Friday, April 04, 2008
march price declines in chicago
Asking prices fell at the fastest rate in Chicago — down 3.9 percent during March — driven by a large increase in for-sale property inventory of 12.3 percent, the companies said. The largest quarterly declines occurred in San Francisco and Las Vegas, however, which were off 5.3 percent and 5.2 percent, respectively, during the month.
“As the typically strong spring selling season gets underway, we are seeing sellers marking down prices to move their homes,” said Michael Simonsen, CEO and co-founder of Altos Research. “The seasonal inventory buildup is only going to exacerbate the near-term supply-demand imbalance and put more pressure on sellers to reduce their price expectations.”
i've analyzed the altos/realiq report before here with respect to listing times. now we're seeing what i had hoped we would -- average listing times decreasing slightly (though still very high at 131 days) and faster price declines. the spring inventory build looks to be more impressive than ever in the early going, in part due to chicago becoming an american foreclosure capital, and that bodes yet more poorly still for pricing.
that dovetails with affordability metrics, which indicate chicago pricing has a long way to go. as i commented at menzie chinn's blog:
i'd be happy to chime in as a current-renter-future-buyer as well, nominating myself to speak for millions. there's nothing "affordable" about housing right now.
i'm in northwest suburban chicago, renting a wonderfully rehabbed four-bedroom house for $2000/mo. taxes come to $550/mo, so my equivalent mortgage payment would be just $1450/mo. using a 30y fixed @ 6%, what kind of mortgage can a guy carry with that? about $220k, funding a $270k purchase with 20% down.
the property was bought by the current owner in 2005 for $459k. the place across the street is currently listed at $419k.
paul mcculley recently made an excellent point about what must broadly happen to compel cash-heavy buyers into the housing market again -- and that is "positive carry". that's where housing busts normally find a price bottom -- when the capacity for an investor to rent the property out for more than he must pay to service the underlying debt is restored. that's where buying makes a lot of sense.
we are a long way from that point in chicagoland. i wouldn't at all be surprised if menzie has the eventuality ballparked at 40-50%.
i've seen no meaningful fiscal action yet from the government to stem the tide here, and i'm not sure any is really feasible. barring that, this promises to be a very painful summer for home sellers in chicagoland.