The Chicago area real estate market is showing signs of cooling off as it normally does in the Fall. While home prices are still higher than a year ago, they are lower than in previous months. More homes are on the market versus previous months and the absorption rate climbed slightly. It also takes longer to sell a home. Overall, the inventory of homes for sale is still tight and prices are at record levels.
Nationally, July’s existing home sales increased by 1.3% to 3.95 million, ending a four-month decline, while the inventory of homes for sale increased for the tenth month running by 35.8% annually to their highest level since May 2020. The national median price of a home decreased 1.3% to $429,990.
High interest rates, high prices, and low inventories have slowed the Chicago area market as we head into the fall where a seasonal slowdown normally takes place. The Institute of Housing Studies at DePaul University forecasts the Chicago metro area will experience a 2% increase in sales during the next 3 months with prices flattening out.
Mortgage interest rates have fallen again, with Freddie Mac reporting conventional 30-year fixed loans with 20% down at an average of 6.35%. Mortgage refinance demand jumped 94% in August with refinances making up 46% of all applications.
The Federal Reserve did a larger than expected rate cut of 50 basis points with more cuts expected later this year. This will eventually lower mortgage rates as we head into the new year. The Mortgage Bankers Association predicts rates will hit 5.9% in 2025 while Fannie Mae is forecasting 6.1%. These lower rates may incentivize sellers to jump back into the market, making for a hot market in the coming spring of 2025.
The US economy appears to be normalizing after years of high growth and inflation. The pandemic and subsequent supply chain shocks are behind us and the Fed has succeeded in bringing inflation down to 2.5%, its lowest rate since March 2021. Wages are up 3.8% annually. Despite recent volatility, all major stock market indices are up YTD with the S&P 500 up 14.83%, Nasdaq up 23.84%, and the Dow Jones up 8.67%. Gross Domestic Product grew at a healthy 3.0% in Q2 with the Atlanta Fed’s GDPNow model predicting 2.1% growth in Q3.
However, the job market is slowing. In August 144,000 jobs were created well below the 161,000 forecast while unemployment fell slightly to 4.2%. Manufacturing also contracted for the 5th straight month, according to The Institute for Supply Management, adding to recession fears. But consumer spending rose 0.5% monthly in July and The Conference Board reported in August that consumer confidence and consumer expectations of the future are on the rise. Consumer spending accounts for 70% of economic activity, so a confident consumer spending their money bodes well for the near future.