Like much of the USA, Chicago and in particular my neighborhood (River North) has had an immense construction boom in housing over the last decade or so. Condos have sprung up everywhere, and some buildings that initially started out as high-end apartments converted over to condominiums.
Not only has there been an increase in the number of units, the turnover in units once purchased by the buyer is quick. If our building is any guide, perhaps 25% of the units are resold on the secondary market every year. We are a medium sized building, which I consider anywhere between 75 – 150 units, and not a weekend goes by without a couple of Realtors in the lobby and a few open houses. The Chicago Tribune has a decent real estate section and you can select a given building (by defining a unique address) & see the turnover across a period of time, along with the gain (or loss) in pricing on units that have been purchased more than once in that time period.
The boom seems to be coming to an end. There is a lot nearby that was going to have a 19 story condo building; now there is a sign on the lot saying that a ground level lease is available. Some other buildings that were proposed seem to be moving quite slowly, as well.
I would broadly segregate the condo real estate market into the following groups: 1) developers that haven’t started yet 2) developers for which construction is substantially committed and units are being sold 3) units available for resale from owners who own / occupy the unit.
This advertisement is from a developer in category #2 – the building is up, many of the units have been sold, and now the developer is trying to clear out the rest of the inventory. This building in particular (I can see it outside my window, picture below) was an apartment building that converted over to condos; the process is pretty far underway (I think that they have sold most of the units) and the developer apparently is pretty committed to unload the rest of the units. In the fine print of the ad you can see the straightforward comment:
“We’ve lowered our prices to give you the kind of deal that you’ve been waiting for. If you think you can do better, tell us. We’ll see what we can do.”
As a potential buyer, this is the kind of situation that you should be looking for. The developer wants out, and every month that the unit is unsold they are losing money on financing and having to keep a sales staff running (in this case, they get rent income, but they seem pretty damn motivated).
One thing about this advertisement that made me laugh – the comment that “The End Is Here – River North Condo Prices are as Low as they are going to Go”. If only this developer had that sort of control over time and space. It is true that these condos have an intrinsic value, which is their rent multiple. This is the floor for value, assuming that people want to keep living in downtown Chicago, which seems to be a reasonable assumption.
Unlike other areas of the country (Miami, Las Vegas) a lot of Chicago’s purchases weren’t pure speculation; people want to live downtown in order to minimize their hellish commutes (see Dick Valentine of Electric Six’s witty summary of the situation here) and they are willing to pay a premium to do so. In some other areas of the country, these types of buildings are in free fall, but in Chicago there is a “floor” on its value.
If you are a buyer and looking to purchase a condominium, you should try to find a developer that is attempting to close out their last units. The developer at this point will be motivated to give you a deal, like the one in this ad.
The other way is to find someone selling that has a compelling story – like they have the condo on the market because they have been transferred out of town and they have been sitting on the unit, paying dual mortgages, for a long time and now they just want out. If you are buying from such a buyer bid low and don’t budge… it is possible that they are at the end of their rope either in terms of cash or patience and just want to get it over with. If the seller doesn’t seem extremely motivated and have a compelling “sob” story, then just wait and come back in three or six months – time is your friend.
If you are a buyer with decent credit, you are in the catbird seat now. Either buy from an economically motivated builder trying to close out, a desperate seller, or just wait. Time is on your side…
And no, condo prices haven’t gone as low as they are going to go, regardless of what the ad says.
Cross posted at LITGM
I think it has impacted the rental market. The middle child graduated from Northwestern last spring and decided she wanted to stay in Chicago. She found a very nice studio apt about 400 square feet for about $900/mo. It is in Lincoln Park and has a view of the lake. In the mean time her sister lives in NYC in a 250 sq ft apt in the East Village that costs 3 times as much.
Do you think that this condo situation is making the rental market more or less affordable in Chicago? Wouldn’t the fact that NYC costs 3x more than Chicago be tied to the old location, location, location rule? Also tied with the rent control model in NYC, which is one of the few pathologies (along with having lower liquor taxes than MI) Illinois doesn’t have.
Not all developer’s will give you a deal. I’ve found that they are the least flexible in negociations.
Brian Nygard
Chicago Realtor
Robert, I agree with Carl. R.e. market in NY doesn’t budge, be it renting or selling: we don’t have enough housing inventory and plenty of buyers with deep pockets. Despite all those glassy condos being built all over the city, it looks like the supply of under-30-youngsters with 500K annual income is inexausitble.
I’ve been looking for a coop (forget condos) since March – not even in Manhattan – and couldn’t buy a decent 1-bedroom: there are bidding wars, as if it’s still 2000. Look in NYTimes RE section: same few apartments, under various agencies’logos (you can spot the address or the photos), packaged and repackaged. Something higher than 1st floor – add 30k to the price, a piece of skies in the window instead of a brick wall – another 50K.
Maybe I should move to Chicago.
Tat – if you can still do your job from a small city in the Midwest you will be amazed how far your real estate dollar can go. If you can handle the winters.
Dan, winters’re not a problem, I grew up in continental Russia. Halfway between Ural and Moscow.
Job market for interior designers is a bit less vigorous and varied in Midwest, I’d expect. And I don’t drive.
Carl: She is renting a condo. So there must be some impact.
Countrywide is down 18%.
Etrade is down 17%.
Fannie Mae is down 25%.
Freddie Mac is down 30%.
the housing market is dropping because 20,000,000 people who used to need a place to live are leaving the country. That means the market size has dropped 10% in 1 year. This sort of drop usually causes falling prices.
The only way to replace them is a long term solution – get someone pregnant tonight – or burn down 10,000,000 housing units so that the number of buyer = number of sellers.
It is unthinkable to apologize and ask them to come back. Lex dura sed lex.