‘Price Cuts Becoming Routine’ In Chicago Area
The Chicago Tribune has this update from Illinois. “Increasingly finicky home buyers are putting the brakes on the Chicago real estate market, where sales of single-family homes plunged a steep 15 percent in June from the same month last year, believed to be the biggest local drop since the housing boom began in 2001.”
“June’s numbers are the latest sign that not even Chicago, which has not felt the effects of the end of a five-year national housing boom as sharply as other markets, will remain unaffected by the slowdown.”
“Analysts said the growing level of unsold homes will further depress prices in coming months and add to the slowdown in sales. Chicago agents say inventory levels are up 30 to 40 percent in some areas.”
“One of those homes on the market belongs to Irving Birkner and his wife, Jaime, who have been trying to sell their two-bedroom condo in the North Center neighborhood since April. Birkner said the couple has had numerous showings but that buyers seem more interested in newly constructed condos nearby than in their vintage unit. A few days ago the couple dropped their asking price by $10,000, to $229,900.”
“The Birkners are eager to sell because they have seen several houses that interest them, he said. ‘We could take advantage of this buyer’s market if we could just sell this house,’ Birkner said, acknowledging the irony. ‘I don’t have a degree in economics, but that pretty much seems to be the way it works.’”
“Pat Callan, a broker in Wheaton, said he expects market times to lengthen. ‘We’ll go back to the 150-day market,’ which he said was typical in the mid-1990s, before the boom.”
“He described buyers as ‘cautious’ because they know the market is cooling. As a result, price cuts are becoming somewhat routine, he said. ‘They’re easily doing $5,000 and $10,000 cuts, depending on their own personal circumstances,’ Callan said. ‘I have seen $20,000 and $30,000 cuts, just to get some activity.’”
“June sales in DuPage tumbled 17.2 percent. Other counties seeing a sales decline were DeKalb (by 20.8 percent), Will (12.3 percent), Cook (11.1 percent), Kane (6.9 percent), Lake (7.3 percent) and McHenry (less than 1 percent).”
“Grundy County was the only one of the eight where sales increased, by a significant 24.5 percent. However, the median sales price there declined by 5.2 percent, according to the Realtors. Prices also dropped by about 4.6 percent each in Kankakee and Peoria counties, which are not included in the Realtors’ Chicago data. More than a third of counties in Illinois saw prices fall in the month.”
From Chicago Business. “The downtown condo market has joined the growing ranks of slowing Chicago-area real estate markets. Sales of new homes in the city fell nearly 21% compared with the second quarter of 2005, while suburban sales slid almost 24% in the April-to-June period, according to a Schaumburg-based real estate consultancy.”
“The city’s drop-off is a dramatic change from the first quarter. The soft market has now extended into the city condo market, which accounts for nearly all the new housing construction in the city. ‘What you’ve seen in the suburbs for the last three quarters is hitting the city now,’ says Mr. Cross. ‘There is coolness now in the city market.’”
“In recent years, city housing sales have been dominated by a handful of high-rise condominium developments downtown. When one project ended, another would hit the market to keep overall sales growing. Many of those new condos were sold to speculators who hoped to sell them at a profit rather than live in them.”
Thanks to the readers who sent in these links. From Iowa:
‘Home sales in the Des Moines-area were down about 2 percent for the first five months of 2006 compared to record sales in 2005, information from Iowa Realty showed. Sales of new homes were down about 17 percent..There also were 17 percent more homes on the market in May than the same time last year. Phyllis Butler, a real estate agent..said sellers have to be competitive. ‘These days you have to price it really well,’ she said.’
Blowing the theory that this is a coastal problem only…
wowser - .5. rate now below 40% probability cause of cooling housing- “cooling” try dropping off a cliff………..
it’s at the point where we can sit back and shut up. the ugly thug named “big inventory” is stepping from the shadows and flexing his giant muscles. he’s gonna shake out the flippers like king kong flings natives from a rope bridge.
i’m watching this one from from the safety of my rental.
