Matt Garrison is one of my go-to guys when I want a completely candid take on what’s happening in the lakefront Chicago market. Yesterday I asked Matt for an update and he sent the following:
I don’t think anyone would dispute that sales velocity has fallen off a cliff since May 1st. Without citing any specific data other than my own sense of what is going on, it feels as slow or slower than 2009. There are plenty of sources for more quantitative data, and I am sure they won’t be pretty. This will almost certainly continue into Q3 and Q4 and beyond. The YOY numbers will start to look bleak in Q4 vs. the good velocity in Q4 2009.
More sellers are capitulating. There are two types who do this: those who have to go the distressed route and those who lose a portion of their equity or bring money to the closing. Obviously the effects of them doing this are very negative to the third type of seller, who doesn’t want to accept 2010 pricing. The extend and pretend seller still makes up a large portion of the inventory, maybe as much as 50%.
I would say 25% of listing appointments agree that our pricing is accurate and choose not to list with anyone because they are not sellers at market pricing. Some will get motivated and price right, some will get distressed, and some simply won’t sell.
The residual effect of taking losses is interesting. Obviously distressed sellers will not be buying anytime soon. And the sellers that get out of their properties with losses but purchasing power intact are not in a hurry to buy. I have had several sellers who are extremely well qualified to buy opt to rent and take a wait and see approach.
The non-core locations are faring the worst, with multiple projects that never should have been built selling at or below replacement cost and demand down to almost nothing. Really core locations are the strongest, with some of them seeming to hold 2004 type pricing levels.
Will the market stabilize in 2-3 years? I don’t know: probably. But I am almost certain it won’t stabilize this year.
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