Jump To Another Year In The Chicago Real Estate Market:
The Chicago real estate market has recovered at its own pace. While not on the same level as the rest of the country, the recovery of real estate in Chicago has occurred at a pace that appears very attractive to local investors. The Windy City’s unique combination of relatively low prices and demand seems to tilt the scales heavily in favor of today’s real estate investors. While some more changes are to be expected in the wake of the Coronavirus, however, this midwestern city looks poised to weather the storm and perhaps even come out on the other end even stronger than it went in.
Things appear to be heading in the right direction, which begs the question: Should I invest in real estate in Chicago? Despite the rampant appreciation rate, there is no better time to invest in the Chicago real estate market than now. That said, the new market created by the pandemic has forced investors to reevaluate their most viable exit strategies. While rehabbing and flipping are still options, there’s another strategy gaining momentum: long-term rental properties. Today’s market indicators have fostered an environment ripe for landlords to take advantage of, and the trends should continue for the foreseeable future.
Chicago Real Estate Market 2021 Overview
-
Median Home Value: $299,790
-
Median List Price: $348,233
-
1-Year Appreciation Rate: 10.4%
-
Median Home Value (1-Year Forecast): 8.9%
-
Weeks Of Supply: 9.9 (-1.3 year over year)
-
New Listings: 2.408 (-18.4% year over year)
-
Active Listings: 22,713 (-14.4% year over year)
-
Homes Sold 2,469 (+0.6% year over year)
-
Median Days On Market: 13 (-5.5 year over year)
-
Median Rent: $1,746 (+3.5% year over year)
-
Rental Vacancy Rate: 8.4% (+0.0% year over year)
-
Price-To-Rent Ratio: 14.30
-
Delinquency Rate: 4.9% (-2.8% year over year)
-
Chicago-Naperville-Arlington Heights Unemployment Rate: 7.5% (latest estimate by the U.S. Census Bureau)
-
Metro Population: 2,693,976 (latest estimate by the U.S. Census Bureau)
-
Metro Median Household Income: $58,247 (latest estimate by the U.S. Census Bureau)
2021 Chicago Real Estate Investing
Flipping remains a viable strategy across the United States, but one question remains: Is it wise to buy in Chicago? The answer is simple: yes, as long as investors work within the parameters of the current market landscape. As it turns out, the Chicago real estate market appears poised to benefit both flippers and rental property owners for the foreseeable future.
There are still plenty of opportunities to flip real estate in the Chicago housing market. However, nearly a decade’s worth of appreciation is doing its best to shift the investing landscape from flipping strategies to those of a more long-term nature. More specifically, building a rental property portfolio is perhaps more attractive now than ever before, and the presence of the Coronavirus could actually work in favor of today’s Chicago real estate trends.
The Chicago real estate investing community should consider adding to a rental property portfolio for three particular reasons:
-
Historically low interest rates can help offset today’s higher acquisition costs
-
Lower borrowing costs can increase cash flow from properties placed in operation
-
The price-to-rent ratio suggests housing inventory will be harder to come by and rental demand will increase
The presence of the Coronavirus has forced the Fed’s hand into keeping interest rates low. In an attempt to buoy the economy, the Federal Reserve announced interest rates would remain low for at least the next couple of years. As of August, the average rate on a 30-year fixed-rate loan was 2.84%, according to Freddie Mac. While interest rates are up year-to-date, the latest numbers reported by Freddie Mac are still historically low. As a result, lower borrowing costs are helping to offset today’s higher prices in not only the Chicago real estate market but the Illinois real estate market as a whole. While it may not seem like much, investors using traditional loans may save thousands of dollars on interest over the life of a loan used to secure a rental property.
In addition to offsetting today’s higher prices, lower borrowing costs may also help Chicago real estate investors increase their cash flow from rental properties placed in operation. At the very least, the less rental property owners are obligated to spend on their mortgages each month, the more they can pocket from rent checks.
With a price-to-rent ratio of 14.30, it is more affordable to buy a home than rent one in the Chicago housing market. More people may be willing to buy, which would traditionally hurt the prospects of rental property owners. However, affordability (combined with the current pandemic) has significantly detracted from inventory levels. Today, the Chicago real estate market has less than ten weeks of inventory, nowhere near a “healthy” market. In fact, at its current level, Chicago’s inventory is historically low and prohibitive to prospective buyers. There aren’t enough listings to satiate buyer demand, and landlords will reap the rewards.
The Chicago real estate investing community is lucky to have several viable exit strategies at its disposal. Still, none appear more attractive than building a proper rental property portfolio at the moment. Too many essential market indicators are pointing towards becoming a buy-and-hold investor to ignore.
[ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]
2021 Foreclosure Statistics In Chicago
According to ATTOM Data Solutions’ Midyear 2021 U.S. Foreclosure Market Report, “a total of 65,082 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — in the first six months of 2021. That figure is down 61 percent from the same time period a year ago and down 78 percent from the same time period two years ago.”
