2008 Democratic Party presidential candidate Senator Barack Obama (D-IL) purchased his current primary residence, a 6400 square foot house on a 70 foot by 150 foot lot in Kenwood, Illinois for 1.65 million U.S. dollars in June 2005. In January 2006, he purchased a 10 foot wide by 150 foot long strip on the south side of his property for $104,500, bringing the full dimensions of his property lot to 80 feet by 150 feet, increasing its size from 10,500 square feet to 12,000 square feet.
How much do you suppose his house is worth today?
In this post, we're going to pretend that the value for which Senator Obama acquired his property was not wildly inflated above its true market value. We'll first consider the value of the original 10,500 square foot property and project its value forward through the end of the second quarter of 2008. We can only take it this far since the OFHEO data for metropolitan Chicago that provides the Four-Quarter Percent Change in OFHEO MSA-Level House Price Indexes only extends through this far.
We will however adjust our projected value for Senator Obama's home to account for the much slower rate of home value appreciation that we found for his neighborhood yesterday. Here, we recognize that property values in Senator Obama's long established and prestigious Hyde Park neighborhood grow at an average annualized rate of 4.8% below the typical rate of growth seen generally throughout metropolitan Chicago.
So, for example, if home prices in Chicago grow at an average annual rate of 10.7% over a period of time, as they have averaged since 1990, properties in Senator Obama's neighborhood would only see their values increase at an average annual rate of 5.9% over the same time interval, a negative 4.8% neighborhood growth rate "premium"!
We've entered this basic data into our tool for projecting the value of real estate properties in Chicago, Illinois for any quarter ranging from the third quarter of 1976 up through the second quarter of 2008.
Using this data, we find that the value of Senator Obama's home, not including the additional 1,500 square foot 10 foot by 150 foot strip he purchased in the January 2006, would today be worth $1,659,926.35, provided we continue to assume that it was worth the $1.65 million Senator Obama paid for it in June 2005.
Repeating this same exercise for the $104,500 purchase price of that 1,500 square foot strip in the first quarter of 2006, we find that its value today would be $101,262.20. Combining these two values together would put the total value of Senator Obama's primary residence through the end of the second quarter of 2008 at $1,761,188.65.
How do you suppose that value compares to the recent sale of similar properties? Would Senator Obama's purchase price of $1.65 million be supported in the same way we found the 1996 sale price of 2008 Democratic party vice-presidential nominee Senator Joe Biden's previous home to be by the valuation of similar properties in today's real estate market?
What's cool is that we can now answer that! While difficult to find 6,400-6,500 square foot homes on 10,500-10,700 square foot lots that have sold recently near Senator Obama's primary residence in Chicago, we did find one very nearly identical property that sold in August 2008 just a block and a half away! The table below presents a side-by-side comparison of the property Senator Obama purchased in June 2005 and the August 2008 comparable property transaction:
| Comparison of Estimated Current Value of Senator Obama's Home and Recently Sold Comparable Property | ||
|---|---|---|
| Description | 5046 S Greenwood Ave (Senator Obama's Property) |
5211 S University Ave (Nearly Identical Property) |
| Structure Square Footage | 6,400 sq. ft. | 6,546 sq. ft. |
| Lot Square Footage | 10,500 sq. ft. | 10,660 sq. ft. |
| Transaction Value (Year of Transaction) | $1,650,000 (2005) | $1,300,000 (2008) |
| Estimated Value in 2008-Q2 (U.S. Dollars) | $1,659,926 | $1,300,000 |
Once again, please note that we've presented the data for Senator Obama's original property (purchased in 2005) in this table, as the lot size is much more directly comparable to the recent property sale data we have obtained from Zillow.
Please also note that despite having greater square footage for both house and lot, the value of the most similar property on paper to Senator Barack Obama's property purchased in 2005 is valued at over $350,000 less. That suggests that Senator Obama should have paid, at most, only $1.3 million for his property in 2005.
Update 30 October 2008: Being more generous to Senator Obama, if we assume that the property could command a luxury premium compared to the nearly identical on paper property given how it was renovated in 1998-1999 to include more luxurious features, such as mahogany bookshelves, a granite kitchen floor and a 600 bottle wine cellar, we can increase that amount by perhaps as much as 10% to $1.43 million.
No matter how we slice it though, it's very unlikely that it would command a luxury premium of 27% over the comparable $1.3 million property, which is the premium needed to reach the $1.65 million level which he paid. And under no realistic circumstance can we get to a luxury premium of 50% over the comparable property, which would be what it would take to get to the sellers' asking price of $1.95 million.
While the sellers may have asked for $1.95 million, and while Senator Obama may consider himself to have "saved" $300,000 from that asking price, we find that the evidence continues to mount that he was really taken to the cleaners in the transaction.
In itself, that would be simply embarrassing and perhaps a singular example of poor judgment over his personal finances, but neither unethical nor unlawful. Unfortunately, the favors Senator Obama realized on his behalf in his efforts to acquire the property whose asking price was so far beyond his reach transform the entire set of affairs into a demonstration of phenomenally poor judgment. The kind of judgment where an exceptionally high cost is being paid, all to satisfy Barack Obama's vision of a home befitting a U.S. Senator.
We wonder what bizarrely inflated prices a President Obama would compel Americans to pay to realize his other visions.
Coming Soon
In this post, we used current day data from 2008 to determine what Senator Obama's house was really worth in 2005. You might think that with that new information showing how property values are really changing over time in Senator Obama's neighborhood that we'd be revisiting our previous look at The House That Obama Bought. You would be right - and as a bonus, we have other new information about those transactions not yet revealed anywhere else!
Previously on Political Calculations
- Return to the Rezko Lot
New information about the appraised value of the "Rezko Lot" led us to revisit our analysis of the transactions involving this lot and 2008 Democratic party presidential candidate Barack Obama we had originally presented in The House That Obama Bought.
- The House That Obama Bought
Our follow up to this post, in which we show that at a minimum, 2008 Democratic Party presidential nominee and current Senator Barack Obama (D-IL) paid $360,738 more than his house in Chicago was worth in 2005. At a maximum, he overpaid by as much as $468,502 for the property where his family now resides.
- Barack Obama's Big Mac Attack
Our tongue-in-cheek look into the negotiations and transactions surrounding Senator Obama's purchase of his current home - kind of a fun introduction to the relative valuations involved, all in the context of a trip to McDonald's!
- Does Senator Joe Biden Have a House Problem? (Part 1)
We looked into suggestions that Senator Biden unduly benefited from the purchase of the property where he built his current home. We introduced our analytical method for projecting the value of real estate properties in this post.
- Does Senator Joe Biden Have a House Problem? (Part 2)
Here, we looked into long-standing allegations that have dogged Senator Biden regarding whether or not he unduly profited from the sale of his previous home in 1996. We originally couldn't make a determination, but thanks to one of our intrepid readers, we were able to find that he did not. Also, where we first built a tool to do the math!
Labels: real estate, tool
- posted by Ironman at 9:27 AM | Permalink |
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