Trying to predict what will happen in the residential real estate market in 2022 is a bit like trying to forecast the weather months in advance, but while the future of home sales and development has become increasingly unforeseeable, real estate professionals continue the work of advocating for their clients.
We spoke with Chicago real estate leaders to learn what they see coming down the road for the industry. While buyer preferences for more space — both inside and outside the home — remain and supply chain issues continue to stifle home construction efforts, other factors, such as the potential increase in interest rates, are expected to change the game in 2022. Check out our Q&A with some of Chicago’s top players to learn more about what they’re planning for over the next 12 months.
Trying to predict what will happen in the residential real estate market in 2022 is a bit like trying to forecast the weather months in advance, but while the future of home sales and development has become increasingly unforeseeable, real estate professionals continue the work of advocating for their clients.
We spoke with more than a dozen Chicagoland brokers, lenders and developers to learn what they see coming down the road for the industry. While buyer preferences for more space — both inside and outside the home — remain and supply chain issues continue to stifle home construction efforts, other factors, such as the potential increase in interest rates, are expected to change the game in 2022. Check out our Q&A with some of Chicagoland’s top players to learn more about what they’re planning for over the next 12 months.
*Howard Ackerman, mortgage production manager, Regions Mortgage
*Tom Bretz, co-founder and CEO, Elmdale Partners; broker/owner, Century 21 Affiliated
*Liz Brooks, executive vice president of sales and marketing, Belgravia Group
*Fran Broude, senior managing director, real estate, Compass
*Jeremy Collett, executive director of capital markets, Guaranteed Rate
*Diane Glass, CEO, Berkshire Hathaway HomeServices Chicago
*Mike Golden, co-founder and co-CEO, @properties
*Heather Hillebrand, designated managing broker, Dream Town — Lincoln Park
*Tripti Kasal, senior vice president of residential sales, Baird & Warner
*Christine Lutz, executive vice president, Wolf Development Strategies
*Gianna Ricci, district vice president, Midwest Region, Coldwell Banker Realty
*T.J. Rubin, founder and owner, Fulton Grace Realty
*Timothy Tuz, senior vice president, capital markets, Wintrust
Will residential real estate have a good 2022? Why?
Golden: Residential real estate will have a very good 2022 due to a number of factors: strong housing demand; historically low mortgage rates; high employment; the continued recovery from the pandemic; the r elative affordability of the Chicago metro area compared to other major cities; and a favorable own-versus-rent dynamic. The conditions are great for continued strong home sales and for our business in general.
Kasal: 2022 is going to be very strong. I think the mad pace of 2021 will slow down, so there may be an impression the market as a whole is losing steam. But that just means instead of going 100 miles per hour, we’ll be going 85 miles per hour — still faster than what many consider a “normal” market. And when you take the market stats into consideration, the fundamentals will be strong, comparatively speaking. That’s tied to pent-up demand, where a lot of buyers want to move but either haven’t entered the market yet, or entered the market during the frenzy but didn’t make a purchase because they were intimidated by the multiple- offer situations in 2020 and 2021.
Hillebrand: The local real estate market will continue to be strong in 2022. Most forecasters agree that the record price increases of 2021 won’t be sustainable into next year, but the market will still continue to trend up next year. Also, interest rates will go up — but STILL will be at historically low rates. I think if they stay below 3.5% on average, Chicago will continue to see price increases.
Glass: Throughout this year, we’ve been talking with housing economists locally and nationally. We expect that 2022 will be one of the three best years for real estate in the United States. We expect that demand will remain very strong in the city, suburbs and second-home markets. Interest rates and home values will be stable, and that means that buyers have a lot of purchasing power and a lot of equity in their homes.
Prices will continue to rise, but we expect that growth will be at a more modest rate. We expect to see 3-5% growth in the number of homes sold, but the overall transaction volume will be amplified by price increases.
Bretz: Yes, limited supply combined with low interest rates makes for a strong but not crazy 2022.
Broude: Residential real estate should remain very solid in 2022. While interest rates have risen slightly, they remain relatively low. Inventory is steadily beginning to build, and in some areas more than others. The frenzied buying craze has leveled off and home values have increased, although they have increased far less in the Midwest and Chicagoland than other major markets. This is keeping affordability relatively in check.
