Chicago Real Estate Market Update!

 Chicago Market Update

I am sure you have seen market updates in the news and in the paper over the past months speaking of the positive trends in the real estate market. While these market reports can be very valuable in understanding the current market conditions, however, I prefer to write my own to explain in my own words with regard to what is taking place in the current real estate market.

Buyers

Buyer traffic has increased dramatically not only for my own business but for that of my colleagues. When the market first started to stabilize we saw first time home buyers primarily driving the numbers up. However, in recent months we have seen an increase in second and third time buyers as well as those purchasing in-town and vacation properties in Chicago.

While individual markets within Chicago are highly localized with respect to demand levels, we have seen increased demand throughout Chicago’s most popular neighborhoods.

Inventory

Believe it or not the largest challenge currently facing the market place, from the Realtor perspective, is the lack of inventory. While great deals can still be had and property prices are phenomenally low, demand has gobbled up excess inventory in most markets. This decrease in supply levels has caused multiple offer situations and some properties to sell in excess of the list price.

Investors Getting Back Into the Market

We have seen a tremendous amount of investors get back into the housing market, which is more than likely due to the low return in other areas such as treasuries and equities. Foreclosed properties, particularly in the downtown market are often selling for well above list price and are receiving multiple offers within hours of hitting the market.  This has greatly helped the market overall as it has started to increase prices in some of Chicago’s most troubled buildings such as 10 E. Ontario, 440 N. Wabash, 345 N. LaSalle, etc.

We are even starting to see areas that were dramatically over built during the boom, such as the South Loop, regain excellent traction. Specific areas within the South Loop (short walking distance to Roosevelt & Michigan/State) have seen a great Increase in buyer demand. These buyers have depleted inventory in several of the South Loop’s most established buildings.

Sellers

Some seller’s are under the assumption that since the market is picking back up they can now obtain the price they paid years ago. This is definitely NOT the case. While the market has picked up significantly we are only seeing marginal increases in pricing at the current time.  While demand is strong it is not strong enough to sustain excess levels of price increase or interest rate increase.

Financing

Financing has eased slightly and is heading in the right direction but obtaining a mortgage still requires good qualification on the part of the borrower. We have, however, seen increased lending options for investors as well as owner occupants in “troubled” buildings. These financing options are definitely more expensive as the lender must take into account the increased risk, but we are starting to see a glimmer of hope for some buildings that were impossible to finance years ago.

Is it a Good Time to Buy?

It is actually a great time to buy! Currently this market requires patience, as inventory levels are low. The positive side is that interest rates and prices are still extremely low.  Builders are slowly starting to enter the market again and are delivering High Quality product that in 2007 would have cost anywhere from 20 to 50% more.

 

Rental Market

The rental market in Chicago remains strong and we have seen double digit rent increases over the past several years. As the job market recovers we are seeing increased demand for rental property as young professionals seek housing in the downtown market place. However, developers are quick to answer that call and currently have 15 high rises under construction in downtown Chicago which will add over 5,000 units to the market in the next year.

My concern for the rental market is with interest rates low and a stabilized housing market we will see a decrease in demand growth for rental property. While I do believe that rental demand will increase in the coming year it will do so at a slower pace than expected and I do believe that developers are outpacing demand with supply for 2014.

SHOULD I BUY OR RENT A CONDO IN CHICAGO?

Has the market bottomed in Chicago? Is the real estate market in Chicago on a rebound? Where do I see the condo market in Chicago? These are questions asked to Realtors on a day to day basis. Unfortunately we are not fortune tellers but we do know the market quite well and understand its pulse. I am happy to say it does have a pulse, a good one! Here are my thoughts on the market and whether or not you should be a buyer right now or a renter!

My overall feeling of the condo market in Chicago is positive. When I am speaking of the condo market I am speaking of the most popular areas to purchase a condo. Everything from South Loop up north to Edgewater and as far west as Wicker Park and Bucktown and everything in between.

If you are a renter right now you will see that inventory is scarce. More people are renting now than buying and this has pushed prices up. Over the past 10 years we did not see any new construction for apartments. We saw the opposite; condo conversions. This lessened the supply of rental property. Now that the economy has rebounded and those out of college have employment again we are seeing increased demand for renters. We then add into the fact that much of the public were afraid to buy over recent years, or could not obtain financing, and we have a perfect storm for increasing rental prices.

However, since the economy has stabilized so has consumer confidence. We couple this with increasing rent prices and BAM! People want to start buying again! Investors and first time buyers started entering the market (on a more consistent basis) about 2 years ago. Most notably, in the past 6 to 9 months buyers have been coming out of the wood work and eating up all the excess inventory. Renters have finally become fed up with paying high rents and also having the lack of places to choose from. It is one thing to pay high rent prices but it is another to pay high prices but not have any GREAT options. This has forced many to BUY.

Inventory levels of condos in Chicago have dropped to record lows (record since the crash). The challenge is that quality inventory for purchase is actually scarce, at least condos priced properly. If a condo is priced right it will easily sell with in 30 days in today’s market. Versus 3 years ago when exceptionally priced properties still took months to sell.

So what does this mean? Is it a good time to buy? Yes and no! If you know where you want to live and plan to be there for at least 3 full years before you need to put the property on the market, then yes I would say it is a good time to buy. I also recommend to all my buyers to look at their property as a true investment. Instead of asking the question “What can I sell this for in 3 to 5 years” ask the question “What can I rent it for?”  Why do I say rent it?

Prices won’t be skyrocketing anytime soon! While prices have stabilized they won’t be increasing at “normal levels (3 to 5% a year)” for a while. Sure, you may snag a great deal and your return may be great, but the overall market is going to recover slowly. Here is why:

Remember how I said inventory levels were low right now? The reason inventory is low is not because people LOVE their homes and refuse to sell. Inventory is low because many people still don’t want to take a hit on their homes. Many people may be under water or near the edge of the water. What we will see happen is the market start to tick up and then some sellers unload their property because they finally can cover their mortgage or put enough in their pocket where it is worth them selling. This doesn’t mean the market is unhealthy nor does it mean that it is not the right time to buy. It simply means the market is walking slowly in the right direction.

Lets say the market just had leg surgery and is in physical therapy. It is walking again and moving forward…just at a very slow pace and every one in a while it will need to rest for a few minutes. Eventually, however, the market will return to normal. We are on the right path and I’m happy to say we can finally breath again!!

Paul Blackburn is a licensed Illinois Realtor and associate Broker with @ Properties in Chicago. He can be reached via e-mail at Paul@PKBlackburn.com  For more information about purchasing a home in Chicago please visit www.BuyingInChicago.com