The 3-Bedroom American Four Square in Edgewater Glen: 1448 W. Norwood
This 3-bedroom American Four Square at 1448 W. Norwood in the Edgewater Glen neighborhood of Edgewater was just reduced $10,000.
Built in 1913, it is on a larger than normal Chicago lot of 40×125 and has a side drive that leads to the garage.
There are hardwood floors throughout the main level, a finished basement with its own full bath, and an unfinished attic awaiting your vision.
All 3 bedrooms are on the second floor.
There are no pictures of the kitchen or baths in the listing.
There is also no central air.
Is this a good starter home for those looking for a single family home who want to stay in the city?
Stephen Northey at Koenig & Strey Real Living has the listing. See the pictures here.
1448 W. Norwood: 3 bedrooms, 2.5 baths, 2 car garage, no square footage listed
- Sold sometime before 1999– no original price located
- Originally listed in August 2010 for $559,900
- Reduced
- Currently listed for $549,900
- Taxes of $6817
- No central air
- Bedroom #1: 20×11 (second floor)
- Bedroom #2: 11×10 (second floor)
- Bedroom #3: 11×10 (second floor)
These taxes seem high. Can anyone provide insight as to them being high compared to the rest of the hood?
Is this a good starter home for those looking for a single family home who want to stay in the city?
At first glance, definitely not. Why would it be priced 100k over this, which has also not sold:
http://www.redfin.com/IL/Chicago/1535-W-Hood-Ave-60660/home/13413518
Also in Peirce, 3+ BRs up, 30′ lot, nicer porch…
Plenty of (unrenovated) SFH’s in Edgewater/Magnolia Glen for 270-400.
This is not a home for a first time homebuyer. At this price its some boomer looking to fund a retirement. next.
540–in Edgewater? Why on earth? To pay that much, in this hood, would be just throwing money away.
Half a mil for a half-a$$ house in a half-a$$ hood. This is a joke, right?
ummm, is it me or is the attic not insulated?
Clue me in, “natives” of Edgewater – Which is considered the “classier” or more “desirable” residential patch: Edgewater Glen or Lakewood/Balmoral? Why?
I’m guessing people ripping this hood have never actually been there. This is a very pretty street. Comparing it to the house on Hood posted by roma leads me to think the price isn’t out of whack. It’s a nicer street and it’s on a bigger lot.
ChiTownGal – if price is the best indicator re which is most “desirable,” then that’s easy: Lakewood Balmoral. They’re both nice, but I think Lakewood Balmoral is nicer. Not getting into amenities, the lots in Lakewood Balmoral are bigger and most of the homes have gone through high-dollar renovations.
That house on Hood is the type of house I want!
This house looks to be freshly painted inside, but it lacks curb appeal big time. It looks like it has always been a fairly simple house-so I think it will go for under asking by 10% or so. Of course-I could be wrong.
This house is 100k more and also lacks curb appeal, but it does have a master suite and rehabbed kitchen:http://www.redfin.com/IL/Chicago/1530-W-Hood-Ave-60660/home/13414517
Nicer houses in Edgewater Glen go for the upper 600’s:
http://www.redfin.com/IL/Chicago/1309-W-Glenlake-Ave-60660/home/13413891
Or my all time favorite interior in the area:( house was on the market for over a year and he sold it for close to asking price!)
http://www.redfin.com/IL/Chicago/1288-W-Early-Ave-60660/home/13410577/mred-07240108
OOPs- I posted too many links and got caught in moderation purgatory:
Nicer houses go up to upper 600’s in this neighborhood:
http://www.redfin.com/IL/Chicago/1309-W-Glenlake-Ave-60660/home/13413891
A stunning interior can fetch 740k: (and this house was on the market for over a year, yet sold for near its original asking price!)
http://www.redfin.com/IL/Chicago/1288-W-Early-Ave-60660/home/13410577/mred-07240108
“At first glance, definitely not. Why would it be priced 100k over this, which has also not sold:”
I’d pay $100k for an extra 10′ of lot.
On the low end:
This appears to be a foreclosure, on a narrow lot in the less prim part of the hood
for only $240:
http://www.redfin.com/IL/Chicago/1503-W-Highland-Ave-60660/home/13414883
“On the low end:
This appears to be a foreclosure, on a narrow lot in the less prim part of the hood
for only $240:”
I’ve toured this house! It is a house completely ripped apart by burst pipes and mold covers walls from floor to ceiling. No one could pay me $240k to tackle that house.
And I found this house because I’ve been looking in the RP neighborhood…a whole different kettle of fish, IMO, despite being a foursquare on a street of foursquares.
“A stunning interior can fetch 740k: (and this house was on the market for over a year, yet sold for near its original asking price!)”
Nice looking place!
“This is not a home for a first time homebuyer. At this price its some boomer looking to fund a retirement. next.”
POST NOW OR BE FORGOTTEN FOREVER!
deals are few and far between. hence a ridiculously slow real estate market in Chicago. $240k what a joke.
here’s a house on the highway in independence park for $150k. same owners since 1944! Which means it hasn’t been updated since 1944 and it hasn’t had any regular maintenance in the time period either. ergh. Look at the wonderful pics. it’s like a time capsule back to 1944 when swing was big and rubber and food was rationed for the war effort.
http://www.redfin.com/IL/Chicago/3809-N-Avers-Ave-60618/home/13457959
“I’d pay $100k for an extra 10? of lot.”
Sometimes, I suspect you’re living in a tent on a quadruple lot.
why do you have to be such a jackass? is it because you’re supposedly rich and live in kenilworth? is it because your great grandfather was a billionaire? is it because you manage other people’s money for a living? You’re nothing but a bully behind your moniker picking on those you feel to be inferior. but you know what? it just makes yourself look like a jackass. keep it up, sparky.
“#JMM on September 15th, 2010 at 10:36 am
“This is not a home for a first time homebuyer. At this price its some boomer looking to fund a retirement. next.”
POST NOW OR BE FORGOTTEN FOREVER!”
Dang it HomeDelete, I wanted to keep that house in Indy Park a secret lol
HD — What is your point? Nothing as usual? This house is shamble and its on the highway.
When Time magazine and HD call a market, its definitely time to go contrarian. Good news for HD is he is a broken record and can only make the same argument over and over again. So you will get the same rant regardless of the i) market, ii) time of day, iii) season of the year. In fact, all his insight is good for is the same old post, over and over. Regardless of whether it is supported by fact or anything that makes sense.
At least with Time magazine declaring housing over with for good you know its a good time to consider a LONG TERM HOME PURCHASE.
“Sometimes, I suspect you’re living in a tent on a quadruple lot.”
Hahhaha very nice!
“I’d pay $100k for an extra 10? of lot.”
Sometimes, I suspect you’re living in a tent on a quadruple lot.
——————————–
I would too (and I did). I looked for a long time and a wide lot was a priority. I can fix the house but I can’t make the lot bigger. It took me several years to find what I was looking for, but I’m glad I held out. The space on both sides of the house makes a huge difference.
HD —
Don’t be mad you cannot express something sensible, supported by any fact, analysis or even opinon.
Same old BS argument unsupported by fact. Overplayed. Overdone. Next.
POST NOW OR BE FORGOTTEN FOREVER!
and you’re not overplayed or overdone?
skip my posts. I do the same for westloopelo’s and clio’s (sorry guys i don’t read your posts).
you can do the same for mine, and as of today i’ll start ignoring yours too. it’s quite simple, you just move to the next post when you see my name.
duh, for a guy supposedly so rich and intelligent and finally wise, you sure are dumb and have no common sense.
carry on.
Poor Grad-thanks for the info on the 240k house. I knew there had to be a catch.
HD- there is this saying in real estate: location, location, location.
The part of Edgewater under discussion is a desirable neighborhood, with nice houses on wide lots. Near the lake and LSD, etc. Comparing to a house in a completely different neighborhood is not really germane.
That’s why decent, but not really rehabbed, houses in this neighborhood go for 450-500k or so. In Lakeview they would go for far more and in Iowa, they would cost far less.
Edgewater Glen really can’t be compared to Lakewood/Balmoral. Edgewater Glen has decent but nothing special houses on nice tree lined streets. Lakewood/Balmoral has larger million dollar houses that rarely trade hands on big lots two blocks right off the main shopping district of Andersonville. The only real amenities of Edgewater Glen is that you could drive to Andersonville relatively quickly, but it isn’t really walking distance.
Edgewater Glen has some nice houses though. However, unless you are forced to live in the city, seems like better deals in Evanston or Oak Park with better amenities and schools.
You’re proven yourself a complete moron to everyone time and time again. And you manage money for a living. you obviously did not get your job based on merit.
now i REALLY am going to ignore your posts. please ignore mine too. jackass.
