The Fall Selling Season is Here: Will the Housing Market Stay Red Hot?
It was one of the best spring and summers in the Chicago housing market since the housing bubble.
Low inventory kept prime properties on the market for only a few days as bidding wars erupted, appraisals were waived, and prices moved to new records in many neighborhoods.
Sales were at 10 year highs.
Market conditions seem to support more of the same for the fall season.
- Mortgage rates remain near record lows with no indication they will be moving higher even with a possible Fed rate increase later this month.
- Stocks entered into a correction, but quickly reversed, which should support the housing market.
- Inventory is lower than ever, which still supports even higher housing prices.
- The job market continues to improve with the lowest jobless rate in Chicago since 2008.
What are your predictions?
Yes, by golly we need even higher home prices. This means I get to spend 40% to 70% of my salary on a mortgage and other related housing costs. Life is so grand living in a gangsta banker paradise.
https://www.youtube.com/watch?v=cpGbzYlnz7c
Rates will go lower. We will see QE4. May see 2% 30 year fixed rates. Housing will continue to remain strong.
> Rates will go lower.
No, multiple members of the federal reserve have reiterated that a rate hike isn’t prevented by recent events in China/oil pricing/market correction. In fact Yellen even said the stock market was slightly overvalued. They’re waiting on unemployment numbers, and if they remain solid they will raise rates on target.
> We will see QE4
Nope.
> May see 2% 30 year fixed rates
Also no, fed funds rate is the basic cost of money. It will push treasuries up. And mortgage rates along with it.
> Housing will continue to remain strong.
Probably. We may see a small decrease in Chinese investors. May have a measurable but not major hit on housing. Who knows at this point.
you do know that short term rates can go higher than long term rates right?
“We may see a small decrease in Chinese investors.”
I wouldn’t be surprised if we saw an increase in Chinese investors. US housing market may be a safer place to invest than the Chinese stock market…
I’ll give you a better idea in 7 days but based on the numbers for July I’d say it’s going to stay strong for a while. Prices are going to rise the most in the outskirts of the green zone because that’s where housing is more affordable and that’s where land is cheapest for new construction – e.g. East Village and Ukrainian Village and that area that some realtors now call West Bucktown.
If prices head south it will not be because of higher interest rates but because of too many rental units, which will provide an affordable alternative eventually.
“Rates will go lower. We will see QE4. May see 2% 30 year fixed rates. Housing will continue to remain strong.”
Well, we are getting “quantitative tightening” now via China.
the short term interest rate higher than the long term rate is called an inverse yield curve and is a good leading indicator for a recession.
This may be OT, so I apologize in advance. What are your thoughts regarding the housing market along the north shore along the lake, e.g. from say Wilmette to Lake Bluff? Seems to me the market pretty much ground to halt in June and never came back. And you say….
“What are your thoughts regarding the housing market along the north shore along the lake, e.g. from say Wilmette to Lake Bluff? Seems to me the market pretty much ground to halt in June and never came back.”
Didn’t you just answer your own question?
We don’t follow the suburbs on this blog much but I’m sure some people live up on the North Shore and can chime in with what they’re seeing.
“the short term interest rate higher than the long term rate is called an inverse yield curve and is a good leading indicator for a recession.”
In the early and late 80s, when the short end of the yield curve was greater than the long end, it was called an invertedyield curve.
Your point still stands. (But those were two Fed-induced slowdowns.)
Whoops. ^^ s/b: inverted yield curve.
Btw, people like Bernanke, Krugman and Rogoff extoll the benefits of negative interest rates. The Swiss National Bank charges commercial banks 0.75% interest for money they park.
I think negative interest rates would help goose real estate prices.
Point well taken. The reason that lending hasn’t increased that much is because bank reserves have skyrocketed. I’m not exactly sure why. You could go negative on the fed funds rate and really goose the economy. And market rates could probably be a lot higher then.
“The reason that lending hasn’t increased that much is because bank reserves have skyrocketed.”
Who says lending hasn’t increased? The banks are giving away mortgages. It’s not hard to get those.
A couple of years ago, the banks didn’t have to lend. The Fed stepped in to provide the liquidity for the economy with their $4 trillion. But now they can’t step out.
Lending has not increased anywhere near the extend you would expect, given the increase in the money supply. It’s a fact that reserves have skyrocketed. Most of that $4 T has been siphoned off into reserves. That’s money that could have been lent out. I don’t think commercial lending has been that strong.
Excessive regulations and tight underwriting are why mortgage lending has not really exploded. Mortgages are fairly easy to get for well qualified borrowers but those at the margins have definitely been shut out. Plain vanilla is the order of the day and god forbid if there is anything that requires “out of the box” consideration.