There’s no doubt that foreclosures are down on a national level, and the Illinois real estate market is no exception. Foreclosure filings in Illinois are down more than sixty percent from the first half of last year to the first half of this year. Despite the decrease, however, Illinois still has one of the highest foreclosure rates in the country.
“States with the highest foreclosure rates in the first half of 2021 were Delaware (0.10 percent of housing units with a foreclosure filing); Illinois (0.09 percent); Florida (0.08 percent); Ohio (0.08 percent); and Indiana (0.08 percent),” according to ATTOM Data Solutions.
As the largest city in Illinois, Chicago appears to have contributed the largest amount of foreclosures. As recently as August, Chicago made the list of qualifying metro areas with the largest number of foreclosure stats in the country. According to Chicago Agent Magazine, “the greatest number of foreclosure starts occurred in New York City: 486 foreclosure starts. Chicago closely followed this with 439, Los Angeles with 401, Houston with 322 and Dallas-Fort Worth with 248.”
Foreclosures in the Chicago housing market are already higher than its metropolitan counterparts, but that doesn’t mean they can’t go higher. In fact, there’s a good chance filings increase as government foreclosure moratoriums expire.
“The foreclosure moratorium on government-backed loans has virtually stopped foreclosure activity over the past year,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company. “But mortgage servicers have been able to begin foreclosure actions on vacant and abandoned properties, which benefits neighborhoods and communities. So it’s likely that these foreclosures are causing the slight uptick we’ve seen over the past few months.”
2021 Median Home Prices In Chicago
Chicago’s median home value is $299,790, which is right in line with the national average. However, real estate in Chicago has taken a slightly different recovery path over the last decade. Most notably, home values didn’t recover from the Great Recession until the third quarter of 2012. In September of that year, the median home value bottomed out at around $169,000. However, in nearly nine years, the median home value has appreciated by as much as 707.3%. Thanks—in large part—to an improving economy, increasing sentiment, and (ironically enough) a lack of inventory, home values have grown for nine consecutive years.
Real estate in Chicago has had an impressive run for the better part of a decade. Home values have appreciated for nearly nine consecutive years, which leaves one more vital question to be answered: Is it a good time to buy property in Chicago?
Now is a great time to buy a home in Chicago for anyone looking to do so sooner rather than later. While prices have increased dramatically, interest rates are too attractive to pass up. Borrowing costs will most likely rise soon, driving prices up at the same time. Subsequently, the lack of inventory will maintain a high level of competition, allowing sellers to demand a premium, upwards of more than 8.9% of today’s prices. As the lack of inventory continues, prices will only increase. While prices are high, they are likely to go higher. Today’s home prices may actually end up resenting a value in the next few years.
Chicago Real Estate Market: 2020 Summary
-
Median Home Value: $249,152
-
1-Year Appreciation Rate: +0.6%
-
Median Home Value (1-Year Forecast): -2.3%
-
Median Rent Price: $1,761
-
Price-To-Rent Ratio: 11.79
-
Chicago-Naperville-Arlington Heights Unemployment Rate: 17.6% (latest estimate by the Bureau Of Labor Statistics)
-
City Population: 2,693,976 (latest estimate by the U.S. Census Bureau)
-
City Median Household Income: $55,198 (latest estimate by the U.S. Census Bureau)
-
Percentage Of Vacant Homes: 13.75%
-
Foreclosure Rate: 1 in every 7,493 (1.3%)
Chicago Real Estate Investing 2020
Chicago real estate market trends in 2020 were the result of a new marketplace created by the pandemic. Once COVID-19 was officially declared a global emergency, real estate in Chicago responded just like everywhere else: it stalled in the face of fear and uncertainty. In a matter of weeks, activity dropped substantially. Lenders stopped underwriting, sellers took their homes off the market, and buyers refused to tour the homes of strangers. The impact of COVID-19 on the real estate market was significant, but it only lasted a few weeks.
Once it was apparent activity would slow, the Fed dropped interest rates well below three percent. As a result, buyers couldn’t help but try and take advantage of the once-in-a-generation rates. Shortly after the market shuttered, lower borrowing costs brought about more activity than anyone could have imagined. Buyers were inspired to participate in the market, and demand quickly turned into competition. A distinct lack of inventory in Chicago, combined with high demand, served to increase prices significantly. The median home value in Chicago increased just over five percent in the last three quarters of the year; that’s in addition to the nine consecutive years of appreciation that just took place.
The median home value in Chicago tested new highs each month in 2020, and investors were forced to change their exit strategies. The city’s high prices turned investors away from flips and towards long-term rental properties. In addition to profit margins being slimmer, the lower borrowing costs created in the wake of the pandemic simultaneously offset high home values and increase monthly cash flow from rental properties placed in operation. When all was said and done, the market favored long-term strategies in 2020, and the trend carried over into 2021.
