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Time To Crystal-Ball Gaze On Future Of Chicago’s Housing Market

December 11, 2017

It’s time for some year-end crystal-ball gazing to see what is in the future for home buyers and mortgage hunters in 2018.

An informal survey of some leading RE/MAX brokers suggests next year’s housing market won’t be radically different than 2017 and should be buoyed by an economy enjoying solid rates of growth and job creation. However, the following trends are likely to have a broad impact on the 2018 residential market in the Chicago area, the brokers said.
 

• Modest price increases. From January through mid-November of 2017, the median sales price of a home in the seven-county Chicago metro area rose 5.8 percent, and RE/MAX brokers project a similar performance in 2018.
 

“Prices rose noticeably during the first half of 2017, but then we saw real pushback from buyers,” said Bryan Kasprisin of RE/MAX Ultimate Professionals in southwest suburban Shorewood. “Buyers today can easily access detailed pricing data, and they use it. They know what happened to housing values a decade ago and don’t want to overpay.”
 

• Shortage of listings. Although the inventory of listings varies by area and price range, the Chicago area generally has a surplus of luxury homes but not enough listings priced at $400,000 or less. A lack of selection often poses a double challenge for buyers, noted Matt Boemmel of RE/MAX Exclusive Properties in Chicago.
 

“Buyers can have a hard time finding a home that fits their needs, but even if they do, they may feel they haven’t looked at enough homes to make a good choice,” Boemmel said.

 

“So, rather than buy, they wait, which is too bad because there are good values available now that are likely to cost more in spring.”
 

• Remodel? No thanks. One recent trend that intensified in 2017 was many home buyers’ strong preference for properties in move-in condition, noted RE/MAX brokers.
 

“A majority of buyers today want homes that are either updated or remodeled,” noted Barry Gaw of RE/MAX 10 in southwest suburban Oak Lawn. “No one wants to do any work. Either they don’t have the cash to remodel, or their lives are so busy they don’t have the time.”
 

According to Rita Neri of RE/MAX Premier Properties in Chicago, moderately priced homes are “flying off the shelves” if they’re in good shape and competitively priced.

 

“That’s why painting and staging the interior is so important,” Neri said. “Everyone shops for homes online. If they don’t like what they see there, they won’t bother visiting the property.”
 

• Demand down for large homes. Large move-up homes that were so popular with buyers 10 or 15 years ago are attracting fewer purchasers, RE/MAX brokers say.
 

“People are less interested in McMansions with $18,000 tax bills and all the maintenance,” said Neri. “Move-up buyers today usually prefer homes with 2,500 to 3,000 square feet of living area.”
 

Cindy Banks of RE/MAX Cornerstone in suburban West Chicago believes the lack of interest in large homes reflects the lifestyle choices of buyers now in their 30s and 40s.
 

“They prefer spending on other things, such as travel or technology, rather than a big house,” Banks said. “They’re also less inclined to buy houses suited for entertaining large groups, choosing to socialize at venues outside the home.”
 

• Mortgage rates to rise? The housing market in 2018 likely will be affected by higher mortgage interest rates, economists predict. On December 7th, Freddie Mac’s Primary Mortgage Market Survey pegged average benchmark 30-year fixed home loan rates at 3.94%, up from 3.90% a week earlier. A year ago, 30-year fixed mortgages averaged 4.13%.
 

With the economy heating up, analysts expect the Federal Reserve Board to increase the federal funds rate later this month and more interest-rate increases are forecast for 2018.
 

“The 30-year mortgage rate has been bouncing around in a 10 basis-point range since September,” noted Len Kiefer, Deputy Chief Economist for Freddie Mac. “While long-term rates have been relatively steady week-to-week, shorter term interest rates have been on the rise.”
 

With a narrower spread between fixed-rate and adjustable mortgage rate loans, more borrowers are opting for a fixed mortgage, Kiefer said. The Mortgage Bankers Association reported earlier this week that the ARM share of conventional mortgage applications was 16.7 percent, down from more than 20 percent in the spring.
 

• Conventional loan limits increase. One positive change on the mortgage front for 2018 is the Federal Finance Housing Agency (FHFA) has increased the conventional conforming loan limit for the second straight year to match rising home prices.
 

The home-loan limit for mortgages purchased by Fannie Mae and Freddie Mac in the secondary market were hiked to $453,100 from $424,100 for 2018.
 

The FHFA’s third quarter 2017 House Price Index report, which includes estimates for the increase in the average U.S. home value over the last four quarters, showed that house prices increased 6.8%, on average, between the third quarters of 2016 and 2017.
 

• FHA loan limits higher. Because of higher home prices, the Federal Housing Administration has increased the loan limits on FHA-insured mortgages in Chicago and nearly every area of the U.S. will increase.
 

FHA is required by the National Housing Act, as amended by the Housing and Economic Recovery Act of 2008, to set single-family home loan limits at 115% of median house prices, subject to a floor and a ceiling on the limits.
 

In Chicago and Cook County, the mortgage limit for a single-family home loan will rise to $365,700. The limit for a 2-flat FHA loan rises to $468,150, while the limit on 3-flat mortgages goes to $565,900. Four-flat FHA loan amounts will be increased to $703,250.

 

The new loan limits will take effect for on January 1st, 2018.
 

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.

 

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“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”

 

Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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