What Happens to the Original Buyers? 611 S. Wells in the South Loop
We’ve chattered numerous times about The Vetro, at 611 S. Wells in the South Loop over the past 2 years.
We’ve covered everything from the first attempted flips to the auctions and now there is a short sale that recently came on the market.
This unit was purchased in 2007, well before the developer held the auction in March 2009 and prices were cut.
It’s a 2 bedroom, 2 bath with what looks to be the standard Vetro finishes. The listing says it’s the only 2/2 available for sale in the building.
Is this unit even much of a deal?
Unit #1206, two floors below, sold in November 2009 for $307,500.
Sara McMurray at Coldwell Banker has the listing. See the pictures here.
Unit #1406: 2 bedrooms, 2 baths, 1343 square feet
- Sold in November 2007 for $488,500 (included parking)
- Currently listed as a “short sale” for $349,900 (includes the parking)
- Assessments of $430 a month
- Taxes of $4628
Wasn’t the auction held in 2009, not 2008?
But unit 1407 right next door is a 2/2.5 for sale for an ask price of $363k. It has 1,525sf for an average PPSF of $238.
This short sale unit only has 1,343sf and not the extra half bath for an average PPSF of $261.
Given its a short sale my guess is you’d have much better luck getting a deal done with an offer of 350k for unit 1407, which has also been listed for at least six months.
So if that one is any indication this one 1406 is going to sit on the MLS and collect dust for a loooooong while. BANK OWNED!
I think there is a danger that the pre-auction priced units will mostly become short sales and/or foreclosures. When this happens, the banks might reduce them to lower-than-auction-price levels in order to move them quickly.
Will the auction level prices then be too high, forcing some of those owners towards short sales/foreclosures?
vicious cycle.
Who coulda known?
“”What Happens to the Original Buyers?”
I want to see 5 years from now what happened to all the original buyers for the south loop.
you think we can put together a you tube series of VH1’s Where are they now-South loop edition?
Short sale or foreclosure. Wasn’t this the inevitable outcome for pre-auction buyers?
There’s no way this goes for 350K, given all the recent “comps” set at auction. At already ~140K off it’s 2007 sale price, this is a perfect example of the slow motion train wreck HD so often references.
“I think there is a danger that the pre-auction priced units will mostly become short sales and/or foreclosures. When this happens, the banks might reduce them to lower-than-auction-price levels in order to move them quickly.”
bubbleboi — “Bank owned” and “moving quickly” should not be used in the same sentence. There’s been numerous discussions around this point. This is going to sit for a long, long time.
There is no reason for this unit to sell one dime higher than the other on the same tier that sold in Nov 2009 for $307K.
There are a number of reasons for it to sell the same or lower. The South Loop is DOA, like Miami without the warm winter weather and the beach. It is ludicrously overbuilt and notorious for low-quality, problem-prone buildings.
Wow, I actually sympathize for this buyer; she put 20% down and now she’s losing every penny of it and more in the short sale. However, all is not lost, there are two lessons to be learned: 1. Do not be impatient when purchasing real estate and 2. Do not buy at the height of a real estate bubble.
Or of course the 3rd lesson to be learned: buy property with 0% down, heloc the hell out of it, and when the investment goes south, simply live in it for 18 months without paying the mortgage and then find a cheaper rental in the same building.
http://chicago.craigslist.org/search/apa?query=vetro&catAbbreviation=apa&minAsk=min&maxAsk=max&bedrooms=
Lesson 4: a fool & their money are soon parted. Also no pics of a crib? 🙁
HD,
I sometimes wish i went with the third lesson, i would be more liquid and have no repercussions of bad behavior.
I always say that if I had the foresight and if I were a shadier person I would have bought a one bedroom upon graduation from law school, heloc’d the hell out of it, paid off my student loans, then I would have stopped paying the mortgage, live there for 2/3 years rent free (I’m a lawyer I have some tricks up my sleeve) and then walked away owing nobody anything. But I’m just not that shady of a person to have done it intentionally….
“and then walked away owing nobody anything. But I’m just not that shady of a person to have done it intentionally”
But because your ethical (blah) you now have to pay for yourself and the unethical people. Looks like karma will be working double shifts the next few years straightening this out.
Here are the tier 6 sales with original mortgages for those predating the auction.
Unit# Pkg Closed Price Mortgage
706 p194 11/12/2007 $524,500 $415,000
806 p114 11/1/2007 $459,500 $100,000
906 p123 11/30/2007 $449,500 $417,000
1006 p133 11/16/2007 $469,500 NONE
1106 p103 4/14/2009 $300,000
1206 p92 11/5/2009 $307,500
1306 p79 3/18/2009 $306,000
1406 p93 11/19/2007 $488,500 $407,278
1506 P67 12/19/2007 $463,500 $347,200
1606 p58 3/18/2009 $317,000
1706 p238/p239 2/15/2008 $497,500 $372,074
1806 p41 5/6/2009 $315,000
1906 p25 8/28/2008 $370,000 NONE
2006 p35 5/15/2009 $321,000
2106 p140 4/22/2009 $323,000
2206 p148 5/15/2009 $331,000
2306 p162 3/10/2009 $322,000
2406 p173 4/14/2009 $325,000
2506 p50 4/22/2009 $322,000
2606 p187 3/10/2009 $322,000
2706 p163 3/10/2009 $320,000
2806 p20 7/30/2009 $322,000
2906 p9 3/18/2009 $326,000
Ouch.
I know a number of people who were not greedy, bought houses they could afford, put down a 15-20 percent downpayment, and paid what truly were market prices at the time. Bubble prices, but market prices. They still have good paying jobs, they have no problem paying their mortgages, but they’ve lost their equity if not more. I have a lot of sympathy for them. A couple of them had some reservations about the market at the time, but wanted to be settled.
