The Real Estate market in Chicago, for both sales and rentals did quite well not only in 2014 but in 2013 as well. Pricing in some areas have returned to 2006 and 2007 levels so the question is what is in store for 2015? Is it the best time to sell or the best time to buy? What will happen to rent prices which have continued to increase year after year for the past 4 years?
The Residential Sales Market in Chicago
I believe we will see steady price growth throughout the Chicago area, likely around 3%. Inventory levels should increase year over year as new construction comes on line and sellers continue to realize that market conditions have improved. Over the past 2 years we have seen much of the “back log” of buyers, that have been sitting on the fence for years, start buying. I believe much of this backlog has already entered the market. Driving demand in 2015 will be first time home buyers at various price levels, those trading up or down (current home owners moving within the city), and investors / second home purchases.
Interest rates are lower than they have been in well over a year. Current APR on a 30yr fixed is hovering in the 3.8% range.
Now is an excellent time to buy because I believe the hysteria we saw a couple years ago is over and the market is now normalized. This allows buyers who are currently in the market to breath a little as they are looking at property. Keep in mind, however, well priced properties are still selling in a day or twos time and receiving multiple offers. However, unless improperly priced, I do not see residential properties receiving 5 offers and selling for 10/20% above list like we did over a year ago. Is this a bad thing? Not at all! What we saw in 2013 and in 2014 was simply the market equalizing which happens after any crash in any kind of market. We do not want that type of market to continue because it is not stable and it is not sustainable. What we will have in 2015 is a normalized, highly stable and highly sustainable residential real estate market. In short, this means it is a great time for both buyers and sellers as both parties have lower risk when making financial decisions regarding their property.
The Rental Market in Chicago
As many of you know rental prices have been increasing dramatically since 2009/2010. Due to various economic factors that I will not bore you with here, investment money flew into multi family property throughout Chicago. Developers who could not get financing for a 30 unit condo building had no problem shoring up financing for a 300 unit rental building. Currently rents are at all time highs in Chicago.
I believe in 2015 we will see rent prices, in the majority of the city, remain flat or slightly decline. As thousands of new, high end, rental units hit the market in downtown Chicago we will see market times increase for rentals and vacancy rates slightly increase as well. We will see a great deal of units hit the market toward the end of spring through the beginning of fall 2015. We will see in additional 5500+ units hit the market in 2016 as well.
I believe low interest rates and a now steady inventory of for sale properties in Chicago will continue to act as a ceiling for what rental buildings can charge for rent in Chicago.
While we may see base prices high at many of these new buildings opening up, keep an eye out for concessions such as 1 to 2 months free, free parking, along with free utility packages, discounted move in fees, etc. I believe the biggest price declines for rentals in Chicago, however, will not happen until middle / end of 2016.
Some recent articles have been released stating that the current demand for high end rentals in Chicago is sustainable. The sustainability, however, of current demand is almost irrelevant. What is relevant is how the current demand relates to supply. Supply for rentals in increasing heavily in Chicago and continues to do so, not only on a large scale (300 to 500 unit buildings in downtown) but also on a much smaller scale (20 to 40 unit buildings in outlying Chicago neighborhoods away from the city center).
While job growth does continue in Chicago, we need to understand that incomes are not increasing on a citywide level which has determined the ceiling of rent prices in the downtown market.
What rent price range will do well in 2015? We will continue to see the $1,000 to $2,000/mo price point do well. This price point is perfect for those recently removed from college and those transferring to Chicago who plan to purchase in the next year or two but want to save money. The area I believe that will be hardest hit by the new rental supply in Chicago will be the higher end 1 Bedroom prices, priced between $2,500 and $3,500/mo. I believe it will be these units where we will see the largest concessions in 2015.
Paul Blackburn is an Illinois licensed Realtor and Broker with @properties in Chicago. He can be reached anytime via e-mail at Paul@PKBlackburn.com