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The Home Front

(Above) View looking east toward John Hancock Center from Washington Square Park on Sunday. Buildings visible in background include No. 9 Walton, Waldorf Astoria, Two West Delaware, The Bristol, One East Delaware, and Delaware Place. Photo by Steven Dahlman. (Click on images to view larger versions.)

3-Sep-18 – Where do Chicago home and condominium owners stand a decade after the Great Recession and the 2008 housing crash?

Housing prices have rebounded dramatically on the east and west coasts, but generally Chicago and the Midwest still are in recovery mode. And many homeowners are still underwater, owing more than their houses are worth.

Of course, sale prices in hot lakefront neighborhoods are rising, but homeowners in the bungalow belt aren’t doing as well, housing experts say.

Photo by Jim Roberts

Part of the slow recovery in the Windy City is due to the specter of rising real estate taxes that looms on the horizon to help pay part of the gigantic $28 billion in pension debt. Chicago taxpayers will soon be coughing up nearly $1 billion in new revenue to keep the city employee pension funds on the road to 90 percent funding.

(Left) House in South Shore neighborhood of Chicago. Photo by Jim Roberts.

A report by Truth in Accounting, a nonpartisan think tank, computed that all debt run up by Chicago and its various governmental units, including schools, puts each city taxpayer on the hook for more than $75,000. Add to that a state debt of more than $50,000 per taxpayer, and every Chicagoan would owe more than $126,000 to bail out the city and the state.

Ever since the GI Bill expanded homeownership in the United States after World War II, owning a single-family home with a white picket fence has been the vision of the American Dream. However, the housing crash of 2008 brought tighter mortgage credit restrictions and a shortage of affordable housing units.

Add skyrocketing student loan debt and soaring real estate taxes, and that makes owning a home a luxury. The pendulum began to swing away from homeownership during the Great Recession, causing a fundamental shift toward apartment renting, especially for Millennials, experts say.

Homeownership once was the road to upward economic mobility, eventually providing a hefty financial nest egg for retirement. Now the American Dream of homeownership may not be attainable for many young Millennials.

Homeownership fading?

Freddie Mac’s August Forecast reported that although the U.S. economy in the second quarter grew at its fastest pace in nearly four years, housing activity nationwide played a limited role in the expansion.

The report said new and existing-home construction, and sales of new residences, all declined in the last quarter because of builder challenges, limited inventory, and steady price gains.

Looking ahead to autumn, Freddie Mac expects market conditions to remain mostly the same, with a modest rise in housing starts slightly easing inventory constraints.

Total home sales – new and existing – for the year are now forecast to increase 0.2 percent, and home price growth – which has softened somewhat in recent months – is still anticipated to rise six percent.

“The housing market hit some speed bumps this summer, with many prospective home buyers slowed by not enough moderately-priced homes for sale – and higher home prices and mortgage rates,” said Sam Khater (right), Freddie Mac’s chief economist. “These challenges were predominantly seen in expensive markets out west, where demand and sales are beginning to dampen because of weakening affordability.”

Sam Khater

The good news, says Khater, is that the economy and labor market are healthy right now and mortgage rates, after surging earlier this year, have stabilized in recent months.

“These factors should continue to create solid buyer demand, and ultimately an uptick in sales, in most parts of the country in the months ahead,” Khater predicted.

Highlights of the Freddie Mac forecast...

• The robust labor market and healthy U.S. economy, forecast to grow 2.8 percent this quarter and 2.7 percent for the year, should continue to boost consumer spending and business investment.

• Mortgage rates jumped earlier this year but have remained mostly flat since late May. Looking ahead, they are expected to gradually trend higher and average 4.6 percent for the year.

On August 30, Freddie Mac reported that benchmark 30-year fixed mortgages averaged 4.52 percent, up from 4.51 percent a week earlier. A year ago at this time, the 30-year fixed loans averaged 3.82 percent. Chicago-area lenders were charging a range of 4.255 to 4.612 percent on 30-year fixed-rate mortgages on August 31, reported RateSeeker.

• Limited inventory continues to affect home sales and prices. Total – new and existing – home sales are now forecast to increase only modestly this year to 6.14 million, while prices are expected to moderate but still at a pace well above inflation.

• Slower home sales growth, as well as decreased refinance activity due to higher mortgage rates, is expected to cause single-family first-lien mortgage originations to slide around eight percent this year to $1.66 trillion.