Zillow: Chicago Area Prices Fell 7.3% in the 2d Qtr
Zillow is out with a nationwide report on home prices.
Prices fell 7.3% in the Chicago area (an 8-county area, including Northwest Indiana) in the second quarter compared to 2007.
Zillow reports that a third of all homes sold in the Chicago area in 2006 and 2007 are now underwater (meaning the owner owes more on the house than it is worth.)
Zillow also estimates that the top of the housing market in Chicago was the second quarter of 2006. The company believes that values have fallen 8.8% since that peak.
From the Sun-Times:
They are no surprise to Paul and Stephanie Moretta, who said they had to drop the price of their Rogers Park condo three times before finding a buyer. They bought the three-bedroom, two-bath home in 2003 for $339,000 and first put it on the market 15 months ago for $429,000.
They have a buyer at $365,000 and feel fortunate to be making a profit. “This is really the only way we were able to sell,” said Stephanie Moretta, 31. The Morettas are expecting their second child and are buying a bigger home in Peterson Park in what amounts to a home trade with their condo buyer. Their Keller Williams agent realized another client was selling a home that fit the Morettas’ needs and that seller wanted to buy a condo.
Paul Moretta, 40, said that in 2003 he sold a condo in less than two months. “This time it was a little bit scary,” he said.
Zillow said 37.8 percent of Chicago-area buyers in 2006 now owe more on their mortgage than their homes are worth. For 2007 buyers, the percentage is 31.1, Zillow said. Conversely, it found that only 3.1 percent of 2003 buyers have negative equity.
The company tracks another distress signal, the percentage of homes sold “for a loss,” which Zillow defines as selling for less than the property’s prior sale, regardless of how long ago. In the second quarter, 19.8 percent of homes in the region sold for a loss, vs. 13.4 percent for the second quarter of 2007 and just 4 percent for all sales in the last five years.
Read ’em — and weep [Sun-Times, Aug 12, 2008]
Only 1 in 5 lost money selling their homes. 80% of those who purchased a home made money when they sold this past quarter (excluding Homedelete). This is a Chicago area number and certainly varies from 1 neighborhood to another. Who told you guys that I could find 5 gains for every one loss you posted? I think that was me and it may have been a concervative #. GC, LP, LV, ect certainly did a lot better than your s. loops, south side, rogers park areas.
The end is near for this housing slump. You can feel it in the equities, the $$, and the overall inflation scare that seems to be over.
My only question is… what will this site talk about when this crisis is over? Can we focus on Homedelete’s apartment and try to guess who his landlord is?
Steve, I guess you don’t look at employment statistics. Equities are down on the year. Where pray chance do you think people are going to get the money to pay for this real estate resurgence. Have a look at the Fed’s Senior Loan survey out yesterday. Point is – don’t expect the rebound anytime soon.
The end is near for this housing slump. You can feel it in the equities, the $$, and the overall inflation scare that seems to be over.
Steve, I believe that you are reading the signals incorrectly. Our lone economic bright spot has been exports, and this dollar rally (courtesy of Japan and China, who have this strange desire to sell us stuff) is going to kill it.
We’re headed into a depression.
Lay off the bottle Steven, it’s 9:00 a.m. on a Monday morning.
I don’t know why you guys even take his arguments seriously anymore. He’s trolling because he’s got nothing else better to do with his time with the market being the way it is. Steven starts off Monday morning with a proclamation that the bottom in near. I haven’t even finished my coffee and this guy is already prognosticating. This guy is unreal.
Homedelete – You claim to be a real estate attorney which is amuzing. I think you will have to back and read my posts and I have been right on with by neighborhood by neighborhood analysis. Equitites are rallying (including financials) because the uncertainty is coming to an end. The bad news is in and once the fear is lifted off the market prices will stabalize and return to historical averages.
“The end is near for this housing slump. You can feel it in the equities, the $$, and the overall inflation scare that seems to be over.”
SERIOUSLY?!
Next year, $500 Billion in mortgages will reset, how many more forclosures will we see out of that mess? The credit crunch has really screwed us up, new buyers can’t get loans… if they can’t get loans, who’s going to buy the lower end/starter homes and help the second time buyers move up the ladder, etc…? To say the slump is near over is stupid. The only area I see it turing around for, is the smaller units that are priced low to start with, your typical 1bd/1bth or 2bd/1bth units. The potential buyers might have enough in their savings accounts to put the soon to be required 10% to 20% down on the place… just my opinion.
HD–Seems like you lost a day. It’s Tuesday for hte rest of us.
Stevo–having math problems, I see. 80% up, 20% down is 4 winners for every loser. And it includes people who bought their house in the 70s and/or in Elgin. The subject was northside city properties purchased Q3-05 or later. You still can’t come up with even 20 winners, can you?
“…prices will stabalize and return to historical averages.”
If prices return to historical averages then they won’t be stabalizing, they’ll be dropping.
“I see. 80% up, 20% down is 4 winners for every loser. And it includes people who bought their house in the 70s…”
Exactly, I’d like to see the winners vs losers #’s for people who bought and sold since 2000.
“prices will stabalize and return to historical averages.”
Hey, look at that, Stevo’s acknowledging that there’s still more room for prices to fall (at least in real $$ terms)!! No way we “return to historical averages” unless there is further correction.
“My only question is… what will this site talk about when this crisis is over?”
Don’t worry Steve. Sabrina has several years to figure that out. Maybe she’ll do a “What ever happened to Steve Heitman?” post.
SA is correct. Last week’s Crains showed unemployment up over 7%. Then let’s also consider the following that should factor in buying decisions: natural gas prices have nearly doubled over the summer (how about those 17′ ceilings now?); how declining sales prices will be reflected in property taxes (do I want to pay $400 per month for real estate taxes on my 1,000 sf condo?); the decline of small- and medium-sized businesses due to the City’s lack of a plan to deal with succeessorship issues causing many businesses to close or leave the City (along with its tax base); and how, in the AD era (after Daley) will the City deal with its hypersegragation and continued expulsion of low-wage working families.
I’m sure that when this housing market bottoms out in 2012 or somewhere thereabouts, Sabrina will start talking about buying ops and new developments.
Many new projects have been cxl’d till this recession is over. Obviosly, we’re nowhere near a bottom, as evidenced by climbing unemployment rates in prime metros- Chicago’s unemployment rate is currently 7.1%.
Credit is getting tighter, and there remains that 500 Billion dollar bundles of Alt-A resets.
90 banks, some rather major, remain on the endangered list. I’m wondering how much longer WaMu and Corrus have. There will be many more bank failures in coming months, which will not inspire remaining lenders to be easier with credit. Loans are VERY difficult to get right now for most buyers, and this situation will not change for quite some time.
We are not yet back to historical norms in house prices, and the credit situation is the worst the period of 1929-33.
