It’s not easy predicting the future of real estate in Chicagoland. Despite an economy that seems relatively strong, there are headwinds for the industry in 2019. Rising interest rates, uncertainty in global markets, and continuing affordability and inventory issues could alter the picture. But the future goes beyond economic factors. What will technological innovations bring to the table, and how can agents and brokers convince tech companies to develop tools tailored to their business needs?
To get at these important questions — and many others — we assembled an expert panel of real estate professionals, association leaders, lending experts, development executives and others to learn more about what they see on the horizon.
Will 2019 be a buyer’s market? Why or why not?
Chris Feurer, Jameson Sotheby’s International Realty: It is clear that the 10-year trend of moderate price increases in most markets has shifted to moderate decreases. It is too early to determine how long and deep the decreases will be. In this environment, all we really know is we’ve hit a current top, which has brought our market back into a historically normal 10-year cycle. For a seller who is looking to capitalize on a near market high, this would be an opportune time to sell. For a buyer, it’s a good time to take advantage of sellers chasing the market down. That buyer will most likely stay five to 10 years and will hopefully hit the next market high on the way out.
Ayoub Rabah, Coldwell Banker Residential Brokerage: Overall, 2018 has marginally skewed towards a seller’s market with inventory levels down 2 percent in Chicagoland year-over-year, according to MRED data. However, in recent months we’re seeing an uptick in listings. Looking at MRED’s month-over-month comparisons, there have been increases of 9 percent in July, 5 percent in August and 4 percent in September. While we cannot predict the future, if those months are any indication of what we can expect in 2019, then we may start to see a more balanced environment. This would mean that buyers and sellers could similarly benefit within the marketplace.
Tommy Choi, Weinberg Choi Realty and 2019 president of the Chicago Association of Realtors: Buyers may find that they’ll have more room to negotiate, after years of having little power to do so, as demand and prices are fairly steady, although inventory continues to decline, albeit less sharply. Inventory in many price bands could continue to be an issue, especially as potential buyers may find themselves priced out of homes that fit their needs. They could choose to remain in place for longer. It will continue to be important for sellers to price properties smartly to avoid longer-than-usual market times. Buyers will react to increased prices, interest rates and property taxes. However, while interest rates are rising and will likely rise further in 2019, they are still historically low.
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Where will the hottest communities and neighborhoods be in 2019?
Thad Wong, @properties: In Chicago proper, Bronzeville is a neighborhood to pay attention to for the next few years as there is lot of development. Pilsen is another area to watch, and it’s attracting more buyers from neighborhoods like Bucktown and Wicker Park who are looking to get more for their money. Watch the United Center area for long-term growth. This will depend on if the commercial and entertainment side of things continues to expand westward. It’s a big bet but could have tremendous payoff. That being said, the West Loop will continue to fill in westward. Logan Square will continue to be hot. In the suburbs, buyers are increasingly drawn to communities with walkable downtowns and easy accessibility. We see a lot of opportunity in parts of the northwest and western suburbs, particularly in areas such as Arlington Heights, Western Springs and St. Charles, where we have new office locations.
Andy Shiparski, Compass: Logan Square, Albany Park and Humboldt Park are three areas that come to mind. I also feel there are many Northwest Side communities that could be both attractive and affordable options. To break it down even further, acquisition costs have risen, pricing many buyers out of certain communities. That, paired with the shortage of inventory, creates these alternative neighborhoods that offer tremendous value.
Do you expect the economy to help fuel the housing market in 2019? Why or why not?
Choi: Yes. The economy as a whole is doing really well. Unemployment rates continue to fall, and the GDP is rising. The real estate market is slowly transitioning into a more balanced one.
Mike Gobber, Mainstreet Organization of Realtors: The economy won’t completely fix the shortage of inventory problem, but it will start to mend it. As home price appreciation slows down, we’ll see more homes on the market. There will be a shift from a seller’s market to a more even market in the next few years.
What impact do you expect tax reform to have on the housing market?
Rabah: The impact of tax reform will become more prevalent once we hit tax season. In short, the strengths and drawbacks of the bill will vary greatly depending on the individual needs and lifestyles of consumers. No matter how the bill affects the world of real estate, we urge buyers and sellers to take advantage of the knowledge and support around them. Now more than ever, it’s key to have a knowledgeable agent on their side to help navigate this new terrain in order to have the best possible experience.
How can agents prepare to deal with a changing economy?
Feurer: They need to prepare for seller confusion. Clients want to know, “Why did my neighbor sell for X and my home is only worth Y?” We offer proprietary software to illustrate trends in the market. It is critical to educate sellers on the price decreasing trend.
Choi: To keep the respect and business of buyers and sellers, agents must maintain professionalism at all times. It’s also important to continuously educate ourselves, whether on technology, new business ideas or lead generation. In this fast-paced, instant gratification society we live in, we cannot afford to stall on returning calls or make the transaction harder for clients because of outdated technology or processes. We also need to be cognizant of what’s going on outside of our offices. We’re in a unique time where we’re serving many different generations at once. We need to do our research to really understand those generational differences.
