Only I’m not paying to fix anything, replace anything, an HOA or taxes. Yeah- I don’t get the tax deduction either but I’m not sure in my bracket I would even qualify for it (and they’re talking about getting rid of it again anyway.)
And I can move out at a moment’s notice.
You’re talking about being a landlord Steve. I’m not. I’m talking about LIVING. It’s two different things.
I don’t see why you all think you have to convince me that buying is such a wealth generator. Seems like you’re all the ones who are nervous about owning- since you’re trying so darn hard to convince us all it’s the only way to go. I’m getting rich renting. I don’t see why that should bother you. It doesn’t bother me that you’re spending $170,000 to buy real estate. Good for you.
“I’m getting rich renting”
Lets make this easy:
1) what do you pay in rent?
2) how much do you think it would cost to buy your place?
“And I can move out at a moment’s notice.”
You don’t have a lease?
“My 2/2 was much less than 360k”
If you put it on the market today, what’s the ask? Also, what are the lucky buyer’s costs of owning.
“I wasn’t doing a cost benefit analysis.”
You were jibing that renters had it “all figured out” while disdaining to do that analysis. So do it. It’s the point.
“So when Apple sells a zillion phones the first month they launch a new one, and the next month they sell 28% less, does that mean its a flop? Or is it just that the first month sales are so skewed in comparison?”
Then Apple isn’t exactly “hot” now is it? Um…no.
I said June was just 4.5% higher than June of last year- when the market was NOT hot. So that is your comparison. And June wasn’t even the worst of it. Mortgage apps will be declining in July as well because rates spiked again (and you have the holiday.)
You didn’t answer the question. If there were so many people waiting on the sidelines to jump in because rates are now rising (hurry! hurry!) they’d be jumping in. But the data is showing they are NOT. In fact, the buyers who actually ARE in the market (not the sideliners, because they don’t exist) are pulling out and waiting to see if rates will go lower OR they are rushing to complete a purchase with their previously locked in rate- which will skew sales forward much like the first time home owners credit skewed sales.
Ah yes- the myth of the sideline buyer exposed.
It doesn’t exist.
I wonder what will happen to this housing market when we have normal rates again? If people are panicking over a rise to 4.5% or 4.75% what happens over 5%? My gosh. The mayhem that will be upon us.
“I am talking about a PRIMARY residence. You will need to spend $xxxx per month on housing. The only question is is it more advantageous to do it with an equity stake or by renting. Over time, the overwhelming answer is owning.”
That’s what I’m talking about. I said if you’re going to live in that exact property for 10 years or more- go ahead and buy because we all have to live somewhere. But for everyone else who knows they will marry the woman they have been dating for 3 years and that two years after that they will have their first child and then, gasp, they hate the CPS school and they have to move- then don’t buy.
It’s really quite simple.
We are on the same page then Chuk.
“You were jibing that renters had it “all figured out” while disdaining to do that analysis. So do it. It’s the point.”
I’ve done it 100 times on this site. I highly doubt anyone is interested in seeing it again. But, I’m happy to do it if you like. Just give me the scenario. Using my own will be pointless because I bought at a foreclosure at a huge discount.
“You don’t have a lease?”
Of course I do. I can re-lease it in a day.
Chuk, no need.
I’m only pointing out that the question at hand is what to do today, as you pointed out yourself.
Steve, that’s a great deal. Can anyone buy one just like it on credit?
I pay $1500 a month. It would cost around $330,000 to buy my place based on nearby comps.
Using the NYT excellent rent v. own calculator with 20% down and 4.5% interest rate and an HOA fee of $150 a month- it tells me:
If you stay in your
home for 6 years,
renting is better.
It will cost you
$23,663 less
than buying,
an average savings of
$3,944 each year
Oh- that’s with annual home appreciation of 2% and annual rent increases of 3%.
If my rent is raised to $1700 a month then I’m only saving about $1,000 a year. But that’s still with 4.5% interest rates.
The rate is huge. At 6% rates it makes sense for me to rent for 10 years, instead of buy. I save $4,000 a year.
http://trends.truliablog.com/2013/03/rent-vs-buy-winter-2013/
Oh- I also have to come up with 20% down (or 10% down- depending on what kind of loan I can get) which I don’t have to do as a renter. But we’ve all talked about THAT before.
“The current adjusted price-to-rent ratio for Chicago is 14.31 as determined by March 2013 Realtor median sales prices. This ratio is calculated using household size adjusted median contract rent for Chicago”
$1500x12x14.31 = 257,580
“Using the NYT excellent rent v. own calculator”
Decent is as far as I would go. There are things missing.