This Moretta guy SHOULD be happy that he walked away after 5 years with a $26k gain minus taxes/fees/etc. I’m sure he’s not complaining that whatever house he’s buying or swapping into has gone down in price. It drives me nuts that some homeowners think their place should appreciate 10-20%/year. I know some people get mad when reading this blog that posters want to see the market burn – but when I read articles like this it makes me hope owners like this guy get a reality check, however painful it may be.
For those who think the housing slump is nearing it’s end, you must not have read the news today: http://money.cnn.com/2008/08/12/real_estate/prime_defaults_price_drops/index.htm?postversion=2008081208
Those who think the housing slump is ending obviously didn’t read the news today.
“This is a Chicago area number and certainly varies from 1 neighborhood to another…GC, LP, LV, ect certainly did a lot better than your s. loops, south side, rogers park areas.”
Steve, do you and Joe Zekass get together once a week and go over your talking points?
You cling to LP, LV & GC. So what?! Not everyone lives there an one of the main reasons is that not everyone can AFFROD to live there. Why should we care that the well to do in those areas are “safe” from price declines. The burden of this housing slump is squarely on the back of the middle class and they don’t live in LV, LP & GC.
“The end is near for this housing slump”
Wrong!, this should read:
“The beginning is near in housing affordability since houses are for living not trading”
I bet Steven is Joe Zekass.
“what will this site talk about when this crisis is over”
Crisis? Its a crisis when a median income family can start to afford a median priced home? The crisis is actually just ending enjoy!
Satre – Head to Orland Park where median home prices meet middle America.
Wrong again, SH. Just another bubble that you can’t identify in Orland Park:
Estimated median household income in 2000: $67,574
Estimated median house/condo value in 2000: $208,300
house value to income ration in 2000: 3.08
Estimated median household income in 2005: $72,000
Estimated median house/condo value in 2005: $319,400
house value to income ration in 2000: 4.44
Why does Steve have such contempt for middle America?
‘Why does Steve have such contempt for middle America?’
Since middle america sees him for the fraud he is?
What I love about this site is the constant banter between the real estate bulls and the bears. Brings me back to my economics classes in college. I find as in all things in life the reality is somewhere in the middle.
That being said, I am one of the fence sitters who lives out of the area but would like to find a second home (condo) in the area that makes sense. After 10 months, I am sorry to say that it may not be in the City of Chicago!
I would definitely be within the 20% that would lose money on my condo and I’m in the Loop. When I bought my place, my father told me I’d never have a problem selling in the Loop, because it is…ya know, “The Loop.” Big time, right?
I lost my job last October and when I finally found one in February, I took a $25k a year paycut. Factor in the thousands I’ve had to shell out for dental and medical bills and now I’m broke…but I can’t sell my place because it’s worth less then I owe. Or let me rephrase that, I couldn’t afford to pay my real estate agent or closing costs, etc. The guy above me had his place listed for $5 over what I owe and he finally rented his place out because there were no bites. Oh, and by the way…his price was also less than what I paid for mine three years ago. So much for housing always goes up in the Loop.
So this market sucks and I don’t see it getting better because people like me who want to pay their mortgage may not be able to soon. On top of the people who scammed the system. And I’m stuck. In the Loop…hoorah. Guess who’s place you may see on the next auction block? Think that will help the market?
It’s more like 100 bears vs. two bulls – Steven Heitman a/k/a Joe Zekass and DeaconBlue. However the nature of the internet and housing forums lends itself to bears. There are plenty of real life Joe Z’s out there still drinking the kool-aid. They just aren’t particularly active on this board.
Heitman and Zekass don’t have to meet to compare talking points. They already get them from a central source: NAR. That’s why all realtors (it’s a great time to buy) sound the same.
Mr. Heitman comes across as a real snob, frankly. Is his entire clientele all old-money from the Gold Coast? You’d think so, from the way he talks, but there’s only so many old rich folks to go around out there. And rich folks don’t like overpaying or losing equity any more than plain old middle-class folks, either.
I’m friends with one or two honest realtors, working in nice boutique upscale firms, that have said business is in the toilet, w/ income down > 70%.
If Steve says he’s doing just fine in LP, GC and Snobville, and continues to look down his nose at Rogers Park and the South Loop, so be it. We can always ignore him… Just keep in mind he clearly speaks only for a small, specialized segment of the RE market, that really is meaningless to the majority.
I think I was in grade school the last time anyone misspelled my name in such a juvenile manner. This discussion reminds me a lot of grade school – except that we had more intelligent discussions in my grade school.
For those among you – you know who you are – who are too lazy to check facts or don’t know how to check facts, I’m not a Realtor. If you’re not among that group you can visit our site and judge for yourself whether it’s fairly characterized here.
On an added note, I’m wondering whether “Pete” is the same loser that we banned from our site for being a know-nothing troll? “Pete” was only one of the names he posted under at our site.
Editor’s Note: As Joe himself said: Joe Zekas is NOT a realtor. For those of you who aren’t aware, he runs a website that provides information on new construction homes/condos/townhomes in Chicago at YoChicago.com.
Thanks, Sabrina.
Watch out pete, Joe called you a loser and it must be true. Ive heard he is infallable. So infallable that the RE downturn will uptick at his whim, he just doesnt want it to right now.
PS it is a good time to start a New Construction website.
BTW, regarding references to unemployment rates above. I just updated my market stats. The rise in the unemployment rate in Chicago was more a function of an increase in the labor force than a loss of jobs. I think it’s more instructive for real estate purposes to focus on the employment levels, which were down but not that much.
http://blog.lucidrealty.com/chicago_real_estate_statistics/
I still remember when Zekass was vehemently denying the existence of a housing bubble on yochicago. Now that everyone who doesn’t live under a rock knows that there is a huge bubble, he just tries to sidestep the issue altogether with non-stop cheerleading for housing and condo developments. From a quick glance at the front page, not very many people give a crap judging by the low comment counts on the articles. Maybe fewer visitors are a result of Zekass banning all users with dissenting opinions (or Trolls, as he calls them).
There’s a world of difference between saying, as I did for a while, that those cheerleading for a housing bubble in Chicago provided no evidence for it, and denying that there was one. Not everyone, ss cheerleader Pete so amply demonstrates, has the mental acuity to grasp that difference.
Ditto for the distinction between stifling dissent and banning trolls.
“There’s a world of difference between saying, as I did for a while, that those cheerleading for a housing bubble in Chicago provided no evidence for it, and denying that there was one.”
So people who believed there was/is a housing bubble weere cheerleaders but you’re not, I see.
And once again, Sabrina has shown he greater level of class by sticking up for you and even promoting your site even after you actively questioned her credibility on here and your own site just weeks ago. She defends the people who disagree with her, you attack anyone who does. You’re the one looking like a troll.
