What Do Market Conditions Look Like for Chicago in 2018?

At the beginning of a new year, it’s important to look back at where you’ve been – and where you’re going.

It’s no different for real estate professionals! Even as we celebrate our successes, the beginning of 2018 marks a time for considering what the next few months could bring for homebuyers and sellers here in Chicago.

So, what does the real estate market look like in 2018? Let’s take a look at what might be in store:

The Good News

On the one hand, the outlook for 2018 is quite rosy, with the main watchwords for buyers and sellers being “strong” and “steady” – much as they were for 2017.

As Rebecca Thomson, president of the Chicago Association of REALTORS, recently put it, “steady seems to be the name of the game.”

She’s not alone in taking that outlook going into the last months of 2017. Plenty of leading economists and real estate experts predict that the housing market for the Chicago area will continue its steadfast growth as we head into the new year.

For instance, Lawrence Yun, chief economist for the National Association of REALTORS (NAR), recently told Crain’s Chicago Business that we can anticipate the Chicago-area housing market to gain strength in 2018; he forecasted a “10 percent increase in volume in 2018, based on growth in both the number of homes sold and the prices of those homes,” according to Crain’s.

That’s nothing to sneeze at, and any 2018 growth is great news – particularly when you recall that Chicago’s 2017 housing market was among the weakest of all major metropolitan areas, according to a report from NAR.

And, broadening our scope for a moment, 2018 is expected to see the national housing market thrive as a whole, according to a report from Zillow. Per the company’s findings, brought to our attention by NBC News Chicago, home prices are projected to grow 4.1 percent in the next year. As the report puts it, “we’re on the other side of the housing recovery, and the real estate market looks quite different than it did five years or even 15 years ago.”

What’s more, consumer confidence in the strength of the economy as a whole is at a pronounced high.

As a report from Illinois REALTORS recently revealed, two important consumer metrics suggest that Americans are upbeat about the future of the economy.

The Conference Board Consumer Confidence Index, for one, has recently surged, signaling that “Americans are becoming more upbeat about the economy and employment as the labor market improves and stock prices climb to records,” as Illinois REALTORS puts it. Another major indicator of economic satisfaction, the University of Michigan Consumer Sentiment Index, also recently climbed to its highest level since 2004, with “more than half of all survey respondents expect[ing] good times in the year ahead and uninterrupted growth over the next five years.”

And, finally, evidence suggests that Chicago is a prime destination for one of the groups with the biggest impact on the real estate market today – millennials.

As the Zillow report notes, millennials constitute a “huge generation entering the market, who really want to be homeowners.” These young, optimistic buyers have shown an interest in Chicago in recent years, with about 42 percent of homebuyers in the Chicago area clocking in under age 35, according to the Chicago Tribune.

A market full of young buyers holds potential for enormous future growth – as does Chicago’s current status as one of the buzziest cities in America. Across the Windy City, big ticket developments are underway in West Town, Logan Square, Fulton Market, and the South Loop, and two of Chicago’s neighborhoods – Ukrainian Village and Avondale – have been singled out as some of the hottest neighborhoods in the country by industry leaders.

The Things to Watch

While things are expected to zip along nicely in the Chicago housing market in the year ahead, there are still a few potential spoilers lurking around, and it’s important to be prepared. So, what factors cast a pall over the Chicagoland housing market for 2018?

On the one hand, there’s the matter of available inventory. We’ve discussed how months supply of inventory reflects and affects the housing market in some depth before, and it was one of the major factors hindering the real estate marketplace in 2017, both here in Chicago and across the country.

Well, it seems poised to continue to limit the potential for growth in 2018. Zillow’s 2018 forecast highlights that would-be homeowners find themselves stymied by “few options” in markets across the country. The NAR backs up Zillow’s projections. The national organization has reported “a national supply shortage in recent months,” according to the NBC report, with Yun claiming that “impediments stifling sales growth are the same… not enough listings – especially at the lower end of the market.”

Increasing prices and tightened inventory may also contribute to consumers’ slightly-less-than enthusiastic outlook on real estate at the end of 2017. According to Illinois REALTORS, several vital confidence studies – particularly the Fannie Mae Home Purchase Sentiment Index – decreased in the fall of 2017.

However, it’s not all doom and gloom! While spirits may be lower than we’d like to see, the numbers are far from depressing. As Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois, so succinctly puts it:

“While consumer sentiment about the economy appears positive, there is still hesitation about the housing market… However, mortgage applications have increased and prices and sales in both Illinois and Chicago increased on an annual basis, a trend that is forecast to continue into 2018.”

(To that we’d add that, among consumers, real estate has also consistently ranked as the top investment opportunity for four-plus years.)

And, finally, there is the overall health of the economy to consider. Among the factors that could either drive buyers to or away from Illinois, it’s important to consider local and national perspectives. On the local side, there’s the economy of Illinois (and Cook County), which has been marked, for some time now, by budget gridlock, a hefty tax burden, and employment growth that lags behind other major metropolitan areas, all of which could deter investors or families.

On the national side, it always pays to keep a close eye on interest rates, which leading economists expect to see rise in 2018. As the Federal Reserve ends its quantitative easing policy, Yun anticipates that “the prevailing rate on a 30-year mortgage, which is now at about 3.8 percent, to hit 5 percent by late 2018,” according to Crain’s.

And while that could affect the housing market on the whole, it may actually be a boon for Illinois. As Crain’s explains: “While that [rise in interest rates] will nudge some buyers out of the market in high-priced areas like Seattle and Portland, in lower-priced Chicago, ‘you can absorb it,’” according to Yun.

What real estate market conditions are you keeping an eye on in the year ahead? Looking to buy or sell your home? Want to talk Chicagoland real estate in even more depth? You’ve come to the right place! Whether you’re looking to buy or sell in the coming months, the Real Group team is here and ready to help! Drop us a line today to get the conversation started.

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