The Chicago real estate market has recovered at its own pace. While not on the same level as the rest of the country, the recovery of real estate in Chicago has occurred at a pace that appears very attractive to local investors. In fact, The Windy City’s unique combination of relatively low prices and demand seems to tilt the scales heavily in favor of real estate investors. While some more changes are to be expected in the wake of the Coronavirus, however, this midwestern city looks poised to weather the storm and perhaps even come out on the other end even stronger than it went in.
Chicago Real Estate Market 2021 Overview
Median Home Value: $288,168
1-Year Appreciation Rate: +8.2%
Median Home Value (1-Year Forecast): N/A
Median Rent Price: $1,761
Price-To-Rent Ratio: 13.63
Chicago-Naperville-Arlington Heights Unemployment Rate: 7.7% (latest estimate by the Bureau Of Labor Statistics)
City Population: 2,693,976 (latest estimate by the U.S. Census Bureau)
City Median Household Income: $58,247 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 13.75%
Foreclosure Rate: 1 in every 5,583 (1.7%)
2021 Chicago Real Estate Investing
Flipping remains a viable strategy across the United States, but one question remains: Is Chicago a good place to invest in real estate? The answer is simple: yes, as long as investors work within the parameters of the current market landscape. As it turns out, the Chicago real estate market appears poised to benefit both flippers and rental property owners for the foreseeable future.
There are still plenty of opportunities to flip real estate in the Chicago housing market. However, nearly a decade’s worth of appreciation is doing its best to shift the investing landscape from flipping strategies to those of a more long-term nature. More specifically, building a rental property portfolio is perhaps more attractive now than ever before, and the presence of the Coronavirus could actually work in favor of today’s Chicago real estate trends.
The Chicago real estate investing community should consider adding to a rental property portfolio for three particular reasons:
Interest rates on traditional loans are historically low
Years of cash flow can easily justify today’s higher acquisition costs
The price-to-rent ratio suggests housing inventory will be harder to come by
The presence of the Coronavirus has forced the Fed’s hand into keeping interest rates low. In an attempt to buoy the economy, in fact, the Federal Reserve announced interest rates would remain low for at least the next couple of years. As of March, the average rate on a 30-year fixed-rate loan was 3.08%, according to Freddie Mac. While interest rates are up year-to-date, the latest numbers reported by Freddie Mac are still historically low. As a result, lower borrowing costs are helping to offset today’s higher prices in the Chicago real estate market. While it may not seem like much, investors using traditional loans may save thousands of dollars on interest over the life of a loan used to secure a rental property.
In addition to lower borrowing costs, real estate investors may be able to justify today’s higher home values with years of cash flow. In fact, years of collecting rent can simultaneously offset higher purchase prices and build equity in a physical asset with someone else’s money.
With a price-to-rent ratio of 13.63, it is actually more affordable to buy a home than to rent one. Consequently, more people may be willing to buy, which would traditionally hurt the prospects of rental property owners. However, affordability—combined with the current pandemic—has significantly detracted from inventory levels. There aren’t enough listings to satiate buyer demand. As a result, many people (even those who wish to buy) are forced to rent, which bodes incredibly well for today’s investors.
The Chicago real estate investing community is lucky to have several viable exit strategies at its disposal. Still, none appear more attractive than building a proper rental property portfolio at the moment. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.
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2021 Foreclosure Statistics In Chicago
The Windy City has a fairly high foreclosure rate. With one in every 5,583 homes in some state of distress (default, auction or bank owned), Chicago’s foreclosure rate now sits at 1.7%. To put things into perspective, however, the entire United States currently has a foreclosure rate of 0.8%.
With the foreclosure rate as high as it is, the Chicago housing market appears to have plenty of opportunities for investors, which begs the question: Where can I buy an investment property in Chicago? Investors looking for higher profit margins will want to consider these best neighborhoods to buy in Chicago 2020, as they have the highest distributions of foreclosures:
60628: 1 in every 1,145 homes is distressed
60617: 1 in every 1,895 homes is distressed
60636: 1 in every 2,108 homes is distressed
60620: 1 in every 2,165 homes is distressed
60633: 1 in every 2,655 homes is distressed
It is worth pointing out that Chicago’s foreclosure rate—not unlike every other major metropolitan city across the country—is expected to increase as we get farther into 2021. If for nothing else, the impact of the Coronavirus on the local housing market is expected to cause an influx of foreclosures as financial hardships become more abundant. While forbearance programs will keep people in their homes for the foreseeable future, there will come a day when mortgages must be made current. Those who can’t afford to do so may find themselves filing for foreclosure. Therefore, well-positioned investors may be able to simultaneously help distressed homeowners avoid bankruptcy and find themselves with their next deal.
