It’s time to gaze into the crystal ball and see the future of Chicago’s housing market in 2015.
Experts are focused on several bright spots on the horizon for house hunters in Chicago. And, economists are forecasting national housing growth based on a better job market and near record low interest rates.
Experts say the following factors will influence the housing market in 2015:
• Economic optimism. After years of sputtering, the U.S. economy appears to be on its way to a boom. In the third quarter of 2014, the U.S. economy grew at a 5 percent rate—the fastest in 11 years—up from an earlier 3.9 percent estimate, according to the Bureau of Economic Analysis. With oil prices falling to under $60 a barrel, the Dow Jones Industrial stock average surged passed 18,000 for the first time.
• Job gains. In 2014, as the unemployment rate dropped to 5.8 percent, the U.S. economy was on track to create the most jobs since 1999. In November, 321,000 new jobs were created, 100,000 more than Wall Street had expected. In Chicago, the lion’s share of the new jobs were tech positions in the downtown area, where increasing numbers of Millennials—college-educated residents age 18 to 33 years old—are contributing to a robust job market.
• Mortgage interest rates. Home-loan rates remained near their 2014 lows at year’s end. Freddie Mac reported that benchmark averaged 3.87 percent on December 31st. A year ago at this time, the 30-year fixed loans averaged 4.53 percent.
At its December meeting, the Federal Reserve Board voted to leave the Fed Funds Rate unchanged at zero percent for at least the first quarter of 2015.
However, economic forecasts that interest rates will rise in 2015 “should drive both potential buyers and existing homeowners to take advantage now and seize the opportunity,” said Hugh Rider, president of the Chicago Association of Realtors.
• Lower down payment. First-time home buyers have new options in 2015 for obtaining a mortgage with a low down payment. A new initiative by Freddie Mac and Fannie Mae will allow down payments as low as 3 percent from first-time buyers. The new policy is designed to entice Millennials as well as low- and moderate-income consumers to take the plunge into homeownership.
• Home prices on the rise. The Illinois Association of Realtors (IAR) reported that median existing home price in Chicago rose 15 percent to $230,000 in November, compared with $200,000 in November of 2013. Meanwhile, the median existing home price in the nine-county Chicago metropolitan area in November was $182,000, up 7.1 percent from $169,900 in November of 2013. Rising prices will nudge more and more first-time buyers off the fence, experts predict.
At the close of 2014, “sellers continued to see strong price gains,” said Jim Kinney, president of the IAR and vice president for luxury sales for Baird & Warner in Chicago.
“The year has seen a significant rebound in the real estate market, and the numbers provide optimism that price gains will continue into the New Year.”
• Building permits surge. The estimated value of all building permits issued by the city of Chicago for new construction and renovation has skyrocketed 46 percent in the past two years. In the first 11 months of 2014, the value of building permits jumped to $5.4 billion from $3.7 billion in all of 2012.
In 2014, the Near North Side and Chicago’s Loop accounted for nearly $2.5 billion of the building permits. Most of that value can be seen in high-rise apartments, hotels and new condominium towers. Appraisal Research Counselors Ltd. reports that another 6,000 new luxury residential units are in the pipeline for downtown over the next two years.
• Higher rents. A new rental survey by Zumper, an apartment-search website, revealed that median rents rose about 3 percent on Chicago’s North Side in 2014. However, rent hikes in several hot, high-demand neighborhoods moved much higher. Rents skyrocketed a whopping 14 percent on the Near North Side, and jumped 9 percent in Uptown, Zumper reported. Rents rose 6.5 percent in Lincoln Park, 6 percent in West Town and 5 percent in Logan Square and Lincoln Square.
With apartment rents on the rise, experts say more people will realize the benefits of home and condo ownership in 2015.
Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. For more information, visit www.escapingcondojail.com.