I think some of this being blown out of proportion. Certainly the condo market is overbuilt. Especially here in the city of Chicago where many of the complexes are 12-25 stories tall. These take a long time to bring to fruition from land purchase to building to sale. The amount of inventory is going to take approximately 2 years IMO to catch up with demand. The high priced condos will suffer in this market even more so. In the burbs along the train lines, the condos are mostly sold prior to completion of the project. The secret there is that the landThe rental market is booming, so watch for some complexes to go as rentals versus condos. Along with the nixing of some developments, this will be the source of inventory reduction. No doubt pricing is and will be soft, until the supply is reduced. I don't see a crash and burn scenario. Not here anyway where prices have appreciated nicely, but not anything like CA or FL.
The segment that is going to get whacked are the builders. I am seeing long marketing times on spec homes(6 months +) and significant price reductions. I think this where the reduction is supply is going to come from. The small guys who are doing all the semi-custom stuff are going to get pushed out of existence. They can't hold this stuff for 6-12 months and keep cutting their prices back.
Having just bought another house, here's what I can tell you about the NW burbs in the Chicagoland area. Sales are down about 5% over last year. Supply is up @20% over last year. Yes, it's a buyers market. At the price point we are at, houses are sitting about 60-90 days if they drop there price @2% after 30 days. We found the perfect house, unfortunately it was on the market only 8 days when we saw it and 14 when we put a bid. Long story short we finalized a price after 6 days of negotiating. We ended up @ 4.1% off the asking price. More than what I would have liked, but we really wanted the home. The owners tried a FSBO at @ 7.8% higher than what we paid. If a buyer can sit on a home, you can usually end up get the house for 5-6% below the initially offer price. Last year it was 2-3% off and the year before that is was as the asking price. How times have changed.
The wild card is interest rates. They are not doing much damage right now, but another .50- .75 basis points higher and the marginal buyers will be pushed out and the everyone else is going to drop down a rung on the price scale. If this happens, it will be another cap on prices.
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