2021 Median Home Prices In Chicago
Chicago’s median home value is $288,168, which is right in pace with the national average. However, real estate in Chicago has taken a slightly different recovery path over the last decade. Most notably, home values didn’t start to recover from the Great Recession till the third quarter of 2012. In September of that year, the median home value bottomed out around $169,000. However, in nearly nine years, the median home value has appreciated by as much as 70.5%. Thanks—in large part—to an improving economy, increasing sentiment, and (ironically enough) a lack of inventory, home values have grown for nine consecutive years.
Years of historic appreciation have made these the most expensive neighborhoods in Chicago (according to NeighborhoodScout):
N Rush St / E Bellevue Pl
N Halsted St / W Fullerton Ave
W Bloomingdale Ave / N Hermitage Ave
W Melrose St / N Hoyne Ave
N Cleveland Ave / W Armitage Ave
W Irving Park Rd / N Clark St
N Western Ave / W Grace St
Robert Morris U Illinois / S Wabash Ave
N Damen Ave / W Melrose St
N Halsted St / W Willow St
Real estate in Chicago has had an impressive run for the better part of a decade. Home values have appreciated for nearly eight consecutive years, which leaves one more important question to be answered: Is it a good time to buy property in Chicago?
Now is a great time to buy a home in Chicago for anyone looking to do so sooner rather than later. While prices have increased for the better part of a decade, interest rates are too attractive to pass up. Borrowing costs will most likely rise soon, driving prices up at the same time. Subsequently, the lack of inventory will maintain a high level of competition, allowing sellers to demand a premium. As the lack of inventory continues, prices will only increase. While prices are high, they are likely to go higher. Today’s home prices may actually end up resenting a value in the next few years.
Chicago Real Estate Market: 2020 Summary
Median Home Value: $249,152
1-Year Appreciation Rate: +0.6%
Median Home Value (1-Year Forecast): -2.3%
Median Rent Price: $1,761
Price-To-Rent Ratio: 11.79
Chicago-Naperville-Arlington Heights Unemployment Rate: 17.6% (latest estimate by the Bureau Of Labor Statistics)
City Population: 2,693,976 (latest estimate by the U.S. Census Bureau)
City Median Household Income: $55,198 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 13.75%
Foreclosure Rate: 1 in every 7,493 (1.3%)
Chicago Real Estate Investing 2020
Chicago real estate market trends in 2020 were the result of a new marketplace created by the pandemic. Once COVID-19 was officially declared a global emergency, real estate in Chicago responded just like everywhere else: it stalled in the face of fear and uncertainty. In a matter of weeks, activity dropped substantially. Lenders stopped underwriting, sellers took their homes off the market, and buyers refused to tour the homes of strangers. The impact of COVID-19 on the real estate market was significant, but it only lasted a few weeks.
Once it was apparent activity would slow, the Fed dropped interest rates well below three percent. As a result, buyers couldn’t help but try and take advantage of the once-in-a-generation rates. Shortly after the market shuttered, lower borrowing costs brought about more activity than anyone could have imagined. Buyers were inspired to participate in the market, and demand quickly turned into competition. A distinct lack of inventory in Chicago, combined with high demand, served to increase prices significantly. The median home value in Chicago increased just over five percent in the last three quarters of the year; that’s in addition to the nine consecutive years of appreciation that just took place.
The median home value in Chicago tested new highs each month in 2020, and investors were forced to change their exit strategies. The city’s high prices turned investors away from flips and towards long-term rental properties. In addition to profit margins being slimmer, the lower borrowing costs created in the wake of the pandemic simultaneously offset high home values and increase monthly cash flow from rental properties placed in operation. When all was said and done, the market favored long-term strategies in 2020, and the trend carried over into 2021.
