Chicago Market | 2017 Outlook

 

It's that time for the year-end blog post. As we look back and reflect it's always interesting to see how my personal experiences vary from others in the industry. Some brokers had a knock out year, many others said the market was softer then in 2015 and that they didn't do as well. All these are simply perceptions based on unique experiences. They don't speak to our market as a whole. So, lets do that.

 

Are going up. They have been artificially held down for many years, and it's time for the pendulum to shift. Long gone are the days of 3.5% fixed rate on a 30 year mortgages. We should expect to see rate simmer in mid to high 4s throughout 2017. So what does that mean for buyers? Lets assume you are looking to keep your monthly payment below $1800 (not factoring taxes/HOAs). With 20% down you could in theory purchase a $500,000 house with a $400,000 loan amount at 3.5%. If interest rates are 5% and you are still looking to cap mortgage payments at $1800 then you would only have the buying power to purchase a home up to $415,000 (again assuming 20% down for a loan amount of $335,000). That is a big $85,000 difference in buying power! Now lets say you have already saved $100,000 down and you just have to have that $500,000 home. We know that at 3.5% the mortgage will be about $1800. At 5% that same mortgage would cost roughly $2150/month. That's an extra $4,200/year in interest out the window.

 

 

Will remain historically low. While the housing market has fully rebounded in many areas of the city, that doesn't mean there are plenty of homes for the picking. With an aggressive crash in our economy and such a slow recovery builders simply were not building in anticipation for future demand. This, coupled with homeowners who opted to rent in troubling times, has further constrained what's available for buyers. 2017 shall bear witness to more multiple offer situations in desirable areas.

 

 

Are in abundant supply downtown thanks to hungry developers trying to catch what has been to date a very lucrative wave. There are uncertain times ahead though. With 1000s more rentals on the way in 2017, the glut I have spoke of in the past will be a real fear for investors and a field day for renters. Expect fully loaded amenity buildings to continue offering attractive lease up concessions as renewal rates level out. Rents may even begin to drop as we head into 2018. 

 

 

Is alive and well again, but it might not fall within your budget. With the high acquisition cost of land downtown developers are either building high density rentals or ultra luxe spacious condos. If you want a brand new condo downtown chances are you're going to have to fork over close to a million or up. In other neighborhoods of the city builders are still focusing on the elite with custom single family homes and luxury duplexes. There are currently very few condo developments in the works for the everyday buyer. This may change over the course of 2017-2018 if a few brave developers opt to convert select rental buildings over to condos. This cycle has repeated itself more than once in Chicago and I am foreshadowing it on the horizon again.