Monster House Market ‘Congested With Speculators’
A report on Chicago’s housing bubble. “With $1-million home listings in many suburbs around Chicago mounting, high-end homebuilders are likely to pursue fewer new-construction starts as they sort through economic data and try to get a fix on homebuyer sentiment. Question No. 1: Is the market oversaturated with monster houses?”
“Recent statistics suggest that it is. As of Feb. 3, there were 2,532 houses in metro Chicago for sale with an asking price of $1 million or more, up 53% from last year, according to the Lisle-based MLS of Northern Illinois. There were 67 houses priced at $5 million or above, an increase of 49% from the year-ago total of 45.”
“This would seem to add up to well more than a year’s supply of million-dollar homes. In 2005, 1,951 houses sold at prices above $1 million. There were just seven $5-million homes sold all of last year, leading some observers to wonder how long the 67 homes in that category currently on offer will take to move.”
“‘There are 10 homes in Hinsdale on the market for $3 million and more right now. That’s an unprecedented number,’ says Timothy Thompson. His firm is going ahead with plans for two spec homes of its own in Hinsdale, priced at $4 million and $5 million, the latter featuring 6,000 square feet of living space and a mahogany front door valued at $35,000.”
“But Mr. Thompson worries that the market is ‘congested with speculators,’ meaning builders and investment groups racing to put up houses with no buyers in sight. ‘Everybody is watching the speculative side of the market,’ says (developer) James Kinney.”
“A year ago, Scott Renken had orders for eight houses. This year he has six. He built two speculative houses in Highland Park and Lake Forest, each priced around $4 million, last year, but he doesn’t expect to start any in 2006. ‘We’re turning more cautious,’ he says. ‘I don’t see any housing bubble occurring. But I do see that houses at the high end are taking longer to sell. That will have builders reconsidering some of their plans.’”
Thanks to the reader who found this and sent it in!
GO CHICAGO/HOUSING BEARS!
Yep… seen it here in Arlington Heights for sure.. there are a couple I’ve kept my eye on .. been on market since at least last summer.. came down in price at end of season.. and right back up to just over $1M after January.. plenty more of them sitting too.
GO BEARS!
Please cite any reasons anyone can think of why Toll Brothers stock does not revert to its traditional values (
Sorry — this was cut off…
http://tinyurl.com/7r8fg
Maybe it is reverting, but slowly…
To see if it is reverting to it’s long term trendline, you’d have to look at it on a logarithmic scale. On a logarithmic scale it’s price should be around $20(at least to the naked eye)..
Here is your log scale…
http://finance.yahoo.com/q/bc?s=TOL&t=my
Long term trends matter little here. What matters is the fundamental divergence between supply (too many monster homes) and demand (too few who can afford them, or will even want one once prices correct), and its implications for Toll’s future ability to unload these. I expect reversion to a level below “long-term trend” (by whatever ad hoc definition you choose).
What is in the future for TOL? It seems clear to me that it is bankruptcy. Most seem to believe that a mild downturn lies ahead apparently. But a depression is more likely in my view. And when houses are sitting on the market for years unsold, home builders like TOL are toast. Remember, bankruptcy comes from lack of liquidity. Even the strongest balance sheets can’t survive when liquidity dries up. Look at the trends for the HBs. Cash is diminishing, inventory is building and they are continuing to build in the face of an obvious glut.
Pay attention to this, folks:
“There were just seven $5-million homes sold all of last year, leading some observers to wonder how long the 67 homes in that category currently on offer will take to move.” Duh… Only 5 sold during a good year and now there are 67 to move in a sinking environment? Only a genius can figure out that a whole lot less than 67 are going to sell this year.
TOL doesn’t build $5 million homes so far as I know but it does build at the higher end. With jobs going to India and China, GM and Ford at the edge of bankruptcy, big corporations cutting pensions and the pay of their employees, the national debt growing at the rate of 4 trillion dollars a year and expected to rise, how can anyone think that the housing industry is going to do well enough to allow companies like TOL to survive. It ain’t going to happen.
Here’s an observation I’ve noticed. When the economy slows down. people that have the money to afford $5 million homes get bored and actually spend MORE money and time on real estate.
Even the strongest balance sheets can’t survive when liquidity dries up.
what are you talking about? all they need to do is sell off land to pay down debt. assets-liabilities=equity. if the equity is strong, it’s strong, if it’s weak, it’s weak.
They most assuredly would do that if the can. We will soon be in a market where they can’t sell their houses. Since they have to have cash to pay their bills, some of them will be forced into bankruptcy.
