Who got more attention in the last two days: Our former Governor Blagojevich or the 2009 Regional Economic Forecast at the Palmer House Hilton which was sponsored by the Real Associations of Chicagoland?
THE ANSWER: Both.
I want to focus on what was said at the meeting where Lawrence Yun, economist with the National Association of Realtors and other experts who told it like it is. Here's my take on what was discussed:
- "This is the first recession to be triggered by a suffering labor market and not gross domestic product" - Michael Miller, Associate Professor of economics at DePaul University.
James Glassman, Managing Director at JPMorgan Securities, Inc. - believes the credit crunch is from a combination of storms. He also stated that we have a global economic crisis - therefore it wasn't just the U.S. housing industry to blame.
Michael Miller's prediction: He expects the job loss numbers to increase before the nation hits the bottom of the crisis.
Gail Lissner, Vice President of Appraisal Reserach Counselors stated that in "2005, the Chicago and suburban and condo market was producing record deliveries. Now only 60 percent of downtown deliveries are under contract." She also mentioned the fact that there were half as many condo transactions in 2008 then there were in 2005.
- "I don't see how the economy can recover without the housing market" - Lawrence Yun
Let me just interrupt right here to put this thought out: It has been stated amongst local Realtors, economicsts, bankers that the condo market in Chicago will drop 20% in pricing this year. FACT, FICTION or?
Why would the condominium market take such a negative hit now? Condominiums have been appreciating because of contracts set in stone from 2006 and are just closing now upon completion. Condominiums that began building in late 2007 or conversions have been at a null because of supply and demand as well as buying a two flat as a short sale is a better investment in the long run and so condominiums are loosing out to short sales as well.
FACT: Residential construction in the Chicago area declined 50% in both the Single Family and Attached Home sectors in 2008. - City of Chicago Building Department as well as an industry report.
Predictions are if you can hold out then do so. Consider doing some updating to your home, if it is within your budget. This is a great time for those who want to negotiate with builders, contractors as business is slow for them.
IN AGREEMENT WITH THESE TWO PREDICTIONS:
- THOSE WHO ARE LOOKING TO BUY, SHOULD DO SO NOW. This isn't propaganda where we will be dropping leaflets from the sky people. This is serious and one should plan for the future. It isn't about a scame, a game that these economists are stating but the fact is that you wait, you may not qualify because housing prices will be going up and that's the prediction to the economists, professionals that spoke to us.
- IN 2015, HOMOES WILL BE WORTH TWICE AS MUCH AS THEY ARE TODAY. You can say the proof is in the pudding. Back when we had the oil crisis, I remember my brother asking me if we should invest $5 a share for Chrysler stock?! Same scenario, except you must remember this is the first time we have suffered from financial/labor crisis.
- Dennis Torres, Director of Real Estate Operations at Pepperdine University's School of Business and Management predicts that by 2018, "a home will be worth three times as much as in 2008".
- "Durable goods, real estate, cars, machinery and other essentials will increase in value considerably more than the cost of living over the next several years, while salaries will fail to rise, which will make it incredibly difficult for a person to buy a home in 2015." - Dennis Torres, Director of Real Estate Operations at Pepperdine University's School of Business and Management.
I am in agreement with Dennis Torres' suggestion to homeowners: "IF YOU DO NOT HAVE TO SELL YOUR HOME, HANG ON TO IT." He hit the nail on the head! People, if you can hold on to your homes, be accidental landlords if you must, but hold on to them for the next couple of years, then do so.
BUYER'S MARKET: I'm in agreement with this prediction as well: They are saying that it will be a buyer's market until 2015. I have predicted that it we would be back on course in 2016. So, I was close to their prediction.
Understand that predictions are based upon previous markets, the depression, the oil crisis, etc., and the time of return or as my Dad calls it "the bounce back". I asked my Dad, who was the President of the GRAR as well as the State of Michigan and whose business was focused on sales, appraising and development, how long it would be until we saw a turn around. His prediction: 7 years. What year are we in? 2009. Some of this is from the gut, understanding how the waves of the economy are flowing, history, and it's interesting to see that the Midwest is showing some stability better then the East or West Coasts of the U.S.
Torres feels that "as of 2009, I feel the real estate market will continue to decline, then in 2010 stanate for the next several years, before improving due to a growing economy and rampant inflation."
Those are the thoughts, predictions from the men and women who have the experience, background in understanding our economy at this forecast meeting. I'm in agreement with most but I feel that we will continue to experience a decline especially in the condominium field big time for the next 12 - 16 months. I also believe that investment properties wouldn't be in such a decline if (a) the 2-4 unit properties were appraised for their current rent based upon two years of leases; (b) if the sellers of these investment properties had one or more of the 2-3 units rented out, with a good market rent. I honestly believe that the 2-4 units are a result of ecnomy and lack of good rental income. I also believe that the upper bracket homes will sell, if the quality if their but the problem will be the financing. Having the monies to underwrite these properties.
Another bit of information for those of you who are thinking about selling: If you have a home that is smaller in size but well maintained, recently updated, that is what the consumer is looking for. I read an article in Professional Home Builder as well as Better Homes and Gardens where this insight was brought out. That the consumers are cutting back on lavish big sized homes and are back to reality, to the basics.
I hope this helps guide you in the right direction. Look for my forums coming soon:
How to renovate your present home and stay put!
Reinventing your retirement
Short Sales: Are they the best way to go?
I feel better knowing that my gut feelings, observations, understanding of the previous markets was pretty much founded by the men and women at this meeting.
This information is provided to you by Barb Van Stensel with a commitment to support the Chicago, IL community.
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