Chicago September Home Sales Drop 11%, Concluding Slow Summer Market

While the summer of 2023 recorded record-breaking heat, the local housing market in Illinois faced a different climate. The season witnessed a decrease in real estate transactions, aligning with trends observed during the spring. This dip can be attributed to the persistent rise in mortgage rates from July to September, combined with a shortage of available inventory.

Illinois’ housing market trends reflect national patterns, with September marking the lowest level of existing home sales nationwide since October 2010, as reported by the National Association of Realtors. Additionally, Redfin predicts that this year may close with the fewest existing home sales nationwide since the housing market crash of 2008.

Chicago and Illinois both saw a fluctuation in home sales during the summer season, with a decline in July, followed by an increase in August, and ultimately a drop in September. Data from the Illinois Realtors, a professional association for real estate agents, also reveals a continued decrease in median sales prices from July through September, although year-over-year home prices have shown an increase.

As of September, the median sale price for a home in Chicago was $324,450, down from $330,000 in August and $342,500 in July. The figures for the Chicago metro area were $325,000, and statewide it stood at $270,000 in September. All these numbers were lower than the corresponding figures from August and July.

Chicago witnessed an 11% decrease in closed home sales in September compared to the same period in the previous year. This seasonal decline in closings was consistent throughout the entire Chicago metro area and the state of Illinois. Drussy Hernandez, President of the Chicago Association of Realtors and Vice President of Brokerage Services at Coldwell Banker, emphasized that although buyers and sellers remain active, the market has experienced a reduction in activity.

The spring and summer seasons are traditionally the peak periods for home buying and selling, but this year’s market has been slower than previous summers. The hesitation of many homeowners to enter the for-sale market stems from mortgage rates reaching their highest levels in nearly 23 years in September. This situation has led to a shortage of inventory in both local and national real estate markets and, consequently, elevated prices, limiting the number of transactions taking place. According to ATTOM, a national property data provider, median-priced homes are less affordable in the third quarter of this year compared to historical averages in 99% of counties nationwide. The data also reveals that the portion of average wages needed to afford a mortgage has risen to 35%, reaching its highest level since 2007.

Rob Barber, CEO of ATTOM, noted that the dynamics influencing the U.S. housing market seem to be working against everyday Americans, potentially having a significant impact on home prices. While the current situation hasn’t reached a crisis point, the persistent trend of homeownership consuming over a third of average income has set the stage for potential buyers to be priced out of the market, ultimately reducing demand and the upward pressure on prices.

Despite the challenges, the total housing market is valued at just under $52 trillion, representing a gain of more than $2.6 trillion compared to the previous year. The surge in value is primarily attributed to new construction, according to estimates from Zillow. In the Chicago metro area, the total market value is $1.1 trillion, an $85 billion increase over the past year and a remarkable 35% jump since the onset of the COVID-19 pandemic. Nearly 48,000 newly constructed units were added to the Chicago market in the past year through the end of August, positioning Chicago among the top 20 most valuable metro areas.

Rents both locally and nationally have exhibited a month-over-month decline in this quarter. Chicago rents experienced a nearly 1% decrease in September, although they remain higher than the previous year, as indicated by data from Apartment List. According to U.S. Census Bureau data analyzed by Apartment List, half of Chicago renters are considered rent-burdened, implying they allocate over 30% of their income toward monthly rental payments. The same data underscores an increase in rent-burdened households across the United States.

Monthly 30-year fixed mortgage payments for homebuyers in the Chicago metro area who opt for a 5% down payment have remained significantly higher in the third quarter when compared to the previous year. Data from Zillow for September indicates a monthly payment of $2,202, signifying a 10% increase from the previous year. In the case of a 20% down payment, the monthly mortgage payment decreases to $1,685, representing an 11% year-over-year increase. Zillow’s month-over-month data also indicates an upward trend in monthly mortgage payments throughout this quarter.

These figures are based on Zillow’s Home Value Index for the Chicago metro area, which assumes a purchase price of $307,615 for September. Additionally, data from Freddie Mac reveals that the average 30-year fixed-rate mortgage surpassed 7% in August, with averages steadily approaching 8% throughout September. The ongoing fluctuations in mortgage rates are expected to persist into the final quarter of the year, given the uncertainty surrounding the economy and the geopolitical landscape.

At present mortgage rates, and assuming a 5% down payment, the typical home in the Chicago metro area is deemed affordable to households with an income of at least $110,155, as per data from Zillow. This figure reduces to $89,861 for buyers with a 20% down payment, ensuring that in both scenarios, buyers are expected to allocate 30% or less of their income toward mortgage payments.

In response to the challenging market conditions, some real estate professionals are employing interest rate buydowns to incentivize transactions. Under this strategy, buyers receive.