Market Conditions: Zillow Calls Chicago Housing Market Bottom As Of February 2012
The last few weeks has seen a lot of “bottom” calls in real estate both in Chicago and nationally.
Yesterday, Zillow’s market bottom call was all the rage. (Before you complain about Zillow’s “accuracy” just know that it wasn’t the first to call the market bottom in recent days. But it does have a good PR firm.)
Nearly one-third of the 167 metropolitan areas tracked by Zillow posted annual price increases for the second quarter compared with the year-ago period. Prices rose fastest in cities with fewer homes for sale and strong investor demand. Phoenix prices rose 12% from one year ago while Miami was up 6%.
“It seems clear that the country has hit a bottom in home values,” said Stan Humphries, Zillow’s chief economist, who had previously forecast that housing wouldn’t hit bottom until late this year or early in 2013. The fact that the gains came during a period in which the economy wasn’t very strong suggests “there’s some fundamental organic strength to the housing market,” Mr. Humphries said.
Zillow also called a market bottom for Chicago.
Date of the bottom? February 2012.
The real estate website has decided that the Chicago area’s housing market bottomed in 2012’s first quarter, specifically in February when Zillow’s home value index for the Chicago area fell 1.5 percent from January.
From February through June, however, Zillow’s index of home values rose 2.2 percent in the Chicago area. The index may fluctuate up and down but Zillow doesn’t expect the market to again be as bad as it was in February.
How easy (or hard) is it to call a bottom in a bear market?
Will all the experts be right?
Zillow: Chicago real estate market hit bottom in February [Chicago Tribune, Mary Ellen Podmolik, July 24, 2012]
Home prices reflect strengthening [Wall Street Journal, Nick Timiraos, July 24, 2012]
I’m OK with calling a bottom or at least the end of the steep part of the drop — the real question is how long wil the market bounce around on the bottom before starting a sustained rise. Up a percent or two over a quarter is little more than noise in the signal, it doesn’t constitute a clear uptrend.
I wouldn’t be surprised if we’ve seen the bottom. Look at rents.
Huh?
http://www.chicagotribune.com/business/breaking/chi-us-new-home-sales-post-biggest-drop-in-over-a-year-20120725,0,6012370.story
great post ryan. I think G’s stat that the >$700K market barely existed before 1998-2000 was an eye-opener. People aren’t making as much today as they were in the dotcom era, or the easy-money RE bubble. I’m with Peter Schiff that 2008 was not the big crash, that the real crash is still coming. The Fed is monetizing 61% of US Treasury market, we’re running $1 trillion deficits, Obama’s cranking up welfare and Romney is sucking up to Israel and more costly wars, and not supporting Ron Paul’s audit the Fed bill which passed today. How can anyone think things are improving? Based on what macroeconomic fundamental?
“How can anyone think things are improving? Based on what macroeconomic fundamental?”
The U.S. economy has created jobs every month for 28 months. No, it’s not what we need to bust out of this but it’s a heck of a lot better than 4 years ago. We saw this kind of recovery after the dot-com bust. Very few jobs. Lackluster recovery. Only the housing boom, with all its job creation, pulled us out (remember, 1 in 5 jobs in California was housing related before the bust. LOL.) We’re not having a housing recovery big enough to boost GDP this time. Housing is usually the first to recover after a recession but this time it can’t (and probably won’t for many more years.) So now what?
Unemployment for those with college degrees is just 4%. And then there are jobs that are unfilled because no one has the skills. Are you a welder? There are $70,000 jobs waiting. But no one has that skill and it takes a year to apprentice. There are 200,000 openings for truck drivers. But, again, a tough job and you have to go through certification first (which also costs money.)
In Williston North Dakota where the fracking and nat gas revolution is taking place, there is no one to work at the McDonald’s even though it’s paying $18 an hour. This summer, in order to remain open, they have hired foreign interns (yes- literally students from countries like Kenya) who will work there for $10 an hour for 2 months. The interns were funny in the interview they did with the reporter- saying that their friends were working in New York but they thought North Dakota would be interesting. So why no Americans taking those jobs? Why is the McDonald’s manager so desperate for workers?
We have lots of imbalances. Too many lawyers. Too many philosophy majors with big school debts and no other skill set. But do you know search engine optimization? I could get you a job tomorrow. What about social media? Plenty of “directors of social media” job openings all over the place but you’d better be tech and marketing savvy. Can you climb telephone poles? ComEd is always looking. But it’s a hard job and very physical. Pay is great with great benefits. One of my friends works there. Says they can’t find enough people to hire. He says those in their 20s simply don’t want to work that hard. Go figure.
So- you see- it’s really not that bad out there. For some people. Those without skills- such as those with only a high school degree and no technical training- are screwed. They simply can’t compete. And it’s a global competition even here in the United States. One of my friends just took the CFA exam. 150,000 people in 165 countries took it this time. They’re all competing for the small slice of finance jobs globally now. The person taking the test in India has the same chance at that exam as my friend here in Chicago. That is the reality. But America is still far better off than our breathern in Europe or Japan. And China won’t be pleasant when its economy slows to a “normal” rate of growth (which is already happening.) Still more opportunities here in America than anywhere else in the world.
USA! USA!!! USA!!!!
