Third Biggest Story of 2009: Will Buyers Come Out of Hibernation?
I’ve been hearing buzz from various realtors that many sellers intend to list their properties for sale in early January 2009 (going against conventional Chicago real estate wisdom that there are few buyers in the winter and that you should list in the “spring”- which is normally after the Super Bowl.)
Reasons?
- Low interest rates are spurning buyers
- Market times are running as long as 9 months- so sellers want to list in January in order to get the property sold by next fall
Will we see a massive influx of both inventory and buyers in January?
Will the Fed’s actions to bring down mortgage rates and free up credit move renters from the sidelines in early 2009?
Make your predictions here!
said it months ago… All the flipper investors will want to be first on the market this spring. Will be a disaster.
Awesome, More inventory (supply), same or less demand. Its going to be awesome buying a house this year or next year.
Bring it on. I’ve got the cash and I’m ready to deal.
No on the pent-up buying demand.
1 of 6 homes overall and 1 of 4 mortgaged homes is now underwater. These owners aren’t contributing to demand.
Banks are eating losses on everything, and mortgage securitization is dead since summer. A huge part of the population that was getting financing a few years ago is not getting any financing today, let alone financing at decent terms. Wishful demand there.
The U6 number in the employment report is at or above 12.5% now, and growing. No demand there.
Jumbo loans are several points above conforming. Reduced demand there.
And, finally, in the boom there were 2 million more homes built than would have been built if we stuck to the 30 or 40 year trendline. There are, simply, too many homes out there. This points to previous satisfaction of part of the demand that would otherwise exist today.
Superbowl is Feb 1…not exactly Spring
Also JP, over 10% of homes built this decade (2000-present) are vacant. The historical averages over the last 80 years are around 2.5%.
What are the current conforming vs. jumbo loan limits?
As for trends in ’09.. this was kind of funny.
http://www.nytimes.com/2008/12/30/us/30divorce.html?_r=1
Well off to the beach to get my spot for fireworks. Have a happy and safe one.
Realtors are just try to bring people out of hiding that actually have cash, but anyone that’s smart knows that they would be catching a knife to buy most of the places on the market in Chicago right now.
However, more inventory with the same or less buyers means lower prices all around. Good for buyers in the future!!
After moving to Chicago in August of 2007 and spending the entire time looking for a Condo in the Loop/Gold Coast area, all I can say is I hope this is the year! Even though I keep hearing that the inventory is huge when it comes to a 2/2, all I am seeing are the tired units that I have seen in in the past 18 months. Looking back, I am so glad that we did not buy in the spring/summer of 2007 when most of what we saw was in the $500,000 – $600,000 range. I am now seeing those same units in the $400,000 – $500,000 range. I can’t help but wondering what these units will be priced at by the end of 2009 or the middle of 2010.
I have found alot of your comments helpful (entertaining too!) and will continue to check here first.
Thanks and Happy New year to all.
Sonies:
Do you know the vacancy rate of new construction in the downtown Chicago “green zone” area?
I used to have a plan to buy a condo around early 2010, but this downturn has spooked me out of the market for awhile. Especially given condos fall more in price than SFH’s during downturns.
So I’ll probably sit on the sidelines for 5 years or so then get a nice house if they come down in price. No way am I risking my financial future on owning a loan these days.
What’s the green zone? Never heard of it.
It’s been said before but I’ll say it again, the average buyer cannot even come close to affording the average house with conventional financing. Even if interest rates were set to zero. “Pent up demand” is mostly pent up desire. How many potential buyers can really afford most sellers’ prices?
I know there are plenty of wealthy people out there, but are there enough to buy up the thousands of properties currently for sale?
I live out by 63rd and California. We call the amenity-rich, low-crime, upscale area around the center of the City the green zone because it’s much like the green zone in Iraq–an area that has all the amenities and resources which is walled off from the rest of the country to keep out violence, poverty, and non-collegiate working poor.
cj,
That is hilarious and awesome. I love living in the green zone!
Well there are a lot more new buildings in the “green zone” than other farther reaches of the city, like your area. (marquette park?)
So I’d say that that area of town probably has upwards of 10%+ vacant new homes. Even in new builds in the nice neighborhoods, river north, LP, LV, everywhere are nowhere near even 50% full. Go to the near south loop at night sometime, its crazy how empty it is there, and there’s only more new buildings being built.
Even when the P&I (principal and interest) component of housing returns to affordable levels using conventional financing the T&I and HOA (taxes & insurance plus assessments) component will price out many prospective buyers. The P&I needs to get to a level low enough to compensate for the generally fixed costs of TI+HOA.
“It’s been said before but I’ll say it again, the average buyer cannot even come close to affording the average house with conventional financing.”
Do remember that the “average buyer” makes more money than the average person (or even the average household) and the “average house” is much more like a townhome in Plainfield than it is like anything discussed on the CC. So what you say is not entirely true.
Is everyone on this board dirt poor?
Bob- you are going to wait FIVE years to buy a house?
MADFLY, I have to agree with you. Why does it seem like almost everyone on this sight is praying for a housing collapse because they can’t afford the condo they want? How many of you can actually afford to buy the home you want but are simply waiting? Honesty please…
MADFLY & Turd, what are your definitions for affording a home?
Most people on this board just want to own a nice place at 2.5x income – that traditional measure of affordability. Do you two think that is old-fashioned?
My wife and I can afford a nice place right now at 2.5x income, but we just aren’t sure how things are going to play out. This isn’t California with their $42 billion budget shortfall, but we have problems too. What are they going to do to taxes and fees? Will they cut spending/services? What’s that going to look like? Who really wants to commit when you know that things have to change?
It sure beats praying for a greater fool to come along, doesn’t it?
The bagholders are still in denial so the correction has a long way to go.
Madfly,
Hey I just threw that out there. If the economy magically stabilizes and everything recovers sooner then perhaps earlier. These RE corrections can take years and I could easily see the bottom being three years away. Before I would buy a place I’d want at least a good period (1-2 yrs) of stable pricing. I’m really not in a rush to ‘own’ if it doesn’t make financial sense.
Aw, c’mon Bob, you’re just poor. It’s obvious. If you were rich, you wouldn’t need any financial sense. Geez, nothing like showing your hand.
“Is everyone on this board dirt poor?”
Well, when “middle class” folk on here own acreage in Summit County, CO, I think a lot of us qualify as dirt poor–it’s all about context. I know John (one of them) is rich, rich, but I wouldn’t vouch for anyone else.
I mean how many of you can afford to buy the condo that you want to live in, but are simply waiting to see if it will go down more? Maybe it will, but it seems to me, and MADFLY, that most of the people here can’t afford the place they want and are hoping that things fall further. They probably will, but I think MADFLY has a point that there is a certain demographic that is overly represented here, and they don’t come from the Gold Coast.
I think the correction in condo prices has already been pretty big, but I haven’t seen nearly enough bargains in the townhouse/single family/multi unit market. The only real steals I’ve seen on single family homes are in transitional neighborhoods like Logan Square, and they’re always places that look like they have major structural issues. I’m waiting for a little place in Edgewater or North Center for under 200K…or maybe something under 300K in Lakeview. As long as people still think a teardown Victorian just off of Devon is worth 349K, or a practically condemned coach house in Lakeview is worth 450K, I’m not buying.
Brian, I don’t think there is another major city where you can get as much for 2.5x income as Chicago. I mean, if you only make $50k a year year I bet you can get a perfectly nice one-bedroom in a marginal neighborhood. Why does everyone here think that it’s their right to get a sweet new condo in the gold coast based on 2.5x a mediocre salary?
I’m not poor. I can afford to buy something in the $300,000 to $400,000 range using conventional financing and traditional lending standards. I live in a two attorney household with stable employment prospects. I want to move into a SFH within the next three to four years. Unfortunately the handful of SFHs in my neighborhood listed under $350,000 are REO extreme handyman specials. However, this is an improvement from last year when there were zero listed under $400,000. A bungalow (in need of major renovating) I’ve got my eye on was $359,000 but the listing just expired. Redfin says that the median listing price in my zip is $407k but the median selling price is $223k. Go figure. Whowuddathunk that people want cheaper, affordable homes?
Well, Turd, if that’s your standard, I don’t meet it and I’ve owned a SFH in the city since ’01. But I can’t afford any condo in the city I would *want* to live in.
“there is a certain demographic that is overly represented here”
Over half of Chicagoans are renters. So I’m not sure what you mean by “overrepresented”. If you feel it’s a problem, recruit some of your friends.
One last thought, some people think that ‘making it’ or ‘having money’ means you have to buy a large home and take on a large monthly housing payment. This recession will kick the living sh!t out that romantic ideal; the big house with the $4,000 a month PITI+HOA payment is quickly becoming the albatross hanging from the neck of oh so many FB’s.
“the big house with the $4,000 a month PITI+HOA”
Where around here are all these “big houses” with HOAs? Spending too much time reading the IHB, HD?
And $4000/month with taxes and insurance services about $575k at under 6%–hardly a “big house” in the city, and not something that’s readily available right now with the state of the jumbo loan market. And, $4k/m is 32% (traditional housing ratio) of $150k/year–so not exactly the danger zone you suggest.
anon(tfo), you sure love to nitpick!! First of all, some housing communities have assessments too just not so much in IL. Secondly, $4,000 is not a ridiculous payment for a $150k a year household which comprises of slightly more than 10% percent of all tax paying households. However there are a lot of $575k houses …excuse me, units… available – too many in fact for the limited number of $150k households out there. Now for me, even though I could probably *afford* a $575,000 unit and $4,000 a month, there’s no way in hell I could make those payments and still be conservative with my finances. Over the years I’ve seen quite few people with incomes similar to mine or less pay a $4,000 monthly nut. They used to be house rich and cash poor. Today they’re poor in both areas! Have a good new year, anon(tfo)!
anon(tfo), IHB do you mean the irvine housing blog? Actually I hadn’t read it but thanks for pointing it out! california specific blogs are pretty interesting. They call it the land of the option arm. Have a good new year everybody.
Turd Ferguson said, “I mean, if you only make $50k a year year I bet you can get a perfectly nice one-bedroom in a marginal neighborhood. Why does everyone here think that it’s their right to get a sweet new condo in the gold coast based on 2.5x a mediocre salary?”
TF: It depends on what you mean by “marginal”- because even the $135k one bedroom is non-existent in previously affordable north side neighborhoods like Edgewater and Albany Park.
Case in point is a friend of mine that bought in 2002 in Edgewater for $125k. It was a 2 bedroom, 1 bath with w/d in the unit (no parking however.) The price, if she were to sell it, has doubled. She’s makes about $50k a year and her own condo is completely unaffordable to her now.
This all happened in the span of the last 5 years.
It will revert back to the mean (which means that ultimately, she will once again be able to “afford” a basic condo on her salary.)
“Is everyone on this board dirt poor?”
Only a small percentage of people in the United States can afford $370 – $500 psf (which is the price of most of the condos that I have looked at in the Loop/Gold Coast area)… so no, I don’t think most people on this post are “dirt poor”. My husband and I have done the 5,000 square ft sfh and are now looking for a 2/2 condo in “The Green Zone” (I love that term). Empty Nesters like us are looking for great location, good sized units and amenity rich buildings. Why wouldn’t we wait until the real estate market has stabilized? At my age, I have learned that when there is a bubble in any market, it will eventually make corrections. No need to rush in now.
“One last thought, some people think that ‘making it’ or ‘having money’ means you have to buy a large home and take on a large monthly housing payment. This recession will kick the living sh!t out that romantic ideal; the big house with the $4,000 a month PITI+HOA payment is quickly becoming the albatross hanging from the neck of oh so many FB’s.”
homedelete, in view of your comment, would you say or at least speculate that in the next few years, the smaller, “starter” condos in the city are going to be more attractive to buyers, versus the “albatross”? I’m curious, as I bought a small 2bd/1bth in early 2006 and would like to be able to sell it the moment I can breakeven.
thanks.
I’m sorry you bought in 2006. It’s going to be a long time before you break even on your purchase. To answer your question, attractive will mean being cheaper i.e. look at the rapid increase in sales in distressed properties. And like I said above, my area median listing is $407k but the median sales price is $223k. Huge disconnect b/w bubble prices and prices that buyers want to pay and can afford. People will continue to buy to fit their housing needs and lifestyles; it’s just the prices of housing will adjust. The days of Suzanne telling buyers that “This listing is special. You guys can do this,” are over. Buying a home you cannot afford is so blase and 2005. Unfortunately sellers still believe that buyers will bite the bullet and commit financial seppuku with the hopes of reselling within a few years for a tidy capital gain. Home buying will be about long term ability to meet the monthly nut which consequently means a wholesale reduction in prices.
Who is paying out $4,000 a month on only $150,000 salary? You would have NO money to save for anything else (retirement, college for the kiddies, a rainy day fund.) That is insane.
Why would you want to do that to yourself?
The story is going to change in the next few years. The obsession with real estate will end (someday.) We’re not even close to that point yet despite the price drops and the foreclosures.
Many people still “believe” in real estate despite historical data showing that as an investment it barely beats inflation.
Yeah, the Irvine Housing Blog. Land where everything is part of an HOA.
Like I said, you aren’t going to be able to borrow $575k at sub-6% on a $725k house any time soon, so the whole $4k/month nut (as discussed) is a fiction for now, anyway. A $575k place is probably “affordable” with a conforming loan and a *big* down payment.
And, yes, there is a big disconnect b/t the number of units listed at $575k+ and the number of households who can “afford” it. But the $150k threshold has been closer (obviously a moving target) to 20% of Illinois households and probably is 20% of Chicago-area households.
Ferguson,
I definitely don’t want to live in the GC. The McMansions I have my eye on are not in one of the neighborhoods frequently referenced here.
They likely would’ve never been built without the bubble and some people are going to come along and help pick up the pieces in a few years. Until then, flippers can thank me because I just might rent from them.
Okay I thought I would chime in. I purchased a 1.2 million row home in Lincoln Park this year. My monthly payment is around $4,800 when I add in real estate taxes (25% down payment). I have 4 new neighbors on my block in the past year as well. They all paid over $1 million as well. Everyone I know on my block is doing just fine. Sure the recession brings stories of losses in the stock market and cut backs in bonuses, but all in all we are just fine. We are still eating out. We are still sending our kids to private schools. Do we care if our properties fluctuate 5 – 10% over the next 2 -3 years? Not at all. Are we happy to being in a home that we can decorate to our liking, stay in for years to come, and eventually profit from when we sell? Yes, I have to say we are. I recently asked some of my neighbors (after many many bottles of wine) if they would ever consider renting to save a few bucks while the market stabilizes. The answer from each was a powerful NO. The consensus pointed to having a secure property to call their own, with a roof over their heads that they could stay in as long as they wanted.
While renting may be the choice of some of you, the vast majority of people who can afford to buy and plan to stay for multiple years, will purchase when they decide to make their next move. The key to purchasing is to find a neighborhood and property that has strong demand. If I said it once I said it 1000 times… don’t sacrifice location for a little extra space, or for a set of shiny new appliances. You will lose and you will lose badly. I have said this for the past year and now look at which parts of the city are really hurting (Logan Square, Humboldt Park, South Loop, ect). Areas like Lincoln Park and Lakeview are soft but still stable. Sure those who purchased new construction in the past 2 years will lose some money but only if they are forced to sell now. This is to be expected. There is no scenario where a person who plans to stay in a place for 5 – 10 years is better off renting. Just be smart about your purchase. Look at the rental rates the unit you would consider would bring in. If they come close to covering the monthly outflow expense, you have nothing to worry about.
My last point about many of the posters on this board. Housing is not going to decline so your below average salary will allow you to live in a above average neighborhood. If you want a bigger home and better neighborhood, go back to school and get yourself a better job. The average household income in Lincoln Park, Gold Coast and Old Town is around $225k. 30% of $225k is $5,600 per month. That buys you a whole lot of house…
Now go out, get drunk, and buy yourself a real nice new home on Friday 🙂
“Who is paying out $4,000 a month on only $150,000 salary?”
That satisfies “traditional” underwriting with 32% housing cost (based on PITI). Can’t have more than ~6% ($750/month) going to other debt–so that eliminates lots of folks. Not that it’s necessarily advisable, but there are lots of folks who do it, and it’s been “normal” (actually, a bit low) in Cali for decades.
Anon says
“Like I said, you aren’t going to be able to borrow $575k at sub-6% on a $725k house any time soon, so the whole $4k/month nut (as discussed) is a fiction for now, anyway. A $575k place is probably “affordable” with a conforming loan and a *big* down payment.”
Anon – Have you ever heard of doing the above with a $417k first at 5% and a $158k 2nd at prime (currently 4%)? There are solutions to all your problems.
Anon – Conventional financing does not limit you to 32% of gross monthly. It is currently 45% (all fixed debt) of gross monthly. Too high in my mind but that is what conforming is today.
Stevo:
Reasonable post damaged by unnecessary nastiness in para. 3 (unnecessary b/c the same point can be made w/o the digs).
Also, you’re a lucky duck with that 5% jumbo. And most people are concerned with the actual $$ on the check they cut each month, not their accounting charge–you may (rightly) only consider the interest, but that’s not the reality for most.
“There are solutions to all your problems.”
I don’t have problems, Stevo.
“Conventional financing does not limit you to 32% of gross monthly.”
That’s why I said “traditional”, not “conventional”. Words have meanings, Stevo.
Steven said “Everyone I know on my block is doing just fine.”
Bernie Madoff said everything was just fine for years…until it wasn’t. You have no idea what your neighbor’s finances look like. I have no idea what my neighbor’s finances look like either. You’re they’re realtor not their CPA.
I however, as part of my job, often get to peer into the balance sheets of buyers and it’s scary.