When Drexel Burnham went bankrupt a decade or so ago, it had the strongest balance sheet on Wall Street. It just didn’t have the cash to pay its bills.
dude is having the bubble burst around him and he doesn’t see it!
“‘There are 10 homes in Hinsdale on the market for $3 million and more right now. That’s an unprecedented number,’ says Timothy Thompson. His firm is going ahead with plans for two spec homes of its own in Hinsdale, priced at $4 million and $5 million
“But Mr. Thompson worries that the market is ‘congested with speculators,’
Yep! Those darn eveil speculators! They’re everywhere! Its getting so that an honest businessman can’t even build a 5 million dollar house with no buyer whatsoever without those darn speculators messing it up!
I am still waiting to find out if KB Home and CENTEX, et. al. are going to continue to plow under the farm fields in my neighborhood 50+ miles from Chicago to build homes for Yuppies and Hummers.
My township sure is excited about it.
You should have seen their eyeballs popping went I spoke about the RE Bubble and deteriorating supply of Yuppies and Hummers at the public hearing this week to discuss another (7th) subdivision they want to make room for.
Currently only two of the seven planned developments have gotten under way. The two are built with 30% empty, finished homes. They have been dropping prices $10k, $20K, etc. and still no movement on what’s left to sell.
The other five are in various stages of “we’re thinking about starting to move the dirt around”.
Did I mention of the existing homes (not “new”) for sale in the town, NOT ONE has sold since December 2005? Nothing.
Mina
Chicagoland exurbs
mina - which suburb’s rosey picture did you paint up there ?
mina, I’m also interested in knowing which county this nightmare is taking place. But let me guess first… McHenry.
Hmmmm…more people…less farmland…good long term trend?
Kane County, IL township of Hampshire soon to look exactly like Elgin, Gilberts, Huntley, Dundee, Carpentersville…shall I go on?
Mina
I for one would have enjoyed that.
We need more citizens to speak out against such destructive policies. One reason for our predicament today is that the bubble’s inflationary period bought silence: that of the media, of course, but that, too, of otherwise sensible people who might have spoken out were they not so busy cashing in.
As reality dawns on the horizon of McGrowth, scapegoats have to be found and already we see the backlash against those decrying more development madness. But it’s worth weathering. In fact, speaking truth to power can be fun. The more Americans discover the use of their brains is as important as that of their wallets, the better off we shall be in the aftermath to this debacle as well as the next time the money power puts its interests ahead of ours.
There are nearly 100 of these monster spec houses in my town in the western suburbs. There is one in my neighborhood that has been on the market for 2 years. The builder has dropped his price by only $40K. I’m also starting to see some resales of houses that are 1-3 years old, some FSBO, which makes me wonder if they are underwater.
There are million dollar homes in Arlington Heights? You have got to be kidding me.
I grew up in Arlington Heights. I realize that the area has changed since I was a boy; AH was once an “exurb,” a community that required a long commute to the Loop. It was therefore affordable. In the late 90’s, a lot of businesses moved out of the city and into the suburbs and suddenly AH was much closer to work. Property values rose, and today AH is an upper-middle-class community.
When I visit my mother, I can see how the neighorhood has changed. It is getting much nicer.
But a $1mm home? That’s just nuts. None of the housing stock in AH is nice enough to justify that. There is no natural beauty there, just flat prarie as far as the eye can see. AH is a short commute from plenty of suburban office parks, but cultural attractions are pretty much non-existent.
It’s funny, the Midwest has avoided most of the McMansion boom so far. In the West and South, there are entire communities filled with McMansions. They aren’t as common in the Midwest.
Still, if I were going to build a McMansion, I can’t see doing it in Arlington Heights. Oakbrook certainly, Northbrook possibly, but AH? It’s not that kind of place. The town has too much class for that.
JOe Schmoe!
You made me to look in our MLS ( I’m Realtor).
AH
Houses over 1 M sold in last 6 months= 0
Pending=1
Active=24 , most expensive 625 E.Rockwell- Listed 91 days $2.5 mil.
Pretty picture - Nah!
I think you overestimate your fellow Midwesterners. There has been an explosion of tear-downs turned into McMansions in the Chicago suburbs, along with the corresponding explosion in BMWs, Hummers, etc. What I don’t know is what percentage of the people buying these houses can truly afford them. I suspect not many. We Midwesterners supposedly pride ourselves on being frugal and practical, but this trend flies in the face of practicality. I believe that many people here are as leveraged as those on the coasts, especially California, but that we don’t hear about it.
