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The Home Front
Higher mortgage rates may rule the market for a while, but the panic of triple-digit rate increases is beginning to subside.

16-May-23 – There may be a few bright spots in the generally gloomy outlook for home buying on Chicago’s North Side in 2023, according to a new market analysis.

The bad news is March was the 13th consecutive month of year-over-year home sales declines in the Gold Coast, Lakeview, Lincoln Park, Near North Side, North Center, and Old Town neighborhoods.

John Irwin

“Historically low inventory and listing levels and rising mortgage interest rates continue to be the two major obstacles to a residential real estate turnaround,” noted Realtor John Irwin (left), co-author of Baird & Warner’s April 2023 Market Analysis with broker Jackie Lafferty.

“However, rising real estate taxes, crime, unemployment, and stock market losses have all contributed to this complex market,” said Irwin.

On the positive side, the Baird & Warner Market Analysis outlined the following four emerging trends:

Market Perception. Perspective home buyers need to understand that the North Side market has been on a four-year roller coaster ride, Irwin explained.

“We have experienced dramatic highs and lows in the past four years – from the COVID Crash of 2020 to the record-breaking rebound in 2021 and back to a more normal market in 2022,” Irwin said. “The first six months of 2023 may continue to show sales decreases when compared with 2022.”

For market clarity, analysts at Baird & Warner ask home shoppers to look back to the “normal” 2019 for a more “positive” outlook on the future.

“That comparison shows there still is a significant number of homes being sold today,” Irwin said.

Home Prices. Traditionally, low-inventory markets can inflate home prices to dangerous levels, causing home buyers to worry.

“Despite many multiple-offer transactions and low market listing times, Chicago home prices have remained fairly stable in comparison to other parts of the country,” Irwin noted.

Last month, home prices actually declined 1.2 percent when compared with April 2022.

“There are still a lot of homes being sold and most reflect reasonable market value, and not an inflated price forced by low inventory,” Irwin said.

Mortgage Rates. The panic of triple-digit interest rate increases is beginning to subside a bit.

“While mortgage rates are affecting most buyer demographics, many younger home purchasers have known nothing but interest rates in the low 2 or 3 percent range, so they are in a state of shock when faced with loans in the 6 to 7 percent bracket or higher,” Irwin said.

On May 4, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans averaged 6.39 percent nationwide, down slightly from 6.43 percent a week earlier. A year ago, lenders were charging an average of 5.27 percent for 30-year fixed loans.

Freddie Mac

Despite rates currently hovering in the mid-6 percent range, Sam Khater, Freddie Mac’s Chief Economist, said “home buyers are acclimating to the current rate environment.”

Baird & Warner analysts forecast that higher mortgage rates are going to rule the market for a while.

“While higher rates do impact buying power, purchasers are realizing that they are not married to their mortgage, and they can always refinance when rates drop,” noted Irwin.

Rent Verses Sell. The Baird & Warner report also noted a new trend that is impacting listing inventory. Some existing homeowners are choosing to rent their property rather than sell it.

“These rental homes usually have mortgages in the high-2 to low-3 percent bracket,” noted Irwin. “With rents rising, they can transform their property into an income-producing investment and a hedge against inflation.”

However, Baird & Warner analysts warned that homeowners need to be aware of all aspects of being a landlord before they take on this responsibility.