National experts predict Chicago will have the worst housing market in the country in 2019. But some local experts and industry observers say the situation is much more complicated than that.
Chicago is not the only housing market that will experience pains this year. Nationally, home prices are expected to grow modestly, but sales figures will fall, Danielle Hale, economist with Realtor.com, said at the Chicago Association of Realtors’ 2019 Market Outlook forum this week.
“It’s going to be good but not great,” Hale said. “We had a record year in 2017, a bit of a slowdown in 2018 and we expect to see some further softening in 2019.”
The situation differs, however, the more locally you look. Even if the Chicago market as whole is forecast to have a down year, not every submarket will be affected the same, experts said.
“It’s not as dramatic here as its is on the coasts, but the market is slow,” said Steve Baird, president of Baird & Warner. “But everyone looks at what it was the year before, and it’s off a little bit.”
The Real Deal talked to a number of local and national experts about what they expect to see in the Chicago housing market. Here’s what they had to say:
Home sales
Most experts believe the volume of units sold will be down, but that there is no reason to panic.
After a number of strong years following the market crash, a downturn in the market was not a matter of “if,” Baird said.
“We’re now 10 years into a cycle, he said. “There’s going to be a downturn, the only question is when. So we’re basically predicting that the market will be off by low single-digits in terms of unit sales. The market itself is going to be off, but not by a whole lot.”
Matt Laricy, one of the city’s top producing agents and a partner at Americorp Real Estate, said a return to a more even market could be a gift in disguise for the industry, especially after crash and post-crash years saw the market bounce from horrible to great.
“We’re going to cool off, but it’s not the end of the world,” said Laricy, who is currently preparing a yearly market forecast video for his clients. “We just need to get to a normal market.”
Curt Beardsley, vice president of industry development at Zillow, said he thinks Chicago will have a better year in 2019 than in 2018, when home sales dipped slightly year-over-year.
“We actually think there’s going to be some more growth in next year than there was in the previous year, partially because of the constraints on inventory,” Beardsley said at the Realtors event. “A little bit more of it is going to open up. That will actually drive things better.”
Inventory
Most experts TRD consulted agree inventory will rebound in 2019 following years of historic lows. Hale said inventory is expected to be up 5 percent across the country. Laricy said he expects inventory to rebound much higher than that in some areas of Chicago.
While more available housing stock is a good thing for the industry, not all inventory is created equal.
“Supply is starting to come back, but it’s concentrated still in high-cost areas,” Hale said.
Before the housing crisis, new homes were about 12 percent more expensive than existing homes, Hale said. Now, new construction homes are 33 percent more expensive than the rest of the available supply, she said.
In Chicago, much of the new supply is concentrated in Downtown-area condo projects, many of which are loaded with luxury units.
“There continues to be a lot of headwinds to building multifamily,” Brandon Svec, market economist with CoStar Group, said at the Realtors event. “That’s why we see a lot of the new supply concentrated in the Class-A market.”
New units under construction right now could be of immediate benefit to the market, helping to ease inventory constraints and keep housing prices down. But the construction boom will pose a problem eventually, Svec said.
“Our expectation is we will start to see some of these projects that are currently proposed fall by the wayside,” Svec said. “Llooking forward probably six to eight quarters out in the future, we will see some pullback on new supply.”
The new inventory will be a good thing for buyers, who for years put up with bidding wars and homes flying off the market.
“I don’t think that buyers will feel that 24-hour gun-to-the-head” pressure, Laricy said. “Buyers will be pickier. They’ll have more options.”
The new market realities could cause sellers to be a bit more patient, said Jennifer Ames, one of the city’s top brokers and a partner at Engel & Volkers.
“The rules are changing, and buyers are more particular and more fickle than they’ve ever been,” Ames said. “People are a little less willing to stretch financially, and less willing to set down roots somewhere.”
Hot and cool neighborhoods
Whereas the overall Chicago housing market saw sales drop in 2018 by about 2 percent, luxury sales in the area grew. The ultra-luxury market had a record year in 2018, with more $4-million-plus homes sold that year than in any year prior.
That trend will continue into 2019, and will help buoy the Downtown market, where much new luxury product is concentrated, Laricy said. His office is predicting a 1.5 percent growth in Downtown sales compared to last year, although price growth will slow, he said.
Other neighborhoods that could see strong home sales is Bronzeville and other South Side neighborhoods like South Shore and Woodlawn. Those areas could see boosts from Opportunity Zones and the planned Barack Obama presidential library, Svec said.
“We’re starting to see some meaningful growth on the South Side,” he said.
Millennials: The market’s ‘X’ factor
Some of the Chicago-area’s housing market success will hinge on the activity of Millennials, experts said.
Millennials already make up 45 percent of mortgage borrowers, compared to 37 percent for Gen X and 17 percent for Baby Boomers, Hale said. Their share of the housing market will only increase from here, Hale said.
The National Association of Realtors’ annual home-buyer profile has recorded an average homebuying age of 30 that has stood for decades, Hale said. In 2020, the largest group of Millennials will turn 30, which will be good news for an industry that may need it.
“That’s going to be a huge tailwind for the housing market going forward,” Hale said the Realtors event. “Now, they’re facing historic affordability challenges.”
Where Millennials will choose to buy will be interested. While young people have flocked Downtown, bringing with them corporations seeking skilled workers, Millennials will likely turn back to the suburbs when it comes time to buy, Svec said.
But because so many jobs have moved from the suburbs to Downtown, Millennials will likely look for housing in inner-collar suburbs that have urban amenities like public transportation and walkability, Svec said.
And though Millennials’ preferences when it comes to housing have vexed real estate professionals so far, research shows they still want a broker to help them navigate the homebuying process, Beardsley said.
“The Millennials are more inclined to use professional help than the previous generation … because they are also ones that have done so much research themselves,” Beardsley said. “They have turned the lights on and they know where the pitfalls are, and they want a professional to help them with the pitfalls.”