I visited the Chicagoland suburb where I grew up (Elmhurst) a few years back and was amazed at the teardowns/McMansions in their place. What was sad is that these places that were torn down were already pretty big - three stories, four bedrooms, etc. And what was put up makes me wonder if there are setback laws, because those big houses looked like they were flowing off of the lots.
Living now in California where 1,500 sq. ft. is considered big, it seems sickening that someone would tear down a big, well-built 1920s built home to build something that guady.
Elmhurst has a 10 foot set-back; 5 feet on either side. Where were these big tear-downs? Most of the ones I see are small ranches or cape cods.
The lot next to my mom’s house (well it includes the house, but it’s coming down) just sold for $750k. Granted it is almost an acre a short walk from the train station, but you should see some of the monsters going up in old AH
And a $35,000 door? Sickening. People in the Midwest don’t really go in for ostentatious displays of wealth like that. And, you know, Hinsdale is a nice town, but it’s not exactly Newport or Bel Air. A $35,000 front door is a little much.
I am sorry to see that tacky, noveaux-riche McMansions are being built in the Midwest.
Have to agree, I owned a townhouse in Hinsdale before I had to move to San Diego in ‘04. Hinsdale is nice…but not that nice. Being a born and breed Chicagoan, I’m really dissappointed that such nonsense is happening there.
‘We’re turning more cautious,’ he says. ‘I don’t see any housing bubble occurring. But I do see that houses at the high end are taking longer to sell. That will have builders reconsidering some of their plans.’”
DOUBLESPEAK?? This son of a bitch is talking out of both sides of his mouth.
LEFT SIDE SAYS “We’re turning more cautious” RIGHT SIDE SAYS “I don’t see a housing bubble”…
Personally, I thought it was priceless that a guy could say “the market is congested with speculators” (a priceless phrase) and at the same time say “I don’t see any bubble bursting.”
I think a “market congested with speculators” might just be a bubble.
“the latter featuring 6,000 square feet of living space and a mahogany front door valued at $35,000.”
Peak Empire. That door would pay for a fairly nice house in my neck of the woods. When the crash comes, will there be a black market for stolen doors?
With you on that ! Home improvement at discount prices.
they can always burn the door to heat that barn.
Kathy, JWM, Mike-
It must be the Baby Boomers, then. LOL!
Holy cow, I just looked at AH SFH properties priced over $1mm in realtor.com.
There are 39 listed!!!
Wow, AH really HAS changed since I was a kid. I mean, my dad drove a cab in Arlington Heights.
I began noticing the changes in college, when I’d come home to visit. But I haven’t really spent much time there in the last 8 years or so. Haven’t been back at all since 2000.
The changes are really are incredible! Kathy, you are right. I recognized some of the addresses listed on realtor.com. Modest single family bungalows have been torn down, and towering 5br McMansions erected in their place! Unbelievable.
There is a listing for $1.249 mm at 1601 N Highland. I used to walk past that address every day on the way home from school. It was, um, cheaper back then.
I can see why Arlington Heights has gentrified. It was an idyllic place to grow up, I can see why it is expensive now that all of those companies have moved out to the 53/290 corridor. But man, I had NO IDEA it was gentrifying that fast. Guess these things really can happen quickly.
It happened really fast here in our town, too. As of today, there are 64 houses on the market for over $1mm. When we moved here 6 years ago there were probably less than five. The thing is, we would really like to upgrade to a bigger house, but we almost can’t because almost all of the bigger houses are McMansions with 5 bedrooms and 5 baths, 2 story foyers, no yard etc. We just want a 4 bedroom older colonial with a little more room than we have and a better home office so my husband can work at home more. Those types of homes run about $800,000 now. I actually found this blog because I had become frustrated in my home search, and was beginning to think that all of this overdevelopment didn’t make much sense. We’ve put off our search while we see what the market does.
Waiting is the right thing to do. Your patience will be rewarded. None of us know how far housing prices will fall but fall they will.
Arlington Heights has some of the best express train service to downtown Chicago. Because Chicago is a major warehousing and distribution hub (O’Hare Airport, convergence of railways and and interstate highways), and also has the commodity exchanges, there are probably as many or more people here being helped by our flood of imports as are being hurt by loss of manufacturing. The glut of housing being built has also probably been generating a lot of income, too.
Although population growth of the Chicago MSA* has been only about 65,000 a year, and that entirely due to international immigration (deaths and out-migration equal births), yet housing permits have been issued at the rate of about 45,000 units a year, it looks like quite a glut abuilding. Condos are sprouting like mushrooms in all communities along the commuter rail lines, and the supply coming onto the market downtown from highrises recently finished must be enormous. If you figure about 2.8 people per household, 45,000 units
should house 126,000 people.
