Chicago Real Estate Market
Every month the Chicago Association of Realtors releases Chicago housing market data, both city-wide and neighborhood based. As any resident of the city will tell you, things are very different from neighborhood to neighborhood as far as the bars, restaurants, shops, and overall style you may find, and the same is true from a market perspective. Every neighborhood is like its own sub-market that needs to be studied and understood.
That is why, every month, we sit down to discuss the latest data and make sense of it. Here are some of our thoughts and insights from our discussion of the November 2019 data:
Americans today are carrying more debt than we were in 2008, and of that debt housing alone has been on the rise for 5 consecutive years, which led us to wonder about the potential for another housing crisis. We also discuss all the various incentives that we are seeing for homebuyers, how to get the best deal on a home today, and whether Chicago’s Near West Side neighborhood is booming or busting?
Are we in for another housing crisis or recession?
First let us say that we don’t have any sort of “crystal ball” and nobody really knows the answer to this question, the truth is based on many complicated financial factors all coming together. But we are seeing some indicators today that have us thinking back to the housing bubble of 2007.
While many economic signs are quite strong, U.S. housing debt has been rising for 21 consecutive quarters. National household debt is now $1.3 trillion higher than its previous peak of $12.68 trillion in 2008. That all being said, according to CAR “delinquency rates remain low across most debt types” and also there are less Americans participating in the debt market now than in 2008. Though with declining interest rates and more home-buyer incentive programs popping up every month, we could see more Americans take on more housing debt going into 2020.
Fundamentally, what went wrong back then was that debt programs were created that were really just not good for people. Extremely easy to qualify for, requiring almost no money down, and with very enticing low introductory payments for the first few years. These low introductory monthly payments would often nearly double after a few years, but borrowers were told at the time not to worry about that. They were told that their houses would be worth much more money by the time introductory period was over and that they could then re-finance and keep their payments low. However, that is just not what happened.
As we know the market softened and then only continued to get worse for many years, and then when borrowers introductory rates shot up many were unable to pay let alone re-finance, ultimately defaulting on their loans, which at scale, caused a major ripple effect into the U.S. Economy. We have not yet seen those exact sorts of mortgages and debt programs as we did back then, but there are lots of new ones popping up.
Ultimately our advice here is this: Investing in real estate can be one of the most economically sound things you can do, when you fully understand what you are getting into and are ready for it. Don’t let a low interest rate or first-time home buyer grant be the reason you buy, but do take advantage of those if you are ready.
How do I make sense of all the home buyer incentives?
The Fed cut the interest rate for the third time this year, and rates are roughly a percent lower than where they were last year. This could be an indication that they’re trying to motivate buyers to get out and buy/purchase/transact this year.
With rates this low, your “buying power” is greater. This means that with the same monthly payment you can afford a more expensive place. It can be tempting to make a quick decision, but remember that just because you can “afford” more doesn’t mean what you’re buying is actually worth more.
FHA loans are available to homebuyers with low down payments, and even grants of anywhere from $2000-$7500 are available for first time home buyers. Keep in mind with these loans that not all properties accept FHA loans. Also as mentioned, some loans will have introductory monthly payment rates that change after a few years. We would recommend long term thinking here: don’t let a short-term incentive get you committed to something for 15-30 years based on the incentive alone. Would you marry someone today just because they are going to pay for the first year of dates together?
In the new year take time to understand what you can afford, and how much you want to put into an investment. Understand the different rates and programs. And don’t be sold on just the loan, also make sure you are getting a good deal.
So how do I get the best deal today?
To truly get a great deal requires a certain amount of luck and then two things that you can control: to be informed, and to have some flexibility. Let’s break down those two points:
This really comes down to educating yourself on the market and having a solid team by your side. There is much you can learn on your own by reading housing reports and data, economic reports, and more. And then there is a lot you gain by having a solid team there to help you. So who do you need on your team?
You will want a licensed real estate broker you can trust. Ultimately, they act as your consultant to make sure all the right questions are asked. What are the prices of recently sold similar properties, annual property taxes, HOA fees and what they include, how much a building has in reserves, if there are rental caps, what rental value a property has, when was the roof replaced, and much more. You will want to find someone who knows the areas you want to live in so that they can give you the important nuanced information needed to find the perfect place for you.
Anyone can schedule an appointment and open doors for you, but only some will go the extra mile to ensure what end up paying is the right amount and then go to bat for you when it comes to negotiating. The right broker will also connect you to other important members of your team that you will need throughout the transaction and potentially afterwards.
You will want a good mortgage broker on your side as well to get started. Before touring you will want to get pre-approved for a loan. To find a good mortgage broker, talk to several and get them to compete for you! We are seeing too many people talk to one lender, get one quote, and then go out looking to buy. That is like walking into a department store and buying something without even going online to see if you can get the same item at a lower price, who does that anymore?
We want our clients to get a good deal and always recommend they speak with at least a couple lenders. There are so many different mortgage programs, and the options seem to constantly change, so getting a few opinions will help you find the best option to fit your needs. If you find a lender who you just like more but they don’t have the best rate, let them know! Tell them you want to work them but you need the better rate, most of the time they’ll find a way to match it.
With a strong real estate broker and mortgage broker by your side, you can begin the touring process confidently. Once you are getting to the stage of putting in offers you will also want to have a good attorney, home inspector, and potentially a contractor if you plan to make improvements to the home. A good broker will be able to put you in touch with all the necessary people when the time is right!
The #1 way to not get a good deal is to have rigidity in your process. Being stuck on one place, or on one mortgage, or on one exact date that you need to move all can affect the bottom line that you pay. If you get yourself mentally ready to go through a buying process, have some patience, and get several opinions you will find a good deal. Your real estate broker should send you regular updates of available options and you should be ready to tour things quickly as they show up on the market.
Is Chicago’s Near West Side booming or busting?
In short, the answer is both, and it depends on your perspective. For single family homes there are nearly the exact same number of listings on the market this November compared to last (69 vs. 70) but closed sales are 61% higher with an 18.2% higher median sales price AND decreased market time. That means more single-family homes are going under contract, at a higher price, and faster than they were last year. This would indicate a fantastic seller’s market for detached.
Single Family Closed Sales in 2019
Single Family Median Sales Price in 2019
For condos it’s a different story. In 2019 there have been nearly 300 more condos listed on the market in this area compared to 2018, however the number of closed sales and the median sales price hasve remained fairly flat year over year. The Near West Side includes the West Loop, whose housing prices really boomed 5-6 years ago, which spurred a massive wave of development in that area. The development probably accounts for the big increase in condo listings, and oversupply may also explain why the same number of homes were sold.
Condo Closed Sales in 2019
Condo Median Sales Price in 2019
We believe sellers are still looking for those premium prices, and that buyers now have more options than ever and frankly don’t need to pay that premium price to find a home in the area. It’s also important to keep in mind that this neighborhood covers a larger area than just the happening West Loop and a wide range of price points. Homes closer to downtown command a higher price point than those further away from the city center.