Although Chicago’s real estate market was named the worst in the nation for 2019 by Realtor.com, the market is still managing to grow. Home prices, which are sitting at a low average right now, are expected to rise by 4.1% according to Zillow.
The Chicago real estate market is expecting to be on the uptrend in the next few years due to a growing market of eager first-time home buyers and a significant development boom. Here we’ll discuss the factors contributing to the current state of the Chicago real estate market and how this market will improve in the upcoming years:
The real estate market here in Chicago is changing due to a few explanatory factors – the most significant of these being a declining population, high taxes, and slow employment growth.
Illinois’ population has been on the downtrend for 4 years now trailing West Virginia for the largest population loss in the country. Although the number of births in Illinois still outnumbers deaths, there is an increase of migration from Illinois to other, more affordable states.
This dwindling population is largely a result of the elderly traveling to warmer locations and the heart of the workforce (people aged 25-45 years old) moving to new, less expensive cities like Austin, Charlotte, and Nashville. This is also the portion of the population that is historically the most likely to be buying new homes and for those that do stay in Illinois, many rent longer than the generation before them due to factors like slower wage growth and larger debts.
As property taxes continue to rise in Cook County, home value is staying stagnant. Cook County is home to some of the highest taxes in the nation and the second highest property taxes, making Chicago an expensive place to live and raise a family.
2017 also resulted in Illinois residents being served the largest permanent income tax increase in the history of the state. Both this income and property tax have made it difficult to buy or sell a home in Illinois. This tax trend is nothing new to Illinois residents who question what the future may hold in a state with rising pensions costs and no clear solution in sight. This uncertainty creates doubt for potential buyers thinking of entering the market.
Both this income and property tax hike have led employers to take a cautious approach to 2019. Taxes of this intensity can deter investments within Illinois and e prevent employment growth within the state. Employment growth and housing growth generally go hand-in-hand hence the current state of the Illinois real estate market.
Chicago is also seeing a shift of populations within the state. The suburbs are expanding rapidly as more and more families retreat from city life to the growing suburbs. As the suburbs continue to grow, there is slower employment growth in the city.
Although these trends aren’t great for current homeowners, they hold significant benefits for renters and people looking to buy into the market.
In a real estate market where home sales growth is negative, buyers and renters have the advantage. As home sales stagnate, buyers and renters are in a great position to lock in a great price for valuable homes. With home prices down 2%, first-time homeowners are buying into a market at record low prices.
Renters also hold a significant advantage since landlords will be renovating properties to increase home value in this transforming market. Rent itself can also be negotiable in a market of this climate. For first-time homeowners and renters, this is the ideal market.
Despite the struggles facing Chicago, the city is experiencing a development boom. Construction and development are still on the rise despite record low home sales and prices. Chicago was one of four metro areas that experienced an increase in both new construction and maintenance activity in a study of ten metro areas conducted by BuildFax.
In 2018, Chicago experienced a 19.5% increase in maintenance spending and a 60.2% increase in new construction. One possible reason for this recent boom is Chicago’s commitment to the five-year housing plan aimed at combatting affordability concerns. Other possible explanations are Chicago’s low interest rates, new zoning laws, the increased number of headquarters relocated to downtown Chicago or the trend of foreign investors financing large projects.
Reach out to Focus today to discuss your Chicago development or construction project!