Saturday, May 14, 2005

Condo Mania In Chicago

As the housing sector has grown into it's late stage, the bubble grew into the condo market. Now it seems that everywhere, speculation is rampant. "How big is the boom? In 1990, Chicago had around 50,000 downtown housing units. Today, there are 85,000, a 70 percent increase, and more on the way."

"'We know well over 10,000 units that developers are trying to get started, get marketing for this year,' Gail Lissner said. 'We are certainly seeing a growing segment of buyers who are using the downtown base as their second home.'"

"A surge in investors, or speculators, who buy condos hoping to re-sell quickly for a fast profit, are warning signs of an overheated market. Experts agree that speculation is rising."

5 Comments:

At 10:45 AM, Anonymous Anonymous said...

Its been like this for at least 2 years where you can put 20% down with p&i taxes,insurance,and association fees you cannot even come close to breaking even on the majority of condos in the "happening areas". In all the buildings with preconstruction prices the prime units are gone before the first ad hits the paper and the crap ones languish till the building is complete and occupied. The south and west loop especially are burdened with lots of vacant space with more on the way. When the tree starts shaking its gonna be raining condos and all these "investors" are gonna learn a valuable lesson in real estate investment. Making the numbers work matters if they dont something is fundementally wrong. Appreciation dosent pay the bills in a down market and by the time you realize there is no quick money to be had its to late to get out you get trampled by the herd...

 
At 12:22 PM, Anonymous Anonymous said...

This condo market is really bad... and it's going to spill over into these "investors" primary residencies as well... remember, a lot of these guys ripped out their home equity to finance these deals... and some people did that several times... so it went something like... bought an investment property for 400K... did a cashout refi with it, because it appraised at 500K... took that 100K and bought another property... and so on...

 
At 2:02 PM, Anonymous Anonymous said...

I have had to due food deliveries to help make ends meet. I have been under employed for two years now. Here in Chicago lots of these new condos are being rented to swatters or the investor's kids are living there. Look when you keep delivering food to the same kids who don't have any real furnature in their condo they are in way over their heads or just passing through.

I bet the unoccupied or rental rate is 30-40%.

 
At 2:18 PM, Blogger Denver_Investor said...

Before buying a condo you can't spend too much time investigating the homeowner's association. How is it being managed, do they enough in reserve, are they being sued, etc.

I think HOAs are another huge minefield in this RE bubble. IF we have a drop in values, and many units go into foreclosure, the financial condition of the HOA can easily fall into jeapordy.

So even if you own your unit with no loan, a lot of foreclosures in your building, where the owners have quit paying their HOA fee, can end up costing YOU more through special assessments to make up the difference.

Usually at closing past due HOA fees are collected for the association...but if the unit doesn't sell for enough to even cover the mortgage, the HOA is screwed.

This situation can depress the value of ALL the units in a condo complex.

Another condo problem in down markets is owners renting out their units when they can't sell them, often to undesirable tenants who have no ownership interest in the property. Soon this starts to show, and once again values are negatively impacted.

Be careful with condos...

 
At 11:03 PM, Anonymous John Vosilla said...

Denver investor you know the drill. The history of the worst condo debacle of all was Houston around 1984 which is still scraping the bottom 20 years later. I believe 2 bedroom condos fell from $50-70k to $10-20k that rented for $450-500 month in a declining interest rate environment. Way too many had been built during the oil boom of the late 70's and early 80's. Compare that bubble to what is going on today and it is going to be pretty scary.

 

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