Question (Chicago, Phoenix: real estate, insurance, condos)

[ChiMack]

on yahoo i read that phoenix home prices fell 31% and in chicago 10% why do you think it was so?



also what do you see happening in the chicago housing market if lets say this recession keeps up for 2 or 3 yearsor more

[jdiddy]

Bubble popped.

[soulful]

ChiMack. Real estate in Chicago is extremely neighborhood specific. Some neighborhoods have not seen any price declines and are just flat. Other areas were overbuilt with new condos in recent years and are suffering somewhat.

[aragx6]

1. Chicago never saw the crazy high appreciation that Phoenix saw, so the decline has not been as extreme either

2. Chicago has a better diversified economy, more equipped to handle economic downturns

[lincolnparker]

First of all, I dont see a prolonged 3 yr recession. We have been in a recession since Dec 2007. The difference between this one and the 1929 recession is:
1. In 1929 theres no unemployment insurance, nor was there FDIC insurance on deposits.
2. The fed and treasury was not equipped or not fully able to handle a recession in 1929, which resulted in massive job loss at a rate of 25%. Currently, most economists predict that the unemployment rate will peak in the 8.5% to 9% range, a much milder number.
3. The gov and companies are actively looking for remedies while in the 1929 era, the gov and companies were literally paralyzed by the recession.

That being said, a 10% (or 8.5% drop as reported in an oct issue of the wall st journal) decline in chicago home value is a result of various factors, which include, especially but not exclusively,

1. Limited demand because of the credit crunch. Financial institutions have tightened lending standards, so its hard to obtain financing to purchase a home.
2. Oversupply in the market place. some areas of chicago are flooded by condo develpments, especially lakeshore east, south loop, and river north.
3. Job loss, high rate of unemployment by historical measures, throughout the 90s and much of the begining of the 21st century, we have enjoyed unemployment rate in the realm of 5% or below. Now the unemployment is headed to 8% or even 9%, people do not have the financial resources to make major purchases.

In summary, the price decline is mostly a result of supply and demand.

Originally Posted by ChiMack

on yahoo i read that phoenix home prices fell 31% and in chicago 10% why do you think it was so?



also what do you see happening in the chicago housing market if lets say this recession keeps up for 2 or 3 yearsor more

[Attrill]

A big part of what is keeping demand down is the lack of available credit. Lenders were giving mortgages to people who couldn't pay them, now they're getting burned by that. Combine that with reckless use of derivatives and in some cases outright fraud, and many banks don't have the cash they thought/claimed they had. Many lenders are also being overly cautious and the end result is that even people who can pay for a mortgage are finding it difficult to get one right now.