Sabrina, who pays $4,000 a month? Plenty of people. People who earn $85 or $100k a year between two people. I have a case now – they bought a $410,000 home on $60k salary. Nice couple, young kids, from a very exclusive suburb too. They could be anyone of our neighbors.
They’re going into foreclosure right now like everybody else who make stupid financial decisions based upon Suzanne’s research.
Please keep in mind that not everybody who bought in the last few years got an interest rate in the low 5’s…in fact the alt-a’s charged higher interest rates because they were low doc. Especially if you’re taking out a large mortgage with a piggy back you were a bigger risk so rates were in the 6’s and 7’s and the piggy back was often into the 8’s. The difference between a prime borrower at 5% and a alt-a borrower at 7.5% is about $1,000 a month on a $575,000 loan; with a $300,000 the difference is slightly less than $500 a month…which is the equiv of the taxes, or all the utilities combined including tivo and netflix and the comcast .triple play.
alright, i’m heading out for the night. here’s to a productive 2009! happy new year everyone.
Anon – My Jumbo is I/O. I know I know you think that is crazy, but what is the difference if I am paying down my loan or putting a couple $1,000 away in a savings account or 401K each month? The answer is can I get a better return on my principal paying down my loan or investing in equities or bonds? I can get a higher yield in corporate bonds right now than 5.5%. Why would I pay down a fully tax deductible low interest rate when I can I find higher yielding returns with my free cash?
anon(tfo) check out this site and play around the calculator. You can see the tremendous increase in purchase price when you start tweaking the dti ratios:
http://www.mortgage-net.com/calculators/qualifynow.html
“That satisfies “traditional” underwriting with 32% housing cost (based on PITI). Can’t have more than ~6% ($750/month) going to other debt–so that eliminates lots of folks. Not that it’s necessarily advisable, but there are lots of folks who do it, and it’s been “normal” (actually, a bit low) in Cali for decades.”
anon (tfo): I lived in California for nearly a decade. They haven’t been running at these levels for “decades” out there. It was the result of the housing bubble, just like everything. Housing was actually only about 3x to 4x salaries in the Bay Area, for instance- just 15 to 20 years ago.
I know people who are paying out huge nuts on their California houses. They’re in their 40s- with NO retirement savings to speak of. Because, of course, the house was going to BE the retirement (and pay for vacations, college for the kids etc.) Housing only goes up in Cali- or so everyone told me when I was living there.
When you have a bubble of the magnitude we just had- people’s perceptions get distorted.
Paying 50% of your take-home on rent or a mortgage isn’t “normal”.
Yes- everything is “fine” in Lincoln Park and Lakeview. No one under stress there. Bonuses are down- but everyone is going to work.
How many people from Lehman Brothers live in LP Steve? I’m assuming quite a few. Guess they already found new jobs so all is rosy. (Lehman laid off several hundred employees here in Chicago.)
CNBC had a report on Mercedes prices falling by 30% in Palm Beach, Florida today because so many “rich” people are trying to sell their cars to raise cash.
But that’s not LP or Lakeview, of course.
Chicago is no where near California Sabrina. Prices doubled in a few years in California. It took 12 years in LP and LV. That is only a 5% annual appreciation rate. Maybe that is why prices have not fallen that much…
real quick before I go…
$10,000 gross income a month with traditional 28/36 dti 5.5% interest and 5% down = max house price of $383,221.
$10,000 gross income with aggressive 36/41 dti and 5% down and 5.5% interest = max house price of $ 479,026.
That’s a $100,000 difference when you tweak the dti’s.
“The answer is can I get a better return on my principal paying down my loan or investing in equities or bonds?”
And for equities the answer is “No” in 2008.
US Market Indices for 2008
Dow -33.8%
S&P500 -38.5%
Nasdaq -40.5%
For bonds yeah I think there are some good deals out there though, just avoid the landmines.
And after the tech bubble of the 1990s and the RE bubble of 2002-2006 and the commodities bubble of 2004-2008 we already have another bubble: treasuries. Heres to hoping every bagholder who is holding them takes a hit in 2009. I’ve come to the new conclusion bubble blowers should be punished not only financially but with public caning. It seems our country is incapable of not having one when you look back 13 years. There are just too many idiots with money I suppose.
My hope for 2009 is banks stop getting bailouts and start going insolvent. They were no better than the stockbrokers in the 1920s extending crazy leverage to their customers. The US banking sector deserves further decimation.
Sabrina – I am sure their are a few who worked in wall street but I can’t imagine it was more than 1%. Again, there are a few bad stories but many many more stories of people getting along just fine. If the country does fall apart, I will be the first to give you credit for your wish coming true.
The doom and gloom on this board is getting so old. We are 2 years into this so called housing crash and let me tell you that things are really not that bad. Six more months and GDP should be back in the black. I’m curious what this site will be like when we are back appreciating at a 3% clip. Pretty dull probably!
Bob – The treasury bubble is the one bubble that we all hope is going to pop. 1 month treasuries at 0% is not a real good sign for economy in general. Pop it and spread the air around equities and real estate. We all will be happy then…
Bob – Do you want to know what was really profitable in 2008? Buying bank owned properties for .60 on the dollar and selling them in 2 weeks at .85 on the dollar. And most think housing is a bad investment. Hopefully 2009 will be as kind 🙂
Sh is a realtor (used house whore) so his comments mean zilch!
But Dave, I am also an attorney, an MBA, and a former CPA. Doesn’t that offset the realtor stigma?
What do you do Dave? Cubicle pawn is my bet 🙂
Wow.. wife wasn’t feeling well so I come back and find that Steve says something I completely agree with. Personally speaking you can drive any loss so far up my ass without it bothering me before i would ever ever ever consider renting.
Ze,
SteveO says a lot of things. It shouldn’t be surprising if one out of the multitude don’t offend your delicate sensibilities.
It’s new years I wasn’t about to get started on his GDP stupidity.
Bob.. I also don’t see a bond bubble.
Steve,
Your story about your neighbors may very well be true. But what are the chances that one or more of them will lose their job in the next six months? The economy is tanking – and we are now talking about likely home price reductions above and beyond the housing crisis.
And the statements by some on this board about us renters are insulting. I do wish I had bought in 2000…But at the time, my job situation was not stable, so it clearly did not make sense to buy at the time. I have been ready to buy for the past 2 yrs – but could not believe my eyes when comparing listing prices with prices the owners paid just a few years earlier. I do want to own and could afford a nice, sufficiently large place in the green zone, but it does not make financial sense right now…Apart from housing prices, who knows what will happen to property taxes (they are quite high in Chicago already), and interest rates (they would most likely be much much much higher when it’s time to sell, dragging down prices). All these bailouts have created a lot of uncertainty about the future of our country as a whole. I suggest that you take a look at calculated risk.
I find the discussion on this board for the most part very informative and entertaining – what more could you ask for (Thanks, Sabrina, for making this possible!) Happy New Year to all!
Rachel – Where is this “green zone”? My neighbors are 2 doctors, an attorney, and a insurance business owner. Chance of losing jobs, zero!
Question for you Rachel – If you choose to put your money in something other than real estate, where do you put it?
Steve, do you honestly believe physicians have “zero chance of losing jobs”? Two words: malpractice suit. If your neighbors aren’t afraid of that term, they haven’t been in the field for very long. Do you really believe that only 1% of the people investing in Lincoln Park and Lakeview work the financial markets? I guess you also believe the CME is full of NYC commuters.
Any credibility you hoped to achieve just got thrown out with old man 2008’s diapers. Looks like your Internet tough-guy routine has failed. Let’s hope you don’t start out 2009 falling flat on your face making a fool of yourself like you did this past year.
Hi Steve,
I didn’t really mean just your immediate neighbors – more like your block:)
I have been storing it in CDs/saving accounts lately for wealth preservation (using my interest income to pay my rent – the opportunity cost of downpayments is often missed by real estate advocates like you) – so have been largely unaffected by the crash (except for my 401k – but even that contains a non-negligible amount in bonds). Chance of my losing my job – as close to zero as it gets (even an attorney, for instance, could develop early onset alzheimers)!
My green zone – LP, Gold Coast, perhaps Streeterville…Am fairly flexible – lots of nice housing in Chicago, and these locations offer different advantages and disadvantages to me.
Everyone ignore Steve Heitman, he uses this blog to brag about himself since he’s obviously exhausted anyone in real life to brag to.
As for what will get buyers to come out of hibernation? Here is what is tempting me.
$150-$180k 1 BR’s @ 4.5% loan. We’re close, that 1BR at 10 E. Ontario was tempting (200k with a 5% loan). Unfortunately this year I’ll only be hitting 10% down on that. But as tempting as it would be, I’m willing to bet we’re not done falling until 2011, as many realtors admit behind sellers backs (cough NAR cough).
This can all be summed up with two words:
Wishful Thinking
a, are you saying that you are only going to have $20k for a down payment by the end of the year? That’s the whole point that some of us were trying to make. This board is full of people with no money praying that housing will come into their price range. It’s kinda pathetic to watch.
“as many realtors admit behind sellers backs”
So do you suddenly trust the opinions of realtors with respect to their predictions for the future? Funny how people seem to trust realtors only when they are confirming your preconceived notions.
Turd.. you are a joke. Funny how people with real money would never criticize those without. That puts you in what camp???
Turd, you’re a moron, $20k is a very good amount of money to have, that’s 5% down on a 400k house or 10% down on a 200k house, not many first time home purchasers have that type of money laying around, and 100% financing doesn’t really happen anymore. Which is yet ANOTHER reason there are less buyers out there.
Come on, if all you have is $20k then you should think twice about the properties that are featured on this sight. You will never be able to afford any of them until you make more money, no housing contraction is going to allow you to move up in the world. Madfly was right, you are all a bunch of wannabe’s.
Turd, hoi pollei is much much more poor than you think. They have FIRE economy jobs and they spent it all and more by using credit cards. They’re constantly one paycheck away from losing everything. That’s the reason why 1 in 10 mortgages in America is delinquent.
Where have all the buyers gone? If rates are so low and there are so many deals where have all the buyers gone?
homedelete, you are the king of the wannabe’s.
What? Two years ago the RE complex pushed aggressive debt-to-income ratios, option arm loans and McMansions in the exurbs. Two years ago ANYONE could move up in the world without making more money. Why the sudden change of tune?
“You will never be able to afford any of them until you make more money, no housing contraction is going to allow you to move up in the world.”
“Most people on this board just want to own a nice place at 2.5x income – that traditional measure of affordability. Do you two think that is old-fashioned?”
It depends what 2.5x income is. If it’s $250K, then that’s realistic and attainable. If it’s $125K, then that is not. Chicago is a world class city and the desirable neighborhoods are not going to price at traditional “rule of thumb” rent to value ratios. In RE investment, there is a general rule that 10x rent = value. That just doesn’t work here (in decent neighborhoods) or in other desirable cities.
I bought my first primary residence when I was 26 in 1999 for $250K with 20% down. My salary at the time was $70K, so my house payment all inclusive was about $2K. I suppose most on this board would say I was overstretched? Never felt like it.
Instead of cheering the market collapse and wanting outside forces to bring homes into your affordability, how about looking within and asking how you could better your financial situation so you could afford your dream home? Stop wasting time watching Lost and reading US Weekly. Stop watching football every Sunday and hanging out at Hooters (ok, you can hang out at Hooters). There is money to be made out there. Take a shot (not necessarily talking about RE). It takes knowledge and effort. When I hear stories of successful people, I don’t hate on them. I try to learn from them. This board on the other hand, is chock full of risk averse people who support each other in groupthink. Being to conservative is as much a mistake as being to frivilous with your money.
Yes, and that was an illusion and thinking it will work to the downside is just as silly. If you only have $20k for a downpayment, you will never been able to afford most of the homes we’ve talked about here until you start making more money. These nice new condos are not designed for 26 year olds making $55k and no housing depression is going to change that.
OK Turd.. Tell us what you are worth and let us all be impressed.
“Chicago is a world class city and the desirable neighborhoods are not going to price at traditional “rule of thumb” rent to value ratios.”
Amen!
One millions dollars! (said with best Dr. Evil impression)
Madfly.. funny I have been on this board for quite some time and never got the impression of rich haters like you get on places like Huff Po. Serious rich haters there!!! Simply people here are bearish and many happen to be renters. No rich haters here that I have seen which is kinda surprising actually.
Am I not entitled to be bearish because I own something???
And I prefer wasting my time with my bong and my dogs… thank you!
Turd.. lol
uh.. cough…cough…A million dollars isn’t exactly a lot of money these days. Virtucon alone makes over 9 billion dollars a year! (said in my best #2 voice)
Ze, I am not bullish at all, but it’s clear that most of the people on this board are renters because they can’t afford to buy, not by choice.
“These nice new condos are not designed for 26 year olds making $55k and no housing depression is going to change that.”
Who then are supposed to buy all these condos? Because the developers are doing a piss poor job of selling them to whatever demographic they’re targeting.
““Chicago is a world class city and the desirable neighborhoods are not going to price at traditional “rule of thumb” rent to value ratios.””
zzzzzzzzzzz…..again the “it’s different here argument.” It’s always different here until it isn’t.
Turd.. Mad.. same was said about San Fran.. how did that play out this year. Monterrey doesn’t suck either but down 60%. Nothing is beyond correction. Not even Manhattan or Paris. The bubble in Chi town was never as big so the downside won’t be as bad, but the trend is down with some room to go.
Turd… “it’s clear that most of the people on this board are renters because they can’t afford to buy, not by choice.”
True but it is also true that way too many condos were built for people that couldn’t afford to buy and financed at 95+% hoping to flip and therein lies the problem. It is also true that 2009 is going to be an employment nightmare. Just watch how many stores go bye bye in the next 2-4 months.
One of my favorite quotes about things being different for whatever reason…..new economic models, world class city, land shortages, etc…
“South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
– New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05”
And Madfly I don’t think anyone is suggesting that things get so bad that a barrister at Starbucks gets a penthouse in the Hyatt Water Tower. It will be as it always has been where the top 1% live here, the top 5% live here, and etc etc. But you will see mean reversion in affordability in all those areas particularly as financing goes back to prior standards.
“The bubble in Chi town was never as big so the downside won’t be as bad, but the trend is down with some room to go.”
I agree, I’ve never said anything bullish about Chicago housing here. But comparing us to a market like SF is silly, as home values-to-income levels there were much, much higher than Chicago. Anyways, I’m not saying that Chicago real estate is a great buy right now, I’m saying that most of the people on this board are not going to be able to afford the places they want no matter how much housing falls until they make some more money. Deal with it.
HD, no one here is saying that Chicago is in a new era. In fact, Madfly was saying exactly the opposite- Chicago will continue to earn the same housing premium in the past and this means that homes will not fall as much here as places where homes go for a lot more. Hoping the Chicago market collapses to the point at which a piker making $50k a year can afford a brand new condo it the true “new era” wishful thinking.
Hahahahaa you sound like such a stupid frat boy. You have no idea what the hell you’re talking about. Keep up the good work Brownie!
“I’m saying that most of the people on this board are not going to be able to afford the places they want no matter how much housing falls until they make some more money. Deal with it.”
“But you will see mean reversion in affordability in all those areas particularly as financing goes back to prior standards.”
Does anyone have any data on affordability for Chicago real estate right now? Mortgage rates are at 5.1% and housing has dropped 16%, I’d be curious how far back to the mean we’ve come over the past two years.
Brownie? Do you have anything intelligent to say? You don’t seem to like to answer challenges from people, you just try to change the subject.
“Chicago will continue to earn the same housing premium in the past and this means that homes will not fall as much here as places where homes go for a lot more.”
Again, the IT’S DIFFERENT HERE in Chicago argument.
* * * * * * * * *
“Hoping the Chicago market collapses to the point at which a piker making $50k a year can afford a brand new condo it the true “new era” wishful thinking.”
You’re the only person saying this. And by the way you have NO idea what the hell you’re talking about. Per the IRS the median income for an individual household in IL is $44,678.
http://www.usdoj.gov/ust/eo/bapcpa/20080317/bci_data/median_income_table.htm
So your PIKER earning $50k a year actually is an above the median income earner. If you can’t sell real estate to a guy in the top 50% percentile who can you sell to?????? Hahahahahahaha prices are going to crash in 2009 I hope you’re not long real estate.
HD, you are a complete moron. Do you think that the condos that are discussed on this website are marketed to the “median” worker? 90% of them are in the “green zone” which is the most wealthy pocket of the city. Why would you compare the “median” Illinoisan to the wealthiest part of the state?
“Again, the IT’S DIFFERENT HERE in Chicago argument.”
I’ll explain it again to you, since you are a childish ignoramus. YOU are predicting something that has never happened before (a “collapse” of Chicago real estate). Even Ze just said that it won’t be as bad hear as other places. Therefore, you are the one buying into the “new era” BS. Laughing at people doesn’t change the fact that you are stupid.
You’re right Turd, real estate in the green zone will not fall. It will stay high because wealthy people have so much money and are immune to economic cycles, including this nasty recession we’re in. The thousands of vacant condos will receive very little if any price reductions because things are different in Chicago, it’s a world class city. The laws of supply and demand don’t apply to rich people and the expensive condos they consume.
The rest us are a bunch of losers who can’t afford to buy along with much of the rest of the population. And the median IL income doesn’t apply to the green zone with wealthy and rich people, they must not be included in the median income or something. In fact I’m surprised the losers on this site can even afford to rent these nice brand new condos for 1/2 the cost of owning. They must be idiots and morons.
it’s pointless arguing with you. your arguments are all based on it’s different…..I’ve got better things to do….2009, my resolution is to be less adversarial towards real estate bulls and delusional anonymous posters on RE websites.
When did I say that the green zone prices won’t fall? At what point did I say anything bullish? I simply said that comparing the average Illinoisan’s median income to downtown Chicago is moronic. You are the one who thinks “this time is different” in predicting a crash. What a joke you are.
