Veteran residential brokers call it a crickets market. As property taxes skyrocket, home sales in Chicago have plummeted. First of two articles on the Chicago home-buying market.
8-Oct-19 The sound of silence is all that can be heard in much of the citys early autumn home-buying market. Veteran residential brokers call it a crickets market.
An informal survey by The Home Front of several top city real estate brokers in downtown and North Side neighborhoods revealed that late September and early October open houses vastly went unattended by buyers.
Cookies went uneaten and coffee turned cold in the pot. Colorful helium-filled balloons decorating the front porches of homes for sale gradually went flat, just like the autumn market, brokers said.
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, said one prominent Gold Coast and Lincoln Park broker.
Theres radio silence throughout the city and suburbs, from downtown Chicago to Lake Forest, 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 two-flats to four-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 (left), 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 crickets 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.
Ive 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 theyre waiting for rates to fall lower, said another North Side broker.
Growing doubt that mayor can solve pension crisis
Why is the city market dead? From a home buyers perspective, there appears to be growing doubt that Chicago, under 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 citys investment portfolio, which dates to the Daley administration, experts say.
Heres an example of excessive and non-uniform real estate taxation. Former Cook County Assessor Joseph Berrios hiked the estimated fair market value of a vintage Old Town three-flat 93 percent 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 percent assessment increase and the 2018 tax bill jumped a hefty 27.5 percent 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 Chicagos soon-to-be-built casino, along with 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 see how President Donald Trump 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 percent are forecast this month on imported French wines and fine European cheeses. Chicagos fine restaurant owners must be rolling their eyes.
Chicago and Illinois exodus. The United States 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.
Whats 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 Macs Primary Mortgage Market Survey reported on October 3 that lenders were charging an average of 3.65 percent on benchmark 30-year fixed home loans. A week earlier the rate was 3.64 percent. A year ago, 30-year fixed loans averaged 4.71 percent.
Even though a recession may loom on the horizon, Sam Khater, Freddie Macs 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 (right).
Theres one ray of sunshine for home sellers to consider in the crickets 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?