South Loop Condo Glut Means Lower Prices

January 5, 2009

Developments

Simple supply and demand are having a strong impact in the South Loop.

A quick search in MRED for condos in the South Loop (I defined it as Congress to 18th, Dan Ryan to Lake Michigan) shows a huge number of condos on the market. If we look under the new, stricter maximum HUD loan of $380,000 we find:

  • 391 active with an average price of $289,449, median price of $299,000.
  • 144 pending* averaging $305,913 with a median price of $312,900.

For jumbo loans (over $380,ooo), the numbers are:

  • 414 active The top price being asked is $3.2 million; the average is skewed by some very high end properties at $695,139; the median is a much more telling number at $539,500.
  • 186 pending* The top pending price is $2.5 million with an average of $695,139 and a median of $539,500
Clouds Over South Michigan

Clouds Over South Michigan

I was surprised at the number of pending sales. (Pending is defined as when all contingencies?such as obtaining financing and inspecting the property?to the purchase have been met and there is nothing in the way of the closing). However, as many of us have seen, having a contingency-free deal no longer means the transaction will close. More and more often the deals don’t close due to financing “disappearing” or the buyers just not willing to go through with the deal and willing to lose their earnest money.

Despite all of these numbers, Appraisal Research Counselors is reporting that developers are planning to complete 2,147 more condos in the South Loop, which is 66% MORE than were completed in 2008.

But where is all of this leading us? Well, Crain’s Chicago Business is reporting that Miami developer, Lennar Corp., has sold only 43% of the condos in Library Tower, a 184-unit project at 520 S. State St.. This means that Lennar will likely not be able to pay off their construction loan that is due Jan. 11. The ramifications are huge in this type of situation, especially for those who have closed on a unit in the building and had planned to live in it.

So, where can we see things going in the South Loop? It’s pretty clear that we’re going to see a lot of bankruptcies, longer marketing times, and most importantly, much lower prices.

*Be aware that, amazingly and annoyingly, real estate agents very often do not understand what pending means and label their deals incorrectly as pending when they should be contingent.

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About Rod Holmes

Rod has been a broker working in Chicago since 2004. He has worked with developers, buyers, sellers, and as well as managing offices. He is currently a partner in Chicago Style SEO working primarily with real estate firms to improve their Internet marketing. Rod lived for nearly ten years in Japan where he owned a corporate training and executive coaching firm with clients including Hitachi and 3M Japan.

He lives in Lakeview with his wife and two children. He enjoys coaching and watching his kids participate in sports, cycling, camping, and traveling in general.

You can find Rod online on Twitter at @roddesu, Facebook and LinkedIn.

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