Chicagoland Real Estate News

Chicagoland real estate news trends seem to indicate an increasing number of Americans in search of the proverbial American Dream of home ownership may not be able to experience it. In a nutshell, they either can’t afford the prices of new homes or are unable to save money for a down payment.

Recent statistical models show prospective home buyers at various household income levels are likely to experience sticker shock when shopping for a home this spring. Finding a home in their affordable price range is expected to be a challenging task for many.

Recent Chicagoland real estate news trends indicate an ever-growing number of Americans may not be able to buy a home.

Home prices throughout much of the nation have risen by as much as 40% during the past five years. Conversely, incomes have increased roughly half that pace, therefore, creating a chasm between price and affordability. First-time buyers and those in the lower-tiered household income range will face significant competition for the listings they may be able to afford. In addition, higher interest rates may also dampen their ability to afford many homes on the market. If interest rates continue to rise, potential home buyers and borrowers on the qualification borderline may be unable to qualify for mortgage financing.

An even more disheartening twist in the Chicagoland real estate news trends is the feeling among some housing experts that lack of available credit is a bigger problem than what interest rates do or don’t do. In the words of one housing economist, there appears to be two completely separate housing markets today: One for higher-income purchasers that seems to be brisk and successful, and one for affordable housing units that’s stagnant and struggling.

Lack of growth in the category of starter homes is cited as one reason first-time home buyers, such as millennials, have been slower then previous generations to buy their first home. Incomes just haven’t kept pace with home price increases, making it difficult for middle-class income borrowers from attaining home ownership.

As has been mentioned numerous times in Chicagoland real estate news trends, the inventory of available – and affordable – homes is in short supply. Due to this tight supply, those homes that are on the market are likely priced higher than they ordinarily would be, creating a seller’s market – what typically occurs when the supply doesn't equal demand. In this case, even the lesser priced homes may be out of reach for many prospective purchasers.

The Down Payment Dilemma
To make matters worse for some, saving money for a sufficient down payment is also a challenge that’s a direct result of two factors: 1) Not earning enough money to be able to save and, 2) As home prices continue to rise, so do rents for the first-time homeowners waiting for the right time to buy.

A 20% down payment on the median-priced home of $192,500 in the U.S. currently is roughly $38,500 based on a recent Zillow report. Compounding the problem, in parts of the country where incomes are higher and prospective homeowners are able to save money, the real estate prices in those areas are more expensive, too – making it the typical "catch 22" scenario when it comes to affording a home.

Despite mortgage loan programs requiring considerably less than the widely-accepted 20% down payment – some as little as 3.5% – first-time borrowers are finding those loans are available at higher interest rates and they require the addition of private mortgage insurance (PMI.) PMI insurance is a type of mortgage protection insurance insuring the lending institution against the borrower defaulting on the mortgage payments. The premiums on PMI can be rather steep – especially on top of an already-high loan amount and resulting monthly mortgage payment.

To combat against the higher cost of financing more and putting less of a down payment, many first-time home buyers are tapping into other assets to make the American Dream a reality. Chicagoland real estate news trends are seeing some prospective first-timers withdrawing money from their 401(k) accounts, while others are relying on loans or gifts from parents to provide the necessary 20% to avoid PMI – and the monthly escrow of taxes and insurance payments required for loans with higher loan-to-value (LTV) ratios such as these. Typically, lending institutions who finance more than 80% of the appraised value of a home will require the borrowers to pay the monthly pro-rated portion of the real estate property taxes and the homeowners insurance premium into an escrow account. When the taxes and insurance premiums are due and payable, the lending institution then pays those amounts out of the borrower’s escrow funds and the process starts all over again for the next year.

While the short-term solution may be to increase the number of affordable homes on the market, unfortunately that process takes a while. New home construction, while brisk in some markets, still lags behind demand. In addition, home builders are commanding top dollar for new homes, forcing purchasers to sell their existing ones for as much equity as possible.

It’s a cycle worth continuing to follow as part of the Chicagoland real estate news trends – not only here in Chicagoland , but throughout the nation in coming months.

See more articles pertaining to the most current Chicagoland real estate news trends in the section of articles on Chicagoland Real Estate News just below Chicagoland Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there as well.

The Chicagoland real estate outlook these days is a combination of good and bad. The good is that home prices have been rising nationwide for 53 consecutive months – nearly 4 1/2 years! The increases have floated millions of borrowers previously underwater on their mortgages to the safe surface where they can finally catch their breath. In addition, during the first three quarters of 2016, U.S. homeowners were the recipients of more than $837 billion in total home equity.

