Chicago Housing Bubble

Single family homes... recovering?

As usual, I've been wondering. Wondering about how many contracts are getting written out there in the market compared to previous years.

No one ever talks about contracts written. I like to call it the "decisions made" index.

These results are from the northside. For sake of speed, I didn't include Bucktown/Wicker Park as I normally would (I have to pull those separately and just didn't feel like it this time - get over it):

There's only one thing notable here - and it's a BIG NOTE - June and July "decisions made" are UP (UP?!) from 2008. I'll be keeping my eye on this.

How many short sales on Chicago's north side?

(Before we start - I was going to use a photo of someone getting a haircut. Go ahead and do a Google image search for "haircut". The results are pretty funny. I'll make it easy on you - here's a link...)

Short sales and foreclosures are certainly something that is on the radar for home buyers in Chicago. But the numbers of them are typically very low as a percentage of the overall market. But if you have followed along on this here site, you'll know that a vague statement like "(short sales are) very low as a percentage of the overall market" is something that bothers me due to it's lack of specificity.

So I wanted to find out what the exact numbers are.

"North side" = Near North, Lincoln Park, Lakeview, Uptown, Edgewater, North Center, Lincoln Square.

So there you go - 3.84% of the condos listed on the north side are short sales. It doesn't surprise me as the foreclosure rate in Illinois is under 5%. So this seems in line.

Damn - now I'm wondering if the prices on those short sales is much different than the rest of the market. For instance - are the prices of those short sales higher, lower or in line with the rest of the market? And now I've run out of time. OK - stay tuned. I'll have something this week.

Bread and butter condos losing steam

(I hate when people don't update their sites. I've become one of those people. And I'm ashamed. I'm sorry fellow nerdy Chicago real estate junkies. This will not happen again. Just kidding - it probably will happen again. I usually wait until I see something interesting to write.)

A client of mine asked me a great question on Thursday night: if we take a loss on our condo in Albany Park (they're on the market right now), and buy in another neighborhood - have those neighborhoods taken AS BIG a loss? In short - he wanted to know that if they're going to get their asses kicked on price that everyone has had an equally painful ass-whopping. So I looked into it.

Here are results on 2 bed, 2 bath condos since 2005 for price (I typically consider the 2/2 to be the bread-and-butter of the Chicago condo market). The peak year for price is shaded in green...

Prices have been going down since the peaks in the northside neighborhoods. And for the first time, NO neighborhood is immune (I'm looking at you Lakeview).

So - to answer the question - has Albany Park fared worse? Yes. Is everything else going to "catch up". Yes - it definitely looks like it.

Chicago northside real estate - down in 2009?

Well, the first month of 2009 has passed and the nerd in me always wants to know what we can extrapolate from the data. We can’t just take January and multiply by 12 because there are seasonal shifts in the market. In other words, more homes are sold in April than are sold in November (for instance).

What we *can* do is understand how much January’s sales counted towards the entire sales year. Here’s what the last 4 years looked like on Chicago's northside*. I'm measuring contracts written to purchase...

SINGLE FAMILY HOMES

	January	Full Year	Jan as % of year
2008	38	610	6.23%
2007	45	781	5.77%
2006	56	799	7.01%
2005	63	959	6.57%
4-year average			6.40%

CONDOS

	January	Full Year	Jan as % of year
2008	571	7173	7.96%
2007	942	10433	9.03%
2006	916	11115	8.24%
2005	865	13617	6.35%
4 year average			7.88%

From here we can back into an estimate of what 2009 will look like in terms of transaction numbers:

	January	Jan historically	Full Year Estimate	Est. Change
SF Homes	37	6.40%	578	-5%
Condos	314	7.88%	3985	-44%

We only have 1 month of data to go on here, so obviously we can’t draw any exact conclusions. But if the 4-year trend holds up, we’re in for fewer sales in 2009.

* Areas: Near North, Lincoln Park, Lakeview, Uptown, Lincoln Square, North Center, Edgewater

What does a housing bubble look like?

A housing bubble is a prolonged gap between what people typically earn (ie. median income) and how much a home costs (ie. median prices). Here's what it looks like at a national level:

The bubble deflates when the prices of homes and the incomes people earn start to come back together. (Important side note - the correlation here doesn't necessarily imply a buyers or seller's market. While the affordability was good in the early 90's, the US still experienced a solid buyers market.) So - coming off 9-years of prices running out of control, how long will it take Chicago's bubble to deflate?

