The sudden death of the American condo

[iheartthed]

Originally Posted by Steely Dan

Huh?

There is PLENTY of room to build in Chicago.

The last estimate I read was 30,000 vacant lots in the city.

Chicago is still a rustbelt city in a way that NYC just fundamentally isn't anymore. It may not be quite as rusty as Detroit or Cleveland, but it's still a far cry from NYC.


And Chicago never stopped building new housing, it has just built far less than New York because there is less demand for it here.

Chicago ran out of greenfield lots for development. That happened to every prewar city.

[mhays]

It's far cheaper to build in Chicago -- cheaper land, easier process (my understanding), cheaper logistics, probably lower wages.

The balance of supply and demand is important, but cost is the #1 factor.

[Steely Dan]

Originally Posted by mhays

It's far cheaper to build in Chicago -- cheaper land, easier process (my understanding), cheaper logistics, probably lower wages.

The balance of supply and demand is important, but cost is the #1 factor.

Well of course.

But I heartthed's point seems to be that Chicago should have simply just built 10x more housing than it did; then it's population wouldn't have declined.

The theoretical math on that is obviously true, but back here in reality, you still need actual human bodies to live in those housing units if you want your population to increase.

"Build it and they will come" is just a cheesy line from an old baseball movie, not some automatic rule of the housing market, especially not in the rustbelt.

[Gantz]

I think the slowdown in condo construction is not limited to Chicago.
Most of it has to be interest rate driven nationwide. No idea how people can afford to take out mortgages at these rates. Are they hoping to refinance down the line as they think rates come down? If so, thats very risky, since the 10-year is still just barely below current rates. Some of these people can be underwater in a few years if interest rates only go down 25-50 basis points.

Between office space demand slumping due to WFH and high interest/mortgage/construction loan financing rates, the real estate industry is going to be in a big slump Imo.

[twister244]

Originally Posted by Gantz

I think the slowdown in condo construction is not limited to Chicago.
Most of it has to be interest rate driven nationwide. No idea how people can afford to take out mortgages at these rates. Are they hoping to refinance down the line as they think rates come down? If so, thats very risky, since the 10-year is still just barely below current rates. Some of these people can be underwater in a few years if interest rates only go down 25-50 basis points.

Between office space demand slumping due to WFH and high interest/mortgage/construction loan financing rates, the real estate industry is going to be in a big slump Imo.

I agree with this.... There's a condo in Streeterville that I absolutely love that's up for sale. It's actually $80k less than what I paid for my condo I have now in Logan Square. But.... Even with the lower price point, the condo is still $600/month HIGHER than what I'm paying now. Some of that is higher HOAs since it's a highrise, but it under 2020/2021 mortgage rates, it would have been a couple hundred/month less than what my payments are now.

People who don't own don't realize how much of an impact going from 3/3.5% to 7-8% has had on the market. Any person right now who locked in prior to inflation won't let go, unless they absolutely have to. Unless you are paying cash, it's going to be a slow attrition of housing into the market through natural forces until rates go back down.

I'm sure there's other factors leading to a decrease in condo construction, but I see that as a major factor.

[Steely Dan]

^ yep.

We're 7 years in on a 30 year fixed @ 3.4% for our 3-flat condo.


NEVER.

GOING.

ANYWHERE.

[SIGSEGV]

Yeah, I'm loving my taxpayer subsidized 3.125% interest rate...

[Steely Dan]

Originally Posted by Gantz

I think the slowdown in condo construction is not limited to Chicago.

It's definitely not limited to just Chicago.

From a post on page 2 of this thread:

The sudden death of the American condo
APRIL 9, 2024 BY SALIM FURTH

Condos are disappearing. They persist now mainly in pre-2010 buildings. Among multifamily homes built in the 2020s, just 1 in 25 is owner-occupied. What happened?

Full article: https://marketurbanism.com/2024/04/0...-time-passing/

Cool national maps of the collapse in the link.


In fact, probably not a bad idea to give the thread a new title to alleviate the continued confusion of this being a uniquely Chicago issue

[Crawford]

I don't think interest rates have much impact on the higher-end market, which tends to predominate in city cores. Those are frequently cash purchases. I believe something like 70% of purchases in Manhattan are cash. Also, coops are frequently cash-only (in practice, if not officially), whether high- or low-end.

But yeah, obviously higher interest rates incentivizes existing owners to stay, given the insanely low mortgage rates of a few years ago, and drives up costs for the people who absolutely have to move.

[IrishIllini]

Originally Posted by Crawford

I don't think interest rates have much impact on the higher-end market, which tends to predominate in city cores. Those are frequently cash purchases. I believe something like 70% of purchases in Manhattan are cash. Also, coops are frequently cash-only (in practice, if not officially), whether high- or low-end.

But yeah, obviously higher interest rates incentivizes existing owners to stay, given the insanely low mortgage rates of a few years ago, and drives up costs for the people who absolutely have to move.

Can we make sweeping generalizations based on niche submarkets in Manhattan?

[Crawford]

Originally Posted by IrishIllini

Can we make sweeping generalizations based on niche submarkets in Manhattan?

Manhattan isn't a niche submarket. It has 1.7 million people. Manhattan, overall, has nearly 70% cash buyers.

Nationally, around 1/3 of purchases are cash. Cash purchases are extremely common, especially among higher income households. And obviously existing homeowners of any income band can be cash buyers if they can use their sale proceeds to make their purchase.

[Gantz]

Originally Posted by Crawford

I don't think interest rates have much impact on the higher-end market, which tends to predominate in city cores. Those are frequently cash purchases. I believe something like 70% of purchases in Manhattan are cash. Also, coops are frequently cash-only (in practice, if not officially), whether high- or low-end.

