Tag Archives: housing prices

“Eager to Move to the City, but Stranded in the Suburbs”

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The New York Times recently profiled a number of suburbanites who would prefer to live in the big city but can’t because of high housing prices:

Like many others in her sociological cohort these days — men and women whose children are grown and who want to trade those unused rooms in Tudor- and Victorian-style houses, as well as the steep suburban property taxes, for the city’s excitement and convenience — Ms. Fomerand finds herself stranded in the suburbs.

These empty-nesters have reaped the benefits of the suburbs: They sent their children to excellent public schools and raised them in safety and comfort, in backyards, playrooms and cul-de-sacs. And their houses have increased nicely in value. Now they would like to find apartments with doormen and elevators so they don’t have to climb stairs, shovel snow and schlep packages. They want a place where they can “age in place,” as the phrase goes. But they are finding that in the past 15 years, prices for such apartments in Manhattan and Brooklyn have risen far more than the values of their suburban homes, so much that they may never make it back to living in the city they always thought they would return to. Instead, they end up staying in their houses, or downsizing to smaller suburban homes or apartments.

To be sure, this is a problem largely felt by the comfortable: New Yorkers who have had the luck and income to live where they choose, who have had the luxury of planning and expecting a certain lifestyle when they grow older. These people could live less expensively in other cities, but often their family, friends and work are here, and they don’t want to leave the area.

“This is one of the most commonly discussed issues,” said Mark A. Nadler, director of Westchester sales for Berkshire Hathaway HomeServices. “People will say, ‘Yes, I’m moving to the city,’ but unless they’re wealthy, they end up resigning themselves to staying in the suburbs.”

Two quick thoughts in reaction to this piece.

  1. Those profiled in this story generally want to move to Manhattan or Brooklyn. Why don’t they consider moving to other parts of New York City? Underlying this could be continued ideas about what areas of New York City are desirable, safe, and more white. It is not really whether they can move to the city at all; it is more about whether they can move to the trendy neighborhoods in which they would prefer to live.
  2. There is only brief mention of affordable housing in a piece that is largely about housing prices. At the same time, this is kind of an odd note to hit; New York City prices are too high because a number of older suburbanites cannot find affordable housing in the city. If you want to talk about housing prices and affordable housing, why not highlight the less wealthy in the region who could truly benefit from such a move to the city (as opposed to doing so as a lifestyle choice)? Too often, stories about affordable housing highlight empty-nesters and downsizers (often alongside young professionals) – probably the sorts of people cities would love to have – rather than consistently examining the lives of lower-class residents.

Why are Chicago families fleeing for cheaper homes in the suburbs?

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The Chicago Tribune leads with the story of a Chicago family who left the city for a townhouse in River Forest:

Megan Keskitalo and her husband, Glenn Eckstein, were enthusiastic city dwellers until the suburbs began calling. First it was Chicago’s crime, then it was worry about school districts, and in the end, it was money that pushed them past the city’s edge.

After a long search, the parents of two young daughters packed up their $1,300-a-month three-bedroom Lincoln Square apartment and in September paid $286,000 for a three-bedroom town house in River Forest.

“We were looking (in the city), but we couldn’t find anything in our price range, which was under $350,000,” Keskitalo said.

But, just how many Chicago families are doing this? The story sticks to general trends without any numbers:

They aren’t the only ones. While experts say Chicago’s housing market is sizzling — home sales were up about 8.1 percent in Chicago through November of this year, says the Illinois Association of Realtors — not everyone can afford to buy in the city. That’s because home prices are up too…

It’s not unusual for millennials and Generation Xers with children to flee to what real estate experts call “surbans” — walkable, amenity-rich suburbs — once they get married, have kids and are looking for less party and more quiet.

The implication of this article is that families like this are being priced out of Chicago: they might stay if they could find housing in their price range in attractive neighborhoods. Yet, there is a lot more going on here:

  1. The article also says real estate prices are on the rise in Chicago. This is generally seen as a good thing – unless it pushes desirable people, like young white families (or recent college graduates or older long-time city residents) out.
  2. There are real issues of affordable housing in Chicago and the whole region. However, there is often disagreement about who such housing should serve. Should it help keep wealthier residents in a community or serve those with much lower levels of income? Chicago is building plenty of high-end condos but there is not much action on the lower end of the market with affordable units in decent neighborhoods.
  3. This family had particular conditions for where they were willing to live: less crime, good schools, cheaper housing. Overall, they wanted a particular quality of life. They could have found cheaper housing in Chicago but without being willing to compromise on these particular issues, they left for the suburbs.
  4. How much of this is tied to the ongoing process of white flight? This family left a trendy Chicago neighborhood for an established wealthy and white suburb: River Forest is roughly 85% white and the median household income is over $113,000. Again, they could have found cheaper housing in the city (#3 above) if they were willing to live in more places that might not have been as white.