“my resolution is to be less adversarial towards real estate bulls”
I simply just reinforced what Ze said, are you calling him a bull?
“I’ve got better things to do…”
Given the amount of posts from you on this sight during all hours of the day, I kinda doubt that.
For everyone’s reading pleasure
“I don’t normally blog about the housing market (see here for an exception), but since everyone from Alan Greenspan to Brad Setser has been talking about whether the U.S. is experiencing a housing bubble right now, I thought it might be useful to link to this Chicago Fed Letter by Richard Rosen that suggests the answer is no. The highlights:
– Some believe that the rapid increase in housing prices is a sign of a bubble. In this Chicago Fed Letter, I document changes in the median sale price of a house in the United States and
for major markets in the Seventh Federal Reserve District. I show that the increase in housing prices in most areas, including the Seventh District, can be largely explained by falling mortgage interest rates and changes in household income. ”
http://www.danieldrezner.com/archives/002098.html
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yochicago.com/today/mortgages-finance/mortgage-rates-hit-highest-level-in-4-years-is-the-bubble-about-to-burst_1111/
Comments
4/20/06
Samuel said:
There’s certainly no bubble in Chicago. Just as nearly all local economists and housing market experts agree, there will be a leveling off period – a return to something more closely resembling normalcy. A quick check shows that over the last 10 years, the average weekly 30-yr fixed rate comes out to around 6.9%. As long as rates stay below approximately 7.25%, sales will remain strong (although down moderately from record levels). As almost universally expected, look for price appreciation to slow considerably to roughly 3-6% annually for the next few years. There will not be outright price declines market-wide (of course when you drill down to the neighborhood level, there is always much greater variability and volatility. The downtown market will remain robust – look for 2006 to deliver the 2nd-highest number of new condo sales on record. Granted, there is a lot of competition with new developments being announced almost every week. So, there will be more diversity in relative success levels – some developers will strike out while others will hit mammoth grand slams.
* * * * * * * * * * * *
http://www.chicagoagentmagazine.com/issue/print.asp?id=16&article=399
Dr. Lawrence Yun, Ph.D., managing director and senior economist for the National Association of Realtors said at the Chicago Association of Realtors 2007 Economic Forecast, held Jan. 19. Other panelists included Gail Lissner, VP, Appraisal Research Counselors and Sara J. Walker, Senior VP and investment officer, Associated Bank.
The main focus of Yun’s presentation boded well for Chicago. “There is no bubble in Chicago; it is sound fundamentally.” Yun supported this statement with graphs comparing Chicago to other markets across the nation in relation to home prices, mortgage obligation to income, and prevalence of adjustable rate mortgages.
“We do see the bottoming out of the market, so if consumers can overcome the psychology of negativity, it will be fine,” Yun said. He cited existing/new home inventories falling, mortgage applications stabilizing, housing affordability improving and renters getting squeezed.
* * * * * * * * * * * * * *
blog.homegain.com/homegain-market-data/top-5-sealed-deals-cities/
4.“Windy City” – Chicago, IL. Known as the “Windy City,” Chicago has numerous big-city cultural, educational, recreational and economic attractions. Its real estate market has, according to Karen Breen Elia, a real estate broker with RE/MAX Prime Properties in Chicago, “strong job growth, sustainable income and neighborhoods which have value to its residents.” Breen Elia says Chicago is experiencing a “spike up in sales activity partially due to rising interest rates, and, more importantly, due to the buyer’s perception that we have no ‘bubble’ in Chicago.” Chicago is the second most active city in 2007 for HomeGain homebuyers looking to “Find a Realtor” to help them purchase a home.
* * * * * * * * * * * * * * * *
The current state of the Chicago market can best be described as stable overall. It has not undergone the volatility of other so-called “hot” markets around the country. Home prices in general have not and do not appreciate 30-40% in one year. On the flip side, prices have not suffered huge declines within recent years, either. Many see the state of the current housing market as nothing more than a long overdue market correction since low interest rates and new mortgage products really stirred things up a few years ago. According to the National Association of Realtors press release dated 1/24/07, “There is no bubble in Chicago. It is fundamentally sound.”
http://www.investwithpassion.com/an_agents_opinion_of_the_market_-_for_realtors.htm
http://www.macromarkets.com/csi_housing/MSA/chicago.asp
curently about 145 trendline looks to be about 110 (truthfully my graph is not showing up but 110-115 is a number i kinda remember)
Ze, I can’t get the image to come up, but just looking at prices is not enough, you need to take into account mortgage rates and incomes.
Turd.. I’ll agree with that. I expect mortgages to continue to be unavailable to many, unwanted at Jumbo rates to those that can get them, and incomes I expect to fall.
2009 will be the year of the bankruptcy.
Turd… “it’s clear that most of the people on this board are renters because they can’t afford to buy, not by choice.”
Turd, on which planet have you been living? Until recently everyone that had a pulse could buy not one but multiple properties regardless of his/her ability to afford it. Have you heard of NINJA loans?
So, it is clear that anyone that did not buy over the past 4-5 years did it by choice.
Homedelete: Thanks for the post with the links down memory lane. Some of those are from 2007- not really that long ago.
Does anyone believe what they’re saying now- in 2009?
These quotes only confirm to me that no one has any clue when we’ll hit a bottom.
2nd half of cal 10
Anyone remember Daley’s press conference several Fridays ago to announce that “massive job lay-offs” are expected at Chicago’s corporate offices in early 2009. Daley noted his information was from “corporate executives”. I don’t doubt it. High-income professionals will lose their jobs here in Chicago, people normally considered “safe” from job loss.
Anyone remember Chicago in the early 1980s, when the economy was in a milder recession? Housing costs were a far lower percentage of household income back then. Economy will be far bleaker in 2009; spend some time with a corporate economist if you doubt me.
Steve Heitman seems like a young real estate broker, ever optimistic because he’s too young to have experienced a bad market and too egotistical to consider circumstances beyond his narrow personal view.
In what way was the early 80’s recession more mild than this? Unemployment hit 10.8% back then! This recession may get that bad, but we are light years away right now. Also, interest rates were through the roof, so home prices-to-income is a meaningless comparison. There are plenty of reasons to be bearish right now, but neither of these are good examples.
I only look at U6 unemployment any other number is worthless. That is ticking at about 12.5% right now and getting worse. I was way to young to remember 80 all that well but i do remember it was very bad.
ABC why would I spend time with a corporate economist, CFO maybe but an economist. ROFLMAO? That’s like getting a freaking lobotomy.
Ze Carioca,
Regarding the trendline of the Case Shiller index. I actually ran a regression through the data (pre 1999) a while back and determined that the index would be at 134 today if it followed the trendline. So it does have a bit further to fall – maybe 8% or so – unless of course it decides to go below trendline. Things do over-correct.
Yeah, prices are affected by interest rates, income, inflation, and employment in the short run but those things go up and down over time and are part of what drives prices above and below trendline. In the long run those things wash out – except inflation.
Gary,
I agree with your long-run assessment. A similar but incorrect one I’ve heard that is common on some RE blogs that prices appreciate at a long-run rate of 1% exceeding inflation, which seems impossible.
Gary… my chart worked today. I came up with 118-120 area which would be about 18% from here and I find it hard to believe we don’t overshoot. 2nd caveat is data in Chicago goes back to 99 but the composite index goes back further and you can see a significant slope change upward beginning in ’99 so long term trendline is probably lower.
Problem is 18% would be 90% loss of equity on a 20% down payment(which should be required, IMO)
Funny how realtors no longer speak of the benefit of leverage…
Ze Carioca,
Just to clarify, I ran the regression on data from 1987 – 1998 because of the bubble that started to occur in 1999.
Yeah, leverage cuts both ways.
Sabrina: “I lived in California for nearly a decade. They haven’t been running at these levels for “decades” out there. It was the result of the housing bubble, just like everything. Housing was actually only about 3x to 4x salaries in the Bay Area, for instance- just 15 to 20 years ago.”
I wasn’t talking about east bay/south bay–I was talking EsEff, desireable Peninsula, inland Marin. Sure, the purchase prices were ~4x salaries, but there is one big difference from 20 years ago–interest rates. That’s why I was talking DTI rather than price:income. What is “affordable” at 9% rates can be increased by about 30% and remain “affordable” at 5.5% rates–$500k becomes $650k without changing income or monthly cost. Sensible? No, but sense rarely stops people.
And to contend that EsEff residents didn’t spend 40-45%+ on housing in the 70s and 80s and 90s is to ignore reality (don’t want to dig thru my books to prove this). Again, I don’t care about Walnut Creek, Danville, San Jose, or, god forbid, Tracy or Morgan Hill or Vallejo–Just like we here at the CC don’t discuss Joliet, Geneva or Gurnee. EsEff has been–for 40+ years (i.e., decades) basically as expensive–relative to income, which was generally noticeably lower than SoCal ’til the dotcom boom–as Manhattan.
Blood in the streets, recovery Q1 2011
I was reading an article in the economist this weekend, mentioning how ironic it is that people are rushing out of stocks right now, despite the fact that PE ratios are around 10 to 1. This is in contrast to the 1999 bubble, when everyone was buying, and the PE ratio was 30 to 1. I have been buying stocks.
and although i haven’t been successful yet (i’ve read too many bearish posts on this board, so i’m a compulsive low-baller) i will be a buyer of real estate this year. But i guess i’m like other buyers – only buying distressed properties. I’m not making an argument that prices overall will be going up this year, just that selective buying is definietly in order. I agree it’s going to take years (3? 5? 7?) for the overall market to start appreciating again.
at what point does the increased popularity of sites like the housing bubble blog etc. start to become a contrarian indicator? when everyone becomes bearish (except a rare few) then isn’t that the time to buy?
would love to hear from some of the lurkers!
bubbleboi,
I have been lurking and listening, and agree with much of the bearish sentiment. But sentiment is all it is, as far as I can see, as the prices seem to remain steadfastly high, with movements of only a few percent here and there. Until there is a capitulation-type panic and sellers decide to take their lumps and move on, not much is going to happen, and opportunists and low ballers (myself included) will continue to be frustrated. Someonone here pointed out that sellers who paid too much from ’04-’07 are continuing to live under delusions that they will “break even”, or take only a small hit, so there is no sizeable price flexibility. That behavior is not going to move product, ladies and gentlemen, so neither buyers nor sellers will find ’09 to be a good year, I’m afraid. We’ll all be stuck in a rut.
These real estate downturns take a lot of time to work themselves through the system. I don’t think 2009 is going to be better than 2008: theres nothing that leads me to that conclusion from the data available.
Similarly I find it humorous the pundits are predicting a 2H 2009 recovery. I doubt thats in store either.
2009 will be like 2009: continued pain in housing. Sorry folks but I don’t see a turnaround for a few years. Like 2012 at the earliest, 2014 as a more realistic scenario. I think this bottom will be L shaped though with regards to housing prices and I expect the declines to stop around 2010-2011.
Err 2009 will be like 2008..
bubbleboi, the problem with your observation on stock P/E ratios is that those ratios are declining. A few accurate big-picture analysts like Roubini and Battapaglia have been pointing out that S&P 500 earnings estimates are far too high.
Someone on Minyanville had a great article about 4 or 5 weeks ago about GE and earnings manipulation. When industrial companies have financial arms (GE Finance), there are numerous ways to work the numbers to smooth things out in good times. With the financial system in collapse there is little that can be done to smoothe out the numbers. Indeed, the precarious state of affairs is shown by how quickly investment banks and insurance companies can topple over when collateral is called in.
All of this said, I do tend to think that there are *some* long term good buys out there in the market already. Most everything feels like a gamble though.
“stock P/E ratios is that those ratios are declining”
Don’t you mean that the E is declining and therefore P:E ratios are going to increase?
–Don’t you mean that the E is declining and therefore P:E ratios are going to increase?–
Sorry. Yes. The E’s are declining far more than called for even 6 or 4 months ago. Therefore, the P/Es are higher. Take the leverage out of the system and there is no ability to manipulate earnings, even as profits are decreasing along with the prices of just about everything. Its the companies with the most debt that are the most at risk in deflationary times. Unfortunately, American companies are as debt-ridden as American consumers.
Ah, I remember the days when I would be asked what earning would be and I would respond with a smile… “What do you want them to be”
Never really trusted a corporate balance sheet since 🙂
here’s the only data point I have: Every evening I sit in my home office in a michigan avenue rental and all around me are condo buildings, each one of them atleast 60% dark and there are a lot of these. You do the math.
having said that, its silly to expect homeowners captive in their 2003-08 mortgages to slash prices, they just don’t have the money to bring to the table. Developers and old timers will lead the way, watch the spec housing collapse in roscoe village/bucktown/logan square/lincoln square. That will set the comps, the rest will just wait till the sheriff posts a notice on the door or uncle sam comes with some candy.
also its cute to see used home agents implying that folks on this board cannot afford to buy homes. Didn’t we get into this situation because folks who couldn’t afford to buy actually did?
Bob & Gary — in a society of generally increasing wealth, materialism, and population density (eg, ours since its inception)… wouldn’t it be suprising if real estate prices did not increase faster than inflation?
s,
Chicago’s population density was declining until 1990. It has leveled off since then so is no longer increasing. In terms of increased wealth while this is generally true I don’t think it has been evenly spread out over the population. So while those well to do to begin with might be moreso, they still can only use one domicile/night.
Larger median house sizes are likely the key factor that helped RE trend along at a higher rate than inflation and I agree with earlier commenters who don’t expect this to repeat.
S,
Robert Shiller demonstrated that housing prices basically track inflation in the very long term. There is still plenty of land to accommodate the US’ growing population and I believe that given the cost of living in cities enough people will leave cities to keep housing prices from skyrocketing there. As for increasing wealth, the bubble was in fact driven by people spending it on housing but that is changing. It makes more sense to spend it on health care.
BTW, in case anyone is interested I’ve added Chicago condo inventory and days on market to my real estate stats page. December showed a slight improvement but it’s still ugly:
http://blog.lucidrealty.com/chicago_real_estate_statistics/
Just bumped into a realtor at 10 E. Ontario. She was putting flyers on each floor saying she was closing on the first two bedroom/two bathroom short sale in the building. The unit was on the 40th floor (1390 sq ft) and was being sold for $365,000.
In her flyer, she was looking for more people that were “financially strapped and needed to sell”. According to her flyer, you should “Not hesitate. Call before your late fees and attorney fees start adding up. Some banks are accepting short sales without you being behind on payments with no or little effect on your credit”.
2009 should be a very interesting year.
I’m wondering if, while population density has declined/leveled off, whether or not the number of households has grown, since there are increasingly large number of small, especially single person households, which, while potentially lowering density, actually increase the number of dwelling units (say a single family house which housed a family of five or six is torn down to build a three flat for three single-person households). And then how this would affect housing prices/costs.
I’m also not sure that land will readily be available in the future, for several reasons, one, a growing population means that agricultural land will gain value, perhaps, very potentially, dramatically, as well as people (at the moment of course) seemingly preferring an ‘urban’ lifestyle, but also locating near transit options and avoiding congestion and long commutes more than previously. Another reason will be a dearth of new infrastructure on the edges of cities, out in the fringe cities or exurbs, a lot of towns can’t afford (or won’t want to spend $ on) to have new development any longer because of these costs. And of course, this is where residential construction has already died even faster and more completely than in, say, the South Loop for instance (granted, it’s easier to stop a SF development project after a few units have been built than a high-rise condo…).
Joe.. no or little effect on your credit. What a freakin piece of shit to say that to people. Oh will it ever effect your credit. SCUM SCUM SCUM!!!!!!!!!
Four years ago, a borrower needed to be two years out of bankruptcy or two years out of foreclosure with a 700 credit score to buy a property with 100% financing. Obviously those rules don’t apply anymore. Today, I imagine a foreclosure or a short sale is like a scarlet letter for a borrower. You’ll probably have to wait the full 10 years before being able to borrow again.
“I’m wondering if, while population density has declined/leveled off, whether or not the number of households has grown”
Do you mean just in Chicago? Nationwide, the U.S. adds about 600,000 new households per year. You are correct that household sizes have shrunk and this also increases the number of households.
I’d be curious to see population increases in the “green zone” we keep talking about. Chicago is such a huge city I wouldn’t be surprised if the overall population growth is stagnant but the green zone is up sharply over the past decade.
“Larger median house sizes are likely the key factor that helped RE trend along at a higher rate than inflation”
That’s certainly true, but this has little relevance to any of the properties talked about here. Applying nationwide trends to real estate in the best Chicago neighborhoods is meaningless.
Q1 will determine where the market is going in 2009. Obviously Q4 2008 put a glitch in the market data because sales shut down. This was due to the uncertainty surrounding the financial crisis. The markets have stabalized and we now have to wait and see if the buyers that vanished in Q4 will return and purchase in Q1.
Look to Gary’s Lincoln Park graph and you will see what I am talking about. Days onmarket were stable at around 70 days before Nov and Dec came around. Buyers then disappeared (I think broke this news back in Oct). Everything I am seeing suggests buyers are back looking. We will see how it plays out…
Ze – Just curious. Do you think the borrower or the bank has more to lose in financing a home? Is the bank not making an investment when they lend? Why should we bail out the banks for making a bad investment and punish the borrower?
Ze Carioca,
“no or little effect on your credit. What a freakin piece of shit to say that to people. Oh will it ever effect your credit. SCUM SCUM SCUM!!!!!!!!!”
Actually, that was my initial reaction as well but then I thought about it a bit further and realized that what they are probably referring to is that the borrower can sign a zero percent interest note for the shortfall and that avoids hurting the credit score and avoids the 1099 C problem. But then they have to pay the difference back.
On a separate note, there is an implicit assumption in the discussion here about home values that people prefer an urban lifestyle. I’m not convinced. I think urban living has lots of problems and that people realize this over time and that keeps urban prices in check.