Joe, your only evidence that their wouldnt be a bubble was “most of the 6,000 units downtown are already under contract”. Which was false.
I don’t know why anyone even bothers to argue with Joe a/k/a Steven Heitman. His argument always starts with a personal attack, then he twists some of his opponents words, then he makes an unverifiable statement, and finishes with another personal attack. It’s not really debating – its more like trying to talk to the first year college student who thinks they know it all.
I’ve taken the brunt of most of the insults – I can’t tell you how many times he’s said I live in a studio in Uptown, as if that’s an insult or something in his twisted world. Because of course he doesn’t like what I have to say, primiarly that prices will return to 1999/2000 i.e. affordable levels, and Joe a/k/a SH goes nuts.
“Joe a/k/a Steven Heitman”
Zekman? Heitass?
Sigh!
For the record, I have no idea who Steve Heitman is. Unlike some here I’ve always posted under my real name wherever I post.
Studio in Uptown? Who said that?
“There’s a world of difference between saying, as I did for a while, that those cheerleading for a housing bubble in Chicago provided no evidence for it…”
You know just because you didn’t like the evidence or the source doesn’t mean it wasn’t correct.
I recall plently of people citing articles that quoted experts or gave numbers that you dismissed. Even the people who didn’t cite “evidence” but just gave their opinion as it related to their own situation counts as evidence. That is “boots on the ground” evidence. Real people, in real life saying, “I make X amount of money but even with that I can’t afford to buy because of inflated prices”, that’s evidence too Joe. That’s real life! You need to listen to that. That’s the average person telling you what is going on from their perspective. That’s more real life than you citing how many young lawyers are moving to the city that are going to buy up all these condos which you’ve said something to that effect more than once. I know your site mainly covers new construction in the downtown area but that isn’t the whole picture. Pre-existing homes are the bigger chunk of the market and if those don’t get sold inventory stays high.
It seems you’ve done well for yourself financially in life and for that I applaud you. It also seems your “friends” in the Re industry have also done well and tell you exactly what you already believe which is affordability is fine, things aren’t bad. this is being overblown. I’d ask you to put yourself in the shoes of the average person, if you would lower yourself to that mindset for a moment, an view this market from our perspective. I’d think you might see things differently.
homedelete, Zekas and Heitman are obviously NOT the same person. Zekas makes his living by advertising new construction (so of course he will cheerlead for it; his business model depends on its success.) Heitman has been explicit from the beginning that new construction right now is a terrible investment, and indeed, that anyone who buys outside of his fave areas (LP, GC, LV, ST) is bound to suffer. (My guess is that his own business model depends on those areas succeeding. I’m not saying these guys deliberately lie, but when your financial wellbeing depends on a fact being true, it is awfully hard to see/accept evidence that it is false.)
Ditto that Sabrina has shown 10X the good manners of Zekas, who has challenged the value, and even the integrity, of this site. I also believe that Zekas’s attitude and actions have done more to explain the encroaching irrelevance of his site, and drop in comments (and probably readership) than the tanking housing market for new construction has.
“I also believe that Zekas’s attitude and actions have done more to explain the encroaching irrelevance of his site, and drop in comments (and probably readership) than the tanking housing market for new construction has.”
Amen
If anyone is willing to look up some records for a particular property for me (past sales as well as loan info on last sale), please email dpz at hotmail dot com. Also, if anyone has recommendations for a real estate attorney. Many thanks. Sorry for being OT.
DZ — you can get a lot of info yourself with the property PIN (look up from address at cookcountryassessor.com) at the Recorder of Deeds website (www.ccrd.info).
Ken,
You suggested that if I viewed the market from the perspective of the average person I’d see things differently. You’re right. I would.
That would, however, take me far afield from the perspective of the audience that can afford new construction in the city of Chicago – and that’s the audience that’s relevant to my site. That audience isn’t much interested in what the average person thinks. Why should they? It’s a distraction from what they’re setting out to do.
“That would, however, take me far afield from the perspective of the audience that can afford new construction in the city of Chicago – and that’s the audience that’s relevant to my site. That audience isn’t much interested in what the average person thinks. Why should they? It’s a distraction from what they’re setting out to do.”
So then are you atleast willing to admit that from the perspective of the average person/household that much of the Chicago metro area is in some degree of a bubble (i.e. inflated house prices)?
Ken,
Once it became clear that prices were falling we’ve been reporting that, while continuing to caution against exaggerated claims about what the broader data mean in any specific context.
Our primary focus is not market conditions. People have plenty of sources of information on that (we link to those sources daily), and everyone has their own take on what it means to them. I don’t believe that most of our audience cares what the rest of our audience thinks about the subject, so we remain focused on what’s available in the market.
“That audience isn’t much interested in what the average person thinks. Why should they? It’s a distraction from what they’re setting out to do.”
Joe — if you’re right about this, it explains a lot about why the new condo market is so out of whack. Financially, I am solidly in your target audience (we just bought a 3BR in Gold Coast at a price around 2x income), although I detest mid- and high-rise condos (especially those that are glorified apartments).
Unless your readers are planning on owning their units until they die (and don’t care a whit for their heirs), they should be considering the resale market. Even though I can afford to pay “from the upper $500,000s” for an 09 unit at 600 N LSD (to take a recently featured building), I really should consider what the price for a used 2BR 2BA 1290sqft west-facing condo will be in a few years — and that requires understanding something about the general market. I don’t necessarily need to be concerned about people like the $80K or two-teacher strawmen above, but I should have an idea of who might be buying my unit next.
Anyone buying a new condo in the South Loop, Streeterville, or the myriad small buildings that YoChicago features would be well-served by considering the average person in their neighborhood. Those people are the ones who most likely will be buying such condos in years to come.
Moreover, Kevin, even Zekas’ target *audience* (to be distinguished from his *customers,* which as he himself admits are two different groups) should be interested in more and different data than he produces.
I, too, am in his targeted audience. I’d be happy to move to new construction downtown, closer to my work–and I’ve been keeping track of it. But I don’t know anyone-not a single person-who would be interested in buying a never-lived-in-unit *only* from a developer, and not from a flipper selling the exact same unit. And the population of people only interested in brand new construction, with no interest at all in even in units 4 or 5 years old, also has to be tiny. (Even if you were in that group, you’d want to know about the rest of the market for the reasons you point out, Kevin–not only will you likely have to sell to it, but that other market affects the price of your own purchase today.)
Yet, for instance, Zekas reports “percentage sold” numbers that reflect the number of contracts (not closings) by developers. And, he says things like, there are only a couple of units left in this new tower–act now or miss out on the chance to live there! This, when there are 20+ brand-new flips in that building on the mls. Why does he do that? Because his *audience* is not the same as his *customers,* who are developers. His site is an advertising site for developers.
His reporting *is* misleading, and until you figure it out, confusing. (It took me a good month or so.) After you figure it out, it’s irritating, and so you move over to this site.
