Are The New Chicago Luxury Rentals Affecting Home Sales?

After ten consecutive months of falling sales and rising inventories Buyers, sellers and real estate brokers are looking for answers.

What ARE the primary reasons for these market changes?

The Chicago real estate market is still healthy, but 2018 has shown a dramatic leveling of the market between buyers and sellers. Low inventory levels and short market times have vanished in the past ten months (see analysis below).

City and state financial problems, the threat of rising taxes and the perception of rising crime have all been attributed to a softening of the real estate market; however, there is another factor that is having a profound affect.

The Invasion Of The Luxury Rentals

Chicago has historically been a difficult town for rentals. Aging properties and low inventories have dominated the market in the past; however, all of that is changing.

Literally thousands of new luxury rentals have hit the market since 2017 and over 7000 new units will become available in the next few years. In Lincoln Park alone, over 800 luxury rentals will be available on Lincoln Avenue from Wrightwood to Fullerton.

Many of these new construction buildings offer state of the art amenities such as common work areas, plunge pools and sun decks, fitness centers and Starbucks Coffee machines in the lobby.

For buyers considering buying homes priced up to $800,000, renting is now an attractive alternative to buying, particularly for the younger demographic.

It is no coincidence that we are seeing lower home sales and rising inventories in these same price points.

How Home Sales And Inventories Could be Affected

Using Lincoln Park as an example, 1465 homes priced under $800,000 were sold in the past 12 months.

If half of the potential 800+ new renters in the Lincoln Avenue corridor were people who would have normally purchased a home, 400 less home sales would have a dramatic effect on the market.

Based on these numbers, Lincoln Park home sales could drop 13.6% in the next 2 years due to buyers turned renters.

All of these numbers are estimates and we won’t know the real impact of luxury rentals until the larger projects are completed throughout the city.

This is not necessarily the end of the real estate world.

The influx of such a large number of new rentals: however, is new element in the Chicago real estate market, that should be watched closely.

HOME SALES

September 2018 vs 2017 – Cumulative Home Sales dropped 15.3%

NEAR NORTH - Down 11.4%

LINCOLN PARK - Down 30.6%

LAKEVIEW - Down 17.0%

NORTH CENTER - Up 9.81%

Noteworthy :

Sales of luxury homes (priced over $1,000,000) decreased 4.5% .

Sales of homes homes priced from $500,000 to $1,000,000 increased 11.5%.

Sales of homes priced under $500,000 decreased 24.6%.

 

HOMES UNDER CONTRACT

September 2018 vs 2017 –  Cumulative Homes Under Contract decreased 9.7%

NEAR NORTH - Down 9.8%

LINCOLN PARK - Up 4.1%

LAKEVIEW - Down 18.9%

NORTH CENTER - down 6.1%

Noteworthy – Most home sales that closed in September went under contract in a previous month. Units Under Contract can reflect a more accurate picture of the current month, although not every home that goes under contract closes.  

 

HOMES FOR SALE

September 2018 vs 2017 – Cumulative Inventories of homes rose 8.8%

NEAR NORTH - Up 12.9%

LINCOLN PARK -  Up 12.7%

LAKEVIEW - No Change

NORTH CENTER - Up 4.2%

Noteworthy :

Luxury home inventories (priced over $1,000,000) increased 0.3%.

Inventories of homes priced between $500,000 to $1,000,000 rose 7.7%.

Homes priced under $500,000 saw inventory levels increase by 16.6%.

 

MONTHS OF SUPPLY OF INVENTORY

September 2018 vs 2017 – Cumulative Months of Supply of Inventories rose 13.6% to 5.0 MSI

NEAR NORTH - Up 16.0% to 6.5 MSI

LINCOLN PARK - Up 16.3% to 5.0 MSI

LAKEVIEW - Up 5.4% to 3.9 MSI

NORTH CENTER - Up 9.8% to 4.5 MSI

Noteworthy :

Traditionally, MSI over 6.0 designates a buyer’s market and under 6.0 a seller’s market. 

MSI of luxury homes priced over $1,000,000 dropped for the 11th consecutive month to 8.7 MSI (9.2 MSI last year).

MSI of homes priced between $500,000 and $1,000,000 increased 9.6% to 5.7 MSI.  

MSI of homes priced under $500,000 rose 20.0% to 3.6 MSI. 

MEDIAN PRICING

September 2018 vs 2017 – Cumulative Median Prices increased by 7.9%

NEAR NORTH - Up 13.1%

LINCOLN PARK - Up 15.4%

LAKEVIEW - Up 5.1%

NORTH CENTER - Down 0.6%

Noteworthy :

Median prices of luxury homes priced over $1,000,000 increased 4.6%. 

Median prices of homes priced from $500,000 to $1,000,000 increased 1.8%.

Homes priced under $500,000 decreased 3.0%.

 

DAYS ON THE MARKET

September 2018 vs 2017 – Cumulative Average Days On The Market decreased 2.6% to 73 Days

NEAR NORTH - Up 21.9% to 89 days

LINCOLN PARK - Down 16.4% to 61 days

LAKEVIEW - Up 1.7% to 61 days

NORTH CENTER - Down 13/8% to 81 days

Noteworthy :

Market time for luxury homes priced over $1,000,000 decreased 25% to 109 days. 

Homes priced between $500,000 and $1,000,000 posted market time increased 2.7% to 75 days. 

Market times for homes priced under $500,000 increased 1.6% to 60 days.

 

TAKE A LOOK AT THE MARKET IN MORE DETAIL