Rubin: I envision that 2022 will be a strong but stable year in residential real estate. For a variety of reasons, I don’t expect the next 12 months to be quite as hot as this past year. Several factors should curtail 2021’s unprecedented frenzy, including an anticipated modest uptick in interest rates, as well as increasing real estate taxes in Cook County. Because of these factors and more, we don’t foresee any significant increase in home or rental prices. However, there is still plenty of buyer demand and a relatively low month’s supply in the Chicagoland area, which will help maintain the stability of the 2022 market. Overall, we imagine it will be somewhat of a more “boring” and stable market with more typical levels of appreciation and less pendulum swings than years past.
What changes have you made to the way you do business since the onset of the pandemic, and what changes do you anticipate making in the coming year?
Broude: We aggressively rolled out a series of ongoing virtual meetings, training and culture-building gatherings and activities. Additionally, we reallocated our staff resources to be able to support agents at an even higher level. As some of the pandemic mandates lessened, we created hybrid-type meetings and idea shares (in person and virtual), as well as solicited a lot of agent feedback on what they needed to be more efficient and productive.
Kasal: We’ve continued to launch tools to raise the bar on service to our clients. A key way we’ve accomplished this was ramping up an on-demand training system and producing training videos to keep pace with real-time trends, such as multiple offers. Our training department has grown significantly as we make it possible to take advantage of opportunities to learn on-the-go using any device at any time of the day that’s convenient.
Glass: We’ve just launched our new Move Confidently campaign, which is all about our people and the unique things that make us us. Our utterly human approach involves using our own people in colorful and vibrant ads that let their personalities shine through. The messaging is all about the experience our clients have, knowing that they have terrific people by their side.
Golden: In terms of changes in the coming year, we are doubling down on the things that have helped our agents and their clients thrive over the past two years. These include digital tools that bring more efficiency and transparency to the buying and selling process; coaching and training to help our agents deliver better service and learn and refine new skills; and new partnerships and services that enable us to create a more integrated, seamless experience for the consumer.
Rubin: We placed a significant effort on digital and social media marketing — we offer virtual tours on nearly all of our listings, both rentals and sales, so that the consumer can “tour” our listing from the comfort of their own home. Additionally, our listing and buyer presentations are now virtual, hyper-customizable and interactive. Furthermore, we have made many logistical optimizations to better navigate the modern world. We now accept all types of payments online, such as earnest money, rent and application fees.
In 2022, we remain dedicated to innovating and further developing our digital offerings for our agents and consumers. We have several technological updates in progress that will further allow our agents to seamlessly conduct business remotely and enhance their client relationships.
What can agents do to succeed in 2022?
Hillebrand: Start planning ASAP. The top brokers in Chicago have already assessed the success of their 2021 marketing efforts and created their marketing plans for next year.
Rubin: We should be mindful of the old adage: “You’re only as good as your last deal.” No matter how well agents performed in 2021, agents should avoid a lengthy celebration and resume focusing on the basics — the tried-and-true methods of building a business, namely database marketing and relationship management. As we enter into what appears to be a slower fourth quarter, agents should be using this time to focus on business planning and developing strategies to leverage their successes from 2021 to help build a strong and sustainable stream of business in 2022 and beyond.
Glass: We’ve embraced the 12 Week Year approach to agent business planning. As the market changes and normalizes, we want our agents to look for new opportunities to adapt and thrive. There are pockets of pent-up demand, and staying connected to clients and keeping them in the know is the best way to meet their needs when they are ready.
Kasal: 2022 will be a time for returning to fundamentals. Real estate continues to be a people business. We’re helping people, and I think what agents need to do is refocus on staying in touch with clients, and staying in touch with their sphere of influence as they continue to expand and stay current with hyperlocal market trends.
Ricci: Stay focused, minimize distractions and regardless of market conditions, be a student of the market. If you do not have the tech and tools to support a listing-focused business, be mindful as to how you will attract listing opportunities. Listings are a key driver of success, so agents will need to maintain focus on attracting listings. If inventory levels begin to rise, set proper expectations from the start on positioning to avoid increased market time and having to do a series of “chicken” reductions.