Now Zekas claims Sabrina must have some secret agenda (offering as one piece of damning, damning evidence that she posts three times a day–at approximately the same time each day, no less!) and has announced/threatened that he will no longer handle this site with “kid gloves”. (It’s a testament to Sabrina that she continues to let him post here, and has even defended his honor.) But if she does have an agenda beyond making a little scratch for her efforts, I don’t care–the only time she tosses out posts is when we occasionally make fun of people’s decorating tastes. And, there are a good number of truly informed posters who offer solid evidence that is fun to debate. So if she has an agenda, she doesn’t advance it very well. This is my favorite blog while I’m “in the market”–which given the state of it, I expect to be for quite some time, since now is a really awful time to buy. But its a great time to gather information and learn.
“Yet, for instance, Zekas reports “percentage sold” numbers that reflect the number of contracts (not closings) by developers. And, he says things like, there are only a couple of units left in this new tower–act now or miss out on the chance to live there! This, when there are 20+ brand-new flips in that building on the mls. Why does he do that? Because his *audience* is not the same as his *customers,* who are developers. His site is an advertising site for developers.”
That’s an outstanding point Kenworthey.
Joe,
I’m curious who you considering your audience, as far as their income goes? What would consider the minimum income level for a single 20 or 30 something that would be interested in the units you highlite on your site? Thanks.
“the minimum income level for a single 20 or 30 something”
Hey, no minimum income level, so long as they have enough down-payment “assistance”.
The last time I said “act nor or miss out” was 20-some years ago when I was selling out the last of my developments. No one has heard or read me say that sine.
I make a lot of assumptions about our audience, and some of them may be wrong.
Among other things I assume that our audience has access to a site that displays MLS data – Realtor.com or a brokerage site. Anyone who wants to know how many flipper or rental units there are in a new building they’re zeroing in on can easily get that information from that source. Most of our audience is working with a real estate agent who can provide that information, and the good ones will put it in a more nuanced and more timely context than we or any other Web site can offer. And, Sabrina obviously offers some of that information, so why would we duplicate her efforts?
Small Web sites and publications, which both we and CribChatter are, have to focus and not try to be all things to all people or even all things to a single person. I assume that our readers want acess to tons of information from a variety of sources.
We do a lot of original photography and video to give our readers a different perspective than they can get from ads or from the written word or from MLS photos. Anyoneo who knows anything about our business knows that we have upwards of a million photos on our servers from the major brokerage firms we manage ads for. We could easily drown people in the same photos that Sabrina presents. We don’t see a point in just posting MLS photos or photos from agent sites that people can get anywhere.
I don’t think anyone wants to read a lengthy essay on how oI define my audience. The simple definitiion is that it’s anyone who wants to and can afford to buy new construction in the city from the developer. And, yes, I know that most of those people will lend up renting, buying from flippers or buying resales.
It’s not exactly a ringing endorsement of your site to say that anyone who wants to make sure they’re not being misled by it needs to go elsewhere and hire a real estate agent. Then again, I suppose you get points for honesty.
I have posted this link before, but anyone who wants to see which side yochicago will come down on in a conflict of interest between its “customers” and it’s audience, should read the comments in this link to hear it from the horse’s mouth:
http://yochicago.com/today/condo-conversions/upgraded-metropolitan-tower-condos-available-in-60-days_6776/
“I don’t think anyone wants to read a lengthy essay on how oI define my audience.”
I’m not asking for that. If you met someone at a cocktail party and they found out that you ran this site and said, “Oh my little Johnny/Suzi is interested in buying a 1bed/1bath in the city and the make X/year. Is that enough to purchase a roperty that might be seen on your site?” Let’s say it wasn’t then you would say, No, they would probably have to start at X/year and go up from there.”
What’s the X?
Kenworthey,
Even if you consider his reporting misleading (which is a subjective judgement in an of itself) he doesn’t try to hide the fact of who his customers are. And to his defense I think the site is great in that the photography and videos they do are informative. Also their interviews with developers frequently allow me to see how they are pitching their projects from the comfort of my chair. As he said his site isn’t all things to all people and it has a much narrower scope than Chicago real estate.
As a fan of good architecture I can say that developers aren’t always the best marketers and its nice to have an additional source of information about developments like YoChicago.
“…the photography and videos they do are informative. Also their interviews with developers frequently allow me to see how they are pitching their projects from the comfort of my chair.”
The pictures are nice but the video is jumpier than the Blair Witch Project. All of that stuff you can find on the developers site too. I really don’t think it adds anything you can find somewhere else.
“…I can say that developers aren’t always the best marketers and its nice to have an additional source of information about developments like YoChicago.”
That maybe be true but why do I want to be sold by both a developer and a third party site that is being paid by the developer? That’s like flipping a two sided coin to make your descision.
I’m not saying yochicago should shut itself down (though I personally would feel no loss if it did). But I am hardly endeared to a site whose principal owner and poster goes out of his way to trash a competitor (this site), and is notorious for his ad hominem attacks on people he disagrees with.
If you get something out of his site, by all means, spend time there. But do so knowing that it is, absolutely, an advertising site, and its interests are aligned not with its readers, but with its advertisers. You can, of course, say the same about many sites, and as such sites go, yochicago provides more value than the vast majority (which is why it took me a month or so to figure it out–but I’m probably more naive than the average home shopper). Still, I prefer to frequent sites whose interests are not so baldly aligned.
As ever, YMMV.
From the Yo link on Kenworthey’s post…
“We try to focus on projects that are available or will be available to buy.
As far as I know, we’re the only Chicago site that does that and that’s open for readers to share relevant information with each other. Market trends – positive or negative…” – Joe Zekas
No.
Ken asked, “So then are you atleast willing to admit that from the perspective of the average person/household that much of the Chicago metro area is in some degree of a bubble (i.e. inflated house prices)?”
Joe answered, “Once it became clear that prices were falling we’ve been reporting that, while continuing to caution against exaggerated claims about what the broader data mean in any specific context.”
Ken sits still waiting for an answer to his question.
Ken,
I’m unwilling to speculate about the perspective of the average person.
Prices have been falling on many types of properties in many parts of Metro Chicago. There may well be further declines on specific properties in some areas.
Does that mean we’re in a bubble in parts of Chicago? Not to my way of thinking. I’ve been around long enough to know that properties fluctuate up and down in value but trend up over the long term in stable and growing areas. I’ve also been around long enough to know that they can remain flat or deteriorate sharply as neighborhood conditions do, and that the flatness and the fall can both last for long periods of time.
The question of whether or not we’re in a bubble holds little interest for me outside of the context of specific properties, and I don’t think most serious home buyers should pay much attention to the issue. I generally don’t offer any opinion on the subject because I firmly believe my opinion has little utility.