‘We have lots of imbalances. Too many lawyers. Too many philosophy majors with big school debts and no other skill set.’ ‘Unemployment for those with college degrees is just 4%. And then there are jobs that are unfilled because no one has the skills. Are you a welder? There are $70,000 jobs waiting’
I read not long ago that American students ranked (themselves) highest in self esteem against other industrialized countries that were being surveyed. I also read where a factory owner in northern Wisconsin was desperate for skilled workers that could operate computerized lathes…. like a welder, $70K a year plus generous benefits. In other words, too many chiefs and not enough Indians. Should this surprise anyone?
We have an entire generation that believes the city (and it’s expensive GZ real estate) is theirs for the taking. And why shouldn’t they. Easy credit magically moved their middle class parents up a few notches on the housing scale, and easy credit disproportionately spiked the price of a college education not because education itself (like say the price of oil) should cost *that* much more, but because as Elizabeth Warren likes to say… the boomers invested heavily in their most precious commodity – their children. When the steroids finally wore off, they’re left with a LOT of debt, a house that was too grand/expensive/in the wrong areas, and a lot of fantasies-from-the-get-go of starting out at $85K a year with a communication degree from Columbia college.
There’s a reason why I was so positive on the Old Norwood Park ranch you featured last week, as that’s just the type of place most educated people making $100K combined income *should* be buying, in the same way someone with only a Visa to their name should never step foot in Neiman Marcus. But then again, it’s so much easier to moan about how unjust it is that a single family in LP should cost that much ‘the economy will crash and burn, I can wait… and then I’ll buy, you’ll see’, than to actually move to Wisconsin.
Where is Clio on this thread. Might be the biggest surprise of the year that he/she was not here with an I told you so reply!
We will find new lows in 2013 or 2014. It is bot the final bottom. There is more pain ahead especially if tax and spend gets a second term…..
Less money in your pocket and a weakened dollar will hurt many home owners that are hanging on by a thread at the moment. This will be even more pronounced especially in the mid to hiigh end earner hot spots aka the stylish north shore and other affluent areas in and around he Chicago area. Not Armageddon but not full recovery either.
“Where is Clio on this thread. Might be the biggest surprise of the year that he/she was not here with an I told you so reply!”
I’m right here – but I take no pleasure in being right. It is sad when morons and idiots don’t listen to people who know better…….(yeah, I know, a million “thumbs down”)
“I’m right here – but I take no pleasure in being right.”
How would you know?
Zillow’s index is based upon their Zestimates for all the homes out there, not just the ones that have sold. I have little confidence in the accuracy of their Zestimate in responding to changes in home prices, primarily since I have no idea how they come up with it. They also have produced this forecast but who knows what that is based upon. In addition, it’s not like they’re predicting a huge runup in home prices. For the nation they are predicting a 1.1% increase over the next year and for Chicago they are predicting a 0.5% decrease.
“I’m right here – but I take no pleasure in being right. It is sad when morons and idiots don’t listen to people who know better…….(yeah, I know, a million “thumbs down”)”
That’s why you get thumbs down. You’re a condescending asshole in all your posts. Try being nice for once.
And, though I doubt we’ve hit the bottom based on the numbers I’m seeing, I sure hope we have. I purchased a new home in March and would love to have hit that just right.
And ryan, this is about home prices overall, whereas your article is speaking to new home sales.
Sabrina’s post from 10:52PM is very good. China has a massive demographic issue that will be rearing it’s ugly head soon enough. Look to Japan for what happens.
Bottom? I don’t think so….
http://www.bloomberg.com/news/2012-07-23/home-sales-held-hostage-by-junior-lien-holders-mortgages.html
“Risks associated with home-equity loans “may escalate” as borrowers face rising obligations to pay down principal on lines of credit, according to a July 5 report by the Office of the Comptroller of the Currency. Borrowers, who were allowed to make nominal or interest-only payments on the credit lines for as long as 10 years, will be obligated to pay down $15 billion in principal in 2013, $29 billion in 2014 and $53 billion in 2015, according to the report. “
For all the housing bears out there who say the housing market is nowhere near a bottom – how do you rationalize the sky high rents in Chicago? I just rented out my place – got multiple bids and ended up renting it 5% higher than my asking rent. The CAP rate (after taxes and common charges) is 7% vs 5 year treasuries at 0.6%. It is the highest rent anyone in my building has EVER gotten. Either the rents are too high or prices are too low. If its a bit of both then we aren’t at the bottom. My theory is there are a lot of people out there who know they are paying too much for rent but can’t buy because they can’t get a mortgage. When they are actually able to finance, rents will go down and prices will go up as renters become owners. Anyone who rents my place instead of buying is paying $1,100 more per month in rent than what they would pay for mortgage + common charges + taxes per month. Over 5 years that is $66k more to rent than buy. And that doesn’t include the tax benefit from the interest deduction or the property tax deduction.
“If its a bit of both then we aren’t at the bottom” – should say that we ARE at a bottom.
“In Williston North Dakota where the fracking and nat gas revolution is taking place, there is no one to work at the McDonald’s even though it’s paying $18 an hour. This summer, in order to remain open, they have hired foreign interns (yes- literally students from countries like Kenya) who will work there for $10 an hour for 2 months. The interns were funny in the interview they did with the reporter- saying that their friends were working in New York but they thought North Dakota would be interesting. So why no Americans taking those jobs? Why is the McDonald’s manager so desperate for workers?”
