In October 2023, the housing market in the Chicago area continues to exhibit high demand and low inventory. Home sales were down -18.5% in the last 12 months, held back by a shortfall in available inventory. Homes close quickly in 38 days and at 98.5% of the list price on average. A home usually sells after an average of 20 showings. With only a 2-month supply of existing homes for sale, it is a sellers’ market with multiple offers still very common.
Sales prices are up, indicating strong demand for housing. The Average sales price in the Chicago area was up 4.8%. All real estate is local, with some markets appreciating substantially better than the overall market. For example, the average closed price in Arlington Heights is up 11.3%, Palatine is up 8.3%, and Crystal Lake is up 7.2% on an annual basis.
The housing market shows continued strength in the face of dramatically higher mortgage rates. A conventional 30-year fixed-rate mortgage now averages about 8%. Homeowners who would like to trade up are sitting tight as 61% of US mortgage holders have a rate below 4%. The cost of a 30-year conventional mortgage on a $400,000 home with 20% down is $965 a month greater than it was two years ago. In that time, homes have gone up in value by 40%. Add to that increased property taxes and insurance costs and the affordability crisis becomes clear. It seems likely that the Federal Reserve is done with further rate increases for the time being.
Driving home sales is the robust US economy. In September, the US economy added 336,000 non-farm payroll jobs and wages rose 5.3% ahead of 3.7% inflation. With US unemployment at 3.8% and Illinois at 4.1%, both are essentially at full employment. Consumer spending was especially strong in September, rising 0.7% over August and 3.8% annually. Inflation was steady with housing as the main contributor to rising prices. Oil prices are going down as the US produced an all-time record 13.2 million barrels per day in September. Higher production and faltering world demand sent the price of West Texas Intermediate (WTI) down to $82 per barrel.
Higher prices and Interest rates are likely to take their toll on businesses and individuals and there is a growing consensus among economists indicating the possibility of a recession in 2024. Even if the economy slows next year, home prices are expected to remain stable because of the continued lack of inventory.