*Metropolitan Statistical Area
http://chicagobubble.blogspot.com/
shows there are more than 100K homes avialable in Chicago area an increase of 40% in 2 months.
Not to far from me, “Victorian Flatbush” in Brooklyn has the largest collection of very large victorian homes in the country. Those went out of style when people started having smaller families and the cost of domestic help went up as the income distribution became more equal.
There was a reaction against huge homes, with the “arts and crafts” movement stressing quality over size. My rowhouse, inspired by that movement, is half the size of the houses down in Flatbush. It was buit 25 years later.
Yes, this can go into reverse, and has before. We will not all be living in eight-story one-family homes and driving single-occupant buses 50 years from now.
If I could build my dream house it would be an arts and crafts style cottage with well-designed space and high quality materials, but it would be relatively small, around 2500 square feet. We talk about doing it occasionally, but with land prices and construction materials so high, it will remain a pipe dream, at least for now.
I think its interesting that we in America consider 2500sqft “relatively small”.
Hahhaha,
Bubble distortion!!
2,500 sqft. Is by no means relatively small.
Now the 500+ sqft. Condos are small,
I consider 2500 sq/ft to be medium. Heck, I bought a new 1700 sqft house when I was in grad school. Granted, I grew up in the midwest and south, where housing is far more affordable than the coasts.
Someone (probably a small builder) is buying old houses on one street in our town and turning them into something interesting… These are really super tiny 1 bed, 1 bath “shotgun” homes. He’s turning them into 2 story lofts — each with a different theme. One is like an ski resort A-frame, another looks like a red white and blue barn, another is purple and green and looks like it stepped out of a storybook. They are sooooo cute! I figure it must be the same builder because this is taking them years and they only seem to work on one or two at a time.
Is anyone worried about what will happen to neighborhoods full of McMansions with no buyers?
In florida beach towns, will these homes fill up with large groups of kids renting for the summer?
In cities, will the government house drug-addicts, sex-offenders, or unwed mothers in them as “half-way houses”
In college towns, will they become frat and party houses?
No matter what happens, when they’re being rented cheap it will certainly make things nasty for the neigbors of these McMansions. It won’t take long for entire neighborhoods to become abandonded crackhouses. And if you think this can’t happen, I can show you many streets in Newark NJ (for instance) where rows of once-nice homes are now all boarded up.
The same thing happened on the South Side of Chicago. 50+ years ago, the South Side was the nice part of town, while areas on the North Side like Lincoln Park were run down and dangerous.
Now, Lincoln Park is one of the most expensive places to live, and most areas in the South Side are run down and dangerous
I live in Chicago. The majority of these mega-homes are some of the most ugly, tasteless monstrosities that I have ever seen. My bet is that many of these homes will never sell anywhere near their asking price.
Anyone with $4 million dollars to spend on a home can just have one built to their tastes.
It’s not the dozens at the very upper end that will cause a problem, it’s the thousands in the $750k-$1,250k range that will precipitate the bloodbath. Virtually nothing in this price range is selling in my town, Libertyville.
There are 100 listings in this range on realtor.com right now, not including the new Cambridge development (15-20 homes) and dozens of rentals/future teardowns with build-to-suit signs on the lawn.
Many of these homes, especially the builder-spec homes, have been on the market for 6+ months. You know you’re in trouble when you need to hire a realtor to run open houses on a finished spec home that has obviously been marketed since pre-ground breaking.
They are holding their collective breaths for the spring pick-up that saved them last year. But inventory has exploded in this price range and I just can’t imagine them getting bailed out again. One might think that anyone dumb enough to spend twice as much on one of these boxes than they were selling for 5 years ago has already done so.
What’s happening in Libertyville is happening here in Elmhurst, too. I knew there was a problem when 3-4 years ago I started noticing signs by builders I had never heard of before. When we moved here there was a core of 5 or so local builders who were doing all of the tear-downs, and they weren’t building spec homes. All of a sudden other builders caught wind that Elmhurst was up and coming (Chicago Magazine voted it Chicago’s “best” suburb in 2003 or 2004) and they piled on. They ran up the prices of land and threw up houses right and left. This is our version of the speculation that is going on in other parts of the country. Some of these houses have been sitting vacant for 2 years.
Seeing the rampant builder specualtion going on in the suburbs is one of the things that led me to believe there was a bubble in Chicago.
anyone with 4 million dollars can come out here and live nicely in socal.
“”"Anyone with $4 million dollars to spend on a home can just have one built to their tastes.”"”