There are great deals to be had out there today, and there are many overpriced properties. That tells me exactly nothing about a specific home. If I were in the market to buy I can think of a lot more relevant questions to ask, but they’d all be limited to questions about a property I was interested in and the area in which it’s located.
I bought and sold tens of millions of dollars worth of property back in the day when those numbers were more significant than they are today. Broad market conditions were only a consideration when I was looking for a quick exit path. Home buyers should never be looking for a quick exit path. If they are, they’re speculators and should be willing to absorb the risks they undertake.
But Joe,
Don’t you understand that this message board is full of brilliant 25 year old renters with no life experience who know nothing about economics and they think the market is going to crumble? Some of them even read articles in the paper, how could they possibly be wrong?
D
At least you admit prices are falling in parts of Chicago metro but the fact that you can’t admit that many of those areas experienced a bubble is perplexing to say the least.
I too have been around long enough to know that properties fluctuate up and down in value but trend up over the long term. That’s not a point I’m arguing. When properties in stable but not necessarily improving towns, communities & neighborhoods appreciate at exaggerated rates for no other reason than the availibilty of easy credit and questionable loans to unqualified or underqualified buyers, that’s a bubble. That type of credit and those types of loans to those types of buyers was ubiquituos and not just segregated to certain areas or zip codes.
I don’t care whether or not the fact we’re in a bubble holds interest to you but it absolutely should if you’re a serious buyer and if you were my realtor, and I realize you’re not a realtor, and you were telling me to ignore the man behind the curtain I’d look for another realtor. Most of these prices, not all, are based, to some degree, on the credit bubble we experienced that caused a bubble in RE prices. I don’t want to pay artifically inflated prices based on poorly managed market conditions and nor should any “serious home buyer”.
I agree the most important questions for any home buyer to ask are directly related to the specific property and the area it is in. Those should included questions regardinhg the amount of foreclosers, short sales or rentals in the area. Those questions area pertinent at any time but even more so now considering the market conditions. You should also look at the recent and long term sales history of the property and similiar properties in the area. Then you need to ask yourself if the appreciation is fair regrading what has happened in the area in the way of improvements to schools, retail, infrastructure etc. If there has been significant improvement in the area then significant aprreciation can be legitimate. That, IMO, is not true for most areas of metro Chicago during the last 5-6 years. The only thing driving pricing up was credit and many bad loans.
I have read many many blogs and websites about real estate. This is one of the very very best websites out there. It is a wealth of information and very well organized. It will only get better with time I’m sure. Many people post good comments, etc. I only wish there were sites like this one for other cities that I am considering buying in. Keep up the fantastic work Sabrina! Annnnndddddd THANK YOU!
Ken, you can lead a horse to water but you can’t make him drink. Look, I think it’s patently obvious to anyone involved with RE that the market is in a depression. Some people want to close their eyes and pretend it doesn’t exist. I won’t mention these certain posters by name.
Meanwhile, others have been doing quite well throughout this mess. And it hasn’t been through passive leveraged investment in pre-construction real estate either.
There are quite a of us involved in foreclosures, bankruptcies, RE litigation, REO’s, etc. Business has been as busy as ever. I’ve been involved in so many different areas as a result of this mess. And when I look into the future, I see this disaster playing out for a few years to come. I’ve already explained my reasoning a million times so there’s no need to explain it again. The workload on my desk is only getting larger and more complex.
It’s a depression in real estate in Florida, Nevada, Michigan and California. It’s a recession in Chicago. Historically, housing recessions in Chicago are followed by losses in marginal neighborhoods/towns and flat prices in the better areas, accompanied by a drop in sales volume. The fact that you are face to face with all the people having problems skews your perception of how the broad market truly is. It’s lousy but we’ve gone through the worst year imaginable for the housing market and the best neighborhoods haven’t dropped. What will cause things to get worse going forward?
D
Deaconblue,
Alt-A.
“it’s patently obvious to anyone involved with RE that the market is in a depression”
Not true. Maybe (in effect) for the folks you encounter day-to-day and maybe it will be a “depression” in the future (maybe even soon). But it is not currently. When you overstate your case like this, it’s not hepful to your underlying (bascially correct) point.
But if people like you know about Alt-A, don’t you think that the banks and Wall St. analysts are aware of them as well? How could any negative effects of Alt-A not already been taken into account by the lenders?
Also, I’d guess that most of the Alt-A loans were taken on by speculators/flippers. This may be back for the South Loop and perhaps Streeterville, but I don’t see how that will effect the areas of town that didn’t have a lot of new construction like LP, LW or the Gold Coast.
D
Deacon,
Are you serious? Alt A is being hammered. I’m not saying I’m smarter than the minds on Wall St but their faith in subpriome & Alt A has been proven wrong. They believed prices would keep going up and defaults and foreclosures would be manageable. They were wrong, there’s is not arguement about that.
But if it’s already being hammered, why are prices dropping in the good neighborhoods? At what point will they drop if not now?
I meant to say why AREN’T prices dropping in the best neighborhoods?
Alt-A resets have only just begun. And they disproportionately affected high-cost areas, because Alt-A borrowers are, by definition, prime. (Alt-A means that the buyer’s credit is high, but they were not eligible for a traditional prime loan because they do not have enough income/assets for the amount they are borrowing, and they are not putting enough down to protect the asset from a dip in value.) Alt-A is fine while the housing market is go-go-go. When not–as now–they fail. And they fail spectacularly, because so much more was borrowed (see again: these were disproportionately used in high-cost areas).
The borrowers never expected to keep the loan past reset; the goal was always to refi into a cheaper loan product or sell and pocket all that appreciation.
We know how well that is going for them… (and the banks that lent to them).
But how much higher are they actually going to reset to now? Market rates (like LIBOR) are no higher now than when most of those loans were originated.
D
It doesn’t matter if the rates are the same–they can no longer refinance at all. They have even less equity than they started with. The credit market has further tightened. They’re having a hard time selling without having to bring money to the table. For many, their only choice is to get foreclosed. This further worsens the balance sheet of banks, who have to tighten still further, etc.
So if this is already happening, why isn’t it affecting housing prices yet? Are you seeing a huge increase in foreclosures in LP and the Gold Coast (I’m asking honestly because I don’t believe I’ve seen any evidence of this).
D
Kenworthey,
Congress recently passed legislation making it possible for those underwater on their mortgage to refinance. I don’t know the details of this but I remember reading it in the news as part of the housing bill that just passed.
The bill you speak of has enough money for 400,000 people to refinance.
“The fact that you are face to face with all the people having problems skews your perception of how the broad market truly is.”
I personally only know one person in housing trouble.
I could turn what you said around on you. Becaus you’re not face to face with all the people having trouble skews your perception of broad the market truly is.
I was talking specifically to HD, who works with foreclosures for a living.
