(Above) Living room of a unit at 50 East Chestnut, where each of the Gold Coast condominiums 34 units is on its own floor. (Click on images to view larger versions.)
10-Aug-19 With mortgage interest rates now at the lowest level since November 2016, housing gurus were expecting the home market to be booming this summer. But it isnt happening in Chicago and Illinois.
Following the Federal Reserves move to lower rates, the 10-year Treasury bond rate fell to 1.71 percent from 1.72 percent. Benchmark 30-year fixed home loans plummeted to an average of 3.6 percent on August 8, down from last week when it averaged 3.75 percent, reported Freddie Mac. Chicago lenders were charging a range of 3.555 to 3.814 percent on August 8, reported RateSeeker. A year ago, 30-year fixed loans averaged 4.59 percent.
Regardless of low interest rates, the home sales slump in June in Chicago and across Illinois was the worst so far this year. According to data from Illinois REALTORS, sales of existing homes in Illinois (16,579 units) declined 11.2 percent from June 2018. In the seven-county Chicago Metro Area, sales of existing homes (12,002 units) declined 11.6 percent. And in just the city of Chicago, sales of existing homes (2,766 units) declined 13.3 percent.
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 think tank based in Western Springs.
While median home prices rose 6.7 percent in the Midwest, median prices in Chicago only inched ahead 1.6 percent to $320,000. Prices in the Chicago Metro Area rose only 0.02 percent to $263,000, and 0.2 percent statewide to $225,000.
A good part of the problem is centered in the luxury home market in the metro area. After strong sales in 2018, luxury home sales declined by a whopping 22 percent in the first quarter of 2019, followed by a drop of 11 percent in the second quarter.
RE/Max Premier reported that $1 million-plus luxury home sales totaled 813 units in the Chicago Metro Area in the second quarter, a decline of 11.3 percent 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 percent 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 nine percent.
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, [and] a higher transfer tax on luxury sales, noted Phil Chiricotti (right), editor of Data Analytics Illinois, Inc.
Chiricotti says wealthy luxury home buyers also are worried about a graduated state income tax, the next economic contraction, a big increase in luxury rentals, meaningful new construction, and reduced foreign buying. The stock market suffered the worst week of the year in early August, he says, after digesting trade fears, Chinese retaliation, a slowing global economy, the durability of corporate earnings, and the extended business cycle.
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.