Saturday, July 28, 2007

The Revenge of the Bitter Renters

.....and the return of affordable housing.

Before the late, great real estate boom occurred, I had always believed that the unfettered operation of free markets was the solution to supplying a large and diverse population with its needs and that it would always make the fine-tuned adjustments necessary for buyers and sellers of goods, services, whatever they happened to be, to come together in a way that would satisfy most reasonable needs and desires.

However, my simple faith was sorely tested by the fantastic inflation in housing prices since 2001, never mind that the Fed- driven speculative rampage of the past few years was not the result of "free enterprise", but was the creation of Dr. Greedscam and his accomplices at Fannie Mae and Freddie Mac, the quasi-government agencies that buy home loans in the secondary market, and that kept E-Z money sloshing through the housing market by purchasing millions of high-risk home loans made to unqualified buyers for amounts of money they could not possibly pay back on their incomes.

Well, the market works in strange ways but the Law of Supply and Demand never rests. No amount of Fed finagling and manipulation and industry happy talk will suffice to prop up this massively over-inflated housing market in the face of rapidly tightening credit, cratering sales, record foreclosures, and massive unsold inventory.

The summer selling season is almost over, and it looks it never really ever happened. The buyers are not coming. They either bought at or close to the peak of prices, and are too far underwater on their 80/20 I.O. teaser loans that are now resetting, or they were sidelined by the rapidly escalating prices, and are now confronting a very high bar for first-time home buyers and rapidly tightening credit. Looks like credit is getting so tight that once again, as in the distant past, borrowers will have to prove that they have the ability to pay their mortgages and they might even have to have a down payment.

Imagine that.

It just plain looks as though the supply of Greater Fools has quite dried up, and there aren’t any left to soak up the substantial glut of condos and houses now languishing on the local market. The greedy, the gullible, and the deluded have all bought, using "creative" financing like that referenced above, and are now sitting several feet underwater and confronting the reset of their mortgages, for over one trillion dollars’ worth of mortgages will be resetting in the coming year, half of it by the end of 2007. A trillion dollars’ more in adjustable-rate notes will reset in 2008-2009, which is why many analysts are now calling the bottom of the tanking market in 2009, instead of this year or 2008 as originally projected.

Meanwhile, sales for June dropped 19%* in the Chicago area, as median prices have risen slightly, indicating that the first-time buyers have been blasted out of the water by the prices of modest dwellings and only more affluent buyers remain. Other signs of distress are appearing, such as an elevated rate of suspicious fires in unsold houses in newly-built suburban subdivisions, and most of all, the highest number of foreclosures ever recorded.

And at last the prices are beginning to drop. A couple of weeks ago, I went to view a "soft" condo conversion in the Edgewater neighborhood, and the prices for beautiful, spacious vintage units seemed like a gift compared to the prices of 2005. New mid-rise buildings in Uptown, on Sheridan Road, are 75% vacant after a year on the market. The Sheridan Grande, at 4848 N. Sheridan, appears mostly unoccupied. 4701 N. Sheridan, another newly-constructed mid-rise condo building, is, for some strange reason, no longer decorated with a sign proclaiming 80% SOLD. Or was it 70%? I forget exactly, but the sign disappeared a few months ago.

So at last the "bitter renters", as we who were sidelined by the stratospheric prices, were called, might have a shot at buying nice places at prices reasonably related to their incomes and to local rentals, with sensible, honest fixed-rate mortgages. Maybe I’m feeling a touch of schadenfreude, , but it really, really feels good to see so many attractive condos suddenly within my reach that seemed hopelessly lost to me just two years ago. In fact, the challenge now is check your impulse to leap at the first substantial price drop, because current trends and conditions indicate that you may not be getting a bargain at all but catching a falling knife, as the prices look to trend still lower in the coming months.

