While this summer may have been one of the hottest on record in terms of temperatures, the same cannot be said for the local housing market.
Illinois’ summer housing market did not see the same high level of transactions as in years past, mirroring the trends seen this spring as mortgage rates continued to rise from July to September while inventory remains low.
Trends in Illinois follow national ones, with September marking the lowest level of existing home sales nationwide since October 2010, the National Association of Realtors said this month. Redfin is projecting the year to end with the fewest existing home sales nationwide since 2008 when the housing market crashed.
The summer housing market in Chicago and Illinois saw month-to-month decreases in home sales in July and increases in August before declining in September, according to data from Illinois Realtors, a trade association for real estate agents. The same data shows median sales prices continued to decrease from July through September, with home prices still up year-over-year.
Illinois Realtors found that as of September, the median sale price of a home in the city limits was $324,450, down from $330,000 and $342,500 in August and July, respectively. It was $325,000 for the Chicago metro area and $270,000 statewide in September. That’s down from $339,900 and $280,000, respectively, in August, and $340,000 and $285,000, respectively, in July.
Closed home sales in Chicago were down in September by around 11% compared with the same time last year. The number of closings in September was 1,830, down from 2,222 in August and 2,041 in July, a typical seasonal decline, according to Illinois Realtors. The entire Chicago metro area and the state followed these trends.
“We have buyers still engaged and sellers who still want to sell … but we are not seeing the activity we used to have,” said Drussy Hernandez, president of the Chicago Association of Realtors and vice president of brokerage services at Coldwell Banker.
With the spring and summer seasons typically the busiest for home buying and selling, this summer showed similar busier patterns. But the market remains slow compared with past summer seasons since many homeowners remain hesitant to jump into the for-sale market given that mortgage rates reached their highest levels in nearly 23 years in September. This is leaving inventory in local and national real estate markets lagging — and prices elevated — limiting the number of transactions that can take place.
[ Illinois saw cooler spring housing market as inventory remained tight and mortgage rates high ]
Median-priced homes are less affordable in the third quarter of this year compared with historical averages in 99% of counties nationwide that had sufficient data to analyze, continuing a two-year trend, according to ATTOM, a national property data provider. The data shows nationally that the typical portion of average wages needed to afford a mortgage rose to 35%, the highest level since 2007.
“The dynamics influencing the U.S. housing market appear to continuously work against everyday Americans, potentially to the point where they could start to have a significant impact on home prices,” said Rob Barber, CEO for ATTOM, in a news release.
“We clearly aren’t there yet, as the market keeps going up and the slowdown we saw last year looks more and more like a temporary lull,” he said. “But with basic homeownership now soaking up more than a third of average pay, the stage is set for some potential buyers to be priced out, which would reduce demand and the upward pressure on prices.”
The total housing market is valued just shy of $52 trillion, a more than $2.6 trillion gain from this time last year, a boost thanks primarily to new construction, according to estimates from Zillow. In the Chicago metro area, the total market is valued at $1.1 trillion, an $85 billion increase over the past year and an around 35% jump since the beginning of the COVID-19 pandemic. Nearly 48,000 newly constructed units were added to the market in Chicago over the past year through the end of August. The data indicates that Chicago is one of the top 20 most valuable metro areas.
Rents locally and nationally began to fall month-over-month this quarter as well, with Chicago rents falling nearly 1% in September but still up year-over-year, according to data from Apartment List. Half of Chicago renters are rent-burdened — meaning they spend more than 30% of their income on monthly payments — based on U.S. Census Bureau data collected in 2022 analyzed by Apartment List. The same data shows that there are more rent-burdened households in the U.S. than ever before.
Typical monthly 30-year fixed mortgage payments in the Chicago metro area for homebuyers who purchased with a 5% down payment remained much higher in the third quarter year-over-year, with September data from Zillow showing a monthly payment of $2,202, a 10% increase over last September. If a homebuyer makes a 20% down payment, the monthly mortgage payment goes down to $1,685, an 11% year-over-year increase, according to Zillow. Zillow month-over-month data shows that monthly mortgage payments have been trending upward this quarter.
The data is based on Zillow’s Home Value Index for the Chicago metro area, which has September’s assumed purchase price at $307,615.
[ How Chicago area home values compare by ZIP code ]
Freddie Mac data shows the 30-year fixed-rate mortgage average passing 7% in August, with those averages steadily approaching 8% throughout the month of September. Mortgage rates will likely remain in flux heading into the final quarter of the year given uncertainty surrounding the economy and geopolitical landscape.
With current mortgage rates, assuming a 5% down payment, the typical home in the Chicago metro area is affordable to a household with an income of at least $110,155, according to Zillow data. For a buyer who puts 20% down, this number is $89,861. In both instances, the buyer would spend 30% or less of their income on mortgage payments.
Some real estate professionals are continuing to close deals with interest rate buydowns to encourage transactions. Under a buydown, a buyer receives a temporary reduction in rates during the first two to three years of their mortgage thanks to funds contributed by the seller to the lender.
As a part of a deal with developers of some newer condo buildings downtown, Julius Barrutia, a loan officer at CrossCountry Mortgage based in Chicago, is offering clients these buydowns, enticing dozens of people to purchase properties, some of whom were initially looking to purchase previously owned homes in the suburbs.
“In this current environment right now, I really see there is huge benefit for buyers to purchase at each one of these developments,” Barrutia said.
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But as the Chicago winter rolls around, transactions are only going to be harder to close as the colder months typically mean slower business for the real estate industry.
“Our forecasts indicate that prices will continue to decline somewhat over the next three months, while remaining higher than at this time last year,” said Daniel McMillen, head of the department of real estate at the University of Illinois at Chicago, in an October news release. “The number of sales remains low and is forecast to decline further over the next three months.”