Now, the bad. Despite such significant increases in home equity, the gains have not been able to fight the negative connotation of rising mortgage interest rates in the minds of consumers. While more young Americans in their home buying years are employed and more millennials have moved into a position to be able to buy for the first time, consumer sentiment for home buying is dropping. Let’s take a look at what’s caused this reaction and what sort of murky picture it may paint for housing in 2017 and beyond.

The Chicagoland real estate outlook includes the housing outlook for 2017.

Most real estate experts say the home sentiment concerns in the Chicagoland real estate outlook are twofold:  A shrinking number of consumers see the recent rise in mortgage rates to lessen, and even fewer say their overall household income is higher today than it was this time a year ago. This information was revealed in a recent survey conducted by Fannie Mae. A Fannie Mae economist explains: “Despite the post-election bump in general consumer attitudes, a rapid rise in mortgage rate expectations has tamped down home-purchase sentiment, at least in the near term. A spike in economic optimism in the immediate aftermath of an election is typical. Whether consumers will sustain this level of optimism into 2017 remains unclear.”

Ironically, the rise in interest rates recently affecting the Chicagoland real estate outlook is generally a reflection of optimism among consumers. Stock market investors pushed investments to record levels in response to the expectation that the new Republican administration will favor growth, business and employment. And, while such expectations would translate into greater income growth, better job security and new businesses – normally important catalysts for the housing market – thus far, indications are that housing sentiment is murky, at best.

The outlook may be fueled, in part, by what experts see as a wide economic chasm in the housing market. Although home values have gained and are continuing to do so, most of the increases have benefitted only those homes in the middle to upper end of the market. This has resulted in negative equity situations concentrating in the lower end of the market – at what is typically described as the bottom 20%.

According to Black Knight Financial Services, borrowers living in homes in the lower-tier of pricing are nine times more likely to be underwater than homeowners in the top 20% of the housing market. Being underwater is loosely defined as those homeowners who owe more on their mortgage than their home is worth. In addition, while several years ago negative equity was a diverse and widespread problem throughout the nation, today it’s evolved into more of a localized market problem. Economists say that at the end of 2010, there were approximately 30% of American homeowners underwater on their mortgages.

Many consumers, though buoyed by the gains in home equity over the past 12-18 months, find themselves unable to access it – another cause for concern in the Chicagoland real estate outlook. This comes as a result of higher interest rates, but also could be a direct result of their inability to qualify for a mortgage loan – regardless of the interest rate. Remember, a number of these consumers not only were underwater because of the housing crash, but struggled mightily to be able to make the house and other payments on time, creating slow credit history and positioning themselves in the minds of lenders as less than qualified. Whatever the reason, the share of equity currently held by borrowers that was available for access dropped from 73% in October 2016 to 33% in December 2016.

While interest rates have edged slightly downward in recent weeks, economists say they may very well move back upward as the new administration takes over, and as the new President's economic plans are made more known.

That raises the question that always plagues the housing industry and is often a part of the Chicagoland real estate outlook: What will the outlook for the spring “housing season” be? While the honest answer remains to be seen, the component parts are these:

1) Rising home prices will continue to be a win effect, although there has been some leveling off in some markets throughout the country.

2) Interest rates, though still somewhat volatile, are comparatively speaking lower than they have been in recent modern times – with the exception of the last 12-18 months when rates were at or near record-lows. Rates are still affordable, despite not being as low as they were this time last year.

3) Home inventory will continue to be a concern, as few homes have hit the market for sale – sellers who would ordinarily have decided to sell are holding off until they have a better selection from which to choose – after all, they need to move up and more out, too.

4) Consumer sentiment, though of concern now, can change fairly quickly. There are plenty of homebuyers in the marketplace that can and will be able to afford mortgages – despite the slightly higher rates – and though they may find themselves paying top dollar in what will likely be a seller’s market, there are deals to be found among sellers who may have priced themselves out of the market and are now needing to sell.

See more articles pertaining to the Chicagoland real estate outlook in the section of articles on Chicagoland Real Estate News just below Chicagoland Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there, too.

The Chicagoland housing market deserves an analysis of what's happened so far this year – and what we can expect in 2017. With the end of the year quickly approaching, let’s take a look at some of the important facts impacting the real estate market this year.

Refinancing is on the decline.

It took the better part of the entire year, but it appears most people that can refinance already have done so. With rates at or near historic lows, borrowers flocked to their mortgage lenders to pay off loans with interest rates as high as 5%-7% in favor of those averaging in the 3.00%-3.5% range. Refinancing, according to mortgage experts, were the the largest growth stimulators for most banks and lending institutions. Since rates just can’t get much lower, it’s doubtful that refinancing will continue to be as popular as it was in 2016.

