Chicago Real Estate Market 2020 Forecast

Chicago Real Estate Market 2020

The beginning of a new year is a prime time to take a look back at where you’ve been — and think about where you’re going. As we look ahead to the Chicago real estate market for 2020, it’s time to do a little bit of reflection, while also planning for the year to come. 

Whether your real estate goals for 2020 are to buy a home, sell a home, or start exploring your favorite Chicago neighborhood, now is the best possible time to start getting prepared. And because reliable, up-to-the-minute information is one of the most valuable tools you can have in your real estate journey, it’s important to take some time to take stock of the housing market here in Chicagoland. 

So, what do the 12 months ahead potentially hold for home buyers and sellers in our area? What might the real estate market look like in 2020 — and what are the local and national market factors that could be driving these major changes and trends? 

We’re here to help answer those important questions. Let’s explore five key factors to watch for the Chicago area housing market in 2020 and beyond: 

Steady As She Goes? Sales, Prices, and Mortgage Rates Projected to Be Fairly Balanced in Chicago Market 

Here in Chicago, “steady” and “balanced” are the name of the game as we look ahead to 2020. 

As Geoff Smith, executive director of the Institute for Housing Studies at DePaul University, recently explained to Crain’s Chicago, the Chicago metro area may be in for “more of the same steady, boring housing market” in the year ahead. 

Citing a realtor.com study, Crain’s projects very slight, almost negligible dips for both number of sales and home prices in the Chicago area in 2020. The study estimates that the number of sales in the Chicago metro area will be down just 0.9 percent, while home prices will dip by just 0.3 percent. Keep in mind, of course, that Chicago’s real estate market is hyperlocal. Bronzeville home pricing tends to operate somewhat independently from the ebbs and flows of Lakeview home pricing. Our blog will continue to track real-time market conditions, by neighborhood, throughout the year.

Nationwide, realtor.com’s data projects a sales (units) decline of 1.8 percent, and a modest price increase of 0.8 percent. Overall, prices are expected to fall “in a quarter of the 100 largest metropolitan markets,” according to CNBC, which puts the Chicagoland metro in good company with “Dallas, Las Vegas, Miami, St. Louis, Detroit, and San Francisco,” among others. 

In Chicago, these potential changes are quite minor — and far from certain. In most regards, then, forecasts essentially suggest that the Chicago market will remain steady and consistent in 2020, continuing the balanced trends that we began seeing in 2019. 

We see this play out when we look at the median sale price for a home in the city of Chicago, for instance, a metric that largely held steady throughout much of 2019 before increasing slightly at the end of the year — perhaps spurred on by more robust buyer activity due in part to lower mortgage rates:

As for those mortgage rates? Low rates were one of the bright spots of 2019. In fact, this key factor helped lead a market surge in the back half of the year, when rates fell to historic lows near 3.5 percent, according to data from Yahoo! Finance. In 2019, we saw this rebound occur in real time in the Chicago market, as the number of homes under contract saw a dramatic reversal mid-year, increasing notably for the first time in more than a year: 

Overall, experts predict that mortgage rates will remain relatively low throughout 2020. As Ali Wolf, director of economic research at Meyers Research LLC, explained to Yahoo!:

“Mortgage rates will stay down late through the end of next year. Low rates are the linchpin of the housing market and are keeping homeownership within reach.”

Low inflation and overall economic moderation are expected to keep mortgage rates “moving sideways” through 2020, according to realtor.com, which forecasts that rates for 30-year fixed mortgages “are projected to average 3.85 percent during the next year.” While that is a slight step up from 2019’s lows, it is still significantly lower than rates from even a few years ago, and may spur buyers to act while their purchasing power is at its peak. 

Economic Uncertainty Will Continue to Influence the Market 

Looking more broadly? Here in Chicago and around the country, the health and vitality of the housing market is closely linked to the overall health of the economy — which seems poised to remain turbulent and unpredictable in 2020. 

