October 27, 2006

Quick Decline “Like A Culture Shock To Many”: Chicago

The Daily Herald from Illinois. “So much for the Chicago area being insolated from the sharp home sale downturns felt in other markets. Local home sales plummeted 23 percent in September, according to a survey. The September picture was dramatic. Illinois combined sales for single-family homes and condominiums dropped 19.5 percent from last year’s record, according to the Illinois Association of Realtors.”

The Chicago Tribune. “That Chicago prices have not declined as precipitously as the sales figures may be due to a number of factors, experts say, and some warn that prices may be poised to head south. ‘The sellers in Chicago are very stubborn,’ said David Lereah, chief economist of the National Association of Realtors. ‘They’re not bringing their prices down, so sales are going down.’”

“Lereah says Chicago prices are in the typical pattern after a boom. ‘Price always lags, so as sales drop off, prices will follow,’ he said.”

“But David Thorpe, for example, has lowered the price on his Glen Ellyn residence to $389,000 from $429,000 in March. He took it off the market Oct. 1, and he and his wife have moved to Naperville, will dress it up before relisting it in January. ‘I just don’t think there’s any action out there right now,’ he said. ‘We had so few people look.’”

“Pete Flint, CEO of a residential real estate search engine, said speculative buying had fueled the price run-up in the last several years. Those investors generally have fled the market now, he said. ‘Investors or speculators have disappeared completely,’ Flint said. ‘On a median basis, prices seem to be relatively steady and firm’ because control of the market has reverted to ordinary consumers.”

“Economist Ian Shepherdson expects the market to worsen and take prices with it. ‘The longer-term downward trend in mortgage applications and sales should reassert itself over the next few months as people balk at using borrowed money to buy depreciating assets,’ he said. He expects ‘a steep and prolonged downturn’ in housing, with sales and housing starts dropping 50 percent or more from their peaks.” ”

“Housing consultant Steve Hovany said home builders have been forced to cut prices and sell excess land. And many have quietly laid off staffs. ‘They are trying to sell their last six or eight houses at some projects and want to get rid of them before winter, so they can start fresh in the spring,’ said Hovany in Schaumburg.”

“In Chicago, a report by a consulting firm said that condo sales in new buildings fell to about 700 in the third quarter, from 1,200 in the second quarter and 1,600 in the first quarter. About 5,700 new condos are being marketed in the downtown area, up by more than 1,000 from last year, said Gail Lissner of Appraisal Research.”

“However, many of those condos have yet to begin construction, she said, ‘and some projects may not be built.’”

From Chicago Business. “The number of Chicago-area homes entering some stage of the foreclosure process increased in September, keeping the metropolitan area’s rate at more than twice that of the nation. A total of 6,177 homes in the eight-county metro area were in the foreclosure process last month.”

“‘I wouldn’t be surprised if (foreclosure numbers) go higher than that,’ said David Rose, director of research for the a consumer advocacy group in Chicago. ‘If the second half of the year is anything like the first half, we are going to see a jump.’”

“Mr. Rose’s organization tracked 4,695 foreclosures started in Chicago for the first six months of the year. Last year, the city had 7,575 for the entire year. He said the housing boom of the late 1990s and early 2000s is proving to be problematic for consumers who find themselves financially stretched in the economic slowdown.”

“‘A lot of people were getting into houses they couldn’t afford with teaser rates,’ he said. ‘Then the loans reset and they get into trouble. We’ve got some rough times to look at in Chicago and we will see pockets of housing where the prices are not rising,’ Mr. Rose said.”

From USA Today. “Javier Diaz’s made several profitable real estate investments, but the three-unit apartment building he bought in Chicago earlier this year wasn’t one of them. ‘I figured this year the property would go up 30 or 40 grand, but that didn’t happen,’ says Diaz.”

“He put it up for sale in September, asking $415,000. He’s already cut the price twice, to $375,000. That’s less than he owes on his loan, which means that if Diaz sells at that price, he’ll have to pull $5,000 out of his own pocket to pay the bank.”

“Being a mortgage broker, Diaz knows some investors who used their home equity like debit cards. He says of the quick decline in real estate, ‘It’s coming like a culture shock to many.’”

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Comment by North GA Dave
2006-10-27 08:04:32

““Lereah says Chicago prices are in the typical pattern after a boom. ‘Price always lags, so as sales drop off, prices will follow,’ he said.”

Does not sound like the the Lereah I know. I thought prices never went down?

Comment by Sobay
2006-10-27 08:21:30

- ‘The sellers in Chicago are very stubborn,’ said David Lereah, chief economist of the National Association of Realtors. ‘They’re not bringing their prices down, so sales are going down.’”

Hang in there Chicago! You will lead the rest of the country out of this soft landing.

Comment by Andy in Chicago
2006-10-27 08:47:51

I know it’s sarcasm above, but on the ground the signs are really starting to multiply. There is some housing stock that will be fine, but people that thought Bridgeport (southside where the sox play) or Humboldt Park needed ‘luxury’ condos are going to take a bath. All told the area seems to be around 5 months behind the most frothy when it seems like around May when Phoenix and Las Vegas were trumpeting that prices were holding steady while inventory was spiraling. So I guess next April (after first property tax payment) I’ll get to read about 10-15% yoy losses.

Comment by Pete
2006-10-27 09:16:59

I don’t see how the condo market can NOT crash, since they’re sprouting up like weeds everywhere. Existing units must be selling slowly, since builders are advertising “no assessments for a year” and stuff like that. I wish it would fall fast, since I would like to buy but no way am I paying $300,000 for a one bedroom unit.

