It’s been a challenging few years for home buyers in the Second City. Echoing activity in many markets around the U.S., high interest rates, a lack of inventory and rising home prices have left many would-be Chicago-area home buyers on the sidelines. The problem has only been exacerbated by potential sellers who have been reluctant to walk away from their low-interest-rate mortgages.
But in recent months, Chicago’s real estate market has seen an uptick in activity. Home prices have been steadily climbing in the city and suburbs, but lower mortgage rates have helped affordability. The volume of transactions is on the rise from recent historic lows, and in the upper end of the market, the region has seen a raft of new multi-million-dollar home sales and ultra-luxe listings.
Recent activity reflects rising confidence in the market among Chicago-area buyers and sellers. Confidence is up, especially as it concerns mortgage rates, which should propel the Chicago market to a strong end to 2024 and promising start to 2025.
Like many markets, Chicago and its suburbs are currently experiencing an inventory crunch. The lack of homes for sale at any given time in Chicago and the suburbs has made the market very challenging for buyers. We are far from having the ability to fulfill the buyer demand that we’re experiencing and that we’ll see more of when rates drop.
To give themselves an edge in this competitive environment, buyers are leaning on their agents to find homes that haven’t yet made their way to the open market and are also getting creative with their offers, often by waiving contingencies, increasing their earnest money deposits and offering flexibility to the seller.
In the past few months, Chicago and its surrounding suburbs have seen a marked increase in high-end listings and home sales. Notably, an unprecedented offering of homes priced at $10 million and up hit the market in late summer/early fall, with some of the homes already under contract or sold. Sales-price records have also recently been set in a number of communities in the $3 million to $5 million range. Although Chicago’s luxury real estate market is on the rise, it remains relatively affordable compared to other markets around the U.S.
In Chicago, the strength of the luxury market continues to vary by housing type, with high-end condo sales and prices lagging behind high-end single-family-homes. In the city, the median price of condos above $1 million has declined in recent years, down 9.1% in the third quarter of 2024 vs. the third quarter of 2021. Meanwhile, prices for single-family homes above the $1 million mark rose 14% in the third quarter of 2024 vs. the third quarter of 2021. However, the city condo market is turning a corner with sales of condos over $1 million rising in the second and third quarters of 2024 compared to the previous year.
The neighborhoods of Hermosa and Avondale on Chicago’s Northwest Side are emerging as hot markets for buyers, where single-family homes can be found for a relative bargain compared to neighborhoods closer to downtown. Both areas also offer trendy restaurants, new commercial development and proximity to public transportation. Homes in these neighborhoods are flying off the market, with an average market time of 19 days in the third quarter of 2024.
These neighborhoods are very appealing to young buyers who may be looking to move on from their first one or two-bedroom condo to a nice single-family home in Chicago, but who can’t afford the prices of closer-in neighborhoods like Lincoln Park.
With an average single-family home price of $530,000, Avondale and Hermosa are still relatively affordable by Chicago standards – although prices are trending upwards. In the last 24 months (Q3 2022- Q3 2024), median prices in both neighborhoods have risen more than 20%.
As we continue to see interest rates fall, our market will be propelled into a very strong start to 2025 – one we haven’t seen in several years.
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