Chicago Real Estate Market: 2018 Summary
The Chicago housing market was about as healthy as they came in 2018. Unlike most other metropolitan areas of a similar size at the time, The Windy City stumbled across a balanced market—one that favored both buyers and sellers. At the very least, real estate in Chicago was firing on all cylinders while still boasting a relatively low cost of living. People were willing and able to buy homes, which spelled great news for those interested in Chicago real estate investing.
Chicago Real Estate Investing 2018
According to Zillow, the city had a median home value of $221,000 at some point in 2018. Despite being one of the largest metro areas in the country and the only primary market in the Midwest, home values were only slightly higher than the U.S. average. The median home value in the United States, also according to Zillow, was $207,600 at the same time. All things considered, homes were undervalued, which was the perfect storm for investors.
The Chicago housing market had its share of distressed properties. In fact, RealtyTrac identified some 9,275 in some state of foreclosure. That means close to 1,000 properties were either in pre-foreclosure, up for auction, or had already been repossessed by the loan originator. More specifically, however, there are nearly 1,000 opportunities for investing in Chicago real estate.
At the time, distressed properties carried a median sales price of $98,000, or 44.0% below the average sales price of non-distressed homes. On average, investors could save an average of $77,000 if they choose to buy distressed homes over those in good standing.
Chicago Real Estate Market: 2016 Summary
-
Median Home Price: $208,600
-
1-Year Appreciation Rate: 8.4%
-
3-Year Appreciation Rate: 30.9%
-
Unemployment Rate: 6.6%
-
1-Year Job Growth Rate: 1.8%
-
Population: 9,500,00
-
Median Household Income: $61,598
Chicago Real Estate Investing 2016
Chicago was among the largest and most desirable cities in the United States in 2016. Known for its illustrious architecture and culinary dishes, The Windy City also encompassed a growing real estate market that rebounded nicely from the housing recession of 2008. The average price for a home in the first quarter of 2016 was $208,600, an increase of 8.4% from the previous year and 2.3% better than the national average at the time.
According to Chicago real estate news in 2016, the city was a seller’s market. The average home was worth approximately $218/sq. ft., which represented a steady increase of 6.0% over the same period in 2015. However, unemployment prevented homes from reaching their true potential at the time. The unemployment rate was 6.6% compared to the national average of 5.5%.
Chicago Real Estate Market: 2014 Summary
-
Median Home Price: $208,600
-
1-Year Appreciation Rate: 8.4%
-
3-Year Appreciation Rate: 30.9%
-
Unemployment Rate: 6.6%
-
1-Year Job Growth Rate: 1.8%
-
Population: 9,500,00
-
Median Household Income: $61,598
Chicago Real Estate Investing 2014
Real estate in Chicago was hit hard during the recession. At the onset of the downturn, houses and homeowners alike lost an average of $47,400. Two years later, problems continued, as the average homeowner lost $65,200 in equity. By 2011, homeowners had reestablished an average of $34,800 in equity. Home price increases in 2014 helped to pull the local market out of a state of post-recession price weakness.
According to a past Case-Shiller Home Price Index, Chicago had the lowest price gains in 2014 out of the 20 qualifying metros. According to the report, single-family homes in the Chicago housing market increased by a modest 1.3%. Condos, on the other hand, finished the year with an even smaller gain: 1.1%.
Nevertheless, the city still proved that it could make improvements to its real estate market in 2014. Perhaps even more encouraging than the gain was the market’s consistency. For 26 consecutive months, real estate had been the beneficiary of home price increases. Chicago homes increased in value significantly since they bottomed out during the recession. In fact, since they were at their lowest level, single-family home prices increased 23.6%, while condos surged 31.0% in 2014.
Despite having faced plenty of headwinds, real estate in Chicago benefited from an improving economy. Economists forecasted that the expansion of the economy would work in favor of the area. The city experienced moderate growth for at least the next year—at least according to an economic report issued by the University of Illinois’ Regional Economic Applications Laboratory.
Chicago County Map:
Chicago Real Estate Market Summary
The Chicago real estate market, much like the rest of the country, has been the beneficiary of several years of appreciation. Median home values have increased year over year since 2012, and experts are convinced the Coronavirus will only serve as a temporary obstacle. In fact, there’s a real chance real estate in Chicago comes out of the pandemic stronger than when it went in. While the unemployment rate will need to see marked improvement, a returning workforce could facilitate an active second half of 2020 for local investors.
Ready to start taking advantage of the current opportunities in the real estate market?
Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!
Sources
https://www.zillow.com/chicago-il/home-values/
https://www.zillow.com/home-values/
https://www.zillow.com/research/data/
https://www.redfin.com/news/data-center/
https://www.bls.gov/eag/eag.il_chicago_md.htm
http://www.freddiemac.com/pmms/pmms30.html
https://www.census.gov/quickfacts/chicagocityillinois
https://theenergylogic.com/housing-tides/housing-tides-interface/
https://chicagoagentmagazine.com/2021/09/09/illinois-foreclosure-rates-august-2021/
https://www.attomdata.com/news/market-trends/foreclosures/attom-mid-year-2021-u-s-foreclosure-market-report/