Days on market is a worthless stat when sales are in decline, as they have been all year in LP. The vast majority of listings didn’t sell at all and aren’t included in the figure. Only sharp price reductions will create an increase in sales at this point in the correction.
“The markets have stabalized”
The SHill has made this call before and will be proven horribly wrong yet again.
The tax problem was solved months ago by the govt waiving the liability on any short sales in 2008-09.
Anybody who puts their credit score above saving tens of thousands of dollars in realizing a RE loss is an idiot in my view.
The way I see it lenders have made it especially easy to shirk one’s financial commitments if they are underwater on their mortgage. I’d say screw the lender.
Banks dumb fault for not requiring 20% down in places like Chicago. Maybe not as much their fault in crazy bubble hit areas like the sunbelt.
Hey G – The markets have stabalized was referred to the equities. How is the 1 bedroom rental treating you 🙂
The real effect of a foreclosure on the credit report will remain to be seen. 5 years from now if/when the economy improves the foreclosure may still prevent the former FB from getting a loan, or like it was above, 2 years after a foreclosure lenders acted like it didn’t exist.
You’re calling a bottom in equities, Steve? This should be good.
The markets have stabalized was referred to the equities.
ROTFLMFAO
get ready for the next leg down stevo boy….you have much to learn.
“Anybody who puts their credit score above saving tens of thousands of dollars in realizing a RE loss is an idiot in my view.”
Bob- I’d much rather lose tens of thousands (actually even a hundred thousand) than to have a poor credit score. I can make back tens of thousands shortly but it takes years to rebuild credit. Credit is not just for mortgages but also for my business credit/loans. Lose your credit, you lose easy access to other people’s money.
“Madfly.. funny I have been on this board for quite some time and never got the impression of rich haters like you get on places like Huff Po. Serious rich haters there!!! Simply people here are bearish and many happen to be renters. No rich haters here that I have seen which is kinda surprising actually.
Am I not entitled to be bearish because I own something???”
Ze Carioca- Well, this is my only second week here and yes, from the comments I’ve seen, I feel that people are angry that residences are beyond their affordability. People here love celebrating foreclosures. Who cheers this kind of misfortune? And why do commenters here assume these “idiotic” sellers bought a house over their affordability? A layoff plus a few months of unemployment would probably put most of this board under serious financial distress. Am I right?
Everyone on this board is bearish, including me. No one here is saying people should rush out and buy today. We all realize the downtrend (obviously). What is annoying is that after every listing, we get the 20 of the same comments about how stupid the owner is and how they better drop their listing by $100K and how dumb the buyer was to catch a falling knife. Matter of fact, you can probably cut and paste comments from one listing to another and no one would realize a difference.
MADFLY,
I only wish there were a way that I could trade you my credit score for 100k. I would trade my score in a heartbeat for nice lump sum. I could care less about credit. I’ve only ever used it for grad school student loans and a car a 1.5 yrs ago thats almost paid off.
For non-entrepreneurs “good” credit should only be useful for home loans. For small biz owners/entrepreneurs I know even those with less than impeccable personal credit can get loans on good terms if their biz is cashflow positive.
I don’t know. For small business loans I think credit can be useful, but when I talk of credit its from the consumer standpoint. Don’t need it and these days certainly don’t want it.
Heitman wrote “Ze – Just curious. Do you think the borrower or the bank has more to lose in financing a home? …. Why should we bail out the banks for making a bad investment and punish the borrower?”
They both should be punished. It is how capitalism (which I am a huge believer of) is intended to work. It is how people and companies learn and makes room for efficiencies. It is like having your kid smack a teacher and then taking him for ice cream. Only encourages bad behavior again and again. These bailouts will devastate America.
MADFLY wrote… “Who cheers this kind of misfortune?
People always seem to foolishly cheerlead their positions. Human nature. Very dangerous since 95% of the time they are still cheerleading when things turn and miss it by being married to their beliefs.
“And why do commenters here assume these “idiotic” sellers bought a house over their affordability?”
Because if they could have truly afforded it they wouldn’t have lost it. I am a pretty risk adverse person so I would personally never buy anything I couldn’t eat under worst possible circumstances. Catastrophic risk is always where I begin analysis. ALWAYS!!
“A layoff plus a few months of unemployment would probably put most of this board under serious financial distress. Am I right?”
Exactly right. Holds true for over 95% of Americans I would think. Trouble is coming!!!
SH.. To follow up on promoting inefficiencies. I now get charged 3-4% per foreign ATM transaction as opposed to 1% only 14 months ago. I am forced to support banks bondholders bad decisions as a customer AND taxpayer as opposed to having watched Citi go under, those who did poor due diligence on their investment eat it, and seeing a new bank getting chartered (which no one would have had problems investing in since it had a clean balance sheet) that can provide me the service for 1%.
G,
“The tax problem was solved months ago by the govt waiving the liability on any short sales in 2008-09.”
True, but only for primary residences. Investment properties are still a problem.
Gary, I get the feeling the govt will only be going by what the loan docs said. Would anyone be surprised that many “investors” who bought under Invsco’s 2-yr plan weren’t completely honest with their lender, and their lender could “see no evil?”
MARKET ALERT!
The last time the SHill called a bottom in equities was just before the last big drop.
It might be the perfect time to reload on the ultra-shorts.
MADFLY, it sure appears that residences are beyond the market’s affordability, don’t you think?
MADFLY said, “A layoff plus a few months of unemployment would probably put most of this board under serious financial distress.”
Banks aren’t lending to those types anymore (especially on props featured here) after doing so throughout the bubble. Can you say “demand destruction?”
The foreclosures are amusing in that they were entirely predictable. Same goes for the hilarity generated by the condo “investor” bagholders.
If you want to steep this morning more than your coffee check out this WSJ article on a POS shack in Arizona that has a 103k mortgage against it:
http://online.wsj.com/article/SB123093614987850083.html
And we’re bailing out these banks? We’re working on a huge government spending initiative despite that theres never been an example showing that Keynesian economics works (using increased gov’t spending to stimulate the economy)? So we’re saddling future generations of Americans with ever increasing debt so we can feel confident that at least “something is being done”.
Just like if you have cancer I suppose you could goto the eye doctor and feel similarly confident that “something is being done”.
America deserves an economic depression because the populace is by and large too stupid and docile. Garbage in garbage out, lost decade here we come.
I would gladly trade my credit score for $100k or more lump sum payment. I’d use the money to pay off my student loans, otherwise non-dischargable in bankruptcy, and walk away from the house after a few payments. I have the legal resources to fight the foreclosure for quite sometime. I’d talk to the bank’s lawyer and get the words “no deficiency” put into the judgment and I’d walk away free. Since I pay all my bills on time anyway my credit score would likely return to the high 600’s or low 700’s in two to three years time. But hindsight is 20/20; and paying off my student loans is the right thing to do; cheating the banks like some fricken scumbag probably isn’t the best way to live my life.
Bob, I’ve reviewed the story on the $103k arizona shack. There are literally hundreds of thousands of stories like this out there. It’s amazing. We’ll be paying for this for generations.
Sartre- why, exactly, are stocks ready for the “next leg down?”
G,
When did SH last claim a bottom in the stock market? I don’t recall seeing this. You claim that he has a running list of bad calls, but all I see from him a dissenting reaction to you perma-bears that so far has been spot on. You and HD are the ones who have been calling for a collapse for two years. Aren’t you the ones who have been consistently wrong?
The more important question, T.F., is why would they be headed up? As far as I can see, unemployment will continue to accelerate, manufacturing will continue to stagnate, housing will continue to depreciate, and retail will increasingly conflagrate. Until we see improvement in the real economy, why would equities (and earnings) improve? Indeed, why wouldn’t they continue to worsen as the economy worsens? Maybe Obama’s stimulus will be the cure… but I’m skeptical it could fix things overnight. That money, too, would take time to work through the system.
As far as I can see, the people saying, “Buy equities!” are saying so simply because equities are so low. Ergo, they must be “cheap.” But just because equities have fallen 50% doesn’t make them “cheap” per se. They certainly weren’t worth buying 25% ago. Why are they worth buying now?
Kenworthey, the market always moves up before the economy does, when the headline news is still bad. In 2003 the market began to double while we were invading another country! Plus, there are technical reasons that the market rise sometimes. Go look at the market returns during the 1930’s, we had several +25% or more years even in the depression. You are going to see a lot of institutional money flow back into the market during Q1 here. Maybe we will have another downdraft afterward, but would not bet on any significant new lows. I am not a big bull on the market for this year, but over the next 3 years I’d bet the market will take off.
“When did SH last claim a bottom in the stock market?”
Prior to the big drop in the fall.
“I don’t recall seeing this.”
Lurking then or sock puppet now?
“You claim that he has a running list of bad calls, but all I see from him a dissenting reaction to you perma-bears that so far has been spot on.”
LMAO. Turd isn’t very perceptive.
“You and HD are the ones who have been calling for a collapse for two years.”
I’ve only been commenting here since 11/07. Nope, Turd isn’t very perceptive.
“Aren’t you the ones who have been consistently wrong?”
I can’t speak for HD, but what have I been wrong about?
“I am not a big bull on the market for this year, but over the next 3 years I’d bet the market will take off.”
Good luck.
Anyone care to link to the comment where Steve-O called a bottom? All I see is everyone getting shrill because he said the market has stabilized.
T.F.–you avoided my question. What, exactly, will be the engine for the recovery you predict? I’m not saying it won’t happen, and I certainly hope it does–but so far not a single person predicting such a recovery has been able to offer anything other than, “Well, that’s just the way recoveries work. We bounced back after the Depression, didn’t we? etc.”
Sure, there were massive upswings during the Depression. That doesn’t mean it’s a good time to buy–I bet a lot of people who bought in 1930 on an upswing regretted it by 1938. You buy when stocks seem cheap relative to their future prospects, not simply when they are lower than they were before. What are the future prospects that you think will fuel their growth?
Turd, nationally housing in ’08 was a big giant anal reeming. If 6 blocks in Lincoln Park are holding up while Phoenix, Miami, Cali, Vegas are down 50% that’s not exactly a good year for housing. Actually Chi-Town was down 14% which is at a 20% dwn pmt almost a complete wipe out. Go down the river and see Waterview Tower. That doesn’t happen in a strong market. Banks just are not lending. Commerce is slowing. I agree markets bottom before the economy does but not usually while the slope is steepening.
Hey I agree market has temporarily stabilized waiting for Obamanomics. That will be the end of this thing. It can not work!! Americans will have to learn to live within their means like everyone else in this world does.
Burt, The SHill said,
“Q1 will determine where the market is going in 2009. Obviously Q4 2008 put a glitch in the market data because sales shut down. This was due to the uncertainty surrounding the financial crisis. The markets have stabalized and we now have to wait and see if the buyers that vanished in Q4 will return and purchase in Q1.”
How is that not a bottom call? Does “stabilized” in this context mean the market is going lower to you?
G,
Steve explained that he was talking about the stock market, not housing. Learn to read, please.
“I’ve only been commenting here since 11/07. Nope, Turd isn’t very perceptive.”
Terrific job avoiding answering my challenge. You’ve been calling for a housing collapse since you’ve been on here. SH’s predictions have been pretty much spot on, while yours have not. Hard to admit when you’ve been wrong, isn’t it?
Kenworthey,
The best time to invest is when there is nothing but despair all around you. Stocks always revert to the mean, and they currently are priced to deliver very strong returns over the next 5-10 years. No one know when things will recover, but they will.
““I am not a big bull on the market for this year, but over the next 3 years I’d bet the market will take off.”
Good luck.”
G, you seem to be a rather pessimistic person. I appreciate shlubs like you, because they allow people like me to buy assets at cheap prices and make a lot of money. Thanks!
“Anyone care to link to the comment where Steve-O called a bottom?”
Burt, anyone who doesn’t think that the world is coming to an end is simply a shill according to G and HD.
Turd,
On your 10 year horizon I agree. But I think equities could go lower in 2009. Right now I think high-yield bonds are a deal so long as you’re diversified.
Agreed on high yield, even investment grade corps could deliver double digit returns over the next 24 months. I’m not a raging bull on the market for 09, I think we will likely retest our lows, but I doubt we will see any significant new lows below the 7400 level we hit in November.
G – Why does stabilized in that context mean it is going up to you? It means it is a lot less volatile. Who knows if it is going to go up or down. But according to the VIX it seems like a lot of the uncertainty has worked it’s way through the market.
Burt all the VIX is telling you is that the ranges and daily price moves HAVE (past tense) gotten smaller.
No Ze, the VIX measures the anticipated future volatility of the market, based on the price that investors are willing to pay for options. The fact that the VIX is down means that investors are less worried about hedging their positions.
Turd, the housing market has collapsed. The fact that little is selling today reflects that. Price declines have already started and will continue downwards, father than you will ever imagine. So
Furthermore, the shill’s predictions haven’t really predicted anything; I’d guess 80-90% of his comments have been retrospective – he repeatedly said that LP and GC have held up despite declines elsewhere.
During the stock market crash I specifically remember he had one comment that basically said ‘all bets are off after this meltdown’.
“Terrific job avoiding answering my challenge. You’ve been calling for a housing collapse since you’ve been on here. SH’s predictions have been pretty much spot on, while yours have not. Hard to admit when you’ve been wrong, isn’t it?”
Has the housing market collapsed in the areas in which you would like to buy? SH has always said that the nice neighborhoods would hold up better, and he’s been absolutely right. You have been absolutely wrong.
No Turd it absolutely positively does not!!! People definitely project their assumptions on future volatility to some degree but you can not pay 50 vol for something moving 30. Now forward months will trade obviously on anticipated future volatility since that is what it is but you will see long term volatility always moves towards long term (approx 100 day) historical vol.
Btw.. San Fran doesnt count as a nicer area? Although I agree nicer areas do tend to hold up better.
Hell come to think of it thats not even completely always the case. There are times that everyone can be short it and trying to buy it back and vol can move out even if a market is not moving simply because people are trying to cover shorts and the converse holds true where a market can be moving like crazy and everyone is long so nothing makes vol move out. basically VIX can move simply as a function of market maker positions.
Sorry Ze, here is the definition from wikipedia:
“VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from volatility.[1] If investors see high risks of a change in prices, they require a greater premium to insure against such a change by selling options. Often referred to as the fear index, it represents one measure of the market’s expectation of volatility over the next 30 day period.”
Yes Turd, the housing market has collapsed in the areas in I would like to buy. Volume is way off the 2005/6 peak. Sellers cling to their wishing prices like american idol contestants cling to their dreams. Nothing is moving. In the neighborhood where I would like to buy, hardly anything has sold since July. the shill’s six blocks in LP is so insignificant its not really even worth arguing about b/c there are so many exceptions.
“Has the housing market collapsed in the areas in which you would like to buy? “
Yes based on historical so i will say that future anticipation is based upon, and has to be based upon, historical which makes us both correct and leave it at that. I do not want to go here.
Of course events modify forward anticipation and are added to historical.. As I said I do not want to go here.
“A high value corresponds to a more volatile market” – They are referring to past tense.
Look at 100 day historical vol on anything and long term options.
G – Read it again and apply your 1st grade education “Burt, The SHill said,
“Q1 will determine where the market is going in 2009. Obviously Q4 2008 put a glitch in the market data because sales shut down. This was due to the uncertainty surrounding the financial crisis. The markets have stabalized and we now have to wait and see if the buyers that vanished in Q4 will return and purchase in Q1.”
How is that not a bottom call? Does “stabilized” in this context mean the market is going lower to you?”
The “markets” as stated in my post was the “financial markets”. Again, my post suggested the “financial markets” have stabalized from what they were in Oct of 2008.
“The markets have stabalized was referred to the equities.
ROTFLMFAO
get ready for the next leg down stevo boy….you have much to learn.
”
A lot to learn? I sold into cash on Friday after a nice 20% 2 week ride. Stabalized is not a bottom. Stabalized simply means we are no longer falling at 10% every other day.
I hate dumb people…
“I hate dumb people…”
Okay Steve but remember its spelled ‘stabilized’.
I don’t spell check and don’t care to read my posts before hitting submit. It is a waste of time and resources on a blog.
I hate dubm peoples
The only reason I don’t think there is going to be a tsunami of new for-sale signs in Jan is because enough people are probably better off renting out their place than trying to sell it if they have to move. I have wanted to get out of my place for a while, but I will be forced to lose at least $50-75k in equity and realtor fees. I can either do that or rent it out at a $0-$200/month loss (net of depreciation, income tax on rent, and write-off of asm + interest which I have now double checked is ok to do when renting…but correct me if I am wrong).
I can’t predict what is going to happen in 10 years (maybe I’ll lose even more equity…if Japan is to be the model for us vs. previous USA RE bubbles) but it seems like the next 2-3 years are a lot more clear than 2019. People are panicked and it’s just going to be a mess. If there is some amazing Obama initiative to subsidize mortgage rates at 2% and give people huge down payment tax credits…then I’ll put it on sale (and many others in my situation probably will too), which might ironically hurt the housing market further…but at least then I can get out.
I am concerned, however, that the rental market will be a problem this spring because people are too scared to move and too many other owners like me will be trying too rent so they can also move.
Damn… Being CST + 4 and trying to watch a night football game just sucks!!
“A lot to learn? I sold into cash on Friday after a nice 20% 2 week ride. Stabalized is not a bottom. Stabalized simply means we are no longer falling at 10% every other day.”
Too funny. That’s what stabilized means? Or is “stabalized” meant to spell another word?
By the way, why did Turd/the SHill take my comment to mean anything but the financial markets?
Let’s review.
SHill said “The markets have stabalized”
I responded, “The SHill has made this call before and will be proven horribly wrong yet again.”
Hilarious.
Q1 2009 will continue the YOY sales declines of 2008. Sales will not increase again until sellers capitulate in large numbers. I have always said this will take time and be measured in years, not months.