Buyers are attracted to new homes.

Many in the Chicagoland housing market are choosing to purchase newly built single family homes instead of existing ones. With home inventory levels down in the Dayton Ohio housing market,

Despite the homeowner participation rate at a record low during much of 2016, many homebuyers chose to purchase newly built single family homes instead of existing ones. With home inventory levels down in the Chicagoland housing market, homeowners were slower to perform the necessary upgrades to their homes and put them up for sale. This created what economists describe as a “self-fulfilling prophecy” of continued lower inventory and a supply unable to keep pace with demand. The effect was especially detrimental to the starter home market, where first-time homebuyers usually begin their search.

Homebuyer confidence continues to remain robust.  

As we’ve seen in recent years, millennials are very careful with their money. As such, many of them have put off home buying until they are able to save for a down payment, or until they are confident with their career choices and the city in which they live and work. However, these fiscally conservative young adults increasingly do want to own their own homes. The proverbial “catch” is they want to do so on their own terms. Remember, this segment of the population is accustomed to renting and they have grown used to the short-term flexibility and expectations that go hand-in-hand with renting an apartment or home. Surveys show more than 85% of millennials plan to stay in the homes they purchase for less than seven years. So, mortgage terms and the ability to sell their homes in a few short years are important factors to them.

Low interest rates prevailed.

Probably the biggest advantage the Chicagoland housing market experienced in 2016 was the consistently low interest rates. Steadily improving consumer confidence combined with reportedly lower jobless rates have given the Federal Reserve little reason to raise interest rates, at least for the time being. Experts say the downside of lower interest rates is that new home sales – which have come to expect and almost take for granted low mortgage rates – will suffer slightly. As is normally the case with a rate increase, even a slight one, potential home purchasers typically are slower to make a move. On a more positive note, however, rising rates usually mean home sales prices will either level off or decrease somewhat.

Remember, all real estate is local… and that’s a good thing.

During 2016, it was reinforced over and over again that it’s difficult – and even dangerous – to lump the real estate market into one large basket. Each individual market is different because each region of the United States is different in terms of the economic influencers in a certain community or state. While some markets may be experiencing very good sales and higher sales prices, others may be lagging behind – negatively influenced by the closing of a large manufacturing facility or the damages cause by a flood, a hurricane or other natural disaster. In addition, the housing market in a state or region that employs a large number of millennials, for example, can be impacted negatively because the average length of time they stay on a job is 2.8 years.

With what we’ve experienced and learned in the Chicagoland housing market in 2016, what can we expect in 2017?

While many factors could come into play between now and the first of the year, it appears to many economists that home prices have probably peaked and will likely go down slightly – for these main reasons:

What goes up must come down. That's usually a “given” in the real estate market. In the long run, home values usually rise. However, if we look at the manner in which prices have risen during the past year or so, a number of the hotter markets will likely experience a correction, causing prices to stabilize or dip.

Interest rates will go up.  After all, interest rates can’t stay this low forever, right? So, expect an increase – even a slight one – sometime in 2017. And when rates rise, home prices will decrease.

Home inventory will increase. Analysts expect new construction to shift from multifamily units to single-family homes, making the Chicagoland housing market less competitive in the process.

Affordability will be a hot topic. It always is, but affordability will become even more important if inventory increases and interest rates go up.

How will the elections affect the Chicagoland housing market? The answer is yet to be determined and few discernible changes – if any – will likely not occur until late in the first quarter of 2017, if then. While both candidates have referenced the housing collapse of less than a decade ago, neither has provided a clear policy outlook for how to avoid a similar occurrence in the future. Look for continued government regulation and housing safeguards to protect the industry. However, as always, there will have to be a balance in order to keep home ownership affordable and popular without repeating the mortgage sins of 2008.

See more articles pertaining to the latest Chicagoland real estate news in the section of articles on Chicagoland Real Estate News just below Chicagoland Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there as well.

After several years on the sidelines, a new report shows Chicagoland millennial homebuyers are finally starting to enter the market. The recently published survey included more than 13,000 homeowners, renters, buyers and sellers and is part of the Zillow Group Consumer Housing Trends Report. The survey shows millennials are participating in the market and, indeed, making a larger impact than originally thought. Half of all buyers in today’s real estate market are age 36 or younger. In addition, half of all sellers are under age 41.

The Zillow Group survey also reveals the young adult Chicagoland millennial homebuyers are instrumental in adding greater diversity to the real estate market and others throughout the U.S. Roughly 66% of millennial homeowners are white, compared to 77% of all homeowners. Millennial homeowners are comprised of Latinos or Hispanics with 17%, African-American homeowners total 10% and Asian or Pacific Islanders comprise 7%.