Chicago Real Estate Market: 2018 Summary
For all intents and purposes, the Chicago housing market was about as healthy as they came in 2018. Unlike most other metropolitan areas of a similar size at the time, The Windy City stumbled across a balanced market—one that favored both buyers and sellers. At the very least, real estate in Chicago was firing on all cylinders while still boasting a relatively low cost of living. People were willing and able to buy homes, which spelled great news for those interested in Chicago real estate investing.
Chicago Real Estate Investing 2018
According to Zillow, the city had a median home value of $221,000 at some point in 2018. Despite being one of the largest metro areas in the country and the only primary market in the Midwest, home values were only slightly higher than the U.S. average. The median home value in the United States, also according to Zillow, was $207,600 at the same time. All things considered, homes were undervalued, which was the perfect storm for investors.
The Chicago housing market had its share of distressed properties. In fact, RealtyTrac identified some 9,275 in some state of foreclosure. That means there were close to 1,000 properties either in pre-foreclosure, up for auction, or had already been repossessed by the loan originator. More specifically, however, there are nearly 1,000 opportunities for investing in Chicago real estate.
At the time, distressed properties carried a median sales price of $98,000, or 44.0% below the average sales price of non-distressed homes. On average, investors could save an average of $77,000 if they choose to buy distressed homes over those in good standing.
Chicago Real Estate Market: 2016 Summary
Median Home Price: $208,600
1-Year Appreciation Rate: 8.4%
3-Year Appreciation Rate: 30.9%
Unemployment Rate: 6.6%
1-Year Job Growth Rate: 1.8%
Population: 9,500,00
Median Household Income: $61,598
Chicago Real Estate Investing 2016
Chicago was among the largest and most desirable cities in the United States in 2016. Known for its illustrious architecture and culinary dishes, The Windy City also encompassed a growing real estate market that rebounded nicely from the housing recession of 2008. The average price for a home in the first quarter of 2016 was $208,600, an increase of 8.4% from the previous year and 2.3% better than the national average at the time.
According to Chicago real estate news in 2016, the city was a seller’s market. The average home was worth approximately $218/sq. ft., which represented a steady increase of 6.0% over the same period in 2015. However, unemployment prevented homes from reaching their true potential at the time. The unemployment rate was 6.6% compared to the national average of 5.5%.
Chicago Real Estate Market: 2014 Summary
Median Home Price: $208,600
1-Year Appreciation Rate: 8.4%
3-Year Appreciation Rate: 30.9%
Unemployment Rate: 6.6%
1-Year Job Growth Rate: 1.8%
Population: 9,500,00
Median Household Income: $61,598
Chicago Real Estate Investing 2014
Real estate in Chicago was hit hard during the recession. At the onset of the downturn, houses and homeowners alike lost an average of $47,400. Two years later, problems continued, as the average homeowner lost $65,200 in equity. By 2011, homeowners had reestablished an average of $34,800 in equity. Home price increases in 2014 helped to pull the local market out of a state of post-recession price weakness.
According to a past Case-Shiller Home Price Index, Chicago had the lowest price gains in 2014 out of the 20 qualifying metros. According to the report, single-family homes in the Chicago housing market increased by a modest 1.3%. Condos, on the other hand, finished the year with an even smaller gain: 1.1%.
Nevertheless, the city still proved that it could make improvements to its real estate market in 2014. Perhaps even more encouraging than the gain was the market’s consistency. For 26 consecutive months, real estate had been the beneficiary of home price increases. Chicago homes increased in value significantly since they bottomed out during the recession. In fact, since they were at their lowest level, single-family home prices increased 23.6%, while condos surged 31.0% in 2014.
Despite having faced plenty of headwinds, real estate in Chicago benefited from an improving economy. Economists forecasted that the expansion of the economy would work in favor of the area. The city experienced moderate growth for at least the next year—at least according to an economic report issued by the University of Illinois’ Regional Economic Applications Laboratory.
Chicago County Map:
Chicago Real Estate Market Summary
The Chicago real estate market, much like the rest of the country, has been the beneficiary of several years of appreciation. Median home values have increased year over year since 2012, and experts are convinced the Coronavirus will only serve as a temporary obstacle. In fact, there’s a real chance real estate in Chicago comes out of the pandemic stronger than when it went in. While the unemployment rate will need to see marked improvement, a returning workforce could facilitate an active second half of 2020 for local investors.
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