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Comment by mrktMaven FL
2006-10-27 10:02:29

‘They’re not bringing their prices down, so sales are going down.’

Does’nt DL know his market; some resellers are equity and savings poor; as a result they can’t lower prices even if they wanted; they ‘GotStucco’ :-)

Comment by Backstage
2006-10-27 08:21:58

He’s been reading here and learned a thing or two.

Hi Dave!

Comment by North GA Dave
2006-10-27 08:46:46


Maybe the facts have gotten to the point where he can’t cling to the all of his pronouncements anymore. He never really had much creditbility among thinking people, but if he does not alter his message a little, even the sheeple will see inconsistencies.

“The sky is really red, not the blue you think you see”, will only work for so long.

Comment by GetStucco
2006-10-27 08:27:45

His predictions closely follow the news stories on the housing situation. And maybe he is gradually learning to pay attention to blogs.

Comment by John Law
2006-10-27 08:28:40

Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today’s Expanding Real Estate Market

“Lereah says Chicago prices are in the typical pattern after a boom”

a bust? lereah said there would be no bust, he wrote a book about it.

Comment by diogenes
2006-10-27 10:26:37

That was EXACTLY what I was thinking when I read that comment!!
“Lereah says Chicago prices are in the typical pattern after a boom. ‘Price always lags, so as sales drop off, prices will follow,’ he said.”

2006-10-27 13:29:19

You guys need to ease up on Lereah. You know he quietly lurks on this blog everyday like the rest of us and you are hurting his feelings. How would you like to see a blog everyday that does nothing but rip on the unmistakenly fanatastic job you are doing? Its not like he is profiting from all the FB’s. Publishing his books could almost be considered philanthropy. How many of you dedicate your whole life delivering an unbiased guidance to make others wealthy?
Feel free to join in Dave. There are those hear that support you!

Comment by Sammy Schadenfreude
2006-10-27 18:39:19

Lereah is now trying to pinpoint a few areas and pretend the housing bubble implosion is isolated to them and them only. He’s also exhibiting an unusual talent for making statements of the blindingly obvious. May all his mistresses catch syphllis.

Comment by David Cee
2006-10-27 08:14:04

2. Recently reported (new home sale) increases have been subsequently revised downwards, primarily due to cancellations. Sales in June, July and August were revised down by 67,000.

Where is this headline in the Chicago Press. The spin “doesn’t stop ever”
is the new slogan of the NAR.

Comment by Joey
2006-10-27 08:17:38

It’s funny, but people who simply followed the crowd during a period of expanding credit and loose lending standards thought they were soooo smart when they made paper profits on their homes.

II wonder how they feel now?

Strike 1 on the stock market, strike 2 on the housing market… what will strike 3 be, the commodities or gold market?

Comment by Backstage
2006-10-27 08:23:50

Can’t we just quit after 2 strikes?

Comment by TulipsAllOverAgain
2006-10-27 08:29:33

Strike 3 will most likely come in the form of an LTCB style blow up in the mortgage-backed derivatives market. Most of the big numbers, GDP, sales, price declines, have dropped faster than the big boys have predicted. If they have highly leveraged bets based on their same predictions, at some point somebody is going to loose a good deal of money. The only question that remains then is will those losses present systemic risk to our financial system.

Comment by John Law
2006-10-27 08:32:37

strike 3 is today’s GDP number.

Comment by Backstage
2006-10-27 08:37:57

Q4’s number will be strike 4.

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Comment by mrktMaven FL
2006-10-27 10:19:08

“II wonder how they feel now?”

Some are still having a pimping good time spending all the equity they made last year. Sooner or later, however, reality is going to hit them upside the head but by then it would be too late.

Comment by tg
2006-10-27 10:38:57

Please,please, please, do not buy gold it is only a stupid yellow piece of metal that is not good for making useful stuff out of. You cannot eat it, it does not make any interest and I need to buy more of it and if you buy some it drives up the price for me.

Comment by kerk93
2006-10-27 11:12:58

If for some reason you really decide you must, please buy the paper gold. You don’t want the hard stuff anyway. It just sits there and collects dust. No one can loan it out to anyone to finance a 800K home that 3 years ago was sold for 300K. So what good is it? If you still feel like you must, then do it on margin.

Comment by TulipsAllOverAgain
2006-10-27 08:26:23

Regarding the culture shock, as soon as the shock really does set in, I would expect consumer spending to go down. Not only due to psychological factors, but also due to the lack of available credit through Home Equity Withdrawals. Once consumer spending slows, and it may not be until after this holiday season is over, the economy could really start to slow.

Today’s GDP report, was again, lower then the expert economists had predicted. Those on this blog knew better because we’ve seen that housing activity has fallen farther and faster than these experts had been predicting all along.

Nouriel Roubini, who is predicting a recession starting in the first half of 2007, was the closest to predicting the GDP number. Given his forecasting ability, maybe we should keep a keen eye on him. From his blog:

“The first estimate of Q3 GDP growth is a dismal 1.6%, sharply lower than the 5.6% of Q1 and the 2.6% of Q2. In July - when I first predicted a US recession in 2007 - I forecasted that Q3 GDP growth would be 1.5% at the time when the market consensus was 3.1%. Given the onslaught of bad macro news in the fall professional forecasters started to cut their Q3 forecasts from 3.1% to 2.5%, down to 2.2% last week and 2% this morning. They were still wrong and overoptimistic as the actual first estimate came as 1.6%, only an epsilon higher than my July forecast of 1.5% (the same forecasters had gotten Q2 wrong too; my spring forecast for Q2 was 2.5% versus a consensus of 3.2%; the actual figure ended up being 2.6%).”