This is where the “illegals are stealing American jobs!” argument breaks down. Illegals aren’t stealing jobs away from American workers, they are doing the jobs Americans don’t want. (Most) employers aren’t turning away legal workers in favor of illegals, but turning to illegals when they are out of other options.
“For all the housing bears out there who say the housing market is nowhere near a bottom – how do you rationalize the sky high rents in Chicago? …/snipped for length/… Over 5 years that is $66k more to rent than buy. And that doesn’t include the tax benefit from the interest deduction or the property tax deduction.”
The problem is Generation Y (of which I am a member) who are now coming of age to purchase real estate, but have no desire to do so. 50 years ago, you graduated from college, got a job with a large company (from which you retired 40 years later), got married, then bought a house that your children/grandchildren would clean out upon your death. That was the American dream, what people saved up and strived for. I’ve been out of college almost 7 years, have lived in 4 neighborhoods in 2 cities, and am on my 4th job. Owning real estate is just not conducive to that lifestyle. Millennials are willing to pay a little extra for the flexibility that renting allows. When real estate was doubling in price every 6mo, you could buy and still do this, but no that owning means potentially being stuck at your current place indefinitely, it just doesn’t make sense.
Fred, will you do that for your whole life?
“The CAP rate (after taxes and common charges) is 7% vs 5 year treasuries at 0.6%.”
When you calculate CAP rates, do you minus out your mortgage/assessments or just the common expenses associate with upkeep, management, and vacancies rent loss?
Fred – at some point most people will settle down. Just because you are not at that point doesn’t mean there aren’t plenty of other people 7 yrs out of college that have a stable job and are ready to plant roots. And we’re not talking “a little extra” we are talking paying 25% more to rent (monthly costs) vs buy. I completely understand renting after graduation – I rented for 8 years before I purchased my first home. But the dynamic you mentioned only reinforces my thoughts that we’re at a bottom. An entire generation of people willing to pay higher rents in exchange for flexibility will support rents which makes real estate an even more attractive investment.
“The problem is Generation Y (of which I am a member) who are now coming of age to purchase real estate, but have no desire to do so.”
Wait until you and the rest of the lot have kids, your outlook might change considerably. Signed, Gen X-er who had a similar outlook before marriage and kids.
“Owning real estate is just not conducive to that lifestyle. Millennials are willing to pay a little extra for the flexibility that renting allows. When real estate was doubling in price every 6mo, you could buy and still do this, but no that owning means potentially being stuck at your current place indefinitely, it just doesn’t make sense.”
YIPPPPPPEEEEE — a landlord. LOVE the monthly rent that gives you flexibility. I’m not stuck, plan to keep buying at these low prices and HOPE that the market will continue to go down so I can buy more as rents are +++. Keep preaching doom and gloom—it is really helping those of us who are handy with a calculator.
“DarkKingz (July 26, 2012, 9:45 am)
“The CAP rate (after taxes and common charges) is 7% vs 5 year treasuries at 0.6%.”
When you calculate CAP rates, do you minus out your mortgage/assessments or just the common expenses associate with upkeep, management, and vacancies rent loss?”
CAP rates ignore mortgage / financing but do include assessments / taxes / insurance. They do not include upkeep but for a condo the majority of the upkeep is included in the assessments (tuckpointing / roof work / common area maintenance / snow removal). CAP rates capture costs that any investor would pay and are used to benchmark against return rates of other asset classes. If CAP rates tried to incorporate financing it would be very messy as they vary from one investor to another – how do you compare an ARM vs a 30 yr fixed mortgage? Rental vacancy is also not included as it is variable depending on the market (its essentially zero in NYC market and close to zero in the current rental market in Chicago).
Thanks for the explanation!
Yes, I have no doubt that we will settle down at some point, but that will happen at 32 instead of 22 and we will be buying 3+ bed condos or houses. That means that anyone who currently owner occupies a one or two bed place is currently stuck unless they can turn it into a rental property. This affects the entire market since these people are unable to move up. If you are not selling your 1-2 bed, you are also not buying a 3-4 bed. I don’t think things will get better until market correction of conversion back to rentals of all the housing stock that converted from rentals during the boom is complete.
Fred – what you are describing is a real phenomenon. It generally ends in one of two ways. 1. The 1/2BR owner continues to make money and is able to move without selling their place and instead rents it and that rental now becomes their “investment” and replaces a stock or bond portfolio. I personally know 2 couples that took this path. 2. They are not successful in their career and do a short sale which is purchased by an investor who then rents it out.
Basically those 1-2BR apartments are becoming investment properties over time.
“Yes, I have no doubt that we will settle down at some point, but that will happen at 32 instead of 22”
This is not a new phenom.
“Anyone who rents my place instead of buying is paying $1,100 more per month in rent than what they would pay for mortgage + common charges + taxes per month.”
Congrats! Where are such units? I’d buy one as an investment.
Re: China
Instead of China doing all the work & manufacturing, loaning the USA (Gvt. and persons) the money to buy their goods, and then taking back promissory notes (US debt), they are finally smartening up. They are increasing their domestic consumption and selling their goods to their own people, lifting them out of poverty. China has enough internal consumption to make up for America’s incremental drop. Why should the Chinese build, and then lend money for Americans to consume? They can consume their own goods and products internally. The USA is left with no money (i.e. credit) or consumption financing, and no manufacturing. It’s alot smarter for China to sell washing machines to their own, than lend the money to bankrupt Americans to do so. Germany, another export powerhouse, doesn’t have this internal demand to pick up the slack, so they’ll have to continue to vendor finance its buyers. China is to the USA, what Germany is to Italy, except the Germans need european buyers, whereas the Chinese have their own internal demand now.