The house the Tanner family on Full House could really afford in the Bay Area

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With rumors of a possible Full House remake, Trulia took a look at what the Tanner family could realistically afford:

Like the concept of home itself, the Full House house is largely placeless: Shots of the exterior come from the Lower Pac Heights Victorian at 1709 Broderick, the Painted Ladies of Alamo Square encourage all kinds of assumptions in the credits, and the address the characters use (1882 Girard) is actually wedged up against the 101 in Visitacion Valley. Still, it’s fairly obvious that the Tanner family of today could not so easily swing a Painted Lady, or its stand-in, in this market. Trulia actually ran the numbers and came up with the budget that a morning-show host, a musician, and a rock-paper-scissors champion would need to house the pre-mogul-phase Olsen twins and those other sisters. That number is $1.23M. And you know what? We found them a house!

First, the math:

Trulia used 1709 Broderick as the baseline. They say that the property sold last year for $2.865M. (Which is weird. Per the MLS, the last sale was in 2006, for $1.85M. Property Shark estimates the property’s current value at just over $2.05M—perhaps they were looking at that?) Gah, so much of this is theoretical, anyway: The real 1709 Broderick is only a three-bedroom, and according to these plans, they need at least four.) Anyway, the point is that the Bob Saget hair helmet and its costarring ‘dos need a lower mortgage payment. Here is what Trulia figured, assuming 20 percent down and a 30-year, 4.1 percent fixed-rate mortgage:

Let’s do the math: if Danny (played by Bob Saget) made close to $160,000 a year as the host of the local TV show, Wake Up, San Francisco, Joey made $30,000 doing stand-up gigs around the country, and Uncle Jesse raked in $48,000 as a musician, together, they could only afford a home around $1.23 million or about a $6,000-a-month mortgage.Of the homes around the $1.23M mark on the market right now, this four-bedroom Victorian in the Inner Richmond, just a block and a half from the park, is the only candidate that makes any kind of sense. It just squeezes in under budget at $1.15M, comes with a backyard large enough for a picnic table and the doling of woodwind-scored life lessons, and even has mint-sherbet-shingle synchronicity with this actual Painted Lady. There’s no garage, though, so Uncle Joey would need to live in the storage space.

Two thoughts:

1. This gives some quick insight into the superheated Bay Area housing market. The Tanners are not buying a cheap house with this estimated income yet they are clearly not living in the implied homes from the exterior shots because they could not afford it.

2. This is a common trend among family sitcoms on television: the “normal” family depicted often lives in a home that is realistically way beyond their means. I’ve been looking at some research regarding depictions of homes on TV and this dates back to the nuclear family sitcoms of the 1950s where families tended to live in pretty big houses for their time. Sociologist Juliet Schor argues that this increased level of consumption on television – the middle-class family living in bigger houses and having more stuff, seemingly without having to worry about finances – influenced American consumer patterns as their expectations of “normal” changed.

Wait, they are “practically giving away” “suburban mega-McMansions”?

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Curbed Chicago returns to a listing for a 19,438 square foot suburban home and notes the reduced price:

Demand for suburban McMansions is so low that some owners are practically giving them away. Take for instance this totally redonkulous 19,438 square foot home set on a 10 acre parcel of prime Barrington Hills real estate. It’s gone on and off the market since 2010, when it was originally listed for $10.5 million. Today, it can be had for $4.75 million. Its ask is now less than half of what it was when it first listed four years ago. This McMansion joins many others in the Barrington area to take huge price chops. While the value of most homes in the city have begun to rise again since the 2008 foreclosure crisis, large suburban McMansions continue to feel the hurt. The good news is, if you’ve always wanted to live the 1990s MTV Cribs lifestyle, it can now be had for about half the price.

Large home with lots of features. Yet…

1. The price may have been cut by half but it is still $4.75 million. In fact, this price reduction may not indicate that the owner is ready to give this away but rather that it was overpriced to begin with. I think the piece is trying to imply that the demand for “mega-McMansions” is low so the price was cut but we would need some more evidence before jumping to that conclusion.