“When Time magazine and HD call a market, its definitely time to go contrarian. “
Actually, when all you do is fear monger or make demonstrably incorrect statements about fundamental economic indicators, it is worth correcting you lest anyone actually value your commentary.
I watched that place on Avers slowly fall apart for the 3 years I commuted to the NW suburbs and on the occasionally trips down the Kennedy over the following 5 years. What a waste!
Though, the adajceny to 90 may not be a dealbreaker.
dahliachi : my point is that there are no shortage of run down dilapidated in desirable neighborhoods with ridiculous asking prices that are no way justified by the asking price. i understand location location location but you can’t expect a run down house, even with a good location, to be sold for a price that doesn’t take in account the cost to make it habitable. the $240k house probably needs to be gutted to the frame based upon the problems discussed above. lot value is not really relevant because so few new structures are being built in the city. during the boom these old run down houses sold for $400k for lot value and a million dollar home was put in its place (or it was renovated into a million dollar home).
Gee, thanks for attacking who I am. I will continue to attack your innane arguments and keep the ad hominem at bay. Unfortunately, those arguments don’t change very much so I am running out of material.
I did however get a kick out of your assertation that existing home sales add nothing to the economy.
HD,
Independence Park right ont he highway is in no way comparable to this part of Edgewater-that’s my point.
In addition, Land still has value in more desirable neighborhoods, but sometimes has negative value in places like Roseland, where you might be able to buy a masonry building for under 20k.
I agree that the 240k house in Edgewater was never a fancy place and personally I wouldn’t touch it with mold and broken pipes, just not worth it.
oh boy. i said home sales add little, not none.
now you’re a liar too.
your argument was that people buy new washers and driers when they move.
“I did however get a kick out of your assertation that existing home sales add nothing to the economy.”
Heres an economic indicator for you, JMM:
CoreLogic: House Prices decline 0.6% in July
http://www.calculatedriskblog.com/2010/09/corelogic-house-prices-decline-06-in.html
Gonna join the mad chorus wailing for more of OUR government tax dollars to support YOUR financial situation of being long real-estate when the declines resume in earnest?
I can’t wait until the new crop of pols gets elected: they largely have one thing in common: no more bailouts.
We’re going to restore America to the capitalistic meritocracy it once stood for and purge the likes of your ilk who feed of the public dole either via policy decisions or directly.
JMM is the quintessential white collar welfare king.
Does anyone have any hard data as to how much existng home sales add to the economy?
Also, while we have not seen many new homes of late, We have been seeing a fair amount of fairly extensive rehabs (50-200k for the rehab alone)
So while these homes are filed under ‘existing’ they are in fact a hybrid.
“Does anyone have any hard data as to how much existng home sales add to the economy?”
Don’t think so. Although someone could do some sensitivity analyses of what it would be under certain assumptions, e.g. assume add consumer spending of X percent of home sale dollar volume. And then compare to some relevant metric.
Not my area at all, but wonder how much existing home sales gets used as an indicator for its general value in assessing consumer sentiment as opposed to direct relationship to added spending (there are also other effects besides spending to trace through).
“Sometimes, I suspect you’re living in a tent on a quadruple lot.”
I really only want ~75′ of frontage, max. Anything more would be too much yard work. Would really love to split a lot with a neighbor, but neither or my two-away neighbors is a likely candidate, at least for now (not that a neighbors house is for sale anyway, but I like to plan ahead for some things).
“but I like to plan ahead for some things”
Someone should tell anon’s neighbors to not eat those gifted cookies.
“Someone should tell anon’s neighbors to not eat those gifted cookies.”
That’s pretty funny, although I’m sure anon’s plans are less traceable. In all seriousness, I pay much more attention to lot sizes than before I started hanging around here. I can’t look at houses in Bucktown any more.
“I can’t look at houses in Bucktown any more.”
Those 24×100 lots always make me feel sort of claustrophobic.
“I can’t look at houses in Bucktown any more.”
Those 24×100 lots always make me feel sort of claustrophobic”
norwood park 50×200 lots, Galewood 50×125 lots, see NW is sweet
mine 49.5×125 and that extra space = more natural light which = improved mental health
“mine 49.5×125 and that extra space = more natural light which = improved mental health”
I thought the leaves + space for hoodlums to play stickball would = decreased mental health.
“I thought the leaves + space for hoodlums to play stickball would = decreased mental health.”
if the leaves will fall evenly this year then my mental health may be ok, last year it was like all fell in three weeks time. i can only pay these little punks so much to rake before they come in the night and shake trees to make weed money.
Both and my sibling owned houses in Edgewater Glen, buying in the early 90s and selling in the late 90s. There are nice blocks, and not so nice blocks here (north of Ridge, west of Broadway, south of Devon, east of Clark). Both our homes needed rehab to meet our “basic yuppie condition” habitation standards, albeit Home Depot caliber. There are some nice houses of Lakewood Balmoral’s archiectural character and lot size, but many others were crowded together small-lot neglected frame houses being offered as estate sales. Few bargains even back then, houses tended to be overpriced due to “Lakewood Balmoral proximity factor” and would sell only after several mark-downs and extended listing time. I also recall two realtors then having a lock on Edgewater Glen.
We looked at a number of houses and multi-unit buildings in the mid-90s, and discovered that many buildings were seriously neglected. Several multi-units looked like sets from “Barton Fink” (Coen movie with gross interiors?), like illustrations for Jacob Riis (turn-of-century slum reformer). This house looks like a gut rehab candidate, presenting itself as a “recently painted” candidate with many red flags. Why no kitchen and bath photos? Uninsulated attic, and likely uninsulated walls. No deck, just distant photo of kitchen exterior stairs. No basement photo, etc. Overpriced. Sells at $425,000, one year from now.
For same money, you can buy a great brick pre-war colonial 4 bedrm/2 bath fix-upper on a nice lot with great schools. At least foundation, exterior walls, roof, and structure are sound, lot and house exterior is already tastefully arranged, and the cost-exposure is limited to new kitchen and spruced-up interior decoration.
Plus, no Senn students littering the block twice daily weekdays as they travel from el stop to school.
Neglected to note “in River Forest”. Sign me, River Forest booster.
“oh boy. i said home sales add little, not none.”
Again with the ad hominems.
Actually, you dismissed it altogether and were dismissed on the point by all who bothered to chime in. I did point out that people buy all sorts of stuff to illustrate the example and get it through your thick “if I haven’t personally witnessed it, it cannot exist” head.
Of course, since you have never bought a house, according to your logic, this phenomenon could not exist.
POST NOW OR FOREVER BE FORGOTTEN.
While this house isn’t all that spectacular, I have to say its location is – in my eyes – really desirable. This part of Edgewater Glen is very family-friendly and it seems like the neighbors are pretty tight. Many weekends during the summer, you find streets in this area closed for neighborhood barbecues or parties. Surely that has some value.
“Heres an economic indicator for you, JMM”
Ok so first sentence:
CoreLogic … today released its Home Price Index (HPI) that showed that home prices in the U.S. remained flat in July as transaction volumes continue to decline.
What about flat, in F’ING JULY, is problematic? You’re kidding right? Weren’t home prices supposed to be down 25%?
Way to come strong.
Oh and YoY flat should mean sequential growth. Look at the CS index numbers and where they would be sequentially if YoY is flat.
Bob — I do respect and appreciate that you at least look at numbers. It’s refreshing when compared to: “my client is a deadbeat so home prices are going down 25%” or “I have friends who are deadbeats so home prices are going down 25%” or… Well you know.
Re Corelogic: Do they have Chicago numbers? Was someone expecting price in July to be down 25% (MoM or YoY)?
Jmm, time and time again, you are wrong. There is really nothing left to say. Like the knight in monty python skit, your arms have been cut off and you reply “tis merely a flesh wound.” Time has proven my assrtions and stats back up what I see in the trenches. That’s your weakness jmm, you have no idea what is going on outside your office and beyond the pages you visit on th web. And yoyu would be foolish to use me as a contrarian indicator. Even bloomberg has an article saying house prices will drop for the next 3 years! Go write that author a hate letter.
Dz, nobody said prices would be down 25% jmm is once again WRONG and confusiong reality with what he wants to believe people said.
“I’d pay $100k for an extra 10? of lot.”
Whoops, didn’t see this one was actually a 40′ lot, not 30. Doesn’t seem that wide in Sabrina’s picture. But even if the extra 10′ are worth 100k (to some, though I’d guess the minority in this price range), all other things are definitely NOT equal between the two places. And yes, Norwood is a better street than Hood, but there’s not a huge difference.
In any case, they both likely need to come down significantly on price to sell. I’ll vote higher than Architect’s $425 for this one, tho. My bet is ~$465 would get it done, assuming sound structure.