” that will happen at 32 instead of 22 ”
Very few boomers were buying houses at 22. Those who were were buying the sorts of starter homes that get absolutely *killed* on tehCC. Yes, in part because many of them are too expensive, or too far away, or too something.
But consider a place like this:
http://www.redfin.com/IL/Skokie/3736-Main-St-60076/home/13607880
that could have easily been some (old) boomer’s starter home in 1970, when it was still fairly new. At $135k now, prob not much different in multiple of income from what it would have been in 1970. You don’t want to live in that house, in that location, and that’s why 32 v. 22, and it would have been the same equation for an upwardlt mobile, unmarried boomer born in the late-40s.
“Basically those 1-2BR apartments are becoming investment properties over time.”
*returning* to being investment properties.
“Fred – at some point most people will settle down. Just because you are not at that point doesn’t mean there aren’t plenty of other people 7 yrs out of college that have a stable job and are ready to plant roots. And we’re not talking “a little extra” we are talking paying 25% more to rent (monthly costs) vs buy. I completely understand renting after graduation – I rented for 8 years before I purchased my first home. But the dynamic you mentioned only reinforces my thoughts that we’re at a bottom. An entire generation of people willing to pay higher rents in exchange for flexibility will support rents which makes real estate an even more attractive investment.”
You fail to mention that when people buy 3 bedroom places, they are often moving up/buying bigger than they would have rented because the time horizon is much longer compared to their 1 bedroom rental. This is why you can’t compare renting and buying unless you compare what is being decided upon. Too often, this leaves people priced out of the market as a 3-4 bedroom house in many areas is well beyond the financial reach of people in the 29-32 year old segment.
“This is where the “illegals are stealing American jobs!” argument breaks down. Illegals aren’t stealing jobs away from American workers, they are doing the jobs Americans don’t want. (Most) employers aren’t turning away legal workers in favor of illegals, but turning to illegals when they are out of other options.”
That’s not true. You cannot use one statistical outlier (the ND example) as a rule. The fact is the Chamber of Commerce types, even those who say they are “GOP”, are pro illegal immigration for one reason, and one reason only: cheap immigrant labor, even if it’s ILLEGAL. These people are just greedy a-holes looking out for themselves.
Plus, Sabrina, the USA may be “creating jobs” but they say it’s not enough to keep up with basic population and immigration growth on a percentage basis, so the unemployment rate is NOT going down.
Keep dreaming this is the bottom when nearly the empirical evidence strongly suggests otherwise. Sales are still historically weak, new home sales are still in a depression, sales are up YOY but beginning another downward trend. Rents are high because youngins aren’t buying like they historically used to. They’re renting and student loans mess up the dtis for them to qualify for mortgages. This will be a long term downward trend for a generation, there is still more room to go down in most areas, except for the ghetto which is already at rock bottom
cooper – “YIPPPPPPEEEEE — a landlord.”
Yes, its probably a great time to buy 1-2 bed places as investment properties.
yoss – “Basically those 1-2BR apartments are becoming investment properties over time.”
Exactly. My point is that the real estate market won’t be back to stable until this process is much further along.
Vlajos – “This is not a new phenom.”
True, but its its becoming the norm instead of the exception and a market correction will be required.
“its becoming the norm instead of the exception ”
Dude, I’m a mid-Gen-Xer and NO ONE I knew bought a house at 22. Your argument is a total strawman, based on having come to an awareness of real estate during the most distorted market of the past 75 years.
Dont forget the GZ is really just a small handful of neighborhoods in the city among a sea of nonGZ hoods. The developers tore down many of the middle class housing and replaced it with condos and luxury homes, further squeezing out interested buyers of middle class housing. It’s a tough competion for what’s left. There is far more supply in the suburbs and that’s where most of the deals are to be found. I renovated a 2000 sq ft home in a near suburb for 2/3rd the price of a comparable but unrenovated home in Lincoln sq, Andersonville, wests town, etc. Unfortunately it was a no brainer.
Ive always believed that one up condos rental units in owner occupied buildings were bad investments. Rights are high now but that’ll change soon enough.
great post sabrina, totally agree
HD – your logic doesn’t fit with your conclusion. You state “Rents are high because youngins aren’t buying like they historically used to. They’re renting and student loans mess up the dtis for them to qualify for mortgages.” A stronger rental market INCREASES prices. You say empirical evidence points to going lower but you can’t get much more empirical than Chicago rents at all time highs and Chicago having one of the most favorable buy vs rent dynamics in the country. Sales have been stable and off the lows – I would say that is evidence of the market having reached a bottom.
“*returning* to being investment properties.”
Except there are many more of them, and many more on the way. Chicago is a long way from clearing out the condo bubble inventory, many of which have been vacant and will become rentals. The fact that these sit empty has fueled a rent bubble by curtailing inventory. That, of course, has fueled a bubble in new apt construction downtown. I wonder how this will end? Too bad we don’t have any recent bubble aftermaths for comparison.
“Experience keeps a dear school, but fools will learn in no other.” — Benjamin Franklin
HD – “Rights are high now but that’ll change soon enough.”