2. What exactly is a “mega-McMansion”? The square footage puts this home way out of reach of the normal suburban McMansion owner as does the price. The home may not be pleasing to everyone – I’m thinking the pool room looks most desirable – but it is a scale above McMansions. Again, tying a home like this to the term McMansion is intended to add another layer of criticism that “mansion” just doesn’t add.

Cutoff price for luxury home differs by region

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A new survey suggests the point at which an expensive home becomes a luxury home differs by region:

But the starting point for making such a judgment, the price, seems to vary significantly by region. The price tag for a luxury home is perceived to start at $1 million in the Northeastern, Pacific and mountain states (Montana, Colorado, Utah, et al.). But in the Midwest and South, consumers’ notions of luxury begins at $500,000, according to a survey by Realtor.com.

By the way, sales of those million-dollar homes are doing rather well nationally, but a major player in homebuilding is taking an unexpected turn — one that speaks of the real estate world of long ago.

D.R. Horton Inc. is rolling out a new division that plans to appeal to the bare-bones, nothin’ fancy, first-time buyer. Its Express Homes line, to be built initially in Southern and Western states, will range from $120,000 to $150,000. And what you’ll see at these developments is what you’ll get — there won’t be any upgraded features, no optional finishes.

Horton CEO Donald Tomnitz told the Fort Worth Star-Telegram that the company believes the next segment of the real estate market recovery will be led by entry-level buyers, presumably older ones.

The regional differences in price could be due to a variety of factors. It might be linked to relative income levels. It could be tied to housing inventory – less room might lead to higher prices overall. Or, there might be differences in home styles and expectations. The mountain states seem to stick out in amongst these regions as they often have plenty of space and prices aren’t as high as the Northeast or Pacific Coast. However, perhaps there are plenty of luxury mountain homes, whether they are vacation or resort homes.

It would be interesting to know exactly in which markets D.R. Horton intends to build these cheaper homes. Given the need for affordable housing in many areas of the United States plus the need for more good housing at the bottom end of the market, I imagine there could be a market for such homes. Yet, these homes probably can’t be built everywhere as neighbors in more expensive homes would view cheaper homes as threats to their property values.

Is there an invisible wall keeping $1 million homes east of Western Avenue in Chicago?

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One person in Chicago real estate argues $1 million homes on Chicago’s North Side stay east of Western Avenue.

It’s as if there is an invisible wall running through the middle of Chicago, along Western Avenue all the way south of Montrose. When buyers of million dollar homes specify their search criteria they will often specify that they want to stay east of Western Avenue – or if they specify Ukrainian Village, Bucktown, Wicker Park, Roscoe Village, or St. Ben’s those neighborhoods technically stop at Western Avenue so again you are staying east of Western. And it almost doesn’t matter anyway because over the last 7 years there have been very few homes above $1 MM for sale west of Western anyway as you can see in the map below. It’s pretty dramatic isn’t it?

What could be behind this?

Well, for one you are typically getting further away from public transportation options as you move west. But then again public transportation isn’t really that much more accessible just east of Western than it is just west of Western. If you can’t walk to the el stop in 10 minutes in January you may not feel like you have good access to public transportation regardless of which side of Western you live on.

The other thing that happens as you cross Western Avenue is that you cross into a few lower income census tracts. For example if you look at the heat map from RichBlocksPoorBlocks.com you will see that there are are a few sections of Western Avenue where the median household income drops pretty dramatically as you cross the street. In the map below as the color transitions to darker green median household income goes up and as it transitions to darker red it goes down. From Fullerton to Armitage the median income is $66K on the east side of the street but $35K on the west side of the street. And from Armitage to Bloomingdale it’s $107K vs. $66K. And then from Division to Chicago it’s $67K vs. $42K.

Might this change in the future?

There is no question that eventually the area west of Western will become populated with million dollar plus homes but at that point the disparity between the east and west sides of the street may persist and the east side may just be populated with homes priced well above $1 MM. And, regardless, it looks like that day is still several years into the future. In the meantime, if you are willing to be a pioneer you can definitely find cheaper living just a couple of blocks further west.

My interpretation: neighborhoods west of Western Avenue aren’t trendy or gentrifying yet and have different demographics. In other words, there isn’t demand yet among the creative class or young professionals for nicer housing west of Western.