Have you guys noticed that since prices have held up reasonably well in the good neighborhoods, G and HD now only focus on the volume of sales, not prices? They are trying to change the scope of the argument because they’ve been completely wrong on prices. Sorry guys, no one came to this message board to predict future sales volume, they came here to discuss prices. Nice try.
Ze, that’s an awful lot of posts for someone who doesn’t want to “go there”…
Once again: “The VIX… represents one measure of the market’s expectation of volatility over the next 30 day period.”
Weak attempt as usual, Turd. I have always laid it out that the sales collapse comes first. Did you miss all the times the SHill attempted to change the subject to “but prices haven’t fallen in the good areas” when I posted the sales declines every month? Even when I didn’t claim they have yet, that didn’t stop the SHill from declaring “I’m right, the sun rises in the east!” LMAO.
We are still in the sales collapse stage. Don’t worry, seller capitulation will follow.
You have been making this same claim for over a year now and have been completely wrong while SH has been correct. I bet you are predicting that the sun will explode some day too?
Yes, I have been correct for over a year now in my prediction of a sales collapse. Now watch me be correct that the price correction will follow. Like I have always said, this will take years, not 13 months.
So, tell me where I’m wrong?
T.F., if you’ve been on this site for as long as you claim, you’d know that G has never changed his story:
1) Volume leads price, and
2) There will be “knife-catchers all the way down.”
You might disagree with him–but he has been perfectly consistent (and so far, dead on.)
Wow…A few days without Sabrina, and the discourse here quickly turns into a “he said/he said” pissing contest. I think this group does better in a structured environment. Adult supervision, please!
G, Kent, HD, ect – Since I have been here I have simply reported that prices have not delcine substantially in the better neighborhoods. This was based on data from the past 30 days sales activitiy. Around Oct I said sales dried up and all bets were off. I now say that maybe the low interest rates will get some fence sitters back in the game come 1st Q 2009. I also said that the internal word was that people are getting busy again and was hopeful that buyers would step up in Q1 and remove some of the small low inventory levels that are listed.
Now who is right and who is wrong? Just curious?
Ok Turd.. lets go there.. we can go slow and keep going. Not trying to be belligerent. Let’s start with
1- Do you know this stuff inside and out since some people in Chicago do or just a little bit?
2- What do you think the future expectation is based upon?
By 1 I mean does the below make sense to you?
(Sq rt ((theta/gamma)*2))
If your answer to 1 is yes than we are just pissing over semantics and I won’t waste either of our time. If it is no I would be happy to explain.
Please explain why the definition of the VIX is wrong and does not imply that expectations for future volatility have dropped over the past month.
What I am trying to say is it is basing the anticipation of expected volatility on previous volatility. That’s why I don’t want to get into a pissing match over semantics. It is saying that if you have been holding positions in volatility and the market volatility HAS lessened it will take down forward expectations considerable. It’s a real semantics thing here. So the question again is do you understand this shit inside and out and we are just being difficult with one another.
So simple yes or no.. do you understand the formula I posted. I really am not trying to be belligerent.
And if this is just semantics.. that is my fault, I started it and I apologize for it.
“The fact that the VIX is down means that investors are less worried about hedging their positions.”
If it is semantics this would be the only part that remains completely incorrect.
ZE – We all get the “past performance is no indication of future returns” stuff but the index, although obviously can’t see the future, does point to a settling in the markets. I promise if you go back to Sept of 2008 the VIX did not predict what was coming in Oct and Nov. So you are right in that sense. Pointing to the VIX does support my claim that the marketys (as of today) have leveled out. What tomorrow brings is anyone’s guess.
Ze – So you would agree that the VIX coming in suggest the general consensus among investors is that markets will be less volatile over the near term?
It goes further than that. Even directional price movement will change volatility as standard deviation of a higher price is greater than the same standard deviation at a lower price. It’s gets kinda deep. And yes tomorrow is anyones guess which is why they say differing opinions make a market.
What I am getting at is that there is a very specific and calculated cost of carry to an option and if it is not achieved almost daily vol comes in (unless market makers are short it).
Steve… “So you would agree that the VIX coming in suggest the general consensus among investors is that markets will be less volatile over the near term?”
My reply: kinda sorta yes. What I am saying is the market HAS stopped bouncing 500 points an hour and carrying a long volatility position when you do not get compensated for the cost of carrying becomes like cancer and is why volatility is coming in. Also we are going higher which crushes vol in equities every time.
Wanttogetout said:
“The only reason I don’t think there is going to be a tsunami of new for-sale signs in Jan is because enough people are probably better off renting out their place than trying to sell it if they have to move. I have wanted to get out of my place for a while, but I will be forced to lose at least $50-75k in equity and realtor fees. I can either do that or rent it out at a $0-$200/month loss (net of depreciation, income tax on rent, and write-off of asm + interest which I have now double checked is ok to do when renting…but correct me if I am wrong).
I can’t predict what is going to happen in 10 years (maybe I’ll lose even more equity…if Japan is to be the model for us vs. previous USA RE bubbles) but it seems like the next 2-3 years are a lot more clear than 2019. People are panicked and it’s just going to be a mess. If there is some amazing Obama initiative to subsidize mortgage rates at 2% and give people huge down payment tax credits…then I’ll put it on sale (and many others in my situation probably will too), which might ironically hurt the housing market further…but at least then I can get out.
I am concerned, however, that the rental market will be a problem this spring because people are too scared to move and too many other owners like me will be trying too rent so they can also move.”
Wanttogetout- what happens if there are simply too many rentals and you either can’t rent it out and/or can’t rent it out for the price you believe you can?
Already- there is a glut of rentals in the market.
I think it’s interesting that every single homeowner I talk to believes his solution to not being able to sell is simply to rent it out (with all the problems that entails.)
I have to agree with G here. It really is all about the sales, which we’ve seen collapse, even in the “nice” neighborhoods.
There is no comp if you list your property at some elevated price and let it sit there for a year (average market time is now over 9 months in many parts of the north side.) What a seller “wants” it to sell for is not what it will sell for (ultimately). And we’re seeing that all over the city now.
Sellers are still being unrealistic.
We’re also in a market where the buyer’s mentality is that they want a “deal”- which means they want the property cheaper than what the owner bought it for several years ago.
There’s a disconnect between buyers and sellers in this kind of environment.
Well if the the volume was so high in 2005 & 2006, would it not naturally be a lot lower in 2008 & 2009? There are only so many units in Lincoln Park to be sold. If everyone turned their units over in ’05 & ’06, what makes you think they want to sell again over a 2 year period? I understand volume is down, but the levels we saw in ’05 and ’06 were not normal, and it is not right to use these as expected levels going forward. Again, I know the market is soft but what are you using as a bench mark to indicate that sales levels in LP have collapsed? Of course the 4th quarter is another story as noone did anything for obvious reasons.
“It really is all about the sales, which we’ve seen collapse, even in the “nice” neighborhoods.”
Sabrina, G and HD have been predicting a collapse in prices, to give them credit for being right just because sales volume is down is just silly. Even the bulls on this board have argued that sales volume was going to drop. Come on.
I have posted the sales volume in LP going back 20 years. We are at all time lows in that span.
I have also pointed out that the number of condos has increased by a lot in that time, so the drop is, indeed, a collapse.
The SHill never disproves these facts and only attempts to distort them (see above.)
Turd, any links to your claims?
You are obviously a troll without an original thought. Even the SHill has those once in a while.
I’m sure the SHill will sell you all your immense wealth desires. Good luck.
No one is arguing that sales volume hasn’t collapse, SH has pointed out, rightly, that the prime neighborhood values have not collapsed. HD has lamented this many times since he is praying for a collapse. A third-grader could tell you that volume has dropped, that’s not news or a bold prediction.
Thanks G. Between you and Gary- both of whom have been providing historical data- it’s pretty clear that sales have collapsed.
It’s only a matter of time before prices do the same (or maybe I missed something in my college economics class.)
I’ve never said “nothing” is selling- there are still properties that are closing every single day around the city. But if you compare it to prior closing numbers, it’s pretty clear what the story is.
The next few months should be very, very interesting.
Okay – So let’s take one more look at the closings over the past 10 days. There are only 4 that are not new construction but here they are and we can all analyze the pain.
345 w Fullerton unit 1201
pur – 09/2004 for $319k
Sold – 12/2008 for $366,500
444 w Fullerton unit 2008
pur – 03/2003 for $291,500
Sold – 12/2008 for $352k
1660 N LaSalle unit 1408
pur – 08/2007 for $280k
sold – 12/2008 for $281k
1053 w Wrightwood unit 1
pur – 03/2007 for $842k (new Construction)
sold – 12/2008 – $800k (sold in 11 days so I can’t imagine the seller was too concerned over the loss).
Again, I see where the market is soft but are these sellers hurting that bad?
I don’t see much of a collapse in prices in even non-prime neighborhoods. I think those predicting an imminent collapse in prices in prime neighborhoods with a high walkability score (LP, LV, GC) are a bit premature in this regard.
When we start to see neighborhoods like Albany Park, Bridgeport, Old Irving, etc really start to decline in prices then it could mean the prime neighborhoods might be next. But I don’t see a tidal wave of distress in those quite yet. Cracks are showing but no tidal wave yet.
Turd, you seem to be at odds with th SHill now. He just asked “what are you using as a bench mark to indicate that sales levels in LP have collapsed?”
Go ahead and give your answer.
Well I don’t consider 1660 N LaSalle LP but I guess that supports your position that LP is still holding up well.
Bob, has anyone predicted an “imminent” collapse here? That appears to be a straw man.
Bob – It is Lincoln PArk which is why I listed it. Lincoln Park runs north of North Ave (1600) and from the lake east.
“what are you using as a bench mark to indicate that sales levels in LP have collapsed?”
You will have to ask SH if by “sales levels” he meant volume or prices. To say that you have not been predicting an imminent collapse in prices is disingenuous at best.
Funny.. Not being from Chicago… before this board I always went through Lincoln Park and described it to my wife as the area kids move to after they finish college.
Turd,
So, it’s a comprehension problem you have. Thanks for playing.
Ze – Then you don’t know Lincoln Park very well. Lincoln Park has a college in it (DePaul) and college kids who attend DePaul. Besides that it is mosts young professionals ($400k and up condos) and family households ($1.5 million and up). I would say the break down is 20% college, 40% Young professionals, 40% familes.
No, admittedly I don’t know Chicago that well.
I had a girl I was very close with, she was early 20’s, smoking hot, and real high maintenance (but from Chicago) she always said that to me so it stuck with me.
“So, it’s a comprehension problem you have. Thanks for playing.”
Really? It’s easy to hurl insults, why don’t you explain what he meant then?
SH:
If 1660 n lasalle used agents to complete that transaction- then, yes, I would call that considerable pain (in the neighborhood of over $25k.)
That owner would have been far better off renting (in so many ways.)
But lesson learned!
The others came away with slight gains- but who would have thought if you bought in 2003 and sold nearly 6 years later in LP that you would be lucky to walk away with profit of “only” about $20k to $30k on a transaction.
I never said LP wouldn’t hold up better than some other neighborhoods- and it has. But it won’t hold up for forever in the midst of one of the greatest housing bubbles (and busts) of all time.
That being said- I’d rather be a property owner in LP during the bust than in, say, Logan Square or Edgewater.
Sabrina – We are talking about real estate values and not expensess associated with moving every year right? Let’s assume there are no agents used so we simply concentrate on real estate values.
So someone put down 20% in 2003 on a $300k place (60K) and turned around and pocketed $47k profit in just 5 years. All this return and he received tax saving for owning a home.
Sabrina – using a realtor to buy or sell your home is optional. People use realtors when they don’t have time to do the work themselves. Don’t assume a convenience expense is part a subtration from real price increases. Let’s assume everone used Gary as there real estate agent and received a 50% rebate when they purchased. Then the guy above really purchsed for less than the stated price.
Funny. I sold 1 this summer for flat… was very thankful. Sold the 2nd, took my hit and moved on. I don’t see how holding out makes you any better off. As SH correctly said, and I paraphrase, who knows what the future brings. It is where it is. Not selling does not mean you have not taken a loss mark to market you just have not taken a realized loss.
Yep.. I used my doorman. 🙂
Sabrina says “The others came away with slight gains- but who would have thought if you bought in 2003 and sold nearly 6 years later in LP that you would be lucky to walk away with profit of “only” about $20k to $30k on a transaction.”
But Sabrina, this is the worst time to sell in 30 years, the big crash, the end of housing! How can you say you are suprised that these guys only made $47k and $61k, respectivey? That’s just over 3% per year. Hmmm… sounds like a pretty normal return in housing.
Hell I would still rather lose than rent.
Why have LP prices held up better than other neighborhoods? Have upper-middle class and upper class incomes remained stable during this recession? Is it because wealth has become even more unevenly distributed that the top 5% won’t feel any measurable pain this recession and therefore will continue to be able to pay top dollar for prime properties?
“Why have LP prices held up better than other neighborhoods? Have upper-middle class and upper class incomes remained stable during this recession? Is it because wealth has become even more unevenly distributed that the top 5% won’t feel any measurable pain this recession and therefore will continue to be able to pay top dollar for prime properties?”
Welcome to realty HD – Yes they have more money, used less creative financing, and had bigger downpayments and savings accounts. Noone said they would not feel the effects of a recession but obviously they are more prepared to withstand a down turn.
My argument for the past 12 months finally sees the light with HD.
HD… Actually the biggest hits this year were definitely taken in the top 5%. But even with those hits most can hold out much longer and for many of those renting is not an option and most are not looking to move either. The place I am finishing now I will have til I die so whether it quadruples or goes to $1 no diff in terms of it being my primary home.
HD, people in those neighborhoods are also more likely to be able to weather a downturn, so they are more likely to take their place off the market than sell at a loss.
Those guys only made around $50k in 5 years. Oh no Sabina your expectations are really whacked. What do you expect housing to appreciate in 4 – 5 years on a $300k purchase. Remember these guys probably only put down 10% of $30k. Over 100% return tax free in a couple of years is bad? Please tell me how renters did better? Please?
BTW.. how the hell did “housing” become Lincoln Park. Nationally “housing” was an ass reeming in ’08.
Ze – Long running arument that the better neighborhoods would hold up a lot better than the less desirable neoghborhoods.
I was told I was wrong when I know I was right.
The problem with the SHill’s credibility is that nobody ever argued that he was wrong about that.
The SHill was told he was wrong when he used to argue that the better hoods wouldn’t go down at all because they never had a bubble. He seems to want us to forget about that now.
Tax increases without a doubt effects the top 5%. Don’t expect the current administration to let the top 5% to walk unscathed.
i’m a little ahead of myself…I meant “new” administration…
HD. Yep they will slaughter the rich in the next few years… Just another mistake that will be made.
SH: They didn’t “make” $50k over 6 years. They made about $25k. Maybe $30k. There is a little thing called “realtors fees” and “closing costs.”
It’s not a loss- I grant you that. But if they had to replace carpet, buy a new furnace, re-do the kitchen, buy new appliances, pay a special assessment etc. etc. – they really didn’t gain all that much. And, maybe, ended up in the red.
SH: To say that these sellers didn’t use any agents is crazy. Not everyone does- but the majority do- especially in this type of market. You have to include those costs in “gains”- as you would have to include closing costs, attorney fees, etc. in any “gains”.
I love how every time SH shows evidence that homes in good areas haven’t collapsed, everyone tries to change the scope of the argument. G and HD claim that volume has collapsed (thanks for the amazing insight) and Sabrina starts adding unknowable transaction costs to show how bad housing is. It’s comical, you guys can’t own up to the fact that you’ve been completely wrong!
Maybe they found 100k in cash hidden in the kitchen when they redid it. You can speculate and fudge the numbers all you want, but you have no clue whether they used an agent or if they did any work. The only facts we know are what they paid for it and what they sold it for
http://1.bp.blogspot.com/_wFWqWIH-WFU/SVteO428pjI/AAAAAAAAIzU/PnQSlTyviAE/s1600-h/case-shiller-2008-12TC.png
Yep.. It was a great year to own a home.. I know I feel a lot wealthier for it.
Ze,
LP is varied. There are a large number of students still in college at the neighborhood university (DePaul) both undergrads & grads. There are also a number of young professionals fresh out of college who live there as well. Some wealthy families do as well. I think StevO is biased in his estimation of 40% families. I think it is lower.
Also lets not confuse who lives in LP with who visits LP (especially on weekends). It may appear it is completely overrun with early 20-somethings because on weekends it is from all over Chicagoland. Most of these visitors don’t live there (as well as many who work there in the bars, shops, etc).
Ze – I agree that it was a bad year to have to sell your home. The rest of us just lost a little unrealized gain from our heads. Nothing more and nothing less. If you bought below rental rates you will be just fine.
The S&P was down 40% in 2008 but yet my account was only down around 8%. You don’t buy the index when you buy a home and most don;t buy the spiders when they buy equities. Let’s just call LP the Walmart of housing. That is at least for 2008, 2009 is anyone’s guess.
Hm…properties selling at or below 2006 prices in most of Chicago (even in LP)- is being “completely wrong”? Many areas now selling at 2005 or 2004 prices (depending on the area.)
Real estate always falls slowly. It takes years. And so it will over the next several years here in Chicago.
I knew a suburban agent who had been in the business for over 30 years and retired just two years ago. She told me Chicago area real estate could “never” go down because she had never seen it do that. The worst she had seen was a 6 year period of no price increases during the 1980s.
She talked from what she knew. But I trust no one has seen a real estate market like today- because no one has ever seen a boom like we’ve experienced over the past 8 years.
But we’ll see what 2009 brings. I expect inventory to jump much earlier this year (in the next few weeks) because sellers are spooked about market times. They know they have to list now in order to sell by next fall. If they can sell.
It should be interesting.