———————————————–
And they will. The homes you are referencing are purchased with nothing down…LMAO
I see tear-downs all over the place - yes, built out to the edges of the lot. They just don’t fit the neighborhood with the high end SUVs in the driveway.
Housing is unaffordable for the average working person if they didn’t buy years ago. You really do have to go 50 miles outside of Chicago to find something affordable and of decent size. Lots of new developments.
What’s really frightening is the condo developments in Chicago itself. There are several high-rise developments I know of still under the crane.
New condos in the suburbs are ubiquitous. They are some of only affordable options left though, and supported somewhat by immigration from Russia, Poland, Ukraine, etc. Speculators do exist. Units are listed right after being finished. Des Plaines’ Metropolitan Square sold out in 30-60 days. Rumor has it that many buyers were “investors” taking more than 1 unit.
$1M - McMansions. I hope they all get boarded up and occupied by the stray dogs and cats. Would be fitting for a $4M POS that nobody can afford to buy. BTW, who would want to pay to heat the thing in the frigid winter. If someone had 4M to waste on an ugly beast, then $2000 heating bill should be nothing.
BUBBLE CITY - here we come.
Just out of curiosity, but how much do you estimate annual energy costs are for these McMansions? I see far higher energy costs in the future…
Out here in Wine Country where I live, we’re about to move. Our landlord, a very sweet old guy, died and the “family trust” is about to sell the house and land (4 acres) we’ve been renting . Asking price 4mil, what we’ve been paying 21k a month. They’re thinking some “speculator” is going to come along and divide the whole thing into one acre parcels and build McMansions. They’re licking their chops. Even the RE people don’t think it’s gonna happen that fast, if at all.
Meanwhile, we’ve just leased an even better place, for the same amount we were paying here. I think they were surprised when we said we were moving, as they were counting on the “cash flow” from our rent. Somehow,I have a feeling this place may still be on the market when we’re ready to buy in ‘07 or so.
oops, I meant 2100.00 a month. 21k would be if we owned it..not.
Whew! You had me worried for a moment there!
Yow! I scared myself. The new place we’re leasing ..for the same amount of money is “valued” at 955k…of course it’s “only” on 1/3 of an acre, but it’s a lot more house.
I was born in Hinsdale in a house that my Mom & Dad bought for $19,000 back in the early 50s. About 20 years ago they sold it for $130,000 and thought they had died and gone to heaven. The developer promptly demolished it and put up a $550,000 McMansion.
Hinsdale is a terrific little town and one of the nicest Chicagoland suburbs. It’s close to Chicago, has good access to mass transit, and people that take pride in their homes. Unfortunately, if you are not a millionaire or inherit your house, you can forget living there. The taxes are breathtaking. Nevertheless, it will hold its value better than places halfway to DeKalb if nothing else because of lesser transportation expenses.
Joe Schmoe.. I see others have filled you in about Arl Hts… next time you are in the area.. you should drive up there to the North Highland blocks.. there is a house that will make you gasp.. it is hugemongous .. in the back it looks like a large gymnasium has been added on.. it is an indoor pool. It looks absolutely ridiculous on this block.. go down a couple houses and find your regular old brick ranch!
Have you guys ever visited Lake in the Hills/ Huntly area on the N/W Highly(Rt 14)..it is like sea of newly built houses on right and left of the road…like a house factory! I was shocked when I saw it first time….who will be buying so many thousands of new houses?
Ant farms all over the place , population increasing , not like the good old days when we all had a little space . Imagine what its like living in China .
The bubble is even in the Dakotas. In Sioux falls they are building luxury condos and Mcmansions to the tune of $250000 and up. Most jobs here pay around $8 - $12 per hour. Am I crazy, or do we have a problem here?
Raised a family in the NW burbs and enjoyed this thread.
First I want to repost a comment I made earlier:
Comment by Dookie2
2006-03-16 08:42:02
“””Anyone with $4 million dollars to spend on a home can just have one built to their tastes.”””
———————————————–
And they will. The homes you are referencing are purchased with nothing down.
++++++++++++++++++++++++++++
I own farmland in Lee County (100 miles west) and the price increases are staggering, at least to my feeble brain. It’s being driven by collar county farmers selling out at 10s of thousand of dollars per acre(one report was 99k) and doing 1031 exchanges.
I love farming and will probably come back next time as a farmer. To me it is criminal how prime farmland is being covered with pressboard shitboxes. Started in Naperville 30 years ago.
Massive economic distortions and capital misallocation caused by the Greenspud Fed, but to quote Kunstler; “It’s all good.”
LMAFO at the insanity.