Comment by GetStucco
2006-10-27 08:29:15

“Regarding the culture shock, as soon as the shock really does set in, I would expect consumer spending to go down.”

That is why the MSM happy talk and stock price appreciation must be continued at all costs…

Comment by TulipsAllOverAgain
2006-10-27 08:35:51

Yes it must. And I am at a total loss as to whether to stay in the S&P500. On the one hand, growth is slowing and consumption will slow and it doesn’t appear that the market is pricing in any possibility of a recession. On the other hand, the market isn’t grossly overvalued, there certainly will be fools rushing in as the Dow, etc. hit nominal new highs, or just investing more in stocks as a more normalized asset allocation sets in (i.e., less real estate investment). I think the consensus on this board was right with regard to real estate, just wondering what the consensus is on the broad stock marekt.

Comment by Backstage
2006-10-27 08:52:18

If you are uncertain, get out.

The predictions on theis blog have been very accurate. It’s been amazing to see this bust play out as the consensus on this blog has predicted. Those predictions were fully in place a year ago.

-The problem with resets
-The decline in sales volume followed by prices
-Rising foreclosures
-HELOCs sinking many recent and imprudent buyers
-The emptying of the home ATM
-Exposing of appraisal fraud and price fixing
-Layoffs in the mortgage industry
-Spreading the word about toxic loans by the MSM

The current prediction is that the effects of the housing bubble will spread to the remainder of the economy in the form of lower spending by consumers and by layoffs in housing and housing related industries.

Will that lead to a recession? Probably. Do I want to own a broadly based index as we are entering a recession? Probably not.

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Comment by P'cola Popper
2006-10-27 09:02:28

Don’t forget financial contagion entering the banking system due to the massive amount of leverage employed during the boom with minimal or non-existant buyer equity cushion i.e. 125% LTV, 80/20, pay option loans, ARMs, stated income, etc., etc. The financial contagion is what will kill the economy.

Comment by Backstage
2006-10-27 09:04:21

And let’s not forget the ‘investors’

Comment by GetStucco
2006-10-27 09:22:34

And let’s not forget the gov’t interventionists, who will use whatever means they believe necessary to assure a soft landing.

Comment by droog
2006-10-27 10:07:55

The thing is, everyone on this blog has been predicting these outcomes for more than a year. However, if I had stayed out of the market for the past year, I would have missed out on some good upside. Merely because we expect a recession in a few quarters doesn’t mean we should avoid stocks. Look at this election-induced suckers rally. I fully intend to milk it for as long as I can, and jump out as quickly as possible.

Comment by David Cee
2006-10-27 10:19:44

” fully intend to milk it for as long as I can, and jump out as quickly as possible” Sounds like all the Phoenix flippers
who were telling me the same thing 6 months ago. The only thing they are jumping out of now is their “skin”..
many sleepless nights, and the old “could have, should have, would have” scenerio. Take your profits now.

Comment by mrktMaven FL
2006-10-27 10:25:29

And let’s not forget the looming credit crunch…

Comment by Paul in Jax
2006-10-27 10:40:24

Even though stocks are up (say) 12% and housing is down (say) 12%, stocks are still cheap relative to real estate, unlike the late 90s. If the S&P goes to 1450 and housing goes down another 10%, stocks will still be cheaper than the historical norm relative to real estate. (After that, it starts to get a little closer.)

Therefore, a reasonable argument can be made that someone waiting to buy a piece of real estate can use the stock market as a partial hedge or arbitrage vehicle against the real estate market.

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Comment by Jon
2006-10-27 11:55:16

I think you should re-read the IMF paper on asset bubbles/busts. Using stocks as a hedge against RE risk assumes they are uncorrelated, or negatively correlated. They are not. RE busts induce equity busts with higher probability than vice-versa.

Comment by Paul in Jax
2006-10-27 15:08:32

It assumes nothing of the sort. I’m arguing that over the next couple of years stocks will outperform housing, nothing more. If you’re going to tell me what to read at least follow my argument.

Comment by tj & the bear
2006-10-27 11:55:09

On the other hand, the market isn’t grossly overvalued…

Did somebody slip you some koolaid?

Historically speaking the stock market is highly overvalued. P/E’s currently run around 25, whereas the long-term average is around 15. Don’t even talk about price vs. dividends. True value for the markets is somewhere north of half current prices.

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Comment by Paul in Jax
2006-10-27 15:09:59

PEs currently run in the 15-16 range.

Comment by Sammy Schadenfreude
2006-10-27 18:42:05

The more important stock market metric is insider selling. Right now it’s something like 16:1 (selling over buying). If that doesn’t telegraph trouble, I don’t know what does.

Comment by tj & the bear
2006-10-28 23:11:51

Paul in Jax,

Depends on how you calculate the PEs. Wall Street likes to use projected earnings fantasies, whereas the true measure is always reported earnings.

Comment by Backstage
2006-10-27 08:33:16

And let’s not forget that consumer confidence is at a 15 month high.

I’m so glad that we have such a strong economy. When this housing thing really starts affecting the rest of the economy, GDP will go negative and remain there for quite a while.

Add to all that that the ECB is still thinking about raising interest rates, while the FED will probably start lowering them in ‘07. Where do you think foreign capital will go in during the coming years?

Comment by Loonofficer
2006-10-27 08:39:56

I’ve come to the conclusion that consumer confidence is really a measure of consumer delusion or hope, or am I just bitter?
It seems that all the consumer needs to hear is that the economy is great, jobs are plentiful and gas prices just went down by 5c/gal in order to flock back to the mall.

