Just when Chicago’s residential real estate market was on a roll with moderately rising prices and dwindling existing home inventory, a shock from overseas could cause a tsunami to hit home buyers.
The recent exit of Britain from the European Union caused a global market meltdown wiping out an amazing $2 trillion in investment value in a single day.
The British pound declined to its lowest level since 1985, and Wall Street suffered its biggest selloff in 10 months. After breaking the 18,000-point level, the Dow Jones industrial average fell 611 points on June 24th.
Money poured into safe havens—gold and government bonds. Gold values rose 5 percent. Yield on 10-year U.S. Treasury notes fell to low of 1.406 percent, the lowest since 2012, and oil prices slumped 5 percent.
What does this market calamity have to do with the Chicago housing market? The rocky global financial condition is a blow to investor confidence, and U.S. wealth.
When a would-be move-up home buyer sees his or her stock portfolio shrink with paper losses, it isn’t the time to go home shopping for bigger luxury digs.
Before the global market crash, the National Association of Realtors reported that existing home sales reached the highest pace in more than nine years.
In May, home and condominium median prices in the city of Chicago rose 3.6 percent to $291,000, up from $281,000 in May of 2015, reported Illinois Realtors. Transactions rose 5 percent in May to 2,887 units, up from 2,750 during last May.
Home sales in the seven-county Chicagoland area rose 9 percent in May compared with May of 2015, with 11,616 units changing hands, reported the RE/MAX of Northern Illinois. The median sales price climbed 5 percent to $235,000.
“Chicago-area home sales activity so far in 2016 is at its highest level since the pre-recession year of 2006. Prices are rising but haven’t fully recovered area wide,” said Jack Kreider, executive vice president and regional director of the RE/MAX Northern Illinois network.
“I’m optimistic we’ll see an expanding inventory, especially in the middle ranges of the market where supplies are the tightest,” Kreider predicted.
The average time homes sold in May spent on the market before finding a buyer was 87 days, down from 99 days in April and 94 days in May last year. RE/MAX reported.
The declining market time was caused in part by a limited inventory of listings. At the end of May, 37,696 homes were listed for sale in the seven-county metro area, 9 percent more than a month earlier but 5 percent fewer than May of 2015.
One reason for the strong spring home sales was low mortgage rates, experts say.
“Low rates continue to be good news for the housing market, as existing home sales rose 1.8 percent nationwide to a 5.53 million seasonally adjusted annual rate in the month of May—he highest level since February 2007,” said Sean Becketti, chief economist, Freddie Mac.
On June 23rd, Freddie Mac’s Primary Mortgage Market survey reported that benchmark 30-year fixed-rate loans inched up to 3.56 percent, only 2 basis points above the prior week’s average. A year ago at this time, 30-year fixed loans averaged 4.02 percent.
Freddie Mac reported that interest rates of 15-year fixed loans averaged 2.83 percent, up from an average of 2.81 percent a week earlier. A year ago at this time, the 15-year fixed mortgages averaged 3.21 percent.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.