Tuesday, April 15, 2008

Media Watch: Crain's 'Chicken Little' Coverage

On page 4 of its April 7 edition, Crain's Chicago Business published a five-paragraph item under this bold, three-column headline:


Glutted? Really? How do you define "glutted" (excessively oversupplied, perhaps)? And on which statistics, from which sources, do you base that highly subjective characterization?

Not about to spring back? Ever? Really? Is the sky falling, too? Will it ever stop falling? Will Crain's, which is sounding a lot like Chicken Little, ever stop its negative take on the condo market? Ever?

Forgive the tone of our questions. Crain's is a popular and highly respected, Chicago-based business weekly in tabloid format. I love to read it, primarily for the lively writing and local coverage. But its April 7 article is just one of several gloom-and-doom reports on condos it has published in recent months.

Like the absurd and unsupported headline, the article itself is misleading and harmful. (Crain's doesn't provide a way to link to its article online, so you'll have to trust our report.) Crain's quotes a prominent local money manager, Dan Cardell, president of Wayne Hummer Asset Management, as predicting that the Chicago "area" condo market will "probably" drop "another" 15% in price because "there's tons of supply."

It's difficult to respond to, and judge, Crain's and Cardell's assertions because neither documented them. But we'll do our best.

First, let's set the record straight for the city condo market, arguably the most important segment of the Chicago "area," however defined, and the focus of this blog.

Will prices of Chicago condos drop "another" 15%? No, because they haven't dropped the first 15%. In fact, they haven't dropped at all. Indeed, as we have reported, the median sales price (MSP) of city condos closed on the Multiple Listing Service (MLS) was UP 7% in 2007, compared to 2006. And, to the surprise of many, as of March 31, the MSP is UP 11% year to date.

In dramatic contrast to cities throughout the country, the median price of Chicago condos is still going up.

Is there a glut of condos in the city? As reported here, as of March 31, there were only 2% more active city condo listings on the MLS than on the same date a year ago. Certainly no evidence of a glut there.

Based on units sold in 2007, there was a nine-month supply of city condos on March 31, but that's only 6% more than on the same day last year.

The best (worst) case that might be made for a condo glut in the city is that the current nine-month supply compares to what is generally considered, nationwide, a "normal" (balanced) supply of six months. One might argue that nine months is 50% higher than "normal," which could be considered a glut. But you'd have to understand those numbers, and how they are calculated, better than we do, to make that case. If anyone wants to make that case, we'll publish it.

Our point is not that Crain's was incorrect in its use of "glutted," but that neither Crain's nor its source (Cardell) supported that claim with evidence. So we don't know if it is justified or not.

Will the Chicago condo market ever spring back? As reported here, unit sales in the city have already rebounded in each of the first three months (from being down 36% in January to down 24% in February to down 18% in March). Most importantly, dollar sales volume is down only four percent. In the city, at least, the rebound is already underway. No one knows if we've hit bottom, but evidence is mounting that we may have.

What about the Chicago "area" condo market? In an e-mail, Cardell says he was referring to Chicagoland, which neither he, nor Crain's, nor any source we consulted clearly defines. So, using the MLS database, we generated statistics for the eight-county metropolitan area. It encompasses the counties of Cook, Lake, McHenry, DeKalb, Kane, Du Page, Kendall and Will. The vast majority (85%) of condo sales in that metro area are in Cook County.

In those eight counties, the median sales price of condos closed on the MLS in 2007 was UP 9% over 2006. On April 13, the median price for year-to-date 2008 is UP 8%, to $258,000. So much for falling prices (and a falling sky)!

Granted, the number of units sold in those eight counties has declined significantly. Unit sales were down 13% in 2007 and, year to date, are 28% below sales during the same period last year. That doesn't necessarily mean there's a glut. If the metro area is like the city, many owners have kept their condos off the market. Developers, of course, don't have that luxury. Many of them probably feel like the sky is falling.

Using the MLS, we were unable to generate comparable area statistics on supply in 2007 vs. 2006. If you know how, or have another reliable source on the supply of condos in the eight-county area, let us know. We do know from the MLS that the average market time in the metro area is currently 133 days vs. 137 for the city. That doesn't prove Cardell's claim of "tons of supply," either.

What is Dan Cardell's evidence that prices have declined? In an e-mail to us, Cardell explained that he meant average, rather than median, price and added:

"I did not make any comment [in his conversation with Crain's] on how far the market has fallen so far. In fact, my impression is that it has held up quite well relative to other markets. This is exactly my point--the Chicago [area] market is 15% overvalued (based on academic research which compares disposable income, business activity, employment, etc., to housing values).

"I am forecasting a 15% drop in prices from here," his e-mail continued. "It is precisely because the market has held up so well in the face of so many negatives (restricted credit, oversupply, buyer reluctance, disappearance of investors) that I feel comfortable with my forecast. As with any forecast of the future, only time will tell."

Yet, here is how Crain's quoted Cardell: "A lot of people feel that in the spring, things are going to pick up. When they realize that's not happening, I think we'll see the next leg down. The condo market probably has about another 15% to go down (in prices)." [The phrase in parentheses is Crain's; the italic emphasis is ours.]

How can we have a "next" leg down and "another" decline in prices, when prices are up? Either Crain's misquoted Cardell or he's changing his tune. Either way, the reader is misled. And Cardell's key point, which could be valid--only time will tell--is lost in misstatements.

In an e-mail to us after reading this post, Cardell now claims he was referring only to new construction when he told Crain's "there's tons of supply." If so, this is not the first time Crain's has said "condo market" when it really meant new-construction condo market. In the city, new construction, including conversions, is less than half the total condo market.

In fairness to Crain's, the headline and article were published under this heading: My Take: A Conversation With Money Manager Dan Cardell. To careful readers, that indicated that the item was not a news article, reported by Crain's, but an opinion column. (Although the by-line of the interviewer, Crain's Bruce Blythe, did appear at the bottom.)

But how many thousands read the headline and thought, The condo market really does suck; it's even worse than I thought; I'd better lower my price or lower my offer, then turned the page without reading the article?

There goes consumer confidence down another notch, putting even more downward pressure on condo prices and on the local economy. And, for that, Crain's, on behalf of everyone involved in the condo market, we urge you (and other local media) to drop your irresponsible, Chicken Little approach to covering our city's condo market.

Even in a guest opinion column, you can require that assertions be supported with specific evidence from reliable sources. Columnists are entitled to their opinions, but not to their facts.

If we receive one, we will gladly publish a response from the article's author, Crain's Assistant Managing Editor Bruce Blythe, and would welcome his defense of Crain's recent record of covering condos. [By e-mail, Blythe has declined our invitation.]

To let Dan Cardell and Bruce Blythe know how you feel, click on their names and e-mail them. To let us, and our readers, know, click Comments below.

Illustration by Walt Disney

1 comment:

Anonymous said...

I am interested in understanding how in a market where demand is falling prices could be going up? Is it possible that demand has not fallen as quickly at the high price range, which leaves a larger % of sales in this range buoying the median #? Where is this data published, I would be curious to see the details. Thanks,