The real estate market continues to balance itself, becoming more buyer friendly. But there are likely to be some bumps in the road in the coming year. According to Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago College of Business, “The number of sales remains low in Illinois, while prices continue to grow. Increases in interest rates and concerns about inflation have caused a decline in consumer confidence in the economy and may lead to lower price growth.” Sales of homes in the Chicago area are down -22% and the inventory of homes for sale is down -21.4%. At the same time prices are moderating. Gone are the 19% annual increases. In August, prices were up 4.7% on average.
CoreLogic predicts that the market will become more balanced between home sellers and buyers with home prices rising nationally by 3.8% in the coming year. In Illinois the UIC Handler Department of Real Estate is forecasting a 4.8% annual increase in prices. Low inventories of homes for sale are keeping prices up for now. Driven by increases in the Federal Funds rate, mortgage rates have recently topped 6%. With mortgage rates increasing and home prices still rising, affordability is an issue for many buyers. But as home sales slow, the inventory of homes for sale are expected rise and prices will lose momentum.
Inflation has moderated from 9.1% to 8.25% and the moderation in home prices is playing key role in lowering inflationary pressures on the overall economy. Yet the Federal Reserve has signaled their commitment to keep it in check with further rate increases. Increasing rates have pushed stocks down 11% for the year. However, employment continues to be strong with 315,000 jobs added in August. Unemployment is at a 50 year low of 3.7% nationally and 4.8% in the Chicago metro area. And while the trade deficit and increasing warehouse inventories stalled GDP growth in the first two quarters of the year, the Atlanta Federal Reserve’s GDPNow forecast predicts that GDP will grow again in Q3 by 1.4%. This improves the chances of the so-called “soft landing” for the US economy.
Uncertainty in the real estate market means that you need to work with a professional. If you are thinking of buying or selling real estate, contact us today.