Dahliachi – you’re right that houses can go for quite a bit in EG, but 1309 Glenlake and 1288 Early are in a whole different class from this place.
If there are no more bailouts for cracky I expect July 2015 numbers to be down 25%.*
*I expect there to be more bailouts for cracky.
Actually, HD, I caught an article exposing PIMCO betting against deflation:
http://www.bloomberg.com/news/2010-09-15/pimco-makes-8-1-billion-bet-against-lost-decade-of-deflation.html
I am fairly certain you called a 25% reduction in housing prices, but again, your posts are read the same — lack of any analysis, market information or reliable commentary. CS @ 100 is pretty close to that isn’t it?
You challenged me that they would be below 115 in the next few months. That is 10% right there. Surely you think that they will drop even further than that right?
U.S. Home Prices Face 3-Year Drop as Inventory Surge Looms
http://www.bloomberg.com/news/2010-09-15/u-s-home-prices-face-three-year-drop-as-inventory-surge-looms.html
Stop begging for housing bailouts people. You all sound like a crackhead begging for change. Come November 2012 no more bailouts for cracky.
‘Day of Reckoning’
““The belief has been: if we stimulate sales with a tax credit and delay foreclosures with modifications, the market would stabilize,” said Ritholtz, author of “Bailout Nation.” “We’re just putting off the day of reckoning and drawing out the pain by not letting the housing market hit its bottom.”
Government policy contributed to a recent stabilization in prices that may have been an “illusion,” said Zach Pandl, an economist at Nomura Securities International Inc. The S&P/Case- Shiller index of home prices in 20 U.S. cities rose 4.2 percent in June from a year earlier. The measure is a three-month moving average, which means data in the month were still influenced by transactions that may have benefited from the tax incentive. “
“I am fairly certain you called a 25% reduction in housing prices, but again, your posts are read the same — lack of any analysis, market information or reliable commentary. CS @ 100 is pretty close to that isn’t it?”
“You challenged me that they would be below 115 in the next few months. That is 10% right there. Surely you think that they will drop even further than that right?”
The part that confused me was all the hubbub over one month’s worth of numbers.
JMM, what do you think Case Shiller will do? It seems like you have a view.
Flat. Home prices will remain flat. For a while.
Bob — the same article is calling a return to peak levels in 10 years? I don’t believe that either.
Calling a 5% total price decline by 2013 only to grow 3% per year after that — good grief. So you are making money by 2015? Basically he said you should buy if your horizon is 4 or more years. Go figure.
Bob — but where is the day of reckoning in July? Home prices flat? Is that reckoning?
But apparently price reductions continue. Trulia shows 33% of Chicago listings had price reductions in September, with the average price reduction at 9%. As long as that trend continues, flat prices seem like wishful thinking.
http://info.trulia.com/index.php?s=43&item=98
“Flat. Home prices will remain flat. For a while.”
“Bob — the same article is calling a return to peak levels in 10 years? I don’t believe that either.”
You misread that.
“But apparently price reductions continue. Trulia shows 33% of Chicago listings had price reductions in September, with the average price reduction at 9%. As long as that trend continues, flat prices seem like wishful thinking. ”
That’s a fallacy. Whether or not CS goes up or down depends on what they sell for compared to the houses’ last sale. You could have 50% markdowns on asking prices and see the CS go up, or see everything selling above ask, and have the index go down.
Please explain then what the call was? Seems to me a 5% total drop then 3% per year is a pretty nice hockey stick.
Juliana, asking price reductions do not equal actual transactional values. They are different.
What are pro/cons of corelogic? Hate to admit I was not particularly aware of them before. Some more detailed local numbers here:
http://www.corelogic.com/uploadedFiles/Pages/About_Us/ResearchTrends/CoreLogic%20July%20HPI%20913.pdf
“Please explain then what the call was? ”
It was *not* “calling a return to peak levels in 10 years”. It said “more than 10 years”, which is so obvious to all but the innumerate that you read past it, but picked up “return to peak levels in 10 years”. Your 3:13 picks it up correctly, which is, indeed, a hockey stick and not terribly plausible, in real terms at least.
Not sure about your experience, but when someone quotes “more than x years” their model is usually spitting out 10.2 but they opt for the number which is plausibly stronger.
Let’s put it this way, it is less than 11 years.
Also, the verbiage is not conclusive that 3 and 11 do not run concurrently. The could and it could be 3+8. 8 years @ 3% ish gets you 27%. But what if it is slightly higher than that? That seems to imply a CS value north of 150.
Either way, its far from a doomsday scenario. Almost positive if you ask me.
Oh and it is far better than my model. Flat. 125 in 2020.
Okay, but why would anybody want to invest in real estate while these kind of price reductions continue? Add in the shadow inventory of continuing defaults and the flood of listings which which will appear with any sign of housing market improvement (Zillo estimates 3.8 million sidelined sellers), why would things suddenly stabilize now?
“Juliana, asking price reductions do not equal actual transactional values. They are different.”
“Either way, its far from a doomsday scenario. Almost positive if you ask me.”
It’s not a doomsday scenario (Bob’s is, so is JMM’s 2020 call if he were serious). It is predicting a real decline over 3 years of 5 percent plus whatever inflation is, or isn’t.
As people have commented, many initial asking values are often unrealistic. I have a house down from me asking more than late 2006 purchase price. That is ridiculous, and they have lowered the price twice. Yet another house sold for 2002-era pricing around the corner.
It is a sophomoric strategy, but remember this is a consumer transaction.
And Juliana, no one really invests in resi real estate. They live life, which typically involves living under a roof. It comes at a predictable cost, so long as the value doesn’t drop significantly.
That is why I am arguing prices will be fairly flat. Everyone has to live somewhere. This isn’t a portfolio that you roll in and out of, and if it is, you are sacrificing your personal and family situation for trades that are unlikely to advance your personal well being when all is said and done.
Flat real estate prices are not a doomsday scenario at all. I think its a realistic and quite positive scenario. Price assurance will be achieved, speculation will subside and people will focus on building equity and, living their lives. Maybe making some money.
And HD will have absolutely nothing to do with his day.
“Flat real estate prices are not a doomsday scenario at all.”
Flat nominal or real? Flat nominal for 10 years is pretty bad, depending on inflation assumptions of course. I’m assuming the discussion in the article was nominal.
“Flat real estate prices are not a doomsday scenario at all.”
Sorry didn’t read closely.
“Oh and it is far better than my model. Flat. 125 in 2020.”
This is what made me assume nominal. CS is nominal.
Yeah, but the extended family is on the rise and unemployment doesn’t look to be improving anytime soon. Where will all the bodies come from to fill up all the expected flood of inventory?
“That is why I am arguing prices will be fairly flat. Everyone has to live somewhere.”
“Okay, but why would anybody want to invest in real estate while these kind of price reductions continue?”
Several reasons:
1. Life doesn’t stop just because of the market – many people have real or imagined needs to move (schools, space, work, etc.)
2. Many people feel more settled if they find a house they like, buy it, customize it and live happily ever after.
3. Interest rates are at historic lows – I don’t know why people don’t realize this – most people will only realize this in 5 years when rates start going above 6-7%.
DZ you are right. It should be 125 inflation adjusted. But for the bears I assume a ZIR environment.
BUY NOW OR BE PRICED OUT FOREVER!
“Where will all the bodies come from to fill up all the expected flood of inventory?”
Where are all the existing bodies off to? Tanzania? They are likely to be the same ones. The guys who walk away then buy another house?
Other than that, some stock will disappear and without any new product coming online, new supply gets curtailed. Some ghetto homes get razed, others get turned into rentals (lots of 2 flat conversions became SFHs and will go back), same for 3 flat crap condos.
Remember, you have to make the case that prices will continue down from depressed levels. Inventory alone wont push this down. Besides, the time value of money in a ZIR environment is nothing. Banks can wait it out, and probably will.
Plus rental parity is already in place when you look at sales data for condos (not list data, actual transactions). 400k LP condos are renting for $2,300+. If that isn’t parity, then what is.
Yuppies who are scared to buy still want nice places. When they find out nice rentals cost more than buying, on the margin, people will revisit the purchase issue.
“This is what made me assume nominal. CS is nominal.”
I don’t see what changed your assumption. “Flat real estate prices are not a doomsday scenario at all.” isn’t “Flat *real* real estate prices”.
Who cares, with a ZIR environment, the differences are mimimal, even over 10 years.
“I don’t see what changed your assumption. “Flat real estate prices are not a doomsday scenario at all.” isn’t “Flat *real* real estate prices”.”
It was giving me a headache, but I see now.