Comment by GetStucco
2006-10-27 08:41:45

They still need dough to spend it, and I am wondering where that will come from now that the housing ATM machine is gasping for air?

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Comment by Loonofficer
2006-10-27 08:45:24

They’re still using those credit cards, don’t forget. Still getting suckered into those “0% for six months” balance transfers. Only this time there’ll be no equity to pay them off with once they send in a payment 10 minutes too late and their 32% default rate kicks in

Comment by North GA Dave
2006-10-27 08:55:01

..by that time the lenders will have captured a large percentage of the happy consumers into financial slavery. A higher percentage of everyones production will be going to debt service. Gotcha! The stiffer BK requirements were passed not a moment too soon either. So the FB may have to drag around their $100K in foreclosure deficiency, and CC bills forever.

Keep in mind, that there is nothing wrong with this, or illegal. If you are a company, and can engineer a method to get more of the consumers money, within the law, that is the goal of a for-profit concern. We should not begrudge them for it, in fact, it makes those who are not in debt more powerful. It magnifies the advantage of a cash position.

Comment by Backstage
2006-10-27 09:03:19

The stiffer BK requirements were passed not a moment too soon either.

Think this was a coincidence?

Comment by North GA Dave
2006-10-27 09:10:39

Well, it was a found opportunity. The original BK Bill was initiated by the CC companies, in the late 90’s, before the RE runup.

Maybe the mortgage lenders saw the unfolding fiasco a few years ago and helped push the law, but I doubt it. In fact, I think it will turn out that the retail mortgage lenders have little exposure to existing notes. Most are sold off to capital markets as CMO’s, or other complicated derivatives. The question is, since someone has to ultimately be on the hook for the shortfall from foreclosures, who is it? It may be that the derivatives are so complicated, and hedged, that the actual entity holding the risk is hard to determine.

The retail mortgage lenders (Countrywide, WAMU, etc) stand to lose alot because their income from originations, and servicing the portfolios will go down. It is likely that most of the companies are scalable so that they can layoff and cut overhead fast enough though.

Comment by flatffplan
2006-10-27 09:13:22

that 5 cents is multiplied out over 40 years and deducted from their new mortgage

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Comment by mrktMaven FL
2006-10-27 10:31:47

“Where do you think foreign capital will go in during the coming years?”

With a weaker dollar and sinking RE market, some of it might purchase cheaper real assets.

Comment by Observer
2006-10-27 08:34:58

The recession won’t be coming in Q4. Look at the earnings guidance given by most public companies, it’s fairly positive. My bet is a recession will hit this time next year. By that time oil prices will have climbed back up due to seasonal factors and home prices will not have rebounded causing consumers to cut back spending. Consumers are still spending fairly well today thanks to lower oil prices.

I have a feeling most home sellers are expecting a rebound in prices next spring. When that doesn’t happen and oil prices go up again, that’s when consumers will realize they need to cut back their spending.

Comment by P'cola Popper
2006-10-27 08:50:29

The research I have read shows that once the GDP starts to decelerate due to a bust in the housing bubble it continues to decelerate for about twelve quarters. In addition the fourth quarter was the weakest quarter in both 2004 and 2005 so although the consumer may be up for one last Roman orgy most likely consumer expenditure will not be enough to break the trend in declining GDP growth.

Comment by Backstage
2006-10-27 08:55:44

XMAS buying numbers will be interesting. Will it be an orgy or a polite kiss on the cheek?

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Comment by Observer
2006-10-27 09:00:07

Christmas is going to be good, I bet GDP accelerates in Q4 thanks to strong consumer confidence and low oil prices. The big drop will be in the spring and summer as consumers added on more debt during Christmans, oil prices increase, and home prices continue to decrease (no spring bounce).

Comment by Loonofficer
2006-10-27 09:21:34

Don’t be surprised if the Xmas spending season is a huge debt spree. It’ll be the feelgood factor of buying all that crap nobody needs thatthe masses will need to experience to feel good about themselves. Besides, the MSM tells them everything is just fine and dandy. Even though they may see no firsthand evidence of this, the mere fact that some Hollywood-smiling CNN tart tells them all will be well next year (because an “expert” said so), this will be all that is needed to convince Johnny Numbnuts that now is the time to upgrade to a 60″ plasma t.v. because the 42″ is now obsolete.

Comment by caustic_soda
2006-10-28 19:51:08

Inbound shipments to retailers gearing up for Xmas are considerably lighter this year. It’s one indicator that this may not be a strong year by recent standards.

Comment by arlingtonva
2006-10-27 08:41:09

What’s the true value of a dollar? The price of a house doubled in just a few years. I can see people asking themselves ‘why save money when the purchasing power will be 50% of what it is today? Why not just spend and spend and hope things work themselves out?

Thanks Greenspan

Comment by Backstage
2006-10-27 08:58:34

why save money when the purchasing power will be 50% of what it is today?

I think the sheeple don’t make the link between the eroding dollar and why they spend.

Why not just spend and spend and hope things work themselves out?

They just follow the last part of your comment blindly.

Comment by KayLaw
2006-10-27 09:54:01

That’s almost exactly what my physician b-i-l said.

Comment by annata
2006-10-27 08:49:36

This can’t be right. CNN just published a “Bubble-Proof Economy” article yesterday! Then again, they also listed Boston as a Bubble-proof real estate market…

Comment by DinOR
2006-10-27 10:05:22


I actually kind of liked the general premise of the article in that they showed that there can indeed be an economy (and economic growth) without housing leading the way! For so long we’ve allowed the cottage industry of flipping homes occupy our every waking moment it’s sad. NOW, I’m not saying any economy is or can be bubble-proofed but it was reassuring to see the MSM finally get a clue that we can have other growth engines.