“Rents are high because youngins aren’t buying like they historically used to. They’re renting and student loans mess up the dtis for them to qualify for mortgages.”
Those two statements contradict one another. And do you have any reason for your opinion that rents will go down?
“Dude, I’m a mid-Gen-Xer and NO ONE I knew bought a house at 22. Your argument is a total strawman, based on having come to an awareness of real estate during the most distorted market of the past 75 years.”
So what demographic bought all the 1-2 bedroom condos built in the last decade?
If your hookup is the hard age of 22, then feel free to insert “early-mid 20s” in its place.
A stronger rental market increases prices? You assume that renters can just switch over to owning if renting is too expensive compared to owning, but that’s not necessarily the case. Like I said, it’s not easy to qualify for mortgage these days. Switching between renting and owning is not a hedonic choice like switching between chicken or beef. Ask my sister, with little income and terrible credit – it’s way cheaper for her to own than rent, but nobody is giving her a mortgages. Too many renters with bad credit that wont be entering the owners market anytime soon. This link is not the most authoratative but is sufficient to show the number of buyers with FICO scores below 700
http://bankinganalyticsblog.fico.com/2012/04/more-consumers-nearing-perfect-fico-scores-but-are-scores-improving.html
“So what demographic bought all the 1-2 bedroom condos built in the last decade? ”
What part of “the most distorted market of the past 75 years” is unclear?
You’re comparing right now to what boomers and their elders did (see, “50 years ago, you graduated from college, got a job with a large company (from which you retired 40 years later), got married, then bought a house that your children/grandchildren would clean out upon your death.”), and then citing to the bubble, when everyone acted short-term rationally/long-term irrationally.
“If your hookup is the hard age of 22”
That’s *your* number, Fred: “Yes, I have no doubt that we will settle down at some point, but that will happen at 32 instead of 22 and we will be buying 3+ bed condos or houses.”
“So what demographic bought all the 1-2 bedroom condos built in the last decade?”
~30% went to speculators downtown, so they were likely the biggest demographic. Many never sold.
“A stronger rental market increases prices? You assume that renters can just switch over to owning if renting is too expensive compared to owning”
No, that’s not his assumption. His assumption is that investors are willing to pay more for to-let units (condo/th/sfh) if rent rates are higher.
Please try to keep up.
“Except there are many more of them, and many more on the way. ”
As you know, no argument here.
HD – Of course a stronger rental market increases prices. Lets do a little theoretical exercise – what if rents doubled overnight? Do you think prices would go higher or lower? The situation you describe is a captive audience of renters – they have no other choice but to rent. That is a great situation for a landlord.
Oh I’m falling behind oh no. Im no 350 on a court call of 450 so pardon my posts as I wait for my 20 seconds in front of the judge.
Yoss then go buy buy buy if the bottom is in. Rent can’t double overnight, renters can’t afford to pay it. But that aside, most of the rental market is not one up condos in owner occupied buildings. So investor demand for these units, driving up prices is complex and hard to quantify at best.
I’ll defer to G’s arguments about supply, and my own argument about demand. It is entirely possible that rents will continue to rise as housing prices continue to fall…..entirely possible. Look at rents in college towns. Prices have always been sky high where as the students could buy the same rental for half the monthly cost – but why would they!
The fact of the matter is that the bottom is not in, and people have been calling the bottom for years and rhey’ve all been completely and embarrassingly wrong. Statistically you’re in the same category as The other pompous prognosticators.
http://www.gold-eagle.com/editorials_01/seymour062001.html
I think Fred has a point. Yes, it’s true that the phenomenon he describes is not new. I’m an example of that — I moved every few years to a different city until finally settling in Chicago at age 36. However, I bought 2 homes during that time and didn’t worry about the commitment because I was confident that I could sell them at a tidy profit if I moved — which I did. If I were in the same situation today, I would not consider buying because I’d have little hope of even breaking even on my investment if I had to sell it in less than 5 years.
I also finished grad school with a manageable total of $20k in student loans, despite coming from a modest background attending “expensive” schools. This too would not be possible today and would most likely make it very difficult for me to save up for a down payment.
That said, one important difference between today and the last time I bought a condo without fear of commitment, is that a 2/2 has gotten cheaper and interest rates are lower. So for the lucky few who have good jobs and minimal student debt, it seems to me that buying would be more doable.
“Yes, I have no doubt that we will settle down at some point, but that will happen at 32 instead of 22?
“This is not a new phenom.”
HD – It was a theoretical exercise – as in “lets ignore the practicality of it and just make the assumption”. So you still deny that prices would go up if rents doubled? And I am renting out my unit rather than selling – thus implicitly making the decision to hold rather than sell.
Also – your example of a college town undermines your argument. You are describing a situation where there is a captive rental audience (college students) that are paying sky high rents because they can’t buy (they are transient and have no credit history) – a situation you yourself said exists in Chicago right now. As for prices in college towns – if you do some research you will find the prices are higher than similar quality properties without that captive rental audience.
I’m saying its possible to have increasing rents and falling home prices…in fact that’s been the trend for a few years now. Why is now the bottom? Because its cheaper to own than rent?
“acted short-term rationally/long-term irrationally.”
This is what Millenials do. This is not a housing bubble phenomenon. This is the mindset of a generation. This is the instant gratification generation. This is going to be the norm for the foreseeable future for us.