The arguments for fairly fat prices:
1) “That is why I am arguing prices will be fairly flat. Everyone has to live somewhere. ”
2) “This isn’t a portfolio that you roll in and out of, and if it is, you are sacrificing your personal and family situation for trades that are unlikely to advance your personal well being when all is said and done.”
vs.
The arguments for declining prices:
1) Shadow inventory estimates of four to eight million properties
2) Sidelined sellers of up to 3.8 million
3) 500,000 permanent HAMP modifications (often with balloon payments after 40 years) most assuredly to return to foreclosure
4) 11.5 months of current inventory
5) Only 33% of all listings in 2009 resulted in a sale
6) Smaller demographics cohorts, slower family formation
7) increased debt loads of borrowers i.e. student loans & credit cards – student loans moreso than credit cards
8) unemployment at 10% in IL and 16% U-6
9) Option ARM resets and recasts through 2013
10) Teaser ARM rate resets through 2013
11) increasing difficultly to get credit
12) 25% of the US population has a subprime credit score i.e. not a potential home buyer for the next three years
13) stagnant wages in numerous, but not all, industries and labor markets
14) reluctance of buyers to enter the market
15) shinking consumer spending
16) prospects of higher state and RE taxes to pay for bankrupt pension plans of state and municipal depts.
17) interest rates may rise in the mid-term
oh – one more
18) the fundamental law of supply and demand – lots of supply, little demand = lower prices.
“Where are all the existing bodies off to? Tanzania? They are likely to be the same ones.”
I would guess they will rent, double up, or move back in with their parents/extended families.
“Banks can wait it out, and probably will.”
ZIR or not, there are property taxes and maintenance costs related to the REO. How long can they carry those costs?
And your touchy-feely arguments don’t look too convincing next to HD’s list.
“And your touchy-feely arguments don’t look too convincing next to HD’s list.”
But, somehow, that’s not a problem for the general economy and everything will be okay. Indeed, HD will be better off because of it.
“1) Shadow inventory estimates of four to eight million properties”
Priced in. Estimates only. For every shadow seller there is a shadow buyer.
“2) Sidelined sellers of up to 3.8 million”
Priced in. Just like there are sidelined buyers.
“3) 500,000 permanent HAMP modifications (often with balloon payments after 40 years) most assuredly to return to foreclosure”
Priced in.
“4) 11.5 months of current inventory”
Do you know what normal current inventory is and how current inventory has tracked versus recent period?
“5) Only 33% of all listings in 2009 resulted in a sale”
Distorted statistic and priced in anyway. Half year convention of 180 days means for something to count on average it has to be 180 market time. That doesn’t surprise me at all and is easily close to average market time. Statistic also doesn’t count contracts or pends.
“6) Smaller demographics cohorts, slower family formation”
Chicago city population is increasing? More families in the city?
“7) increased debt loads of borrowers i.e. student loans & credit cards – student loans moreso than credit cards”
Leverage is decreasing and savings rates are up.
“unemployment at 10% in IL and 16% U-6”
Priced in and stable, not deteriorating. Only an issue if it increases or decreases.
“9) Option ARM resets and recasts through 2013”
“10) Teaser ARM rate resets through 2013”
Teaser rates reset lower than initial rates. Typical spread is 275 to 1 year constrant maturity. Add the 30 bps and what do you get?
“11) increasing difficultly to get credit”
Credit box has not significantly shifted for mortgages. Jumbos pricing and ratios have not contracted significantly.
“12) 25% of the US population has a subprime credit score i.e. not a potential home buyer for the next three years”
At least 50%+ of Chicago is a renter anyway. Please explain relevance.
“13) stagnant wages in numerous, but not all, industries and labor markets”
Wages are up.
“15) shinking consumer spending”
Consumer spending was up.
“16) prospects of higher state and RE taxes to pay for bankrupt pension plans of state and municipal depts.”
Speculation and uniformed. IL is a 3% tax state anyway — less than 1/3 of CA or NYC taxes. Smart money has property taxes increasing only on commercial and industrial properties which don’t vote or riot. Aggregate tax levy should be close to the same.
“17) interest rates may rise in the mid-term”
True but misinterpreting the impact. Home purchases will accelerate at the first sign that interest rates might rise. This is a positive catalyst not a deteriorating factor.
“18) the fundamental law of supply and demand – lots of supply, little demand = lower prices.”
For every seller, there is a buyer. People have to live somewhere.
“I would guess they will rent, double up, or move back in with their parents/extended families. ”
Operative word is guess. You don’t know and the facts don’t bear it out. Ownership to rental groups are in line with historical norms, ex bubble.
Some will rent and some renters will buy. Those who are forced to move in with parents aren’t economic buyers for properties. Families of 6 do not move in with their 80 year old parents.
“ZIR or not, there are property taxes and maintenance costs related to the REO. How long can they carry those costs?”
Indefinitely.
HD: Your 18 points set forth above are all valid. However, points made by Clio and JMM are equally valid and, for certain buyers, more important:
Clio
“1. Life doesn’t stop just because of the market – many people have real or imagined needs to move (schools, space, work, etc.)
2. Many people feel more settled if they find a house they like, buy it, customize it and live happily ever after.
3. Interest rates are at historic lows – I don’t know why people don’t realize this – most people will only realize this in 5 years when rates start going above 6-7%.”
Note: I’m not so sure the country will be able to handle rates over 7% within a mere five years, but today’s low interest rates are nonetheless compelling. Clio’s points 1 and 2 are very compelling.
JMM
“Yuppies who are scared to buy still want nice places. When they find out nice rentals cost more than buying, on the margin, people will revisit the purchase issue.”
That is a very strong point. I’ve been renting a great place in LP for over two years, and I believe the unit owner has been taking a loss every month (i.e., I’d say it would cost me at least $800 more a month to live in the unit as the “owner”). That said, I do think I’m getting a pretty good deal.
But more importantly, and consistent with JMM’s comment quoted above, I’ve done some searching recently for rentals that offer the things that our current place lacks (a third bedroom, w/d, parking), but in order to stay in the same immediate neighborhood, we’d have to spend about another $700/mo in rent (and those unit owners would likely be losing a bit as well). For me to buy one of those places, I’m looking at spending about another $1,200 to $1,500/mo (over what I currently pay in rent).
Do I sit it out for yet another year? Or do I pull the trigger and buy? If the former, I might (might, mind you) have the dicipline to save up another $10,000 or so over the next year, and I really don’t expect prices or rates to be much different in a year. If the latter, I’ll spend at least an extra $15,000/yr over what I’m paying for housing now. But I’ll be (i) living in a more suitable space, (ii) to which I can make minor improvements as I see fit, (iii) which (barring any pesky AMT issues) should provide some income tax relief, (iv) in which my kid can become settled/become a member of a particular school community, and (v) from which I will not be asked to leave by a landlord.
“ZIR or not, there are property taxes and maintenance costs related to the REO. How long can they carry those costs?”
Technically the bank can hold for as long it wants and redeem the taxes once or immediately before the property is liquidated. It is completely written off at REO so it can hold for a very, very, long time.
RE taxes to values are about 1% per year. So you wait 25 years and take a 25% hit? I think they are going to take their chances.
By the way, zero home appreciation at a time when every home has real depreciation means the land is appreciating very nicely.
Accountants depreciate buildings at 39 years and fixtures at 7. For a $1,000,000 home on a $400,000 lot (600k building value) assume 50/50 split structure to finishes fixtures.
That is 50k in depreciation a year between the house that lasts a long time and the fixtures in it that last less time. 5% of the purchase price (including the land). Few, if any, homeowners spend to maintain at that level and when they do, their homes sell. Fast. And at good prices.
Case in point.
“RE taxes to values are about 1% per year. So you wait 25 years and take a 25% hit? I think they are going to take their chances.”
Not to mention that they can appeal the taxes, too, and likely pay less than current amounts.
“Operative word is guess. You don’t know and the facts don’t bear it out. Ownership to rental groups are in line with historical norms, ex bubble.”
If you mean ownership ratios, you’d have too look at a pretty short time frame to say they are in line with historical norms.
Advertising Age had a story on the increase in multigenerational households last month. The top reason for it is financial.
http://adage.com/article?article_id=145506
anonny,
I truly hope you find a place that has everything you are looking for. You seem like a very smart and balanced person and I’m sure once you see it, you’ll know it and make a move!! Once you do, don’t look back, don’t second guess yourself, and don’t waste time following the market to see if you really got a good deal. Just sit back and enjoy the stability of home ownership!!!
Just because accounting standards allow certain rates of depreciation for business properties, it does not translate to homeowners being able to take advantage of it. This is convoluted reasoning. And I’m a CPA, so maybe you can explain it a little more clearly. The logic fails me.