“The bill you speak of has enough money for 400,000 people to refinance.”
Like a midget at a urinal, that’s gonna come up a little short.
Bob,
The housing bill did provide some relief to some borrowers, but it’s not comprehensive (as it should not be), and the ones it is designed to help are more the subprime-type borrowers than the Alt-A type. (Part of that is that it is perceived that the latter should have known better, but probably even more because the shit hadn’t hit the fan with Alt-A before the bill got written). At best the bill is a finger in the dyke.
DB,
Prices have only just begin dropping in the expensive areas because we have literally just entered the first inning of Alt-A resets and recasts. Moreover, people in more expensive areas had marginally more skin the game and have more resources to hang on by their nails for longer. Is there going to be a bloodbath in LP? Of course not. But I also find it hard to imagine that these areas can continue to scrape along with volume as low as it’s been, and not have prices drop substantially (10%+ in nominal terms from peak, obviously more in real terms–though that depends on what happens with inflation.)
“I was talking specifically to HD, who works with foreclosures for a living.”
Not entirely accurate, but one partner in my firm has gotten rich off it and I do some work for him. Among other things.
My point is that when you are constantly seeing worst-case scenarios, it’s impossible for it to not skew your view of the world. You tend to begin thinking that these occurrences are more likely to occur than they really are.
But if wages are still increasing around 4% in nominal terms, you don’t need to prices to fall, they can just stay flat until wages catch up. A lack of sales volume is exactly what you’d expect to happen in that case. Volume won’t pick up until incomes catch up to prices, but you may not see any drop in nominal prices because sellers will just wait. This is the historical pattern in Chicago and we’ve yet to see any evidence that this time will be any different.
I pick up on trends.
3 years ago I attended a real estate closing at least once a week – that’s a lot for a litigator – but I was helping to cover everyone else’s workload.
Today I work on foreclosure related files more than 2x or 3x a week – which is unusual for a litigator – but again, I’m helping cover everyone else’s workload.
I wouldn’t say that my view is skewed although I have become very cynical.
“But if wages are still increasing around 4% in nominal terms, you don’t need to prices to fall, they can just stay flat until wages catch up. A lack of sales volume is exactly what you’d expect to happen in that case. Volume won’t pick up until incomes catch up to prices, but you may not see any drop in nominal prices because sellers will just wait. This is the historical pattern in Chicago and we’ve yet to see any evidence that this time will be any different.”
With all due respect, you’re just rationalizing what you want to happen. The Titanic has already hit the iceberg and you’re rearranging the deck chairs. Maybe you should move into your streeterville condo – since you’re going to be holding on to it for a while. I’m sure its a great place to live; just don’t expect anyone to pay a higher price than you did for quite some years. And there’s nothing wrong with that – a home is a place to live not a crazy highly leveraged investment ponzi scheme.
Most people buy homes using financing. Recent financing allowed for little or no (even negative) downpayments. Well, we’re going back to 20% down on average and a massive lending pull back. Not only do we have a huge supply of available homes (who really needed those two, three homes anyway) but the buyers are falling out of the game even faster now. We may be halfway through this crisis regarding falls in home prices but the pain will last for many years. The enthusiasm for housing is dead.
A further national price decline of 10% is probable. Anywhere from 5-25% is possible.
Oh, and that will include in LP which will see nominal price declines (obviously also real price declines) with the Alt-A troubles that are coming in. NOTHING will be untouched by this in the Chicago area, nothing.
“But if wages are still increasing around 4% in nominal terms”
Where is this happening? In Europe? Because it’s not happeing in America.
Ken,
Once again, please reads the posts before you say something stupid. I posted a link to the Bureau of Labor Statistics with Q1 data showing nominal gains in median income of 4.2% YoY.
D
“NOTHING will be untouched by this in the Chicago area, nothing.”
That’s a baseless claim backed by no evidence. History has not played out that way and considering we’ve already move halfway back to the long-term trend of income/home prices, I’m not sure what evidence you have of this. There is nothing in the data that would make one believe that the best areas are going to plummet, we are simply seeing the typical pattern of past housing recessions.
D
You guys all think that “this time it’s different,” and maybe it is, but the burden of proof is on you. As I posted in another thread, the units that have sold recently in my building were for about 5% more then they went for back in 2006 AT THE PEAK OF THE BUBBLE! The median price in LP has gone up as well, so all of your assumptions about an impending collapse are based on wishful thinking, not rational analysis.
D
“this time it’s different”
I do fear that there is a fundamental difference in the real estate market (even in Lincoln Park and Gold Coast) between the past few years and previous periods. I don’t have any data that speaks to this issue, but I expect that the stupid mortgages that were so widespread elsewhere must also have infested LP and GC.
I hope that it is obvious to everyone here that a household with access to a 5% down mortgage with 1.5% payment rate (option ARM, neg am) can “afford” to pay far more for their home than a household who can get only a 20% down mortgage with a 6% interest rate (30yr fixed).
The second family (30yr fixed) could pay $500K for a house with $100K down and $2398 paid per month. The first family (option ARM) could pay $2M for a house with the same $100K down at $2375 paid per month. So long as the first family sold at a profit within about 5 years (when fully amortizing payments start, at about $13K/mo), they would be in great shape.
If these option ARMs (and other IO or neg am) were frequently used in LP and GC the past few years, I have to believe that those prices are inflated relative to what is affordable in today’s mortgage market.
It certainly could be that the vast majority of people who bought in LP and GC used in 2005-6 were getting fixed-rate mortgages and putting 20% or more down, in which case the returning of sanity to the mortgage market would have little effect. I don’t believe that is the case, although I do not have any data on the issue.
Deaconblue,has a solid grasp on the way things have historically played out in Chicago, and people should pay close attention to his posts.
Ken challenged me to say straight up whether or not there’s been a bubble in Chicago real estate. There hasn’t been. There have, however, been a number of mini-bubbles in neighborhoods where speculation was rampant.
I don’t think the price trends since 2000 support the notion that “the bubble” broadly affected Lincoln Park, the true Gold Coast, or some of the other more established neighborhoods in Chicago. If anything, the speculative fervor for neighborhoods that appeared to be appreciating dampened appreciation in price levels in more established areas.
In the 30+ years that I’ve watched the lakefront market in the city sales volumes consistently rise and fall based on 1) the perception of near-term appreciation, 2) employment levels and 3) household formations in the 21-34 year old group.
What has been different in the past 8 years is people’s willingness to buy into marginal and sub-marginal neighborhoods. Exotic mortgage loans and a thin market fueled some mini-bubbles in those neighborhoods.
All other factors remaining equal, it’s going to take some time for that willingness to speculate on secondary neighborhoods to recur. The upshot, in my best guess, is that the remaining shrunken demand levels, will focus more on quality of life issues to the benefit of Lincoln Park, the Gold Coast and the more established neighborhoods.