If you’re qualified its not a big deal. Hell 5% down is a thing again, not even FHA! 10% down jumbos too
I’ll know we’re near the top of this cycle once 0% down becomes a thing again (thats not VA) and sub 600 credit score people can get loans with 0% down
Rates schmates, its all about the down payment regulations! As for the rentals being built, the only rentals being built are extremely expensive! So basically this will ensure that buying will continue to be cheaper than renting, at least until the older rental units drop their prices, which happens, like, never.
My parents have been looking at homes in Wilmette and Sauganash and finding that homes in Wilmette are surprisingly cheaper than in Sauganash. It appears that you can get good deals in the North Shore these days. My impression is that Chicago is hot and the North Shore is luke warm.
“Worst of all, the monetarist cure for systemic collapse put the financial world in a pattern of crisis every decade: the 1987 crash, the 1997 Asian financial crisis and the financial crisis of 2007.”
Good read:
http://www.rooseveltinstitute.org/new-roosevelt/unlearned-lesson-1987-crash
yeah, it’s called the inverted yield curve, but that’s what happened when I typed this up on a smart phone.
Anyways, thank goodness they’re not giving mortgages away again! Who wants to compete in the same housing market with bozos who put no money down and have 650 credit scores? I know I don’t! I don’t want to live next to them either.
Somebody needs to tell all these people that their properties are at record highs: http://www.chicagobusiness.com/realestate/20150903/CRED0701/150909930/underwater-woes-worsen-for-condo-owners
Regarding the North Shore, there are two markets. New, renovated ready to move in properties close to walkable areas and older houses in need of renovation/or far from train. People want newer properties, walkable to village/town amenities. These properties move quickly and the others sit forever. Thus, the market is bifucated and is overall pulled down by lots of properties that scream “grandma’s house.”
Interesting analysis, Urban Mommy. But aren’t the property taxes on the renovations / new construction sky high?
“Anyways, thank goodness they’re not giving mortgages away again! Who wants to compete in the same housing market with bozos who put no money down and have 650 credit scores? I know I don’t! I don’t want to live next to them either.”
great comment HD. But it’s my impression that very high LTVs are back.
“If you’re qualified its not a big deal. Hell 5% down is a thing again, not even FHA! 10% down jumbos too
I’ll know we’re near the top of this cycle once 0% down becomes a thing again (thats not VA) and sub 600 credit score people can get loans with 0% down
Rates schmates, its all about the down payment regulations! ”
I agree with that.
“Somebody needs to tell all these people that their properties are at record highs:”
They’re not in the GZ Gary. The article starts out by saying “Chicago area”. What does that mean? All of Chicagoland? The Case Shiller 9 county region? Or just Chicago? Or Cook County?
It’s unclear.
Because, you know, that condo in Joliet might not be back to peak pricing. I will agree with that.
If it just includes Chicago- well- again- some areas of the city are struggling. Is Hyde Park back to peak? What about Rogers Park? Tons of condos in Rogers Park. If they’re just counting by percentages, heck, Rogers Park might be able to move the needle of the stats.
Because, as we know, also documented by Crain’s just last week, 2 of the downtown neighborhoods are now past peak in pricing and all the others are anywhere from 5.3% to 0.2% below the peak (with the Gold Coast being at the worst end of it at 5.3%.)
Doesn’t sound like many of those in the GZ are underwater anymore. I see prices every day that are 50% higher than 2005-2008 sales. It’s nuts out there.
So just to be clear then…it’s only the GZ type areas of the country that are at record highs? And it’s only those areas that are “unaffordable”? And it’s only these areas that are “going to end badly”? And those are…what…10% of the country’s housing stock? So that doesn’t sound like a problem to me.
“And it’s only these areas that are “going to end badly”? And those are…what…10% of the country’s housing stock? So that doesn’t sound like a problem to me.”
It depends on where you live, right?
$400,000 starter homes in Bartlett? I don’t think that’s going to end well. Is Flossmoor in another bubble? Doesn’t look like it. Homewood? Nope. Park Ridge? Probably.
Oh- and remember when subprime mortgages were just 5% of the mortgage market, so who cares about them?
Bernanke before Congress in March 2007:
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
God I long for a day when 1960s rehabbed ranches in park ridge sell in the 100’s.
Sabrina, during that time period, I don’t think most realized how lax underwriting had become and the amount of fraud that was taking place. What often gets glossed over is the sheer amount of fraud which is what really set off the implosion and brought down everyone else.