It’s inventory and those damned finicky buyers which are screwing up the condo flippers’ profit opportunities.
Bastards! Just buy already and give me the profit I’m entitled too!
Lol. Yep ,love the analogy of king kong .
“Pat Callan, a broker in Wheaton, said he expects market times to lengthen. ‘We’ll go back to the 150-day market,’ which he said was typical in the mid-1990s, before the boom.”
Is Real Estate the only industry that will go back over a decade to justify itself? I was watching the loser Kudlow (CNBC) yesterday and he pulled up a RE chart that went back 50 years! Can you imagine telling your boss, “I know my numbers are bad this month but they are still above 1995 levels”. BTW the mid 90’s was a very bad RE market.
Dumb-Low. Don’t get me started on that moron!
Speaking of Kudlow… I was working out at the gym a couple of weeks ago. The TV had CNBS on. This clown Kudlow was pounding the table shouting “There will be no recession in out future…” I laughed so hard I almost fell off the treadmill. Who need Comedy Central when there is CNBS.
Oops. Our future. Not “out”.
The 150 day listing….what happens during the 150 days….finally a random buyer shows up and likes THAT home? What about all the homes that came on the market during the 150 days? Curb appeal and the right price will put a home in escrow in 30 days….now, tomorrow and next week. Of course….there are exceptions.
“He described buyers as ‘cautious’ because they know the market is cooling. As a result, price cuts are becoming somewhat routine, he said.
Potential buyers know the market is cooling because of people like Ben. Good job Mr. Jones. This is also why the front end is going to be really steep. Near real time information will do to the housing market in 2006 what it did to the stock market in 1987.
Love these “painful” slashed to $220, do you run out to tell all your friends?
I think it’s that same old “fear of insulting owner” thing that allows so many sellers’ agents to tolerate this piddling reductions that are not keeping pace with actual sales price depreciation. It will be a buyer’s market when 6 sellers with comparables homes in the same subdivision are “bidding” for 1 or 2 buyers, having been carefully admonished by the agents not to “insult” the buyer(s) with too high an initial bid.
Fear,smear. ‘Slashing’ a previously inflated price is the oldest trick in the book. I recently bought a set of drill bits at Big Lots (a discount chain) for 20 bucks. The absolutely same exact set (sporting different decals) was available at Lowes for $89.95. Now that’s a discount. The true value in this housing is a completely unknown figure, just noise in the heads of sellers.
You can’t beat Big Lots. I shop there all the time.
Don’t know what I did to mangle the first part of my post, above…
I MEANT to say, “Love these ‘painful’ >5% price drops; typical of RE. Now if a $240 television gets SLASHED to $230, do you rush to tell all your friends?”
My husband and I are relocating to Naperville next month. This ChicagoTribune’s article confirms what I suspected…although I do not expect the prices to drop as much as in other really bubble-areas like California, Massachusetts…
Anyway we are not going to buy a house now, we’ll rent for at least 6 months to a year and then decide whether buying makes sense or not. Funny enough I was the one wanted to wait and save more money for a future downpayment…my husband wanted to buy a house as soon as we’d move…(I tried to stay rational and thinking in terms of money not feelings)
you’ll know it’s time to buy when 10 mortgage brokers are shot each day
Naperville-3 bedroom $400,000 to $450,000, 4 bedroom $500,000 to $550,000, and the median average total household income is $90,000. And if you have to commute to downtown Chicago you better be out of the house by 5:00 AM.
The income won;t be a problem…we will be making more than the median, both working and living in the Naperville area. But I just won’t overpay for a house, and I’m not the type who needs a mansion, just a decent house.
I’ve seen (internet) perfectly neat 3bedroom houses in the area (in the Dupage county) for less than 400k. However there is nothing for 250k…so we will focus on the 300k to 400k market.
We don’t have kids so we don’t have to worry about the school year, so we plan to buy just after Christmas (if we find something we like and could live in for at least 7 years) so we can see the houses at their worst.
