Rising prices and thin sales volumes spell danger

by Joe Zekas on 5/28/14

If you’ve been an observer of Chicago’s real estate cycles for an appreciable amount of time, you’ve seen the current script played out repeatedly. Call it Apocalypse Tomorrow: it begins as an action adventure movie and frequently ends as a horror show.

The protagonists are affluent, young, would-be home buyers who can’t afford the home of their dreams in a top-tier or second-tier neighborhood buy into a tier-three neighborhood that they’re willing to believe is changing for the better. They’re enabled by unseasoned developers who build a few cosmetically attractive homes in those third-tier neighborhoods and price them well above surrounding homes but below the price of comparable homes in better neighborhoods. A few sales establish market prices that result in more building.

The market eventually cools off a bit, prices retreat temporarily in established neighborhoods and the third-tier neighborhood buyers find that they’re unable to resell without taking a huge haircut.

The combination of thin sales volumes and rising prices can result in price volatility with equally lethal effects in solid neighborhoods. More than one real estate cycle has taught that lesson even to Lincoln Park buyers.

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{ 4 comments… read them below or add one }

Alan May 28, 2014 at 1:30 PM

I agree with your the cycle as you have defined it. Which “third tier” neighborhoods are you referring to? Any specific developments that you can point to?

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tone May 29, 2014 at 10:32 AM

Good question Alan.

Reply

Alan May 29, 2014 at 1:35 PM

Joe?

Reply

Joe Zekas May 29, 2014 at 7:52 PM

I’m ducking your questions, Alan. Or to phrase it another way, chickening out on answering them.

Reply

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