Blog : Illinois

Market Cycles
David Curry

Market Cycles

It pains me to write about the market on this blog. During the earlier times of these writings, I could write and write and only some buyers and sellers would pay attention. Now I write and write and other agents pull my insights and commentary and adopt them as their own. My selfishness objects to this. But there’s no way to combat it, unfortunately, aside from a fatal paywall. No, this information might be my proprietary blend, formulated only after decades at this helm and distilled by the fire of many market cycles, but once I write it it’s free. Other agents who find their market insights from this blog, you’re welcome for what follows.

To understand this market, you must understand the macro functions of a generic real estate market. First and foremost to that understanding is the awareness that people, en masse, do not buy or sell based on personal circumstances, or their personal economy. They buy based on confidence and they sell based on fear. There is nothing else. In 2008 a homebuyer on Geneva Lake bought a lakefront house on the exact day the market topped. In 2011 he sold it on the exact day the market bottomed. His personal finances between those dates changed very little. The only thing that changed was his perception of the market, and that perception started with confidence and ended in fear. All other commentary related to the movement of markets is nuance.

This is why corn-field subdivisions in 2006 sold with violent fervor and then died with a silent dirge in 2012. This is why those same cornfields are selling now at a furious pace, for prices that far exceed any market top of 2007. $500k for a cornfield ranch? Sure! Why does this buyer buy for $500k now when she could have bought for $340k in 2012? Has her income increased commensurate? We know that interest rates have risen since then, so that isn’t the catalyst. We know that the job market in greater Walworth County isn’t welcoming Google or Facebook anytime soon. So why the rush now in the heat of competition when there was only silence back when value was literally everywhere? Confidence and fear.

Now that you understand this, consider the 2019 buyer. This is not a uniform buyer, by the way. There are three sorts of buyers in the market this morning, the morning of my birthday. Our first buyer is the scared buyer. This is the buyer who was afraid to buy in 2006 because the market was too hot. He was afraid to buy in 2012 because the market was too cold. And he’s afraid to buy now because he feels that it is, once again, too hot. This is what market cycles do, they go from hot to cold, repeatedly, with various stops along the way. This buyer doesn’t like 2019. He wishes it was 2014. He wished, in 2014, that it was 2012. In 2012, he was terrified. This is a buyer who fails to understand real estate and its purpose, and instead wishes to time the market with the hope of immediate and lasting gains. This is the buyer who wouldn’t buy Apple at $8 because IBM.

The other buyer is the feverish buyer. This is the frantic buyer. The buyer who is so whipped up by her own confidence and by the confidence of her cheerleading agent that she has no choice but to buy. Bad house in a bad location for a bad price? SOLD! This buyer can’t wait. Won’t wait. To suggest that better inventory might be coming next week is to suggest pause, and pause will not be tolerated. This buyer is motivated by confidence, by personal economy, by haste. I want to hate this buyer, because this generally isn’t the smart of sophisticated buyer that chooses to work with me, but in reality, I understand this buyer. This is a buyer that knows summer is coming, and that buyer wants to spend it in a better place. That buyer wants this scene so badly she’s willing to rush into it to secure it. This buyer skews markets. This buyer prints albatrosses. This buyer is what every open-house holding agent prays for. Walk this way, young lady.

And then there is the other sort of 2019 buyer. This buyer understands that the market is hot. He understands that prices are higher than they were two years ago. He understands that 2012 was a good time to buy, but he wasn’t in the market then. But this is a buyer who is neither terrified of the future, nor will he sloppily rush to secure it. This is a buyer who understands, even in this cycle of low inventory and high competition, that value still exists. It is still out there. It is present, even this morning, with limited inventory and incredible buyer activity. There are cracks and there are properties that find their way into them. Deals will be had, or maybe they won’t.

To each of these buyers I would suggest the market is indeed hot. Not as hot as the fanatic buyer would suggest and not as dangerous as the regretful buyer would insist. This market is hot. Undoubtedly hot. To buy in 2019 is to entertain some sort of premium. The cycle is getting old, but is it spent? I do not think it is. There is a market trend that is presenting routinely and blatantly, and that trend has everything to do with the state of Illinois. Not the State, mind you, but the state. The pending income tax and constant property tax increases are not a good thing for our market. To suggest that they are is insane. But is a diminished Illinois bad for Lake Geneva? Is an Illinois that has yet to see a tax increase that it isn’t willing to consider a fatal prospect for the vacation home market that lives and dies with the residents of this great state? The answer, it seems, is no.

Would I prefer Illinois to grow and expand and usher in an era of prosperity, free of the shackles of politicians who find office by fostering resentment between classes? Of course. That would be ideal. But in spite of the current tax climate, Lake Geneva is thriving. Why? Well, it’s because of that negative climate. See, times were, a junior associate might live in Lakeview with his new bride. They’d enjoy their time there, but as they matured and as their incomes grew, they’d look for the upgrade. They’d look to Winnetka, maybe, or Lincoln Park. They’d look to move from that condo and to a single family. Or they’d look to find a bigger residence on a higher floor. Something better. Then, after they made that move and their personal economies continued to grow, they’d move again. A few years later. Or maybe a decade later, still, they’d move. Upward and onward, to something better. In case you weren’t aware, in real estate, something better is generally more expensive. The cycle would continue until the time came to downsize, and retire to a winter spent in Naples.