If the right place came along for us, I’d be willing to overpay by $50K compared to what I think the bottom might be, if it was someplace we thought we would stay for 10+ years. That essentially what these people thought they were doing, but they lost somewhat more.
Buy now or be priced out forever!
I do feel bad for these people. Timing real estate doesn’t work for a lot of people. And, let’s recall that no “expert” or “guru” was talking about how much real estate could drop back then. AT WORST, the talking heads said that the market would stay flat. Real estate doesn’t go down in price — remember that addage? Lots of people were wrong, and a very, very small number were right, and even then only because they were priced out or had a significantly more conservative set of financial expectations than others.
With all that said, I am glad RE is getting more affordable. I just hope this continues because it frees up cash for people to spend on other areas of the economy.
By the way, I listen to news radio (yes, I am getting old like my father) and get a serious kick out of the Lenox mortgage guy who is now screaming for people to buy *right now*… Same false logic, different set of circumstances as 2006…
Snake oil salesmen never die. They just put on different clothes.
“I’d be willing to overpay by $50K compared to what I think the bottom might be, if it was someplace we thought we would stay for 10+ years. That essentially what these people thought they were doing, but they lost somewhat more.”
They’ve needed to sell? If not, they haven’t *yet* lost anything. And so long as they don’t need to bring $$ to closing, they should just look at it as a larger premium to renting they paid for their 10+ years in their home.
A little positive thinking/rationalization.
To those of you who deal in bad faith i.e. advocating HELOCing the hell out of a unit then walking away. My guess is you will be RENTING for a long time. Next time you apply for financing, let us know how you fare with a forclosure on your credit report.
“And, let’s recall that no “expert” or “guru” was talking about how much real estate could drop back then.”
LOL. That’s because to be considered an “expert” or “guru” then meant that you preached the “real estate always goes up” mantra. Believe me, many of us in the industry correctly called this bubble and played our hands accordingly.
“And, let’s recall that no “expert” or “guru” was talking about how much real estate could drop back then.”
Yeah I suppose the front page story on the Economist magazine in 2005 titled “After the Fall” showing a cartoon of a house falling on a guy doesn’t count or qualify as lets be honest JMM: The Economist magazine just isn’t in the same credibility echelon as Suzanne the Realtor or Lawrence Yun of the NAR, right?
There were plenty of people in the industry who knew we were in a bubble. What caught most people off guard is the severity of the problem. I knew in ’05 there was a serious perfect storm coming with subprime, but I don’t recall anyone really thinking things would get as bad as they did and how much the broader economy would be affected.
There were so many things that went wrong that I don’t think you can really just blame one group of people.
Bob: “the front page story on the Economist magazine in 2005 titled “After the Fall” showing a cartoon of a house falling on a guy”
June 16, 2005 issue, to be exact.
Russ: “I don’t recall anyone really thinking things would get as bad as they did and how much the broader economy would be affected.”
The final para of the article:
“The whole world economy is at risk. The IMF has warned that, just as the upswing in house prices has been a global phenomenon, so any downturn is likely to be synchronised, and thus the effects of it will be shared widely. The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.”
“I always say that if I had the foresight and if I were a shadier person I would have bought a one bedroom upon graduation from law school, heloc’d the hell out of it, paid off my student loans, then I would have stopped paying the mortgage, live there for 2/3 years rent free (I’m a lawyer I have some tricks up my sleeve) and then walked away owing nobody anything. But I’m just not that shady of a person to have done it intentionally….”
Since Illinois is not a non-recourse state, is this really a smart thing to do?
Unfortunately, the IMF wasn’t loud enough… way too many people making way too much money to listen. However, it still is always easy to look back and say shoulda, coulda, woulda. Hindsight still is 20/20.
This “storm” isn’t over. So far, it’s just rained a little.
Russ: “I knew in ‘05 there was a serious perfect storm coming with subprime, but I don’t recall anyone really thinking things would get as bad as they did and how much the broader economy would be affected.”
DZ makes an interesting point that I struggle with repeatedly. There is the comparable price and then there is the price it will take to make a transaction happen. Sometimes the latter needs to be higher than the former just because the seller is holding out. In those cases buyers may be willing to pay a premium that they mentally amortize over the years they expect to live there. Can’t say I disagree with that thought process if they can’t find anything else they like.
I’m going to guess that the south loop is headed down another 15-20% before all that excess “luxury” inventory is scooped up. i mean it is close to the loop and there is commerce and other city amenities being built there. And I have no scientific reasons other than that’s the discount for a similar place to mine would have to be for me to move there.
Russ: “I knew in ‘05 there was a serious perfect storm coming with subprime, but I don’t recall anyone really thinking things would get as bad as they did and how much the broader economy would be affected.”
“It is difficult to get a man to understand something when his job depends on not understanding it.”
Upton Sinclair
US novelist & socialist politician (1878 – 1968)
“And I have no scientific reasons other than that’s the discount for a similar place to mine would have to be for me to move there.”
That is the precise mechanism that will spread the pain up the property ladder.
“I want to see 5 years from now what happened to all the original buyers for the south loop.”
They’ll be invading my college/dollar beer bars in LP and LV, but out of circumstance and not by choice. And Bob and his bros won’t be the only creepy old guys there anymore.
“Unfortunately, the IMF wasn’t loud enough… way too many people making way too much money to listen. However, it still is always easy to look back and say shoulda, coulda, woulda. Hindsight still is 20/20.”
Noone had a vested interest in seeing the bubble and being wary of it than bearish investors and first time homeowners. Nobody in the business ecosystem had a vested interest in seeing it.
The reason this person lost 100k was because they either couldn’t see that and listed to the talking head pundits or they couldn’t foresee their life circumstances changing and needing to move. The writing was definitely on the wall for those with the most at risk and willing to read the writing, however.
