With a strong job market, affordable housing costs, and a rich culture, Chicago is one of the best places to live. However, as happened in other major cities, its real estate market has experienced significant fluctuations in 2022-2023.
Unlike other real estate markets, Chicago reported lower home price appreciation but rapid housing inventory recovery. Homebuilders and potential buyers are concerned about these trends, which resulted from rising mortgage interest rates and higher construction costs.
However, many still wonder if buying a property in this city is a good idea. Should real estate investors consider Chicago for their next move? Here's all the information you need to make a wise decision. Read on!
Chicago's Housing Market Trends
As mentioned, the latest reports show that Chicago has experienced a slowdown during the first four months of this year. In April, home prices tumbled as real estate sales fell.
However, the figures are not significantly different compared to last year's reports, as the Chicago real estate market also experienced a decline in 2022. Let's go over the most important housing trends.
Median Sale Price in Chicago
According to Redfin, the median sale price for a home in Chicago fell by 6.2% year over year to $350,000 in April 2023. That's below the national average.
However, even though the drop was significant, the median sale price reported in April of this year is the highest since July 2022.
In August of last year, the median sale price for a house in this city was $325,000. It fell below $300,000 in September before recovering slightly in January 2023.
The highest median sale price reported this year was $335,000 in March, which means that it has risen by almost 5% in the last 30 days.
About 34.4% of housing units in Chicago sold above the list price in April 2023 after a drop of 6.1% year over year.
However, the number of homes with price drops rose by 0.8% over the same period, reaching 12.9% for all home types.
Redfin also showed that the number of homes sold in Chicago fell by 35.9% year over year. As of April 2023, only 2,315 housing units went under contract.
Last year, 3,610 homes were listed and purchased. However, the number started to fall considerably from July 2022.
In March of this year, sales began to recover, with 2,454 homes sold, but the number was over 100 units lower just a month later.
The latest data collected by Redfin also revealed that the sale-to-list ratio was 98.8% in April 2023 for all home types, which means most housing units sell at around or slightly below the asking price in Chicago.
According to Realtor.com, the housing inventory in Chicago has grown this year. In April 2023, there were 11,344 homes for sale across the city's 78 neighborhoods.
The housing supply has recovered significantly across the Chicago metro area, reaching 4.29 months of supply in January 2023.
Median Days on the Market
Redfin also said it's taking longer to sell a housing unit in Chicago, as the median days on the market rose by 6% year over year, reaching 59 days in April 2023.
Last year, April reports showed that homes spent 53 days on the market before going under contract.
However, compared to the figures reported during this year's first quarter, homeowners are selling their properties around 30 days faster.
Chicago is the most populous city in Illinois, which is the state with the highest foreclosure rate in the United States.
Illinois claimed the first spot on SoFi's list of the country's highest foreclosure rates, with 2,437 out of 5,412,995 homes going into foreclosure in March 2023.
The state had one foreclosure per 2,221 housing units. That's the highest rate reported by the end of this year's first quarter.
Additionally, SoFi's reports showed that Stark, DeWitt, Livingston, St. Clair, and Will were the counties with the highest number of foreclosures.
Factors Affecting the Chicago Real Estate Market
Have you ever wondered what makes a city's housing market fluctuate? Different factors can have a major impact on home demand, prices, and inventory. Here are the main ones.
The City's Economy
The economy is one of the most influential factors in the Chicago housing market. Overall, the demand for homes skyrockets when people have a solid income and feel confident about their personal finances.
Conversely, when a city's economy struggles and residents don't have stable jobs or income, demand falls, causing prices to drop as well.
In Chicago, food innovation and manufacturing are the main industries. However, other sectors play major roles in this city's economic status, such as printing, transportation, insurance, publishing, services, and financial trading.
Additionally, the unemployment rate remained low through 2022, averaging 4.4% in December last year before falling to 4.1% in March 2023. However, it's higher than the national average (3.4%).
Policies set by the local government in terms of tax deductions, credits, and subsidies also have a major influence on the Chicago real estate market.
Governments can use local legislation to alter housing demand, inventory, and prices.
In Chicago, property taxes vary depending on the location, so each real estate market within the city may be different.
How's the population in Chicago, the country's third-most populous city? Residents' age, income, gender, and migration patterns have a significant influence on the real estate market.
Overall, changes in demographics affect housing demand, as certain groups might be interested in buying a specific type of housing unit, for example.
Migration patterns also define real estate purchasing trends. Chicago has historically been an attractive city for migrants from all over the world.
Redfin's reports showed that around 4% of US homebuyers wanted to move into Chicago from major cities, including Denver, Minneapolis, and Detroit.
In addition, around 84% of property owners planned to stay within the Chicago metropolitan area, while 16% wanted to move out of the city between February and April of this year.
Mortgage Interest Rates
Rising interest rates affect the housing market in Chicago and every other city. In fact, many changes and trends seen during the past two years have resulted from this event.
Essentially, higher mortgage interest rates often mean housing units will look less affordable to most people. Consequently, both demand and prices fall.
Contrastingly, low mortgage interest rates make getting a home loan easier, which results in higher housing demand and rising prices.
