CHICAGO | General Discussions

[marothisu]

Originally Posted by the urban politician

Obviously, but I was talking about whole apartments.

I was talking about any situation - roommates apply. A lot of 23 year olds just out of college go this route. Replace it with any number which is reasonable for a neighborhood. The point doesn't change - it still forces people to look in other neighborhoods. I have many co-workers who are younger who have been "forced" to either rent really small places in East Village or Lower East Side with roommates because they "HAVE" to live in Manhattan and think Upper West or Upper East is lame, or the smarter ones will go to neighborhoods like Flushing, Astoria, Elmhurst, etc in Queens or Crown Heights, Bed-Stuy, Flatbush, etc in Brooklyn or places like Jersey City, Union City, etc in New Jersey.

It's a weird formula - like you want to see the city you are in succeed, which means an increase of jobs and maybe in Chicago's sake you don't want to see it increase ONLY downtown - but then you're against gentrification and don't want "those people" to live in your neighborhood to gentrify it...which kind of forces many people to just pile into the same neighborhoods. But then you want your neighborhood to succeed, but not as many people want to move to it. So the jobs you want are ones that used to be there in the neighborhoods, and some have returned, but they aren't going to return like they were before. And just because someone is making "only" $40K doesn't mean they aren't a gentrifier either. It's just a weird situation to me. You can't have it all easily.

[Buckman821]

Originally Posted by Steely Dan

no, the very NE corner lot is being reserved for this bad boy: CHICAGO | Site I (LSE) | 950 FT | 85 FLOORS

but who knows if it'll squeak through this cycle or not.

After watching financial news today, I'd be willing to bet money that it will not.

[LouisVanDerWright]

Originally Posted by Buckman821

After watching financial news today, I'd be willing to bet money that it will not.

Bond inversion is not a dead ringer predictor for recession and this is likely a lot of chaos coming out of China as they are having a hell of a time controlling capital flight right now. People are dumping cash in the US right now and that, not economic data, is causing the bond rally.

[SamInTheLoop]

Originally Posted by LouisVanDerWright

Bond inversion is not a dead ringer predictor for recession and this is likely a lot of chaos coming out of China as they are having a hell of a time controlling capital flight right now. People are dumping cash in the US right now and that, not economic data, is causing the bond rally.

"This time is different." Be wary.

While the 10 yr - 2 yr is not a dead ringer (nothing is), it's a quite good predictor - among the best there is, and I would say just about on par at the top of predictive indicators with the output gap (which is also ringing alarm bells).

It's much more likely that this time will not in fact be different. The main question is one of timing - Time to onset of recession after inversion varies meaningfully. We really have likelyanywhere from as little as 6 months to as much as 2 years until we are officially in recession (and you do not officially know until well into recession - or potentially even after it's ended (when the NBER does the official dating).

The long-end bond rally is likely being driven by multiple factors. China is a factor, however in my view it is not a dominant one. Slowing global - and yes, US - growth (and increasing downside risk) is a major driving force. Keep in mind that bond markets - like other markets - are ever forward-looking. And long yields, at first approximation, reflect investors' expectations for future short-term (or policy) rates. Investors anticipate lower short term rates into the future because they think that - in large part - US growth and inflation will be lower in the quarters ahead (and thus the Fed will - in part in reaction, and in part in anticipation - lower its key policy rate.

Guaranteed second half 2019 US growth is going to slow measurably....however, we will likely not be in recession sometime in 2020 - or even potentially as far out as the first half of 2021. It will come though. In the meantime, we still have some expansion left to savor (we could have relative growth spurts in the interim, mind you). In terms of development, I believe we're looking at a last mini-wave of starts for the cycle, now through next spring or summer....

[moorhosj]

Originally Posted by LouisVanDerWright

Bond inversion is not a dead ringer predictor for recession and this is likely a lot of chaos coming out of China as they are having a hell of a time controlling capital flight right now. People are dumping cash in the US right now and that, not economic data, is causing the bond rally.

I keep seeing these lines repeated over and over. The point isn't that they happened to invert this week, the point is that the 2-year and 10-year yields have been converging steadily since 2017. That the yields were close enough to invert in the first place is the story.

Why are people willing to receive less premium to have their money locked up for 10 years instead of 2 years? That's the real question. I can only imagine that a fear of economic slowdown is the answer. GDP growth was 1.9% in the 2nd quarter and it's running about 2% for the 3rd quarter. I'm not sure I see this "great economy" everyone keeps talking about. A great economy doesn't require 4% deficit spending to achieve 3% growth (probably closer to 2% this year).

[SamInTheLoop]

Originally Posted by moorhosj

I keep seeing these lines repeated over and over. The point isn't that they happened to invert this week, the point is that the 2-year and 10-year yields have been converging steadily since 2017. That the yields were close enough to invert in the first place is the story.

Why are people willing to receive less premium to have their money locked up for 10 years instead of 2 years? That's the real question. I can only imagine that a fear of economic slowdown is the answer. GDP growth was 1.9% in the 2nd quarter and it's running about 2% for the 3rd quarter. I'm not sure I see this "great economy" everyone keeps talking about. A great economy doesn't require 4% deficit spending to achieve 3% growth (probably closer to 2% this year).