I’m not a millenial and that’s what I and all my friends did Fred.
HD – Because rental vacancy rate is at historical low, rental prices are at historical highs, mortgage rates are at all time lows (for those who can get them), treasury rates are at all time lows (for benchmarking CAP rates), sales volumes have been stable for 2-3 years (ie not declining) and the rent vs buy math in Chicago is one of the most favorable for buying in the US. I don’t think prices are going to skyrocket but I don’t think they will decline much more from here. I think we’re near enough to a bottom to call it. The bears (yourself included) just say “we have a long way to go!” but when you look at the empirical data it just doesn’t indicate that. They always fall back on some elaborate demographic or hidden supply argument that is anecdotal or at least tenuously related to prices. Can prices go lower and could I be wrong? Absolutely. But I think the data is on my side right now.
‘You don’t want to live in that house, in that location, and that’s why 32 v. 22, and it would have been the same equation for an upwardlt mobile, unmarried boomer born in the late-40s.’
Exactly right anon. There’s a total disconnect from what too many people think they are (upwardly mobile, uniquely educated, special) compared to what they really are (average). While I was only in grade school in the 70’s, I can recall lines for gas, the invention of Hamburger Helper, WIN buttons, college being only for the wealthy/connected or truly smart, one vacation to the Dells (if you were lucky), and houses just like this one for solidly middle-class families… blue and white collar. People just knew their economic place in society and there wasn’t access to easy credit that would lift you to the next level. Very different story today, and good luck convincing people that based on their *true* wealth and prospects, a house like this one or a 2/1.5 condo in the city sans central ac/parking/closet space where you can indeed raise a small family, is where they should be. However the new economy that’s here to stay, will eventually convince them otherwise… by force. Hello 70’s!
“There’s a total disconnect from what too many people think they are (upwardly mobile, uniquely educated, special) compared to what they really are”
Don’t forget the “no one ever did anything like this before; we’re *totally* breaking the mold”–of course, *every* generation does that.
“I’m not a millenial and that’s what I and all my friends did Fred.”
Alright, I’m wrong. I redact everything I’ve written today.
“Don’t forget the “no one ever did anything like this before; we’re *totally* breaking the mold”–of course, *every* generation does that.”
Exactly
Pardon the rock in the stream, as I’m just catching up to Sabrina’s post from last night, and something she said caught my eye.
Sabrina – you said that SEO experts are in high demand. I’m curious to know what the job definition is that’s being used for SEO, because it’s not exactly rocket science. I guess I’m a bit credulous that it’s a genuine job position, especially after doing it freelance for over two years.
‘Don’t forget the “no one ever did anything like this before; we’re *totally* breaking the mold”–of course, *every* generation does that.’
Kinda like the *new* but destined to a failure diet plans that hit the market every few months: eat only almonds. no carbs. watermelons. sprinkle this on your onion rings and loose weight while you sleep.
Or… you could just eat less and move more. Interesting how the fundamental laws of nature (or finance) ultimately prove to be correct and unbreakable.
” Interesting how the fundamental laws of nature (or finance) ultimately prove to be correct and unbreakable.”
Hence, the bottom ain’t in yet.
Phrase
nihil sub s?le novum
“there is nothing new under the sun”; there is nothing truly novel in existence.
quid est quod fuit ipsum quod futurum est quid est quod factum est ipsum quod fiendum est
nihil sub sole novum nec valet quisquam dicere ecce hoc recens est iam enim praecessit in saeculis quae fuerunt ante nos
translation, ECCLESIASTES: Chapter 1,9-10:
What is it that hath been? the same thing that shall be. What is it that hath been done? the same that shall be done.
Nothing under the sun is new, neither is any man able to say: Behold this is new: for it hath already gone before in the ages that were before us.
maybe alderman Moreno and Rahm can put that in their pipe and smoke it….
I’ve always found the NT boring, much prefer the OT. Why did you use a Latin translation and not the original language in which it was written?
It’s a trickle-down bottom (gross right) – the desirable properties (no 1/1s, 2/1s or ugly ranches) in the desirable areas in the city and burbs (GZ, RN, GC, Wilmette, Winnetka, Lake Forest, Oak Park, Evanston, Hinsdale) have hit the bottom and are probably on the way up. The moderate areas are coming close (Park Ridge, Western Springs, Naperville). The crappy ones still have a long way to go and always have i.e. West of Western, Englewood, Summit (that’s right I said it).
helmut is obviously a loyola academy grad…
A*man, you got it backwards. The dumpier the area, the sooner it reaches the bottom, because the residents don’t have the financial wherewithal to weather the bust.
The bad areas have already dropped about as much as they possibly can and in some cases they can barely even give away the properties for free. How much lower can a $20,000 two flat in Roseland go? How much lower can a 4 bedroom $70,000 townhome in wheeling go? HOw much lower can a $40,000 condo in Skokie go?
The moderate areas are getting hotter but $200 bucks a sq foot for an unrenovated smaller 1960’s ranch with paneling in the basement is a bit rich, even for a professional household earning 6 figures. The suburbs seem to fall one by one, and the drop is precipitous. I saw Arl Hts dropped from $200.00 per sqf to $150 per sq foot, seemingly within a span of a few months late last year and earlier this year. I’ve noticed that for many suburbs, whent he bottom drops out, it drops out.