Well - according to our graph above, assuming income continues to grow at a consistent pace (a safe bet considering it's done so through 2 recessions over the past 37 years), we'll need to get back to 1999-2001 prices in order for our market to "normalize". Here's how that looks in a few neighborhoods on the northside of Chicago.

 

In other words (and as an example) we can expect condo prices in Lakeview to fall another 17% before we have a "normal", non-bubble market. Yesterday I talked about the market "taking it's medicine". Now you can see the size of the pill...

Albany Park 2008 market results

Albany Park was a booming neighborhood that saw tremendous growth back in 2003-2005. First-time homebuyers, who were unable to purchase the ever-more-expensive condos and houses in Lakeview and Lincoln Park, went there to find prices that more easily fit their budget. Developers flocked too. Tear downs, land, and apartment buildings were all available for cheap.

Now, as the market adjusts down, Albany Park is getting hit hard on prices and shrinking sales numbers.

Here are the numbers for Albany Park for 2008.

Take your medicine!

In the fall, I read this piece in the Tribune that described the attitudes of buyers and sellers in OUR market very well - buyers thought everything was too expensive, and sellers thought they weren't going to be affected by the market.

Then the stock market took a pretty healthy kick in the junk.

Now, with massive layoffs, and every headline going something like "World ending. Run for the hills.", sellers are finally asking the buyers to dance by lowering their prices.

The article in the Tribune today is another accurate painting of what's actually happening out there:

Real estate agents, who have been pleading for months with stubborn sellers to lower their prices, say the tide has finally turned and sellers are capitulating. Price reductions totaling $25,000 or more are becoming commonplace, and homes that have been relisted after several months off the market are being offered for significantly less.

I've been using the term "take your medicine". The market can't bounce until it hits the floor. The sooner sellers start selling for what buyers want to pay, the sooner the market turns around.

California homes lost 40% (they took their medicine). Guess what's happening now? Their market is improving...

Lakeview error fixed

I just updated the Lakeview condo results for 2008. There was a mistake in the average market time for West Lakeview. I had it listed as 13 days. The average market time was 113 days. It was a typo. So sue me.

The original post (updated)

Direct link to the stats

The hot neighborhood

"This area is very desirable - I'll have no problem selling"

I’ve heard that a few times from clients as they come to terms with the market. Let's take a look at the reality. I looked at 2 areas on the north side that are typically defined as "desirable". The North/Damen/Milwaukee intersection (ground zero of Bucktown), and the Southport Corridor. Here's what I found.

AREA: "North/Damen/Milwaukee"
I used the half-mile square around the intersection: roughly Schiller to Bloomingdale, Wood to Leavitt.

Type	Listed	Sold/Contract	Median List	Median Sale
Condos	198	95	$452,500	$410,000
Single Fam	80	21	$1,299,000	$1,050,000

48% of condos sold. Those that did were typically 10% below market.
26% of homes sold. Those that did were typically 19% below market.

AREA: "Southport Corridor"
I used the half-mile square from Racine to Ashland, Belmont to Addison.

Type	Listed	Sold/Contract	Median List	Median Sale
Condos	302	141	$439,900	$415,000
Single Fam	51	17	$1,900,000	$1,490,000

47% of condos sold. Those that did were typically 6% below market.
33% of homes sold. Those that did were typically 22% below market.

So that’s what you get in a “desirable” location. How about a neighborhood that isn’t as magnet-y as the Southport Corridor or Bucktown? Let’s take a look at the first half-mile square west of California in Albany Park. Still a beautiful neighborhood, but not typically what people think of first when they think “north side”…

AREA: Albany Park
I used the half mile square from California to Kedzie, Irving Park to Montrose.

Type	Listed	Sold/Contract	Median List	Median Sale
Condos	226	44	$259,000	$236,750
Single Fam	32	7	$351,950	$309,950

19% of condos sold. Those that did were typically 9% below market.
33% of homes sold. Those that did were typically 12% below market.

Moral(s) of the story...

• The 3 L’s of real estate are alive and well
• if you followed the 3 L’s it gives you a 50/50 chance of selling (instead of a 20/80 chance)
• if you’re above market on price, you’re not going to sell anytime soon

Rogers Park 2008 market results

Rogers Park was the neighborhood all the developers flocked to when the land was cheap and the condo buyers flowed like wine. In this professional's opinion, it became overdeveloped, over saturated, over... everything. And now the market in the neighborhood is paying the price.

But fear not, everything comes back - eventually.

(I dare anyone to argue with me on that point by the way). I'm looking at you, everyone who reads Crib Chatter.

Here are the numbers for Rogers Park in 2008.