1/4 Market Snapshot: Absorption and First-Time Condo Buyers in 2009

At the beginning of last year, we observed the number of units sold in 2008 decrease significantly from 2007 presumably due to diminished demand. Then, over the past nine months or so, there have been many headlines touting the fact that year-over-year transaction volume has been skyrocketing. Yet, as most are aware, the real estate market is still generally very soft. If this is confusing to you, you are not alone. Many people have come to us to get clarification as to what their current opportunities truly are given the mixed news. The following is a small attempt at alleviating some of the confusion.

Much of the condo purchasing activity over the past year has been driven by first-time home buyers responding to signals from both government incentives and from historically low interest rates. So, what is the current state of this key market segment?

First-time home buyers often purchase condos in central and northern neighborhoods in Chicago for between $200k and $500k. While the following snapshot is by no means an exhaustive representation of these neighborhoods or of first-time home buyers, it helps to convey the simple truth that there are excellent buying opportunities to be had for those who can commit to owning their condos for at least five years.

One of the simplest means by which the relationship between the supply of and the demand for real estate can be viewed is via what is known as an absorption rate. Absorption is the rate at which the available supply of property (i.e., condos from $200k to $500k, in the neighborhoods below) is absorbed (purchased) by buyers.

Absorption for Condos $200k to $500k

Neighborhood	Active Currently	Sold in 2009	Absorption 2009 (months)	Absorption 2008 (months)	% Change in Absorption 2008-2009
Lakeview	600	841	8.6	5.7	51%
Lincoln Park	336	451	8.9	6.8	31%
Lincoln Square	134	196	8.2	6.0	37%
Near North Side	1036	1167	10.7	9.6	11%
Loop	352	421	10.0	7.7	31%
Near South Side	609	445	16.4	9.7	69%

Generally, the housing market is considered stable when there is 5-6 months of supply on the market.  In other words, homes take about 5-6 months to sell when prices are stable. The longer the projected absorption time, the greater the excess supply and/or the lack of demand. Accordingly, further prices declines can be expected for many condos priced $200k-$500k in the neighborhoods above during 2010. Bear in mind that these are crude aggregates as there are significant differences between blocks and between buildings.

Nonetheless, it remains a great time for many renters to make the leap to home/condo ownership, provided they can commit to owning these assets for five or more years and/or are otherwise comfortable with the short-term risks. By the same token, there are also excellent opportunities for investors who are prepared to manage many of the same short-term economic risks.

To learn more about potential opportunities that current market conditions could afford you, contact Paul Vranas at (312) 255-0505 or paul@vranasproperties.com.

Aaron Bluestone
Vranas Properties
Trusted Agents. Professional Service.

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