“That is 50k in depreciation a year between the house that lasts a long time and the fixtures in it that last less time. 5% of the purchase price (including the land). Few, if any, homeowners spend to maintain at that level and when they do, their homes sell. Fast. And at good prices.”
JMM
You debate very well. Where did you get those skills?!! I am humbled by the depth and clarity of your counterpoints!! Good job.
“HD: Your 18 points set forth above are all valid. ”
No they all aren’t. Nine & ten are essentially the same point.
“9) Option ARM resets and recasts through 2013
10) Teaser ARM rate resets through 2013”
By the way, JMM, in your list of arguments for HDD, most of which defy logic, I don’t get your “priced in” comment. We’re not talking equities here. You keep mixing apples and oranges.
“And I’m a CPA, so maybe you can explain it a little more clearly. ”
If you’re a CPA I want you to find a way to apply accounting depreciation schedules to residential real estate without me going to jail. Can we use the defense JMM said we could do it?
“If you mean ownership ratios, you’d have too look at a pretty short time frame to say they are in line with historical norms.”
Wha? Between 1965 and 1999, the percentage nationwide was between 63 and 67 percent, with a general, slow upward trend. From 2000 to 2009, it was b/t 67 and 69 percent. As of Q2-10, it had dropped back to 66.9%, the same place it was in the late 90s–a little on the high side, but “in line with historic norms”.
If we’re applying accounting depreciation schedules to residential real estate as JMM suggests I’d rather go with MACRS. If you’re going tax evasion go big or go home!
I don’t know about anyone else, but I always get really confused when people use all of these big words and abbreviations and talk in their financial jargon – do you guys think you could “dumb it down” a bit and explain in things that a lay man would understand?
“Between 1965 and 1999, the percentage nationwide was between 63 and 67 percent, with a general, slow upward trend. From 2000 to 2009, it was b/t 67 and 69 percent. As of Q2-10, it had dropped back to 66.9%, the same place it was in the late 90s–a little on the high side, but “in line with historic norms”.
This chart goes back to 1900. When you go back that far, you can see that home ownership hasn’t always been as high as it is now. I’m not so sure we won’t see the rate go lower with the challenges facing our economy.
http://online.wsj.com/public/resources/documents/info-CRISIS0712-09.html
“Not to mention that they can appeal the taxes, too, and likely pay less than current amounts.”
Bingo — forgot about that. vacancy is the number one reason for AV reductions according to the Cook County Assessor.
abbreviations I used:
ZIR = zero interest rates
REO = real estate owned, ie, foreclosed and owned by banks
big words? All I know is that trying to understand what JMM is talking about is giving me a headache. But to your simple mind he has great debating skills. Go figure.
“I don’t know about anyone else, but I always get really confused when people use all of these big words and abbreviations and talk in their financial jargon – do you guys think you could “dumb it down” a bit and explain in things that a lay man would understand?”
“Just because accounting standards allow certain rates of depreciation for business properties, it does not translate to homeowners being able to take advantage of it. This is convoluted reasoning. And I’m a CPA, so maybe you can explain it a little more clearly. The logic fails me.”
Come on, really? I am talking about the concept, not its use as a tax shield. Don’t confuse tax depreciation for financial accounting depreciation, which measures the economic cost. To be even clearer for our wayward CPA, I am describing the concept insofar as it relates to housing prices. People think because a home doesn’t appreciate they lost money. Not necessarily — they lose money through depreciation each year which is a real, albeit a non-periodic cash cost. But when it comes time to sell — guess what? That depreciation gets realized.
If you really don’t think depreciation applies to a residence, well, the IRS tends to disagree. Rental real estate uses MACRS depreciation schedules for tax purposes. Obviously MACRS is an accelerated form depreciation used for taxes. Most financial accounting uses straight line which is meant to capture the economic cost of usage. Either way, its a real cost and it gets ignored by all the “real estate is an investment” types.
http://www.irs.gov/pub/irs-pdf/p527.pdf
Residential real estate isn’t an investment. It is a cost of living. Is your car an investment? Sure land can apperciate, but buildings and fixtures depreciate, just like the brand new Lexus you are driving. Go figure — people accept it on the flashy car but whine when their 10 year old house they haven’t spend a dime on doesn’t “appreciate in value”…
PS- Bob, kuddos to the MACRS reference. Unexpected and apperciated.
Except HUD’s predecessor was formed in 1947.
Before the 1930’s downpayment requirements made my support of 20% down today look like a subprime loan. You used to need 50% down and mortgages were typically 5-10yrs, some with a balloon payment at the end. Others were ARMs renegotiated each year.
For it to drop that far back they’d have to enact similar credit standards & do you think thats gonna happen? How many Americans you know are fiscally disciplined enough for this today at today’s valuations? And remember many vote their wallets.
The Fed is expected to conjure up another trillion $ to keep medium-term interest rates low so that tells me they care about the home ownership released stat. Not for altruistic goals though–likely cuz a large flock of owners to renters defaulting on their mortgages would sting the banks.
It could certainly go below 63 and not be at levels seen since the GD.
Simple concept here:
Buy a house for x and land for y. Apportion purchase price however you’d like. Book a value to each.
Land does not change in value simply because of use, so keep its book value as is.
Building depreciates, so lower cost basis by an amount every year.
Adjust for any improvements along the way (remodel, new addition, etc).
If you think this is just theoretical, think again. All major building elements have useful lives. Roof will last x years. So the cost of new roof accrues each and every yeah until you replace it. Same for the HVAC, the water heater, the plumbing, the siding, the decking, the windows. Get the point?
Go to sell. Compare purchase price to adjusted book value (depreciated cost + improvements, such as renovations). 9/10 the adjusted book value is lower because people don’t generally keep up with value they extract from using the place.
Now you really know if you did or did not make money.
I’d venture to guess depreciation is a bigger culprit than shrinking land values. Everyone assumes people keep their houses in shape, but we all know that is crap. That is why newer homes sell fast and at premiums to existing homes, even once renovated.
“Residential real estate isn’t an investment.”
Yet in most economics textbooks they count it as investment. It certainly isn’t consumption.
Also no need for MACRS these days–all business investment is gonna be tax free for awhile.
http://www.nytimes.com/2010/09/07/us/politics/07tax.html
“A draft paper on the proposal permitting businesses to write off the full costs of capital spending in 2010 and 2011 said it “would be the largest temporary investment incentive in American history.” “
“This chart goes back to 1900. When you go back that far, you can see that home ownership hasn’t always been as high as it is now. I’m not so sure we won’t see the rate go lower with the challenges facing our economy.”
Pretty ridiculous comparison. We didn’t even have a permanent income tax until 1913. Let alone tax deductibility of mortages then. Obviously U.S. history is not your strong suit, but I am not sure accounting is either.
The only way I relate depreciation with residential real estate is in the sense that it is the depreciating values of homes post bubble. During the bubble, there was no depreciation, and everyone assumed appreciation would continue forever.
Then, just to confuse things a little more (your modus operandi), you talk about rental property as residential real estate. Its not. Its investment property. So of course you are allowed depreciation. Who was debating that?
“Come on, really? I am talking about the concept, not its use as a tax shield. Don’t confuse tax depreciation for financial accounting depreciation, which measures the economic cost. To be even clearer for our wayward CPA, I am describing the concept insofar as it relates to housing prices. People think because a home doesn’t appreciate they lost money. Not necessarily — they lose money through depreciation each year which is a real, albeit a non-periodic cash cost. But when it comes time to sell — guess what? That depreciation gets realized.
If you really don’t think depreciation applies to a residence, well, the IRS tends to disagree. Rental real estate uses MACRS depreciation schedules for tax purposes. Obviously MACRS is an accelerated form depreciation used for taxes. Most financial accounting uses straight line which is meant to capture the economic cost of usage. Either way, its a real cost and it gets ignored by all the “real estate is an investment” types.”
“Then, just to confuse things a little more (your modus operandi), you talk about rental property as residential real estate. Its not. Its investment property. So of course you are allowed depreciation. Who was debating that?”
Well owning a 2-flat and being a passive landlord has always been a dream of mine. The problem is in the green zone getting the tenant to pay for >=50% of after tax housing costs is pretty scarce. Paying to be a landlord? PASS!
I don’t think you can count on the deductability of mortgage interest to continue forever. And from the chart it doesn’t look like the current levels of ownership were reached until the 1970s, so you don’t have to look back *that* far.
“Pretty ridiculous comparison. We didn’t even have a permanent income tax until 1913. Let alone tax deductibility of mortages then. Obviously U.S. history is not your strong suit, but I am not sure accounting is either.”
Depreciation as a concept applies to all structures, fixtures, etc. If it is owner-occupied or rented, why does it matter? Depreciation captures the economic cost of usage. This cost of course is real and is realized when homes are sold (investment, personal or otherwise). It doesn’t matter what the tax treatment is.