Yep. At its core, it is the heightened domestic economy risk in the near-to-medium term that the market is identifying in not demanding greater compensation for longer-term bond market instruments than shorter-term. Highly simplified, though true.

[BonoboZill4]

Originally Posted by Buckman821

After watching financial news today, I'd be willing to bet money that it will not.

Mostly depends on how the market reacts to the upcoming Presidential election tbh. Everything in between is fireworks

[SamInTheLoop]

Originally Posted by BonoboZill4

Mostly depends on how the market reacts to the upcoming Presidential election tbh. Everything in between is fireworks

In my view it's the opposite. The presidential election - and any related market moves - will be the fireworks. It's more about the underly real economy's development over the coming quarters.

[LouisVanDerWright]

Except this time it is different because central banks are buying and hording trillions of dollars of bonds, Europe's e tire yield curve is negative (wtf?!?), and there's a massive trade war going on with China now exporting massive deflationary signals. Those are all things that very much bear on the bond market that have never happened before. That's not to say there won't be a recession soon, but that is to say that yield curve inversion is not happening because a recession is imminent or expected. It's happening because investor expectations have been warped by a variety of events that may or may not be accompanied by two negative quarters of US GDP.


Personally I think the most similar expansion to this one we've ever seen in the US is the 1990s which was similar in duration and was largely juiced for the last three or so years by a yield curve inversion similar to this one that didn't actually indicate recession, but indicated implosion of the Asian financial markets causing capital flight to US safety. The curve inverted in 97 only to in invert for two years before inverting again at the end of 1999 which was the harbinger of the tech bubble bursting.

As I said before, this could be an indication the economy is about to shit the bed or, more likely in my opinion, it is indicating massive overseas financial turmoil that will force fed easing recession or not.

[moorhosj]

Originally Posted by LouisVanDerWright

As I said before, this could be an indication the economy is about to shit the bed or, more likely in my opinion, it is indicating massive overseas financial turmoil that will force fed easing recession or not.

So if the Fed eases now, what will they do when the actual recession hits?

[SamInTheLoop]

Originally Posted by LouisVanDerWright

Except this time it is different because central banks are buying and hording trillions of dollars of bonds, Europe's e tire yield curve is negative (wtf?!?), and there's a massive trade war going on with China now exporting massive deflationary signals. Those are all things that very much bear on the bond market that have never happened before. That's not to say there won't be a recession soon, but that is to say that yield curve inversion is not happening because a recession is imminent or expected. It's happening because investor expectations have been warped by a variety of events that may or may not be accompanied by two negative quarters of US GDP.

In every late stage expansion, as the yield curve inverts, there are always unique factors, never experienced previously, and certainly never experienced previously in combination/to degree etc, which many cite as rationale for why this time is different. These folks are of course nearly always wrong.

[Buckman821]

Originally Posted by BonoboZill4

Mostly depends on how the market reacts to the upcoming Presidential election tbh. Everything in between is fireworks

Ya...no. Markets are acting pretty strange right now and the vast majority of it has nothing to do with US politics.

I have a lot of thoughts but I won't drag this further off topic. It would be kind of fun to have a Global Economy thread somewhere on this site. Maybe a mod could move some of these posts.

[marothisu]

Good data and I largely agree with the last line that was underlined. However, I don't even think that's automatic in regards to attracting people who just graduated in the last few years. In part that comes with making Chicago attractive as a place to work after college - which it is already as tons of data shows.

While there's a lot of college grads in their early to mid 20s who can afford downtown, there's many who can't and are totally fine with that. If you just graduated, then most places in the usual neighborhoods are going to be attractive to you even if they aren't new luxury. I know I didn't get into a "luxury" mindset until a few years after graduating college. Although I settled in Gold Coast (in a 25+ year old building at the time), I was excited about the even older places in Lincoln Park I almost moved to instead. Of course, more normal people who just graduated in the last few years can afford to live by themselves in downtown Chicago than places like Manhattan and SF and it's a big point of attraction on that front, but isn't the end all be all.

Here in NYC, most new college grads can't afford anything good (unless they are going to work for a hedge fund or something similar right away) and if they want to live in Manhattan, a lot of them pile 2 or 3 into a 1 bedroom. Tons of living situations here that are definitely worse than Chicago and a lot of new/newish graduates don't care one bit. They care more about having a job and trying to work their way up. Even my 24 (?) year old co-worker who visited Chicago for the first time a few weekends ago was amazed at her friend's regular, definitely non luxury and 40+ year old place in Lakeview. Why? Because it was big and it was relatively cheap. She told me that she was in disbelief at the price related to what the apartment was and started questioning why NYC is so expensive (and why Chicago is so much cheaper).

And honestly this continues for most people regardless of their age. They're fine with it in part because of the job opportunities. The ones who can't afford luxury in Manhattan or parts of Brooklyn or Queens end up moving to semi nearby suburbs in New Jersey.

