SHOULD I BUY OR RENT A CONDO IN CHICAGO?

Has the market bottomed in Chicago? Is the real estate market in Chicago on a rebound? Where do I see the condo market in Chicago? These are questions asked to Realtors on a day to day basis. Unfortunately we are not fortune tellers but we do know the market quite well and understand its pulse. I am happy to say it does have a pulse, a good one! Here are my thoughts on the market and whether or not you should be a buyer right now or a renter!

My overall feeling of the condo market in Chicago is positive. When I am speaking of the condo market I am speaking of the most popular areas to purchase a condo. Everything from South Loop up north to Edgewater and as far west as Wicker Park and Bucktown and everything in between.

If you are a renter right now you will see that inventory is scarce. More people are renting now than buying and this has pushed prices up. Over the past 10 years we did not see any new construction for apartments. We saw the opposite; condo conversions. This lessened the supply of rental property. Now that the economy has rebounded and those out of college have employment again we are seeing increased demand for renters. We then add into the fact that much of the public were afraid to buy over recent years, or could not obtain financing, and we have a perfect storm for increasing rental prices.

However, since the economy has stabilized so has consumer confidence. We couple this with increasing rent prices and BAM! People want to start buying again! Investors and first time buyers started entering the market (on a more consistent basis) about 2 years ago. Most notably, in the past 6 to 9 months buyers have been coming out of the wood work and eating up all the excess inventory. Renters have finally become fed up with paying high rents and also having the lack of places to choose from. It is one thing to pay high rent prices but it is another to pay high prices but not have any GREAT options. This has forced many to BUY.

Inventory levels of condos in Chicago have dropped to record lows (record since the crash). The challenge is that quality inventory for purchase is actually scarce, at least condos priced properly. If a condo is priced right it will easily sell with in 30 days in today’s market. Versus 3 years ago when exceptionally priced properties still took months to sell.

So what does this mean? Is it a good time to buy? Yes and no! If you know where you want to live and plan to be there for at least 3 full years before you need to put the property on the market, then yes I would say it is a good time to buy. I also recommend to all my buyers to look at their property as a true investment. Instead of asking the question “What can I sell this for in 3 to 5 years” ask the question “What can I rent it for?”  Why do I say rent it?

Prices won’t be skyrocketing anytime soon! While prices have stabilized they won’t be increasing at “normal levels (3 to 5% a year)” for a while. Sure, you may snag a great deal and your return may be great, but the overall market is going to recover slowly. Here is why:

Remember how I said inventory levels were low right now? The reason inventory is low is not because people LOVE their homes and refuse to sell. Inventory is low because many people still don’t want to take a hit on their homes. Many people may be under water or near the edge of the water. What we will see happen is the market start to tick up and then some sellers unload their property because they finally can cover their mortgage or put enough in their pocket where it is worth them selling. This doesn’t mean the market is unhealthy nor does it mean that it is not the right time to buy. It simply means the market is walking slowly in the right direction.

Lets say the market just had leg surgery and is in physical therapy. It is walking again and moving forward…just at a very slow pace and every one in a while it will need to rest for a few minutes. Eventually, however, the market will return to normal. We are on the right path and I’m happy to say we can finally breath again!!

Paul Blackburn is a licensed Illinois Realtor and associate Broker with @ Properties in Chicago. He can be reached via e-mail at Paul@PKBlackburn.com  For more information about purchasing a home in Chicago please visit www.BuyingInChicago.com

WATERVIEW TOWER – 111 W. Wacker Might be Apartments?

Photo by Stephen J. Serio - Crain's Chicago Business

All those who know downtown Chicago know the above building. The site that was once to be a 90 story luxury tower comprised of luxurious residents and the ever so sought after Shangri-la Hotel has been left only partially started. It has been an eyesore in the downtown landscape for more than 2 years. Several attempts to convert the building to a hotel and office space have failed and there is a new developer that is trying to step up to the plate to see if they can turn their plan for the building into Reality.

According to Crain’s Chicago Business, Related Midwest has signed a LOI (Letter of Intent) to enter into a joint venture agreement with the current owners of the property (the original developer’s creditors). Related has a plan for the 111 W. Wacker site that is now “all the rage.” Related would like to turn this site into apartments. The location is fantastic for such a building that it would appear to be a no brainer right? What is holding them back?

Two basic items: Financing and Construction. Converting any existing structure away from its original use can be very expensive. Related may look at the costs to convert this half started structure to apartments and simply walk away. Only research will tell. Secondly, financing can be a concern. While financing has opened up in the past 18 months, and especially so for apartment developers, it is still difficult to come by. Related, however, has an excellent track record and should have no problem obtaining financing. But, we have all heard that before.

What is shocking to me, are the amount of developers moving into apartments. Do you remember the boom times when every developer started building condos? Thousands were coming on-line…well we are seeing something similar here. Crain’s reports that three apartment buildings in the greater downtown area are currently under construction with another 11 in the planning stages. If all 14 projects are able to obtain financing and come to fruition, these buildings would mean that more than 5100 new apartments will hit the market. That is a relatively large number I think. I wonder if the current demand will be sustainable in order to absorb the massive influx of supply.

Since the beginning of 2009 more than 4000 units have alrady hit the market and demand has still outpaced supply. However, what is the tipping point and when will it tip? The big money doesn’t appear to see any end in site. 1 W. Superior place just sold for $320 Million, which equates to $396,000 per unit. The property was last sold in 2007 for $218 Million. Not a bad return in only 4 years huh?