Do you think if you live in a place it does not depreciate? But if you rent it out, it does? Obviously you aren’t that lost here.
So if we agree owner-occupied house carries a depreciation cost, how come no one ever backs it out when they go to sell? If they did, I think views would be very different.
“I don’t think you can count on the deductability of mortgage interest to continue forever. ”
With a statement like that, I can tell you were not born in this country.
“allowed depreciation”
You are confused. You must be a tax accountant. Depreciation exists whether or not it is deductible for federal income tax purposes.
“It certainly isn’t consumption.”
Bob, respectfully, it is included in CPI. Imputed rent on owner-occupied housing is part of CPI.
Whether it is owned or rented, it is still a cost. It isn’t an investment in the sense that it is a security.
“I don’t think you can count on the deductability of mortgage interest to continue forever.”
I hope you’re right juliana! But for the foreseeable future I don’t see our government taking such a politically unpopular move that would be presented as suppressing home values further even though it IS the right thing to do. I know doing the right thing doesn’t count for much these days 🙁
The people who benefit from the MI tax break tend to be much more active voters (tax savings from that tax break only appears after 143/286k mortgages for singles/marrieds) and sympathetic targets or a tax break: middle class & in debt.
The sad part is most won’t make the connection (or rather care) that all this does in the medium to long-term is buffet real estate values, keep residential levels artificially high and starve our government of much needed revenue.
Our entire tax code is asinine and detrimental to the broader economy but still yet politicians know not to piss off certain key voting blocs.
No, eliminating “tax entitlements” has been discussed by Obama’s financial commission. Even if it doesn’t happen now, the fact that it is even being considered is relevant.
http://thehill.com/homenews/administration/101883-axe-may-fall-on-tax-break-for-mortgages
“With a statement like that, I can tell you were not born in this country.”
Our tax code is what it is. You can’t make changes like that without fundamentally changing the rules and inciting a riot. Tax policy needs to be relatively predictable and knowable, else it is worthless and the system falls apart.
You’d have an easier time repealing the 13th amendment.
“No, eliminating “tax entitlements” has been discussed by Obama’s financial commission.”
Do you read only have the story of these things?
The discussion is focused on limiting deductibility to 28%.
There are already numerous limitations on deductibility of items for wealthy individuals not to mention limitations on deductibility of mortgage amounts already (e.g., $1,000,000 on principal residences, second homes, etc). This is just another tax on the rich, no a dissolution of mortgage tax deductibility.
So, you are wrong. Again, the rich make easy targets, but we’ll see what happens come November. It won’t be like the Ukrainian elections you have back home, but it should still be a doozy.
“Bob, respectfully, it is included in CPI. Imputed rent on owner-occupied housing is part of CPI. ”
Government stats disagree with your methodology. My question is doesn’t “capital good” = “investment” per the textbooks and government stats? Yes, it does.
I know about CPI, I was referring to residential RE investment. Or am I missing something? A purchase of residential RE is counted as investment (I) in economic textbooks, not consumption (even if overpriced to rental yields).
http://globaleconomicanalysis.blogspot.com/2009/07/whats-real-cpi.html
“Bear in mind the government considers housing a capital good not a consumption item.”
No, I think YOU are confused. Depreciation, from an accounting standpoint, refers to allocation of the cost of assets on taxes or financial statements to periods in which the assets are used.
Depreciation from a homeowners standpoint is the decline in the value of a home and has nothing to do bookkeeping.
“You are confused. You must be a tax accountant. Depreciation exists whether or not it is deductible for federal income tax purposes.”
“My question is doesn’t “capital good” = “investment”?”
If the unemployment rate stays high I suspect a lot of things in prior, more bounteous eras, that were considered politically palatable may take root.
Err politically unpalatable.
“No, I think YOU are confused. Depreciation, from an accounting standpoint, refers to allocation of the cost of assets on taxes or financial statements to periods in which the assets are used. ”
So you don’t think residential real estate is an asset that is used at a resultant cost? You don’t think roofs need to be replaced? Do you think the expense only relates to the year you replace it, or do you think it wears out over time? Does that say perhaps represent periods in which the asset was used? Are there other assets in a house? Mechanicals, appliances, flooring, windows? Do those last forever?
Let me ask you a question, why can’t I sell my car for the same amount I paid for it 5 years ago?
Oh my God – thank you Bob, JMM, and Juliana – after reading all of your posts, I realize that it was probably luck that got me where i am today – I can’t understand ANYTHING you guys are talking about!!
Unemployment will probably incite riots first. This is a foolish statement. I think most people would be willing to give up their mortgage interest deductions if it meant a simplified tax code which eliminates loopholes for the wealthy.
“Our tax code is what it is. You can’t make changes like that without fundamentally changing the rules and inciting a riot. Tax policy needs to be relatively predictable and knowable, else it is worthless and the system falls apart.”
“I think most people would be willing to give up their mortgage interest deductions if it meant a simplified tax code which eliminates loopholes for the wealthy. ”
OK – I understand this and vehemently disagree!!!
Bob — I don’t really care how or why it is classified. Your point supports mine on depreciation anyway.
“Unemployment will probably incite riots first. This is a foolish statement.”
Yes but only in Ukraine. Didn’t they ship you back to mother country in return for some of our spies? Am I missing something?
Sure residential real estate has expenses attached, but they have nothing to do with depreciation. The basis of your home is what you paid for it plus any capital improvements. The roof and the other expenses are repairs. You don’t get to add it to your basis. You may keep track of your expenses on your books at home, but you don’t get to deduct them or depreciate them. So what are you talking about? You obviously don’t understand depreciation from an accounting standpoint.
So you don’t think residential real estate is an asset that is used at a resultant cost? You don’t think roofs need to be replaced? Do you think the expense only relates to the year you replace it, or do you think it wears out over time? Does that say perhaps represent periods in which the asset was used? Are there other assets in a house? Mechanicals, appliances, flooring, windows? Do those last forever?
Unemployment is 10%, where are the riots? Lots of shootings on the south side, does that count?
“By the way, zero home appreciation at a time when every home has real depreciation means the land is appreciating very nicely.”
This is assuming nothing spent on repairs and upgrades?
No surprise there. I’m sure your accountants are well paid to set you up with every possible loophole for you to avoid taxes.
“OK – I understand this and vehemently disagree!!!”
Let me ask you a question, why can’t I sell my car for the same amount I paid for it 5 years ago?
apples and oranges time again
“Let me ask you a question, why can’t I sell my car for the same amount I paid for it 5 years ago?”
I didn’t exactly predict riots, you did. I simply pointed out that unemployment would be *more likely* to lead to riots than would changing the tax code.
Unemployment is 10%, where are the riots? Lots of shootings on the south side, does that count?
“No surprise there. I’m sure your accountants are well paid to set you up with every possible loophole for you to avoid taxes.”
Not really – 3800/year to do my taxes (complicated b/c of K1s, serial LLC, and investment income).
“serial LLC”
sorry – meant series LLC
“Wages are up.”
Whose?
Everyone I know getting a new job is being offered the same or significantly less salary than their prior position.
All the data is showing middle class salaries have declined over the past ten years. The housing bubble was the only thing keeping the middle class afloat (in terms of going on vacations, buying consumer items etc.)
Consumer spending is also not up. As I said yesterday- credit card use has contracted 23 straight months and consumer credit has contracted 17 out of 18 months.
“Yuppies who are scared to buy still want nice places. When they find out nice rentals cost more than buying, on the margin, people will revisit the purchase issue.”
Too many people already in condos are losing too much money (their entire downpayments and thensome.) Prospective buyers all work in offices/businesses/hospitals etc where current owners are telling their horror stories (of being trapped in their condos without the ability to move to a single family home and of losing their downpayments etc.)
The more they hear these stories, the less they’ll want to buy.
I agree with whoever it was who said that future buyers will bypass the condos altogether and go straight for the single family home (either in the city or the suburbs.) This is what my parents did. They didn’t even consider a condo- because they knew they were buying a house to live in 10 years (which is how long they lived in the first house.)
Demand for single family homes that are “starter homes” will stay pretty strong, as a result. Condos- not so much- especially those priced the same as single family homes ($400k-$500k.)
The real change in psychology will be if housing, once it hits bottom, does remain flat for a decade or more. At some point, buyers are going to ask: “why am I spending 30%, 40% or, in some cases, 50% of my income on this?”
And that’s when we’ll see the housing obsession finally go away.
