Despite robust indicators, the luxury market isn’t necessarily what it seems.
Another of Smith’s clients bought a 1964 apartment at The Carlyle and renovated it into their dream home.
Chicagoland now has the highest number of new listings on the market since 2010, according to Midwest Real Estate Data—and with more to sell, homes are going fast (48.1 percent of all listings that closed in May were on the market for less than a month; a jump from April’s 43.2 percent). But the Fed just eased mortgage rates, and the luxury market is deceptively fragile. Big-ticket brokers Caryl Dillon of Baird & Warner and Doug Smith of Berkshire Hathaway KoenigRubloff tell us why.
Luxury real estate seems to be flourishing, but you’ve both mentioned that’s not truly the case. Doug Smith: Despite the higher numbers, there’s still a shortage of great luxury listings, so the good stuff is gone in a minute. And while the sales totals are up, we’re still at about half the rate of a healthy housing market. Caryl Dillon: Supply is actually still down from historic levels despite the rise in new listings. Because of this, demand is leading to rising home prices and interest rates, which is what prompted the Fed to recently ease mortgage rates to 4.14 percent from 4.17 for 30-year loans and 3.22 percent from 3.30 for 15-year mortgages.
Caryl Dillon’s listing at 550 St. Clair Condominiums.
How does that affect the market? DS: First, it’s suppressing good listings. We’re still really low on great luxury properties because prices are still not where they were before 2008. So many owners are holding tight instead of selling. Second, all 13 deals I’ve done this year ended up in bidding wars, and in every multiple-offer situation sellers go for the ease and security of the cash. CD: Cash is king, but it’s a double edged sword. The positives are that it helps buyers score the deal, often for a lower price, and it’s faster and more certain for the seller since it eliminates the risk of the lending process. But it’s also what’s damaging the market at every level in the long-term.
How so? CD: The real estate industry is contingent on fresh buyers coming in and trading up, but that’s almost impossible to do right now without cash. So we’re seeing young buyers with really high incomes getting outmaneuvered on deals because they lack cash.
Doug Smith’s client bought a former church for just $1.5 million and converted it into a unique, airy townhouse.
Do you have any advice for these buyers? DS: You have to think creatively. I just had a client take a dated 2,300-square foot one-bedroom in The Carlyle that no one wanted because it literally hadn’t been touched since the place was built in 1964—but they renovated it into a fabulous two-bedroom. And I had a young couple buy a 4,000-square-foot townhouse in Lakeview that was a church conversion, yet it was light, airy, had a yard, came with four parking spaces, and was only $1.5 million. Those are a lot of amenities for the location and price. Caryl Dillon, Baird & Warner, 737 N. Michigan Ave., 773-991-4422. Doug Smith, Berkshire Hathaway Home Services KoenigRubloff Realty Group, 980 N. Michigan Ave., 773-531-0794