“Noone had a vested interest in seeing the bubble and being wary of it than bearish investors”
And, until the bubble was just about ready to pop, it was hard to take advantage of bearish sentiment. The market stayed irrational too long.
“lets be honest JMM: The Economist magazine just isn’t in the same credibility echelon as Suzanne the Realtor or Lawrence Yun of the NAR, right?”
Look, we all know common convention at the time did not contemplate (in any accurate way) the absolute severity of what happened. I recall the most bearish at the time thought we might see a 5% correction or a period of no appreciation for several years. Now that sounds laughable. Let’s also not forget the U.S. government has to step in to save us from a total financial market collapse. Had it not, the economy would have been permanently and irreparably damaged. If someone posting here correctly called this with any sort of conviction, they should be rich men by now (for there were obviously ways to profit on it) and not be humping their current day jobs.
Markets can stay irrational longer than most bearish investors can stay solvent as most bearish fin instruments require margin. Also read George Soros latest book: he predicted the crash of fall 08 in april 08.
“as most bearish fin instruments require margin”
They require margin because of the risk of unlimited loss which is a proposect you do not face. But in fact, the trade requires less capital than on the long side (which is why the margin comes into play).
John Paulson made $2 billion on the trade. Granted bearish strategies can only earn you 100% notional, this was a pretty good return that thousands of other multi-strategy funds could have also captured. Why didn’t they? Because no one saw precisely what was coming with much conviction.
The statement that bears should be rich off the housing bust as big a myth as the kool-aid drinkers who said there was no bubble. The mere fact that us bears stayed out the housing market all together is proof enough that we had conviction in my correct calling, especially when the default position among members of my socioeconomic and age cohorts was ‘buy buy buy’. I am a richer person for not buying, I don’t need to make Paulson sized bets to have a conviction.
“If someone posting here correctly called this with any sort of conviction, they should be rich men by now (for there were obviously ways to profit on it) and not be humping their current day jobs.”
“The mere fact that us bears stayed out the housing market all together is proof enough that we had conviction in my correct calling”
…or weren’t in a position to get into the housing market. There’s a big difference between market timing and dumb luck.
Most people who could actually afford to buy (and quite a few who couldn’t!) bought. Very very few people sat out of the market because they knew the doo doo was going to hit the fan. The people who didn’t usually didn’t because the cost of housing exceeded what they were willing to spend or they weren’t in a position to buy, but that in no way means they saw the bubble coming in the severity that it did.
If the bubble was so obvious, way more people would have made more money betting against, not just the handful who happen to read the tea leaves correctly or took a contrarian view.
“If the bubble was so obvious, way more people would have made more money betting against”
There’s also the matter of knowing how to short house prices.
Or am I the only one who missed the easy, direct way of shorting house prices that had sufficient liquidity in 2005+2006?
Yes, even those who did get rich betting against housing did not see how broad the impact would be–else they would have gotten *more* rich shorting equities of the entire financial industry, rather than via CDS, etc.
Wow, irrational justifications abound. “Very very few people sat out of the market because they knew the doo doo was going to hit the fan” is akin to saying “everyone believes that real estate goes up” but they chose not to buy because “the cost of housing exceeded what they were willing to spend or they weren’t in a position to buy.” I like you Russ, but you really are in a position perfectly situated to have not understood what went on. That doesn’t mean you’re not a good broker, the fact you are still in business through this bust shows you have good business skills, but plenty of people knew things would end very terribly, even quite early in the. Not every foresight or observation of the market requires a large capital investment, or gamble, which betting against the market in 04, 05, 06 or 07 would have been a largely unprofitable gamble. Choosing to sit on the sidelines and watch, only to make an ‘investment’ or what I like to call, my first home purchase, near the bottom is the prudent thing. IN fact, business wise I did a number of things to capitalize on the BS that was about to hit the fan, they just weren’t paulson type bets, but I’m still employed today and 2009 was my highest revenue earning/billing year yet. It’s not dumb luck.
“If the bubble was so obvious, way more people would have made more money betting against, not just the handful who happen to read the tea leaves correctly or took a contrarian view.”
Russ the realestate bubble was so obvious. Bubbles are very difficult to pick the exact point at which they will pop, they can continue for years and years…… Sure a few people did short certian finanical instruments and profited greatly, but this is very difficult to do. The safest way to deal with bubble is to reduce holdings systematically so that when it does pop you have limited exposure.. This approch has served me well though the dot-com and realestate bubbles.
“Or am I the only one who missed the easy, direct way of shorting house prices that had sufficient liquidity in 2005+2006?”
It’s a very simple trade and yes there was ample liquidity to do so. Naked default swaps on MBS traunches, synthetic CDOs, etc.
HD —
I dont doubt you have above average market perception, which makes you an interesting read at worst and a wise and helpful resource most other days. But, the average person has a hard enough time balancing their checkbook, let alone understanding anything other than common convention. And, common convention in the housing market circa 2006 was what it was.
As a chancery court attorney, of course you are busy today. That is a good thing for you. Billing by the hour has its shortcomings, but you are doing ok in my book.
“Naked default swaps on MBS traunches, synthetic CDOs, etc.”
So, the values of those went up with house prices and down with house prices? In a predictable ratio? Are those assets worth 50-60% of what they were worth in 2004?
I used “House Prices” and “direct” advisedly and intended them to have their common meaning. Can I short the value of the particular condo in this post? Can I (directly, hell, indirectly) short the value of *just* Vetro? How do I go about that easily and who would have taken the other side of that trade (other than the implicit long of the developer and the pre-auction buyers)?
“So, the values of those went up with house prices and down with house prices? In a predictable ratio? Are those assets worth 50-60% of what they were worth in 2004? ”
This isn’t a derivatives class but it works the other way around. Default swaps move inversely to the value of the underlying (definitionally). Because of the dislocations in the market in this case, perhaps more than what you suggest. That is one trade, another is a paired trade. And yet another is a arb trade. Each of them uses corollaries to accomplish the same thing.