Today, I see the cycle changing. Buyers see the illiquid suburban manse and they want nothing to do with it. They see the pending property tax burden and they do not want to embrace it. But they are still growing financially and they still long for something else. So instead of purchasing that next house, that bigger condominium, that adjacent unit, they’re taking their housing dollars out of state. They’re still earning at a fabulous clip, but they’re not wanting to reinvest into the Illinois problem. Why go long in illiquid real estate that may or may not be taxed at a rapidly accelerating rate? That’s the question, and they’re answering it by bringing those unspent housing dollars to Lake Geneva. They’re investing them in market where the return will likely be financial but will also be personal. They’re investing in their families. In themselves. They’re keeping their housing footprint reasonable in Illinois and they’re expanding it here. Want to know why our market is thriving in spite of Illinois? This is why.

I expect the trend to continue into the foreseeable future. The cycle will ultimately pause, and at that point we’ll re-ignite the cycle where fear breeds fear, and the weaker hands will be flushed. But until then, and again after that ultimate, some-day-softening what happens? Lake Geneva thrives.

PS. Do I think full time residents are going to leave Illinois for Wisconsin? No, I don’t. If you own a house in Crystal Lake and you pay $10k in property taxes on your $300k home, let’s suppose you rightfully hate that and want to move to Wisconsin. In Lake Geneva, that $300k home will have a $7k tax bill. Your kids are in soccer and you commute to Schaumburg every day for work. Will you uproot your family and your life to save $3k per year? The answer should be, and will be, no. If you said yes, then you’re not thinking clearly.

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David Curry

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My wife has adopted a particular driving habit. No, not the way her car crowds mine in the garage. They just want to be together, she says.  And not the way her foot lacks the ability to slowly and responsibly adjust the pressure to the gas pedal. It’s a road trip habit, but really whenever we’re driving, anywhere. A license plate from Manitoba. She spots them from miles away. Then she accelerates (see earlier note) to catch a glimpse of the truck, or car. Does she know the driver? She must, or so she thinks. She’ll wait outside restaurants for the plate owners to finish their meals so she can find out if, by some chance, she knows them.

The truck had a Manitoba license plate. It was southbound, as most plates from Manitoba tend to be, on that wide interstate. Traffic was hustling, but alternating between the hustle and a crawl with a complete stop thrown in now and then for good measure. The plate was affixed to a truck, a big truck, but not a semi. It was a dually, not unlike the truck my friend Eric’s dad drove in the early 1990s, but this one was newer, bigger, with dirt dried onto the paint around the wheels, up the tailgate, on the hood. The driver was going somewhere in a hurry. I sped up to see if I recognized the driver. I didn’t.

A horse trailer had 11 stickers of horses on the back of it. Five on one door and six on the other. The sticker horses were bucking, jumping, kicking.  11. I figured there must have been 11 horses in the horse trailer. Who would put 11 stickers on if there were only two horses in the trailer? The number seemed arbitrary, which means it must have been specific. The trailer was from Oklahoma, presumably as was the truck towing it. I couldn’t catch a glimpse. Just as I intended to accelerate the traffic turned to a crawl. All four lanes in either direction, crawling on a road meant for supreme and uninterrupted speed.

Feet on the dash. This isn’t something I’ve ever done. I’m too tall, I think. I did sit in the passenger seat once with my feet out the window, but that was when driving to a new fishing spot from an old fishing spot. My waders leaked something awful.  My socks were tucked into the outside of the backseat windows, flapping in the wind to dry. My feet outside the front window felt rare, like some sort of treat, born of necessity but also pleasant and curious.  After the interstate drive, I felt less special, less unique. Everyone drives with their feet on the dash, even if the truly brave (like me) go fully out the window.

The plates were mostly from Illinois. Trucks, cars, SUVs, campers even. Lots of trucks towing things. Bikes, both the motorized and regular kind. Fishing boats, some small, mostly smaller. But also four wheelers, loaded with mud, empty gas cans strapped to the front of the trailer. The various automobiles whipped past me, as I screeched along in the left lane, my rear calipers recently having decided that they had had enough of the squeezing and releasing.

But where were all these people going? I knew were I was going, but that was the only puzzle I could solve. Some answers were easy to guess. Arlington Lexus, the license plate holder said. Perhaps that driver with his wife blabbing in the front seat and his children glued to their individual screens in the back; perhaps he was headed to Arlington Heights. White Oak and Vail, maybe, somewhere near where my grandma lived for all of her best years. Other plates weren’t so easy to guess. Ah, but there’s a Cayenne with The Exchange written on it. North shore, for sure.

Traffic stopped again. Why would it stop now? Out of nowhere, with no construction tonight, as the flashing signs clearly stated Monday-Friday Road Work. It wasn’t one of those days, so why now? I thought of my brakes and imagined smoke pouring from the metal on metal grind. It was a truck, Illinois plates, pulled over on the shoulder, which wasn’t very wide, to re-position two kayaks on his roof.  Probably a weekend trip to the Wisconsin river, I guessed. Maybe the Kickapoo, but the Kickapoo is still high and dirty from the two weeks ago storm.

My exit. A couple of roundabouts and I found my way back onto a two lane county road, the sort that leads from the wide road and to my narrow gravel driveway. Turn right at the gas station, left twice and one more right.  Corn fields and soybean fields as far as the eye can see, or at least until the next tree line of Mulberry and Boxelder. The last turn onto my slow driveway, chickens on the lawn, eating whatever it is the chickens eat. I was home.

But where were the other drivers headed? Where were those Illinois plates going? John Kass told me most are leaving, most unable to accept a tax increase that puts them in an elevated tax bracket still far below mine in Wisconsin. If this mass exodus required the last carload to turn the lights out, where were these Illinois plates traveling in those southbound lanes so late into the fading Sunday sky?  The were going to the same place I was.  Home to the place where the roads are familiar. Home where the sporting team wears our favorite logo. Home, just past the school where their son bench sits with the football team and their daughter starts volleyball soon. On a road filled with travelers, only a few were weary. Most were just on their way home.