Once the flippers got caught holding the bag and went into default, they brought the values down for the regular joes. Most homeowner’s are not in a position to dump exorbitant amounts of equity into their homes to satisfy mortgages. Once those homes went underwater and life catches up (divorces, medical, job changes, needs to relocate, etc) you started seeing all the short sales and foreclosures.
Prior to that buyers could sell or refinance themselves out of trouble. They couldn’t sell because values plummeted and all the loan products that would have been a lifeline disappeared.
Amateur flippers have largely been excluded from the market now unless they are playing with their own cash. No more 100% stated/stated investment or other crazy stuff.
But aren’t the property taxes on the renovations / new construction sky high?
Yes, but the typical buyer from the city has children and is willing to pay for the schools. The cost benefit of 2 kids in private school (especially Lab, Latin, Parker, British, GEMS, Catherine Cook) versus high taxes still favors high taxes in the North Shore. Taxes on even new homes are less than city property taxes plus two/three kids in private school, and you get the pools, park districts etc… I think the buyers of these properties tend to be people who are not interested in CPS due to budget issues, high class sizes, and stress about high school and instead weigh private versus North Shore. The commute is the negative but houses that are walkable to trains have about the same commute times to the Loop as North Center, Roscoe Villege, Old Irving, SoPo etc… on the CTA. Again, this is why homes that are walkable to schools, village and trains sell fastest.
What is the impact of Rahm’s $500 million tax increase going to do the property taxes on say a typical $500k place in the city?
The impact is that we will be funding luxurious lifestyles for lazy retirees, while those of us in the private sector will never get a pension and never be able to retire.
If I am reading it right, should take it from $8k ($5k is the city part and $3k is the non-city part) a year so 1.6% to $10k ($7k for the city part and $3k for the non-city part) a year so 2%. So a 25% increase overall and a 60% increase in the city portion. This is from memory, though, I haven’t consulted my old bills to see the historical breakdown.
Actually, that may be high, now I am seeing that it should be more like $1k total increase on a $500k house, so probably it’s more like:
Existing –> $8k ($2.5k is the city part and $5.5k is the non-city part) a year so 1.6%
Future –> to $9k ($3.5k for the city part and $5.5k for the non-city part) a year so 1.8%.
“What is the impact of Rahm’s $500 million tax increase going to do the property taxes on say a typical $500k place in the city?”
It’s about 2% of AV. So, if that $500k place has an assessor’s MV of $400k, and thus an AV of 40,000, it would be about $800.
CPS taxes are also going up, but most of the rest of the governments will be small increases. The taxes this year (with HO exemption) were about 17.6% of AV. I’d plan for the total (in Chicago) being about 20% (prob a little higher than that) of AV next year. So that $500k place, with a 40,000 AV ($400k Assessor’s MV) would pay about $8,000, up about $1,000 from this year.
Note: that assumes that the AV didn’t change. With my new AV (up ~11%), I’m predicting a 26% increase in my tax bill.
well that blows
“$8k ($2.5k is the city part and $5.5k is the non-city part)”
What are you counting as the ‘city’? The City’s cut was 17.52% for 2014 (19.66%, if you include the School Improvement fund, which is apparently getting a part of the proposed increase), so only $1,400 out of $8k.
The total levy was $956,095,675 ($1,072,879,050, including School Improvement), so it’s basically a 50% increase in the levy the City.
“well that blows”
You haven’t gotten your reassessment yet, have you?
I went through the math and it looks to me like it’s an 11.3% increase in property taxes for Chicago properties: http://www.chicagonow.com/getting-real/2015/09/rahm-emanuel-looking-to-increase-chicago-property-taxes-11-3/
honestly I have no effing clue what my taxes will be
Take your assessed market value and the rate for 2014 was around 1.9% of that number. Then if they come through with an 11.3% increase on top of that…
I always go off of market value because when you are buying a property you should assume that eventually the assessed market value will catch up to the real market value – more or less.
“$400,000 starter homes in Bartlett? I don’t think that’s going to end well. Is Flossmoor in another bubble? Doesn’t look like it. Homewood? Nope. Park Ridge? Probably. ”
Portage Park? Definitely not.
I don’t know what my assessed value in 2014 is thats the problem lol I have an idea but its not gonna be pretty thats for sure
Just look it up here: http://www.cookcountyassessor.com/newsearch.aspx
You can search by address.
I’ll find out soon enough
Just posted my August update: http://www.chicagonow.com/getting-real/2015/09/chicago-real-estate-market-update-august-home-sales-up-over-last-year-but/
IAR will report sales up around 6.3% but it’s really more like 8.9%. Inventories keep hitting incredible new lows and market times are fast but not ridiculous on AVERAGE.