“Can I (directly, hell, indirectly) short the value of *just* Vetro?”
Not per se, but the housing crisis was systemic so it would not have mattered.
If he so chose, a distressed debt investor could easily have paired the debt on such a building against the benchmark credit (i.e., a credit spread trade).
“If he so chose, a distressed debt investor could easily have paired the debt on such a building against the benchmark credit (i.e., a credit spread trade).”
Yes, I know. But those are also cashflow and credit bets, not pure price bets. While they–in fact–travel together, that is not necessarily so.
Shorting the price of housing–alone–was not and is not so easy.
No one is saying the bubble wasn’t obvious. However, I don’t believe most people knew it would pop so loudly and have such far reaching impact. It is easy to sit back and boast after the fact. Yes, a lot of people knew it couldn’t last forever, but that is completely different from putting your money where your mouth is and making huge sums of money because you knew something the rest of the market didn’t. Simply sitting out of the frenzy on dumb luck or because you couldn’t afford to play does not count. I stand by my position that most who didn’t get caught up were probably shut out for a variety of reasons, but it wasn’t because they had this great foresight.
If you predict an earthquake everyday, sooner or later you are going to be right.
Even though I am part of the real estate industry, I certainly have never believed that RE always goes up.
“But those are also cashflow and credit bets, not pure price bets.”
It’s obvious you cannot short your neighbor’s house but that doesn’t mean you trade the bet very easily and very precisely.
And, given the LTV ratios in redidential RE these are all essentially asset-backed credit bets (i.e., private equity buffers are typically much higher and their cash flow leveraged loans traded almost perfectly to the decrement in the underlying asset). If they weren’t all essentially credit bets, we would have healthy banks right now and the government would own less of the country.
In addition, you can always short residential REITs or a REIT tracking basket. Slightly different market, but that is yet another very liquid and easy way to play it.
Also, CBOE launched Case Shiller futures a while ago. Not sure if they still have any volume as futures markets typically have to serve some commercial purpose to be useful (i.e., futures on commodities that corporations actually need physical delivery on).
Russ: “No one IN THIS THREAD is saying the bubble wasn’t obvious.”
Fixed that for you.
There certainly are people who have said that the bubble wasn’t obvious–hell, there are people who have said there wasn’t a bubble at all.
I’ve been in the room when industry folks (non-realtors; folks in leadership positions in their companies) have said (in all seriousness) that the real estate market would be better if “the media” weren’t so relentlessly negative and that talking about bad news makes them more money. So there are plenty of idiotic cheerleaders still around to think that there was no bubble, or, at the very least, NO ONE could have POSSIBLY seen it coming.
But, yeah, worse effects than anyone reasonably expected.
Sorry, my point in all this is that there are tons of ways for people to have profited from such a drastic and dramtic reversal in the housing markets. However, judging from all the financial hurt around the world, very, very few did.
So I don’t blame Joe Q. Public for not knowing this would happen. And, a small part of me feels bad for him. Bad timing.
I stand by my position that most who didn’t get caught up were probably shut out for a variety of reasons, but it wasn’t because they had this great foresight.
Russ no one was shut out from buying, the banks we handing money out to anyone who asked…….. In 2004 I held in excess of $4.5 million of property by 2006 I reduced my holding to less than $900k. People thought I was nuts but my reasons for selling were very simple.
1.Price/Rent ratios got completely out of wack.
2.Salaries were not keeping pace with rising cost of housing.
3.Everyone thought they would become rich off their house.
4.Types of Loans available.
5.Lending Standards.
6.Banks not doing due diligence on property valuations.
You knew that sooner or latter this would be a train wreck, I don’t think this was great foresight just common sense.
“So I don’t blame Joe Q. Public for not knowing this would happen. And, a small part of me feels bad for him. Bad timing.”
Was it bad timing only for those who bought in 2005 but not those who bought in 2008? Because there are quite a few condos coming on the market now from people who bought only 2 years ago. Did they not “see” what was happening in housing either?
I have no sympathy for anyone who bought in what was clearly a bubble. Honestly, if you’re buying right now you have to understand what kind of housing market it will be for at least a decade (maybe more.) If you’re not going to be in the property for 10 years- you shouldn’t be buying.
You are so full of yourself Sabrina. Again, please explain to us all how you are better off renting over a 10-year period even if the market is flat?
Listen to Sabrina’s financial advice and you will have to rent because you will be broke 🙂
I have figured Sabrina out. Bitter and poor!
How many examples do you want me to give you Steve (thousands?) of “owners” who bought within the last 5 years who have lost all of their downpayments (and sometimes more- as going into short sale or foreclosure destroys their credit.)
Just one example is the buyer of this unit in the Vetro. I guess for some people losing $80,000 in 3 years is easy come, easy go- but for 99% of the population- it will take them years (a decade?) to save that much money again.
Whereas, Homedelete is sitting pretty accumulating wealth by renting. Yes- accumulating wealth. With little cares in the world.
It is still much cheaper to rent in Chicago (and the suburbs) than it is to buy. If you’re going to live there 3 years- you’ll lose money (quite a bit- most likely.) Who is dumb enough to do it? Apparently plenty of people as, like I said, I’m now seeing plenty of condos where the sellers bought in the last 2 years.
Sure job change, divorce etc. all cause people to have to sell before they would like. But those events are all going to be wealth destroyers now if you own.
We’re not at the bottom of this market yet because people STILL think it’s an investment to own property for only a few years.
So why are you lumping this last 5 year group into all current or future property owners. Only a small % of those who purchased in the past 5 years bought new construction high rise units. Most purchased in well developed neighborhoods that may be off 10% or so?