Comment by hd74man
2006-10-27 12:34:34

Then again, they also listed Boston as a Bubble-proof real estate market…

I just love seein’ these absolute shit-hole 100 year old houses on postage stamps lots in the likes of Salem, Lynn, Beverly, etc., with $400k prices on them.

These are $80k amenitied houses! So WTF if the lot is $300k.

Zippo functional utility in dirt.

What freakin’ moron in his right mind is gonna buy this garbage and settle his family in a declining New England economy.

Comment by Huck Finn
2006-10-27 10:13:54

I agree. After the holidays will see belt - tightening. I can just hear tens of thousands of “look , honey we really need to make a few New Year resolutions for real in 2007″. Not fear yet , but maybe just the smell of it. Or even a slight return to common sense and some form of thrift. It’ll be enough to crimp the debt - driven economic growth .

Comment by ubercrap
2006-10-27 08:33:25

Methinks the Daily Herald meant “insulated” or “isolated” not “insolated” which is something completely different altogether. What happened to proofreaders or editors of some sort? Spell check doesn’t cut it.

Comment by az_lender
2006-10-27 10:05:40

Good eye, ubercrap. If Milankovitch were alive he would provide us with an instantaneous calculation of Chicago’s long-term insolation cycle and we would immediately see why that area is as vulnerable as, if not more vulnerable than, CA & FL.

Comment by Jim A.
2006-10-27 13:42:50

Maybe they just mean that it will be a sunny day tomorrow!

Comment by Loonofficer
2006-10-27 08:36:13

“But David Thorpe, for example, has lowered the price on his Glen Ellyn residence to $389,000 from $429,000 in March. He took it off the market Oct. 1, and he and his wife have moved to Naperville, will dress it up before relisting it in January.

“dress it up”? I hope they don’t iontend to spend more money on it . Don’t they realize they can just $50K off it and dump it right now? Bail! Bail! Bail!

Frickin’ morons

Comment by az_lender
2006-10-27 10:07:33

Yeah, I have another friend telling another friend to “add on to the [unsellable] house to improve the comps”. I said NO NO NO, but I doubt they are listening.

Comment by DinOR
2006-10-27 10:09:57


I actually grew up in that area as a HS kid and ALL of the homes there are so cute it ain’t funny! Hell, they’re ALL nice (and they’re all “special”). We’ve discussed investment psychology at length here and what this guy is trying to pull qualifies him for a text book case of denial. What is it exactly he hopes to accomplish again?

Comment by SUSPICIOUS 2
2006-10-27 10:12:04

Exactly, they’ve had the house for 44 years. Basically, their whole selling price is profit!
I guess they don’t want to sell that badly, yet!

Comment by David Cee
2006-10-27 10:24:21

“Johnny Numbnuts “

Comment by peterbob
2006-10-27 16:43:10

“But David Thorpe, for example, has lowered the price on his Glen Ellyn residence to $389,000 from $429,000 in March. He took it off the market Oct. 1, and he and his wife have moved to Naperville, will dress it up before relisting it in January. ‘I just don’t think there’s any action out there right now,’ he said. ‘We had so few people look.’”

If you lowered your price, there would be “action.”

Comment by GetStucco
2006-10-27 08:40:00

“Economist Ian Shepherdson expects the market to worsen and take prices with it. ‘The longer-term downward trend in mortgage applications and sales should reassert itself over the next few months as people balk at using borrowed money to buy depreciating assets,’ he said. He expects ‘a steep and prolonged downturn’ in housing, with sales and housing starts dropping 50 percent or more from their peaks.”

I assume “prolonged” is measured in years, not months? (I showed a bit of math on another thread that “prolonged” meant 7 years in NYC and 8 years in LA during the 1990s bust).

Comment by outofiowa
2006-10-27 09:38:58

IMHO, this downturn will be much more accellerated than the 1990’s. Boomers still had rising incomes and were in their peak child raising years back then. This slowed the down turn. If they are anything like my wife and I (in our mid fifties), we have lost interest in high paying jobs, consumer goods, big houses etc. My guess is that some Boomers will be taking this time to unload their family home at whatever they can get before the price falls off a cliff. The next generation cannot afford these expensive places in the numbers they are available. Many Boomers will then move to a warmer climate and simplify their lives significantly. I am talking about maybe 10-20% of the Boomers. This will help get these oldsters out of the high paying jobs that are blocking younger workers career paths.
I think this has already started but will begin to accellerate soon, as Boomers rush the door. This has been the trend our entire working life. Boomer trends started with a trickle and then became a flood. As this transition to retirement takes place RE in many areas will plummet and consumer spending will also crash. I think this plummet may start as soon as next year but could take several years. As always, those who are lucky enough to figure out the trend early will benefit while the followers will be caught. Of course, opinions are like a**holes-everyone has one. I am probably dead wrong on this.

Comment by az_lender
2006-10-27 10:10:34

Your opinion sounds pretty consistent with much of what has appeared on this blog, which has predicted many things correctly. Don’t be too modest.

Comment by David Cee
2006-10-27 10:27:18

“opinions are like a**holes-everyone has one” I don’t David Learah thinks has facts are opinions paid for by the NAR.

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Comment by Jim A.
2006-10-27 13:46:14

There’s a big difference between your opinion and my a**hole: with my a**hole I give a sh*t.

