As one of Chicago’s top ten residential real estate agents (and #77 in the nation according to The Wall Street Journal), I am a frequent source for the media. I always enjoy the opportunity to share my “in-the-trenches” perspectives on Chicago’s residential market, as I believe that what is happening locally is more relevant to Chicago homeowners than generalized national reports.
Unfortunately, as with any interaction with the media, there’s the risk of having one’s comments taken out of context, and that is precisely what happened in my July 2009 interview with Stephane Fitch for his Forbes magazine story entitled “America’s Most Troubled Luxury Neighborhoods.” Fitch distilled our 30 minute interview into two quotes that, out of context, contradict the key points I made in our interview. Having my name associated with misleading information about Chicago’s real estate market, and especially about the Lincoln Park neighborhood where I was the #1 selling agent in 2008, is troublesome.
So, I’d like to set the record straight: Chicago’s Lincoln Park is not a “troubled” neighborhood. While I cannot comment on the other neighborhoods mentioned in his story, I disagree with his assertion that home prices in Lincoln Park are on the verge of “collapse.”
I explained to Fitch that I could not relate to what was happening in places like Florida, Arizona and Las Vegas where entire neighborhoods were for sale. (Hence, the characterization of “cocky.”) Lincoln Park has fared better than most other neighborhoods during the current adjustment and is poised to recover faster. Why? Lincoln Park is among the city’s most sought-after places to live. It adjoins Chicago’s magnificent lakefront, includes many parks and cultural institutions (Lincoln Park Zoo, the Nature Museum and the Chicago History Museum), and is just minutes from downtown via public transportation. It is well established with diverse residential housing stock, long-time residents, relatively low turnover, few investors, and a limited supply of new development aside from individual single-family home projects built on spec. The quality of the schools (both public and private) and the availability of easily accessible shopping, restaurants, and amenities will ensure demand among Chicago’s more affluent residents, regardless of market conditions.
I am not suggesting that Lincoln Park has not been affected. In September 2008, when the US banking system was on the brink of collapse and the stock market dropped precipitously, the residential market throughout the country received a proverbial kick in the pants. No community was immune, including Lincoln Park. Home prices dropped approximately 10% last fall and for understandable reasons: consumer confidence was low, savings were cut in half, and traditional financing was available to fewer potential buyers.
Fitch suggests that in the first half of 2009, the inventory of single-family homes in Lincoln Park has “tripled,” and speculates that “given the glut of unsold homes, Lincoln Park’s prices may well slide at least 15% this year – as Chicago’s did in 2008.” It is true that inventory levels increased at the end of 2008 and in early 2009 because potential buyers were understandably afraid to buy. But, I disagree on a few points.
– Lincoln Park home prices adjusted in the fall of 2008 more than the 2.2% Fitch suggests. I don’t know what he used as his source, but as someone who has been actively marketing single-family homes in Lincoln Park for the last 15 years, I saw the shift in home values firsthand. Perhaps the handful of relatively high priced homes that closed in 2008 skewed his calculations.
– His prediction that home “prices will slide at least 15% this year” strikes me as random as there is no evidence to support that claim. I believe home prices experienced a 10% adjustment last fall. If Lincoln Park were in for a 15% correction, then it appears that we are already two thirds of the way there.
– The characterization of the current supply of homes as a “glut” is an exaggeration. According to Chicago’s Multiple Listing Service (MLS) as of July 23, 2009, there are 184 homes for sale with an average asking price of approximately $2,160,000. But that is a meaningless statistic out of context.
In the last six months, 48 Lincoln Park homes closed. At the rate of just eight closed sales per month, it will take nearly two years to sell the single-family homes that are on the market today. But, keep in mind that buyers were not buying in the late fall and early winter so there were very few closings in the first quarter of 2009.
In the last three months, 33 Lincoln Park homes closed. The current rate of 11 closed sales per month demonstrates an important shift in the market, as the inventory should be absorbed in 10 months, not 23 months. Moreover, another 21 homes are currently pending. I interpret the recent flurry of pending and closed sales as a sign of increased consumer confidence and stabilization.
– If you delve below the surface and look at the properties included in the active listings, you will discover that several of the properties are not actually homes for sale. Some of the lesser priced listings are “tear downs” being marketed as developable land. And the two most expensive Lincoln Park homes on the market today (1941 N. Fremont and 1919 N. Howe with price tags of $7 and $10 million, respectively) aren’t homes at all. Instead a custom builder is using the MLS as a way to advertise his services via undeveloped parcels of land he already owns. If you net out the listings where no home exists to sell, the number of months it will take for the market to absorb the current inventory is even fewer.
Fitch suggests that closed sale prices have been “propped up by recent condo closings at foolish prices agreed to two years ago.” Chicago does have a handful of new condo developments delivering units to buyers who went under contract as many as five years ago when prices were higher (including buildings like Trump Tower and Museum Park), but they are located in other parts of the city. However, as there are virtually no large parcels of land available to develop in Lincoln Park, there have not been any recent closings of large new condo developments at prices established years ago. There is only one large condo development in progress in Lincoln Park (2520 N. Lakeview on the former site of Columbus Hospital) but sales and construction are currently on hold due to lack of financing.
Other factors that may influence how low Lincoln Park prices will (or won’t) drop include the following:
1. Affluent homeowners tend to have more options. For example, one of my clients built a luxurious new 5,200-square foot house at the peak of the market. When they were transferred to the West Coast, we quickly realized that if they were to sell, it would be at a loss. Rather than forfeit an estimated $500,000 in investment, they opted to rent their house (which was in great demand) and hold it until the market improves. This option was possible because these homeowners did not need the equity out of their home to purchase their next home. Other homeowners can afford to stay put and move at a more advantageous time.
2. There are very few distressed sales (short sales and foreclosures) and they are trading at market value.
Finally, it is true that I listed my own home for sale in the summer of 2008. My husband and I found ourselves in the same boat as many of my clients, riding the downturn in home prices as the economy pummeled consumer confidence. Our timing could not have been worse. Buyers froze in September like deer caught in a pair of headlights, and did not come back into the market with vigor until late February. We finally put our home under contract in April 2009 for a price below the closed sales that we had initially used to price it. Perhaps if we had lived in Lincoln Park, we would have fared better!
Even for a 15-year veteran of Chicago’s residential real estate market, researching statistics and understanding area trends is a complex process. I can only imagine the demands that writers like Fitch face while trying to digest market conditions in diverse areas within the confines of word counts and publishing deadlines. Should he ever wish to dedicate more lines to the “full story” on Lincoln Park, he’ll find that I’m still more than happy to offer my “in-the-trenches” perspective.