This could lead to some discussion about the limits of gentrification on Chicago’s north side. Just how much can it expand? What happens when it moves out of hipper neighborhoods and comes up against more lower-class or non-white neighborhoods? Right now, there are some gentrifiers who want to live on that edge between the expensive homes and poorer neighborhoods, places they might consider more gritty or authentic. But, would large numbers of people move further west? And are there enough of them? (This, of course, doesn’t even consider the negative effects of gentrification which include making housing more unaffordable, a problem in a region that needs much more affordable housing, and white residents pushing out non-white residents.)

Cost, adapting to different climates big obstacles to building passive houses in the US

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The New York Times explains passive houses and also describes several obstacles to building more of them:

Proponents of passive building argue that the additional cost (which is estimated at 5 to 20 percent) will come down once construction reaches critical mass and more American manufacturers are on board. And there are a few signs that day may be coming. More than 1,000 architects, builders and consultants have received passive-house training in this country; at least 60 houses or multifamily projects are in the works; and Marvin Windows, a mainstream manufacturer based in Minnesota, recently began making windows that meet passive certification standards…

“What I’m worried about,” he said, “is that the current halo around the passive-house standard will result in its being incorporated into the building code. That would be unfortunate because they are unnecessarily expensive houses, from $300,000 to $500,000 on average, that cost more than will ever be justified by lifetime energy savings or carbon reductions.”

Mr. Holladay favors a more flexible formula called the Pretty Good House, which promotes modest improvements in insulation coupled with renewable energy from solar panels — an approach, he said, that achieves similar energy savings without the additional expense.

To make things more complicated, no two passive houses are likely to be built to exactly the same specifications. Thousands of variables, including the architectural design, the size of the house, how many people will live there, and longitude and latitude, are taken into consideration by the sophisticated software created by Dr. Feist and his Passivhaus Institute in Darmstadt, Germany…

Figuring out how to make the model work in the hot, humid Southeast is a bigger challenge, something the Europeans have not had to deal with. With this in mind, Ms. Klingenberg’s organization is working to develop American standards, taking into account variations in energy use and leakage rates from one climate zone to another; they are expected to be released this fall.

In other words, these are complicated homes and this gets added to the cost. Like other technological innovations, manufacturing and building at a larger scale could soon help make them more accessible and understandable. Additionally, the context matters as well. If standards like building codes and environmental expectations about new houses change plus consumers display more interest in unique, green homes, there may be more and more passive homes in the coming years.

Chicago region home prices back to April 2000 levels

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Data from the S&P/Case-Shiller suggest that Chicago area home prices have returned to levels from early 2000:

Home prices in the Chicago area hit a new post-housing crisis low in March, falling to levels not seen locally since April 2000, according to the widely watched S&P/Case-Shiller home price index, released Tuesday.

With the most recent decline, average  home prices in the Chicago area have fallen 39 percent since they peaked in September 2006, according to the index…

Much of the pricing pressure was on homes that sold for less than $139,182, as the average selling prices for those properties in March fell 3.4 percent from February and were down 9 percent from a year ago and reflects the impact of distressed homes on the market. That puts the pricing environment for lower-priced homes akin to where it was in April 1995…

“We’re beginning to see more stability in the overall numbers,” Blitzer said. “The housing situation in the United States, while certainly not booming, is seeing some stability and possibly some gains going forward. Prices will be the last thing to go up.”

As the article notes, economist Robert Shiller has expressed skepticism that housing prices will rise anytime soon.

While there may be a lot of worry about foreclosures (and Illinois ranks poorly here as well), the issue of depressed housing prices might linger even longer. The wealth that people expected to incur through their house has, on average, been reduced to 2000 levels. Another way to interpret the data above is that on average, people who have bought a home since April 2000 can’t expect to make any money on selling their home now. This could limit people’s abilities to move and purchase homes as well as change how they think about homebuying.

 Zillow just put together a new map of the United States based on what % of homeowners are underwater. The map has more people in the red than one might hope:

The real estate information website Zillow has compiled its data from the first quarter of 2012 to build this map, showing just how much negative equity there is among the homes in many counties. Deep red along the west coast, throughout Florida and in the Great Lakes region serve as a harsh reminder of the chronic troubles these areas are still struggling to control…

In the worst hit counties, more than half of the homes are underwater. Clark County, Nevada – home to Las Vegas – is among those in the unfortunate top 1 percent, with 71 percent of homes underwater. For the vast majority of homes here, the amount owed is more than 200 percent of the value. Clayton County, Georgia, part of metro Atlanta, has an astounding 85 percent of its homes underwater.

