Deconstructing the Chicagoland real estate market

by Melanie Kalmar

High demand and low inventory continue to put the housing market off balance. To help solve it, agents need to bring more sellers to the market, to reach out to previous clients and let them know now is the right time to sell and buy that forever home or downsize and make their retirement dreams come true, according to some experts.

In the meantime, a semblance of normalcy is beginning to take shape, as some buyers, fatigued from losing multiple bidding wars, are stepping away for a break. Regardless of the imbalance between sellers and buyers, in early December the National Association of REALTORS® reported that the real estate market remains strong. Nationwide, existing homes sales continue to flourish, influenced by strong demand, low interest rates and a slight increase in new listings. What does this mean for the Chicagoland market?

We talked to agents in the city and suburbs to find out which areas and property types are hot; whether the local market is following typical seasonal trends or remains out of whack from the pandemic; the type of inventory available right now; strategies to bring sellers to market; new construction’s role in filling the gap; and what’s in store for 2022.

A snapshot in time

During the first week of December 2021, housing sales in the Chicago metro area dropped 6.3% compared to the same time last year, according to the Chicago Association of Realtors. It was the first decline Mario Greco has seen since the summer of 2020, a period of time he refers to as “the COVID reawakening.”

“In the past 18 months, buyers made impulsive COVID-panic-driven decisions,” said Greco, founder of MG Group, Berkshire Hathaway HomeServices Chicago. “That is no longer the case, be it vaccines or therapeutic drugs, but people are not running around like ‘The Hunger Games’, panicking, looking for a house. They are making good decisions. Multiple offers have fallen off considerably.”

He said the rush to market was driven by buyers wanting more space for work and recreation at home, which they obtained by leveraging low interest rates and coming up with heftier down payments. As a result, they skipped move-up properties — the $600,000 condominium in the city — and went directly to a $1 million home in Wilmette or Bucktown. The fallout: Mid-priced properties in the city, $500,000 to $1 million, are not moving as quickly as those at lower price points, $500,000 and below, and higher price points, $1 million and above.

Greco holds seasonality accountable for the decline in sales. “Traditionally, inventory in October, November and December is picked over,” he said. “Buyers tend to wait until January, February and March, because fresh inventory comes up after the first of the year. They might think, ‘I’d rather wait for the better place, despite the rising interest rates.’”

Another noticeable change is that price and presentation matter more now than they did 18 months ago, he added. “Unlike earlier this year and the end of last year, luxury properties have to be really well-presented, i.e., staged, look awesome and not have grandma’s purple couch in there from college, because buyers will likely not schedule a showing,” Greco said, noting that the homes also have to be in a good location and have curb appeal.

What buyers want

Buyers are flocking to neighborhoods, because immediate proximity to amenities is not as important as in the past, as fewer people are using public transportation and going out to restaurants and bars in the same way, said Jason O’Beirne, a real estate broker with Jameson Sotheby’s International Realty. “With the availability of delivery services, they would rather have an extra room, backyard or finished basement,” he said. “The trade-off seems easy when they look at the way they live in this 2021 world.”

West Town, Pilsen, West Loop and other neighborhoods near downtown are more in demand because of the work-from-home trend, Greco said. You’re still close enough to work, but there are tree-lined streets and amenities to walk to which you might not frequent when you’re at the office. Established neighborhoods that buyers automatically look at, he said, are Logan Square, Lincoln Square, Lincoln Park and Lakeview.

Maximizing seller returns

While presentation matters, Shaunna Burhop, a broker with Baird & Warner in Arlington Heights, cautions sellers not to over-invest in prepping their homes, because little improvements, such as a fresh coat of paint, modern light fixtures and staging a property to show buyers that the spaces are suited for both work and domestic life, can yield big returns.

“It’s about bringing the best inventory we can to the market, because that’s what buyers want,” Burhop said. “Buyers don’t want to take on a lot of projects.”

Grappling with low inventory

Across the board, in the northwest suburban market, there is one month of inventory, Burhop said. She blames it on long-term homeowners remaining in their properties. “They want to move, but they’re struggling with, ‘Where do I go?’ Twenty-five percent of my sellers last year left for out-of-state [destinations], but they’re struggling with the same thing around the country, particularly the warmer climates, where retirees want to go, hot areas such as Knoxville, Tennessee,” she said. Burhop educates them about what’s available in the market, the process of finding a home — if they’re looking out of state, she connects them with a solid resource in that area — and how to prepare their house for sale. She also puts together a timeline for making it all happen.
Although inventory in the city is rising across all property types from an all-time low, it’s still not great, Greco said. CAR reported the city’s inventory was down 24.3%, from 11,107 homes in October 2020 to 8,408 homes in October 2021. Overall, the month’s supply of inventory decreased 39.2%, from 5.1 months in October 2020 to 3.1 this past October.