What growth do you expect for your company next year? Do you expect your business to thrive, decline or remain stable? Why?
Broude: After incredible growth in 2021 and a thriving local real estate market, we expect to continue to see steady growth in 2022 and expect the market to remain fairly robust.
The Midwest does not usually see the dramatic swings often found in the coastal communities; therefore, the growth is more sustainable.
Golden: You will continue to see us growing into new markets both through franchising and acquisition. We see a lot of opportunity in our business and feel that we are the best-positioned nationally to take advantage of it.
Kasal: We hired over 700 agents in 2021 and plan to hire more in 2022. In addition, Baird & Warner is focused on expanding opportunities in underserved markets across Chicagoland. We’re targeting places where we feel there is a demand for more professional real estate services to be provided, and we also have strategic acquisition opportunities on our radar, so we are very much on a growth path for 2022.
Bretz: Yes! Thrive as we continue to be a strong service provider with a world-class brand.
Are you seeing continued migration to the suburbs, or is that beginning to reverse? What does it mean for sales?
Golden: We’re seeing migration to the suburbs and also migration to the city. There is more buying and selling activity all around. The real estate “food chain” is functioning again after a number of years of stagnation. First-time buyers, move-up buyers and move-down buyers all have an opportunity, and the market is firing on all cylinders. We just need more homes to sell.
Kasal: All signs have shown it has already reversed — some say it’s a U-turn. Looking at the big picture, people are reevaluating the way they live, where they want to live and what type of home will accommodate their new lifestyle. Whether that change is about needing more space to work from home or wanting to live in a high-rise condominium in the city to be around people, restaurants and nightlife, people are settling into a post-vaccine world and evaluating their renewed lifestyle desires.
Deciding where to live is one of those extremely personal decisions that may have even shifted for people from 2020 to now. A person who may have wanted to move to the suburbs last year may be reevaluating their lifestyle and deciding they want to be back in the city. People are still trying to figure out what they want.
Glass: The Chicago area is remarkably balanced. There is constant flow of people moving between downtown, city neighborhoods and suburban communities for lifestyle, work and family. Most of our suburbs are less than an hour from downtown, giving people flexibility to choose where they live and work.
There will always be people who want to live downtown and in the city. Chicago is an amazing, wondrous place and I’d never bet against it. There’s been a lot of attention brought to downtown high-rises. And we did see some volatility, particularly in what had been a hot rental market. In 2021, demand for downtown condos and rentals rose significantly. Any skew toward suburban demand is normalizing quickly.
We are entering what could be a very exciting time for real estate, and we could see rebalancing of commercial, residential and mixed-use space.
Bretz: Slowing, but not reversed.
Ricci: Depending on price point, yes. Often we hear, “everyone is moving from the city.” That may not be the case, depending on what part of the city and what burb. This is where data is king. Agents need to use their brokerage’s tools to learn the migration patterns in their area.
Hillebrand: I believe that the migration to the suburbs was actually only an acceleration of the moving timeline that many people already had. For example, if people were planning to move in the “next five years” or “before the kids start school,” they went ahead and made the move during the pandemic, but I also have lots of clients who still don’t intend to move to the suburbs. They are buying bigger, better homes in the city and they’re here for the long run. We’ve seen that playing out in the very high demand for newer-build, luxury single-family homes in many Chicago neighborhoods.
What will be the biggest challenges and opportunities for agents, lenders and brokers in 2022?
Ricci: Continued pressure on inventory dependent on price points. Many agents faced “buyer fatigue” as properties traded rapidly, and often buyers became frustrated with the overall process. Agents need to become as well-versed in building the buyer/agent relationship as they have become accustomed to when preparing for a listing appointment.
Golden: Low inventory will continue to challenge the market for agents and brokers.
Glass: Our biggest opportunity is personal relationships and keeping human connection at the center of buying, selling and renting homes. Technology and contactless interaction can easily become commodification. Being able to call or text your real estate agent, managing broker or mortgage consultant is invaluable — trust, connection and personal care are what matter most in a successful real estate experience.