Chicagoland millennial homebuyers are starting to enter the real estate market

Surprisingly, the new report showed an unusually high number of millennial homeowners live in the nation’s suburbs. Previously, statistics showed millennials gravitated to the metropolitan areas and the conveniences renting close to their jobs provided. The study revealed that 47% of millennials now live in the suburbs.

The transition of millennials into suburbia is more than just a “coming of age.” The rise in popularity is largely driven by the cost of living. The urban or metropolitan living, though hip, trendy and popular was also expensive. The irrefutable laws of supply and demand showed, once again, that as a product becomes popular it also becomes more valuable. As a result, metropolitan home prices have skyrocketed in recent years. A good number of millennials, therefore, have explored greater opportunities in the suburbs. The trade-offs of making the decision to live farther away from their downtown jobs include larger homes and shared amenities in new neighborhoods that feature such attractions as community pools, fitness centers, recreation areas and playgrounds.

Suburbs Attracting Most Chicagoland Millennial Homebuyers

The millennial migration to the suburbs seems like a logical progression for many. Their reluctance to buy their first homes was based largely on the rising costs of housing. The new research unveiled by Zillow shows the current market’s “started homes” are nearly as large as the homes other first-time buyers may move up into – and they cost as much as 18% less. Before we pronounce urban living as a thing of the past, it’s interesting to note that it is still thriving. Statistics show roughly 33% of millennial-aged homeowners live in what can be described as the "urban metropolitan city cores." In fact, millennials living in the metropolitan areas comprise a larger percentage of homeowners of any previous generation of Americans.

While there appears to be more Chicagoland millennial homebuyers in the market than previously thought, it’s not for everybody. Experts say 66% of millennials in the home buying market are also considering renting as an option. Roughly one in three millennials seriously consider renting. The reason? As usual, money. To millennials, buying a home is a huge hassle. Statistics show home buyers spend more than four months shopping for a home to purchase. In addition, after all that time and effort, 32% of buyers end up paying more than they had initially planned or budgeted for. As Chicagoland real estate prices soared in recent months – while home inventory remained at near-record lows – it wasn't unusual for successful buyers to make more than one offer before they found a home. To avoid the large number of rejected offers and to make every effort to adhere to their predetermined budget, many millennials have opted to remain on the sidelines and continue to rent. Again, the reason is purely financial. Of the renters across the U.S., nearly 60% earn less than $50,000 annually. Conversely, home buyers average $87,500 in yearly income. As one real estate expert puts it, “Depending on where they (millennials) live, home ownership may be out of reach.”

Why All Chicagoland Millennial Homebuyers Aren't Ready Yet

With a larger number of millennials venturing into the home ownership arena, the question remains, “Why not all?” As mentioned above, Chicagoland millennial homebuyers are cost-conscious. While often thought of as impulsive and reckless with their spending – as most young people for generations have been characterized – most millennials value their money. During the housing crisis of less than a decade ago, many members of the millennial generation watched helplessly as their families and friends struggled with homes, mortgages, jobs and other byproducts of a nationwide recession. They’ve seen firsthand the effects that job layoffs and foreclosures have had on their families or someone they know. As a result, many millennials have emerged with the mindset that they won’t make the same mistakes that others made. Home buying for them, at least at their young age, is something they should enter into with careful thought and financial planning.

Another segment of millennials have, no doubt, been ill-informed that they won't be able to qualify for a home mortgage unless they have a large enough (20%) down payment. While that goal may still be one of choice, perhaps a larger number of millennials would consider buying if they were made more aware and understood better the low down payment lending programs in today’s market.

Some millennials say they are reluctant to by a home until they are confident their career choices and employment decisions are stable. The thought of buying a home only to put it on the market a year or two later if they get transferred or change jobs seems like more trouble than it may be worth – especially for those who haven't bought and sold real estate before.

Lastly, those of us in the real estate market must also understand that home ownership is not the ultimate goal for some millennials. Those that prefer to take things more slowly – including getting married and starting families – count those financial commitments among decisions they just don’t have to make right now.

See more articles pertaining to real estate in the section of articles on Chicagoland Real Estate just below Chicagoland Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there, too.

Among several housing-related stories making the news around here locally asks the question, Is there a Chicagoland housing bubble in our future? Before we can attempt to answer the question, let’s define what is meant by a “housing bubble.”

What exactly is a "Housing Bubble?"

The Chicagoland housing bubble debate continues.