This article from 24/7 Wall St. breaks Zillow data down even further to name the ten cities with the highest rates of homes with negative equity. Las Vegas, Reno, and Bakersfield are the worst performing cities in the country, with rates above 60 percent.

While the situation is certainly bad in many, many parts of the country, four-fifths of all counties in America have fewer than 35 percent of their homes underwater, according to the map. But it’s still a widespread problem – and one that seems to be growing. More than 31 percent of all homes in the country are underwater, according to these first quarter 2012 numbers from Zillow, a jump from the 28 percent the company noted a year earlier and the 22 percent the year before that.

It could take a long time to reverse these trends.

Economist Robert Shiller: “we will never in our lifetime see a rebound in these [housing] prices in the suburbs”

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Economist Robert Shiller suggests there is a “real chance” we may have a long way to go before the US housing market recovers:

Many young people are choosing to live at home for a longer period of time instead of buying. Moreover, would-be homebuyers are settling into modern apartments and condominiums, further hindering a housing rally. Shiller says the shift toward renting and city living could mean “that we will never in our lifetime see a rebound in these prices in the suburbs.”

A perpetually sluggish housing market, which Shiller believes has become “more and more political,” might push the country in a “Japan-like slump that will go on for years and years.”

I imagine there are a lot of people who hope Shiller is very wrong. If you watch the full video here, Shiller also suggests there is a chance for a rebound. The discussion is based on this data:

Home prices in January were flat compared to the prior month, suggesting stabilization in the market, but home values fell for the fifth-straight month and prices dropped to their lowest levels since 2003, according to the Standard & Poor’s/Case-Shiller Home Price Index. Housing prices declined 3.8 percent on a year-over-year basis. The index measures the value of home prices in 20 U.S. metropolitan cities.

The key prediction here is that suburban housing prices may not rebound for decades. What are the implications of this? I wonder if this means that we may finally witness a suburban growth plateau, meaning that because people will have more difficulty moving in and out of their houses, suburban growth will have to slow. Of course, this may change after a few years as people adjust to their mortgages and either move out of being underwater or pay enough off to make some money when they sell. But there would still be fewer people looking for homes, leading to less demand for new homes.

 

At least some builders says McMansion may not be dead yet

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Amidst suggestions that McMansions are being “shunned,” McMansions should be subdivided, and homebuyers want denser, walkable communities, at least some builders suggests McMansions may not be dead yet:

Wilson said builders are taking the slow approach toward embracing the younger generation of buyers, who are buying homes and starting families later in life.

“Most builders are still in recovery mode and remain cautious with any revolutionary concepts,” he said. “The one consistent thread is that the buyer continues to shop hard.

“Housing is in a recovery mode, but the consumer is still looking for the best deal he can find.”

Baby boomers set the tone for housing in recent decades, but their influence is starting to wane, Wilson said.

“This is not to say that the McMansion is dead – far from it,” he said, “just that the following generation – the Gen X group – is not as large as the preceding group.”

And most of the millennial or 20-something buyers aren’t yet ready to commit to home ownership – particularly after the decline in values they have witnessed in many areas of the country.

“I’ve heard that some of the new homes in California are getting a lot smaller, but I don’t see how that works around here,” said Jimmy Brownlee, Dallas-Fort Worth regional president for K. Hovnanian Homes. “Our buyers aren’t asking for that. We are trying to open our houses up and give them more light.”

This builder and others (described as “stumped builders” in the headline) sound like they are waiting to see what will happen in the housing market in the near future. Several factors are at play: the state of the economy and the housing industry, regional differences (Dallas vs. California), and generational differences as the Baby Boomers transition to retirement and younger buyers are more skittish.

From this article alone, it sounds like regional differences could play a big role. In places like Kansas City and Texas, house prices never got out of hand in the same way as California, Las Vegas, Florida, and Arizona. Therefore, continuing to build somewhat bigger homes might not be such a stretch, even in a tough housing market.

Also of note in this article is the suggestion that the homes may still be fairly big but they not have all the amenities like granite countertops or a deluxe bathtub. I’ve suggested before that smaller homes may not necessarily be cheaper, possibly due to more upscale furnishings or due to a more desirable urban/denser location.