Hey don’t get me wrong. the only thing I like more than my weed are college girls. I meant it as a good thing.
Truth is Steve.. I don’t treat real estate as an investment despite all the formulas I enjoy playing with. Generally if I like a place and like something I see there I just kind of buy it. A residence is kind of a personal thing to me. I would hate living somewhere I couldn’t change when I felt like it. It’s like a toy you live in.
And let’s be straight Sabrina. You have no idea what prices will do in the next few years. I know you hope they will go down but everything you say is pure speculation.
You’re right Steve. I have no idea what prices will do as I have no crystal ball.
I’m only using history as a guide. Burst bubbles mean that the asset class stays depressed for decades (whether it be tulips, gold, tech stocks or real estate.) Certain properties (and areas) will outperform others in the next decade (just as certain tech stocks rebounded more than others.)
That’s why I said I’d rather own a property in LP right now than in Logan Square. LP properties will outperform others during, and after, the bust.
Ze Carioca said: “I would hate living somewhere I couldn’t change when I felt like it.”
– I have to disagree, renting at half the price of owning gives one quite a bit of $$$ to redecorate. If you paint, you can always paint it back when you move out if the LL didn’t like the improvement. I already have the granite counter tops, 24″ marble floors, stainless steel appliances, etc. so no need for me change any of that…although it still would be cheaper to replace the appliances and walkaway from them at the end of the lease than own. Rents are a great deal…..I save around $40K/year by renting and just renewed! I already own $160K worth of vehicles (just two) and am thinking of just using the savings to buy another new one…. Renting is great! No worries, not concerns….I’m lovin git!
Sabrina – That is where you have it wrong. LP did not appreciate at the same clip at Logan Square, Wicker Park, or Rogers Park back in 2000 – 2005 and it won’t see a sharp decline or sharp rebound going forward. Speculation is what drives property values and there is not much speculation to be had in stable areas. No hise rise investors. Not much 100% Alt A financing, ect.
for the 100th time. If you use a rental formula to justify your purchase you will be fine. Even if housing over shoots it never will be typical to pay more to rent a place than to own that same place. Never never never. That is the history you should be looking at.
You should highlight a property and then ask, what would this place rent for? If you get this range you can back into what the fmv of the property should be. And please don’t use HD silly fully amortizing analysis. Use a 20% fixed interest rate and save the BS expenses so many of you like to add on. Whether you own or rent that are additinal expenses that basically offset.
Pick a property and we can all have a little debate on what the fmv is. I can tell you and I will be right.
John – So you save $3000 per month renting vs owning? Have to ask for the details on this one. Second, you own $160k in vehicles and some how talk about how you are financially savy for renting? Anyone care to chime in on this one?
For a while now I’ve been meaning to do the analysis that Steve did above (resales of specific properties) for Lincoln Park. This debate finally got me off my ass to do it. I looked at condo closings in the last 30 days in Lincoln Park and it was pretty interesting:
http://blog.lucidrealty.com/2009/01/04/whats-really-going-on-with-prices-in-prime-neighborhoods/
I suspected it couldn’t be all roses but this puts it in perspective, though it is a small sample size. I think Steve’s sample was way too small.
My sample was just a look into everyone’s blood bath within the past 10 days. On your stats, why there were 30 closings in the past 30 days and you only have about 12 properties listed. Just curious? Second, who are the people that you think accepted contracts in Novemeber of 2008 (the worst month we have ever experienced)? Obviously anyone making an offer was low balling and anyone accepting pretty desperate. I agree there are losers in LP but there are also a lot of winners. Obviously anyone who purchased in 2006 or 2007 and then sold during the worst month ever would be accpected to take a loss.
John.. that’s why you are rich and I am poor. Remember you established that for us and then went on to specifically tell us what you are worth. Now you throw in the vehicles. I will assume you left that out last time and will add it to the asset side of the balance sheet I am keeping for you.. ROFLMAO!!! Go break down some walls now and replace them at the end of the year.
by the way 60 cm tiles are so out of date. I like the 80cm or 1 meter ones myself. To each their own I guess my cachorrhina.
Sabrina. Decades???? Look at an equities chart and you can’t even find 1987 on it. Look at cali real estate 1989-91. both look like a blip. And this is coming from one of the most bearish people on here.
And he is in Miami so yes he saves $3k a month to what some idiot paid. I sincerely do believe that. You can not find that in CHitown. maybe 1k or so best right now.
“I already own $160K worth of vehicles (just two) and am thinking… to buy another new one”
Who says shit like this. What the fuck is wrong with you?
Ze,
StevO just trollbaited you in my view. LOL!
One last comment before I go since I am ROFLMAO… I had a friend that worked for me who was equally insecure and used to love to brag about what he had. One night we were at this restaurant Citronelle in DC and he was really getting loaded and loud. I turned to him and said I assure you there are people here with literally 100 times what you have and however much you think you are impressing people they have REAL money and are thinking you are a complete and utter fucking fool.
John let me let you in on a little secret… even if you have exactly what you have spelled out here so specifically you are so far from being fucking rich it’s laughable.
Bob.. I’m fine with that.
Steve,
I only looked at properties that had a prior sale in the last 6 years and had a prior sale on record. That eliminated the ones you don’t see there.
We will see if this data is representative from here on out. I don’t think it’s getting any better given the inventory levels we’re seeing and the state of the economy and the Chicago employment picture.
Summing up the shill’s posts over the previous year:
1) Buy a SFH,
2) not new construction,
3) in the traditional lp boundaries,
4) most importantly don’t overpay,
5) make sure your mortgage is equiv to rent (not incl/ expenses or amortization),
6) don’t buy in 2006/7 and expect to sell in the ‘worst month ever’ of 2008 and expect a profit
7) don’t include realtor fees or other transaction costs when calculating *profit*
8) and most most importantly, buy smart. Buying smart is a post-hoc analysis: if you sold and made money you bought smart.
* note he wrote ‘welcome to realty’ not ‘welcome to reality! You can’t make this stuff up!
“My argument for the past 12 months finally sees the light with HD.
Welcome to realty HD – Yes they have more money, used less creative financing, and had bigger downpayments and savings accounts. Noone said they would not feel the effects of a recession but obviously they are more prepared to withstand a down turn.” *
The shill’s argument that “they have more money, used less creative financing, and had bigger downpayments and savings accounts. ”
is nothing more than an ‘it’s different here’ argument. zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz…..
Wake me up when LP returns to 2003 pricing, so I can catch a little more sleep before it returns to 1999 pricing, just like nearly everywhere else in the country. LP is merely treading water, prices will fall across the board, it’s a tedious and painful process, like watching a slow train wreck.
You know I sometimes read the hbb. Posters often talk about the re market crash but then some people from the coasts will chime in saying that listing prices (and closing prices) in ‘prime’ areas of LA, SF, NYC, Boston, are still stratospheric. But, yet hardly anything is moving, volume is off-by 50% or more. How long can the paradox continue?
This is not just a Lincoln Park issue, the shill’s argument can be replicated in virtually every major city when comparing ‘prime’ neighborhoods. Substitute LP for Malibu and you get the idea.
But just wait, cracks are starting to appear in the facade of prime areas out west it will spread to all ‘prime’ areas including the gold coast of our cow town…..trends start on the coasts and work their way in…
Malibu thought they were immune too: compare this page
http://www.malibucomplete.com/mc_realestate_prices.php
with reality…
http://www.greenfaucet.com/economy/state-of-the-malibu-real-estate-market/55758
8 months from now we’ll be having this discussion about LP. The shill will have likely stopped posting. but because nothing is selling steveo won’t be able to pay his bills; Comcast will have shut off his triple play so no more internet for him!
Oh there are cracks in LP as well. Currently there are 549 attached units listed (down about 40% from 2007 levels) and only 40 under contract. This represents only 7% of the inventory under contract. This number should be around 25% for prices to remain stable. We will have see what q1 brings and how it shakes out.
Sabrina, there are 2 condos rented in my building. If I rent $400 BELOW their rental price of $2400, I only lose $200 a month because I put a lot down on my mortgage (which evaporated but that’s another story) and my monthly is $2200… So, my rental would be considerably below market and it’s in E Lakeview with a 6 minute walk to the El and 2 minutes to *everything* by foot. So given my location, I would be very surprised if I had to go that low. It’s a very new 2/2. The ones in my bldg are 2400 but I also have more sq ft. in mine also. So, that’s a $2400 per year loss + agent fee of $2400 (deductible) + cleaning / maintenance around $1000 (deductible). So I lose $5000 per year now or $70,000 now… which would you want to do? Honestly, if someone wants to buy it at a more minor loss – then I’ll get out… but I don’t see that happening and I want / need to move.
Does anyone really think that a significant decline in sales volume for any market will not eventually result in a price decline? Sure some sellers will take their place off the market rather than sell at a loss, but what about the ones that MUST sell? When your wife divorces you and the child support payments are due, waiting to sell the house is not an option. When you lose your job that paid $200,000+ per year and your new one pays $60,000 you can no longer make $4000/mo in mortgage payments. This is the reality of Lincoln Park and every other “nice” neighborhood. It isn’t different here.
The marginal neighborhoods were first to fall for obvious reasons, but that by no means makes the nicer ones immune. Remember at the beginning of the bust when people were saying “subprime is contained” and only the really shaky financial firms like New Century were failing? How many people at that point would have believed that Lehman Brothers would be filing bankruptcy just a short time later? This is a nasty recession and nobody is immune.
WanttoGetOut,
Truth is you LOST 70k and will bleed another 5k a year, not one or the other. Not realizing that loss does not mean it did not happen. It’s absolutely no different than buying 100k of stock and watching it go to 30k but you still own it. Open up the statement and you are down 70k whether you sell or not. People only seem to get this when they mark their books as prices go up but refuse to see the same when they go down. It is where it is, that is now the fair value.
“It will come back, it was just there, it has to go back” – Famous last words of many.
Ze said: “Sabrina. Decades???? Look at an equities chart and you can’t even find 1987 on it. Look at cali real estate 1989-91. both look like a blip. And this is coming from one of the most bearish people on here.”
It took 7 years from bottom to top for the Southern California housing market to just break even in the 1990s. And that bust was nothing compared to this one.
1987 wasn’t a bubble bursting (in the stock markets.) That event occurred during a massive bull market (a bull market correction.) The 1960s-70s equity bust lasted 16 years (to break even.) The depression equity bust (which is more telling here, in my opinion)- took 26 years for the Dow to return to break even.
The 2000 Nasdaq bust is going into year #9 with no end in sight (to break even.) I suspect it will be closer to the 26 years with the Nasdaq to again reach the 5,000 level. The average bear stock market (historically) have lasted anywhere from 11 years to 26 years (the depression bear.)
I expect real estate to be no different. It will be at least a decade (on the low side) and given the extent of the bubble (the largest in history)- it will more likely be more than one decade.
The SHill continues to backtrack, “I agree there are losers in LP but there are also a lot of winners.”
I remember the SHill’s claim was 5 winners for each loser. Also, his claim that the losers made “bad buying decisions” (LMAO.) Now, it looks like he is claiming that anyone selling has made a bad selling decision. His other new contention that as long as they bought for rent parity, they are fine. Just don’t figure in transaction, opportunity or repair costs because renters don’t pay them.
Where is his data in support of his wild claims?
WanttoGetOut said: “Sabrina, there are 2 condos rented in my building. If I rent $400 BELOW their rental price of $2400, I only lose $200 a month because I put a lot down on my mortgage (which evaporated but that’s another story) and my monthly is $2200… So, my rental would be considerably below market and it’s in E Lakeview with a 6 minute walk to the El and 2 minutes to *everything* by foot. So given my location, I would be very surprised if I had to go that low. It’s a very new 2/2. The ones in my bldg are 2400 but I also have more sq ft. in mine also. So, that’s a $2400 per year loss + agent fee of $2400 (deductible) + cleaning / maintenance around $1000 (deductible). So I lose $5000 per year now or $70,000 now… which would you want to do? Honestly, if someone wants to buy it at a more minor loss – then I’ll get out… but I don’t see that happening and I want / need to move.”
WanttoGetOut: I understand the reasoning- but I guess my question is- can you really rent it instantly? Usually nicer properties in East Lakeview (with parking) rent pretty quickly- but what if you have to wait a few months to rent it?
But if you HAVE to move- losing several thousand dollars a year (for now) seems to be a better option than losing $70k or more (unless housing keeps falling.)
All I’m saying is that everyone thinks it’s so easy to just rent it out- but renters are flakey. What if you get one that trashes the place or stops paying rent? I’ve seen this happen more than you know.
I guess it’s a risk you’re willing to take.
Gary, you are a credit to your “profession.”
Do you have a definition of inventory from the realtor-generated stats you reference? Is it the number of listings at the end of the month? Daily average for the month? Something generated behind the NAR curtain needs explanation.
I track the number of listings entered in the mls for the month (regardless of outcome.) They are increasing rapidly in LP. It must be everyone getting a jump on the “Spring bounce,” tee hee hee.
Wanttogetout,
Condos are not going to go up in value for a looong time – and before they do, they’ll drop off some more. Just look at all those units that have hit and will hit the market soon.
Are you ready to be a landlord for a decade? Have you considered that your condo may be empty for a month or two between tenants?
And in the meantime, your loss is effectively going to increase by $5000 or so more per year…Hmmm. So ten years from now, you’d need the value of your condo to increase 120k from where it is now just to come out even (a very rough calculation, but still).
WanttoGetOut,
What you should ask yourself is, which is likely to recover faster (and by what %): real estate or equities (or name your investment)? If you think real estate will recover first and best, then yes, not selling is the way to go. But if you think it is any other asset class, then you should sell and invest in that, instead. At this point, you should be thinking like an investor, even if you didn’t start as one (because you thought you’d stay in your home forever).
Here’s a better one… all last year when i was ruining comps in my bldg by lowering my sales price every week people kept telling me to stop and rent and wait for the market to get better. I just kept lowering and got off with a small hit. Now those that refused to lower are offered below where I was with no bids in site. You ARE ALREADY down the 70k. Not selling does not mean you have not taken the balance sheet hit. That is fair value. I learned long ago to take my hits and move on.
$70k is a lot of money. For all practical purposes IL is a non-recourse state for first mortgages. Give the property back to the bank. At this point you’re just renting it from them anyways. You’ll take a hit to your credit score for 10 years but I’d rather have that than lose $70k. And credit is so tight anyways I don’t think you’ll be borrowing much money anyway. If you have a second mortgage piggy back mortgage then pay it off (if it’s less than $70k) or just straight up file BK … you’ll need to see an attorney to determine how you qualify but if it’s looking to rid yourself of $70k of debt then bk is the best way to go.
Renting out the unit is a pain in the ass unless you get good tenants and to get good tenants you need to be cheaper than the rest. Good tenants know they’re good tenants and they know they are rare. In a sense they demand a premium from the landlord in the form of cheaper rent! To find tenants with stable jobs, good credit history, no crazy pets and at the same time respectful of neighbors is difficult even in the best of times. There’s always a steady supply of post-college grads but even they are hit or miss.
One more thing, you could short sale the property without having to file BK or take a foreclosure; you may be responsible for the deficiency and you will probably have to sign a promissory note to that end, which doesn’t really change the fact that you don’t have $70k stuffed into your mattress to pay the bank. I bet there are half a dozen other people in your building contempating the same thing. You may as well take the hit early and soon just to get it over with, with whatever decision you make.
Best advice given so far is above. consult an attorney.
Also, don’t ask a realtor to short sale your property. Find a real estate negotiation expert to do it.
“I don’t think there is another major city where you can get as much for 2.5x income as Chicago. I mean, if you only make $50k a year year I bet you can get a perfectly nice one-bedroom in a marginal neighborhood. Why does everyone here think that it’s their right to get a sweet new condo in the gold coast based on 2.5x a mediocre salary?”
Turd,
Please find me that that “perfectly nice one bedroom” for $125,000 in a “fringe” neighborhood. I’ve searched and find some in bad neighborhoods that ae getting worse to mounting foreclosures. I couldn’t find any in Logan Square which I consider fringe.
“…a friend of mine that bought in 2002 in Edgewater for $125k. It was a 2 bedroom, 1 bath with w/d in the unit (no parking however.) The price, if she were to sell it, has doubled. She’s makes about $50k a year and her own condo is completely unaffordable to her now.”
Sabrina makes a great point. If your place has appreciated to the point where you couldn’t afford it if you’d have to repurchase at the current “market value” the market value is out of whack.
“All I’m saying is that everyone thinks it’s so easy to just rent it out- but renters are flakey. What if you get one that trashes the place or stops paying rent? I’ve seen this happen more than you know.”
My neighbor just rented out a 2/2 in our Lakeview 4-flat for $1,900 a month. He did credit checks, etc. but still managed to rent to the tenants from hell. This past weekend, one of the tenents broke the door frame to the condo and also smashed in part of the wall in the common stairwell in a drunken rage. We have filed a police report. I can only imagine what this unit looks like.
“Housing is not going to decline so your below average salary will allow you to live in a above average neighborhood.”
I’m not asking it to Steve. I asking it to decline so that my above average salary can afford to buy and above average home in an above average neighborhood.
Steve – what is your formula for FMV based on rent?
Steve,
I would be curious about that as well.
I have seen quite a few SFH/townhomes in the nice neighborhoods of the city both for sale and for rent, and have not seen a single home where a purchase makes any sense whatsoever given the rental listing price (which tends to be above negotiated rent).
HD: “You’ll take a hit to your credit score for 10 years but I’d rather have that than lose $70k.”
I think you’re misreading WTGO’s situ (I may be wrong, tho). Said he had a “large” dp, so I think that $70k is all equity–i.e., giving the place back to the bank would be an *additional* loss, rather than the whole loss. Would you advise seeking out a equity loan and then defaulting on the 1st and 2d? Because that seems to be the only way for WTGO to get out w/ screwed up credit and avoiding a cash loss.
anon I don’t think it’s clear from what he said if he’s including his ‘evaporated’ downpayment in the $70k loss or not.
