Crib Chatter

It’s not a surprise that the third quarter numbers out on Chicago’s downtown condo market show sales have slowed dramatically.  Crain’s reports that condo and townhomes sales fell 34% to 869 units compared to a year ago.  According to a report by the Appraisal Research Counselors:

“Prospective buyers are currently uncomfortable about the market, feel little sense of urgency to make a decision, and are often fearful that market conditions may weaken,” the report says.

Only 781 new units were launched in the quarter, down 66% from a year ago. Unsold inventory downtown was down 1% to 7,601 units, the first drop since 2005. 

The real problem will be in the future. The Appraisal Research Counselors estimates that out of the unsold units, developers have 3,539 units that are currently being built but that are unsold (and will be finished between now and 2010.) That would include all of the unsold units in Trump Tower, Waterview Tower, Library Towers, the Vetro and other buildings that are currently under construction.

Do these numbers include The Spire as well? (it is already under construction but the sales center is not yet open.) 

But developers continue to launch new projects such as the Peshtigo. From Crain’s:

“I think the next 12 months are going to be tremendously challenging,” says Harry Huzenis, executive vice-president of Chicago-based Jameson Realty Group, which develops its own condo projects and works as a broker on others. “If you’re a buyer it’s a wonderful time to be out shopping because I think there’s a lot of great values out there.”

Mr. Huzenis says he’s been advising his developer clients to cut prices and move aggressively to make sales before the market worsens. He figures concerns over the subprime debt market and volatility in the stock market sidelined many buyers.

“A lot of anxiety crept into the consumer’s mind. When the consumer gets confused, the consumer stops acting,” Mr. Huzenis says. “We saw steady sales throughout the year, but we’ve seen a real strong drop-off beginning with August.”

According to the article, developers sold 3,312 downtown condos in the first nine months of the year, down 35% from a year ago. Appraisal Research is also projecting the lowest number of total sales downtown since 2003, only 4,000 units. In 2003, 3,433 units sold. Sales seem to have virtually fallen off a cliff since August.

Crain’s cites The Legacy in the Loop as one of the few buildings that is still selling its units.

They said The Legacy is 85% sold and that it is holding up because their buyers are rich empty nesters.

“We’re hitting a fairly narrow segment of the market,” says James Hanson, a principal with Chicago-based Mesa, noting that they’ve been selling a unit almost every week despite the subprime mortgage crisis. “By and large these are empty-nesters. They’ve got significant income and significant savings.”

One a week, huh? That would be shocking when virtually nothing else is selling in this market. The building is under construction but is still several years away. They started marketing this building several years ago. Many buyers bought at the peak of the market – in 2005. How many were investors? And believe me, there are investors in the building. Is The Legacy really a building that shows how “healthy” the market truly is?  And aren’t all of the buildings marketing to these same rich boomers?

We’ll find out when the building is completed (and see how many contracts actually close.)

The inventory is going to continue to be a problem. There are only so many buyers of $300,000 750 square feet one bedrooms or $450,000 1100 square foot two bedrooms. Prices will come down as more inventory goes unsold.

[More Downtown Condos Sold Than Added in 3Q: Crain’s]