Investing in Chicago, Illinois

While there can be no iron clad guide to real estate investing in America these days, one general rule seems to be sharply in focus: the further east you travel, the worse the housing market gets. While Seattle is still posting record gains and parts of California are still on an upswing, once you get to the “flyover” states, things begin to get downright depressing. Chicago is a prime example of that. While the real estate bubble might have already burst in a few eastern cities, the predicted downturn in Chicago’s real estate market is hitting as we speak. The recent first quarter numbers tell the grizzly tale.

Maybe the most shocking number is that the asking price and the sales price for new single family homes and condos in the Chicagoland area are down almost ten percent over last month. Sales prices are down from $281,000 to $253,000 in one month, while asking prices mirror the trend, dropping from $289,000 to $261,000. Even the price per square foot in the Chicago area is down sharply, from $134 to $120, a drop of over 10 percent from March to April of this year. The amount of time a single family home and a condo spends on the market, on the other hand, is up from 131 days to 138, an increase of just over five percent.

The one bright spot, and the best sign that this slump may be shorter rather than longer is that the total number of transactions is up ten percent in the month of April from March of 2007. This shows that while prices may be dropping, the good citizens of the Windy city are aware that bargains are now around every corner and that buying is becoming more fashionable.
A recent Chicago Tribune article dated May 9 isn’t so optimistic. Experts called the current state of Chicago’s real estate investing market an out and out “recession:” a word only used in the direst of circumstances. The chief economist of the National Association of Realtors, who has always been an industry cheerleader for obvious reasons, was less than optimistic about the immediate future of Chicago’s real estate market.

But the great thing about real estate and real estate investing is that the whole thing works in a cycle. Chicago is too beautiful, too desirable a place to live and has too strong an infrastructure and economy to be in the real estate doldrums for too long. The question on everyone’s mind is, how much longer do we have to put up with this?

Well, even the most optimistic predictions are saying that the United States, as a whole, could actually see negative home values for the first time since the great depression. So, as a general rule, unless things change rapidly during the next few months, the only sound investments when it comes to real estate are going to be found west of the Rockies. But things will eventually turn around and if these predictions come true, and overall home prices actually drop, you can bet that at the first sign of recovery, the market is not only going to recover but it is going to rebound stronger than ever.

And it’s not just Chicago that’s feeling the bite. The entire Midwestern United States has been underperforming the rest of the country when it comes to real estate prices. According to Realtor.org, home sales are down over 8 percent from this time last year, but the Midwest is showing a steeper drop of almost 10 percent from the same time last year.

Predicting the future of housing in the Midwest as a whole and in Chicago specifically isn’t an easy job, but you can be sure that the current dip is temporary and that once the available bargains become too luscious to resist, the market will be back with a vengeance.

Warmly,

Mary Wozny