“Inventories keep hitting incredible new lows and market times are fast but not ridiculous on AVERAGE.”
This makes no sense. If it’s the lowest inventories on record, then anything “new” that comes on must go under contract almost immediately because all of these buyers are just DYING for something to look at.
Also- it makes sense than August sales were below 2013. Mortgage rates spiked in May 2013 but didn’t really hit the closings until the fall since some people were already locked in with the lower mortgage rates.
In 2014, sales started picking up towards the end of the year again so year over year comparisons with 2014 are going to get tougher in October, November, and December. In fact, 2016’s spring is going to have to be on fire to jump over 2015. But maybe it will be. We’ll see.
It’s hard to have a super red hot market if there’s absolutely no inventory to sell though.
“If it’s the lowest inventories on record, then anything “new” that comes on must go under contract almost immediately because all of these buyers are just DYING for something to look at.”
No, because anything that is new and overpriced will not sell immediately. Well priced product will though. That’s why you have a lot of stuff that sells quickly but on average the market times are not that short.
“It’s hard to have a super red hot market if there’s absolutely no inventory to sell though.”
While that is technically true we are not in a situation where we have no inventory. We have a 4.6 month supply of SFHs. That means it would take 4.6 months to sell it all and 2.3 months on average.
It all makes sense to me.
In the second case you might not have much good inventory precisely because
More evidence that the housing market is not in a bubble. This is a pretty rigorous analysis: http://www.corelogic.com/blog/authors/mark-liu/2015/06/most-us-housing-market-conditions-at-sustainable-levels.aspx
“More evidence that the housing market is not in a bubble. This is a pretty rigorous analysis:”
I love it when those involved in the real estate industry try to convince everyone that there isn’t a bubble. If you have to do that – there CLEARLY is!
Prices are rising much faster than incomes in most parts of the country. Take Denver. Prices up 91% in the last 10 years while incomes only up 27%. Yeah- that’s normal and sustainable. Median home price is now 6 times median wages.
When will everyone admit that what we’re seeing right now in the major metropolitan cities is not normal? And it’s not sustainable.
You can’t get blood from a stone. When (if) mortgage rates rise, who is buying that $500,000 Lakeview 2/2? Unless wages soar- um…no one. And then prices will have to drop yet again.
It’s no way to run the world’s largest economy. The Fed has allowed this (again.) The last time they allowed rates to remain low for too long we got the first bust. Now we are about to get the second one.
The amazing thing is- really- that with mortgage rates still near record lows the Fed has just barely managed to reinflate the bubble. American’s have too much debt now to really see it soar. This is the best it’s going to get. It’s only going to get more difficult to own a home from here. Somethings gotta give.
The CoreLogic analysis actually flags Denver as an overvalued market. You keep focusing on the handful of markets that are overvalued and declaring that they are evidence of a housing bubble. I’d like to know where you think the flaw is in the CoreLogic analysis.
“You keep focusing on the handful of markets that are overvalued and declaring that they are evidence of a housing bubble.”
You mean like citing Lakeview, when Plainfield (and places like it) are still 20%+ off peak?
“You mean like citing Lakeview, when Plainfield (and places like it) are still 20%+ off peak?”
If you can’t see that there’s a housing bubble right now- if what you think is happening out there is “normal”- then I don’t know what to say anon(tfo).
You know what they say: you can only lead a horse to the water.
“If you can’t see that there’s a housing bubble right now- if what you think is happening out there is “normal”- then I don’t know what to say anon(tfo).”
So where do you think the CoreLogic analysis is flawed?
anecdata – parents just sold house in very nice western suburb they sold a bigger house in 2007, downsized to this place and still sold for 15% off what they paid for even though they renovated and such and the property is in very good shape. They are downsizing further and recently purchased another home somewhere warm.
So yeah, totes bubbles all over again
“sold for 15% off what they paid”
So, its either that they’re idiots, or its not actually a desirable neighborhood.
They are simply one of the hundred million exceptions to the rule.
“downsized to this place and still sold for 15% off what they paid for even though they renovated and such and the property is in very good shape.”
I’m so sorry for their loss Sonies. Not every property is crushing it. Are they in a “nice” Western suburb that isn’t quite as nice as LaGrange, Western Springs, Downers Grove, Clarendon Hills, or Hinsdale? If not- then that’s what went wrong. Perhaps they were in Westmont or Darien. Too bad.
They need to pick a better location next time. There’s wealth to be made hand over fist out there.
“one of the hundred million exceptions to the rule.”
Nope, just “not a nice neighborhood”.
Ah, the bubble denier…
http://www.ritholtz.com/blog/2006/11/1927-1933-chart-of-pompous-prognosticators/
“Nope, just “not a nice neighborhood”.”