For one thing, 2020 marks an election year, as voters head to the polls to select a president, as well as 35 out of 100 seats in the Senate and 435 seats in the House of Representatives. Election years are often volatile, as market watchers and consumers hold their breath in anticipation of new economic policies and regulations, which can have a ripple effect on real estate.

Politics aside, the economy seems set to continue its rolling ups and downs in 2020 — marking continuity with 2019, when instability was the name of the game. Looking ahead, ongoing trade wars, sweeping changes to international monetary policy, and market volatility seem to be on the docket for 2020, which may hold some buyers back from entering the market until the economy seems more stable and predictable. 

Nationwide, key economic indicators — such as consumer confidence and the national employment rate — remain strong, but are sliding somewhat as we move into 2020. For instance, based on the Conference Board Consumer Confidence Index, consumer “expectations” dropped 15 percent in September of 2019. Overall, consumer confidence is projected to soften even more through 2020, declining by 21 percent. Similarly, the jobless rate is forecasted to grow from 3.6 to 3.9 percent in 2020 — still well below what would be expected in a healthy economy, but “a shift in the wrong direction,” as realtor.com points out. 

We see the same caution and uncertainty on the local level, as well. The Chicago region has some “well-known financial problems” that could be deterring some buyers, developers, and investors from taking action, as Crain’s notes. Many buyers and sellers here in Chicagoland are currently moving with caution, waiting to see if new taxes will impact the cost of homeownership in our area in 2020 and beyond. 

So, the good news? Most economic experts have lowered their predictions of a recession for 2020. While many forecasters predict a slightly slower and more moderate economy, they’re predicting a healthy and productive correction, rather than a downturn. Again, more of the same from 2019. 

Inventory, Inventory, Inventory

Inventory is one of the biggest market factors to watch in 2020, particularly here in Chicago

Nationwide, the amount of available inventory is expected to remain low, with demand significantly outpacing supply in many parts of the country. With that being said, there is plenty of reason to be optimistic. 

For one thing, new construction is on an upswing. Research from realtor.com predicts that single-family home construction is expected to increase by 6 percent in 2020. Similarly, the National Realtors Association (NAR) has released data indicating that housing starts are expected to increase 11.5 percent in 2020. Yahoo! Finance also reports that building permits, which help predict future construction, “rose 5 percent to 1.46 million in October [2019], the fastest rate since May 2007.”

Still, despite this renewal, experts predict that “demand is expected to continue to outpace supply until 2024. According to data from the NAR, cited by Yahoo!, total housing inventory at the end of October 2019 was 1.77 million units, down 4.3 percent from the year prior. 

Besides construction, there are a few other key factors putting limits on inventory. Most notably, homeowners are staying put for longer, which can restrict the number of listings available to buyers. Data cited by CNBC suggests that “the typical American homeowner has spent 13 years in their home, up from eight years in 2010, as more households are choosing to age in place.” 

Bottom line? There are both pluses and minuses to consider when it comes to supply and demand, with new construction slowly growing but sales of existing homes holding steady, or even declining somewhat around the country. 

When we look at inventory, Chicago’s market plays this balancing act out in real time. Looking back, months’ supply of inventory reached a high of 4.2 months in 2019, indicating a well-balanced market for both buyers and sellers within the city. (Generally speaking, we expect prices to rise if we see three months of inventory or fewer, and drop in a market that reaches more than six months.) 

So, while inventory in Chicago remains tight, there was more available inventory in 2019 than at any point since 2016. This means that our local market is fairly balanced, with significant advantages to offer both buyers and sellers. 

It’s the Millennials’ Market, We’re Just Living In It 

Looking at trends, 2020 is poised to become the year when Millennials fully dominate the housing market. 

As Barron’s explains, the group of individuals born between 1981 and 1997 are reaching key life milestones in 2020, with 4.8 million Millennials turning 30, “a time when many people purchase their first homes.” Millennials are also expected to take on more than half of all mortgages next year, “outnumbering Generation X and Baby Boomers combined.” As a result, other generations’ footprint in the market is projected to contract in 2020, “with Gen X and Baby Boomers taking 32 and 17 percent of mortgage originations respectively,” according to data from realtor.com. 