I’d recommend checking the local assessors’ web sites for past sales. Prices up a lot from pre 2001 prices. We started looking for a house in June 2001 in an adjacent suburb & gave up as that was about the time things started taking off.
“The Birkners are eager to sell because they have seen several houses that interest them, he said. ‘We could take advantage of this buyer’s market if we could just sell this house,’ Birkner said, acknowledging the irony. ‘I don’t have a degree in economics, but that pretty much seems to be the way it works.”
Pretty much the way it works if you’re a FB or GF. If you’re a bubble sitter, this is not how things work.
That quote cracked me up, too! Hey, it’s a “buyer’s market” out there…stupid buyers, that is.
I love how the article describes the Birkners’ condo as a “vintage unit.” I guess that’s a synonym for “crap.”
Actually, a “vintage” unit in Chicago mostly means pre WWII as opposed to new construction. Most vintage units are in buildings built in the 1920s and earlier. It was probably converted from an apartment to a condo. I’ve been in many of these buildings, and if they are maintained, they are much better constructed that whatever is built now. They do have vintage details, though, such as small closets. But they often have positive details such as built-ins and original leaded glass. It is really a matter of taste and not quality, for the most part. Vintage units are usually, but not always, cheaper than new units.
I live in the DC-area, and it’s a bit like that here, as well. Particularly in the more chic areas of DC itself, older condos will often go for a premium. I live just across the river in Arlington, which has a lot of immediate post-WWII apts. and townhouses. Some of which are absolute crap that was put up quickly to meet a huge post-WWII housing shortage here, but I’ve seen other places here that would survive WWIII. Problem is, I’d think that the maintenance on those older buildings would be killer–I can imagine lots of special assessments.
Actually, I described it to someone as an “idiot’s market” — that is, a great time to buy if you’re enough of an idiot to buy into a clearly declining market.
The crap in Chicago was built in the 50′, 60’s & 70’s. Nothing was built in the 80’s. If the vintage unit they’re talking about was built in the 40’s or earlier then it’s mostly likely a good unit.
Now, if you want RE speak for crap in Chicago then throw up a red flag when you hear a neighborhood described as “historic”. That means it used to good 60+ years ago. Today, you’re ducking gun fire.
I just got back from Chitown about 3 weeks ago. That city and its neighboring burbs have bubble written all over them. The prices downtown rival those in San Diego and Orange County, that’s for sure.
fwiw
Beige Book Supports Fed Pause
By Tony Crescenzi
RealMoney.com Contributor
7/26/2006 3:01 PM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10299618.html
The Fed released its beige book report today on current economic conditions based on anecdotal information. Fed Chairman Ben Bernanke’s recent testimony before Congress supersedes this information, but it nonetheless yields information of some use to the markets. Before I go on, let me note that the anecdotal information collected for this report comes from the Fed’s various contacts, including the directors of the 12 district banks. The directors are a diverse collection of people from many sectors of the U.S. economy. In San Francisco, for example, directors include the CEO of AT&T West and a co-owner of Dreyer’s Grand Ice Cream.
Today’s report was prepared by the Federal Reserve Bank of San Francisco based on information collected on or before July 17. There are three main features of the report:
A large number of district banks are reporting a slowing in economic growth.
Prices and wages were found to be rising modestly, and the Fed notably placed emphasis on the factors controlling inflation.
Consumer spending is weakening.
Of the Fed’s 12 district banks, half said that the economic growth rates in their districts were declining, two characterized conditions as mixed, three characterized conditions as “moderate” or “modest,” and just one characterized growth as “solid.” There seems little justification for a rate hike with such characterizations.
On prices and wages, the report says, “Increases in wages and in prices of final goods and services remained modest on net.” It says, “Scattered reports from various Districts indicated an increase in manufacturers’ and retailers’ ability to pass such cost increases on to final prices.” However, it emphasizes, “More generally … Districts reported that vigorous competition held price increases down, and some contacts noted reliance on productivity increases to maintain profit margins in the face of rising input costs.” These comments are consistent with the sanguine inflation view offered by Fed Chairman Bernanke last week.
