Chicago Housing Market Glance - August 2008
Buyer/Seller Standoff: Chicago home sellers are holding firm with prices and Chicago buyers are holding out for price reductions.
The real estate situation in Chicago is quite different than many other areas of the U.S. and it is causing a standoff between buyers (who believe prices should come down significantly because that’s what’s happening nationally) and sellers (who see the local market is better than in other parts of the country and are unwilling to settle for less than top dollar).
The result: There are not enough buyers or sellers taking action to reduce the inventory of homes in Chicago. Prices are stagnant and sales are declining.
Why is this problem occurring in Chicago? Mainly because Chicago did not experience as big a home price spike as other cities (prices peaked in 2005), so prices are not coming back down as they are in other cities right now. Instead, Chicago has held steady with slight decreases in median home sale prices (down just 2.4% from July of 2007), while nationwide home prices fell 15.4% in the second quarter from the previous year.
Chicago buyers see the nightly news and read the papers, and know that home prices are going down around the country, so they expect to see the same thing happening locally. Only, in Chicago the market is doing better than other areas, so Chicago sellers feel they shouldn’t have to slash prices left and right to entice buyers.
Buyers and sellers are not seeing eye-to-eye and both view the local housing market in a different light… The lack of compromise has caused the volume of home sales in the Chicago area to decrease significantly (down 30% in the first half of 2008 from the same period last year).
Too Many Homes on the Market: The inventory of properties for sale in Chicago is saturated and new home starts are forced to take the back burner.
Now that analysts have had a chance to review the residential real estate numbers for the first half of 2008, it looks like the level of homes for sale in Chicago has increased yet again. The supply of unsold existing homes in the Windy City has crept up to 15 month’s worth (a healthy stock of resale properties is considered between five and eight months).
The excess of homes is affecting housing starts in the area as many Chicago builders hold back on beginning new projects until the inventory of existing homes (both resale and new construction) diminishes. Plus, the rising quantity of foreclosed properties presents even more competition since buyers are clearly interested in reduced pricing. It’s reported that there’s a nine-month supply of brand new homes on the market in Chicago and the surrounding suburbs, which is about twice as many as builders like to see.