What about the 4 unit building on Poe Street used as an example by SH a few weeks ago? It was in Lincoln Park too.
http://cribchatter.com/?p=4313
The first three purchasers each put down less than 5%; the buyer of the fourth had a significant down payment but paid the highest price because the previous three bozos bid up the comps with funny money. This toxic garbage is everywhere.
Look, one of the major causes of the ‘bubble’ was toxic waste mortgages combined with loose lending – prevalent in all neighborhoods, including Lincoln Park and the Gold Coast. These loans have caused problems nearly everywhere in the county, state and country. To say that these loans will have limited, if any effect on the ‘more established’ neighborhoods is delusional. They’ve caused problems everywhere from Miami to Greenwich CT. The writing is on the wall and denying its existence doesn’t make the toxic nature of these loans disappear. It’s plausible that GC and LP haven’t yet been effected but the key word is yet. Some of these toxic loans 5/1 arms starting in ’05 don’t reset until ’10; and the option arms of ’07 don’t reset until 2012. I imagine we’ll be having a much different conversation 18 to 24 months from now as large numbers of resets begin.
I forgot to mention that the reason some of the ‘marginal’ neighborhoods have been effected is because of the subprimes, which generally had two years of fixed rates before the reset. Subprimes haven’t been prevalent in the more established neighborhoods but Alt-As are everywhere in the better neighborhoods. They jumbos, IOs, option arms, they generally have 5 to 10 years of fixed rates before the resets, so it’s taking longer to affect those areas. The first resets are right around the corner.
I am sure there are many here who can recite the history of Chicago real estate. Joe Zekas correctly reminisces that: “In the 30+ years that I’ve watched the lakefront market in the city sales volumes consistently rise and fall based on 1) the perception of near-term appreciation, 2) employment levels and 3) household formations in the 21-34 year old group.”
I agree that similar easy credit was not available prior to this bubble and so it hasn’t figured into past Chicago sales volume downturns. However, ignoring this elephant in the room while sales volume has tanked might just be foolish.
Kevin(first), I currently have a couple of interns (I love summer) compiling all sales and mortgage data on a downtown bldg. My casual looks at the data so far indicate that 20% down is not the only hurdle for recent sales – in a lot of cases the down pmt appears to be whatever it takes to get the loan down to the $417K max that a bank needs to dump the loan on fannie/freddie (aka the taxpayers.) This seems to support the anecdotes that jumbos are difficult with even 20% down. Of course, the same bldg had 90/10 and 80/20 loans prior to this year (before sales fell off.) It sure looks like changes in financing are hurting sales volume more than any of the points that Joe Zekas claimed from the past.
Any good buyer can still get a piggyback mortgage for anything over 417k. It may be about a point higher, but it can be done. Again, the marginal neighborhoods don’t tend to have the same quality credit risks buying homes so they may have a hard time, but the kinds of people buying in GC/LP/SV are probably able to get the financing they need.
D
So, if it isn’t lending standards which have caused the market sales to collapse, what of Zekas’ points explain it? He didn’t say for some reason.
People who don’t understand the basics of real estate are trying to explain what’s happened in prime areas in recent times in terms of what they think they know, i.e. novel mortgage instruments and subprime and Alt-A lending.
The prime areas of Chicago are desirable and sought-after.
At the beginning of 2000 and continuing for several years mortgage rates plunged to levels that hadn’t been seen for many years. Income and employment levels rose at the same time, especially in the upper income ranges, and income tax rates were reduced. The number of people in the demographic group that wants to live in the prime areas also increased. In some areas a new demographic (aging baby boomers) came into the market. While all this was happening, the supply of real estate in the prime areas remained relatively static.
More people with more purchasing power (rising incomes, plunging rates, lower taxes) chasing a limited supply drove up prices. These basics explain what happened in the strong neighborhoods.
“in a lot of cases the down pmt appears to be whatever it takes to get the loan down to the $417K max that a bank needs to dump the loan on fannie/freddie”
It depends on the exact rates, but usually up to about $450-500K borrowed it makes more sense to go with a $417K conforming and a small second than to go with a jumbo charging a point more. The same sort of logic as why 80/10/10 were preferred to 90/10 in the bubble days.
In my case, we put something like 22% down to get to $417K, because a second that small just didn’t make sense (effort, fees, rate). I’d expect that people buying as high as about $600-650K are considering bringing the mortgage down to conforming.
“More people with more purchasing power (rising incomes, plunging rates, lower taxes) chasing a limited supply”
Lower taxes had a greater effect than relaxed lending standards and adjustable-rate mortgages? I’m sure everyone flocked to Lincoln Park as soon as the tax cuts were rammed through Congress.
Dave,
All he is saying is that tax rates were clearly one of the contributing factors, as they increased take home income.
D
Still waiting for the answer to what made caused the current sales volume collapse…as for recent lending practices, nothimg to see here, just move along.
G – How about the general fear of the housing market. Everything for the past 16 months has been about how bad th emarket is. This scared away buyers and sellers. This will all be over soon…
Now that’s funny.
G,
As your dire predictions have become increasingly proven wrong, you seem to be resorting to “laughing” at others rather than attempt to provide evidence that you aren’t totally incorrect. It seem like the last resort of someone who is so emotionally invested in a particular outcome that they are blind to the fact that they are completely wrong.
D
Now THAT’s funny!
Can’t come up with any intelligent argument so you just laugh? That’s not funny, it’s PATHETIC!
D
If you are doing this on purpose, DB, you are a *genius*!
G & Kenworthey – How are those rental doing? Now that is funny!
DB and Heitman.
You continually ask others to provide “facts” for the housing downturn. It’s pretty simple really. In the last decade we had a equity boom which created wealth followed by a housing boom which created outsized leveraged returns for a number of folks. At this point we have both equities and housing down year on year significantly. It seems to me that for any asset to appreciate there has to be a reason to value it – and in the near past it was increasingly wealthy individuals and short supply. In this case we seem to have a problem – individuals are not gaining wealth (in fact they are or have lost it) and supply has increased dramatically (evidenced by the number of new units coming on line in 2008).
I know there are parts of the city that are beautiful and desirable locations to live – i am not sure that there are compelling reasons for valuations equivalent to or greater than what we saw in the 2006-2007 timeframe.
SA – I never claimed housing was going up in the next year or 2. I also never claimed certain parts of the city have callapsed (the ones that doubled over the past 5 years). I have said that the desirable neighborhoods are very stable and prices have not really come down. I have supported thi with facts on many seperate occasions.
“i am not sure that there are compelling reasons for valuations equivalent to or greater than what we saw in the 2006-2007 timeframe.”
