The Biggest Story In Chicago’s Real Estate Market In 2013: Inventory Remains At Multi-Year Lows
The biggest home buying problem I’m hearing from buyers right now isn’t qualifying for the mortgage, it’s finding a property to buy.
In November, inventory in Chicago was 42% below what it was just a year ago. Yes, it’s the slow time of the year, but it was also the slow time of the year in 2011 and the years before that.
According to Gary Lucido, who has been documenting the inventory over the last several years on his Getting Real blog, condo inventory as of October has plunged to just 4.5 months of supply. 6 months is considered a “normal” market. Anything under 6 months is a seller’s market.
Check out Gary’s great graphs with contract activity, inventory and distressed property sales here.
To add to the pain, there is literally almost nothing new coming on the market.
Where are all those sellers eager to move on? Apparently they’re not eager to take a loss so they’re sitting on the sidelines.
But February begins Chicago’s busy spring buying season. New properties should start coming on the market in the next 4 weeks.
Will the low inventory mean buyers face higher prices in 2013?
Perhaps they will face higher prices but my opinion is just that there won’t be many steals any more.
The inventory is low because those that have been on the market priced well have sold and those houses priced too high have sat on the market so long the sellers are finally realizing they are going to lose money and probably lots. Either they don’t want to or can’t and they pull off the market or they price realistically and sell.
I think with the low inventory the free fall will end but we sure aren’t going to see 20% appreciation or even 10% or 5%. If anything, 1 or 2%.
“Where are all those sellers eager to move on? Apparently they’re not eager to take a loss so they’re sitting on the sidelines.”
I don’t even know how you would determine this, but I’d like to see a break down of sellers who are now reluctant landlords and cannot put there place on the market because they have a paying tenant and do not want to risk losing that income if they try to sell.
Yeah, I know you can show a place while renting it and try to time the sale with the end of a lease but it rarely works out effortlessly.
What is going on with all the REOs and Short Sales? Were the amount of distressed properties inflated?
“Will the low inventory mean buyers face higher prices in 2013?”
The law of scarcity tells me that unique properties (ie. not generic 1/1 2/2 concrete prisons) will get more interest in this market and probably receive, on average, more bids and therefore sell higher. So in that sense I can see the low inventory pushing actual sales prices *slightly* higher. Reminds me of a few college house parties back in my day where there’d be 14 girls and maybe 5-6 guys including myself — you knew right away it was going to be a good night. Law of Scarcity my friends.
” Reminds me of a few college house parties back in my day where there’d be 14 girls and maybe 5-6 guys including myself — you knew right away it was going to be a good night. Law of Scarcity my friends.”
Liar! this has never happened in the history of college parties
Anyway I am glad I’m not looking for a place now because when I browse redfin in our expected price range its brutal… so we are going to wait a few more years and keep saving more of a down payment to hopefully one day find a place we’d want to live for a very long time, no rush thats for sure and we were planning on that when we bought a few years ago
Lauren –
Trust me they’re still there. Talked with an REO listing agent last night about getting financed/seeing an REO that has yet to hit the MLS. Actually, it was a property listed on this website 2 years ago as a short sale and finally got foreclosed on 2 months ago. He was saying that bank owned properties will start getting listed more in the spring when more buyers come out. The fact that it took over 2 years for the bank to take back the property I’m talking about, tells me that it’s going to be awhile before banks can flush most of these turds.
“The fact that it took over 2 years for the bank to take back the property I’m talking about, tells me that it’s going to be awhile before banks can flush most of these turds.”
It’s not mostly about “can”, it’s about willingness. Especially with condos, given IL law on assessments, lenders aren’t keen on assuming the added liability.
It seems that just about every decent property gets multiple bids now within 1 – 2 weeks of hitting the market. Nevertheless, I don’t see prices skyrocketing – maybe just bottoming. The Case Shiller index for Chicago is getting close to turning positive on a year over year basis for the first time since the bubble burst. But the most recent survey of 105 economists by Pulsenomics is indicating on a national basis that prices will rise about 3 – 3.5% per year for the next 5 years. That’s good enough to cover the interest cost on many mortgages.
Why won’t prices go up faster? Because any significant increase in prices will be offset by the reluctant landlords bailing on their properties.
