Soaring Property Taxes Starting To Impact Luxury Housing Market
With mortgage interest rates now at the lowest level since November of 2016, housing gurus were expecting the home market to be booming this summer. But it isn’t happening in Chicago and Illinois.
Following the Federal Reserve’s move to lower rates, the 10-year Treasury bond rate fell to 1.71% from 1.72%. Benchmark 30-year fixed home loans plummeted to an average of 3.6% on August 8th, down from last week when it averaged 3.75%, reported Freddie Mac. Chicago lenders were charging a range of 3.555% to 3.814% on August 8th, reported rateSeeker.com. A year ago, 30-year fixed loans averaged 4.59%.
Regardless of low interest rates, the home sales slump in June in Chicago and across Illinois was the worst so far this year. Based on Illinois Realtor data, existing home sales
for Illinois (16,579 units), the Chicago Metro area (12,002 units) and the city of Chicago (2,766 units) declined by 11.2%, 11.6% and 13.3% respectively from June of 2018.
It also was the seventh consecutive year-over-year decline and the worst June since 2013. A large part of the problem is soaring property taxes, reported Data Analytics Illinois, a Western Springs-based think tank.
While median home prices rose 6.7% in the Midwest, median prices in Chicago only inched ahead 1.6% in Chicago to $320,000. Prices in the Chicago Metro area rose only 0.02% to $263,000, and 0.2% statewide to $225,000.
A good part of the problem is centered in the luxury home market in the Metro Chicago area. After strong sales in 2018, luxury home sales declined by a whopping 22% in the first quarter of 2019 followed by a drop of 11% in the second quarter.
RE/Max Premier reported that $1-million-plus luxury home sales totaled 813 units in the seven-county Chicago Metro area in the second quarter, a decline of 11.3% from the same quarter a year earlier.
While the Chicago market was sparked by a surge in luxury condominium unit sales in excess of $4 million, the median sale price of all luxury homes was $1.338 million, up only 2.9% from the second quarter of 2018.
There were 663 luxury condo listings on the market in Chicago at the end of June. Fueled by an abundance of new construction, more than 40 ultra-luxury condos priced in excess of $4 million were on the market. Reflecting the underlying demand, the median sale price for the 196 luxury condos sold in the second quarter increased by 9%.
“While the wealthy have an abundance of world-class choices, they are also facing a fiscal crisis, a cap on deductions, excessive property taxes, ballooning assessments, a higher transfer tax on luxury sales,” noted Phil Chiricotti, editor of Data Analytics Illinois, Inc.
Wealthy luxury home buyers also are worried about a “graduated state income tax, growing concerns over the next economic contraction, a big increase in luxury rentals, meaningful new construction and reduced foreign buying,” Chiricotti said.
After digesting “trade fears, Chinese retaliation, a slowing global economy, the durability of corporate earnings and the extended business cycle, the stock market suffered the worst week of the year” in early August, noted Chiricotti.
“Burdened with an already high collective tax rate—on income, property, and sales—and a myriad of stealth taxes, officials cannot tax their way out of decades of corruption and mismanagement,” Chiricotti said. “One way or another, pension reform is on the horizon.”
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.