What about all the people who bought in the last 50 years Sabrina? How did they do? You honestly come off as such a bitter and ignorant person. Do you know if there will be inflation in the next 10 years? Could you imagine renting a 2 bedroom high-rise unit for $2,000 today and eventually paying $3,500 10 years from now? You are trying to tell us all that you, Sabrina the blogger, somehow understand the very localized real estate market better than all the leading economists (who have no idea where the market is going)?
How about my scenario? I purchased in 2008 and my housing expense is 65% of what it would cost to rent. I could also sell my property for more than I purchased it for 2 years ago. You see some of us know how to value a property and a neighborhood and can make a lot of money owning real estate. I have no idea if local markets will increase or decrease over the next few years, but I can tell you that renting for 10 straight years is a waste of money and is just bad advice.
With all the short sales and foreclosures listed today you have to be plain stupid if you cannot go out and find a property that is a great value. I personally believe that in ten years some of these values will have looked as obvious as purchasing the DOW earlier this year at 6,000. I am not talking this new construction crap (The Vetro) but a property in a good neighborhood where you actually own more than a monthly assessment.
Your advice is like telling equity investors that they should not own stocks for 10 years after the Naz crashed. It simply makes no sense!
If you knew what you were talking about you would tell people the correct path to finding value in the market. Just like stocks and bonds there is value and there is junk. If you find the value you will benefit financially, but if you find junk you will lose your shirt.
Renting is like sticking your savings into your mattress. There a few years where you will look like a genius, but in the long run inflation will end up crushing you!
Steve: if you can sell for more when you bought only 2 years ago- then “yay” for you. 99% of the population will lose money on that deal.
And no- it’s not new construction condos. It’s old construction, it’s vintage, it’s SFH, it’s multi-units (which are simply getting CRUSHED right now.) The amount of wealth destrution is unprecedented (far more than the stock market crash because more people own homes than stocks.)
Ask someone who bought in that building in Edgewater five years ago how they feel that units are now selling at 1999 prices? Not too good- I might think. And that’s a nice area of Edgewater, frankly.
Same thing is happening in the “better” neighborhoods now. Parts of Lakeview are simply brutal right now.
Many investors bought a lot of Nasdaq stocks after the crash, Steve. A select few have done very, very well (Amazon.com, for instance) but 90% of them are still money losers 10 years later. You’re STILL not making wealth on most of it (including Microsoft and Cisco, to just name a few.)
You buy real estate now to live in. It is NOT an investment for 95% of the country. And it won’t be for decades. Housing was dead as an investment in the US after the Great Depression for the same reason it will be for the next decade or more this time.
My advice- if you’re going to buy- at least buy a single family home where your family can live for many, many years. Condos are money losers unless you intend to live in it a LONG time. Transaction costs are too high to buy and sell (even if prices stay flat.) And you can’t rent them to cover your costs if you want to move.
Prices are still falling- so what looks “cheap” in a foreclosure right now, won’t look cheap in 12 or 24 months.
We won’t hit bottom on prices until it’s cheaper to buy than to rent. Simple as that. Or when it, at least, gets close to that ratio. And usually when you have booms and busts, you overshoot at some point. We’re seeing that in Arizona and Florida- where it’s way cheaper to buy than to rent in many locations now. I’d be buying if I lived there.
When you “buy” you’re simply renting from the bank. Again, if you’re going to live there a LONG time- then do it. Lock in the low rates and enjoy. There are some good deals out there for those who are going to stay put.
For everyone else with a shorter term horizon- they should be renting.
You put your money in HomeDelete’s mattress and in gold coins and I will invest as if inflation was coming in the next 10 years. Let’s see who makes more money 🙂
All of a sudden “There are some good deals out there for those who are going to stay put.”? You seem to changing your negative, bitter tone as we speak. So now your point is that you should rent if you only plan to stay for a couple of years? There’s a brainstorm Sabrina!
So I guess you want to tell everyone how right I am. Buy in a good neighborhood, stay away from new contruction and new conversions, look at rental ratios for valuation determintation. Buy in Lincoln Park!
There are some great deals in the suburbs. Homes on the north shore are coming down in price. You can also get some good foreclosures in some areas (that don’t have much damage- but it’s hit and miss.)
But I wouldn’t call Lincoln Park a good place to buy right now. Prices are down to 2003 or so there. There aren’t many “deals”. Your money goes much further in other neighborhoods. And since the declines are making their way from the periphery to the “prime” neighborhoods- it’s going to take awhile for prices to fall. As I’ve said before, it’s taking at least 18 months from the time a lis pendens is filed to the property coming back on the market from the bank.
It’s way cheaper to rent in LP right now than to buy. There are great rental deals there. Landlords are giving away free rent, upgrading kitchens and baths, and some are throwing in free cable. It’s the best renters market in 30 years. You’re dumb to buy right now (unless you’re going to live there a LONG time or it’s cheaper to buy than to rent.)
I’ve said before- the average time people live in lofts is only 2 to 3 years. All of those buyers are getting killed in this market (and the ratio isn’t that much better for normal condos either.)
The market won’t hit bottom until those buyers are now renters because they realize they won’t make any money (just lose it.)
This is where you are so wrong Sabrina. First, your money goes further in others neighborhhods because they don’t offer as much as Lincoln Park. Go live in Detriot and you can get an awful lot for your money. Second, Lincoln Park is no where near 2003 prices. You can find properties that sell for 2003 prices but I can also show you properties that are still selling at the peak. Take a look at 1907 N Cleveland. Sold for $915,000 in 2007 and now is under contract at $979,000. This will close for more than the 2007 price as my friend as an associate of mine is the buyer’s agent. Lincoln Park is not off more than 10% from the peak (it never really appreciated much to start). Some of the crap construction is getting killed as people are finally realizing that some of these buildings really only have a 30 year useful life. They are junk and no one is buying them unless prices come down. The rest is sitting at 2005 pricing which is 5% of so off the peak.