Question, would limited inventory be causing more folks to get ripped off, and therefore a longer recovery? What do you think
I don’t see an inventory problem, I see an expectation problem.
I was talking with a friend last night who said a 1BR in his building near Lake/Canal was recently sold at auction for $150K – beautiful river views, reasonable $450 a month assessments, maybe 7 years old, not trashed, nice. Who bought it? The original listing agent who’s now renting it out at a profit. It could have easily sold to someone who wanted it as their primary residence, but for whatever reason (and the list here on CC is always vast) it didn’t; good enough to rent, but not to own? Regardless, there’s another unit that’s off the inventory roll and into what now appears to be capable hands.
When I look at broker sites I see plenty of places that would suit me just fine, if I were wanting to buy that is. But when I talk with friends and colleagues I hear just the opposite – too small, not enough closet space, overpriced, outdated, they don’t like the carpet, on and on. That’s code for: I want the ideal place in the ideal location and I’m not going to pay much for it… I can wait, they’ll cave, you’ll see. What they’re really saying: There’s plenty of opportunity out there right now, but I *deserve* much better even though I’m on the fast track to becoming yet another crazy cat lady.
“When I look at broker sites I see plenty of places that would suit me just fine…”
I’m guessing you are a single guy and looking at 1-bedroom units. If that’s the case, I’m sure there is no problem and there are many options out there that would “suit just you”.
But when you are talking about 2-3 bedroom condos, families w/children, good schools, parking, low crime, decent walk/transit score – the options are very, very limited.
And those properties are limited even when you revise your search up to 1/2 a million dollars, it is not just limited to “unrealistic expectations” for folks seeking the above mentioned property needs for >$400k.
I’m sure you are partially correct that some people need to check their wants vs. needs in relation to purchase price range – but overall, there is no disputing that inventory is total shit right now.
“It’s not mostly about “can”, it’s about willingness. Especially with condos, given IL law on assessments, lenders aren’t keen on assuming the added liability.”
Does anyone KNOW, not speculate, why the banks just don’t let the properties sell to a bidder at the foreclosure auction? Why don’t they just let them sell and wash their hands of them?
Helmet –
When banks prepare their bids at sale, the asking price is typically a function of (think 80-90%) of the appraised value. Typically, that is not enough of a discount to entice buyers at judicial sale. (Accuracy of the appraisal is a whole other issue/discussion)
“But when you are talking about 2-3 bedroom condos, families w/children, good schools, parking, low crime, decent walk/transit score – the options are very, very limited.”
Haven’t these properties always been expensive with limited inventory? Give up any one of those options on that list and there’s lots of options, especially if you can give up the schools and public transit.
How many general enrollment schools public schools in Chicago are acceptable to middle class parents? Very few it seems. Then, add in the requirement of the school also being close to public transit… even fewer properties qualify.
People with the requirement of a good school/close to public transit will always have trouble finding a property. Then, factor in the need for a large space with parking and the price of the property goes sky high.
“How many general enrollment … public schools in Chicago are acceptable to middle class parents?”
What’s your “middle class”? Is a HHI of $150k still “middle class”? Is a HHI of ‘only’ $50k still “middle class”? Does “middle class” have any racial/ethnic component?
Depending on the answers, there are a lot of ‘acceptable’ elem schools. And maybe 4 HS.
‘But when you are talking about 2-3 bedroom condos, families w/children, good schools, parking, low crime, decent walk/transit score – the options are very, very limited.’
To requote Jenny, yes they have *always* been expensive and limited, and I’ve been here for a long time and have seen a few bomb/bust cycles. But here you go: http://www.rubloff.com/property/chicago/08130033.cfm?searchId=3d2e9996-0123-4f10-aa97-07baff2d83ba&page=10&pageSize=20&sortType=5
*Ideal* school that your kids can walk to, ideal location, low crime/very safe, reasonable taxes, 36/22/151 all within a block, walk score couldn’t be better, 1 car parking, surrounded by $1MM+ homes… imagine the cocktail parties you’d be invited to. This is what you get in your price range and it isn’t going to get cheaper… this is *city* living, this is how families with ‘limited’ budgets live, and it ain’t bad. Now what was that about unrealistic expectations?
“Why won’t prices go up faster? Because any significant increase in prices will be offset by the reluctant landlords bailing on their properties.”
