Market Conditions: Will 2013 Be the Magic Year for the Bottom of the Chicago Housing Bust?
Crain’s must be reading our minds (or this blog) because this week it covers the very topic you all have been debating: when the Chicago housing market will bottom and/or recover.
Chicago-area existing-home sales will begin rising again in 2011, hitting about 95,000 units in 2013, according to a forecast by Irvine, Calif.-based John Burns Real Estate Consulting. That’s well short of the levels seen during the housing boom from the late 1990s to 2005, the boom’s peak, when 146,082 homes sold. And while a tax credit and foreclosure sales have breathed some life into the market, the firm projects new-home sales will fall even further this year and next.
“We’re not at all optimistic,” says Perry Bigelow, CEO of Aurora-based developer Bigelow Homes. “There are just too many difficult things that have piled up on us.”
As for how much further prices have to fall, it seems that some experts believe we haven’t hit a bottom yet in the entire Chicago area market.
With sales sluggish, home prices will continue a decline that began in 2006, according to Brookfield,Wis.-based Fiserv Inc., which calculates the widely followed S&P/Case-Shiller Home Price Index. An index of Chicago-area single-family home prices will fall 5.7% from third-quarter 2009 to third-quarter 2010 and edge up 1.2% over the following year, Fiserv Chief Economist David Stiff says.
Chicago housing market won’t recover until 2013 [Crain’s Chicago Business, Alby Gallun, Feb 1, 2010]
Meanwhile, new home sales in the city continue to be abysmal. In fact, if you exclude those condo high rises that did auctions and price cuts to sell units, the number of sales would be even more shocking.
“We see normalcy in the Chicago market probably being established in 2013,” says Tracy Cross, president of the Schaumburg-based consulting firm. Normalcy, he says, “will more or less look like ’93 to ’98 or ’99,” not the boom of the last decade.
Sales in the city fell 12.5% in the fourth quarter, to 21 units, while suburban sales rose 4.6%, to 563 units. For the year, city builders sold 848 homes, a 42.7% decline from 2008, and suburban sales totaled 2,905, a 40.5% drop.
New-home sales: ‘The industry has been basically obliterated’ [Crain’s Chicago Business, Alby Gallun, Feb 1, 2010]
Many more foreclosures should be expected for 2010 and 2011 here in Chicago, with job losses continuing and few new jobs found. (Architects’ unemployment rate is at least 20%.) As unemployment benefits expire, savings are depleted, and alternate sources of cash are exhausted, people will be strongly motivated to sell their homes, while able buyers will be scarce. Buyers market will continue, buyers aggressively negotiating price and closing conditions while sellers wait and wait and wait for any offers. Prices will continue to decline.
You’ll note that Crains’ article indicates that Chicago median home price is still more than three times median household income at $75,000. South-side and west-side home prices now have a large inventory at less than $150,000.
Don’t forget to vote (for anyone other than toddler stronger!)
HD: that’s an important message. I wonder how turnout will be in the snow. I’m hoping for interesting results but won’t plan for it.
So on a 300K home, a first time buyer can either purchase today and get 8K from the US gov. or wait until the 3rd Q of 2010 and get $17,100 off the price.
These are tough decisions.
I voted this morning.
Hey HD – I love how the first thing you do when you get into the office is play on Cribchatter. A renter with no work responsibility. The picture is crystal clear 🙂
Posted from my phone, dumbass. It’s crystal clear how stupid you are.
“steve Heitman on February 2nd, 2010 at 9:09 am
Hey HD – I love how the first thing you do when you get into the office is play on Cribchatter. A renter with no work responsibility. The picture is crystal clear :)”
On the train.
Prices are goin down, down, down, down, down, doooooooowwwwnnn, doooooooowwwwnnn, even if the sky is fallin down ( played to that hip tune that I work out to). I was looking at rent prices recently as well and there are some incredible deals in luxury and new buildings. The last thing that has yet to fully give way is the assanine idea that parking is still worth 30k plus in river north. But just give her some time.
We had a meeting with one of the major mortgage insurance companies last week and they consider Chicago a “severely declining market” and they won’t touch condos here anymore.
There are so many things wrong with our market right now. I believe the two biggest are availability of financing and excess inventory. Unemployment is a factor, but I don’t think it is necessarily the main thing.
