Chicago Housing Market – Spring Market Update!

2013 Spring Market Update!

Inventory is at all time lows and demand has surged as new buyers have entered the market. The pendulum has swung the other way and we do not have enough properties on the market. Do you want to sell? Now might not be a bad time. With demand so high and inventory so low the question then becomes: “Why are more people not selling?”

I hoped that we would see more properties come to market this spring but we have not. The main reason is that many homeowners are still underwater on their homes. There are also those who do not want to sell because they cannot get what they WANT for their homes.  This has lead to many multiple offer situations and properties selling within only a few days on the market if priced appropriately.

Have prices increased?

Yes and no. It depends on how you measure price levels. Some foreclosures sold at very cheap prices in recent years. So if we are comparing current sales to distressed sales then yes prices have increased. However, if we look at the market as a whole, year over year prices have only increased a small amount.

Aren’t investors the main cause for demand?

If you’ve watched the talking heads on CNBC and all the “real estate analysts” you may have the impression that investors are the main cause of increased demand. This may be true in certain markets and may even be true in certain buildings in Chicago but as a whole, in Chicago’s more desirable neighborhoods, investor demand is not driving the market. First time and second time home buyers are what currently make up demand.

What are the hottest neighborhoods in Chicago?

The Near North side is doing very well which includes Streeterville, River North, and Old Town. However the hottest areas have been Lincoln Park, Lakeview, Wicker Park, Bucktown, West Loop and even the South Loop. Areas such as River West and West Town have also seen a great deal of demand.

If demand is so great why aren’t developers building condo buildings?

Financing is next to near impossible to obtain to build a large condo project. But, it is very easy to obtain to build apartment buildings. This is where developers have been focusing their energy especially with the rents increasing throughout the country. There are still developers building condos but they are doing so on a smaller scale focusing on 4, 8, and 12 unit style buildings. Some larger projects, up to 40 units are in the plans for areas such as the West Loop. Chances are they will do fairly well.

What about rentals? What is going on with rent prices?

Rent prices remain in an upward trend. While they are not increasing by double digit gains they are increasing steadily. We will probably see a 3 to 5% year over year increase in 2013 and perhaps slightly higher in the downtown / near north side market. Rental inventory remains low but may spike soon as roughly 5,500 Class A rental units hit the market between now and the end of 2014 in the downtown area.

My recommendations

If you have been holding off on selling and want to “test” the market, now is a good time to list your home, as you will get instant feedback on the pricing and desirability of your home.

If you are looking to buy it is still a great time to buy, as prices haven’t jumped. However, you must be prepared to view places as soon as they come on the market. You also need to be working with an agent from a large firm that has access to “off market” properties as these are some of the better deals that are transacting.

Still pay particular attention to the condo association you are buying into. While most have recovered from the issues of the crash there are still some broken associations dealing with repairs from poor construction to poor management. It is extremely important to understand when you buy a condo you are also buying into the association.

LAKEVIEW / LINCOLN PARK CONDO MARKET IS PICKING UP!

The condo market in Lakeview and in Lincoln Park is picking up and fast! Remember the days when you could stroll around the neighborhood and see 10 condos for sale on every block? Well, those days are long gone! Inventory levels in both Lincoln Park and Lakeview are the lowest in years. Builders are getting back into the game and selling out fast as well!

Currently I’m working with a couple who want a large 2 Bedroom or 3 Bedroom condo under 500k in Lakeview or Lincoln Park. They are open to all areas of these neighborhoods and believe it or not we can’t find much. The quality inventory that they have liked have all received multiple offers within days of coming on the market or within days of a substantial price reduction.

The buyers in this market are well qualified buyers. They have cash, they have credit and they have flexibility to work around the sellers demands. Whoever thought the sellers would be back in control?

Why is Inventory Low?

In my opinion supply is low for a few reasons:

1. OVER 20% OF SELLERS ARE UNDER WATER: Many sellers are currently under water. In Lakeview / Lincoln Park this is true for your smaller 2 Beds and for your high rise buildings in comparison to many of the duplexes that have held their value a bit better. However, at the end of the day there is a chunk of the population that cannot sell unless they want to bring cash to the table or go through the short sale process.

2. SELLERS CANNOT GET WHAT THEY WANT: While prices have stabilized and inventory is flying off the shelves we are not seeing a large increase in pricing. There are sellers who may not be under water because they had a substantial down payment, but they still do not want to take a loss on their property. These sellers are not coming to market.

3. DEMAND HAS INCREASED: Overall demand has increased. As the economy has improved, or at the very least become “stable” we have seen more buyers come to market. Rent prices have increased causing many renters to become buyers after finding the rental search process frustrating and exorbitantly expensive. Interest rates remain at record lows as well posing the question in many potential buyers’ heads “Why am I not buying right now?”

 

So at the end of the day what does all this mean? Does this mean that we will see prices rising again? Not necessarily.

When we look at the reasons why supply is look we have to understand that there is still a want for these people to sell. Just as there has been built up demand due to uncertainty in the market there is also built up supply from those who want to sell if prices ticked just a bit higher. I believe what we will see for the coming years are prices slowly increasing but then some sellers taking advantage and putting their units on the market in hopes of achieving what they wanted. Supply will continue to come on line, but just at a slower pace. Buyers will remain ready, willing and able to move forward once they find the right place.

The one thing to keep in mind in all this is while inventory levels have decreased, buyers are still picky. They want quality! At the end of the day if you don’t have a quality unit to sell you will not sell it and you will need to deeply discount the price. Buyers now are pickier than ever. They want to buy, they’re eager to jump into the market, but they’re conservative!