Because incomes are steadily rising at 3-4% nominal per year. Home prices have already been flat to down (depending on area/neighborhood) for 2 years. If that trend continues for another 2-3 then incomes can catch up with prices. This is what has happened historically in stable housing markets like the Chicago region. Sales volume shrinks, marginal neighborhoods tumble, but good areas just go flat for awhile.
The problem with most of the people on this board is that they have no knowledge of history. Ignorance of history leaves you susceptible to the sky-is-falling media. Anyone can come up with an intelligent sounding reason who homes ought to plummet, but there is no current, or historical, evidence that this will occur in the good parts of Chicago. You are all being taken advantage of by the media.
D
The collapse in sales volume in LP (40 percent YOY) indicates a “very stable” market?
The explanation for the collapse is “general fear” and/or Zekas’ reminiscings, but nothing to do with lending standards?
Cognitive dissonance on action.
I specifically mentioned shrinking sales volume, G-dog. Also, I was referring to Chicago as stable in the long term, because it historically does not have the large boom-bust cycles that the coastal cities have. You have great track record for taking quotes out of context to make them seem to say something different.
As for sales volume, this is where your ignorance comes shining through. You are comparing current volume to BUBBLE LEVELS. Of course it’s going to be down. The fact that we are coming off historically anomalous sales levels, watching financing tighten and psychology darken, a drop in volume is predictable. We aren’t nearly as far down compared to historical normal levels, and a bit of give back for the excess for the last few years is normal and expected.
My question to you is, since volume has shrunken so much, why haven’t the good parts of Chicago dropped at all? You just proved for me yesterday that the nice units in my building are actually slightly UP since 2006! Low volume is no fun, but it’s expected and right in line with prior Chicago housing slowdowns. You’ve yet to provide any EVIDENCE that “this time it’s different.”
D
“why haven’t the good parts of Chicago dropped at all?”
Do you even read the posts on this site? There is ample evidence presented with price drops. Or am I taking what YOU wrote out of context?
So, has your wife given you the money to pay your lost wager yet?
Please provide some of this “evidence” that the good areas have dropped. Just yesterday there was a whole analysis done that showed that LP has had no statistically significant drop. And what bet are you talking about? You still have never explained why you have access to the MLS. My bet is that you are a junior sales assistant in a realtors office and you are bitter that you don’t make as much as the “used home salesmen” like Steve Heitman.
D
I took that bet at two months of your income. Let me know where we can meet (if your wife gives her ok.)
I realize you said your income (and not your wife’s,) so it probably won’t bother her.
G – We went through an entire thread supporting Lincpln Park’s home prices. We even proved the mixture of units sold was similar of the past 3 years. Let’s see your data supporting a drop. You are all talk as many you post are. It is actually funny!
If you want to compare shoe sizes I will beat you in this category too…
We have had the discussion on housing appreciation versus income growth. Case Shiller statistics show Chicago housing peaking in 2006 at 168.60. Given that the index is normalized to Jan 2000, that is a 8.3% annualized increase in 6.5 years. Over the same period the BLS suggests that professional incomes increased at a 3.5% rate.
So following that argument one of two things has to happen – either prices need to adjust ~ 30% from their peak (we are off about 12% right now) or we need to bounce along until about 2014 when incomes catch up. Given the state of the economy and the supply abundance I would expect that housing prices adjust before incomes catch up.
I am not trying to be a pessimist – just a realist. I can easily afford housing and have no jealousies. I am just very interested in the dynamics of what has happened in the US economy over the last few years.
I also believe easy credit played a large part in this debacle. In essence it allowed buyers to control assets on a leveraged basis well beyond what their incomes would normally deem that they should be able to.
You have to take into consideration interest rates and the redistribution of income levels per neighborhood. This is the only way to really get a feel for what is happening.
SA,
Because of the effects of leverage, a 3.5% increase in incomes produces more than a 3.5% increase in the home you can afford. If you take that and interest rates into account, it won’t take more than another 2 years for affordability to be back at it’s long term trend.
D
G,
You still haven’t explained why someone who thinks the housing market is going to tank and hates realtors would pay to have access to the MLS. The idea that you are some piker in a sales office makes more sense then anything you’ve explained.
D
SA,
I agree that without government intervention housing prices would most likely correct on a national level as opposed to wages. However thus far the Fed has shown that it is willing to inflate our way out of this. It is taking up the side of homeowners and the financial sector at the expense of the broader economy.
I definitely think real home prices are going to fall, however with government intervention and inflating our way out of this mess I am reluctant to predict nominal housing in most areas. The sunbelt and Florida excluded as they are still going to crash.
DB,
You do get leverage on your invested dollars when you are able obtain a mortgage but it is not the case you get leverage on the size of the mortgage you are able to afford – typically a straight % of your income which can be attributed to housing ie. just because you can put $200K down on a house doesn’t mean the bank will give you a $800K mortgage. Reality is that mortgage lenders got stupid in their easy lending and it will probably overshoot to the conservative side before it finds a happy medium.
I am not arguing the merits of real estate investing or the value of an individual property. I just think that there is alot more ahead of us before we are out of the woods. It is like a slow motion train wreck
SA, I agree that real prices are going to fall, there is no doubt about it, but most of the people on this site only talk about nominal prices!
D
DB, I already took your bet. So lets meet up to settle it. I still believe your wife is the breadwinner, but bring your check stubs so I know I’m getting two months pay, however meager it may be.
So now you are taking my bet? Before you said YOU had a bet? Are you even American? You don’t write normally and seem to have a hard time with English.
D
I love how you act like you “won” the bet, even though you haven’t presented a single reason why you have access to the MLS!
This is all so juvenile. Deaconblue’s comments bring back memories of junior high, the painful time in life that it was.
I read this article in the Sun Times and was mortified by the wreckless nature of its writing. The authors throw around statistics like 21.4% and 37.8% about the number of recent Chicago area homeowner’s whose home value today is below their equity invested, but the premise is terribly flawed. The article is based on one source, Zillow.
The MLS records homes that have sold, are pending and on the market. Zillow estimates the market value of properties that are not listed and/or have not sold. In a diverse urban market like Chicago where property age, size, quality, type, location, ownership structure, board restrictions, parking availably, etc. are highly variable and profoundly impact market value, the Zillow model for predicting market value is so off that it is meaningless.
The Sun Times itself admits that the Zillow margin of error in the Chicago area (which is never defined geographically) is 9.6%. That is huge. How can they report “statistics” with such precision and then later say that they could be off by as much as almost 10%?! That is highly irresponsible.
The only way we know for certain the value of a home is to put it up for sale. The value is what a buyer is willing to pay and where a seller is willing to let it go. Trends of actual sales are also a good indicator, but homes are as unique as people and it is hard to generalize.
That’s what I thought, DB…you are as scared to lose the bet as you are of the market dropping.
You really shouldn’t bet (or purchase) what you can’t afford. It is foolish.
Then again, you seem to want to be the fool around here. Carry on.