A “housing bubble” is an increase in housing prices fueled by demand, speculation and fervor in the market. Bubbles normally begin with an increase in housing demand, usually accompanied by a very limited supply. When speculative housing investors enter the market it further spikes demand, which increases prices even more.

While the definition certainly sounds like what’s been trending in the housing market lately, let’s look at several reasons there isn’t a Chicagoland housing bubble on the horizon.

Average home prices are currently higher than they were in 2007 in more than 20 major metropolitan markets. In addition, larger cities with limited home inventory of both new and existing homes are seeing prices rise as high demand continues. Home sales throughout the nation recently reached the second highest level in more than 10 years, according to the National Association of Realtors. Despite these occurrences, some housing analysts say any “bubbles” that may exist are relegated to certain local markets, and the bubbles haven’t created the financial risk inherent with the housing boom of roughly 10 years ago. The earmark of the housing bubble that occurred during that time period was the easy availability of credit – highlighted by borrowers that should not have qualified for mortgages they received.

Still, the housing market is nowhere near where it was during the housing boom – and the resulting bust – that made just about every city's real estate news almost daily.

While mortgage interest rates are near record lows and the affordability of housing is still high, absent are the speculative buyers driven by easy credit availability. During the boom, many of these speculators were investors seeking to make a quick profit. In addition, the lenders who fueled that speculation along with making credit available to non creditworthy borrowers have long since learned their lesson, it appears. So, too, have the mortgage lending regulators, who have implemented a range of policies and procedures to better safeguard lending institutions from violating lending practices that may repeat history.

The Chicagoland housing bubble debate continues.

Experts say definitive housing bubbles are a rare occurrence. Despite some of the warning signals that exist in today’s market, the truth of the matter in today’s Chicagoland real estate market is, there are just as many other factors that are non-existent.

A great number of well-respected economists have studied and tracked housing bubbles. Most of them agree that when a market bubble occurs, home prices increase slowly to being with and gain traction and momentum in time. During this rise in prices, the home buying public is usually skeptical and unfazed initially. Economists say they’ve seen the same sorts of bubbles in other markets – stocks, commodities, futures, even art and wine. Over time, the initial skepticism morphs into a semi-acceptance by the buying public, as they witness prices being pushed even higher, or as the name implies, the bubble gets bigger.

As the low cost and high availability of mortgage credit gives the bubble a greater opportunity to continue to grow, it invites new participants. Many of these new purchasers, or speculators, are less credit-worthy and less savvy than typical real estate investors. However, they all have one thing in common – they all envision selling their newly-acquired real estate properties at a profit – fueled by the higher prices they feel they can command. This increased speculation can grow at such a rapid pace that the news may imply “the sky’s the limit” when it comes to housing prices in such a market. The result? Investment growth expands so much that it increases the housing supply, which in turn exceeds the existing housing demand. When supply outweighs demand, prices fall – or in this case, the bubble bursts.

Economists argue that what’s missing in the Chicagoland housing bubble equation is widespread participation on the part of the buying public. Gone are the days of flipping condos in popular locations. Gone, too, are the mortgage loans made on homes that exceed their value. The biggest change is that borrowers with poor credit aren’t able to borrow money as easily as they were during the housing boom and resulting crash. A case in point is the simple fact that it’s difficult, at best, for a homeowner who is still underwater on his mortgage to refinance.

Looking ahead.

Some real estate analysts say they expect certain changes in the near future to occur that may burst any regional, localized Chicagoland housing bubble that may exist. They cite potential interest rate increases by the Federal Reserve as among such events. However, they are quick to point out that the banking system today – unlike the real estate news of a decade ago – isn’t overwhelmed with sub-prime mortgages. In addition, most banks aren’t leveraged to the success of the real estate market anywhere near the degree that many were years ago.

Simply put, the existing housing market issues aren’t severe enough to spark another recession – at least not one of national proportions. Most economists agree that there may be a series of “mini-recessions” that are locally or regionally based and will only affect the players in high-end residential or commercial real estate. That bubble – if it can be called a bubble – will likely burst.

In the meantime, there will be expected fluctuations in housing market supply and demand. New home construction will continue to try to keep pace with the demand for new products and new home innovation at prices average American families can afford. And while interest rates may not stay as low as they have been, there’s little reason to believe that mortgage availability will suffer for the time being. Comparatively speaking, while there are some similarities in the true definition of what a Chicagoland housing bubble is, the simple truth is that the U.S. is no where close to the dire straits the housing market found itself in just a short decade or so ago.

See more articles pertaining to real estate news in the section of articles on Chicagoland Real Estate News just below Chicagoland Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there, too.