In Chicago 'Bloodbath' ended first condomania

Crain's Chicago Business reports in an article titled ''Bloodbath' ended first condomania'

Sara Benson acquired her first condominium in the city at the peak of the boom, back when speculators traded condos like stocks and the value of some units doubled in as little as a year. It turned out, she paid too much: $24,000.

That became clear when she sold the one-bedroom walkup in Buena Park for $13,000 four years later, after the Chicago condo market crashed. It was 1983, a good year for Michael Jackson, whose album "Thriller" was selling a million copies a week, but a bad year for the Chicago condo market, which was suffering from a glut of unsold units and soaring interest rates.

"It was a bloodbath," recalls Ms. Benson, a residential broker who was working as a property appraiser at the time. "So many developers got caught up in the excitement and frenzy of the market."

The article continues and compares the 1970's condo mania to today's market:

More than a quarter-century after the city's first condo craze — or "condomania," as it was called at the time — Chicago is several years into another condo boom fueled by low interest rates, the growing appeal of city living and plenty of speculative activity. The skeptics see a bubble poised to burst, while market boosters say Chicago exhibits none of the speculative excesses of other markets, like South Florida, Las Vegas and Southern California.

Yet the early 1980s show that the Chicago condo market is not immune to a crash.

To be sure, conditions were different back then: Rates on the average 30-year fixed-rate mortgage hit 18% at one point, vs. a mild 6.5% today. Rates are rising again, but no one expects a reprise of the '80s.

In one respect, however, the market is riskier today. Most developers back then were converting apartments into condos, adding little to the overall supply of housing stock. Today, condo developers mostly are building new high-rises, adding more than 26,000 units, excluding conversions, to the downtown market since 2000, according to Chicago-based real estate consulting firm Appraisal Research Counselors. Another 8,600 units are on the drawing board for this year alone (Crain's, May 15).

Back on January 2, 2006 I wrote "However, condos especially in the city itself are likely to fall by over 20% in real dollars within 3 years." The condo market in Chicago is bubblicious and prices are likely to fall by over 30% in real dollars from peak prices real dollar prices.