Chicago Market Sticky – Home Prices Not in Free Fall

March 27, 2009

Residential

Can Chicago Home Prices Can Stick Too?

Can Chicago Home Prices Stick Too?

I finally heard a real estate story that seems to reflect what I?m seeing in a very large part of the Chicago market. Yesterday morning on Morning Edition they followed two buyers having problems finding the deals they seemed to feel they should be finding in some of the best neighborhoods in Boston (listen to the story).

It was easy to hear the annoyance in their voices that prices hadn?t tumbled. At one point, one of them commented that they?d like to see the price of a home $75,000 less than it was. As a homeowner, I found I was getting a lot of pleasure from their irritation. I found myself hoping they would continue to struggle and eventually have to pay close to what they would have had to pay two years ago?their dreams of a extremely cheap home in a wonderful neighborhood mangled like the bumper of my park-on-the-street car.

No Free Lunch for Buyers

Carl Case of S&P/Case-Shiller Price Index was interviewed in the story and had a lot of interesting things to say. He was warning buyers that in good neighborhoods, you aren?t going to find bargains. People are not willing to sell and take a huge hit on the value of their home unless they absolutely must. He went on to explain that their research is showing that bargains are generally only found in lower-income areas. There are areas of every city where prices are dropping rapidly, but that doesn?t mean the prices are dropping all over the city.

?There Is No Free Fall in Chicago.?

Mr. Case listed cities where prices are holding in large areas:

He went on to explain that prices are sticky in these cities. People are not willing to sell at a huge discount, so they either don?t sell, or sell at prices that are not at a huge loss.

Bargains May Exist for Some Types of Homes in Strong Neighborhoods

Appraiser, broker, and regular The Chicago 77 contributor, Katie Anderson recently said she has observed something similar. She?s seeing that some types of homes are dropping in price in some areas, while other types are not. One example she cited was she is seeing prices drop 28% on studio condos in East Lakeview, but not on townhouses, single family homes, and larger condos.

Why? Because a studio is often bought by a young person. And, for many possible reasons (job transfers, returning home after their city adventure, loss of a job, financial difficulties, getting married, etc.) they tend to move more often, which makes them subject to the down market. However, larger properties tend to be bought and sold by more stable, older families. Their kids are in school. Their jobs are not the first to be eliminated. They don?t want to move unless they have to. That means there are fewer of these family-focused homes on the market right now and that means the prices aren?t falling.

Upkeep is Paramount

One comment I found in the Morning Edition story that I found interesting was the buyer commented on the condition of relatively new condos. She said that they were seeing what she felt was too much wear and tear on relatively new construction. She commented about molding falling off the wall in one newish condo. That?s the one she wanted to see $75,000 cheaper. That?s a lot of money for what a nail and a hammer could take care of in a few minutes. The problem is, the molding problem is taken as an indication of far worse things to come. It?s an hint that perhaps the developer cut corners wherever and whenever he or she could.

If you?re thinking about selling, you have to spend the time, effort, and money to get your home in tip top shape. If you live in a condo, you have to push for the association to fix and maintain the common areas. They will all have an impact on your selling price. perception is everything.

The Dreaded “Bottom of the Market” Question

Who knows? However, what is clear is that in some areas of Chicago, the trip down has been far more gradual than what you read on the home pages of the major news outlets.

Today’s photo was generously shared by Yogi under the Creative Commons License. Thank you for your generosity.

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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.

View all posts by Rod Holmes

7 Responses to “Chicago Market Sticky – Home Prices Not in Free Fall”

  1. Mary Says:

    What about the recent article in the chicago tribune that the chicago condo auction is a wake up call that condo prices still have 30% to fall?

  2. Rod Holmes Says:

    Hi Mary,

    You are likely talking about this Trib article:

    http://www.chicagotribune.com/classified/realestate/advice/chi-local-scene_chomes_0320mar20,0,2533065.column

    I have several thoughts concerning your question:

    1. The bulk of the article was about the South Loop, which is nationally known for its over development. It also quoted a West Loop development that was assuming they were going to have to drop prices. Those are two of the areas where developers simply wouldn’t stop. Prices dropping on brand new condos another 30% in those areas…of course it’s a possibility.

    2. Developers with buildings less than 50% sold and construction loans coming due are under tremendous pressure to get the units sold, no matter the cost, and get the building turned over to the association.

    3. Condos are being turned into rentals. Burnham Pointe, a high rise in the South Loop, started life as a condo development. If you go to their web site (http://www.burnhampointe.com/) you will see they are now an upscale rental building. We will likely see this happen more and more. Given the current difficulty getting loans, this makes some sense.

    3. The part of the Trib article that people didn’t talk about much was what the sales manager from the Emerald, a West Loop development, had to say, “People don’t even believe it when you’re doing well.” They don’t foresee dropping prices. However, selling the units is just part of the equation…the loans have to fund.

    I’m not saying prices won’t continue to drop. What I’m saying is there is evidence that in more areas of the city than people think, for more types of properties than people think, prices are not dropping as much as the general press makes it sound. If you’re a buyer, you might be disappointed that prices in the neighborhood you want to buy in are NOT 30% lower.

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