Rabah: Consumers today have unlimited property information and data at their fingertips. With that said, it is important for agents to stay ahead of the game by immersing themselves in established and emerging technology. Coldwell Banker has developed and launched several comprehensive marketing and technology platforms to help affiliated agents to continue to thrive against the competition. This year we partnered with Moxi Present to roll out a top-rated cloud CMA locally. Coldwell Banker’s affiliated agents will also soon have access to CBx Seller Leads, a lead generating program that uses machine learning and predictive analytics to identify households looking to list.
How are tech changes going to affect day-to-day business?
Wong: Like all of our technology, our newest tech tools are designed to differentiate our agents from their competition and to increase production. One of the biggest differentiators and benefits to our agents is that all of our tech tools are integrated within one proprietary platform. That means one login to build a digital CMA, send an e-campaign, create a brochure, manage transactions and client databases, access marketing apps and more. This platform continually gets stronger as we develop and deploy new tools and updates. It also streamlines and automates processes so that agents can focus on relationships and business generation, while avoiding the hassles that come with learning and using multiple systems and interfaces.
Laura Ellis, Baird & Warner: Baird & Warner has made it easier for our agents to build prospects and grow their businesses, as well as complete and manage all the forms involved in real estate transactions. With zipForm Plus, our agents save time as this program streamlines the buying and selling processes for our customers, agents and staff by eliminating duplicate data entry across forms.
Shiparski: The end goal is to support our agents with factual data that better educates and equips them with their value proposition in gaining the trust and loyalty of their clients. We are committed to ensuring our agents are highly trained but also passionate when it comes to technology and adoption of new tools and platforms. At the end of the day, no matter what changes come our way, we want a more efficient user experience for our brokers and their clients alike. When integrated properly, our brokers become trusted advisors and not salespeople, allowing them to create an incredibly memorable experience for their clients.
What new technologies will your company be adopting or using?
Wong: @properties has a number of new technologies launching next year, all of which are part of our integrated tech platform that empowers agents to run their businesses more efficiently. One is @CRM, which is a true relationship manager. It was built in house and will allow our agents to manage their databases seamlessly by auto-ranking contacts by buying and selling activity, providing daily tasks and goals for outreach, helping with workflow and tracking, and integrating with our other systems. Another new tech resource is our luxury brochure tool, which allows our agents to design and produce their own hardcover brochures for luxury listings. This eliminates the back-and-forth process of working with a designer to proof a lengthy brochure and enables agents to send the brochure to our in-house print center immediately. We will also be rolling out a new internal e-signing system and a digital platform that lets our agents easily manage all of their social media accounts and content from one place.
Ellis: We’re going to be introducing a new CRM with predictive analytics. Agents will have access to all the data needed to keep in touch with their customer bases. The CRM curates more data using social media profiles and assigns a score based on the customer’s online activity to help agents better analyze who is likely to buy or sell.
Shiparski: The hot topic is AI coupled with predictive analytics. I am confident Compass will continue to be passionate about these subjects and stay dedicated to integrating them. We consistently improve on what we already have in place and enjoy exploring what else we can do when it comes to predictive analytics. Data mining is another big one for us; specifically, strengthening our ability to prepare and forecast when potential sellers will enter the market as well as buyer tendencies. We are committed to equipping our agents with the best tools in the business that position them to win more listings and grow lasting relationships with their clients.
What problems does the industry need to address to move forward toward a positive future?
Ellis: Our industry is undergoing major changes, and I’m feeling positive about the direction we’re headed. In fact, the nature of our industry calls for constant innovation, which can ultimately create challenges. I believe we need to work toward an industry-wide solution to simplify the fragmentation of tools that agents and brokers use to manage their businesses. One-size-fits-all tools are rarely the answer, and that’s the message brokers and agents need to deliver to vendors. If we collectively push for more robust APIs to facilitate the flow of data between systems, we’ll help make the process easier, more efficient and more accurate.
Choi: There’re also issues around fair housing. We have a responsibility as Realtors to help foster inclusive communities. Are our practices out in the field aligned with the Fair Housing Act and the Realtor Code of Ethics? Ultimately, while it’s easy to be goal-driven in this career path, we’re here to help people complete some of the biggest transitions and financial and emotional decisions of their lives. That needs to be the focus of everything we do.
Gobber: The youngest group of prospective homebuyers are looking for different things in their home searches, and Realtors need to keep up with these changing needs. As Generation Z begins to enter the housing market, and may be drawn to tech that promises to ease the homebuying process, Realtors need to have a plan of action to communicate the benefits of choosing a Realtor.
What new development trends are expected to be most prominent in 2019?
Buzz Ruttenberg, Belgravia Group: The trend of the year for all segments of real estate will be the continued densification of urban centers. The need for more skilled workers will drive business and homes to educational centers, which are typically in the core of urban areas. The increase in internet sales will also drive the increased emphasis on last-mile storage and delivery. The demographic imperative of the millennial generation, along with their work habits and delayed household formation, will emphasize this activity.
