This guest post was submitted by Jared Diamond, who writes exhaustively on real estate and personal finance trends.
It has been all of a half-decade since Chicago has seen housing markets this strong. The reason appearing as unlikely as the trend itself: Basement inventory levels have manifested into a sellers’ paradise, the likes of which have gone unparalleled in recent years. Housing supply shortages have left sellers with influence to all but dictate prices. And nowhere could this be more evident than the North side, where prices outpace the rest of Chicagoland. How explosive is the recent housing surge? Consider this: Home sales figures have demonstrated an increase of 32.2 percent over last year, an unprecedented gain by any standards. What astonishes most, is the driving force behind the surge: An unseen drop in inventory, rather than strengthened demand, stands at the root behind this development. In short, a lack of sellers has empowered those remaining authority to all but manipulate housing prices.
In the Neighborhood
Neighborhoods such as Pullman, Roseland, and Riverdale have notched price rises on an average of 18.6 percent in 2012 compared to a year ago. Lincoln Park, near the north and the Loop, Old Town, and Lakeview saw an increase in sales by about 23 percent in January of 2013 from a year ago. Jake Lucas, of rent to own home listing service FindRenttoOwn says, “It has been a quiet turnaround. Sales increased more than a year ago but it was gradual and not drastic enough for people to sit up and take notice. It is only over the past few months that they have actually started seeing the change in fortunes.” Englewood/Auburn Gresham, which was known for its high rate of foreclosures, has also ringed up gains of 4.5 percent over a year.
Inside The Bidding Wars
Bidding wars on properties have become a fact of life as a result of decreased inventory. The lack of houses on the market has already fueled the fire with two or three people indicating an interest in the same property. With the onslaught of this year’s spring, when property transactions peak, approaching fast, bidding wars seem to be here to stay at least for the time being. In fact, Chicago is among the top 10 cities where homes are selling within 24 hours of being listed. This is amazing because of the violence, high taxes, and anti-business policies that afflict this city. Investors are also in the fray and are looking for marvelous deals that can be resold after renovation or held as a rental.
What it Means
The perspective of the seller will depend on when they bought the property. Someone who purchased a home about seven years ago will have cause to cheer if their area is performing better. However, those who bought homes prior to this might still not be able to sell since they would have paid a much higher price at the time. Well, they could still sell and not experience as big of a loss as compared to 2009 home prices. If you have to move or have a better job offer in another state, timing may not be on your side.
As of now, the picture looks rosy if you are a seller. This can change should the Federal Reserve decide to hike mortgage rates. Increased mortgage rates will cause buyers to pause and think before taking the plunge. Yet another factor in play are the investors who might eventually turn into sellers. If that happens, inventory is likely to go up which can bring an end to the bidding wars which is currently music to a seller’s ears. If neither of these scenarios comes into play, then things are likely to continue as they are.