In general, I think people are just tapped out. Stagnant wages/income combined with higher debt levels and continued taxation just make it hard to get out and do anything. Housing is most people’s largest expense, so if you can cut your housing costs in half by renting or scaling back, most people are going to do it.
Real quick, I’ve got a busy day ahead of me:
New listing.
http://www.redfin.com/IL/Chicago/3851-N-Tripp-Ave-60641/home/13458055
It sold for $211,000 in 1992
It sold for $385,000 in 2001 (bubblicious)
Then it sold for $491,500 in 2004 to the current owners
based on a $417k loan
Refi in 2007 for $419,000.
Now it’s listed for $550k.
No bubble here folks, the bottom is in (we all missed it in 1992!) Buy now or be priced out forever.
“So on a 300K home, a first time buyer can either purchase today and get 8K from the US gov. or wait until the 3rd Q of 2010 and get $17,100 off the price.
These are tough decisions.”
Would you rather have 8k in cold hard cash or $10 off your mortgage a month? Not really that tough of a decision…
Prices on cookie cutter condos, SFH’s next to trains, and other homes that have “some” sort of obstruction will continue to fall. Parking will always be more than 20k, regardless of where you are in the city.
The good, I mean really good places that are beautiful, different, and/or otherwise near-perfect, will continue to hold if not appreciate in the next few years.
My 2 cents as a buyer who hopes to be closing on a foreclosed condo in the next month…and have been looking for the past 2 years.
Sounds like you met with one of my clients, Russ.
You seem to be saying that if tapped out people just had available financing, then a lot of the problem is solved. Sorry, you debt sellers already tried that and we see the result.
There is only one viable cure to this market: Lower prices.
S: “Would you rather have 8k in cold hard cash or $10 off your mortgage a month?”
With a zero interest loan, $17,100 = $47.50/month over 30 years. At 6% interest, it’s $100/month.
HD: [house on Tripp]
That $385 price would be pretty good (but not great) for it today, in it’s current updated condition. $50k+ put into updates just to tread water (at least from my perspective).
Drew – “The good, I mean really good places that are beautiful, different, and/or otherwise near-perfect, will continue to hold if not appreciate in the next few years.”
Many of the residences featured on CC are “beautiful, different and/or otherwise near-perfect” and yet the prices continue to drop. The unbelieveable condo in the Contemporaine or the Wrigley condo have not (to my knowledge) sold and the Contemporaine price has dropped a number of times. I don’t see anything appreciating.
“The best” cannot hold value with the rungs removed below on the property ladder.
Lower prices means more affordable, and sustainable, monthly payments, that borrowers can pay from savings or unemployment benefits. Strapped borrowers living paycheck to paycheck is absolutely ridiculous.
Nobody stretches their budget to rent an apartment they cannot afford but stretching your budget, up to 45% of gross income, to purchase a home is considered perfectly acceptable. That stretching combined with other debt put borrowers in a precarious position and now our default rate is pretty much as high as it has ever been.
“#G on February 2nd, 2010 at 11:19 am
Sounds like you met with one of my clients, Russ.
You seem to be saying that if tapped out people just had available financing, then a lot of the problem is solved. Sorry, you debt sellers already tried that and we see the result.
There is only one viable cure to this market: Lower prices.”
G:
Debt seller… what a knee slapper. lol.
You try way too hard to find some conspiracy by the industry people who view this blog.
Financing availability is very much correlated with the housing market since most borrowers are not cash buyers. People can only buy what they can get a loan for. If the guidelines constrict to the point that people cannot readily get financing at reasonable terms, then of course prices are going to come down.
There are a lot of issues on the financing side that you don’t get to see that are putting pressure on prices in Chicago, particularly the lack of jumbo financing, private mortgage insurance companies refusing to insure condos, significant down payment requirements, no second mortgages, etc.
This is totally separate from my other point that there is a lack of confidence right now and people feel tapped out – even if they aren’t. This isn’t necessarily a bad thing, but it is causing people to scale back significantly and evaluate what is really important to them. People are questioning whether they really need a 3 series Bimmer… or maybe they don’t need a $500k place in LP, when a $350k place in Edgewater will suffice. Maybe they don’t need to buy a condo at all, when they know they will pop junior out in a couple of years and likely move to Naperville anyway. Might as well just rent if that is the case.
