The housing market in Chicago has taken a dramatic turn from where it was a couple years ago. Condos and Single Family Homes in Chicago’s hottest neighborhoods are moving fast in all price ranges. Where is the sweet spot? The hottest section of the market is currently between$300,000 and $500,000 but we are also seeing higher end properties sell in only a matter of days.
Over the weekend I put a 2/2 loft under contract. My clients had to pay more than $7,000 above list price. We put an offer in after the property was only on the market for a day. Our goal was to get the property under contract by the weekend. We were up against one other buyer but we knew if it dragged into the weekend we could easily be up against multiple buyers. This property was in Bucktown.
Another property down the street in Bucktown had 22 showings in a 2 hour period last weekend. My buyers looked at this property on Sunday (the first day of showings for this new listing). On Wednesday they e-mailed me saying they wanted to make an offer. Unfortunately it already sold. Of the 22 showings the property received 3 offers from buyers. More than likely it sold for above list price as well.
A colleague of mine was showing a home in the $600,000 to $700,000 range in Old Town. She was one of 6 agents with buyers submitting offers. Her clients went $30,000 above list price….guess what? They didn’t get it. While we don’t know the exact sale price it has been eluded that it likely sold for almost $50,000 above list.
The most obvious question people may have is “What the h*ll is going on?!” Is this sustainable? Well here are my thoughts on the subject.
Currently in Chicago, in the more desirable neighborhoods, we have an inventory problem. Inventory has decreased to all time lows and buyer demand has increased dramatically. Lets start with demand, however. Why has demand increased?
The Hangover Effect: After 2008 everyone had a hangover in the real estate market. Just like in real life, when you wake up with a hangover the last thing you want is another shot of tequila that you had the night before. This hangover lasted in the market for several years. People simply wanted nothing to do with the market. Granted, many people did not have the finances to buy and many were worried about their jobs and lending (the bars) were not very open.
Now the “hangover effect” has mostly lifted. The economy is rebounding and consumer confidence in the housing market is back. During this hangover period many people rented and saved cash. Now, as they have seen the market stabilize we are seeing a rush of buyers into the market. With increased confidence we are also seeing record low interest rates and property values are back to normalized levels.
It is important to note that in distressed areas most of the demand is made up of investors. However, in prime “Class A” areas the majority of demand are first time, Second time and second home buyers who plan to use the property.
Where is all the supply? There are a couple reasons for low supply. First, we haven’t seen any new construction for condos or single family homes in almost 5 years. Only now is construction starting to pick up again and it is doing so at a slow pace.
The largest reason supply is low is due to many homeowners still underwater on their values. Many “would be” sellers simply cannot afford to sell their homes. Many homeowners are still refinancing using HARP and similar programs and some are still completing mortgage modifications. These homeowners are not selling anytime soon.
Who is selling now? I’ve noticed that many current sellers were buyers back in the early 2000’s before prices ran up. Some were buyers at the peak in 06 but put more than 5% down so they can at least walk away from the sale with some cash.
What is most interesting are tenant occupied properties selling. Many of the condos I have been showing in Lakeview, Lincoln Park, Near North, etc. have tenants in them. These are not standard “investment” condos for the owners but instead were their primary residences they could not sell back in 08, 09 so they rented them. They are now able to unload them for what they feel is a “decent” price.
What does the future hold? The inability for developers to obtain financing on large buildings is a good thing. This will help supply remain low. Interest rates will likely stay low for a while. The FED is talking about slowing or limiting their purchase of MBS however they will likely continue for a short while. The MBS market is in recovery mode especially with treasuries at record prices (low yields).
At the end of the day interest rates should remain low through 2015 and supply will likely remain low. This will start to push up pricing in your better markets which will slowly allow those who could not sell before to start to sell. The hope is that supply will be introduced slowly into the market.