is chicago drifting towards another 10-15% drop in home prices in 2011?

[Failte]

Originally Posted by aragx6

^But I have yet to see any evidence that it was stable neighborhoods where we are seeing major population drops.

Your not going to see major population drop in stable areas yet; it's just kind of a cancer that infiltrates stable areas and contributes to decline.

[Failte]

Originally Posted by SJaye

For a 10-15% decrease to occur in a single year, wouldn't some kind of a tipping point need to be reached, or some kind of event need to occur? The '07-'08 home value correction occurred relatively rapidly due to a tipping point being reached with the number of foreclosures related to ARM adjustments. I am just wondering if you see any particular event occurring to cause home values to decline. Obviously we have the population decline and the state tax hike, both of which will put downward pressure on prices. Some formerly stable neighborhoods are becoming unstable, and prices should decline rapidly there. However, some neighborhoods are actually benefiting from gentrification, and, those near the train lines, higher gas prices, which makes public transit access more of an asset. I can see prices still increasing in these places, especially those that actually did see population increases in the census. Do you see another round of foreclosures, a state/county/municipal debt default, or some other economic factor causing a sharp decline? Otherwise, I see a decline more on the order of 3-5% city-wide, with a good amount of variance by neighborhood.

High current inventory of bank-owned homes; high pending foreclosures with high current filing rates; high rates of short-sales with low rates of arms-length transactions; high volume of low-priced cash transactions; continued population decline; new mayoral administration; across the board tax and fee increases; declining employment base with below zero job growth; high condo inventory with low condo lending rates by banks; HIGH GAS PRICES (this could induce another recession if prices get to a tipping-point); foreclosure shadow inventory looming throughout the year; continued generally lackluster real estate related consumer confidence; stricter access to residential mortgage financing...these are just some of the reason...but, of course, real estate will return and all this will be a thing for the history books, but until then...lets hope we're at the bottom of the market now...

[Savoir Faire]

Originally Posted by smallvillejane

Possibly because the following:

1. city population has decreased by 200,000 over the past decade, and is projected to become the 4th largest city in the next 5 years, overtaken by Houston.
2. grim unemployment picture, with unemployment rate above national average, and many underemployed.
3. city and state budget crisis on the horizon, possibly headed for bankruptcy, more taxes possibly?
4. Over-reporting of previous home sales by the national association of realtors. Actual market condition may be a lot worse.
5. Large shadow inventory, unsold condos in downtown, lakeshore east, river north etc, more home owners going into foreclosure.

Or perhaps because houses are STILL overpriced in many parts of the city. If the cost to rent a house is thousands less than it's mortgage, then the house is overpriced.

[Failte]

Originally Posted by Savoir Faire

Or perhaps because houses are STILL overpriced in many parts of the city. If the cost to rent a house is thousands less than it's mortgage, then the house is overpriced.

Great point...and I would this to my list of why we could see a 10%-15% drop in home prices...greedy sellers still living in 2005...this with current estimate that 33% of Chicago area homes ''underwater''...

[Attrill]

Originally Posted by Savoir Faire

Or perhaps because houses are STILL overpriced in many parts of the city. If the cost to rent a house is thousands less than it's mortgage, then the house is overpriced.

Chicago has a rent/buy ratio that is pretty much in the middle at this point. Below 15 on the scale it makes more sense to buy and above 20 you should rent. Chicago leans "Buy" at 16.6.

Obviously it varies from neighborhood to neighborhood, but overall Chicago housing prices have pretty much stabilized at this point. There may still be some small corrections, but nothing near 10-15%.

[SJaye]

Originally Posted by Attrill

Chicago has a rent/buy ratio that is pretty much in the middle at this point. Below 15 on the scale it makes more sense to buy and above 20 you should rent. Chicago leans "Buy" at 16.6.

Obviously it varies from neighborhood to neighborhood, but overall Chicago housing prices have pretty much stabilized at this point. There may still be some small corrections, but nothing near 10-15%.

How does this ratio rank historically? I strongly believe that we had too many people buying homes when they should have been renting, and suspect this still may be the case even after the collapse. So, I want to know how this compares with, say, the early 1970s or some time when the Government was not nearly as actively trying to encourage home ownership amongst select groups of people.

[Attrill]

Originally Posted by SJaye

How does this ratio rank historically? I strongly believe that we had too many people buying homes when they should have been renting, and suspect this still may be the case even after the collapse. So, I want to know how this compares with, say, the early 1970s or some time when the Government was not nearly as actively trying to encourage home ownership amongst select groups of people.

This article has some more info on it:

Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.

This article has charts going back to 2000, and everything seems around the historical norms until 2002-3.

I don't really think government encouragement played much of a role in this. Any government efforts are dwarfed by the amount of money injected in the market by the GI bill home loans after WWII. That program drove prices up, but nowhere near as much as we saw after 2000.

[Savoir Faire]

Originally Posted by Attrill

Chicago has a rent/buy ratio that is pretty much in the middle at this point. Below 15 on the scale it makes more sense to buy and above 20 you should rent. Chicago leans "Buy" at 16.6.

Obviously it varies from neighborhood to neighborhood, but overall Chicago housing prices have pretty much stabilized at this point. There may still be some small corrections, but nothing near 10-15%.

The reason why the ratio is 16.6 is because homes on the South, Southwest, and West are going at incredibly cheap prices. I've seen many properties listed for $15,000. The ration doesn't take into consideration the total cost after rehab. Many homes being sold at the lower end, especially foreclosures require extensive rehab. I read somewhere that the percentage of foreclosed/short sale homes make up close to 40% of sales.

I think if you were just to include the Northside and Northwest side, which the majority of readers and posters live, you'd find the ratio to be much lower.

[chirack]

Originally Posted by Savoir Faire

The reason why the ratio is 16.6 is because homes on the South, Southwest, and West are going at incredibly cheap prices. I've seen many properties listed for $15,000. The ration doesn't take into consideration the total cost after rehab. Many homes being sold at the lower end, especially foreclosures require extensive rehab. I read somewhere that the percentage of foreclosed/short sale homes make up close to 40% of sales.

Even in the boom places like that didn't rise in prices much. In Chicago anything over $100,000 should be livable. Anything under $80,000 probably needs extensive rehab.

I think if you were just to include the Northside and Northwest side, which the majority of readers and posters live, you'd find the ratio to be much lower.

Depends. Compared to other places our bubble was mild. The only thing that got way over built perhaps were downtown condos. North side and Northwest side drops may have more to do with less financing available than with overbuilding.

[tonythetuna]

Originally Posted by chirack

In Chicago anything over $100,000 should be livable.

But that don't mean the neighborhood is kosher.