A 2022 market update

It has been a historic year for real estate and the statistics just keep coming! Most recently, on June 15 the Federal Reserve lifted interest rates .75 percentage points for the third time this year – the largest increase since 1994. Chances are you have talked to friends, read some sensationalist headlines and maybe even checked on your investment portfolio. But, like many, you are still left wondering: what does all of this mean for me when it comes to real estate? 

Lucky for you, we at Busby Group love facts, figures and data, and we live and breathe the Chicago real estate market. Here is what you need to know. 

The main question on everyone’s mind is where the market currently stands. There are two answers to this question. First, yes, the market is slowing down after one of the best spring markets we have ever seen and over a decade of an intensely strong market all around. Second, it is also very normal for the market to slow down this time of year. Every summer we see a slow down, regardless of the nation’s economic standing. The current slowdown is not cause for alarm or unique in this regard. 

The second question and concern is around interest rates. For a little bit of historical perspective, in 1981 the average interest rate was 16%, and in 1990 it was 10%. In 2003, they were right where we are now. Relatively speaking, our current interest rates are actually not high. For the past 20 years we have hovered around an average of about 5.5%. There are also important reasons for increasing interest rates including neutralizing the current seller’s market, and lowering inflation. 

Tips for buyers
Summer has always been a good time to look for and buy property in Chicago because inventory increases and demand decreases. If you are thinking about buying, continue your search! Some buyers worry about buying at the “height of the market” and paying too much. If the latest potential recession is similar to any of the past several, sales prices will remain strong or even increase, which is what happened in all the past recessions since 1960 barring the financial crisis of 2008. 

Also, renting may not be a great alternative because monthly rents are currently through the roof. Plus, with the volatility of the stock market, many Americans prefer to invest in real estate versus the stock market for more stable returns. 

For buyers concerned about rates, there are several options you discuss with your lender. First, for those planning on moving after about five years, consider a 7- or 10-year adjustable rate mortgage since the initial interest rate is usually lower than a 30-year fixed rate. Next, look into buying down your rate. Usually paying about 3% of the purchase price to the bank upfront will have a substantial impact on a monthly payment amount. Depending on a property’s demand, you could also think about asking the seller to contribute part. Another option is Lock and Shop, which we discussed in detail here. With this program, you can shop for a home with a locked in interest rate, whereas normally an address is required to lock in a rate. Lastly, it is worth looking into creative financing options such as borrowing against a 401K or investment account since the interest rates associated with this sort of borrowing are typically lower than market. 

Tips for sellers
While we are not in the busy spring anymore, it is important to remember that inventory is still at an all-time low, with strong buyer demand, particularly for single family homes and larger attached housing in many neighborhoods. The trend of increasing values that started in 2019 has not yet diminished, and chances are you can still get a very good price for your home. Successfully selling right now is all about timing, and understanding the micro-market dynamics of your neighborhood. 

Chicago buyers for the past several years have strongly trended toward move-in ready, so any fixes or updates you can do to your home will go far. For an extra competitive edge, also consider an offer to buy down your buyer’s interest rate.

An invitation
In real estate, knowledge is always power, especially when the market is moving quickly and the headlines sometimes get it wrong. For those who want more information, or have individual questions, click here for an invitation to a live online discussion we will be hosting with one of our favorite creative lenders in the coming weeks!