In January 2008, Shorebank’s David Oser was seeing a downturn in Chicago’s economy through 2009 at minimum.
Meanwhile looking at the national picture late last year, Mark Zandi, chief economist at Moodyâ€™s Economy.com, called the real estate recession the gravest since World War II. At that time, Zandi expected home sales to hit bottom in the first half of this year, with prices continuing to fall until early 2009.Â An even more pessimistic economist, David Rosenberg at Merrill Lynch, warned , â€˜â€˜Real estate pricing in general can expect to be in the doldrums through 2012.â€™â€™
At that time, Chicago’s biggest problem was the glut of homes for sale â€” more than 10 monthsâ€™ worth. And about 2 million of those homes (about 2.6 percent) were vacant, with banks or builders trying to get them off their hands. The number of vacant homes is expected to rise further this year because a record number of homes are entering foreclosure.
All real estate is local, which benefits Chicago whenever you listen to the evening news. We are not a San Bernardino, Calif. But although we have been doing better than our urban brethren, we are not immune. A large number of option ARMs will be resetting next year and the year after.
An option ARM mortgage is an adjustable rate mortgage that allows a borrower to pay a minimum monthly payment that is only a small portion of the interest owed, and does not pay down any principal.
Deborah Hagan, consumer protection chief for Illinois Attorney General Lisa Madigan, told me at the time: â€œPay option ARMs will not show problems until 2009 and beyond, because the borrower can keep making the minimum payment.â€
Other sources have told me that the bulk of problems with pay option ARMs will be played out in 2009 and 201o.