It’s The Sound Of Silence For Autumn Home Buying In Chicago
First of two articles on the Chicago home-buying market.
Chicago is far from a wilderness where in the still of the night all that can be heard is the sound of crickets.
But apparently the sound of silence is all that can be heard in much of the city’s early autumn home-buying market. Veteran residential brokers call it a “cricket’s market.”
An informal survey by The Home Front column of several top city real estate brokers in the downtown and North Side neighborhoods revealed that late September and early October open houses vastly went unattended by buyers.
Complimentary cookies went uneaten and coffee turned cold in the pot. Colorful helium-filled balloons decorating the front porches of for sale homes gradually went flat, just like the autumn market, brokers said.
“It’s crickets out there,” said one prominent Gold Coast and Lincoln Park broker. “We have many attractive multi-million-dollar condominium and mansion listings and there currently appears to be little to no interest by affluent would-be purchasers in even taking a tour.”
There’s “radio silence” throughout the city and suburbs—from downtown Chicago to Lake Forest and from Oak Park to St. Charles. The only properties that are moving are priced under $500,000, observed three city and suburban brokers.
Apparently, demand is strong for mid-priced homes and 2-flats to 4-flats, and a few ultra-expensive downtown condos continue to sell, analysts say. However, the existing inventory time for properties with less than 3,000 square feet of space is only three or four months, while the inventory period is eight months for homes and condos with more than 3,000 square feet of living area.
“While the wealthy have an abundance of world-class choices, they are also facing a fiscal crisis, a cap on tax deductions, excessive property taxes, ballooning assessments, and a higher transfer tax on luxury sales,” noted Phil Chiricotti, editor of Data Analytics Illinois, Inc.
At the request of multiple frustrated agents, some major brokerage firms recently held closed-door round tables to explore the current state of the market. One agent asked: “What are we going to tell our sellers?”
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.
As a result of the cricket’s market, many motivated sellers are listening to broker advice about the market shift and are lowering prices, or taking properties off the market until the spring of 2020. Others are considering renting their homes.
“I’ve never seen the city home market this slow—even during the Great Recession of 2008,” observed another veteran North Side broker.
“The best thing that could happen is for mortgage interest rates to rise so buyers have a sense of urgency. Purchasers are complacent—they’re waiting for rates to fall lower,” said another North Side broker.
• Why is the city market dead? From a home buyer’s perspective, there appears to be growing doubt that the city of Chicago—under the new Mayor Lori Lightfoot—will be able to raise enough cash to solve its pension obligations to police, firefighters, teachers and municipal employees.
Four years ago, under the leadership of former Mayor Rahm Emanuel, the pension deficit was an unbelievable $23 billion. After collecting a record high boost of $822 million in real estate property taxes, new waste management collection fees, astronomical water and sewer charges and a boost in 911 phone fees, the pension deficit now is over the moon at a whopping $30 billion.
Why? Largely because of decades of financial mismanagement and poor forecasting by the managers of the city’s investment portfolio, which dates back to the Daley administration, experts say.
Here’s an example of excessive and ununiform real estate taxation. Former Cook County Assessor Joseph Berrios hiked the estimated fair market value of a vintage Old Town 3-flat 93% to an astronomical $1,973,610 from $1,021,100. After a mildly successful appeal at the Board of Review, the property owner swallowed a 65% assessment increase, and the 2018 tax bill jumped a hefty 27.5% to $28,033 from $21,991 in 2017. “How can I pass on a $6,000-plus rent increase to cover this,” the owner asks. “Rents would have to nearly double.”
Revenue from a soon to be built city gambling casino, along with the state of Illinois’ income-tax hikes may help defray some of the deficit, but the long-range outlook is bleak.
• Recession fears. Home buyers watch CNN and can see how our great President Donald Trump—who now is under impending threat of impeachment—is running the country. Trade wars with China are wiping out tens of thousands of farming and industrial jobs in America. Tariffs of up to 25% are forecast this month on imported French wines and fine European cheeses. Chicago’s fine restaurant owners must be rolling their eyes.
• Chicago and Illinois exodus. The U.S. Census Department reports that people have been steadily leaving Chicago and Illinois since 1970. In 2018 the out-migration rose to 6.5 people for every 1,000 residents.
What’s worse is Illinois ranks third to last in the U.S. in in-migration. Including immigrants, some 266,000 folks moved to Illinois in 2018. A total of 195,000 of those newcomers came from other states. Unfortunately, a whopping 339,435 disenchanted souls left the Land of Lincoln.
Despite all the gloom and negativity, there are some positives on the radar for prospective city home buyers in 2019 and early 2020.
• Affordable mortgage rates. On the upside, buyers who venture into the dark foliage of the autumn market would greatly benefit from some of the lowest mortgage rates in years.
Freddie Mac’s Primary Mortgage Market Survey reported on October 3rd that lenders were charging an average of 3.65% on benchmark 30-year fixed home loans. A week earlier the rate was 3.64%. A year ago, 30-year fixed loans averaged 4.71%.
Even though a recession may loom on the horizon, Sam Khater, Freddie Mac’s chief economist put a positive spin on it. “As economic growth decelerates, it is clear that low mortgage rates will continue to support the mortgage market and we expect that to persist for the remainder of the year,” said Khater.
There’s one ray of sunshine for home sellers to consider in the cricket’s market.
Throughout Chinese and Native American history, crickets have been revered and regarded as a sign of good fortune and prosperity.
NEXT WEEK: With home prices easing, where can some of those North Side city housing bargains be found?
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.