So LP had no appreciation during the bubble and it will have none going forward, is that what you’re saying Steve?
Then it makes sense to buy in Lakeview, where prices are coming down much faster and where you maybe can get a “deal” and have an opportunity to make some money over the next few decades.
By the way- for every property you show me where the seller who bought 3 years ago is making more, I can show you 5 where the seller who bought 3 years ago in LP is getting crushed. It’s worthless to throw out one example and say “things are fine.”
But you tried this same argument about a year ago and in the meantime prices continue to fall.
“…or weren’t in a position to get into the housing market. There’s a big difference between market timing and dumb luck”
Really? Do investors evaluate fund managers on returns or dumb luck? Your statement is ridiculous. “Dumb luck” means a shit ton in industry: it means mad riches and excellent reputation. For you to say otherwise is nonsense.
“It’s worthless to throw out one example and say “things are fine.” Isn’t this what you do each day?
Here we go –
1818 n Fremont
01/09/2010 – $1,340,000
07/09/2005 – $1,275,000
2150 N Racine
01/09/2010 – $456,000
07/01/2005 – $451,000
442 w Dickens
01/09/2010 – $330,000
01/01/2004 – $310,000
1982 N Maud
01/07/2010 – $525,000
02/01/2005 – $477,000
There are 14 attached closings in the past 3 days and the above 4 are the ones that had previous sales in the past 4 years. Good luck showing me your ratio of 5 to 1 Sanbrina.
Care to correct yourself now or should I continue to prove you wrong again? Your choice?
“Most people who could actually afford to buy (and quite a few who couldn’t!) bought. Very very few people sat out of the market because they knew the doo doo was going to hit the fan. The people who didn’t usually didn’t because the cost of housing exceeded what they were willing to spend or they weren’t in a position to buy, but that in no way means they saw the bubble coming in the severity that it did.
If the bubble was so obvious, way more people would have made more money betting against, not just the handful who happen to read the tea leaves correctly or took a contrarian view.”
To your point and credit Russ I remember a coworker in the summer of 2007, around the same time this started (August 9th, 2007 the ABS CP market froze up): I said I could foresee the S&P falling to below 1,200. He also was telling me it was a good idea to buy real estate and I didn’t need a sizeable downpayment. I was extremely leery. Markets were acting _very funny_ in August 2007 and I was intrigued why.
To me it wasn’t necessarily “obvious” the doo-doo was going to hit the fan but I paid attention to what was happening to the ABS CP market as I had friends working near that industry and it sounded very problematic and systemic: they had no way to roll that debt.
Yet the talking heads on TeeVee never mentioned any of this. In fact I can’t ever remember imagine the Talking Heads on TeeVee explaining that commercial paper has to mature within 270 days by law or even how to calculate a bond. What happened between 180 and 270 days after 8/9/2007? Oh yeah BSC flamed out.
So go back to claiming nobody could’ve ever known. But I actually had more than a few inklings. And if you think I am any sort of sage I am quite pessimistic regarding housing valuations over the next x+* years. (*where x is if the government was involved and x+ is when the government finally exits its recent involvements).
“Sorry, my point in all this is that there are tons of ways for people to have profited from such a drastic and dramtic reversal in the housing markets. However, judging from all the financial hurt around the world, very, very few did.
So I don’t blame Joe Q. Public for not knowing this would happen. And, a small part of me feels bad for him. Bad timing.”
I actually agree completely. Unfortunately most businesspeople involved in this toxic real estate ecosystem still have jobs. Even the investment bankers who earn six figure incomes whose firms got bailed out by our government. Yet the purchaser of this condo is left with a $100,000 loss.
Do you think that is at all fair Russ? Do you think people like this unlucky purchaser should bear the brunt of this downturn while most of the other involved parties walk away?
I would love to hear you try to justify this one, Russ.
“Even the investment bankers who earn six figure incomes”
Err seven figure jobs. Goldman Sach’s bonus pool is actually the largest it’s ever been. An average of 750k per employee?
Bob:
Again, having an “inkling” and predicting a wholesale meltdown are two different things. A lot of folks had inklings. I had inklings when I started seeing ridiculous underwriting guideline changes and everyone in their grandma becoming a specuvestor. It was nothing to see people have two or three condos and no income whatsoever to support the carrying costs. However, my ego doesn’t prevent me from honestly saying that I didn’t see the depth of everything that was wrong. From my vantage point I didn’t deal a lot of with subprime borrowers, specuvestors, or the crazy loan products like Option Arms being foisted on Joe Sixpack.
No, I don’t think it is fair that many of the people who caused the mess are sitting pretty. However, I also don’t playa hate either. While those Goldman bonuses are obscene on the surface, I am sure the bulk earned their bonuses.
Finally, I don’t think it is fair that Joe Sixpack is bearing the brunt of this mess either. I do think it is screwed up the banks are getting bailouts and at the same time screwing over honest homeowners who are also trying to catch a break. However, if strategic defaults keep increasing en masse, Joe Sixpack will probably get his revenge.
LOL. Each of Heitboy’s examples lost money with transaction costs and monthly loss to rental equivalence included. Oh yeah, he’s a big fan of inflation creating wealth, too, so those should be compared in constant dollars, right? More losses.
Does the heitboy have any examples of moneymakers? Did he take into account that the still low LP sales volumes are due to sellers being stuck and unable to take losses by selling. Those four money losers only represent those who could afford to sell. A comparison of sales volumes tell me that there are a whole lot of pent-up sellers from the bubble years. That has not changed in LP because those who believe they have strong hands fold last.
” I had inklings when I started seeing ridiculous underwriting guideline changes and everyone in their grandma becoming a specuvestor. It was nothing to see people have two or three condos and no income whatsoever to support the carrying costs. However, my ego doesn’t prevent me from honestly saying that I didn’t see the depth of everything that was wrong.”
