Chicago Condo Prices Near a Cliff

The Chicago Tribune reports:

So far the housing slump has been marked by slowing sales. Now there are signs that rapidly falling prices could be on the way.

Earlier this month a Chicago developer sold 150 condominiums in a two-hour lottery by discounting prices about 20 percent from what he would have asked last spring, an indication that industry observers say could signal widespread price reductions here and around the country.

For the first time in his 37 years as a developer, Nicholas S. Gouletas, chairman of Chicago-based American Invsco Corp., held a lottery to sell his condos, in this case 150 moderately priced residences in a 292-unit vintage high-rise at 182 W. Lake St. in the Loop.

Gouletas figures he still could make a 10 percent profit by cutting future carrying costs. He will avoid the expense of 2 1/2 years of mortgage interest payments, marketing, maintenance, insurance and taxes by not struggling to sell condos against the headwinds of a slowing housing market.

"We're responding to a dramatically changed market," said Gouletas, who plans to conduct lotteries to sell about 2,000 more units in nine other projects he is developing in Chicago, Las Vegas, Orlando and Boynton Beach, Fla. "Let's admit it's a buyer's market and what they want is the best price they can get."

For those anxious to assess how far the decelerating housing market will fall, a lottery sale like this could indicate a steeper decline in prices as veterans in an industry replete with optimists head for the exits to salvage profits and avoid big losses. If this becomes a broad trend it would generate a dynamic destined to ripple through the overall economy.

"I haven't heard of a lottery elsewhere, but I've been waiting for them," said Mark Zandi, chief economist for Moody's Economy.com, a research firm in West Chester, Pa. It could signal a change in attitude among sellers who so far have been "holding tough on prices," he added.

"The condo market is quickly unraveling and reeling nationwide, with sales down 15 percent and prices down about 3 percent," Zandi said. Since new housing is still being built he expects sales and prices to continue to fall for a year and to remain flat in 2008.

"As the overall housing correction intensifies, the broader economy will weaken further," Zandi said.

On the bright side, Zandi said, Chicago and other big cities with diversified economies will fare better than smaller ones in a national economy that will continue to grow, albeit weakly.

However, he forecasts that metropolitan Chicago will add only about 35,000 new jobs in 2007, down approximately 25 percent from this year. "In the best of times Chicago doesn't generate a lot of jobs," he said.

Chicago has lost over 53,000 people since 2000.Why would a declining area need all that new square footage? 2008 is the year the baby boomers start retiring.Do you think Chicago is a place baby boomers are going to retire to? If you do someone has an extra condo to sell you.