Comment by SUSPICIOUS 2
2006-10-27 10:28:54

I would say the beginning of your secnairo is correct. However, after ‘07 and maybe into ‘09. The boomers will figure out:
1) They can’t sell their house (this is a big part of many bommers plans)
2) They’re company sponsered retirement plans are inadequate or are gone! (SS - forget about it!)
This will force many boomers to work longer than they anticipated.
If the economy really gets bad (a serious depression) as some have forecasted, the boomers will loose thier jobs (and others too) and try to sell their toys, houses, etc.
We will all find our retirement years very different from the last generation.
It’s not a pretty picture.
IMO those with no or little debt will be better off. But still will be effected.

Comment by tj & the bear
2006-10-27 12:01:59

Dead on. Mauldin covered this well in one of his books. Essentially there’ll be more retirees than there will be workers to serve them, so supply vs. demand will favor those workers. The workers will therefore demand (and get) more of the retiree’s assets in return for their services.

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Comment by HHH
2006-10-27 21:54:20

I think it’s more likely that the boomers will just continue to allow unchecked immigration in order to meet their labor needs.

Comment by Jerry
2006-10-27 11:21:11

Did just that. Sold over price home in 05 in SD and moved out of state. Tax free 500,000 kicked in. How long will this last? Did not have to be a Phi Betta Cappa to figure this out.

Comment by Chip
2006-10-27 12:31:26

“Did not have to be a Phi Betta Cappa to figure this out.”

What the heck, it “works” in the context of your sentence. Funny.

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Comment by Jim A.
2006-10-27 13:48:24

Obviously a member of tappa kega bru

Comment by Jerry
2006-10-27 20:36:24

Laughing all the way to the bank. IRS rules made this decision a no brainer. Sleeping at nights was never so easy.

Comment by North GA Dave
2006-10-27 08:43:42

“…that’s when consumers will realize they need to cut back their spending…”

That makes sense, except I would adjust the expectations of humans.

I never expect most consumers will actually ‘realize’ anything. In most cases, the spending will not stop until they have no money or credit availability left. The biggest surprise of this RE runup has been the lust of consumers to spend whatever they could get their hands on. Even if they did not expect the prices to go down, their decision to HELOC and then spend it all is not logical.

Comment by jonaskinny
2006-10-27 08:44:11

I love how they say ‘Investors or speculators have disappeared completely,’ …. but that is true only if they all have SOLD their holdings…. a market needs a buyer and a seller Petie! No sales == investors hung out to dry…. morons!

Comment by Loonofficer
2006-10-27 08:49:45

What they mean is that investors are no longer buying in huge droves as they were in the past. That is what created the false sense of low inventory and everyone rushing to buy. It’s what held the game together for so long. Now the dust has settled and the music has stopped investors,builders, lenders, realtors, brokers et al realize the gf market has dried up.

Comment by jonaskinny
2006-10-27 09:01:43

my point is the dust has not settled yet… investors not being able to sell at a loss does not sound like the floor to me.

Comment by Loonofficer
2006-10-27 09:03:19

Agreed. I should have said the dust is beginning to settle. We have a long way to go and this is the tip of the iceberg as far as the fallout is concerned.

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Comment by az_lender
2006-10-27 10:12:47

Love the image, i guess it’s ice-dust fallout.

Comment by flatffplan
2006-10-27 08:56:39

look for that pickup after the super bowl
sound familiar?

Comment by North GA Dave
2006-10-27 09:20:38

Coincidentally, I think the Super Bowl will be the start of the real pain.

Most FB’s will keep a good face on through the holidays, spend as much as normal (or more), as a anesthetic to numb them from the reality setting in. Then they will sit in their homes through dead of winter for 4 weeks, hearing more bad RE figures, and get their statements at the end of January.

The granite, stainless steel, and Pergo floors will all start to look silly. Instead of being a cozy retreat, their home will become a constant reminder of the financial problems.

Comment by DinOR
2006-10-27 10:13:51

North GA Dave,

LOL! Or I should say I’d laugh out loud if it wasn’t so true. Well the “pergraniteel” already looks pretty silly to me and I’ve said that the gates in “gated community” are there to keep you in (not others out!). Oh and good luck selling come spring too!

Comment by mina
2006-10-27 08:59:18

I moved to the Chicago exurbs 18 months ago and have been attending village meetings for months fighting developments the board has approved left & right in my neighborhood. we moved out here to be in the country (we have horses) and didn’t expect the suburbs to follow us!

in any case the standard line I have been getting from everyone from the Village board to the residents to my neighbors is:
“prices won’t go down - everyone wants to live here. it’s different in Hampshire.”


I hope everyone enjoys the bulldozered corn fields and multimillion dollar water & sewer system that will be sitting empty.

did I mention we are about 45 miles from Chicago? I’m sure the $4/gallon gas won’t impact anything, everyone wants to live here.


Comment by Backstage
2006-10-27 09:08:05

The only good news is that if they have not started building, you may get a long breather before the homes actually get built.

Comment by jonaskinny
2006-10-27 09:14:14

hawaii went down with the last correction… and who would not want to live there?

Comment by CincyDad
2006-10-27 09:22:31

Sadly, your situation is all too familiar. I, too, live in an exurb (of Cincinnati), and the local planners don’t care at all about retaining a rural or semi-rural area. They only listen to developers, not individuals. Local planners are reactionary. They only consider something once a developer brings a plan to them, and then they (planners) only compare the plan to certain codes and ask the developers to tweek things.