In many neighborhoods, a shortage of inventory is causing good listings to sell quickly and less desirable ones to take longer, O’Beirne said. His strategy for conquering this hurdle: Build your business around the type of sales that are happening.

While new construction can help fill the inventory void, it has its own problems. Builders cannot deliver homes as quickly as buyers would like, O’Beirne said. The culprits: a product and labor shortage and escalating prices to accommodate the increased costs. With certain appliance brands taking 12 months to deliver, builders are designing houses before they break ground and buying materials as soon as possible to avoid delays. “I’ve sold multiple, very expensive homes this year with $300 refrigerators — that look like they belong in a college dorm — in place of a $10,000 buyer’s selection, because builders are waiting for these products to arrive,” he said.

Rising interest rates loom

In a changing market like this one, Greco said sellers tend to remember their neighbors’ making a nice return on their investment 12 to 18 months ago and assume they’ll do the same, while buyers look forward to “the party’s-over prices” — and the disconnect slows the market. But luckily, not for long. Sellers tend to be more reasonable in pricing earlier in the year and buyers are more motivated, which is why we see an acceleration of sales at the beginning of every year, Greco explained. “Sales will be better in the next three to four months than they have in the past two or three.”

Still, O’Beirne has seen talk of interest rate hikes push buyers to make decisions at a time of year when business is typically slower. “The market is hotter than normal for this season,” he said. “The buyers that perhaps were buying a condo, now they want a town home, or the buyers that were buying a town home want a small, single-family home, and the buyers who were buying a small single-family home want a big single-family home. The common theme is they want to live in a similar area, but they want more space.”

Nationwide, O’Beirne said workers are creating more permanent work-from-home situations and want homes with more bedrooms and more separation of space — areas portioned off for privacy. It’s a trend that is getting sellers of four-bedroom homes in Arlington Heights up to $146,000 more than they would for three-bedroom homes. “Years ago, buyers would look for something suitable for the 3-to-5-year time horizon and plan on a move-up situation,” she said. “Now with interest rates the way they are and a desire for as much space as possible, they are leapfrogging over that starter home and going into more long-term properties.” She said empty nesters want two-bedroom town homes with basements: maintenance-free properties that resemble single-family homes, enabling them to still entertain friends and family but not have to worry about the lawn getting out of control when they go on vacation. If it’s a ranch, even better. She also said there is a resurgence in demand for attached, brownstone-style housing, in the $600,000-to-$1 million price range.

For quite some time, the area has been a target for urban buyers, particularly young families moving to the suburbs. The Bears’ potential move to Arlington Heights and United Airlines’ transferring 900 employees to the suburb makes it an even more attractive investment. If buyers are unable to afford Arlington Heights — prices for the year are up over 12% for single-family homes and just under 12% for attached housing — nearby Mount Prospect, Rolling Meadows and Palatine are more affordable options that put you in the area.

What’s ahead in 2022

Come spring, Greco doesn’t anticipate a frenzied rush to market. “I expect a further march to the middle,” he said, “a balanced market where buyers make reasoned, well-thought-out decisions and sellers put their houses on the market at reasonable, market-driven prices.”

Burhop expects 2022 will start out strong and finish strong. “The only thing standing in our way is inventory,” she said. “As long as the national market allows for our sellers to move on, if they are moving out of state, I think there will be demand potential. If interest rates kick up a bit, it will start to put the brakes on pricing a little bit — I think it’s all positive for next year.”

In the city and suburbs, Burhop, Greco and O’Beirne have not seen foreclosures. “It is such a long cycle between the time a person stops paying their mortgage and we see that inventory hit the market,” O’Beirne said. “It may hit in 2022 or later, but so far, we have not seen that.”

Although interest rates may cause some temporary pauses in the market, O’Beirne anticipates 2022 will be much like 2021. “People will have the same desires in housing that were influenced by the pandemic, perhaps for decades to come.”

Expert Sources

Shaunna Burhop
Broker, Baird & Warner — Arlington Heights

Mario Greco
Founder, MG Group, Berkshire Hathaway HomeServices Chicago

Jason O’Beirne
Broker, Jameson Sotheby’s International Realty

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