Tricia Van Horn, Related Midwest: It’s not so much about new trends as it is continuing trends. For downtown-area luxury buildings, developers will compete at a higher level than ever to provide one-of-a-kind amenities and niche services that attract discerning buyers and renters. At One Bennett Park, there are several lifestyle amenities that have never before been offered in Chicago, from an exclusive owners’ cordial room to two different amenity spaces designed specifically for children to enjoy to a fitness and wellness center designed by fitness consultant Jay Wright of The Wright Fit. This is a curated fitness experience with equipment, layout and custom programming that rivals the best gyms in Chicago and New York. Related has also partnered with tech and hospitality platform Hello Alfred to develop an exclusive, app-based service for some of our residential buildings, including One Bennett Park, called Life Simplified. Combined with white-glove service from a 24-hour team of concierge-level employees, Life Simplified makes life easier and more convenient for busy residents. A renter can request anything from pantry stocking to move-in coordination to party planning, and one of the building’s “Alfreds” will accomplish the task. These types of amenities and services set the bar as we head into 2019.
What are the biggest new development challenges going to be?
Ruttenberg: The two biggest challenges in residential development in Chicago are the upcoming mayoral election and the issue of workforce and lower-income housing. An election always stirs the imagination, and candidates often suggest solutions that are not economically sound. Promises are a core part of campaigning. The current ARO regulations have yet to produce a high volume of desired low-rent units. The high cost of construction and rising interest rates drive construction costs per unit for a 1000-square-foot apartment into the low- to mid- $300,000 range. Renting that apartment at some $15,000 to $18,000 annually will not pay the taxes and operating costs on that home. Currently there is no solution for that math in small neighborhood-scale properties. The reuse of existing buildings at a price well below replacement cost and a property tax abatement program may be a big step forward. Presently this is not city or county or state law, which is a loss for us all.
Are there any pending changes in lending that will affect agents?
Daryn Peterson, Blueleaf Lending: The biggest change, in my opinion, will be the recent announcement of the increase in the conforming loan limits in 2019. The Federal Housing Finance Agency has now increased the loan limits twice in two years, and many experts are predicting that home prices will continue to rise. The increase in the conforming loan limit will mean there are more loans available with great rates and lower down payments than in years past.
John Elias, Guaranteed Rate: Margin compression, nonexistent refinance activity, and efficiencies gained through investments in technology are going to make it very difficult for lenders who have not planned for the future to compete in 2019. Guaranteed Rate is focused on improving technology to enable our originators to come out of the gate strong next year. We think that while 2019 will be remembered as the year of downsizing in the lending industry, it will be an opportunity to build upon our already strong team through continued hiring and acquisitions.
Steve DiMarco, Key Mortgage Services: There is already a tremendous amount of liquidity out there for people who want to and should be able to buy homes. I don’t see any monumental shifts in loan products or programs that would greatly affect agents.
What will happen with interest rates in 2019?
Peterson: Many experts are predicting that we’ll see 30-year fixed rates climb to the mid-fives or higher by the end of 2019. This increase could push more first-time buyers into the market; however, it may encourage current homeowners to stay put if they’ve already locked into a low 30-year rate.
Elias: Mortgage rates will continue to rise, but it’s looking more and more like the end of the Fed tightening cycle is near. Brexit issues, crashing oil prices, and the trade rift between China and the U.S. are going to make it very difficult for the Federal Reserve to pull off two to three more rate hikes in 2019. Meanwhile, 30-year mortgage rates will probably end the year in the 5.25 to 5.5 percent range.
DiMarco: Interest rates will continue to rise steadily. I see 2019 ending somewhere between 5.5 percent and 6 percent. That said, I don’t see these increases stifling demand and the Chicago spring market should be robust. I predict spring 2019 sales in the Chicago area will be 5 percent higher than last year. Even throughout the year as rates rise, people — millennials in particular — are still growing up, moving out, getting married, having children and need homes to accommodate their lifestyles. While the rates we are seeing today may seem high to millennials, current interest rates are still at historic lows and millennials should take advantage.
Panel of Experts:
- Tommy Choi, co-founder of Weinberg Choi Residential, Keller Williams, Chicago; 2019 president of the Chicago Association of Realtors
- Steve DiMarco, president of Key Mortgage Services, Inc.; executive vice president at Baird & Warner, Chicago
- John Elias, chief revenue and strategy officer at Guaranteed Rate, Chicago
- Laura Ellis, president of residential sales and the executive vice president of Baird & Warner, Chicago
- Chris Feurer, CEO Jameson Sotheby’s International Realty, Chicago
- Mike Gobber, managing broker of Century 21 Affiliated, Westchester; 2019 president of the Mainstreet Organization of Realtors
- Daryn Peterson, vice president of residential lending at Blueleaf Lending, Chicago
- Ayoub Rabah, president of Coldwell Banker Residential Brokerage in the Central West region
- Buzz Ruttenberg, founder of Belgravia Group, Chicago
- Andy Shiparski, sales manager at Compass, Chicago
- Tricia Van Horn, vice president of marketing and communications at Related Midwest, Chicago
- Thad Wong, co-founder of @properties, Chicago