The comments on retail sales are important. The Fed noted that retail sales had weakened slightly, a fact evident in yesterday’s report on same-store sales reported by the ICSC, which said that the year-over-year gain had fallen to 1.9%, the slowest pace since February 2005. If retail sales stay weak, the virtuous production cycle of self-reinforcing economic growth will be at risk. Weak spending will lead to reduced output, which, in turn, will lead to weaker income growth (companies will cut back on worker hours), which will lead to weaker gains in production, and so on and so on. This is what makes the Fed’s comment on factory activity — “Reports from the manufacturing sector were strong, with significant gains in output and sales, especially for durable goods” — seem very backward-looking.
High energy price + rent inflation + inflation targetting supports Fed continuation of measured series of tightenings. But perhaps BB is hoping that clueless George Q. Public will have a case of severe amnesia about his former espousal of inflation targetting policy.
I will say it again. I think the only people who DIDN’T buy over these last few years, when money was so cheap, are the people on this board. I don’t see us galloping to the rescue anytime soon. More like W rushing to aid Lebanese…
Yes, money has been cheap recently. Thats why I refinanced (and did NOT take any additional monies) 1 1/2 years ago. I bet lots of people did that, 5% rates are (at least, were) great!
Also really stretched and paid off my car plus ALL credit cards.
The problem in Chicago is that the psychology that it’s no longer a sellers market is just now changing. Bubble talk in Chicago is very lite. 2005 was the big year in sales and since theose people were late to the party they don’t want to talk bubble for fear it will happen.
I have a buddy trying to sell a 850sgft condo in River North for $305,000 and he’s bitching about all the tire kickers out there. I did some research on the unit and it originally sold for $146,000 in 1999. 109% appreciation in seven years…that’s about right.
“The Birkners are eager to sell because they have seen several houses that interest them, he said. ‘We could take advantage of this buyer’s market if we could just sell this house,’”
And therein lies the problem. Everyone that wants a house or a condo has one. And for anyone to buy another house they generally have to sell the one they presently have. Its a stuck market. To move their present house they would have to lower the price and then they wouldn’t be interested in the new one.
“To move their present house they would have to lower the price and then they wouldn’t be interested in the new one.”
More importantly, then they wouldn’t be in a favorable financial position to buy a new (read bigger, more expensive) one.
I’ve been in Chicago for the past 3 years and it’s poised for a severe correction not so much a crash. A River North condo for 300k, +assessments +exploding property taxes (the 7% increase cap sunsets very soon in Cook County). No thank you. The North Center condo based on other prices I’ve seen isn’t crazy priced at $229,000. I’d have to know the address, but the area wasn’t gentrified just yesterday. I think Winter is what’s really going to kill Chicago housing. If it is down during the Spring and Summer, I can’t imagine who is going to be house shopping in the bitter cold. Then more ARMS adjust and the heat bills start coming in. More places on the market still without buyers. What pushed the bubble higher than it deserved were the media stories and word of mouth from people flipping real estate and eventually what is going to drop prices further than fundamentals would dictate is the media saying how horrible it is and word of mouth from people that ended up foreclosed or upside down and needing to move.
Well said Andy!
Inventory will drop below 30,000 in the winter but thats because people who don’t have to sell will just pull their homes off the market. By this time next year however the inventory may be in the 45,000-50,000 range, it’s around 36,000 now. That would kill the market.