“Nobody stretches their budget to rent an apartment they cannot afford”
yeah you are wrong with that statement.
ummm Drew “ll. Parking will always be more than 20k, regardless of where you are in the city.”
that can’t be right, some parts of the city are abandoned fields.
I initially thought the bottom would be in during 2014, not far off from this projection. But then the government started doing crazy stupid stuff like the homebuyer tax credit, the Treasury purchasing MBS, and the Fed purchasing MBS. Now I think the bottom will be delayed _at least_ as long as these interventions, possibly longer. (IE: Fed might start to sell their MBS, prolonging the bottom). So I’m guessing 2015 right now.
I think most of the price deflation will be baked in by 2H 2013 _IF_ the government stops trying to interfere in the market, which is not a given.
OK – how’s this:
Relatively fewer people stretch their budget to rent an apartment they cannot afford, whereas stretching the budget to buy is a common occurrence.
Is that better?
“Sonies on February 2nd, 2010 at 12:00 pm
“Nobody stretches their budget to rent an apartment they cannot afford”
yeah you are wrong with that statement.”
HD – Looks like a real busy day so far 🙂
“Maybe they don’t need to buy a condo at all, when they know they will pop junior out in a couple of years and likely move to Naperville anyway. Might as well just rent if that is the case.”
Absolutely. One the house of cards built on assumed appreciation fell once appreciation disappeared, owning a condo no longer makes sense. You get the same utility as owning from renting, and the benefits of lower all-in costs and the flexibility to move at any time with renting. Sounds like a win-win on all counts.
“that can’t be right, some parts of the city are abandoned fields.”
Ha!
Found a tandem spot across from Gordon Tech for sale for $8k. Guess that’s a great flip opportunity, since it will “always” be more than $20k, and presumably considerably more, since it’s *two* spaces.
“Parking will always be more than 20k, regardless of where you are in the city.”
My monthly parking bill was negotiated down from $175/m to $125/m. This is in a very high density neighborhood. Whats the yield on that? 7.5% with no guarantee of future declines?
“My monthly parking bill was negotiated down from $175/m to $125/m. This is in a very high density neighborhood. Whats the yield on that? 7.5% with no guarantee of future declines?”
Down from “worth $20k, w/ good cap (7.5) and plenty of $$ for taxes and maintenance” to “carrying at $20k w/ semi-crappy cap (4.5) and same plenty of $$ for taxes and maintence”. Assuming that your LL is a long-term holder (fairly safe, based on what you’ve said before), those 300bps aren’t going to hurt *too* much–and is most likely much, much cheaper than vacancy.
“OK – how’s this:
Relatively fewer people stretch their budget to rent an apartment they cannot afford, whereas stretching the budget to buy is a common occurrence.
Is that better?”
Any facts to back that up? I’d bet its about 50%/50% or the same as far as “budget stretchers” go…
“You try way too hard to find some conspiracy by the industry people who view this blog.”
No conspiracy at all. Just a bunch of greedy bastards acting in their self-interest with no concern to see it end, regardless of the eventual fallout.
But I do note that the industry people attempt to portray me as a conspiracy theorist to make themselves feel better. What else do you have afterall?
Also Bob, the parking space I rent out went from $150 to $200 a month…
Bob: as both an owner and a previous renter, I’d disagree with the relative utility comment of owning vs. renting. I’d rent again in this market as great places are available to do so. However, I like owning for the customization aspect – I’ve knocked down walls, rearranged the floorplan and am considering switching out my tank water heater for a tankless: so I can possibly put in a wine locker in the resulting space.
Fun stuff (yeah, I got old) but I’d never do any of that renting. So – yes, I have a place to put my stuff and sleep so the utility in that aspect is the same but it is not equal to renting. They are different lifestyles.
Please do not misconstrue this comment as a bash against renting.
“Russ on February 2nd, 2010 at 11:59 am
There are a lot of issues on the financing side that you don’t get to see that are putting pressure on prices in Chicago, particularly the lack of jumbo financing, private mortgage insurance companies refusing to insure condos, significant down payment requirements, no second mortgages, etc.”