THe higher areas seem to be hot and prices have stabilized but that’s simply because the bottom has yet to drop out. It will and a 15-25% psf reduction will eventually, if it hasn’t already happened. That stirs new interest, and mulitple bids etc, until that round of buyers is exhausted. The $300+ psf for properties on teh north shore is again, too rich, especially if it’s not a unique property. Large and upper middle class is not unique but an estate on a lake,? sure, that’s well about $300 psf. But that’s just my opinion, you know, take it for what it’s worth.
“THe higher areas seem to be hot and prices have stabilized but that’s simply because the bottom has yet to drop out.”
Thanks – I got a kick out of that. Also, I see my post is quickly approaching negative rating territory, which I’ll attribute to a cadre of hyper-sensitive Summit residents frequenting this forum.
“How much lower can a 4 bedroom $70,000 townhome in wheeling go? ”
You’re taking about *2* units, one described by a RF agent as: “In very poor condition. Missing window panes, cabinets, bathroom fixtures. ” and the other one appearing basically un-updated in teh 40 years since it was built.
Not that my singular anecdote is enough for generalization, but that doesn’t seem to stop many of the other comments.
I am also a Millennial, attended a state school to keep the cost of tuition down, and worked throughout my time there to earn income. I graduated with minimal student debt and went to work for the same large company I spent two summers interning for. I am not a trust fund baby, and my father runs an auto body and mechanic shop in Chicago proper.
I spent 3-months living with Mom and Dad until I could find a place to live post-graduation, and I did just that. Using my own unicorn criteria, I took out a conventional mortgage and bought a bank owned property requiring minimal cosmetic work with 2 bedrooms, 2 bathrooms, in-unit washer dryer, central A/C, walking distance to public transportation, less than 20 minute commute to my job in the loop, and deeded garage parking. Oh, and my roommate covers the cost of my mortgage, allows me to depreciate half of my property, expense half of my operating costs, and take section 179 deductions on half of any of the common furniture bought and placed into the unit.
I will likely live here until I have children. At that point, my property becomes an ideal rental unit from the exact same unicorn criteria I looked for in purchasing. And just to really rile people up, I’ll likely take out a home equity loan in the next 18 months or so to pay for the wedding and honeymoon.
The American dream can still be alive and well, and the theme from then is the same now: if you work hard and efficiently, you can and will succeed.
It’s not that millennials don’t know what or how to accomplish the same things, it’s whether we choose to. And the average American income is enough to afford both the cost of living and buying in the city of Chicago, it’s how you use it.
anon(tfo): two units today in bad shape because inventory is low these days but I got a buddy who bought a four bedroom townhome in wheeling in the last 18 months in the mid-70’s. A little bit of research and I’m sure you’ll find it not that you’d really care to waste your time looking for it but then again I could be wrong! Its in fairly good shape but it did need new appliances. not what I’d buy but I have different circumstances going on right now than my acquaintance. 2 and 3 bedroom townhomes in the burbs – and there lots of them in schaumburg, wheeling, mundelien, vernon hills, hoffman, etc have been slammed price wise. Those are lower middle class housing for working people – affordable, cheap, safe but attached housing.
“How much lower can a $20,000 two flat in Roseland go?”
Detroit raze-entire-vacant-city-neighborhoods low.
“two units today in bad shape because inventory is low these days but I got a buddy who bought a four bedroom townhome in wheeling in the last 18 months in the mid-70?s. A little bit of research and I’m sure you’ll find it not that you’d really care to waste your time looking for it but then again I could be wrong!”
Um, there’s nothing listed now under $100k. Those 2 were the ones that sold. And yes, that one your friend bought looks to be in pretty good shape considering the lack of post-1971 reno, and the price, and the fact that the other one that cheap was (apparently) totally trashed.
“My theory is there are a lot of people out there who know they are paying too much for rent but can’t buy because they can’t get a mortgage”
That is indeed true. There are also many who are afraid to purchase today. My dentists assistant who lives outside the GZ was burned in the housing bubble and is deathly afraid to re-invest. On Tuesday she explained that they prefer to know what her fixed costs are going to be regardless of what happens to the home or the market. She explained that from now on they will rent till death. Not a good solution but it is how some people think.
Hate to ruin the optimists but the bottom is not here for good. On the plus side well priced homes will sell quickly. The only negative is that they will be worth slightly less in a few years.
All you sunshine optimists can continue to ignore the reality of the marketplace and hit the thumbs down icon……
If anyone is interested I just realized that someone from Zillow commented on my post on the subject of Zillow’s bottom call a couple of days ago: http://www.chicagonow.com/getting-real/2012/07/zillow-housing-market-bottom/ I called into question their methodology as I did above and they responded by arguing (of course) that their methodology is more sound than Case Shiller’s.
what kind of moron would thumb down Mimz?
“She explained that from now on they will rent till death. Not a good solution but it is how some people think.”
