(Above) View of North Side of Chicago from John Hancock Center.

By Don DeBat

24-Jul-23 – Squeezed by sharply higher mortgage interest rates and a shortage of home listings, Chicago’s North Side residential real estate market continues to spin its wheels at mid-year 2023.

Experts say the market environment is characterized by more cautious consumer attitudes shaped by a shortage of homes for sale and significantly higher mortgage rates.

On July 20, Freddie Mac’s Primary Mortgage Market Survey reported that the benchmark 30-year fixed-rate mortgage average hit 6.78 percent nationwide, down 0.18 percent from the previous week but up 1.24 percent from a year ago.

The week before, mortgage rates increased to their highest level since November 10, 2022, when they hit 7.08 percent, according to Sam Khater, Freddie Mac’s Chief Economist. Fifteen-year fixed home loans were 6.06 percent on July 20, down 0.24 percent from the previous week but up 1.31 percent from a year ago.

The survey is focused on conventional, conforming, fully amortizing home-purchase loans for borrowers who put 20 percent down and have excellent credit.

“Incoming data suggest that inflation is softening, falling to its lowest annual rate in more than two years,” noted Khater (left). “However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand.”

Baird & Warner’s July 2023 Market Analysis for the North Side reported that June was the 16th consecutive month of year-over-year home sales declines in the Gold Coast, Lakeview, Lincoln Park, Near North Side, and North Center.

“June represented the third consecutive month of median home price increases on the North Side,” said Realtor John Irwin (right), co-author of the Baird & Warner Market Analysis with broker Jackie Lafferty. “Traditionally, low inventory markets and multiple offers can inflate home prices to dangerous levels for home buyers.”

Core Logic’s monthly Home Price Insights reported that Chicagoland home prices increased 3.8 percent on an annual basis in May, the second-highest jump among the nation’s metro areas.

According to another North Side Market Report prepared by Mary Jo Nathan of Baird & Warner’s North Center office at 4037 North Damen Avenue, second-quarter 2023 combined sales of detached and attached homes totaled 2,727 units.

That was 33.4 percent less than the second quarter of 2022, after which the Federal Reserve initiated its policy of boosting interest rates, Nathan noted.

The North Side Market Report tracks home sales in nine neighborhoods: Edgewater, Lakeview, Lincoln Park, Lincoln Square, Near North Side, North Center, Rogers Park, Uptown, and West Ridge.

Once the mortgage rate increases began, sales activity shrank markedly, declining 32.5 percent in the first quarter of this year. Sales activity fell 34.2 percent in the fourth quarter of 2022 and 26.3 percent in the third quarter last year.

“The increased mortgage rates are proving to be a double whammy. First, they drive up the cost of ownership for most folks, and that especially hurts first-time buyers,” said Nathan (left). “They also discourage current homeowners who have low-rate mortgages from selling because a new mortgage on their next home would come with a less appealing rate.”

According to Nathan, the hesitance of existing homeowners to sell their properties is a major reason the inventory of homes for sale is so low. At the end of the second quarter, the number of North Side listings was 1,902, down 29.9 percent from a year ago.

Listing inventory in the attached home market, which is primarily condominium apartments, has dwindled dramatically across most of the North Side.

“Excluding the condo-rich Near North Side, where there is ample inventory, we’re experiencing a real shortage of listings,” noted Nathan.

Attached sales during the second quarter averaged 576 units a month in the other eight neighborhoods that are part of the North Side Market, but only 582 attached units were listed for sale in those areas at the end of July, barely a one-month supply.

Overall, second-quarter attached sales on the North Side totaled 2,504 units, down 32.8 percent compared with that quarter last year. At the same time, the median sales price slipped 0.3 percent to $378,825.

“Even that minimal decline in the median price is a bit misleading because it is due largely to the softness in the Near North market,” said Nathan. “The median rose in seven of the eight neighborhoods, and gains were especially strong in Lincoln Square, Uptown, and North Center.”

(Right) Green Mill Cocktail Lounge in Chicago’s Uptown neighborhood of Chicago. (Photo by Kenneth Zirkel.)

Single-family sales during the quarter totaled 223 homes, a decrease of 39.1 percent, but prices remained firm. The median sales price for those homes was $1,306,000, an increase of 2.2 percent, and their average market time was a still-brisk 59 days, up from 45 days a year ago.

“The most promising component in the North Side market is that there is a strong supply of buyers,” said Irwin. “While there are no statistics to give us true numbers, open-house attendance and low market times indicate that buyers are getting more comfortable with higher interest rates.”

North Side Median Prices – 2Q 2023