My point is that if he has only a 1st mortgage then he can walk away losing only his downpayment.
If he has a 1st and a 2nd (i.e. 80/10/10) then for all practical purposes the 1st is non-recourse but the second will come after him and he will have to go BK.
I need to know more before I make my free unsolicited anonymous internet legal recommendations. As I always tell my clients, one little fact that they think doesn’t matter can screw up their case royally so they need to tell me *everything*.
I would suggest this guy spend a couple of hundred bucks to see a BK or real estate lawyer who is familiar with this stuff. I’m sure he knows someone who knows someone who would be willing to set up a consultation.
HD: WTGO’s mortgage is sub $2k/month ($2200 less tax&assess). Works out to ~$570k (max–tho I doubt this high) purchase price with 20% down (higher if more of a DP). While it’s possible that this East LV building is off OVER 30% (which is what would need to be true to lose the DP + $70k extra; higher % if the purchase price was below $570k), that doesn’t seem likely, yet.
Of course, if “large down payment” doesn’t mean 20%+, then I’m just too old.
Well, thanks for taking an interest in my situation… I appreciate the advice as I have mostly been alone in this somewhat hellish nightmare of watching 10 years of sacrifice & savings go up in smoke (and reading schadenfreude filled posters on this site)
So, for the gurus out there, here is my story…and perhaps you can offer additional advice. I would appreciate it.
I bought the 2/2 for 475 during the bubble in a 3 flat style bldg that was recent construction. I have no idea what it is worth now. I just refinanced and it still appraised for 475 (and not everyone did according to my lender btw… but I doubt anyone would actually pay 475) It is unique in a few small ways (more outdoor space than most, wide floor plan) and has indoor attached parking in E lakeview.
I have 100k+ in equity which was a huge mistake, but I did the 20% rule and also bought a place that was 2.5-3x income. So, I did everything else “right” except timing.
If I walk – I will lose way more than 70k. I say 70k bc that is my VERY rough estimate of the equity decline + realtors fees. It could be far worse. I have no idea how bad it will be this summer or in a summer 20 years from now. So, if I “walk” then I will loose 100k + everything I put into the place (which I already knew was lost, but still – money is money). Then I will have no credit for 7 years. Then, the bank will then auction it and come after me for the balance which could easily be lower than 375k and I have the money…so I don’t see why I would want to walk. I would have to sell it for around 400k to break even with that scenario, so i see no reason to walk and ruin my credit.
As for renting, that is the least worst option. If I can’t sell it – what else would you like me to do? Burn it down? I never said that renting is a joy or would be easy. I never said it won’t still be declining in value while it is rented…but I cannot live here and I do not know of any other option. So I am very curious, now that I have laid out my $ situation.
The sick irony is that the system is rigged to punish people who did everything right. If I put nothing down and had nothing in the bank, I’d walk…not lose a cent…and they couldn’t come after me for a cent. Of course since I spent 10 years saving every penny I had so I could buy – and wasn’t getting in to a no-down-payment-interest-only-2%-ARM loan, I get screwed. That’s beside the point…
Any thoughts are appreciated other than “you were an idiot for putting 100k down” yes I know…but again, it does no good to tell me something I already know.
Anyway, now that you know my numbers, I look forward to your opinions. Sorry if I sound bitter… I can’t help it.
One of my previous posts may have led to some confusion. When I calculated out the rental price & said I wouldn’t lose that much, it was based on a few numbers I didn’t post directly above. First, my ASM is 200 and my taxes are low and my P & I is around 2100. Then, after appropriate, accountant-approved write-offs, this brings my NET monthly bill to roughly 2200. I am essentially taking my gross income and accounting for write offs in the interest, tax, and ASM (if rented) – then dividing that reduction in taxes by 12, subtracting it from my gross monthly payment, and arriving at ~2200. That is my net payment. I am not calculating depreciation because I don’t exaclty know how to calculate it. My accountant said depreciation and rental income tax tend to cancel each other out anyway in the first few years. So, that should clear things up.
How come you are forced to move?
Yeah, that’s my question, why move? If you only want to move it would be silly to go. Plus if you are in a three flat with the two other units rented, might that not make it hard for someone to get a mortgage? (although having two renters in a condo three flat might be reason enough to move…)
WTGO:
If I were in your situation, I’d probably have to let it ride, one way or another. But there is a reasonable chance you’re throwing good money after bad and you have to be prepared to deal with the possibility that, as pointed out above, in 10 years you’re facing a $120k loss, rather than a $70k loss, and the opportunity cost of the $30k-50k you spent on the mortgage in those 10 years.
Also, Fan/Fred loans are still available at 95% ltv’s capped at $417k–so $439k is possible. And you can’t find a buyer if you aren’t advertising it for sale.
$95k is 20% of $475,000. If you think you would lose upwards of $47k plus $23k realtor fees then you’ve still got some real equity to burn…a $47k loss assumes a 10% decline…How low do you think things will go? That’s the answer to the question.
If you think that further market declines are inevitable then you should walk. A 20% decline would pretty much wipe out all your equity putting your at or close to underwater.
If you think things will pick up again in a few years then rent it out and deal with that BS for a while.
The only legal aspect to this all, is that I assume you only have a first mortgage. you could walk and probably (I say probably b/c you never know in this profession) lose only your downpayment and nothing more. You’d save yourself a headache. Other than that it’s primarily an investment decision – choosing the lesser of the evils (rent, walk, stay put, etc).
I know I feel great schadenfreude towards this situation as a whole, but on a individual and personal level, it sucks for you, I know quite a few people in your situation, and I truly do feel sympathy for you. The best i can say is that we humans aren’t midas, not everything we touch will turn to gold and make us money. Your condo being a great example.
G,
Thanks for the compliment. Got a chuckle out of the word profession in quotes.
I’m using Agent Metric’s definition of inventory which is “the number of properties For Sale (FS) during the month (that is, the property was Active at least one day during the month) minus the number of properties that went Under Contract (UC) during the month minus the number of properties that Expired (X) during the month”
Yeah, I think we are looking at pent up supply here in the first few months of 2009. Eventually some people HAVE to move.
Well, thanks for the analysis… this is much of what I have been thinking day and night – with no real answer. We will see how low it will go in the next 6 months possibly…and for the record, I do not believe these prices will ever be seen again for at least 10-15 years…simply bc 3 million people were removed from the demand side of the equation while the supply side has expanded way too much. In 15 years, this crappy 2000x construction will have fallen apart completely and only a NEW 2/2 in 2023 will be worth 475. My place will be 350 probably. I don’t intend to rent it for 15 years though. Btw, it will be on sale soon. I had to take it off to refinance. If it sells, then I will get the hell out… if not, then I will rent.
I am moving for a lot of reasons that are complex and unique to me and I dont want to introduce more variables into the equation so I’ll leave it there… and I also somewhat hate my place which I never expected. I hate my cheap condo board who has turned the common areas into space that rivals Cabrini Green. It’s gross. I can’t even look at the lobby… I would probably pay to have it repainted myself if I didn’t have to “fight the man” on it. We have no reserves anyway. I don’t live in a “3 flat” btw – but it is a “3 flat type.” My bldg is actually unique and identifiable based on a few traits I didn’t mention… deliberately bc I would rather mention what a dump it is and how desperate I am to sell it than be identified.
BTW, I *never* looked at this thing as an investment or a get-rich quick scheme. In fact, I felt I overpaid by 20k deliberately to get this particular unit that had certain things I wanted. I knew I’d never see that money again but I had no intention of selling it in the next 10 yrs. I didn’t think it would be falling apart at the seams and enslaving me into repairs and maintenance that has now exceeded 10k.
“I don’t live in a “3 flat” btw – but it is a “3 flat type.”” i.e. a three-flat or better yet, detergent box. I’m surprised you had to ADD crown moulding…
nd – what the fuck are you talking about? “3 flat type” could mean 4 flat – could mean 6 condos (3 on each side) or 8 condos (4 on each side). WTF is up with the crown molding comment (use the USA spelling please queen). It doesn’t even make any sense. I saw 70 properties before I bought this…about a third had crown. How many properties did you see before you rented your $600/mo garden studio?
“Would you advise seeking out a equity loan and then defaulting on the 1st and 2d? Because that seems to be the only way for WTGO to get out w/ screwed up credit and avoiding a cash loss.”
Yes I definitely would. As WTGO said the system is rigged to punish those who did everything right. Well WTGO noone is making you do everything right. Why be the sole bagholder when so many other parties profitted off of this obscene bubble without blowing a whistle at some point?
Are you going to eat that 70k loss when Wall St, ratings agencies, mortgage brokers, commercial banks, etc. were complicit in the bubble because it made them more short-term earnings when house values were going up? Now they want solely YOU to bear the brunt of this loss? If I were you I’d say to F with them. F the system dude don’t let the system F you.
Heres what you do:
1) Take out that max equity loan you can if your place is still appraised at 475k.
2) Hide this money somewhere safe for awhile.
3) Start spending a lot of time in the casino or at the track collecting receipts of people who lost $.
4) Declare BK. If the judge goes after you trying to figure out what you did with the HEL monies say it all went up in smoke at the track due to your newly acquired gambling addiction.
5) A few years later get the money back but filter it into the banking system slowly.
You don’t have to be left holding the bag. And don’t buy the arguments of those on here who believe in chivalry and fairy tales, etc. In this collapse its every man for himself and although every other party has a vested interest in you being stuck with the hot potato you don’t have to be. I’d pass the buck if I were you. I’d sleep at night just fine thank you very much–for those with a heavier conscience ambien is a lot cheaper than 70k!
ROFL Bob…
Nobody is loaning beyond 20% these days though. Believe me I thought about it… you cannot get down to 0% equity. The banks, after being f’d by the firs 1 million americans, started to wise up.
God bless america…
“My accountant said depreciation and rental income tax tend to cancel each other out anyway in the first few years.”
You have a terrible, and I mean TERRIBLE, accountant. This is basic stuff that the H&R BLock trainee would know. But you need to do your own due diligence and understand these things and as I said before to the general audience, stop watching Lost and eating hot wings at Hooters.
If you would essentially breakeven from a cash flow perspective from renting then you don’t have rental income tax (you have no rental profits). You get to claim depreciation as an annual loss against your income. Your base price $475k less some portion, say 10%, for land, which is not depreciable, divided by 27.5 years is $15,545!) Multiply that by your tax rate and that is your tax savings. This is how owning RE shelters income. I’ve paid less than 10% in taxes for about 5 years.
Secondly, stop thinking and start doing; go get facts. How can you make a financial decision without the numbers? Comp out your place to see what is an accurate market value and also determine what is a reasonable rent for your place. Then come back and tell us what you found out.
Gary, thanks for the details. I would say that puts into question the usefulness of the inventory stat when there are many expireds (which is the reality today.) They could have been active all but one day and they aren’t counted. Not a problem when expireds occur at typical rates, but that ain’t reality now.
In other words, any comparison of inventory today to more “normal” market conditions is misleading.
The best I see for an ‘apples to apples’ comparison is the number of new listings entered. It ain’t perfect as ‘inventory’ but it does give an idea of the numbers of those who want to sell.
“what the fuck are you talking about? “3 flat type” could mean 4 flat – could mean 6 condos (3 on each side) or 8 condos (4 on each side).”
NO, three flat type means just that, three flats, three on each side for a total of six is a six-flat and so on. You aren’t native are you? It’s pretty obvious it’s a crummy detergent (aka cinder block infill) box since you are so defensive.
Madfly, although I fully agreed with virtually all of the comments you made in this thread (particularly around the irritating posters’ celebration of foreclosures and repetitive bashing of every property that is listed here) all I have to say to your reply is: Jesus Christ. You actually have useful comments but they are encased in such irritating rhetoric, I can barely even get to the point you are trying to make. Is this really necessary: “stop watching Lost and eating hot wings at Hooters.” I don’t understand what is up with people who make anonymous comments like this on the internet. Do you jerk off while watching people respond irritably to your comment? Is that how it works?
You think if 90% of every waking moment of my life for the last year hasn’t been devoted to figuring out how to get out of this f’d up mess that has taken 10 years of my savings?
You feel the need to boast that you only pay 10% in taxes while leaving scant details…for example, not clarifying whether depreciation applies to federal, state, or both. (I never had the luck to be an H & R block trainee so I don’t know. I never thought I would be in the position to rent and don’t have ANYONE to ask about it but my accountant – none of my friends are landlords…it’s not easy to get a brand new accountant on the phone to answer your questions. Why do you assume “doing your research” is so easy in this area?) Give me some names of people to call.
Also, exactly why would I have no rental income tax if I am collecting $2400 per month? That’s not income? It’s income at a loss compared to the mortgage…but you still have to pay taxes on it (but if I’m wrong, I am sure you will find some unnecessarily colorful way to correct me).
I already posted that there are no comps here because nothing has been selling in the last 4 months. I just had it appraised during the refi for 475 (based on some old comps from the summer, mostly) and 2 units are rented for 2400. So, there ya go.
I am curious, if you are very wise and experienced with tax issues, finance, and real estate matters, would you reply if I left my email here so you could discuss this with me? Or, do you enjoy seeing your obnoxious comments posted for public viewing. I am going to hypothesize it is the latter, because the goal of actually providing advice is second only to your bizarre need to bash and ridicule others and their accountants (equivalent to the obsessive bubble bitches – who, by the way, are all full of BS because if they knew anything they would’ve shorted at least 1 if not all of: LEH, BSC, FNM, FRE, MER, WAMU, C, and BOA and been on an island retired right now)
WTGO,
I am no tax expert so don’t confuse this with real advice: but if you’re renting the place out the rent you receive is not all income, in fact none of it might be. If you aren’t even breaking even on renting I don’t think you’d be paying any tax and should be getting tax breaks.
With small business you have wide leeway to work tax numbers to your advantage. If you’re losing money your business is losing money. If the business is losing money then yes, you get tax credits for this. You are only taxed on your net income. Which I would think for small landlords is: total gross rent receipts less all costs associated with the purchase and upkeep of the domicile.
Nd – how does WALK UP sound for you? Is that better? I’m sorry i am not in the real estate industry, so I am not familiar with your terms…actually, thank god I am not in the real estate industry. The industry I work in has ethical standards, and I could never work in real estate. So “cinder block infill box” it is! That must be it…as if I have a clue what the fuck you are talking about. I already explained that I am bitter, so yes, when people make absolutely no sense (because they are too stupid to realize they are using terms that are not universally understood) and then balk at “adding” crown ‘moulding’ (speaking of being native)…they get the deserved response. That’s how it is.
OHMIGOD, what a cranky boi you are. Two, three and six-flat are commonly understood terms in Chicago, I’ve heard them my whole life. Did your bf leave you for tina?
Funny I always assumed MADFLY was a chick. She can get down to 10% tax rate using a passive loss that gets capped and then diminished as you itemize and tells others to get busy working. I’ll be laughing about that one too while I’m surfing tomorrow. This site is getting more entertaining lately….
WTGO sorry to hear about your loss. I still think of bad investments like bad marriages. Get out.. move forward.. it sucks but it clears your head.
WTGO, like Homedelete said, it isn’t people like you that most of our schadenfreude is directed at. In fact, one of the reasons I have such hostility towards speculators and irresponsible buyers is because they drove housing prices up to unsustainable highs using other people’s money and screwed honest buyers like yourself in the process. I’ve been wanting to buy for a while and could afford to do so, but I’m not about to pay bubble prices that clearly can’t be sustained long term.
If the specuvestors were only screwing themselves and the banks dumb enough to lend to them, I wouldn’t care. But this affects all of us, as recent events have clearly shown.
G,
I think the rationale for subtracting the expireds is similar to your rationale for counting the new listings. An expired is kinda like a negative new listing. Another way to look at it is that it should be close to the end of month units for sale. In fact, I don’t know why they don’t just do it that way.
WTGO,
To further clarify what Bob was trying to tell you, if your property becomes investment property then the interest on your mortgage is a deduction against your rental income for tax purposes. However, if you are already able to deduct that interest anyway then you are correct that the rent is incremental income. The incremental tax deduction may just be the depreciation – which would have to be recaptured upon sale. It’s complicated enough to where you really need a spreadsheet to figure out what is going on.
“You think if 90% of every waking moment of my life for the last year hasn’t been devoted to figuring out how to get out of this f’d up mess that has taken 10 years of my savings?”
I don’t cheerlead the falling of the market because I think it’s in bad taste and results in bad karma. But I do tell it like it needs to be told, and what I’m telling you is that you have to take initiative to figure things out. If you’ve really pondered this situation for one year and don’t understand the tax implications of renting out your place, then you’ve pondered alot but discovered nothing (and probably done nothing). What action have you taken in the past year to remedy your situation? It’s 12 months later and you are on a real estate blog seeking advice.
As for discussing this offline, the answer is no. But I can give you a great resource for tax questions. The IRS. I have had people ask me tax questions in the past and they say they have looking and looking and cannot find the answer. Immediately, I pick up the phone and dial the IRS and ask the question. I fully expect this answer to irritate you, but I have actually given you a real answer on your depreciation remark and a real answer on who to ask for tax questions.
Peace out.
Ze – I am nobody’s bitch! And master of my domain. LOL
WTGO – Not sure if this helps, but I can second MADFLY’s recommendation to phone the IRS. I’ve done so multiple times when deciding how to structure a LLC and a family trust, at least prior to hiring an attorney. Surprisingly helpful, with much of the relevant tax code on their website. I needed the attorney to help me see how to mold my situation into the best package to present to the government.
Regarding getting answers from the IRS…Every year the WSJ runs a test where they call the IRS with tax questions. Universally they find that the IRS gives the wrong answer something like half the time! I wouldn’t rely upon them. After all, they are run by the government.