I think this is appropriate for 2/2’s but not for 3BR+ listings. The 2/2’s should be rentals in general and were overbuilt but there are far fewer 3BR+ in good locations and in general there aren’t many that were listed for rent – especially SFH or townhomes. Also – I think once people start renting out their places they get over the inertia of being a landlord. After they’ve dealt with having a tenant and are used to it I think most will continue to rent out there places as long as it continues to be economical.
Yoss, for many renting is not economical. It is a choice of losing a couple hundred a month over losing $50-150k at once. If prices went up to where sellers could bring little to no money at closing, I’m sure many would stop renting and list their places.
Plenty of 3+ BR SFH for sale out here in Cary!
” benjamon9 (December 28, 2012, 1:55 pm)
Yoss, for many renting is not economical. It is a choice of losing a couple hundred a month over losing $50-150k at once. If prices went up to where sellers could bring little to no money at closing, I’m sure many would stop renting and list their places.”
Given the % of sales that were REO / Short over the last few years a lot of the inventory has moved from weaker hands to stronger hands. And with rents at all time highs + mortgage rates at all time lows the math keeps moving towards renting out your place vs selling at a loss if you are underwater. I was renting out my place for an absurd price after not being able to sell at an acceptable price. My renter realized he was paying too much to rent and paid me 10% more than what I paid a few years ago. Of course the new rental building coming onto the market could move rents lower and cause more distressed selling.
Banks are not letting the properties go at auction because capital requirements will then kick in. See the story in Crain’s recently about Inland bank laying off $100 mil. in bad real estate debt to a non-bank associate? That prevented a cash requirement until the feds found out about the scam. Inland needs around a $30 mil infusion or be shut down.
One-off deals go to friends of the family with a good banking relationship and a strong balance sheet, many times for an increase in deposits, offsetting the capital need.
Ah Jay, so typical. Blame the buyers, it’s all the buyers fault. They’re the ones who don’t want to pay what sellers are asking for. It’s the buyer who sets the price, not the seller.
There are a lot of crappy overpriced properties out there compared to comps. This is not rocket science. Even in my own neighborhood people are asking way too much money – still – for their 2004 renovated home with granite countertops. It’s not the buyers – they were paying TOP dollar for YEARS during the bubble. This time it is the sellers who are being unreasonable. They’re the party writing the check and they ultimately set the price.
There has always been and will always be crappy overpriced properties in the market HD, in good times and bad. This is nothing new. The only reason that buyers paid ‘top dollar for years during the bubble’ was that lenders were giving out more than buyers/an economy could ultimately handle – tulip mania or sorts, this too is nothing new.
But I just can’t believe that there’s nothing exciting on the market; there is, but it’s out of your price range. That’s an even *more* bitter pill to swallow after the sliver of hope that appeared during the crash, implying that a hard working professional guy with a decent paycheck and a good credit score could finally afford that fire sale house on Belden… never fully happened.
“implying that a hard working professional guy with a decent paycheck and a good credit score could finally afford that fire sale house on Belden”
Those are unrealistic expectations and anyone who believed that nonsense deserves to swalllow that bitter pill. That makes your argument a strawman.
The real issue here are the large number of homes out there in DQ or foreclosure status that are just languishing or on hold with awful loan mods. There’s a lot of people in a lot of debt out there and it will never all be repaid.
As I explained earlier, and as Russ likes to point out with his mortgage brokering, a good chunk of the housing world is just a thin veneer of wealth disguising a mountain of debt. A hardworking professional guy with a good credit score and an agressive DTI ratio can buy 90% of the properties listed on the market today – but that doesn’t mean any of them are priced reasonably. The fact of the matter is there are more home buyers out there today, and inventory is down. Buyers aren’t willing to pay more, and infact, they want to pay less. If sellers really want to sell to these demanding buyers, they must capitulate, and just sell.
” but that doesn’t mean any of them are priced reasonably.”
The government has so distorted the housing market, that nobody knows what free-market prices are, or could be, or will be. Obama’s re-election assures more price fixing and manipulation/meddling in housing prices.
1) ZIRP is distorting the market via price-fixing of interest rates.