That’s not your ego, that’s your survival instinct. You have the illusion of RE knowledge to uphold. It is to your financial benefit to minimize your past ignorance in the face of such obvious evidence as you presented. Look up cognitive dissonance.
Now you have to reconcile your failure to connect the obvious dots. You are just playa hatin’ on those who could.
Okay G – Please list the corresponding rent rates for each of the properties listed. Also include the tax savings and the opportunity gain for not have their down payments in the stock market. Are these people really worse off for owning? Selling commissions have nothing to do with real estate values. There are plenty of ways to avoid all if not the majority of expenses associated with a purchase or sale. To assume people are paying all the expenses is simply wrong!
My purchase not only had not commissions invloved on the buy side but also had $0 in closing costs. Don’t assume I am alone.
“There are plenty of ways to avoid all if not the majority of expenses associated with a purchase or sale. To assume people are paying all the expenses is simply wrong!”
Sure thing there, heitboy.
“the opportunity gain for not have their down payments in the stock market.”
I made a bunch in the market at that time. Don’t assume I am alone.
Oh G – So list you rental rates to support your post. Putz!
I’m glad someone here can see the future… thanks G you are really a treat.
“Oh G – So list you rental rates to support your post.”
LOL. The first 3 are money losers based on transaction costs and inflation alone. Only the last one requires the loss to rent equivalence to make it a foursome! Go ahead, prove me wrong.
Steve,
I need to do more analysis but a quick check shows that your Dickens example is not quite right. Yes it sold in 04 at the price you mentioned but it also sold in 06 for 349,500. The seller lost money.
It’s also interesting to note from Steve’s examples- that some of those people owned for 6 years and are still losing money. Making nothing! I’ve seen people lose money who have owned for 8 and 9 years now in certain neighborhoods.
Thank you Gary for checking Steve’s examples. He likes to pick and choose- as we know.
No need to research, Gary, they all lost money.
Wish I had more time to spend on this because I do find it interesting. Activity has really picked up in the last few months and I’m sure there are examples of properties appreciating but Steve’s examples are probably cherry picked. In the last month 33 condos/townhouses closed in Lincoln Park. At least 4 of those were either short sales or foreclosures. To do this right one has to examine each sale to see what the outcome was and report on all the outcomes, not just the favorable ones.
They aren’t losing money. We are just failing to take into account that there are no transaction costs, not to mention “the opportunity gain for not have their down payments in the stock market.”
Sonies, like Russ, you are just playa hatin.
“Activity has really picked up in the last few months”
” In the last month 33 condos/townhouses closed in Lincoln Park.”
These statements are not consistent.
Before this real estate bubble you would make money on your primary residence about 50% of the time and lose money about 50% of the time. But 100% of the time you use it as a house to live in so those of you trying to pick a bottom in housing… heh good luck.
“These statements are not consistent.”
I did not intend to link those two statements. The first one was a comment about Chicago in general: http://blog.lucidrealty.com/2010/01/03/surprising-chicago-home-buying-activity-in-december/
The second one was merely a statement of fact about Lincoln Park. I didn’t intend to suggest that was good or bad.
owners live way longer than an average 2 to 3 years in lofts. if that were the case half or a third of the building’s units would sell each and every year. a quick mls check will confirm that historically that’s nowhere near the case, even allowing for a small number transferring privately. it’s closer to 6 or 7 by my reckoning.
and anyway, *stuck record alert* buying your own place it not just about the money.
In ref. to Sabrina comment:
“It’s also interesting to note from Steve’s examples- that some of those people owned for 6 years and are still losing money. Making nothing! I’ve seen people lose money who have owned for 8 and 9 years now in certain neighborhoods.
Thank you Gary for checking Steve’s examples. He likes to pick and choose- as we know.”
I bought a place in the 2000 timeframe in Old Town. 2/2. My guess is that after improvements such as HW floors made over time, in this market I would be able to sell for maybe 8 – 10% more than I paid for the place. So with transaction costs figured in, did I make money? Nope. Did I have a place to live? Yup. Did I build up some equity? Yup. Am I cash flow positive on it now as a rental. Yup. Now if I had sold at the peak in 2007…but hindsight is 20/20
“Take a look at 1907 N Cleveland. Sold for $915,000 in 2007 and now is under contract at $979,000.”
Glad this place got mentioned. This is a good example, but it’s also an outlier. First off, the buyer put a lot of money into a renovation (great finishes) and this property really scratches an itch for a younger family where there is very little product (ELP townhouses). This is also probably the best location in all of ELP for a young family — 20 feet from Bauler Park plus a top 25 in the state K-8 school. This is a complete no brainer for dual income corporate big law / MBA / doctor couple with 1 or 2 kids. Only issue I saw with this place was lack of covered parking (one spot, outside). But, this place certain is one that “clears the market” and will fetch what someone is willing to pay for it given the uniqueness and scarcity value.
However, I bet the contract is far lower that 979k, unless someone knows something specific. My guess is it sold for 2007 and the owner ate the renovation costs. That is sensible, given the market.
By the way, my own personal view is that ELP is the next shoe to drop and will lag the market for some time to come. It is simply too expensive and the city dynamics (budget shortfalls, increasing crime, congestion) simply do not justify it as some sort of gilted neighborhood where the dirt alone on a narrow lot commands $400 per sq ft.
G:
Sorry, you read me all wrong. I have never been bullish on real estate. Anyone who has dealt with me knows I am a straight shooter and I certainly never got into that RE always goes up BS. I have never viewed RE as an “investment” and certainly have never promoted that the average Joe will make a killing in real estate.
Again, if reading markets is so easy and obvious, quit your day job and go out and make some real money.