Comment by ragerunner
2006-10-27 12:40:10

Just to be fair. Planners only approve what is allowed in the city or county regulations. So, if the politicians (that the citizens elected) adopted rules and regulations that let developers do what ever they want, there is very little the planners can do. I live in the Cincy area and the political climate is very pro developer and allows them to build what every product they want to build. So, all the planners can do is educate the leadership and citizens that there are ways to plan a sustainable community. (It is a balance between development rights and community rights.) Oh, don’t forget the lawyers who are saying that communities can’t restrict developer rights, they have a major part in this as well. In other words, why planners that set by and try to do nothing about the situation should take some of the blamed, there is a bigger system that has been set in place to let sprawl and development happen with minimal regulations and oversite. Next time you vote, ask the political what he things about new urbanism, density and smart growth. That should give you a good view of how development happens with little oversite.

Comment by SUSPICIOUS 2
2006-10-27 10:36:45

LOL! Great comments. How many ‘burbs like that went up during the frothy stage all across the country? What scars we will have to remind us. How much farm land was lost?
As many have stated in this Blog, this bubble will affect all of us and will have far reaching effects.

Comment by mina
2006-10-27 12:38:34

the best part is they “all” believe it’s different here. just wait till the village learns that the big corporate builders have gone belly up before they could put up any houses!



ps horse industry is huge in N. IL. we ride & show them (hobby) we don’t feed them to the dogs (woof)

Comment by optionedunarmed
2006-10-27 10:54:50

You can have horses 45 miles from Chicago??!

Comment by Michele
2006-10-27 11:00:16

Yup, you can have horses even closer in to Chicago as well, provided you’re willing to pay about $350-400 in board or you find a large pocket of land in an unincorporated area. Not uncommon at all. The horse industry in N. IL is very, very big.


Comment by Bill in Carolina
2006-10-27 12:07:20

Horse industry? Is there a dog food plant close by?

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Comment by Michele
2006-10-27 10:57:46

Mina, I feel your pain. I grew up out in Lake Zurich and saw the same thing happen there. Then because of crappy planning in the 80’s, which saw everything developed away from downtown, the powers that be decided to eminent domain the entire downtown to redevelop it.

Uhm, gee. Let’s rip out all these viable businesses, offer them no alternatives, and take their property so the town of LZ can create more tax revenue because they’ve run out of land to develop.

Small towns inviting development on cornfields is about as shortsighted as it gets. The only thing the goverment boards see is the $$$$ from tax revenues. They tend to forget that once the developers leave, the township’s responsible for tending to all that infrastructure. And what’s the resposnse to that? Higher taxes. Which in turn drives out the people that make the community what it was and leaves it open to the transient population that has so made up the Chicago exurbs over the last 10-15 years.


Comment by damon botsford
2006-10-27 09:09:04

Hey, does anybody know where I can find the refinancing history for a particular FB? This is in Los Angeles County. Thanks

Comment by Loonofficer
2006-10-27 09:23:28

What’s the address?

Comment by damon botsford
2006-10-27 09:34:13

I’d prefer not to give it out, but I appreciate your help. Is this information a matter of public record?

Comment by Loonofficer
2006-10-27 09:36:47

You’d have to have access to title company information. Alternatively, you can venture down to the County Recorder’s office and search the data there.

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Comment by damon botsford
2006-10-27 09:44:43

Thanks. If you or anybody else can access records like that easily and it doesn’t take more than a couple minutes of your time, e-mail me at Damonbots@Verizon.net and I’ll provide the address. It’s not a matter of national security… I’m just curious how a situation will play out.

Comment by P'cola Popper
2006-10-27 10:00:54

Sometimes you can access the financing history for an individual or a property through the county property appraiser’s website or at least in some of the counties in Florida its possible. Do a search on Yahoo or Google to obtain the property appraiser’s website.

Comment by ockurt
2006-10-27 09:39:29

I think a thread was posted on this already, but just came thru on the LA Times

Homebuyers drawn to auctions


Comment by jag
2006-10-27 09:57:58

Allison Kern, a 25-year-old accounting clerk living with her parents, was convinced she couldn’t afford her own home in Southern California.

Yet, in less than two frenzied minutes on a recent Saturday afternoon, she became the happy owner of a new two-bedroom condominium in Aliso Viejo at a price she could bear. Braving a crowd of 300 other bargain hunters at a new-home auction, Kern wound up paying 18% below the original list price.

“It was a little scary because it went so fast,” said Kern, whose winning bid was $394,000. “This was such a great opportunity to get a good deal.”

Allison, you just got hosed. An “auction” where you are part of a 300 person mob scene isn’t where you get a “deal”. Deals occur at auctions where you are virtually or literally, alone.

Comment by az_lender
2006-10-27 10:17:20

Not to worry. Alison can auction it again in another year or two and lose only another 18%.

Comment by Jim
2006-10-27 10:23:56

A 25 yr old Accounting Clerk 1st time buyer of a $394K condo? Ya, sounds reasonable to me. Move along folks, nothing to see here…

Comment by SimpleSimon
2006-10-27 10:52:15

Maybe the some of the 300 were shills acting on behalf of the builder. Not kidding, anything is possible. I think it’s a sad thing when a clueless 25 year old gets schnookerd into buying a piece of real estate not out of greed but of fear that they will be left behind. That’s the other side of this story that bothers me most.

Comment by passthebubbly
2006-10-27 11:02:29

It’s probably mommy and daddy on the hook, not her.