I do agree with Zotti, overall, but I don't think that if there's less luxury places built that college graduates will stop coming as much. And at the end of the day, you can get a 3000+ sq ft home in Lakeview, Ukranian Village, Logan Square, etc for under $1.2M today and way cheaper in other neighborhoods that aren't like that (but still good). Keep in mind that ~$1.2M will only get you a nice 1 bedroom co-op in the West Village in Manhattan (https://www.realtor.com/realestatean...6-10251#photo9) and that's a studio in the newer buildings. That price is the price of a newer luxury 750 sq ft 1 bedroom in Long Island City with a view of Manhattan.

My point being - even if you make enough money to buy something for $1.2M after being out of college for awhile and you could afford that in Chicago, Chicago still is attractive from that standpoint. A lot of the newer graduates in their 20s do not necessarily require luxury right away, and Chicago on the luxury market is still cheaper than the majority of big, economic powerhouses.

[the urban politician]

I think this article clearly makes the case to rationally minded people that gentrification is not a major problem for Chicago.

Unfortunately, rational thought is often the enemy of good politics. So certain Aldermen in Avondale and Pilsen are going to continue to defy logic, pander, and fear monger to a certain demographic to get their votes. But the educated classes are going to keep pouring into the city--there is no doubt about that.

[marothisu]

Originally Posted by the urban politician

I think this article clearly makes the case to rationally minded people that gentrification is not a major problem for Chicago.

Unfortunately, rational thought is often the enemy of good politics. So certain Aldermen in Avondale and Pilsen are going to continue to defy logic, pander, and fear monger to a certain demographic to get their votes. But the educated classes are going to keep pouring into the city--there is no doubt about that.

Yep, no matter what I think they will. The funniest part is that they think they are protecting by limiting density too. People who can afford $1M+ will just continue to transform these neighborhoods like currently.

[glowrock]

Originally Posted by the urban politician

I think this article clearly makes the case to rationally minded people that gentrification is not a major problem for Chicago.

Unfortunately, rational thought is often the enemy of good politics. So certain Aldermen in Avondale and Pilsen are going to continue to defy logic, pander, and fear monger to a certain demographic to get their votes. But the educated classes are going to keep pouring into the city--there is no doubt about that.

The problem is two-fold (at least)...

1) Many, but obviously not MOST of the areas that are below average in both income and degree attainment tend to have higher crime rates.

2) Many, but not MOST of those same areas tend to have relatively poor transit access, except by bus, which is obviously going to be very slow given the narrow, congested main thoroughfares throughout much of the city.

Perceived, if not real crime issues as well as relatively poor transit access is a huge part of what divides rich from poor Chicago. Of course this is a gross generalization, but there's much truth to it nonetheless.

One thing is certain, however. The entire area from the South Loop through Chinatown into Hyde Park is going to be turning blue over the next decade or two.

Aaron (Glowrock)

[IrishIllini]

^ As they should.

The condemnation of gentrification is mostly lip service since it’s clear the city doesn’t having a housing or affordability issue. I don’t think the speed of gentrification is an issue though. I actually feel the rate of change makes it politically viable to avoid pushing through legislation regarding rent control and deconversions. It’d be awesome to have north side “issues” city-wide, but we don’t so there’s no immediate political repercussions for sitting on our hands.

[Baronvonellis]

I'm wondering what happened in Little Village? It went from mostly working poor to poverty according to this map. Or are the better off leaving it for other areas?

You can follow the orange line and it's keeping those areas from going into poverty, with good transit access to working class downtown jobs probably.

[the urban politician]

Originally Posted by Baronvonellis

I'm wondering what happened in Little Village? It went from mostly working poor to poverty according to this map. Or are the better off leaving it for other areas?

You can follow the orange line and it's keeping those areas from going into poverty, with good transit access to working class downtown jobs probably.

A case can be made that when a neighborhood goes from 'Green' (not college educated but above average income) to 'Red' (college educated but below average income) it is the early phases of gentrification.

Picture older, working class people making a decent income being replaced by young 20ish College grads in the beginning of their careers with lots of educational debt. They may be in Grad school or may just be doing lower wage work (bartender, waitressing, etc) to make ends meet as they advance their careers. Or they may be doing internships or professional jobs but are at the bottom rung of the ladder so are still making below average incomes.

I was a medical student and then a Resident, and when I was a Resident I was making a below-average income literally until I was 30, even though I was a professional and a University grad. A lot of this is a result of the delayed compensation one gets from obtaining a higher education.

[moorhosj]

Originally Posted by IrishIllini

The condemnation of gentrification is mostly lip service since it’s clear the city doesn’t having a housing or affordability issue.

I think everyone here is missing the forest from the trees. At a macro-level, there isn't an affordability issue in Chicago as shown by citywide rents versus incomes. However, when we start looking at the actual things that impact where people live (transit, crime, schools) we add more dynamics. Transit access and crime have been mentioned in this thread, but education may outweigh each of those concerns (speaking as a parent).

A 25 year-old recent college grad or a doctor on residency has more flexibility than a family of 4 with total household income of $70k, well higher than the city's median of $52.5k. I would be interested in seeing the median rent for a 3 bedroom (a family of 4) apartment located within the boundary of school rated 6 or higher.