I sold my condo at the height of the market and made some decent coin on it, but that didn’t make me a genius RE investor just as sitting out of the market when it crashes doesn’t make you a brilliant forecaster.
There were a lot of clues that many people saw, but very very few people predicted the severity of the crash and its widespread impact. All the hedge funds, mortgage banks, FED, regulators, consumers, realtors, foreign governments and everyone’s pet dog was caught off guard in the severity of the credit crunch/crash, but we are supposed to believe that lil ‘ole G completely predicted exactly how everything would happen well ahead of time. Maybe you can sell some rides in your DeLorean if the flux capacitor is still working. I left too much money on the table over the years that I would like the chance to get back.
Unless you published an opinion years ago or put some serious money at risk to capitalize on the downturn completely going against the market, it is armchair quarterbacking after the fact as far as I am concerned.
“Unless you published an opinion years ago or put some serious money at risk to capitalize on the downturn completely going against the market, it is armchair quarterbacking after the fact as far as I am concerned.”
Agreed. My point exactly.
Let’s wait for the majority of commercial loans to default. Fewer and fewer places are being rented/leased. You see very few businesses opening. The economy is stagnant. Yea for December for providing false retail numbers. Those seasonal employees will be either layed-off and unemployment will go up once again. Retail will come to a screeching halt with less consumers. Be prepared. If you thought 2009 was bad, 2010 will be worse. Plus, with Obama increasing his government spending to propgate the economy and provide healthcare, will bankrupt our governement. Taxes have no choice but to go up.
The house wants to increase the medicare payroll tax to pay for the health care plan, which will make every wage earner’s check in the country smaller the day the tax becomes effective.
Obama sucks. That is all.
““the opportunity gain for not have their down payments in the stock market.””
Why you never actually look at numbers before posting this sort of nonsense always baffles me–Look at the actual S&P total return for the relevant periods–for all those periods, with dividends reinvested, the S&P 500 is UP–not by a lot, but up, likely enough to cover Div tax and fund mgmt fee.
So, their “opportunity loss” was really pretty close to zero, if they assumed a basic buy and hold with an index fund.
the fake steve is remarkably similar to the real Steve.
“Again, if reading markets is so easy and obvious, quit your day job and go out and make some real money.”
Straw man. I only contend that reading this bubble was easy.
“I sold my condo at the height of the market and made some decent coin on it, but that didn’t make me a genius RE investor just as sitting out of the market when it crashes doesn’t make you a brilliant forecaster.”
I only sat out buying. You sold and moved up the property ladder. I hope you didn’t spend all that coin, it might come in handy some day.
“but we are supposed to believe that lil ‘ole G completely predicted exactly how everything would happen well ahead of time.”
Another straw man destroyed, you must be proud. I certainly haven’t claimed that. Lil russy can’t seem to make a point honestly.
“Unless you published an opinion years ago or put some serious money at risk to capitalize on the downturn completely going against the market, it is armchair quarterbacking after the fact as far as I am concerned.”
Of course it is to you. Otherwise, you would have to be honest on how you are just playa hatin now.
Besides, that response assumes that everyone is greedy. The way I saw it and reacted was very similar to valasco’s response upthread. My intended long term hold as a landlord/lot investor was sidetracked by the ridiculous prices my props could attain, prices that I knew could not be supported by rents or to build anything but $900K homes in an area where I would never spend that kind of money. I sold everything because I knew what was coming and could do the math that cash on cash returns were too much to pass by. Should I have risked it all on timing the stock market? My answer was no. Did I do great on what plays I made? Yes, but I don’t regret having not risked more.
Hey JMM – The property was only painted since the purchase in 2007. Check the listing from 2007 and you will learn that all the rennovations were already done at the $915,000 sales price. It was decorated very modernly and the new owner simply painted and replaced window treatment.
Your assessment about the location is correct. You buy in the right place and you will never have a hard time selling.
G – Is it possible you are currently renting from me? If you are let me know and I will be sure to kick your ass out;)
Gary – The point of my post was to prove to Sabrina that LP is not at 2003 levels. It was not to show gains or losses on purchases. Using the 2004 purchase price was more relevant than the 2006 purchase price to prove her inaccurate. So thanks for the correction but it was not necesarry!
Where do you think pricing is for LP? 2003?
WHy do developers still develope commercial spaces. Sure a few of the buildings get them rented to cleaners, starbucks,etc, but for the most part the majority of them go empty. Go all around the Loop, SOuth Loop, West Loop, University Village, etc….
If everyone is safeguarded or cautious as Sabrina, we would all miss the boat. There is a certain amount of gamble/play when buying a house. Those that bought in the early 2000’s did make money on their property. And if they sold in 06/07 they fared extremely well. People were making 100K plus on their properties. These people jumped on the boat and took a risk, where they idiots??? Only time will tell, but does that mean everyone should just rent. Mind you not, owners rent, so at some point some one has to buy something to rent it out. I agree those that bought in 06/07 were better off renting, but hindsight is always 40/40. Everyone like to play nostradamus/Monday morning qb here, when no one really knows.
Take a look at MLS 07415463. Unit 1602 at Vetro is advertised as a one bedroom one and one half bath. Problem is, I dunno where that extra half bath comes from because the website shows the ’02 tiers as 1/1s. What a genius selling agent to sell an imaginary half bath along with the unit!
Its a rush for the exits over at Vetro lately.
Unit 1502 was just listed today for 170k (parking 30k extra) so 200k.
Unit 1602 is listed at 170k as well (with no parking option) and a short sale.
Recall that 1202 & 1302 were sold at auction with parking included for 171k and 1402 was sold at auction with parking included for 177k and these don’t look like such great deals afterall.
Err correction unit 1502 shows listed on 3/13 I just didn’t notice it until today.
What’s up with Unit 3104? Sold for $548,500 in August 2009, listed again on February 1, 2010 for $749,900? Are they insane?