Said it before.. At parity you NEVER stay a renter unless you have no confidence about staying where you are or about keeping your job (if you have one). Very hard to win this argument as a renter. At parity, which we saw, and at the rates we were at, you really had to be a buyer.
As I said it before and desired little to argue over it, I will say it again and continue not to wish to argue over it.
My interest rate calls were not off. $300,000 at 7.5% is $455,000 in interest in the mid to late 2000’s for a borrower with average credit.
http://articles.latimes.com/2012/sep/17/business/la-fi-mo-home-loans-20120917
“Roughly 69% of American homeowners with mortgages had interest rates above 5% at the end of the second quarter and about 33% of them had rates above 6%, according to detailed mortgage data provided to The Times by Santa Ana firm CoreLogic. For underwater borrowers, the CoreLogic data showed that 84% had loans with interest rates over 5%. Half of underwater borrowers had interest rates above 6% at the end of the second quarter.”
My interest rate calls were not off. $300,000 at 7.5% is $455,000 in interest in the mid to late 2000?s for a borrower with average credit.
HD, you are making half an argument.. You need to add in the value of that capital for any argument to have relevance. 10 yr was 6% in 2000. Ain’t like borrowing someone elses money doesn’t have value to you, you are not just pissing away the entire i pmt, as you are suggesting.
Sabrina: “Real estate has been a loser asset for the last 100 years. I know you’ve seen Robert Shiller’s chart graphing it out Chuk. If not- here it is again:”
That chart is adjusted to real dollars, so if nothing else you own an inflation hedge when you buy.
HD: “33% of them had rates above 6%”
So the ‘typical’ mortgage borrower has a rate under 6, but you keep referring to 7.5 for some reason. How much interest over 30 years at 5.5, which your own stats show to be ‘typical’ right now?
“How much interest over 30 years at 5.5, which your own stats show to be ‘typical’ right now?”
1:1 ratio principal and interest.
Which $300,000 in interest on a $300,000 home is like buying one home for the price of two. Plus property taxes. That’s how you get rich, right?
And that $300,000 assumes it’s all a primary mortgage. If it’s an 80/20 and the 20 has a HELOC type of interest rates in the 7’s or 8’s, well, then, that’s how you get rich!
“Which $300,000 in interest on a $300,000 home is like buying one home for the price of two. Plus property taxes. That’s how you get rich, right?”
This time value of money thing really is something you are going to insist on ignoring… hmmm.. Ze just noticed the shared, and in this instance, rather fitting, root of ignore and ignorant… I deserve a bong hit for that..
“Which $300,000 in interest on a $300,000 home is like buying one home for the price of two. Plus property taxes. That’s how you get rich, right?”
Yes. Better than spending 1.4mil in rent. And have nothing to show for it in the end. Why are you complaining about paying 300k in interest? Housing costs money. The key to getting rich is spending LESS money.
” I’m getting rich renting.”
Think about what you wrote there. You and your landlord are on OPPOSITE sides of the trade. If he is making money, you are losing money. And vice-versa. You yourself said you could lease this unit in 1 day. Do you REALLY think that in that kind of environment, that your landlord is losing money on the trade?
Yes, and I have a hard time understanding a rent of $1,500 on a $330,000 property. One side of that equation is off from what would be considered fmv. I get almost $1700 for a property I paid $170k for.
“As I said it before and desired little to argue over it, I will say it again and continue not to wish to argue over it.”
Everyone’s personal situation is different. I’m not looking at single family homes in the suburbs nor am I renting one currently. If you are- then your situation is different.
I’m not going to be staying in my current location for the next 10 years either. So why would I buy? It makes no financial sense- for me. I’m far better off renting than buying. My career means I move frequently.
I don’t understand the ANGER of people who insist that I MUST buy right now. Why? But this is the brainwashing done by the media and NAR and whomever else.
Steve,
In your opinion, then, what would a “typical” rent be for a $330,000 property in the GZ (let’s say Lincoln Park or the southeast part of Lakeview closest to LP)? Are rents simply a % formula of what that particular place would sell for if on the market? So hard to judge these things today with “hot” properties being bid up and sold very quickly and others simply rotting for not a lot of apparent reason(s).
“I don’t understand the ANGER of people who insist that I MUST buy right now. Why? But this is the brainwashing done by the media and NAR and whomever else.”
Because you voice your hatred for owning real estate on a daily basis. For the most part, you are giving people really bad financial advice!
“I don’t understand the ANGER of people who insist that I MUST buy right now. Why? But this is the brainwashing done by the media and NAR and whomever else.”