This has got to be the longest thread I’ve seen yet.
WantToGetOut
Please obtain professional advice from a creative individual. Losses on passive rentals are phased out if income is over $150,000 (married limit), so the depreciation may not be helpful. The IRS also may also treat the property selling price as if you did depreciate, even if you didn’t.
Equities should be low and unprofitable for four years, and housing for six years….. that’s an educated guess. I’ve read numerous reports that housing is expected to fall another 20%. And lastly, many of us have lost money even if we were renters, as equities have lost approximately 40% of their value.
MADFLY.. That was good!!!
And you are correct all the info is out there and nowadays easily accessible with a simple Google search. I research shit incessantly when I need to. You are right being stuck is one thing lazy is another. You make a fair argument. I concede the point.
MADFLY….But are you a chick or not?
Thanks Pete. I appreciate it.
To come up with rental income dot he following –
+ rents
– Interest
– RE Taxes
– Assessments
– Depreciation
– Anything else necessary to bring the rental income to $0 (miles, paint, prints ads, ect)
= net income ($0)
WTGO,
You can do what my father in laws neighbor did. He was making his payments on a $400K place (Oak Park) but struggling mightly. Went to get approved for a mortgage like he was planning on moving. Got the approval, bought a new place for $250K, moved in and defaulted on the old place. He used a new lender for the second home than he did for the first one. He screwed his credit but has a house with a fixed rate 30 year mtg that he can afford.
I am not sure why people advise WTGO to defraud the banks – he can afford his place. To me, such behavior is criminal, and to think that most people now seem to think fraud is ok, just because lots of other people have done it – makes me very concerned.
And remember, WTGO is not the only one who has been screwed – all of us renters and our kids will also be paying for this mess for years to come! We are all losing out.
Do keep in mind that when you screw the banks it’s not exactly like you are screwing “them”. You are screwing “us” too. It hurts stockholders, taxpayers, and borrowers in the long run. I think most of us are in there somewhere.
BTW, mess up your credit and then what do you do if you HAVE to move for personal or career reasons?
After reading again with a fresh pair of eyes, WTGO should sell. Plain and simple.
First, we need to estimate what the MV is today. But there are no comps, you say. You give up really easy, I say. There are always comps unless you are the only igloo in the north pole. Let’s say it’s $425k. So if you sold without a realtor (use a flat fee MLS listing service), you get to keep $50k of your equity.
If you rent, you can probably get $2400+ (again don’t use an agent, craiglist is the shiznit) if the other units in the “3-flat style” building are renting for that, plus you say your unit is bigger and better. Based on your expenses of $2200, it actually cashflows $2400 per year, less vacancy and maintenance costs. And for $2400 a month, you will not get crappy tenants; they can’t afford it. If this option sounds good to you, it shouldn’t. Because you think the condo is going to be worth $350K in 2023 (which I think is nuts, but you supply the inputs), an loss of $75k over 15 years.
This is a financial decision and between these two, it’s not even close. Sell it.
It’s listed for sale…my agent wrote 2 offers for other property recently so it’s not totally dead out there.
Madfly, there are comps – I just had it appraised for a re-fi but the comps are not recent. It came back at 480…surprise. I don’t think that’s what people would pay now, but I don’t have access to the MLS. Only my agent and the appraiser does and my agent thinks my asking price is fine (460s) considering all of the relevant details & 475 purchase during the bubble.
I am not going to default for a number of reasons. I will lose 100k plus some other minor equity… plus I put in all this money which I think will make it more competitive even though I doubt I’ll actually see that money again (at least it’ll help it sell… i think. If it forcloses, then I lose everything point blank. This argument doesn’t really make sense on here – but I can’t articulate it. Basically, I’d be letting a VERY nice place forclose…and it’s a place that should be able to sell.)
I don’t know what it will be worth in 2023. What do you think? The construction quality is absolutely awful. It’s only a few years old, but the place was slapped together in 3 weeks. I’ve had to fix or replace 10k worth of things. God knows what special asm are on the horizon. My condo board is somewhat hopeless… we have no reserves. So, selling would be great… assuming values will be depressed forever.
The reason I thought it woudl be so cheap in 15 years is that it will be “old” by that time and the const. quality is horrible. It could be worth 475 but I’m sure I’ll have had to put in 100k in fixes since this place is a dump (internal and special asm)
The other thing is the location is VERY good… I love this location and so does everyone who comes here… and if I ever move back – I want to live here. You can walk to everything – and it’s one of the nicer condos on the street (which is generally a nice street). So, if I can move back in a few yrs, I can potentially take it back from the renter. It’s just complicated… bc there’s no way to know the value in 3 years and where I’ll be in 3 yrs. I probably won’t be here ever again.. but the rent vs. sell decision is not that easy.
I am just supplying the inputs out of my ass really. I’m not an economist. I wish I could forcast what my place would be worth even in a week… but I can’t.
The main question in this thread was “will the buyers come out of hiding” … well, if they don’t – how could renters also be so incredibly scarce? Is everyone moving back to their parents’ house or staying put?
I think that anybody who thinks that they have an educated opinion on what will happen in 2023 or what it will be like economically is a bit arrogant. Seriously that would be like somebody predicting what 2008 would be like in 1993, or 2000 in 1985. The further our someone’s prediction is the less credit I give it.
World events have a way of making predicting economic conditions far off into the future pretty difficult if not impossible.
WTGO said:
“… but I don’t have access to the MLS. Only my agent and the appraiser does and my agent thinks my asking price is fine (460s) considering all of the relevant details & 475 purchase during the bubble.”
Grasshopper, we ALL have access to the MLS through the Internet. There’s a boatload of websites that you can do your research on. while it’s not going to calculate comps for you, you can grab numbers of all sorts of similar properties and figure this stuff out on your own. And in Cook County, the assessor, treasurer and recorder of deeds all have online search tools as well. There’s a wealth of info out there, and very little of it is “secret” anymore.
Echoing Rachel, I know or hope you guys were kidding about defrauding the bank. To me there is something wrong about even entertaining the idea of stopping payment on the mortgage when continuing to pay is still an option or (God forbid) engaging in mortgage fraud. It’s not about cold economic calculus or some shortsighted cost-benefit analysis. It’s not about what the banks did and how they soiled their reputations. If you’re a grown adult, you’ve got to take responsibility for your actions, conduct yourself with integrity and protect your reputation. Life is more than money and lasts longer than a financial pinch. But your integrity stays with you the whole way.
Chris,
Not kidding at all. But let me ask you this: what parties did act with integrity during this bubble? Please seriously consider and entertain this question.
If you’re the only one with “integrity” when the entire system is corrupt you’re setting yourself up to be a perpetual bagholder for life.
If you could just answer my first question I’d be thrilled.
Rachel,
Just saw your reply. Yes you should be concerned, you should be very concerned.
I am all about and quite supportive of people defrauding the banks. I applaud them and if I was on a jury there is no way I’d convict someone of vandalism who stripped the pipes/copper out of their place. Because unlike you I believe it was equally as criminal for the banks to lower underwriting standards during the 2002-2008 timeframe to inflate this bubble so they could wreck our economy. I believe it equally as criminal for Wall Street to originate and resell these junk MBS they knew were crap. I believe it equally as criminal the ratings agencies were complicit in this.
No comments from you on those other criminal aspects. Perhaps too complicated for your chivalry and fairytale world? Don’t understand more complicated things?
I hope people getting foreclosed on gut the place to ensure greater losses for the banks. I hope the banks go under some more. I don’t care if its taxpayer money now because quite frankly I was never in support of the bailout.
F the banks defraud them. Maybe they will learn risk management if they get defrauded enough. They certainly aren’t going to learn how to handle REOs anytime soon.
Bob,
I guess my first inclination is to say that there were undoubtedly a lot of buyers who didn’t dig very deeply into how the system works, just thought of it as a black box and made decisions that seemed to make the most sense for them, didn’t opt for a complicated financing scheme they weren’t comfortable with, and didn’t compromise their integrity. Among many sellers I’m guessing something similar was going on. To be honest, I didn’t participate in any of the bubble because I didn’t think I had the means to buy and I was never very sure I’d be in the same place for very long, so I probably don’t have enough personal experience to answer your question.
I understand that many good-intentioned people have been caught in a bad spot and I am sympathetic. And I also realize that the banks had all the expertise, experience, risk management capabilities, and big-picture perspective to avoid the lemming march and they did it anyway.
But I don’t agree with you that it’s impossible to maintain personal integrity in a shady world, and I would suggest that U.S. real estate circa 2000-2005 does not actually rank very high on the scale of shady markets in which money is trading hands. How about running a large enterprise in an authoritarian political environment, for instance, or a line of work that involved flipping sides between industry and the regulator frequently?
And if you think the U.S. economy is a zero-sum game of bag-makers and bag-holders, you have a very limited view of the potential of capitalism (which admittedly is currently under siege).
Totally off-topic but this foreclosure property is pretty unique:
http://www.arlingtonheights-realestate.info/Foreclosure_new_houses_in_Schiller_Park_il.html
That poor house looks so lonely. It needs to be a row house and attached to other houses on both sides. Had did it come to be built there?
This house sits on a 40″ x 200″ lot and has a twin neighbor built next to it. The other side is an empty lot. Town & Country GMAC is listing it for sale.
Another off-topic on this thread, saw Chicago real estate mogul Sheldon Good apparently committed suicide on Monday. You’ve got to wonder how bad things would have to be to get to that point. I know depression can mess you up without external factors becoming a tipping point, but in this economy you have to wonder what financial dealings he was involved in.
Bob said “I think that anybody who thinks that they have an educated opinion on what will happen in 2023 … is a bit arrogant.”
I predict the Cubs will not win the World Series… See how easy it is. 🙂
Oh Ze,
I was referring to cyclical things and cycles. I think we all know the Cubs don’t go through much with regards to cycles.
They consistently get to post season and lose, lose, lose. It can’t be a cycle without some break or change in the pattern. 🙂
umm, make that Steven Good, CEO of Sheldon Good.
“Chicago real estate mogul Sheldon Good apparently committed suicide on Monday. “
“They consistently get to post season..”
Bob, you ain’t from around here, are you?
I just hope Chaz is doing fine!
Adolf Merckle (94th richest guy on the planet) also decided it was in his best interests to step in front of a fast moving train.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aAKFlChIp1Uo&refer=home
crazy!
Yes seems like a big trend lately of guys with Billions not being able to deal with only having multi-millions. I know it’s sad but it’s so pathetic I kinda shake my head and chuckle when I read it. Some of my surfer buddies never have $20 on them and couldn’t be happier. All perspective I guess.
mo money mo problems.
I think it’s their conscience that bothers them; it’s how they aquired the billions not the money itself. If someone has that much money they must be a thief. 😉
ROFLMAO…. HD get off Huff Po!!
1st biggest story in 2009 will still be JOBS!!!
Didn’t someone say something about healthcare growing??? http://money.cnn.com/2009/01/06/news/companies/cigna_job_cuts.reut/index.htm
Finally a bailout with merit…
Adult industry leaders Larry Flynt and Joe Francis (girls gone wild) sent a joint request to Congress asking for $5 billion in federal assistance, “Just to see us through hard times,” Francis said. “Congress seems willing to help shore up our nation’s most important businesses, we feel we deserve the same consideration. In difficult economic times, Americans turn to entertainment for relief. More and more, the kind of entertainment they turn to is adult entertainment.”
Just look upthread for this one:
Steve Heitman on December 31st, 2008 at 8:21 pm
“My neighbors are 2 doctors, an attorney, and a insurance business owner. Chance of losing jobs, zero!”
Yeah my best friend is an attorney-partner at a huge publishing (magazine and news) firm. Nothing but wonderful news on his side. Hates going in every day now as he said it is so depressing.
Lots of high profile suicides in the news lately connected to Real Estate & 1 also to Madoff… i wonder how many people have done it who aren’t CEOs or billionaires…probably a lot. If I did it, I would leave myself in my car in front of my realtor’s house…like that girl who killed herself in her car in front of Paula abdul’s house. I’d want to make a statement. (I say “i” in the hypothetical sense…not really me…but I think it would be better than just doing it in the parking lot of wildfire)
If I walked, I’d save 25k in realtor commission… plus chicago’s new seller tax, closing/atty fees. That’s like 30k. If my place declines more than 70k and then I have to pay 30k to sell it, that’s more than I have in here. So, after losing 100k i then have to pay more. And, while waiting, I get to make more mortgage payments to the bank (which amount to nothing). So, why wouldn’t I walk? Well, most companies do background checks that include your credit history…and i might buy something else before the 7 years are up…etc…(although w/ 3 million forclosures they will probably change that policy.) And, I still want access to credit if I want to finance a new car or who knows what else.
BTW – to the person who said the “MLS is online” – please tell me where you can see closed properties. Blockshopper? Sort of random on there… and who cares what people are listed for on realtor.com. Listing prices are meaningless. The tribune website is several months behind and nothing has sold in the last few months anyway…and you can only go street by street with that interface. Also, if two people independently did the work for me (appraiser and realtor) and I saw the properties they are basing the price on, the dates they sold, and other attributes including sq footage which is rare (but appraisers have that), what better info am i going to get online?
WTGO.. I think you have a pretty good feel of what its worth. BTW if you do decide to go why not take your realtor with you hell for that matter just take out their entire office. Guilty by association. 🙂
And Sabrina can you please take the damn spell check off the word realtor. I will eat my own shit before I capitalize a word as a level of respect to someone who often has little more than a high school education.
I’m going to agree with Bob regarding the defaulting on a mortgage that you could still afford to pay. It needs to be a business decision. What makes the most business sense for you? This is the way the modern economy works. If the bank concludes it would be in their best business interest to screw you over somehow, what will they do? Would you play basketball in a league where your team gets constant fouls called on it but none are ever called on the opposing team no matter how flagrant? Of course not, because it would be a rigged game.
While I think it’s morally wrong to borrow money with no intention or ability to pay it back, I don’t think that is what many people were doing when they paid way too much for houses. Many of them simply bought at the wrong time. If they can make the bank take most of the loss, find a more affordable place to live, and have to suffer with ruined credit for a few years, more power to them. Banking executives know the business, and have no excuse for not protecting their organizations all along.
WantToGetOut, you should post your story on yochicago.com. It might only stay up a little while before Zekas deletes it, but it would be enough to scare many would-be buyers away. Since that site only features new properties, they are pretty much all priced so high that if anyone buys at those prices they will soon be facing ruin. You never know how many people might be saved.
Ze, That would be your browser, not the website capitalizing “Realtor”. I’m guessing you are using Firefox, no? Spell check is part of Firefox by default now.
Are we really contemplating killing Realtors, oops.. I mean realtors now? Hmmm… guess I’ll have to avoid listing appointments with angry-sounding owners. oh waits… that’s _all_ of them. wah wahh
Getting a major chuckle out of not capitalizing the word realtor. I almost never capitalize it either for the same reason and I AM a realtor. Don’t do the (c) symbol either. I kept getting the red underline and assumed the application didn’t even recognize the legitimacy of the word.
Count… ROFLMAO…. Remember bad decisions are ALWAYS someone elses fault. You put the gun to their head and made them buy!!!
Pete.. that is one warped moral compass ya got there. I would argue if they were stupid enough to give you a free put you might as well exercise it, but “they are at fault for giving me the money” is freaking asinine.
Lying on a mortgage application is called Bank Fraud no matter how innocuous your little white lie may be. Chances are you’ll get away with it, but, you do NOT want to be the party that Mr. Fitzgerald and his team of prosecution crazed ASA’s decide to make an example of. Last year I saw an example of a case where an illegal immigrant woman used a fake social security number on an application on a house. For some reason or another that wasn’t clear from the opinion, the bank told the feds, and they decided to prosecute. The lady’s unsuccessful defenses was that the bank was caused no harm by the fraud. None whatsoever. She dutifully paid her mortgage on time every month, she had equity, everything was okie-dokie. The court said that harm to the bank is not an element of bank fraud. The only element that mattered was that she put a false statement onto a mortgage application. Penalty? 7 years in prison. So if you decide to check the wrong box on your mortgage app or lie to the bank and say you plan on selling the first house or if you want to take out a HELOC with no intention of paying it back or if you check the box ‘owner occupied’ when in fact it is not, do so at your own risk.
“she put a false statement onto a mortgage application. Penalty? 7 years in prison.”
What was her sentence for Identity Theft (or SSN fraud or whatever)?
Ze Carioca, ever heard of Chapter 11 bankruptcy? It’s basically the same thing. Is it immoral when a business files? If not, why is it only immoral for a consumer to default on debt?
HD,
Do you think she would have been given 7 yrs if she were a citizen? I doubt it.
But yeah, I am actually in favor of going after those who lied on their mortgage applications, and some of the more “productive” mortgage brokers who encouraged such lies.
Ze–you’ve already been given in by calling them “realtors.” I call them “real estate agents.”
But seriously, the talk of violence has gotten out of hand, even if tongue in cheek. Frankly, I don’t find suicide funny; still less do I find it funny to joke about killing office workers in a real estate agency. If you guys don’t stop, I hope Sabrina starts deleting this kind of post.
Pete,
Most people who think like rachel who abhore the thought of ‘defrauding’ a bank because its ‘illegal’ don’t know much about corporate America or the way it works, as you pointed out. Rachel, guess what dear? Companies help shape the laws via lobbyists. That is why the are allowed to go through reorganization and shaft their creditors.
So I am always skeptical when one comes along like her and believes she is the champion of ‘doing the right thing’, more often than not I’ve found its a champion of naievity regarding what actually goes on.
If the system has been shaped by more powerful parties to put you at a disadvantageous position in relation to them, color outside the lines. Especially if plausible deniability is possible as a defense. With outright lies on mortgage apps plausible deniability is not much of a valid defense so is much more risky, I agree.