The Chicago Housing market has changed dramatically, at least in Chicago’s most desirable neighborhoods. In areas such as the Gold Coast, Lincoln Park, Lakeview and yes, even the “over built” South Loop, inventory has almost all but disappeared. The problem facing buyers today is one that we haven’t seen in years. The question that many people have is “Why can’t we find what we’re looking for?” Why is inventory low?
The first and most obvious reason why inventory levels are low is because we are seeing a large amount of buyers, many first time home buyers and empty-nesters buying second homes, entering the market. These buyers have nothing to sell and have quickly soaked up excess inventory. Investors have also come into the game and have picked up the less desirable properties even in problem buildings where financing is difficult. These investors are flush with cash and most foreclosures in the desirable areas of Chicago are seeing 10, 15 or even 20 offers in a matter of days.
Rising rent prices and low interest rates have spurred first time home purchases while low yields in other investments has spurred investors to throw cash into the housing market. So this covers the increase in demand but what about supply? Why is supply not keeping up with demand?
While demand has increased prices have only slowly started to rise. Many home owners are still either under water or cannot sell their home for the price they feel is “fair.” Many “would be” sellers are simply not putting their home on the market because pricing has not reached the level is needs to be at for them to feel comfortable selling their home.
What does this mean for the future of the market? As long as interest rates remain low prices will slowly start to increase. As pricing increases we will see those sellers sitting on the side lines start to list their homes. It will be a very slow process but it will be a healthy one.
Will developers get back into the market in Chicago? Developers have already entered back into the market but not on a large scale. We probably won’t see any new high rise condo buildings anytime soon since financing for such projects both on the construction loan side as well as on the buyers side is still very difficult. Instead, we will see smaller projects (3, 6, 8, 12 units) built in high demand areas. We are also seeing developers entering the single family home market. They’re not building spec, but they are building to suit.
I see all these buildings going up in Chicago, what are they? Chicago is filled with construction cranes once again but NONE of these are condo buildings. They are, instead, rental apartments. With rental prices at double digit % gains year over year, developers are jumping into the market. Some may say all these buildings seem excessive. These people would be right. Naturally developers over build. If there is a demand for 3000 units, they build 6000. But that is a conversation for another day.