However, the country's mortgage interest rates have reached record highs in 2023. Forbes said they averaged 6.39% for 30-year, fixed-rate loans in May.
Is the Chicago Real Estate Market Likely to Crash Soon?
Considering the latest trends and authorities' expectations about a potential recession, many people are unsure about buying properties in Chicago because they believe the local real estate market will crash soon.
However, experts explain that the country won't face another Great Recession. Instead, local housing markets may slow down in 2023.
Analysts say the following signs show that the Chicago housing market is unlikely to crash:
Housing Demand is Still High
Although home sales have dropped considerably in Chicago, the city is still attractive to many groups, including workers seeking relocation, young people looking for affordable housing, and migrants. As a result, the demand for residential properties remains high.
The Housing Inventory Is Low
Unlike other cities, Chicago has seen an increase in housing inventory, reporting a 4.9-month supply earlier this year.
However, that's still too low to cause a market crash, which often occurs when the inventory is considerably higher than demand.
The Number of Newly Built Houses Doesn't Meet the Demand
Since getting approval to buy land and build properties is increasingly challenging, home construction companies are not building properties fast enough to meet the demand.
If the number of newly constructed housing units remains low, the inventory also falls. As mentioned, that's a sign that the market is unlikely to crash.
Foreclosures Have Fallen Across the Country
Illinois is the state with the highest foreclosure rate and has held that spot for several months.
However, a foreclosure crisis is unlikely. Actually, foreclosure filings have fallen across the country, as residents own a greater portion of their properties, have a manageable amount of debt, and feel confident about their income.
Chicago Housing Market Statistics
Key statistics can also help you understand the latest housing market trends and determine if buying a home in Chicago is a good idea. Find the most important ones below:
- Redfin's latest report says the average housing unit in Chicago sells for around 1% below the list price. Also, these properties go pending in around 60 days.
- The same report says that Chicago hot houses sell for around 2% below the asking price and go pending in 35 days.
- Considering that data, Chicago had a Redfin Compete Score of 42, which means the local real estate market is considered "somewhat competitive."
- Data from the US Census Bureau showed that construction permits for single-family detached homes had declined over the past year, with permit activity falling to 314 in January 2023 from 475 in January 2022. That's a 32% year-over-year drop.
- As of January 2023, Chicago had the lowest number of construction permits for single-family homes in the past seven years. It fell to 272 in February 2015.
- Realtor.com says the median listing home price in Chicago was $350,000, but the median sold home price was $333,500, which means properties are selling below the asking price.
- According to Realtor.com's reports, the median listing price per square foot is $257.
Housing Market Predictions
What do experts say about the Chicago real estate market? What will the future bring for this city? Find the most important predictions for this year.
- Rise in Mortgage Interest Rates
The country is still struggling to cope with rising inflation, and many believe a mild recession is on the horizon. Therefore, analysts predict another rise in interest rates.
Many experts believe that mortgage interest rates will increase to 8% or more for the most common types of loans.
- Drop in Home Sales
Additionally, analysts expect the sales volume to continue to decline as a result of rising mortgage interest rates.
If mortgage interest rates are higher and getting a loan is challenging, residential properties will look less affordable. As a result, fewer people will be interested in buying a home.
Experts predict home sales could drop by at least 10% by late 2023. Additionally, residential properties will likely spend more time on the market before going under contract.
- A Decline in Home Prices
When demand drops and sellers struggle to find potential buyers, prices plummet. As mentioned, many experts believe that houses will become less affordable, which will also lower their value.
Chicago Housing Market Forecast
What will happen to the Chicago housing market in the coming months? Will 2024 be a good year for the city's real estate sector?
The latest trends suggest that the housing market in Chicago will experience a decline over the year, but it'll be slight. Many believe this slowdown will result from a drop in demand and an increase in interest rates.
However, the sale-to-list ratio shows that most residential properties sell for around the listing price, and the inventory is still low, which means the market is somewhat competitive.
In addition, Stuart Handler from the Department of Real Estate at the University of Illinois Chicago's College of Business Administration submitted his forecast for the city's housing prices to the Illinois Association of Realtors.
Mr. Handler said that the median price is expected to grow both in Chicago and across the state.
Homebuyers and real estate investors can find many opportunities in Chicago, whether they're looking for a home for their families or rental property.
However, it's important to note that the city is not a stable market. The latest trends show that housing demand, inventory, and prices are still susceptible to many factors, such as mortgage interest rates and inflation.
Ideally, those who plan to buy a home or make real estate investments in this city should consider all these aspects or seek help from an expert to make a good decision.
Frequently Asked Questions
Is Chicago a Buyer's Market?
Currently, although the inventory continues to rise, Chicago is a seller's market because the demand is still high. However, it's more balanced than in other cities.
According to Marco Santarelly of Norada Real Estate Investments, supply and demand are similar. However, in his latest report, he said that the market favored buyers over sellers in January 2023 due to the high housing inventory.
Is Chicago a Good Place to Buy a Real Estate Property?
In order to answer that question, you should dig into local housing trends and consider your budget and preferences. Although prices are low, major factors can change the market at any time.