Given the way the real estate market in Chicago has been since the expiration of the tax credit it's hard to believe that home prices in the area actually rose in May. According to the Case Shiller home price index released today, single family home prices in the Chicago area rose by 1.2% in May, while condominium prices rose by 2.7%. The graph below shows the long term history of these two indices along with a trendline (in red).
As you can see from the graph, that's quite a recovery in condo prices but don't get too excited just yet. The Case Shiller index is based upon a 3 month average of home sales so these numbers are probably still being impacted by the flurry of activity caused by the government meddling in the housing market (i.e. the tax credit). I can assure you the market is pretty dead right now. Just wait until May and June contracts start hitting these statistics.
Single family home prices have now dropped a total of 27.7% from their peak level in September 2006 and 1.4% in just the last year. This puts single family prices back to the level of June 2002. Condominium prices have now dropped a total of 20.4% from their peak level in September 2007 and 5.2% in the last year, bringing them back to December 2002 levels.
If you have a bunch of money sitting around and you'd like to get rid of it and indulge your fantasies at the same time you can spend it redesigning your home in a way that no one else will appreciate but you. Then, when you try to sell it, not only will you not recover what you spent, you might even be penalized for destroying the home. That's fine...as long as you plan on staying there a really long time. After all, you're supposed to enjoy your home and you can't live your life for the next buyer. It's just that you can't harbor any delusions of ever recovering your "investment". However, we run into sellers all the time who think they can recover the cost of these highly personal "improvements". Highly personal. That's what they call them on
Get It Sold. It's a polite euphemism.
Here is a perfect example of this phenomenon that I was just reminded of: an 1800 square foot condo at 200 N Dearborn, Unit 3801. It took them 161 days to sell this place, starting at $1.25 MM with 2 parking spaces available for purchase. It finally sold for $480,000, presumably with the 2 parking spaces included. According to the listing, the seller combined 2 units, gutted them, and completely redesigned the condo at a build-out cost of $400/ SF, which works out to about $720,000, which is strangely close to the difference between what the condo ultimately sold for and what they started out asking. You see, this unit basically sold for approximately the same price/ SF as other "unimproved" units in the building - i.e. the seller got no premium for their build-out. Based upon the discussion of this unit in a
Cribchatter post a while ago, the seller is lucky they weren't penalized. Check out the slideshow below for some of the poor design choices and the mishmash of styles employed. Be sure to take your time on each photo to fully absorb all the different weird things going on.
Gallery sneak peek (8 images):
View the gallery...
Now that the official home sales for Chicago are out and the
RealtyTrac foreclosure sales for June have seasoned for a while I feel comfortable sharing the data below on the trend in the percentage of Chicago home sales that are foreclosures.
As you can see, foreclosures peaked in January at a bit more than 42% of all sales - a rather astonishing number. However, the portion of home sales that are foreclosures has steadily declined since then, reaching a new low of a bit more than 15% in June. As the June data ages a bit more that percentage is likely to rise a bit but it shouldn't gain more than a couple more percent. June had the lowest percentage in our historic record, which only goes back 12 months. With our limited data we can't really develop a seasonal pattern yet but the fact that June foreclosure sales were also down in absolute terms indicates that we are not just seeing a seasonal pattern here.
On Thursday the Illinois Association of Realtors will announce June home sales for Illinois, the Chicago area, and the city of Chicago. I'm not going to be able to report on those numbers at that time so I thought I would just beat them to the punch. I can easily come up with a pretty good approximation of what they will report so here are my predictions, which will prove to be extremely accurate:
- The Chicago (9 county) area will show a 27.6% increase in home sales over last June
- The city of Chicago will show a 28.8% increase
Here is the long term trend chart for home sales in the Chicago area, with each June flagged in red for easy comparison. In addition, the chart includes a 12 month moving average to smooth out the seasonality effects.
This started out as a post about the 11% increase in June foreclosure activity in Chicago but I quickly decided that there was a much more interesting story here. The fact of the matter is that this
RealtyTrac foreclosure data is so volatile that you would expect there to be a bit of fluctuation from month to month. An 11% change doesn't mean much. Just look at the historic data:
If anything, it looks to me like the foreclosure activity is on a downward trend since that big bump in October. Yawn....
What's more interesting are some of the other charts that RealtyTrac has on their site. For instance, the chart below shows the distribution of foreclosures by market value.
Noticeably absent from the financial reform bill passed yesterday is any reform of perhaps the biggest culprits of the mortgage crisis - Fannie Mae and Freddie Mac. The politicians have been talking about getting back the TARP funds from the banks but as far as I know they got back a nice return from all the banks but not from Fannie Mae and Freddie Mac. In fact, all the bank stocks are doing reasonably well now but Fannie and Freddie...not so much. And who knows how much more money Fannie and Freddie will need down the road. So what is the logic in all of this? Someone please explain this to me.
As we expected, once the tax credit expired the number of contracts being written on Chicago homes plummeted. Consequently, home inventory is back on the rise.
I tend to focus on 2 - 3 bedroom condos as a measure of home inventory since I see that as appealing to the most people. In addition, I calculate the months of supply of inventory based upon contracts written as opposed to closings since the properties really leave the market shortly after the contract is written and well before it closes.
Leading up to the April expiration of the homebuyer tax credit the contracts being written on these condos were running up to 78% above the levels of last year. However, by June they were running 22% below last year. That's quite a flip! When you use those contracts to calculate the months of supply of condos you end up with a 15 month supply in June, up from last June's 13 month supply. Here is the long term trend.
Who would have thought it possible? Condo sellers actually selling at a profit in this real estate market? Well, take this story with a grain of salt.
Earlier this week Crain's reported that the early buyers in the
Trump Tower have actually
sold their condos at a profit. Although it seems hard to believe, when you look at the facts, the story seems to make a bit more sense.
Crain's impressively pored through the property records to figure this out. Impressive because my cursory exploration of the property records ended in frustration. The records are a mess with The Sun Times often listed as a party to the individual transactions along with an LLC named L Tomatoes (I kid you not) and multiple buyers listed over the course of a month or two. Someday, when I have more time, I'll dig through this stuff to obtain my own data. But in the meantime, here is the result of Crain's analysis:
