There are fewer homes listed for sale in Chicago than there have been at any time in at least the past decade, and the shortage will influence how both buyers and sellers operate in the market this year.
In the week that ended January 7, 7,028 homes were on the market in the city, according to a report posted by the Chicago Association of Realtors on Monday. That’s the lowest recorded in CAR’s data, which goes back to January 2007. It’s 3.7 percent below the inventory on hand at the same time last year, when the inventory of 7,297 listed homes was the lowest recorded.
Inventory is always at its lowest in frosty January. But after 2016, when for the rest of the year inventory rose only slightly above its January levels, 2017 dawns as the fifth year in a row when tight inventory is the watchword in the real estate market.
“You’d better have your ducks in a row, because it could be a fast-paced market with such low inventory,” said Matt Silver, CAR’s president and a partner with Urban Real Estate.
Buyers who don’t want to miss out on their favorite property will need their financing and other terms in hand before they start house-hunting, and may rely more than ever on pre-market properties like those agents dangle in front of their personal networks before the homes are fully prepped and photographed for listing.
Sellers may see their property sell so swiftly that they have to find their next home faster than they anticipated. And they may have to deal with the gratifying but stressful process of determining the best of multiple bids.
Rising interest rates
One new wrinkle in the low-inventory picture of the past several years is rising interest rates. Since interest rates started upward from their epochal lows last fall, “people have been considering that no matter how much interest rates go up, it will cost them more to buy a year from now than it does now,” said Mike Golden, a founder and principal of @properties. That motivates them to buy sooner rather than later, he said.
Comparable data for the suburbs is not yet available from Midwest Real Estate Data. Jonathan Smoke, chief economist for Realtor.com, said this data for the Chicago metropolitan area show December’s inventory was down 10 percent from a year earlier. But neither month was below the bottom the metro-area inventory hit in December 2014, Smoke said.
The combined impact of short inventory and rising rates showed up in December as extra-short time on the market for many properties. CAR reported that attached homes, or condos and townhouses, sold in an average of 78 days in December, more than 16 percent faster than December 2015’s 94 days. Single-family homes sold in an average of 87 days, down 6.6 percent from 93 a year earlier. (A total that includes both property types is not available.)
Inventory may tighten even further if the rush of new contracts in December, which Crain’s reported recently, all pan out as closed sales.
For people who are looking to buy this year, getting an early edge or vest-pocket deal may be the key to landing a premium property, said Michael Shenfeld, a Berkshire Hathaway HomeServices KoenigRubloff Realty Group agent. Many agents now use forums like Top Agent Network and offMLS to expose properties to other agents before they’re ready to list publicly on the multiple-listing service. Shenfeld noticed that if a buyer likes a certain condo building or a block with many similar homes, agents will approach owners there about possibly selling.
While some skeptical homeowners who get approached this way may think it’s just the agent prospecting for new listings, Shenfeld said that in this tight-inventory climate, “we’re not pretending. We’re truly looking, with a specific buyer.”
Shenfeld, Silver and others said that buyers should start their house hunt armed with their financing already nailed down, and their other offer terms, such as a closing date, thought out. Offering the sellers a long time before closing may ease their anxiety about the time needed to find their own next home, said Ryan Preuett, senior vice president of sales at Jameson Sotheby’s International Realty.
Sellers should be careful to avoid the siren song of higher prices resulting from short inventory, Preuett said. While a commodity that’s in short supply almost inevitably means that buyers end up paying more for it, Preuett said, “we have very educated buyers these days,” thanks to price-shopping on the internet. “They can see when something is over-priced.”
Sellers, he said, can afford to be optimistic about their pricing, but shouldn’t go overboard.
Golden of @properties, agreed. “Our prices are going up, but we’re not as frothy as the coastal markets,” he said. “Price your home too high and it will sit on the market.”