Comment by walt526
2006-10-28 01:07:03

Clerical workers are now buying $400k homes? For her sake, I hope that she’s good at licking something other than stamps…

Comment by passthebubbly
2006-10-27 09:44:33

5700 new condos on the market
700 new condo sales, down from 1200, down from 1600

extrapolate that sales number out to today and it looks like we got a 3-4 year supply. And that’s just new sales from developers; it doesn’t count the flippers who are trying to unload essentially new stock.

Comment by bubbleboi
2006-10-27 10:54:33

pastthebubbly, i appreciate your point. but if you read the fine print, the situation is a little different than you describe. 5,700 condos are being “marketed”, which doesn’t mean they have already been built. Condominium projects are frequently marketed before ground is broken in order to secure financing. Many if not most of these use units do not exist yet - they are just vacant lots (maybe not even vacant, they might still have old buildings on them).

I’m not trying to nit pick. i just don’t think there is a 3 to 4 year supply of new condos on the market, yet. next spring, maybe ;) and keep in mind, this is just new condos, not existing condos.

“In Chicago, a report by a consulting firm said that condo sales in new buildings fell to about 700 in the third quarter, from 1,200 in the second quarter and 1,600 in the first quarter. About 5,700 new condos are being marketed in the downtown area, up by more than 1,000 from last year, said Gail Lissner of Appraisal Research.”

Comment by passthebubbly
2006-10-27 11:39:32

A fair point, and I think we’re on the same side of the fence.

I would counter that while the available-supply numerator may go down due to cancellations, the denominator had been dwindling RAPIDLY and is going straight to zero. And we all know what lim(x –> 0) 1/x is.

Also, a lot of construction is still going on and I’m seeing a lot of advertising on stuff that’s already completed or well underway. Some buildings that were finished two or three years ago are still advertising.

I think we can agree the “7 months’ supply” or whatever the official national NAR figure is a gross underestimate for downtown Chicago.

Comment by bubbleboi
2006-10-27 12:34:13

I think we are on the same side of the fence for sure.

I think some segments of the Chicago market will see pretty big drops in value, or if not drops, then at least SEVERAL YEARS of stagnation, particularly South Loop and West Loop areas, which are very overbuilt in the starter 2bed/2bed brick sh#tbox for $350 to $450K.

I think SFR’s in established residential areas will hold up better, but condos anywhere are in for a hammering.

I think that eventually, the supply numerator WILL go down to Zero, as soon as development stops, which it eventually will, with a painful two-year lag as large towers are completed, then another couple/three years for the units to sell out.

on the other hand, although the denominator will continue to fall it will evenutally stabilize. the big question is how long does this whole thing take to play out and how screwy does the supply demand ratio become.

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Comment by passthebubbly
2006-10-27 09:47:03

BTW, you can tell who the flippers/recent FBs are when it comes to rents. Some people are trying to get 50% more in rent than I pay in the same building, and my unit’s nicer.

Comment by Chip
2006-10-27 12:41:32

PTB — great observation. I see the same thing here in central Florida. Odd that they either don’t do any homework on what similar units are renting for, or they don’t ask for or listen to the advice of the renting agent. Perhaps they don’t use an agent — the only value I can think of in listing a property at a fool’s-price-unit price would be to make the one I own look cheap by comparison.

Comment by Chicago guy
2006-10-27 10:23:58

There are too many condos in Chicago and not all of them will sell for crazy prices.

Anyone here familiar with the proverbial Chicago 3-Flat? Yeah, those go for $400K a unit nowadays. They’re brick singlewide trailers stacked on top of each other. usually 2/2 or 2/1.5 . Total pieces of crap.

I don’t know who can afford those things. I don’t know who would want to move into one of those things. They’re overpriced, small, congested, and they’re everywhere.

Comment by eastcoaster
2006-10-27 10:46:00

The 3-flats are great rentals. Would never choose to own one. (Man, I miss living in Chicago…)

Comment by Michele
2006-10-27 10:51:14

The old 3-flats are nice. I know, I live in one. :)

The new “3 flats” where they build a duplex on top, a duplex on the bottom, and a simplex in the middle are pure crap. “Look ma, I can build an ugly POS with cinderblocks!”

The biggest shame is Damen Ave from Clybourn to Belmont where about 90% of the workman’s cottages were torn down for these pieces of junk. A) It creates unnecessary density in an area where it was already dense and b) it totally blew the character of the neighborhood.

Now these idiots who bought these ugly creations are stuck trying to sell them. I have no sympathy.


Comment by passthebubbly
2006-10-27 11:01:29

I was gonna say, they’ve torn down a lot of prefectly good, pleasant-looking rowhouses to build these sterile, featureless boxes all over the place.

The attraction was that one could live in Lincoln Park (or wherever) in something better than a basic 1/2BR but cheaper than an actual Lincoln Park house. Well, Everyone Wants To Live™ in 60614, so they sold.

I think after this continues for another five years — and it will continue — a lot of natives will finally start asking what we lost in the process.

Comment by glorgau
2006-10-27 11:38:04

> Well, Everyone Wants To Live™ in 60614, so they sold.

LOL, I used to live in 60614. Had a 35th floor junior 1 bdrm. that I bought for 120K in 1997. Sold it for 143K in 2001. Shoulda kept it. I check occasionally, and now similiar units sell for 220K. I expect them to come down to the 180K range.

Comment by eastcoaster
2006-10-27 10:44:16

“…David Thorpe…will dress it up before relisting it in January…”

January inventory is gonna’ rock. Seems everyone I know and/or read about is planning on relisting then. Hilarious.

Comment by passthebubbly
2006-10-27 11:05:29

January will be the fourth inning. (We’ve just moved into the third.) I predict the real hurt will come in the sixth.

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