Aren’t these good things? Didn’t the fact that the underwriters/insurers chose to ignore these things get us into this mess in the first place.
“Also Bob, the parking space I rent out went from $150 to $200 a month…”
Search CL. If you live in a big enough building with a big enough garage (and given your ‘hood you probably do) there will likely be ads from other owners not utilizing their spot. If they’re offering $200 in their ad offer them $175 or $150 paid up front for a whole year. People are willing to deal these days, the key is to bargain hard but not insult them.
Oops Sonies forgot you own the spot and rent it out. Well I’m not too surprised with the $200 given your hood. I never said downtown/very near downtown spots should fetch 20k. Only that its a ridiculous notion to expect spots in the neighborhoods a few miles from downtown to command similar prices, which is what happened during the bubble.
Greedy bastards? Lol. You have no idea how I or any of the other people who aren’t afraid to put themselves out here on this blog and share information conduct their business.
G, it is obvious you have a bone to pick with people who work in real estate. Maybe you are one of the knife catchers you rail against daily. Let me guess. You bought some craptastic place with an option ARM and got foreclosed on? So now you rail against all the people you blame for your own failings? Or maybe you are a failed Realtor. It looks so easy looking from the outside in, but you couldn’t hack it, so you washed out like 80% do and now you figure you will get back at everyone who didn’t? Maybe this explains your skills with the MLS. Out of work appraiser?
C’mon G, you throw bullets at everyone – Gary, Mario, Zekas, etc and anyone who is simply sharing information, but why don’t you let us know what you do for a living? Whatever it is, I am sure it would be easy to paint you as a Greedy Bastard as well. Nothing like stereotyping people and an entire profession… c’mon… grow a pair and step out from behind the alphabet mask.
its also a 1st floor, indoor heated spot too so yeah I can’t imagine paying even $50 a month for an outdoor space, that would piss me off!
Wicker,
Did you have to install a water pressure booster? I wanted to do the tankless last spring but my water pressure is to low. and the cost of the tankless plus location of the booster on the incoming mainline would put it in basement bedroom corner and creating a separate circuit for the booster too….well i just went with tank.
Luckily no need for a water pressure booster, but if I do I’ll have to retrofit to the upgraded, thicker exhaust housing due to the temps the gas ones run at. I still get to save the floor space of the 50 gal I’ve got now though, and price is definitely dropping (~800-900 now for the size I need + install).
So while it boils down (hah) to how much running the tank each month really costs to get my break even, but I’d gladly pay $1k to get a new interior closet that I never had before.
@ RE_novice:
Not necessarily. Much of the guidelines these days are mindless versus really assessing credit risk. Underwriting mortgages is about fitting in a box and nothing more. Common sense doesn’t really come into play. It is really hard to explain until you actually go through the process to get a mortgage and then it becomes all clear.
I am talking 20 and 30% down deals with perfect credit, incomes, and assets getting killed because a plumber decided to file a $1000 mechanics lien against the HOA. Or you found a great place, saved up say 15% down but can’t get mortgage insurance because the MI Company won’t insure condos developments with less than four units, so that dream place in a three unit walk up you found won’t fly unless you come up with another 5% down. Better yet, the development you like has 25% commercial space like a lot of condos in Chicago and now can’t get fannie/freddie financing (Three units above and retail below).
All of these guidelines changes affect what can be financed and thus drive prices down. Many of these changes are arbitrary and done at a national level, but can have negative consequences on individual markets.
I am in no way saying we need to go back to the loose lending from before, but when you restrict access to financing for even the most credit worthy borrowers, what do you think is going to happen to prices?
wicker,
did you do any point-of-use water heaters on top of the tankless?
ha, i never looked into the exhaust thing assumed i would just hook it to the pre-existing.
“So while it boils down (hah) to how much running the tank each month really costs to get my break even,” LOL
wow 50 gal? gotta big place huh? i run a 40 gal and no matter how hard i try i still get hot water.
Groove: actually, I don’t have that big of a place but in some aspects the builder overbuilt, like putting in the ginormous water heater. I haven’t made the switch yet, but I won’t do the point of use heaters; one mid sized ‘whole house’ will cover us. Figure worst case scenario is the washing machine + dish washer + one shower.