Is the work-from-home trend changing the way people are shopping for homes? How are buyer preferences changing beyond wanting more space for a home office?
Hillebrand: The work-from-home trend is also allowing buyers to rethink the need to live in proximity to public transit. Not commuting on the L to and from work daily is allowing people to consider living in the most fantastic neighborhoods in the city that aren’t as close to an L stop, giving them many more options.
Glass: Space and flexibility are more important than ever for homebuyers. Not only are buyers looking for more rooms, in many cases they want another place entirely. The demand for second homes in 2021 grew 27%* and is likely to remain strong, especially since owners have more options for short-term rental income: lake homes, cabins and downtown condos.
Ricci: There is still demand for the home office. In addition to the internal space requirements homebuyers are seeking, it is difficult to ignore the amount of improvements taking place to outdoor space over the last year. Whether it be a pool, fencing or hardscaping, overall beautification of rear yard living space has increased significantly, and it is obvious when you see the constraints of finding vendors to fill the demand.
Golden: I don’t think working from home will be a permanent change. However, the one long-lasting impact of the pandemic in terms of real estate preferences is the appreciation people have for their homes. Whether someone lives in a one-bedroom condo or a six-bedroom house, people value their home more post-pandemic than ever before. Many of us now know that home will likely be a place where we will be spending a lot of time. And whether we’re spending more time at home, or spending time in the office, traveling or socializing, the ability to come back to a place that makes us feel happy, safe and secure is a really good feeling that we’re going to want to hold onto.
Broude: With companies allowing remote work or hybrid work from home, buyers are casting a wider geographic area to search before buying. In addition to dedicated home office space, they are looking for larger homes; home gyms/workout rooms; updated, modern/open kitchens/gathering spaces; outdoor entertaining spaces; and pools.
What do you expect to see in the mortgage lending industry in 2022?
Tuz: With refinance volumes dropping pretty significantly in 2022, I would expect the credit box to open up and additional programs to be made available. In addition, I would expect significant focus on technology and automation in order to improve turn times.
Ackerman: Sometimes, the only constant is change. In my view, the most successful mortgage lenders are those who adapt and are ready to deliver solutions that not only meet the immediate needs of a customer, but also their long-term needs. There has been a lot of refinancing activity for quite a while now as people have taken advantage of low interest rates, and while there will still be some demand for refinancing, I expect we’ll see more much more activity in the new-purchase business. Almost regardless of what market you’re in, the demand for home sales is strong, and I don’t see that changing. This includes “existing home” sales, as well as financing the construction of new homes.
Collett: In 2022, we’ll see a continued focus by the industry on growing purchase market share. I expect interest rates to rise, which means refinance activity will fall. We’ll also see lender profit margins get squeezed, which could result in an uptick in consolidation within the industry. I expect the government-sponsored enterprises (GSEs, including Fannie and Freddie) to focus heavily on affordable housing. In addition, we’ll likely see a slew of new products and energy poured into expanding homeownership opportunities to communities traditionally underserved by the market.
Will interest rates remain low next year, and what should homebuyers be watching for regarding mortgages?
Ackerman: While the Mortgage Bankers Association predicts interest rates will increase gradually in 2022, the overall environment should remain favorable for homebuyers. Supply chain issues related to building materials are also expected to ease up in the year ahead, allowing builders to accelerate the pace of new construction. For those who weren’t able to purchase this year due to escalated costs, this points to better news in the year ahead.
Collett: While interest rates may move slightly higher, I do believe they will remain at historically low levels, maintaining an advantageous environment for homebuyers. Professionally, I’ve been through about 6-8 rising-rates cycles, and they always fall short of expectations; I simply don’t think the markets can function on significantly higher rates.
Tuz: Interest rates will likely increase from the historic low rates we have experienced last two years, however remain fairly low, around high 3’s or low 4’s.
What will be the most popular loan types?
Tuz: The most popular loan types have been conforming loans, and with conforming loan balance limits expected to increase for 2022, expectations would be that those loan types will remain to be the most popular loan types used. FHA & VA loans will likely see an increase, however, with move to a more purchase market in 2022.