What does this mean for the market? As Millennials become the driving force in housing, the marketplace will naturally adapt to accommodate them — and their changing priorities. 

For one thing, that may mean more of a shift toward affordability. In recent years, Millennials have “broadened their housing horizons beyond the urban core,” as realtor.com explains, looking into the suburbs for “family-friendly lifestyles and affordable housing.” As Millennial buyers push for more affordable housing, we may see more development in this sector, further softening the already-cooling luxury market. 

As more Millennials hunt for their first homes, this also places more of an emphasis on “entry-level” inventory. This can be good news for sellers of affordable entry-level (or “starter”) homes, who can “expect the market to remain competitive and prices to stay firm,” as realtor.com explains. For sellers of more high-end product, it may mean having to be patient and willing to spend more time on the market, while being thoughtful about pricing and incentives. And for buyers, this may mean high competition for homes in the mid-price range, as they become available. 

Remember: Chicago Is Truly a City of Neighborhoods

The Chicago metro area is not a monolith. More than many other metro regions, Chicagoland is truly defined by its unique communities, both in the suburbs and within the city itself. Just as the Chicago market may not line up precisely with national trends and averages, so too will there be differences from neighborhood to neighborhood within our metro area. 

For instance? In many discussions about the Chicagoland market, people are quick to bring up the area’s declining population as an important market factor to watch. While this is, indeed, a crucial consideration to keep in mind, it’s also vital to remember that population changes aren’t impacting the entire area equally. As Crain’s Chicago points out, the number of owner-occupied households in suburban Cook County “dropped by about 19,000 in the years 2012-2017.” However, during that same period, “the city figure grew by nearly as much, 16,730.” 

Similarly, it’s important to remember that here in Chicago, pricing, inventory, and sales trends can vary wildly from community to community — and sometimes even block to block. For instance? While the median sales price for all of Chicago largely increased in 2019, this same metric saw a more sustained drop in certain neighborhoods, including the luxury-focused downtown neighborhoods, as Chicago Magazine notes. In contrast, neighborhoods with more affordable mid-range housing saw prices increase more sharply throughout the year. 

Likewise, average market time for homes in the city largely increased in 2019, before leveling off around 80 days in the back half of the year: 

However, local reporting indicates that there are still many neighborhoods where time on market is significantly lower than the citywide average, including Humboldt Park (which saw an average market time of 39 days in Q3 2019, according to Chicago Agent Magazine), Lincoln Square (49 days), Jefferson Park (49 days), Portage Park (53 days), Bridgeport (54 days), and Austin (54 days), among many others. 

Looking ahead to 2020, keeping an eye on those neighborhoods where inventory moves fastest can help give an indication of the areas that will be “hottest” for buyers in the future. Another key place to look is at the opinions of professional real estate agents, who can provide an invaluable on-the-ground perspective thanks to their days spent combing through market trends and buyer preferences. 

Recently, Chicago Agent Magazine polled local real estate agents and brokers, who revealed the “hidden gem” neighborhoods that they’re watching with interest in 2020 — a list that included Avondale, Bridgeport, Garfield Park, Humboldt Park, Portage Park, and Ravenswood Manor, among others. 

Looking to Enter the Market in 2020?

What real estate market conditions are you most interested in keeping an eye on in the year ahead? Ready to buy or sell your home but not sure where to start? 

For all these matters and more, you’ve come to the right place! Whether you’re looking to buy or sell in 2020, Real Group RE is here and ready to help make things easier. 

Our real estate experts can help field your questions and give you the guidance you need to succeed, backed by our unparalleled breadth of experience, market-leading tools, and commitment to availability. 

Have any more questions about exploring your dream Chicagoland community? Ready to set your real estate goals in motion? Drop us a line today to get the conversation started.

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