99% of people out there are mindless sheep, so frickin easily influenced and fickle that this stupid bitch will change her tune in about a few years when the market really starts to heat up. That is EXACTLY what happened in the early 2000s, – believe me, there were a LOT of “confirmed life long renters” until then. At that point, they saw everybody else buying and making money on their properties and they followed suit. All we need now is for the media to showcase people who flip foreclosures for a huge profit and you will see a spike in offers on foreclosures. You will always do well if you remember – PEOPLE ARE STOOPID
japan crash vs. US crash (in red):
http://4.bp.blogspot.com/-urj0x45O3P8/T6YmkuOmF5I/AAAAAAAAPHw/-56PJyfepys/s1600/japan-land-prices-update-2012-05-06.png
CNBC is way ahead of you:
http://www.forbes.com/sites/helaineolen/2012/07/25/cnbc-to-promote-house-flipping/
“All we need now is for the media to showcase people who flip foreclosures for a huge profit and you will see a spike in offers on foreclosures. You will always do well if you remember – PEOPLE ARE STOOPID”
“It’s not that millennials don’t know what or how to accomplish the same things, it’s whether we choose to. And the average American income is enough to afford both the cost of living and buying in the city of Chicago, it’s how you use it.”
Sensible.
Does this thread show everyone that arguing economics with hd is like dancing with a pig?
Discovery Channel is way ahead of CNBC. Property Wars premiered earlier this month:
http://dsc.discovery.com/tv-schedules/series.html?paid=1.14951.26503.42588.1
Never argue with an idiot. They will drag you down to their level and beat you with experience.
“My dentists assistant who lives outside the GZ was burned in the housing bubble and is deathly afraid to re-invest. On Tuesday she explained that they prefer to know what her fixed costs are going to be regardless of what happens to the home or the market. She explained that from now on they will rent till death.”
If she obtains a 30 year fixed-rate mortgage, her costs will be way more fixed than with rent.
As the Wolfman says, “never make an emotional decision when it comes to finances.”
I just can’t help but point out the housing bubble wasn’t caused by Millennials. Deride them all you want, but maybe they aren’t the worst decision makers for their age.
Good catch G. They’re back! The home flipping/investing/housing bubble shows are making a return appearance.
Because real estate is SO MUCH FUN!
Here’s the promo for the new Discovery show “Property Wars” (that G linked too.)
“In the world of housing auctions, Phoenix, Arizona is the gold standard. Modern day prospectors are risking their money to bid on homes up for auction. But the catch in this real estate transaction is they can’t step foot inside the house before they bid on it. They must by it as-is, mostly site unseen. They must value the house using only what they can detect from the outside. This takes a combination of sleuthing skills, experience with the area, and a little luck. Sometimes their gambles allow them to hit the jackpot on a pristine house, but sometimes the inside reveals a profit-decimating house of horrors.
Competition within this real estate market is fierce. Today, cutthroat veteran real estate buyer Doug Hopkins fights to prevent his closest competitors from breaking into his territory in Phoenix’s East Valley. But at what cost? Meanwhile, Harley-riding newcomers from Los Angeles, Ed Rosenberg and Steve Simons, hope to sink their teeth into the Phoenix market.”
Juliana: Good catch about CNBC’s new reality programming.
Here’s the list of 7 shows they’re currently producing (including the one about house flipping in Las Vegas.)
“Among the series in development: “Fakes & Forgeries” from Endemol USA, which follows a team of investigators who determine whether artwork is real or forged. “Franchised,” a competition show in which every week one contestant will win their own business franchise. “American Steel,” which follows the world of “competitive car flipping.” The other shows are “Flipping Wars: Vegas,” “At Your Service,” “Outstanding!” and “Venture Men.” All of the titles are working titles.”
For those of you who said there was a bubble in gold (way back when- when we have discussed these things on and off)- where’s the reality show about gold buyers (or sellers)? Hm…none that I see.
Instead- we’re back to housing market reality shows AGAIN.
No one has learned anything over the last 5 years.
“How much lower can a $20,000 two flat in Roseland go?”
A lot lower. I’ve seen properties listed for $2000 or under. And not just in Roseland.
Millennials are just like all the previous generations. Nothing to to see here, kids. Keep moving.
http://www.chicagobusiness.com/article/20120728/ISSUE03/307289990/millennials-forgoing-car-ownership
“Millennials are just like all the previous generations. ”
They cite 4 people, one of whom is undoubtedly an X, the second probably an X (and of questionable judgment–who lives in Barrington and commutes to LP for a “retail job”). So seems the millenials are “just like” Gen X.
I laughed my ass off at the idiot who takes metra, cta dna walks five miles for a retail job in lincoln park from barrington. That is embarassing.
Will Sharp, not the sharpest knife in the drawer thats for sure
what a buffoon
Also regarding reality shows, only people that watch crap like that are unambitious losers who want to vicariously live through some actual ambitious people they see “on the teevee”. It will have no effect on the housing market, period.
“Will Sharp, not the sharpest knife in the drawer thats for sure
what a buffoon”
Pretty much
So, work an 8 hour shift at the Apple store (for probably $15 – $20 / hr and limited benefits?), bookended by a total of 4 hours of daily commuting? At least he can count the hour of that during which he’s walking as exercise. Of course you don’t have much time to spend with your infant son if you’re commuting that far. If only there were apartments around the area where he works where he could live. Alas, there are none more convenient than Barrington. The choices that current and former New Yorkers make with respect to real estate and commuting really baffle me sometimes.
“(for probably $15 – $20 / hr and limited benefits?)”
If that.
Another good part of that story is the wife complaining that she can’t walk to anything.
Ostensibly, Uber Hipster Sharp could transfer to the Apple store in Woodfield, because, you know, it’s closer to Barrington. Oh, but wait, you’d have to own a car to get there.
There goes common sense, whoosh, right out the window.
well it sure beats living in the scary city or buying a pos car that runs for 2k