2) ProPublica: Govt Now Runs the US Mortgage Marketplace
Friday, 21 Dec 2012 07:45 AM
By John Morgan
The American home mortgage market has, for all practical purposes, become nationalized since the 2008 financial meltdown, according to an analysis by ProPublica, the non-profit investigative journalism project.
The takeover, without which the housing market could barely function, has occurred against a backdrop of little planning or public discussion.
In fact, nine out of every 10 new mortgages are now backed by the U.S. taxpayer, up from three in 10 in 2006.
“It is creeping nationalism,” said Jim Millstein, an investment banker and former Treasury official in the Obama administration.
Fannie Mae and Freddie Mac, the taxpayer-supported housing giants, alone guaranteed 69 percent of new mortgages in the first nine months of 2012.
The best way to understand the reality of the houising situation in Chicago, IMHO, is to pick up a weekly edition of your local “News Star” neighborhood freebie, published by Inside Publications. Their classifieds show all the current foreclosure sales being scheduled for properties located in the areas served by the respective papers. The Christmas edition of the Edgewater/Uptown/RP edition alone shows exactly 100 (!) Sheriff’s sales scheduled for early January.
And some of them are condos in really nice buildings; investors take note.
“But I just can’t believe that there’s nothing exciting on the market; there is, but it’s out of your price range.”
Depends on what your price range is, right?
Let’s say it’s $400,000 to $500,000 and you’re looking in Park Ridge. This would be be upper middle class territory. In a city of 38,000 people, there are only 20 homes on the market right now.
It’s laughable. And awful if you’re a buyer.
Will it get better this spring? We’ll see.
It’s just awful right now- in ALL brackets. I’m sure if you asked the buyer looking at $2 million range they would say the same thing: “there’s nothing on the market right now.”
“I was talking with a friend last night who said a 1BR in his building near Lake/Canal was recently sold at auction for $150K – beautiful river views, reasonable $450 a month assessments, maybe 7 years old, not trashed, nice. Who bought it? The original listing agent who’s now renting it out at a profit. It could have easily sold to someone who wanted it as their primary residence, but for whatever reason (and the list here on CC is always vast) it didn’t; good enough to rent, but not to own? Regardless, there’s another unit that’s off the inventory roll and into what now appears to be capable hands.”
Jay- this is a perfect example of what is happening in the market right now. Thanks for providing it!
This unit went to an investor because an owner occupier didn’t want it. Why not? Because it’s a 1-bedroom. Thank goodness! People are FINALLY learning something from the bust. Never buy a 1-bedroom unit to actually LIVE in! You won’t live there more than 3 or 4 years. People are finally figuring it out. They’re thinking, “hey- I’ll lose money buying that.” Better to rent it for 3 years than to lose the $25k or $30k downpayment.
Ditto with many 2-bedrooms. Why not just rent it? It doesn’t make any sense to buy it in your 20s.
So- no- the inventory is still awful for people looking for a long term property. Sorry Jay. Last month it was 42% below what it was last year at this time.
“Let’s say it’s $400,000 to $500,000 and you’re looking in Park Ridge. This would be be upper middle class territory. In a city of 38,000 people, there are only 20 homes on the market right now. ”
Yeah and most of those twenty homes need updating!
By the way- just because we’re now in 2013 doesn’t mean anything new has magically come on the market.
With inventory still super low- I’m probably sticking with 2 posts a day for awhile until I can find something to chatter about. It’s really that bad out there. It should start picking up towards the end of the month.
Sabrina said “This unit went to an investor because an owner occupier didn’t want it. Why not? Because it’s a 1-bedroom. Thank goodness! …”
I disagree – the most important reason it went to an investor rather than an owner occupant is that buying property at a Sheriff’s Sale auction requires skill and ready cash. The terms of sheriff’s sale auctions are 10% cashiers check at time of sale with balance due within 24 hours. The buyer must not only have significant cash, they must also be able to quantify the exact condition of the title they will receive from Sheriff and lender since their auction bid is not contingent on receiving clean title. The main trap is potential existence of other liens, claims and encumbrances like other mortgages which might be superior to the auctioned position. Typically title is clean but the sale is subject to unpaid real estate taxes and unpaid condo assessments which a purchaser needs to have quantified beforehand.
PS Sabrina – Happy new year and I love Cc – thanks for running it!