Did every investor in every stock on the Nasdaq make money in 1999? Because if they didn’t, I guess the dot-com bubble wasn’t really a bubble. Because that’s the rule you’re saying, right? That EVERY person must make money off that asset or else it’s not a bubble.
Don’t be absurd.
When I started this blog the bust was just starting. I was attacked endlessly for saying housing was a bubble. Even in 2009 I was still attacked.
Nothing has changed. Yet again, most are in denial with what is staring at them in the face. Do I think Bubble 2.0 is going to burst any time soon? Heck no. It will take years to expand. We haven’t seen the out of control speculation that you see at the end of bubbles.
That’s why I’m so excited to still be running this blog. With Bubble 2.0, I can actually document the inflating of the bubble and then it busting. Last time I really only got to document the busting of it.
Where’s Steve Heitman? I expect him to show up any minute telling us all about the magic of Lincoln Park and how prices could never, ever decline there because it’s just too darn special.
Lol.
It was in Wheaton
so unsure? Pretty sure thats one of the nicer burbs, no its not the north shore but I dunno, its about a mile to the metra so its not out in the boonies
personally I don’t care much for the location, but they sold their bigger house in 2007 and made a ton of cash on that so it worked out that they downsized even though they lost a little money on the recent sale.
“its about a mile to the metra so its not out in the boonies”
Anything west of 355 is by definition, “the boonies”! hahahahh Even I grew up kind of far out there in the burbs but I was still east of 355 and south of Lake-Crack road.
haha yeah thats true, it is “out there” thats for sure… I think of the boonies like Oswego or anything west of Route 59 or south of I-80
“Don’t be absurd.”
You’re the one that posited that anyone not making money now is either an idiot or has a property in a crap location. 15% off purchase price is *definitely* not money. So, I’m just following the absurdity.
My boonies demarcation: Anything south of 31st street, west of Ashland, or north of Belmont.
jenny:
Irving Park, Western, 22nd street.
Ken Griffin just bought a 18,000 sf penthouse in NYC for $200 million. Why is he parking his cash in that? What does he know that we do not?
Well I could tell you the real reason that my parents lost money on their house, but I’d be labeled a racist even though its true.
probably buying it for his bitchy soon to be x-wife
“probably buying it for his bitchy soon to be x-wife”
There’s zero chance of that. For the kids, maybe, but not for her.
Citadel did just sign a lease for new NY office space that’s kookoo expensive.
wonder what taxes/assessments are like on a 200million dollar condo… haha
I sometimes miss living across from the zoo. Lots of Griffin sightings – him in jean shorts and white sneakers and the boy in his orange astronaut jumpsuit.
NY dramatically underassesses high end condos:
http://www.nytimes.com/2012/10/16/nyregion/many-high-end-new-york-apartments-have-modest-tax-rates.html
And it seems that assessments in NYC range up to about $4 psf, monthly, and given the level of service and amenities in that building, I’d have to expect something over $3, so, like $60-70k per month.
“Well I could tell you the real reason that my parents lost money on their house, but I’d be labeled a racist even though its true.”
I won’t call you that. Let’s hear it. Truth.
Griffin buying a $200,000,000 condo is another example of the gilded age we live in…because you know, hedge fund managers earn their money contributing to society, right? hahaahahah
I’m sure this won’t be a popular point of view but these guys provide liquidity and make the market more efficient so as far as I’m concerned they are contributing. I wish I knew how to do it and I don’t hold it against them one bit.
is that liquidity with a $200,000,000 condo?
and it’s call HFT ‘front running’. hahahhaja
If it’s really front running it’s illegal and you would think it would be fairly straight forward to prove and prosecute.
“Ken Griffin just bought a 18,000 sf penthouse in NYC for $200 million. Why is he parking his cash in that? What does he know that we do not?”
What else is he going to buy? When you get over a $1 billion, there are only so many places to park it. You can have houses all over the world, but even that only takes up so much money. Same for the jets, the art work etc.
That’s why a lot of them create a foundation and just start giving away most of it. Heck, I think the Rockefeller Foundation still has like $10 billion in its endowment even after all these years.
The market seems like it’s slowing again but maybe that’s just the properties I’m looking at.
A lot of the properties we’ve cribbed on the last few weeks are still on the market. There doesn’t seem to be a rush to go look at new properties that come on the market.
This could be the normal fall slowdown though. Inventory still remains low so that’s still putting upward pressure on prices.
how much coke does $200,000,000 buy? I’d have a cribchatter bonanza with that kind of money, and party we’d never forget and be lucky if we survived!