Collett: I think conforming and jumbo 30-year fixed-rate mortgages are here to stay. With a couple of rate hikes expected by the Federal Reserve in 2022, we will likely get a flatter yield curve, which doesn’t bode well for adjustable-rate mortgage products. With tighter profit margins, lower origination volumes and the sharp focus on affordability by the GSEs, we’ll likely see credit widen a bit.
Ackerman: We anticipate our 100% no mortgage insurance (MI) advantage loan programs will continue to be highly sought after. While the 30-year fixed-rate mortgage will continue to be the most popular loan type, adjustable-rate mortgages can be more attractive to a larger segment of homebuyers in a rising-interest-rate environment.
The most important message we convey to customers is there really is no one-size-fits-all loan solution, since every homebuyer’s circumstances are unique. Along with talking through those decisions with our customers, we have free online calculators allowing customers to explore options and make the best decision for them.
How will tech change for loans in 2022?
Collett: With lower volumes, we’ll probably see additional resources poured into mortgage technology, which we are certainly doing at Guaranteed Rate. Lower profit margins means lenders will have to continue figuring out how to reduce the cost to originate a loan. We should see the GSEs focus more heavily on mortgage tech, as well; some of those initiatives lost focus under the previous administration, whose goal was to de-risk the agencies and move them out of conservatorship.
Ackerman: If the past 18 months have reinforced anything in the banking and mortgage business, it’s the value and convenience of technology. Our team at Regions views technology as an “always on” priority, one that complements the personalized advice, service and guidance our team members are known for providing to our customers. It’s something that isn’t an either-or proposition, but a combined approach offering the best of both worlds.
Tuz: More lenders will likely adopt e-closings and more automated approach towards appraisals in order to increase efficiencies and improve customer experience.
How will you add inventory in 2022?
Lutz: We are listing some of the largest new-construction condo deals in the city, so we are doing our part to add to inventory!
Brooks: We anticipate the strength of the fall market to continue into next spring. Belgravia Group just celebrated the grand opening of the model homes at our Triangle Square development, located in East Bucktown. We are pleased to have sold 50% of the homes prior to even having a model home. In response to longer lead times for materials and continued demand for inventory, we released finish selections for all of our unsold homes early in the construction process. This strategy gave us a nice mix of move-in-ready 2- and 3-bed condos which include dens and offices — a “must have” for today’s buyers. Buyers can tour our model homes, fall in love and move in to their new home in a matter of weeks!
In addition, we are offering summer/fall 2022 move-in dates for our 3-bed/3-bath condos at our CA6 development in the popular West Loop neighborhood. CA6 is currently 70% sold, and our current sales pace of four homes sold in the last three weeks speaks to the strength of this market.
Belgravia is looking forward to announcing new developments to the Chicago market in 2022!
What impact would the Chicago Bears moving to Arlington Heights have on the Chicagoland real estate market?
Golden: Well, Arlington Heights is 16 miles closer to Green Bay, so the whole world could tilt off its axis. The real estate market would be the least of our concerns as Arlington Heights becomes the new center of the universe for the greatest football fans in the country.
Seriously though… assuming the team does it right, moving to Arlington Heights will create some very interesting opportunities. We have seen other national teams create a self-sustaining entertainment district around new stadiums, bringing a whole new dynamic to the venue and area.
Kasal: The move will have a positive impact on the market in Arlington Heights and will be a boon to surrounding residential and commercial development. Residential sales around Soldier Field won’t be affected, as the South Loop is established with restaurants and nightlife, and people who live there will want to stay.
Bretz: The northwest suburbs will see an improved microbrewery game.
Lutz: We do not anticipate that the Bears move will make much of an impact on our sales, but I suspect it will have some impact on The Bears because if they don’t play IN Chicago, they will not be The CHICAGO Bears. The Arlington Heights Bears just doesn’t have the same ring to it.
Brooks: I think it will have minimal impact on the real estate market. Bears fans travel from all around the Chicago metro area to come into the city for a game, and the same fans will travel to Arlington Heights as well. I don’t think many city dwellers will move to the suburbs to be close to the stadium.