Most of all, we will at last have an assured supply of reasonable rentals. The conversion stampede is just about exhausted. Most of all, many recent conversions were of units too small to be considered eligible for sale as condos in any normal market, and as this market reverts to normalcy, many of these units will revert to rental status. This is a warning for prospective buyers of tiny, inadequate condos, but it augers a return to a normal, affordable rental market.

Trust the markets. They may not give you just what you want exactly when you want it and how you want it just because you want it, but left to operate unhindered, they deal out justice, and never more so than in the unraveling of the most absurd manifestation of financial hysteria in human history.

* Chicago Bubble Blog, July 26, 2007 posting, link supplied at right. I tried to link it to this post but it wouldn't work.

Saturday, July 21, 2007

The Resurgence of Quality

I guess it had to happen at last, even though I wondered just how many hack rehabs and cookie-cutter six-flat condos and dreary , institutional, machine-for-living high rises it would take to produce just one quality building. However, it looks as though the housing feeding frenzy that has just passed has left us with a few buildings of gemlike quality, even though it is hard to spot them in the coast-to-coast sea of stapled-together garbage spewn out in the stampede of greed of the past few years.

"It" is 1223 W. Farwell in Rogers Park, a new three-unit condominium in Rogers Park, currently under construction. I'm ashamed to admit I don't remember who is building this great place, even though I ought to, for this property was the center of controversy as the developer originally proposed to demolish the lovely old greystone on the adjacent lot in order to build a six-unit building. While I'm glad that building was saved, I'm glad that this new building was allowed to go up.

The sheer quality of the place is almost shocking, and I felt like I was transported back to another era when I saw the place- it was as if it was 1925 again. I kid you not, I was getting a serious case of house envy, which I almost never experience when viewing the latest cookie-cutter 6-flat condo or MidCentury Mod Revival highrise.

The brick and concrete work are impeccable, and the back and flanks are brick. Most of all, the windows are wood and have real mullions, in contrast to the majority of overpriced new condo buildings whose windows have "pasties" or snap-in plastic muntins that are obvious when viewed from the street.

At this point, there is no sign in front of the property, and I don't know how much the units will cost, though I have heard they will be priced in the neighborhood of $600,000. I sense the units are worth that, even though this is not an auspicious time to try to market pricey new construction.

This is the type of construction the area needs more of, even though it is not "affordable". High-quality new construction is almost never inexpensive, or within reach of people with average incomes, which is no reason not to build it. This is the type of building that will outlast "trendier" buildings, or buildings of "cutting edge" architecture, and while I have not heard of the place having any "green" features, this is the type of building that will serve well for many generations in a fuel-short future.

Sunday, July 15, 2007

CTA Ad Endorses Public Urination

This ad appeared on a Red Line train I rode on July 6.

This ad was run by Chicago Apartment Finders, a venerable and formerly respectable local concern whose focus is Lakeview, Wrigleyville, and other North Side neighborhoods, and the ad was evidently approved by the CTA, even though ads advertising tobacco products are prohibited by the agency, so the only conclusion I can draw is that CTA and Chicago Apartment Finders think it is OK to urinate in public.

I didn't know that it was ever considered OK to relieve yourself in public, even on your own lawn, or in any other place but a facility designed specifically for the purpose. In other words, a washroom.

But now both CTA and Chicago Apartment Finders have served notice, by this ad, that public urination is normal and acceptable. It's especially surprising that CTA would let an ad like this be run, not only because the agency will not permit tobacco to be advertised on their property or vehicles, but also because they have a massive, ongoing problem with urination in el stations and sometimes even on their trains. It's also surprising that this ad even made it through all the steps between the little genius copywriter's desk to the trains to begin with. Don't these ads have to be approved by the writer's superiors at the ad agency and also by the appropriate people at CTA?

How could an ad that promotes such an extremely offensive, and illegal, behavior be approved by a major local business and a highly visible and important public agency? I'd seriously like answers from Chicago Apartment Finders, their ad agency, and the CTA.