Interesting to read about the chicago market from everyone. I now live in La Jolla, but lived in Chicago for 8 yrs. I don’t think Chicago prices are anywhere near the OC or SD mkts. There are 100s of 2bd/2ba condos of 1400+ sq feet in chicago for around 400k, compared to “bubble central” SD gaslamp places that are still 600K for 1200 sq ft. Its shocking that chicago is facing the same stagnation of volume without the HUGE appreciation in soCal. I currently rent a large 2bd/2ba in La Jolla village that my landlord is going to put on the mkt for 1.4mil. An equivalent place in chicago would be 600k - max. (Of course, there are 4 units in my 18 unit bldg for sale now, and all have had price cuts, and no sales. i’ll be shocked if my place sells for 1.4)
I think the guy that said Chi prices were as bad as SD & LA was definitly overstating it. However, people in Chi use the rational, “Our prices are no were near as high as CA so there’s no bubble here.” Hey folks, Chicago prices are never and should never be as high as San Diego for example. We don’t have the weather or the views. When the costs of a 2/2 in CA comes down to the range of a Chicago 2/2 what does that mean? Chicago RE is overvalued!!! Then it will have to go down.
One can still find a cheaper 2-bedroom rental apartment around there for $1,000-$1,200/month. No taxes, no assessments, no heating bills. And it would basically be the same unit as a “vintage” condo conversion.
I agree $229K doesn’t sound crazy compared to other units on the market, but it is still very high compared to rents.
I am pretty sure that “North Center” is also a fairly new name for this area, part of the new-language to make an uninspiring area sound more hip and marketable.
My comment was intended to nest under the comment made by
Andy - 2006-07-26 13:56:07.
I’ve been a Chicago resident in the Bridgeport Neighborhood for fifty-two years. Presently there is a building boom going on in condo units. They are popping up like mushrooms. I don’t understand who is going to buy all of these $300,000.00+ units in an area that has little to offer other than close proximity to downtown Chicago. I’ve noticed, and friends who are in real estate tell me, that the present finished units are becoming hard to move. I also have many friends in real estate who are looking to move out of the business because it is so slow. No bubble in Chicago? Not what I’m hearing from people who work in the business.
http://www.chicagotribune.com/media/acrobat/2006-07/19350762.pdf
This is a really useful map for Chicago that I found a little shocking. North Center looks like it can be called Roscoe Village as well. Lakeview prices down 10% YoY, Lincoln Park down, Lincoln Square, Near North, The Loop, and Near South I would consider some of those to be the ‘premium’ neighborhoods. I buy the Sunday trib. just to get my grubby hands on the map each week (North Cook and Lake Counties this week!). More shocking though are prices in places like Humboldt Park that were practically warzones 12 years ago and now averaging $278,000.
Roscoe Village used to be a run down area of Chicago, but because of it’s proximity to Lincoln Park and Wrigleyville, it got renamed once the developers got ahold of the properties and started building homes and condos that cost upwards of $500k.
What happened here in Chicago, which to me does not justify the pricing of condos, is we got “condo-boxes.” IE three sides of cinder blocks and an ugly plain brick front to make two duplexes and one to two simplexes where an older home with character once stood. So not only did developers concentrate density, they also concentrated ugly. Damen Ave between Fullerton and Belmont is a great example.
The other economic of condo building in Chicago? In order to make any money after property acquisition, demolition and construction, the developer had to sell the final unit. Otherwise, they barely broke even. Not exactly a sound strategy in a time of uncertainty.
And fwiw, condo units are being built in the Lincoln Square neighborhood by the boatload, but not selling. Why? Because Lincoln Square covers a very large area of Chicago. And to be honest? There’s nothing here to justify the prices other than speculation. No nightlife, few bars, nothing trendy here to speak of. It’s just a plain vanilla neighborhood in the City.
My biggest peeve tho, is the “gentrification” that hit my street. IOW, large three-flats were bought up to make 4-unit condo buildings. Which in turn kicked out the long time renters. The variety of folks living and knowing each other is now gone. Condo dwellers don’t go out of their way to know their neighbors, that’s for sure.
A happy renter who wishes housing in the neighborhood didn’t double so she could own here,
Michele
Hang in there Michele. The worm will turn,
Hang in there Michele. The worm will turn.