Among journalists, economists, and even some real estate professionals, there’s a sense of negativity in the air, with some people fearing that the sky is falling in the housing market - both here in Chicago, and around the country. 

Certainly, there are a few warning bells to pay attention to, including an up-and-down stock market, a changing yield curve, and ongoing economic changes worldwide. But are these really red flags that a crash is coming to the Chicago market? At this point, there’s still plenty of room for hope.

There’s reason to be optimistic that the rumors of the market’s death are premature. In our view? Instead of crashing, the housing market is undergoing a shift back into a normal, balanced state, one with significant benefits to offer to both buyers and sellers. 

Is a Recession on the Way? 

There’s a growing sentiment that the U.S. economy is on the brink of another recession, with some key economic indicators suggesting that an economic slowdown may be imminent. 

While this might be true, and only time will really tell, it’s important to note that historically, with the most recent recession aside, the housing market not only tends to grow during such an economic phenomenon, but it can actually also help to bring the economy back into a comfortable position.

Research, in fact, indicates that recessions do not historically impact housing as much as they do other aspects of the economy. According to research, home prices truly decreased only once in the last five American recessions, during the Great Recession of 2008. In other words? In four out of five recent recessions, home prices actually increased. This great chart from Keeping Current Matters helps illustrate this important trend: 

Factoring In Interest Rates

One of the most promising aspects of the current housing market are falling interest rates, which can make securing financing for your home purchase easier (and help increase your purchasing power). 

Within the last year, interest rates have begun to hit new lows, which can help spur housing purchases and overall economic growth. 

As a recent report from Yahoo! Finance explains succinctly: 

“...as recession concerns loom, interest rates have fallen to a level that’s now stimulative for the U.S. housing sector. The average 30-year mortgage rate is around 3.6%, according to Freddie Mac data. This is the lowest level since November 2016.” 

As a result of these lower interest rates, some prominent experts - including Lawrence Yun, chief economist at the National Association of Realtors (NAR) - anticipate that the second half of 2019 will see more home sales than the first half of the year. 

The Return to a Normal, Balanced Market 

For the last three to four years, the market has largely been one that favors sellers, with rising prices and more limited inventory. At this point, what we’re seeing is arguably the market shifting back to a balanced level, with benefits to offer for both buyers and sellers.

A normal market consists of multiple factors that work together to make a housing market that’s stable and advantageous for both buyers and sellers - and that’s exactly where the current Chicagoland market is headed. 

Within the stock market, for example, housing related stocks have not only been normalizing, but actually seeing positive surges recently. This includes the S&P 1500 homebuilding subindex, which “has outperformed the broad equity market by roughly 30 percentage points,” according to Business Insider. 

In a local context, contracts on new homes are consistent and have raised no cause for alarm in recent years. For example, on the north side of Chicago, contracts written and grouped month to month show that the spring season has consistently been the best period for contracts, peaking around April. The number of contracts written in April of 2019 remains in line with recent years, and actually dwarfs the number from the post-recession period from 2010- 2012, and even beats the 2015 market data, that most viewed as a very strong one. 

For sellers here in Chicagoland, prices remain high, and are even climbing in some areas (for instance, the median sales price in Cook County, Iliniois saw a nearly 4 percent gain from May 2018 to May 2019, according to data from Chicago Magazine). For buyers, inventory is slowly climbing and interest rates are at historic lows, both of which can make finding and financing a dream home easier. 

There are other positive indicators to note, as well! For instance, Business Insider points out that nationally, pending home sales “have advanced to their best level since mid-2017,” while new home sales have increased by 15%. Similarly,  mortgage purchase applications are up about 15% in 2019, and first-time homebuyers represented 35% of total resale purchases as of June 2019 - the highest level since 2011. 

Consumer Sentiments Remain Positive 

Acknowledging the feelings that consumers have towards the real estate market is important to factor in when analyzing the current state of the market. It’s true: Like the classic case of the “chicken or the egg,” the way that consumers feel about the housing market and the economy can have a real world impact on the health of the housing market and the economy at large. 

Despite the doom and gloom that some are feeling, research shows that current and potential buyers are, largely, unfazed by the market turbulence - and many are already looking ahead to the light at the end of the tunnel. 

One important survey, Fannie Mae’s Home Purchase Sentiment Index, actually climbed to a survey high as recently as July 2019, suggesting that housing market consumers feel confident about keeping their jobs, taking advantage of lower interest rates, and purchasing properties to call their own in the near future. Similarly, data from Business Insider suggests that the number of Americans planning to purchase a home in the next six months is up significantly, and is slowly reaching pre-Great Recession levels. 

Meanwhile? A Gallup survey, brought to our attention by Keeping Current Matters, indicates that 35% of Americans view owning real estate as the best overall long-term investment, and a secure way to build wealth. This number has only been climbing in recent years. 

In short? Consumers see hope and possibility for future housing purchases and overall economic stability - and this positivity may be enough to help the market weather the storm.  

The Bottom Line

Though the United States might be headed towards an economic downturn, the housing market around the country, and here in Chicago, seem to be pushing through, based on some key indicators. If you factor in historical market trends, low interest rates, and positive consumer sentiments, the rumors of the market’s death seem to be a bit premature. 

Because the market seems to not only be in a safe zone but actively improving, it is important to enlist the most qualified help around on your home buying or selling journey. That’s where Real Group RE comes in. Don’t hesitate to drop us a line to keep the conversation going with Chicago’s real estate experts.