“The real change in psychology will be if housing, once it hits bottom, does remain flat for a decade or more”
I don’t know, Sabrina – although you make a lot of sense, most people’s behavior is not based on sensible/rational decisions. Once the economy picks up again, you will see people splurging more and more – and the things they love to spend include real estate, cars, clothes and vacations. Very few people employ critical thinking when making decisions – just look at the “common person’s” reactions and views regarding the upcoming elections and you will see how stupid and uninsightful most people are.
That’s the point Clio. Housing is NOT going to pick up for a long, long time. Sure, the rest of the economy will eventually. But people will realize it’s just somewhere to live and a lousy investment and they’re not going to spend 40% of their income on a housing payment (not if it’s staying flat for a decade or more.)
Right now, everyone is waiting for it to “come back.” When they realize it’s not- the obsession will be over and a “normal” housing market, with normal appreciation, will return.
We’ll probably overshoot to the downside though- which means some areas will be very affordable for many people which will be good for the economy in the long run.
I see condo prices dropping off a cliff. Sabrina is right about many future single family home owners skipping the condo phase. Millenials are not looking to buy, but see the advantage and flexibility renting gives them. Large assessments and condo board nonsense will turn many others off. Babyboomers will just stay put in houses, since they can’t sell. Market paralysis is already here.
The people who will (theoretically) skip the condo stage and heading straight to SFH’s fall into two groups: (i) those who were never meant to live in the city and (ii) those for whom the SFH price is in the range of $500-600 (likely in an area on a Greez Zone border). The folks destined to live in $1 million + SFH in the city will continue to own at least one condo on the way towards that goal.
Personally, I see myself living in the city for the long haul, likely in east LP, ELV or the GC. I also see myself one day (6 -8 years?) living in a place for around $1 million (in today’s dollars, perhaps a SFH, but likely not). Should I keep renting another 8 years, or buy a place between $450-500k now?
What do we think about condos for the older Boomers? I’m in my early 50’s, and while I own an SFH now, I could see wanting to downsize to a condo in another 12-15 years. Instead of first-time buyers moving condos, will older folks revive the condo market a little?
(I, too, am bearish and don’t see bubblicious prices returning any time soon, but I do see a rearranging of the market.)
“The folks destined to live in $1 million + SFH in the city will continue to own at least one condo on the way towards that goal.”
This is 1% of the population. Everyone else will no longer be buying the $250k-$400k condos because they will have seen everyone they know take a loss on them and they won’t live in them long enough to make any money themselves. This is thousands of units.
I am already hearing this from people. Newly marrieds who realize that they should just buy the house right off instead of starting with the condo because they want kids and know they won’t be able to sell in 3 or 4 years for any kind of profit.
They all tell me- “we’re going to look in the city” for their $350k to $400k SFH budget- and then quickly realize it’s not really feasible in the neighborhoods they want to be in and end up buying in Oak Park, Forest Park, Evanston etc. instead.
About condo sales falling off a cliff- maybe Gary can confirm- but anectdotally, someone sent me the closings in the near north side for the past couple of days (Streeterville, GC, River North) and out of the 15 closings, half of the sales were short sales or foreclosures.
Sales of nondistressed properties are really, really low right now.
What is the consensus on townhomes? 350-400 might not afford a sfh in the green zone but it will afford a nice townhome . . . a place where one could raise a family in the city. How are they holding their value compared to condos?
“They all tell me- “we’re going to look in the city” for their $350k to $400k SFH budget- and then quickly realize it’s not really feasible in the neighborhoods they want to be in and end up buying in Oak Park, Forest Park, Evanston etc. instead.”
as groovey says, NW side has all you need for the price you can afford 🙂
I think everyone has great points – one other point to consider is that, in 10 years, there will be a whole batch of people in the market who haven’t gone through this downturn (kids who are 15-20 now). These kids don’t quite understand the real estate market and likely will fall again into the trap of buying starter condos (especially when the overall financial picture is better – 5-10years). It is a cycle that repeats itself – all you have to do is examine history and the nature/psychology of man….
Clio – today’s 15-20 year olds are the children of the foreclosed. Their parents will still be stuck and possibly underwater in their home in some suburb and the parents will implore them to rent.
Also, I’m glad to see that someone other than me is else willing to debate the claptrap spewing above.
Sabrina is right, younger couples are choosing to buy homes in the suburbs rather than the city. and they will continue to do so. This has been the trend since my grandparents left for the NW burbs in 1956.
This doesn’t bode well for the $1,000,000 house in the green zone. Even the potential purchasers of the million dollar green zone home will weigh the value of living in Roscoe Village for $1,000,000 vs. any one of the north shore suburbs various other suburbs where a mil buys a lot more. Over time this will create a natural equilibrium; prices between the two will not equalize but there will be an equilibrium most assuredly.
But it becomes impossible to debate this stuff when some people refuse to agree on the fundamental premise that housing continues to be priced (or listed) unaffordably. Banks aren’t helping the situation by keeping homes off the market. I heard on the radio this morning that banks are still holding on to 2/3rds of their foreclosed properties.
Foreclosures Rise; Repossessions Set Record
CNBC News Associate
US foreclosure activity rose in August from the previous month, and banks and lenders took ownership from homeowners at a record pace, according to a new report released Thursday.
Foreclosure fillings rose 4.18 percent in August from July.
Bank repossessions, often the final step in the foreclosure process after a home fails to sell at auction, increased about 3 percent from the month before to 95,364, a record high. At the same time the number of properties that received default notices—the first step in the foreclosure process—decreased 1 percent from a month ago and fell 30 percent from a year ago, a sign that lenders are focusing on their backlog of foreclosure inventory before tackling new distressed loans, according to foreclosure listing website RealtyTrac, which released the report.
http://www.cnbc.com/id/39192246
“Remember, you have to make the case that prices will continue down from depressed levels. Inventory alone wont push this down. Besides, the time value of money in a ZIR environment is nothing. Banks can wait it out, and probably will. “
Foreclosures Rise; Repossessions Set Record
CNBC News Associate
US foreclosure activity rose in August from the previous month, and banks and lenders took ownership from homeowners at a record pace, according to a new report released Thursday.
Foreclosure fillings rose 4.18 percent in August from July.
Bank repossessions, often the final step in the foreclosure process after a home fails to sell at auction, increased about 3 percent from the month before to 95,364, a record high. At the same time the number of properties that received default notices—the first step in the foreclosure process—decreased 1 percent from a month ago and fell 30 percent from a year ago, a sign that lenders are focusing on their backlog of foreclosure inventory before tackling new distressed loans, according to foreclosure listing website RealtyTrac, which released the report.
http://www.cnbc.com/id/39192246
“Remember, you have to make the case that prices will continue down from depressed levels. Inventory alone wont push this down. Besides, the time value of money in a ZIR environment is nothing. Banks can wait it out, and probably will. ”
You’re right, it’s not just inventory alone (aka supply); you also need demand. Banks cannot hold on to properties forever. As the home deteriorates it will sell for less and less. Holding onto foreclosed properties is a failed strategy that will back fire, and is backfiring as we sit here today.
Why are banks holding on to the foreclosures? I think they are hedging their bets that the market will improve. When it does, they will start offering these properties. Alternatively, they are holding out for some government incentive… whatever the case, they know something that the lay people don’t. I think that the future in real estate is uncertain – we can argue both sides, but we just have to wait and see how it plays out.
I completely agree that where you can buy a decent single family for anywhere near decent condo price, condos will vanish / return to rental.
But all the stats in the world, all the talk about the children of the forclosed, etc., etc., do not change one fundamental thing: a certain percentage of the population will always want to live in the most desirable neighborhoods. In real numbers this is not a large percentage of the population, but, as a percentage of people who make all the money, it is enormous. They may think with one part of their brain that it would be wiser to get a starter house in some other hood. But they won’t be able to resist the desire to live in fancy town. And starter houses don’t exist in fancy town (defined as LP/Old Town/Near North . . . not whatever hoods people on this board think are the best kept secrets in Chicago). This means you will still have demand. Whether that translates into demand for condos or rentals is largely moot at this point. We’re already back to 2003 prices, which in large part puts condos near rental parity. So the whole “fall of a cliff” theory doesn’t seems plausible to me. They’ve already fallen off a cliff. To end up at another cliff people will have to start choosing rentals over ownership even when renting is more expensive. The American dream – agree with it or not – is not going to die that easily.
The fact that there has been one price fall off a cliff in no way shape or form precludes or prevents a second drop.
There will always be demand for housing, but the level of demand depends on the price.
“They’ve already fallen off a cliff. To end up at another cliff people will have to start choosing rentals over ownership even when renting is more expensive. ”
The problem is RE taxes. For renting to equal owning on a CF basis those RE taxes need to be subtracted. Also there is little clarity on RE taxes going forward, particularly in Crook County.