Overall I find it to be a shitty pain in the ass of an asset class although I think a lot of money can be made in it if you know what the hell you are doing and throw in some luck to boot. I accept personal reasons behind any decision and freedom of movement is an enormous tangible-intangible. Personally I always knew someone else would foot the bill for me to move so this issue was meaningless to me. Also out weighed by my inability to live in something that I don’t have 100% control of (for which I’d happily pay a cost)
The real money in real estate doesn’t come from making a few hundred bucks a month per unit (unless it’s on a massive scale). It comes from the favorable tax treatment of the investment – passive income, and the ability to depreciate the tax basis on the building over 37.5 years or however long. Then, at the end of the time period, you hope to sell the building, but not capture a profit, because the taxes will be ridiculous, so you do a 1031 exchange. So most of the ‘money’ really comes from tax savings on the landlord’s part rather than any real rent seeking activity. Like Sabrina says, and she’s always, said, owning for anything less than the mid to long term is dumb, renting is the way to go. She’s merely saying that renting short term gives her the better position over her landlord; but if she were to stay somewhere a long time, in the longer term, it would be better for her to own, and she would end up better.
“Yes, and I have a hard time understanding a rent of $1,500 on a $330,000 property. One side of that equation is off from what would be considered fmv. I get almost $1700 for a property I paid $170k for.”
I paid $170k for a property and get $1850 per month.
” Are rents simply a % formula of what that particular place would sell for if on the market?”
On average, yes. Here is a decent link that helps explain some of this:
http://www.deptofnumbers.com/affordability/illinois/chicago/
“I don’t understand the ANGER of people who insist that I MUST buy right now.”
I don’t care what you personally do. But I do feel that you (and others) have been giving out some very bad advice over the last year or two. As I predicted, many here turned out to be “bear market geniuses”.
Yes, it went way beyond the, “don’t buy unless you plan to stay” that Sabrina is now claiming.
Let’s recap her positions –
– Shadow market is going to kill the market
– All the new construction will flood the market and kill prices
– Rising interest rates will kill the market
– The fed is going to kill the market
– Incomes are down and the market will follow
– Families are all moving to the suburbs and downtown living is short term (exact opposite is occurring)
How about showing us a single post of yours that supports the advantages of owning your home instead of renting? I am sure there is one but I can’t remember ever seeing one.
Sabrina,
I agree with you. I rent a million dollar home for $5,000. a month which surprises a lot of my friends. The thing that people have never been able to explain to me is that if owning is so great how come most people own homes but most people don’t have any money. It costs money to live and that is whether you own or rent. I could live anywhere I want and can easily buy a place. I choose to rent. I was able to build up the money and my business because I rented rather than owned. Now I have the freedom to do as I please. There are many reasons to own a home but financial reasons aren’t one of them.
Is July 15th a magical date or something?
Not sure what’s going on, but a ton of inventory hit the market today in the areas I follow.
“Is July 15th a magical date or something?”
I think it’s the unofficial second kick-off of the Real Estate Season. It’s after 4th of July so buyers will be in town and focused on finding something before school starts in the summer. We noticed this too last year when we were looking.
the first kick-off, of course being after the Super bowl http://www.chicagonow.com/adventures-house-hunting/2013/01/super-bowl-brings-start-of-real-estate-season/
“It’s after 4th of July so buyers will be in town and focused on finding something before school starts in the summer. We noticed this too last year when we were looking.”
Icarus: the buyers with school age children are already done looking. They have bought by now. If they start looking right now- it’s unlikely they’ll find something, put it under contract, and be able to close before the kiddies go back to class. When does CPS start? Many schools are starting in mid-August these days (not so sure about CPS.) That means back to school is just about 4 weeks away already.
CPS starts August 26th (a Monday). It’s doable to go under contract this week and be in the new place before start of school, but I agree that most people with kids would have been looking and hoping to be under contract before now.
Sure it’s “doable” but Icarus was arguing that the reason a lot of listings came on the market this week (observed by Milkster) was because there is now a surge of people looking for family homes. That’s not true. You don’t suddenly get home from your Fourth of July vacation and decide “better look for that house now” before the kids start school. Those families have already been looking since the spring unless they got suddenly transferred or something like that.
Is anyone else seeing a bunch of listings suddenly come on the market? I mentioned it last week to a friend. I figured it was due to the rising mortgage rates. Some sellers are finally figuring out they’d better list now if they want to sell before rates rise further and cool off the market even more.
But I’m waiting to see if the small increase in listings is a trend or just a one or two week thing.