December 31, 2009
I just ran over an interesting stat from Zillow’s quarterly homeowner confidence survey which showed that an estimated 74% of homes nationwide had lost value in the last 12 months, but only 51% of those homeowners polled thought THEIR home had lost value. Seventy-two percent of Midwest homes had lost value vs. a 51% perception. If we extrapolate that to the luxury market, there are millions of dollars of imaginary money floating around in the minds (and on the listing sheets) of certain Chicago homeowners - about 21% to be exact! How can we tell which ones those 21% are? Well, average days on market (DOM) is a sure giveaway, as would be a slow, trickling policy of tiny price reduction after tiny price reduction.
Don’t chase the market – Even in the Chicago Luxury Market the price is set daily by the demand.
Another survey released by advertising J. Walter Thompson shows that, interestingly, optimisim in The American Dream seems to increase as our paycheck grows. While about 2/3 of Americans with household incomes under $40,000/year believe in “The American Dream” - A full 3/4 of those earning $40,000-$70,000 and 82% of those with an income passing $70,000 a year seem to share that belief! No stats on Chicago’s uber-rich, but I would bet that they’re more optimistic than any of us. Especially those in that 21% who think their house has not declined in value!
December 26, 2009
…So goes the song. If you don’t know what song you can stop reading here…
I was discussing a luxury Chicago investment property (to be used as rental) with a potential investor last week who just didn’t get it. She kept saying — “So what will my rate of return be? Will I make $200K in this goldcoast building in three years? $300K? How much will I make in the first year?”
So I said “Since the stock market is anything but steady and we’re still in a difficult real estate atmosphere, and it’s awfully hard to get credit — IT’LL LIKELY BE A NEGATIVE RETURN IN 2010! I wasn’t trying to be rude, but let’s face the facts – The appreciation party is over for a little while – at least in Chicago’s Goldcoast and Streeterville. But the fundamentals of investment in rental property still apply. You grow rich investing in real estate by taking advantage of three (maybe four) factors: Positive cash flow; tax breaks; capital repayment; and yes — appreciation. I say “three maybe four” because you don’t always get all four each year, and sometimes you only get three in the course of your ownership. But they are very powerful tools and it pays to look at the big picture when investing in luxury real estate for investment.
I’ll address each of the four factors in upcoming posts.
Happy Boxing Day!
December 19, 2009
While speaking some time ago at an international real estate conference in Rome, I reminded myself that I’ve heard Japanese, Italian, French and Spanish right outside my office while doing holiday shopping on Michigan Avenue.
While Chicago has always been a draw for tourists, Chicago is still a haven for luxury (and luxury bargain) shoppers from around the world. I hosted a couple from our network affiliates in Valencia, Spain not long ago, Inmobiliaria Rimontgo - it’s a great website by the way, especially since they feature a number of U. S. listings in four languages!). Using my best high school Spanish I learned that my new friend Susana was spending about 50% what she would spend in Valencia for the same (mostly European!) luxury items – clothing, leather, watches, etc! Ralph Lauren, Prada et al are doing OK these days; Hey, if it boosts our economy, more power to them!
Having lived in the Chicagoland area my entire life, and having spent 15 years downtown every day, most of them on Michigan Avenue, it’s amazing the slow but steady increase in foreigners walking up and down the Mag Mile – a 25% increase this year alone, per the Chicago Office of Tourism! We’ve always known that Michigan Avenue, and especially Oak Street, were the luxury capitals of the Midwest.
Check out Macy’s windows this year – They’re great.
December 13, 2009
….You’re stupid or broke! Strong words, but thank you Marc Roth for exposing the emporer’s new clothes on this one! Your humble author definitely has plans to buy at least some more investment property in 2010 and take advantage of these all time lows and historically low rates (although I’ve got a nagging vacancy in Chicago’s Tri Taylor neighborhood, if anyone is looking for a rental bargain!).
But back to Mr. Roth’s succinct appraisal – “Maybe you’re a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don’t act soon, you will regret it. Here’s why: historically low interest rates.” He goes on to address a number of other issues that can apply to buying real estate in Chicago or just about anywhere else in the country.
Yes the nay-sayers will remind you that it’s very hard to get the best mortgage rate without fantastic credit, or that nasty little extras like property taxes have not gone down, or that 10.3 of us seem to unemployed – but that’s not “big picture” thinking. If you have the means, this is an opportunity that won’t come again for many years. So for those on the sidelines – Carpe Diem!
Read the fantstic article here.
December 4, 2009
When considering luxury real estate, what is the relationship between price and value? There is one, to be sure. There is value in space, insulation, quality of materials, etc. but we have to weigh that somewhat between the other extreme – the “beauty is in the eye of the beholder” (and that beholder may be the buyer, the marketplace, or a combo).
Think about cars – the ultimate depreciating asset. How much value does it lose when you drive it off the lot? Is a beat-up Jag that sells for the same as a new Toyota Corolla an apples to apples value? Is a 2000 SF former luxury home in the suburbs of Detroit that sells for less than studio condo in Chicago any better or worse of a value?
Unless you’re talking about investment property (where you can objectively quantify short term value), value in luxury real estate is a real intangible. And that’s OK. Intangibles like neighborhood atmosphere and lifestyle are real when it comes to real estate. So choose your home wisely.
It reminds me of what an old colleague used to say – You can’t get cancer too cheap.