You’re also forgetting that everyone’s true after tax cost of ownership is very different depending on tax deductability and RE tax exemptions/freezes/TIF status. Uncle Sam make benefit glorious house bubble of Estatados Unidos de ponzi economy.
Why would renting become expensive? The tax code distorts that market as well. Even taking mortgages out of the picture it allows landlords to rent out cheaper than an equivalent cost of owning (they can depreciate).
why does everyone forget about the psychology of home ownership. If mortgages were easier to obtain, people would flock to buy houses (despite the very good arguments about renting). There is some intangible quality about home ownership that is one of the biggest and most overlooked factors in this whole real estate game. If you don’t believe me, ask yourself despite home owners complaining and whining about the market, etc., how many people do you know who previously owned a home and now are “converted” long term renters. Now ask yourself how many people you know rented and are now home owners. Once you buy, you virtually never go back to renting!!
“they can depreciate”
Also, all of this talk about depreciation – don’t you guys realize that this depreciation is recaptured when you sell? It is just delayed taxation (of course unless you buy another property as a 1031 exchange – but then you start the clock all over)…
Once you are foreclosed – you virtually never go back to owning!!!
“Once you buy, you virtually never go back to renting!!”
What you all fail to realize is that rental prices are stagnant or falling.
Due to slower household formations and real estate investors snapping up cheap units, there are more rental units available than there are people to rent them.
So the buy/rent parity is constantly a moving target.
“Once you are foreclosed – you virtually never go back to owning”
The number of foreclosures compared to the number of owned homes is absolutely miniscule. Stop manipulating data and scaring people. Look at the numbers and then spout your nonsense.
“I am already hearing this from people. Newly marrieds who realize that they should just buy the house right off instead of starting with the condo because they want kids and know they won’t be able to sell in 3 or 4 years for any kind of profit.”
So, when I did this in ’01, I was just a trendsetter? Cool.
“Newly marrieds who realize that they should just buy the house right off instead of starting with the condo because they want kids and know they won’t be able to sell in 3 or 4 years for any kind of profit”
Mark my words – once the real estate market starts to come back, you will see this psychology quickly change – most people are followers and want to make a quick buck – as soon as these people hear of even 1-2 people making a profit in real estate, they will be back in…. just wait…
“So, when I did this in ‘01, I was just a trendsetter? Cool.”
hahahaha your were the trend setter before me buy a year or a few months.
in good company i guess
“hahahaha your were the trend setter before me buy a year or a few months.
in good company i guess”
Yeah – but Groove, aren’t you looking to sell and looking for a new house in the suburbs now? Maybe you should have rented…..
“Yeah – but Groove, aren’t you looking to sell and looking for a new house in the suburbs now? Maybe you should have rented”
please tell me thats sarcastic?
95,000 foreclosed homes just last month? A new record!
Housing prices are set on the fringe, clio.
Don’t say I didn’t warn you.
Fannie Mae did a survey, the results just released today, one half of the people asked felt they couldn’t qualify for a mortgage today.
Yup.
“#clio on September 16th, 2010 at 10:07 am
“Once you are foreclosed – you virtually never go back to owning”
The number of foreclosures compared to the number of owned homes is absolutely miniscule. Stop manipulating data and scaring people. Look at the numbers and then spout your nonsense.”
“Fannie Mae did a survey, the results just released today, one half of the people asked felt they couldn’t qualify for a mortgage today.”
hearsay and conjecture – no factual basis whatsoever.Opinion and fact are two wildly separate entities (which, unfortunately co-mingle in one’s mind).
Also, qualifying for a mortgage and actually being able to afford one are also two wildly separate entities.
HomeDelete – apparently, everyone that disagrees with you is named Sparky. Delusional much? YOU ARE WRONG AGAIN, AGAIN, AND AGAIN.
“but you know what? it just makes yourself look like a jackass. keep it up, sparky. “
And for the record, although I agree much with what JMM posts about real estate, we are NOT the same person.
HomeDelete is truly like a broken record – repeating the same inaccuracies time and time again, like it was his own person dogma. Get over it, HomeDelete.
And so the general consensus today is that both HomeDelete and Bob are clueless. Settled.
Heading for the brown line to downtown now for an evening of fun. I know I will see some older professionals (like myself), families, youngsters, and singles riding the el. I don’t wear blinders.
Have a great weekend cribchatters.
My consensus is that sparky is Joe Zekas or closely affiliated with him. How is pushing those condos, err apartments, coming along these days? I guess it doesn’t matter the color of the snake oil, so long as people are buying it, right?
another example of Bob being completely clueless. Such an idiot.
“And for the record, although I agree much with what JMM posts about real estate, we are NOT the same person. ”
I know. JMM is a grown up with a real job. You, sparky, work for a marketer who sells space to those who try to get in the middle of landlording in order to collect an “apartment finders fee”. Don’tcha? 😀
“another example of Bob being completely clueless. Such an idiot.”
Got tired of your self-ban, JayZee? Is the apartment-finding business that slow these days? I guess all the kiddos already found dorm rooms or the equivalent so your busy season is over for awhile.
so HomeDelete and Bob share the same delusion – that everyone who disagrees with their point of view must be the same person, as there can only be ONE in the world that could possibly disagree with them.
Since they share the same point of view, using the same twisted logic, what conclusions can be made about those two? hmmmmmmmmmmm!
get over yourself, Bob – prove what you claim. Otherwise it’s just worthless rhetoric.
I’ve already posted links in the post showing that sparky is either JZ or closely affiliated with them. Given the similarity in tempermants and writing styles I’m leaning towards the same person.
Amazing he had so many jobs but couldn’t seem to settle on a trajectory of a solid career path, even to this day.
you posted jack-squat as proof – but then again, you don’t seem to use much proof with many of the assertions you make. You just say it over and over again, with hopes that one day it will be true, or that others will believe that it is true. Just like a broken record – and just like a broken clock which happens to be right twice a day. Not a great track record, but hey its the internet and you can say whatever you want. Its only rhetoric.
Which reminds me – never have an argument on the internet. Its like wrestling with pigs. You both get dirty, but the pig likes it.
I’m outta here for a great weekend.
JayZee, I mean sparky: didn’t you say you were out of here an hour ago? Not as many condos & apartments to push downtown this weekend as you initially thought? You are very obviously JayZee or closely affiliated and you left your mark all over the net. People should know the person behind your moniker has a vested interest in pushing transaction volume as it affects your livelihood and, consequently, opinion.
Bob et al,
My mark has been left all over the net? I’ve asked you before to prove it. You can’t, and making that statement is a bald-faced lie.
I am not in the real estate field in any capacity. Never have been and never will be. This is just more of your propaganda that you use in your failed attempts to discredit anyone that has ever disagreed with you.
Do you honestly believe that there is only one sparky on the entire internet or that everyone who disagrees with you shares the pseudonym of sparky? Here’s an example of your inability to come to logical conclusions. Bob sees a woman named Sue who wears yellow. He then concludes that all women who wear yellow must be named Sue. That’s so lame and laughable – LOL. What did you say is your profession? Palm reader? Fortune teller? Snake oil salesman? LOL Seriously? LOL
Here’s what we know about you based on your own posts:
1. Removed by the editor.
2. You cherry-pick the data to suit your doom-and-gloom propaganda. Sure you can find homes in the green-zone for less than other properties – if you want to live with the El in your backyard or mold in the walls. But as others have pointed out to you time and time again, they are not true comparables to the properties being discussed and not a valid representation of the larger market.
3. You demonstrate a very poor work ethic (post much during work hours?) Yeah we know, you only post while waiting for reports to run, etc – we’ve heard all the excuses. Let’s ask your employer if posting on multiple blogs throughout the workday is an acceptable use of company time, shall we? It’s rather simple, work hard and get ahead. That’s why you will never move up at your job, will never make serious coin, and will forever continue to rent the rat-hole of an apartment that you call home.
And no, you will never be able to buy an acceptable home in the green zone for what you want to pay, no matter how many times you say it or wish it to be true. The market will NOT drop to zero.
So in the interest of saving everyone’s time, Bob – why not just say once and for all – “THE SKY IS FALLING!, THE SKY IS FALLING!”
oh, and be sure to have a nice day! 🙂
sparky, I’m getting the feeling that you find Bob somewhat irritating…
LOL, yeah I get a little irritated when someone calls me a jackass, when I’ve done nothing to provoke it!
“but you know what? it just makes yourself look like a jackass. keep it up, sparky. “
Sold on 06/15/2011
$457,500
Executed Recorded Document Type Amount
04/19/2011 06/15/2011 MORTGAGE $250,000.00
The SMART MONEY has come out to play.
“Sold on 06/15/2011
$457,500′
Wow- with no central air!
Yeah – what happened to “90% declines forthcoming”?!!!