A couple of weeks ago Coldwell Banker came out with their annual Home Listing Report which attempts to rank over 2000 real estate markets by their housing affordability using a rather crude measure: the average price of 4 bedroom, 2 bath single family homes. In general the results of their housing affordability ranking make sense at a high level. For example, California markets are crazy high and Chicago does come out more affordable than Austin, TX as I recently posted. However, the report also shows Chicago substantially cheaper than a number of the surrounding suburbs and that makes no sense.
Keep in mind that analyzing housing affordability is a daunting task. To do it correctly you would have to control for quality of neighborhoods, quality of schools, lot size, finishes, and square footage. It's damn near impossible to do all that so most of these reports are based on some kind of analysis that is so crude as to be almost useless. On top of all that keep in mind that Coldwell Banker is not exactly trying to do a rigorous analysis here. The real purpose of this particular report is to generate publicity for them, drive people to search for homes from this report, and to increase the search engine ranking of their property search. And this strategy works because I just linked to their report above.
So here is the data they present for Chicago and 4 surrounding suburbs in their report and right next to it I show the numbers I came up with by looking at the last 12 months of closed sales of all the 4 bedroom, 2 bath homes in these same towns. I don't know where they come up with their numbers but I get very different answers. Even if they are going off of list prices they shouldn't be that far off from my numbers.
But even my numbers end up showing Chicago much cheaper than these suburbs. Well, that shouldn't be a surprise since this is the kind of crazy nonsense you end up with when you look at averages. In the last 12 months there were 775 sales of 4 bedroom, 2 bath homes in Chicago with prices ranging from $350 (yeah, that's the home in the photo at the top of this post) to $850,000. Should we really just average all these together? Not to mention that 2 bath homes are a relatively small portion (just a tad over 1/4) of the market for 4 bedroom homes in Chicago and some of these homes sold in the more desirable neighborhoods were actually teardowns. When I say this is a crude exercise I really mean it's crude.
And these homes are in very different neighborhoods. The price you would pay for a home in a merely "nice" neighborhood won't even get you a teardown in West Town or Logan Square, let alone Lake View...and certainly not Lincoln Park or the Near North Side. And that's part of the problem. When you say "Chicago" which Chicago are you talking about? It's not at all homogeneous like those suburbs listed above.
To illustrate this point I plotted all the sales of these homes in Chicago on the map below and color coded the balloons to indicate the price range they fall into. The cheapest homes (less than $100K) are marked in dark red and then the colors transition to yellow and finally dark green as they progress to higher price ranges. To really benefit from all the interactive functionality of this map you should really click on this link to get to the larger view which will allow you to see the legend and zoom in better.
You can see how homes within each price range tend to cluster in certain parts of the city. Looking purely at price West Englewood is clearly the most affordable place in the entire area.
What it really comes down to, as I alluded to above, is where do you get the best value in the area? You have to take into account neighborhood, size of house, level of finishes, safety, quality of schools, lot sizes, etc... Just to give you a better sense of the trade offs consider the following examples across the area at prices in the mid $300s - a price point I picked because it seems to represent a minimum that many of our buyers would need to spend in order to hit their requirements.
In Chicago there was the sale of the 2600 sq ft all brick home at 6550 N Maplewood Ave in West Ridge for $360,000. That's above grade square footage since the basement is unfinished. The home has nice but modest finishes that are a little dated and it sits on a 38 x 124 lot. Of course, West Ridge is way more affordable than closer in areas.
Compare that to the Downers Grove home at 1909 Curtiss St. that sold for $355,000. It's only 1900 sq ft and the finishes are dated and very inexpensive but it does sit on a 60 x 267 lot. Then again it's a frame construction.
Just to give you another perspective, our East Village neighbors recently sold one of those 4000 sq ft newer construction Noah Properties homes that I've written about recently for $1.3 MM and bought a new construction home in Downers Grove for $1.35 MM. Their new home will also have 12 rooms, including 5 bedrooms and 3 1/2 baths, a 3 car garage, and will sit on a 75 x 132 lot. I can assure you that they feel like they got a lot more for their money in Downers Grove.
In Buffalo Grove $360,000 is off the scale for 4 bed, 2 bath homes. The most expensive one sold in the last 12 months was at 10 Greenwood Ct. which is a frame and brick split level that sold for $350,500 and sits on a lot that is about twice the size of a standard Chicago lot. The home is only 2000 sq ft but it's been completely rehabbed so it has the latest finishes. Of course, $360,000 would also get you a reasonably updated 2200 sq ft 4 bed, 3 bath home on an 8000 sq ft lot in Buffalo Grove.
And we can't even do this comparison in Addison because the most expensive 4 bed, 2 bath home sold there was right around $300,000. But $355,000 would have gotten you this 5 bed, 3 1/2 bath home at 729 W Charles Ct. It's all brick with 2700 sq ft above grade plus a finished basement and sits on a 65 x 115 lot. It was built in 1994 so the finishes are quite dated and inexpensive.
The bottom line is that this sort of affordability analysis is pretty useless for any purpose other than getting in the news. It's pretty clear that most of the Chicago suburbs provide a better value than comparable neighborhoods in the city and that's why there is a regular migration of people like my neighbors to the suburbs.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.