“Figure worst case scenario is the washing machine + dish washer + one shower.”
You left out–“in January, when the water enters the house at 45F”.
Which model are you using that you can expect sufficient output of 120-125F water for 3 uses w/ sub-50 input water? I had thought that 2 cascaded heaters was necessary.
wicker,
even now with a 40 gal, i can run the dish and clothes washer and have two showers going and dont run out. (havent tried runing another shower after we did something like that)
and point of use is good on a third floor bathroom sink type applications. no waiting for it to warm just to wash your hands 🙂
side question;
dont know if its true/correct but the water line coming in from the street to the house is consider “home owner responsibility” Can any one chime in on that one?
Were you guys doing this because the existing water heater is on the fritz? Does it make sense to do it and will people buy the old functioning water heater?
“Were you guys doing this because the existing water heater is on the fritz?”
nope its was a 15 year old water heat was just being pro active.
“dont know if its true/correct but the water line coming in from the street to the house is consider “home owner responsibility” Can any one chime in on that one?”
From the valve in the parkway to your house is your responsibility, for sure. The stretch from the main to the valve is their problem, but if you want it upgraded for any reason, that’s back to “your problem”.
“even now with a 40 gal, i can run the dish and clothes washer and have two showers going and dont run out”
Got some small pipes and serious low-flow stuff, eh Groove?
“netdsgnr on February 2nd, 2010 at 11:32 am
Drew – “The good, I mean really good places that are beautiful, different, and/or otherwise near-perfect, will continue to hold if not appreciate in the next few years.”
Many of the residences featured on CC are “beautiful, different and/or otherwise near-perfect” and yet the prices continue to drop. The unbelieveable condo in the Contemporaine or the Wrigley condo have not (to my knowledge) sold and the Contemporaine price has dropped a number of times. I don’t see anything appreciating.”
Granted I like Old Town. And that I am look at higher market properties. That place on 1722 N. North Park is probably going to keep falling. But there are those properties that did sell and for good prices. Like 229 W. Eugenie for about 3.7mil during the summer of 2009. I know picking out one property doesn’t make a market, but for what I see around areas that I know (like Old Town), there are properties that hold / drop (10 – 15%) / and even appreciate and its not the end of the world.
“Got some small pipes and serious low-flow stuff, eh Groove?”
yeah baby galvanized all around 🙂 well except the bathrooms and connections to the water heater.
Its a ticking time bomb 🙂
“nope its was a 15 year old water heat was just being pro active.”
15 yo water heaters are a failure waiting to happen. Most likely mid-winter when you have house guests.
haahhaahahah its always with guests 🙂 i had friends from college in one February, and its was so great that the emergancy pressure valve sprung a leak and the pump on the furnace/boiler was pumping air not water so that fried it. so that saturday night was run to walgreens and buy space heater night. didnt get fixed until monday morning 🙂
about water heaters most people dont replace/check the sacrifice rod and dont at least once a year. so that reduces its life span and most 10 year old water heaters are working the last leg.
*dont at least once a year drain the system
“dont at least once a year drain the system”
But that’s haaaarrrrrd.* I shouldn’t have to do any maintenance on my *new* house. That’s why I paid so much for it, so I don’t have to fix anything.
*It actually is a pain, in many newer homes/condos, with the WH not near a utility sink. Using the floor drain requires actually tending it.
I wish rehabbers would thing long term; 20 ft. of longer wider pipe to each pipe source connector, from valve(like 4/6 in to 1.5/2in or something like that) would give each fixture even more pressure. like 250/500 cost at the most including extra labor. *not an iplumber
even with above issues I never run out of hot water.
“even now with a 40 gal, i can run the dish and clothes washer and have two showers going and dont run out. (havent tried runing another shower after we did something like that)”
“It actually is a pain, in many newer homes/condos, with the WH not near a utility sink. Using the floor drain requires actually tending it.”
come just make a summer morning of it. rigg a long garden hose to it, drain and hile “tending to it” do other maintence on stuff around it like the furnace, clean the washer and dryer ducts. hey even bring a victoria secret, some tissue and let the imagination run wild 🙂
or either make more money and pay someone to do it or the best this RENT 🙂