Two trends are clear nationwide, inventories are shrinking and prices are rising. Only 47 percent of the nation’s inventory remained unsold between April 1 and June 1, 2017, according to Trulia. This is an 8.9 percent drop year over year for Q2 2017. Home prices spiked 6.7 percent nationally from June 2016 to June 2017, according to the Case-Logic Home Price Index. This is over four times the 1.6 percent annual inflation rate for all goods and services.
Conversely, Chicago real estate is not experiencing the volatility of many of the nation’s 100 largest metros. While 51.2 percent of the Chicagoland housing inventory sold between April 1 and June 1, 2017, it is relatively moderate comparatively. At the end of the same period, only 20 percent of the housing inventory of San Jose, CA remained. Additionally, home values increased 3.3 percent, while double the national inflation rate for all goods, the 13.3 percent increase of home values in Seattle, WA completely eclipses that growth.
Inventory in Chicago
In their Trulia’s recent analysis “Inventory Myth Busting: Why is Home Inventory So Low?” Trulia put several theories to the test in hopes of confirming or denying common beliefs about diminishing housing inventories nationwide.
- Low inventories exist in markets with larger amounts of investor owed rental homes.
- Larger price increases in markets create lower inventories since homes become less affordable.
- Wider upswings in price spared (the gap between home values of premium, trade-up and starter home) generate lower inventories since upper tier home prices outpace lower tier home prices making it tougher to move up to the next tier.
- A larger share of older homeowners in a market will create lower inventories because older homeowners move less often.
- The amount of newly constructed homes in a market will increase inventories providing new trade-up opportunities for current homeowners.
When looking at the aggregate US housing market, the three most significant factors are new construction, investor ownership, and aging-in-place boomers. Every percentage increase in new construction between 2010-2016 correlates to inventory that is about 13 percent higher. A one percent increase in investor-owned homes correlates to a 2.8 percent decrease in housing inventories. Surprisingly, larger shares of homeownership by those 55+ in age correlated to 3.6-percentage increase in inventory.
In Chicago, these three factors appear to offset one another. New homes and 55+ ownership are relatively low factors in Chicago thereby not adding to overall inventory. New construction represents 0.2 percent of housing units in the metro. Comparatively, new construction represents 10.7 percent or housing units in Austin, TX. Boomer’s are 45.8 percent of homeowners in the metro whereas nationally 53 percent of homes are owned by those 55+. Investor-owned properties make up 37.7 percent of Chicago’s housing inventory, which is relatively high, thus a smaller percentage of the housing stock is available to prospective buyers.
Chicago Offers Opportunities for Buyers of All Tiers
The Chicago real estate market is healthy by all accounts. Prices are rising and inventories are falling gradually much to the chagrin of area home-sellers. Unlike many of the top 100 US metros, inventories of starter, trade-up, and premium homes align to searches for these home types. According to Trulia, the national housing inventory had a 7.4 percentage point gap across all tiers prior to the spring market. At that time Chicago’s tier-wide gap was 2.6 percentage points.
Starter Home Inventory
First-time homebuyers seeking a starter home in Edgewater will not have to make tough choices. Chicagoland housing inventory falls short of online searches by one percentage point. Searches for starter homes represent 24 percent of all online searches while starter homes comprise 23 the percent of housing inventory in the metro. Nationally, the gap between searches and inventory of starter homes in -5.7 percent.
Trade-up Home Inventory
It might take a couple more weeks of looking for homeowners hoping to trade-up into a cute walk-up or a Greystone in Avondale. The 27.4 percent of online area searches are for trade-up homes but these homes only represent 24.4 percent of the metro’s housing inventory. However, Chicagoans are far better off than many of their counterparts nationwide. The trade-up home search to inventory gap is -5.3 percent nationally.
Premium Home Inventory
For those looking for a premium home near Ravenswood can take time deciding because there is a surplus of premium homes on the market. The percentage gap between searches and inventory is +3.9 percent. Premium home seekers in this metro will need to make a choice quicker than their counterparts since the gap in Chicago is almost one-third of the nationwide premium home gap of 11 percentage points.
The Chicago real estate market is balanced. Homes price are rising at a healthy clip and inventories are decreasing but not dramatically. No matter what tier of home buyers are seeking inventories match the tier of home that homebuyers want.
Blog post provided by Trulia which is an online residential real estate website that provides comprehensive neighborhood information on properties for sale. The site is used by sellers, renters, home buyers and real estate professionals.
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