But yeah, obviously higher interest rates incentivizes existing owners to stay, given the insanely low mortgage rates of a few years ago, and drives up costs for the people who absolutely have to move.

Its that high all-cash %, because the mortgage buyer demand slumped. Normally, all cash Manhattan buyers are around 50%-ish.
You can see a graph in this link:
https://www.axios.com/2024/01/03/cas...an-record-high

[mhays]

In most places, interest rates have a big effect.

Development costs are far higher due to high commercial loan rates. A few additional percent over four years is a big deal. Commercial rates also hit supply chains on the construction side, contributing to higher construction costs. Further, underwriting standards are too high, with too much equity required, so developers have less capacity and many can't get financing at all.

As for the home sale market, most buildings mix some penthouses with large numbers of cheaper units. The typical buyers are just randos (like me) making normal incomes, and most of use need financing. (Sorry about your rates in the threes, guys...2.85% here.)

The Seattle market is very different from NYC. Units below about $700k have tended to do well but the million-plus units have historically gone more slowly. More recently, we've also been hit by the reduced need to live near work and by limits on personal funds leaving China. That's despite relatively little new supply due to some of the nation's worst condo liability laws.

[mousquet]

Originally Posted by mhays

In most places, interest rates have a big effect.

They went up over here in France, which has caused the real-estate market to go depressed.
People have been struggling to get loans over the past couple of years, so the amount of real-estate deals has dramatically collapsed.
When they can't get any funding to buy their own condo, they're driven to the rental market, that's very tense in Paris at the moment.

I didn't see too many projects canceled where I am. Only one or 2 bit the dust out of a dozen in my district, to my knowledge.
But of course, it would be a relief to everybody if the market could go easier to young couples trying to purchase an apartment for a 1st time.

[mrnyc]

Originally Posted by Crawford

I don't think interest rates have much impact on the higher-end market, which tends to predominate in city cores. Those are frequently cash purchases. I believe something like 70% of purchases in Manhattan are cash. Also, coops are frequently cash-only (in practice, if not officially), whether high- or low-end.

But yeah, obviously higher interest rates incentivizes existing owners to stay, given the insanely low mortgage rates of a few years ago, and drives up costs for the people who absolutely have to move.

oh you believe it?

you mean you googled it.

where are your links?

[Steely Dan]

Originally Posted by Crawford

Nationally, around 1/3 of purchases are cash.

For real?

Maybe it's a "stage of life" thing, but I don't know any middle-aged peers (family, friends, neighbors, co-workers) who paid cash for their homes.

The VAST majority of regular people do not have multiple hundreds of thousands of dollars of liquid capital on hand to do that.

Is that stat perhaps being skewed by corporate/institutional buyers?

[DCReid]

Originally Posted by Steely Dan

Sounds like the decline of condos in Chicago is part of a larger national trend.



Full article: https://marketurbanism.com/2024/04/0...-time-passing/

Cool national maps of the collapse in the link.

And even though I see news articles of new very expensive high rise and resort -like condos announced in south Florida, Florida's older condos are facing another issue due to the insurance issue and the new reserve requirements because of the collapse of Surfside condo a few years ago:

Condo owners are beginning to face the reality of a law passed in 2022 that requires structural integrity studies and compels condo associations to set aside money for repairs.

The new rules are bringing massive repair bills and threatening the viability of maintaining some older buildings, which has portended a wave of buyouts from developers. But many condo owners and associations have yet to confront that reality...Condo owners at some properties have committed to repairs that can cost more than $100K per unit...More than 72% of existing Miami condos listed for more than $2M went unsold from September 2023 through February 2024 and were pulled from the market after an average of 111 days, according to an analysis of MLS data from Agent Story, a website that provides reviews of brokers. Condos priced between $1M and $2M fared slightly better, but 62% remained unsold before being pulled off the market after an average of 90 days...

https://www.bisnow.com/south-florida...-condos-123810

[3rd&Brown]

Originally Posted by Crawford

I don't think interest rates have much impact on the higher-end market, which tends to predominate in city cores. Those are frequently cash purchases. I believe something like 70% of purchases in Manhattan are cash. Also, coops are frequently cash-only (in practice, if not officially), whether high- or low-end.

But yeah, obviously higher interest rates incentivizes existing owners to stay, given the insanely low mortgage rates of a few years ago, and drives up costs for the people who absolutely have to move.

A lot of wealthier people pay "cash" for properties to be more competitive as bidder or to simplify the closing process (getting a mortgage is super invasive these days, in terms of the amount of documentation that is required) but then take debt out against the property once they own it. It's a classic real estate move. Even high net worth people aren't going to take that much capital out of their portfolios permanently.

[3rd&Brown]

Originally Posted by DCReid

And even though I see news articles of new very expensive high rise and resort -like condos announced in south Florida, Florida's older condos are facing another issue due to the insurance issue and the new reserve requirements because of the collapse of Surfside condo a few years ago:

Condo owners are beginning to face the reality of a law passed in 2022 that requires structural integrity studies and compels condo associations to set aside money for repairs.

The new rules are bringing massive repair bills and threatening the viability of maintaining some older buildings, which has portended a wave of buyouts from developers. But many condo owners and associations have yet to confront that reality...Condo owners at some properties have committed to repairs that can cost more than $100K per unit...More than 72% of existing Miami condos listed for more than $2M went unsold from September 2023 through February 2024 and were pulled from the market after an average of 111 days, according to an analysis of MLS data from Agent Story, a website that provides reviews of brokers. Condos priced between $1M and $2M fared slightly better, but 62% remained unsold before being pulled off the market after an average of 90 days...

https://www.bisnow.com/south-florida...-condos-123810

But the market in Florida according to talking heads is totally okay. Got it.