Should we buy a home in Chicago/ burbs now or wait and see what happens with the market? (Wheaton: low income, fit in) - Chicago Suburbs - Illinois (IL) - City-Data Forum

CaliGirl2 · 10-26-2007, 07:27 PM

We will be moving to Chicago in the next few months and we're really concerned about the market conditions. We're looking for a home in the nothern suburbs (up to $5 million) but with so much upside down real estate, we're at a loss. Some financial experts recommend that we rent for a year since they're positive that home prices will continue to decline (some say some regions of the country will experience up to a further 25% decline in value), which is quite significant. Therefore, we would appreciate your insight regarding home values in the area. Our Chicago realtor says that Chicago home prices have increased at a steady pace over time (unlike the insane climbs we've experienced in So. Cal) so that the local market is not expected to be as severely affected; then again, she IS a realtor trying to sell me a home so I am cautious about the advice. What do YOU think?

HOWELL_STREET · 10-28-2007, 11:33 AM

I had not seen this 'OP' until just now. So I had already anticipated a question like this and wrote about it on an earlier direct message to you.

Yes, any realtor wants you to act immediately in favor of 'their' listing. Then they receive a seller's commission anywhere between 1% to as high as 8%. That commission amount is a moot point.

In my view point, you lose nothing in renting a home for the first year.

It is most likely that the prices in the Chicago area could drop as much as 40% with asking prices. But it could take awhile. What your realtor told you is accurate enough but she did not volunteer further with information. With her 'profit' at stake, of course she would not....

At $5 million, you can find any beautiful home for your choice. At that price, you will have very little competition for 'X' property in the Chicago area.

So it is not necessary to 'jump in' right now.

Carter Glass,
Wheaton, IL

trailerguy · 10-30-2007, 10:56 PM

You can get a truly spectacular house for $5 million in this area. You're talking about a French Renaissance mansion in Lake Forest or a penthouse on Lake Shore Drive at those prices. An equivalent to your $5 million SoCal house could be had in Chicagoland for less than $1 million easy. The difference is the land. We still have lots of it.
I have a friend with an absolutely gorgeous classic 60's modern house two blocks from the Lake in Highland Park who retired from his law practice and is trying to sell so he can move to Palm Springs. He's had the place on the market since January without a nibble and will take way less than $1 million. Prices may go lower. I don't have a crystal ball. But this is definitely a buyer's market.

DonkeyTeeth · 10-31-2007, 08:26 AM

It's very unlikely that home prices in this area will drop anywhere near 40%. Except for maybe a few city neighborhoods, home prices here have not skyrocketed the way other 'bubble' markets have. Values in most areas have trended up slowly, driven by increasing demand and new construction, but there's no comparison to the pricing frenzies that happened in Calif, FL, Vegas, and areas around DC. The pace of buying has slowed, but there is still solid demand in most of the Chicago suburban markets. You can find exceptions, like overpriced McMansions that don't fit in their surrounding market, but very few people are taking a bath on selling or being swamped by bargains.

The price range you're looking in is a little unique, so you should make sure you're working with a realtor who knows that market and does their homework. It might be a little harder to determine fair pricing for multi-million dollar homes than the average suburban house, especially if they were built and priced recently.

mendelman · 10-31-2007, 11:03 AM

$5,000,000...eh? Do the ups & downs of the real estate market even really apply for your bracket? Do you actually have $5mil to buy a house with or are you only able to afford mortgage payments for a $5mil house?

If you have $5 to throw at a house, why spend it all. Buy something for $1mil and invest the rest and double it in 10 years.

If you have to mortgage $5mil, then the fluctuations in the market still shouldn't really matter. You're already outside the normal housing market anyway. Therefore, I'll ditto the advise about getting a good realtor that really knows the +$1mil market.

BRU67 · 10-31-2007, 11:55 AM

Heh. Watch all of the realtors descend on this thread like vultures.

And why do you even care about market conditions in this bracket? I'd hope you wouldn't invest that much in 1 asset unless you have several times that amount working for you elsewhere. Why not diversify that scratch a little bit? Something here just don't make no sense, to quote Forrest Gump.

trailerguy · 10-31-2007, 12:41 PM

I believe they are still thinking in Southern California terms, where $5 million will not buy you all that much. I tried to emphasize to her that she could get the same house or better here at much less. I think they will see that when they visit the area.

BRU67 · 10-31-2007, 02:33 PM

Quote:

Originally Posted by trailerguy

I believe they are still thinking in Southern California terms, where $5 million will not buy you all that much. I tried to emphasize to her that she could get the same house or better here at much less. I think they will see that when they visit the area.

You're right, that's just a starter condo down there. Assuming 20% down, that's $26,600 per month for the mortgage (30 year at 7%) and $8,300 per month for the taxes (2% of purchase price). That's $420k per year on housing excluding utilities, maintenance and gas for all those trips to IKEA you'd need to furnish what I assume would be one hell of a big behemoth. Using the 30% on housing formula, you'd need $1.4 million per year to afford this. No biggie. I'd have to give up my beer money to swing that but I suppose I could do it. No problem. Boss, can I have a raise?

HOWELL_STREET · 11-01-2007, 07:14 AM

Dear Friends:

For the most part, I base my economic opinions of what happened during the Florida Land Boom and Bust. In a beautiful book by William Frazer (an economic prof. at the University of Florida wrote (circa 1996) about all of the conditions which most likely caused the Great Depression of 1929. And during that time frame, William Frazer seems to think that the Florida housing bust had a lot to do with it.

Today, we have the 'open ended' gasoline market. And in the Business section of the Chicago Tribune (this morning, Nov. 1)... a barrel of oil has hit approx. $95. So the price of gasoline is 'open market' without any imposed limits. In addition, the real estate markets around our nation are in terrible shape.

So what happens if people stop buying houses indefinitely? And what happens if the middle class of people in the U.S. disappear - - becoming low income people? In my view point, it is the middle class that is still keeping our enconomy going. The low income people buy few products and the U.S. Business sends their manufacturering off shore, short - circuiting the American employment.

IF these conditions converge in the future - - and it looks possible - - then people don't drive their cars ($20 per gallon of gas(?) - - and people stop spending their money except for food - - then what happens to the price of a $5 million dollar home? To sell, it comes down in price.

Yes, what I have cited are extreme examples. But this still could happen in our future.

Carter Glass

mendelman · 11-01-2007, 07:36 AM

Yes, Carter, that is a possibility, but so is a giant asteriod crashing into the earth and subsquently reducing the "value" of their $5mil house.

But market analyses don't usually factor in such extreme outliers. If they were included, than nothing would have any value.

What really was your point?

I still think in any reasonable market analysis, people looking for $5mil houses are outside the normal real estate market the rest of us shmoes get to deal with.