Who could have seen 2020 coming? The last year was an unusual and unpredictable one in the real estate world. While industry experts always anticipate a little bit of turbulence in presidential election years, nobody saw the COVID-19 pandemic coming. In fact, words that were often used to describe the Chicago real estate market heading into 2020 were “steady,” “boring,” and “same old.”
How naive we all were!
2020 was a singular year, one that will always be remembered in terms of social distancing, face masks, and Zoom calls. In the real estate world, 2020 was a shock to the system — but one that helped prove that, really, the system is fairly strong, stable, and resilient.
While the early months of the COVID pandemic brought a lot of uncertainty and some hasty changes, real estate professionals and their clients adapted swiftly here in the Chicago area — and activity remained incredibly robust throughout summer, fall, and even winter as a result.
At the same time, these last several months have reaffirmed the importance of having a place to call home. We’ve all spent more time than ever thinking about what we like and dislike about our spaces, while adjusting to a “new normal” of remote work and schooling. This time to reflect and adapt will reshape what buyers are looking for, long after the pandemic has finally come to an end.
So, what can we expect now that vaccines are being delivered, a new federal administration prepares to head to the White House, and homebuyers and sellers are starting to make their lists of New Years’ resolutions?
Here’s a look at what we can expect in the Chicago real estate market for 2021:
Home Prices Are Projected to Climb Modestly in Chicago In 2021
Most experts agree that 2021 will see a continued climb in home prices, both here in Chicago and across the county.
Nationwide, the National Association of REALTORS (NAR) projects a 6% increase in housing prices in 2021, according to data compiled by Keeping Current Matters; Fannie Mae and Freddie Mac project a more modest nationwide price growth of about 2-3%.
Locally, Baird & Warner’s president of residential sales Laura Ellis recently predicted prices to fall right in the middle of this range, telling Crain’s that she anticipates a price growth of about 3-4% in 2021; the economists and data scientists at realtor.com, similarly, are expecting a 3.5% gain in prices year to year in the Chicago metro area. Realtor.com ranks the Chicago metro area 42nd on its list of the “Top Housing Markets” for 2021 — well above 2020, when the Chicago market came in around 100th place.
Buyers Will Be On the Move In 2021…
As we mentioned earlier, 2020 was a year when people spent more time at home than ever before — and we are not alone in predicting that this will encourage people to double down on achieving their real estate goals in 2021!
Realtor.com, for instance, projects that the Chicago metro area will see an 8.3% increase in year-over-year sales growth for 2021 — beating their projection for overall nationwide sales growth, which is 7%.
Most major institutions are anticipating nationwide sales growth around 7%, according to Keeping Current Matters — with the NAR forecasting a 7.06% increase in sales, the Mortgage Bankers Association (MBA) projecting a 7.17% increase, and Fannie and Freddie coming in closer to 6% for the year.
There will be a lot of factors encouraging buyers to get active in the year ahead. As Baird & Warner’s senior vice president of strategic growth Nina Fotopolous recently put it to Chicago Agent Magazine:
“I believe we will see the continuance of a robust market. The seasonality of real estate has been leveling and COVID-19 has fast-tracked this trend… Add pent up demand, homes which no longer suit the needs of the newly defined COVID-19 lifestyle combined with low interest rates, and we’ll have a winning 2021.”
… And Their “Must-Have” Lists Are Changing
There are always a variety of “push” and “pull” factors that encourage people to enter the housing market as a buyer. That will be no different in 2021. What may be a bit different is exactly what those factors are — and how they will change what buyers are looking for in the places they hope to call home.
As Baird & Warner Lincoln Park’s managing broker David Bailey recently put it in his 2021 market forecast:
“People have had a lot of time to focus on what they don’t like in their current spaces, and start thinking up wish lists for their future homes. 2020 was a year in which more people than ever thought about the idea of owning their own home, and really considered the importance of homeownership in a new way.”
One big factor will be the shift to remote work, which is expected to carry on long after the pandemic. With more people working from home and freed from the need to commute every day, many will feel inspired to look outside of the city for their next homes — and, indeed, local experts have seen a surge in homes selling in the North Shore neighborhoods, as well as suburban markets like Lake Forest and Barrington, according to Crain’s.
At the same time, in all markets, buyers are going to have new wants and needs. Numerous studies have suggested that buyers are going to put a priority on outdoor spaces, separate offices, smart home technology, and larger kitchens — anything that can make their time at home more peaceful, quiet, and calming.
Now, we do not necessarily expect a flight out of the city just yet. But it is worth keeping an eye on where people choose to move in the coming months and years, and what home features surge in popularity — especially as the number of Millennial and Gen Z buyers on the market continues to grow.
Key Factors to Watch: Inventory and Mortgage Interest Rates
Inventory is always one of the biggest market factors to watch for Chicago — and that will continue to hold true in 2021.
Historically speaking, the Chicago market is said to have fairly tight or limited inventory. In a market with lower inventory, demand tends to outpace supply, and we expect home prices to increase — while buyers face more competition over the homes that are available.
Many market experts are predicting that more inventory will come to the market in 2021, with Baird & Warner’s Laura Ellis expecting a “loosening” for several reasons. As Crain’s puts it:
"People who were reluctant to put their homes on the market because they worried about where the pandemic and the drop in the economy would lead may have seen enough friends and neighbors do well in the housing market to decide it's their turn. And people who were underwater on the mortgage might calculate that recent price increases have brought them up to a point where they can afford to sell."
That increase in inventory may result in only modest gains in home prices, but it can help improve affordability and thus spur more buyer activity. This is going to be particularly important to factor in when you consider another major influence on housing market activity here in Chicago and around the country — mortgage interest rates.
Interest rates have been low for some time now — and hit a record low in November of 2020. In 2021, experts are anticipating only a modest increase in mortgage rates. Per Keeping Current Matters, Fannie Mae expects mortgage rates to hover around 2.8%, while the MBA anticipates that rates will remain around 3-3.3%.
Generally speaking, when interest rates are lower, buyers’ purchasing power is higher. This is often a factor that encourages buyers to enter the market and spurs activity. However, buyers need inventory to choose from — and with such low rates, some homeowners may be more tempted to refinance than resell. As realtor.com senior economist George Riatu recently put it to CNN:
“[Low interest rates] have helped homeowners refinance and save money, while simultaneously making it easier for first-time buyers to afford a home… However, double-digit price gains over the past three months have been chipping away at the benefit that low mortgage rates have brought."
Compared with other parts of the country, though, the Chicago market may be in the perfect spot for 2021, so to speak — where a higher supply of inventory, continued demand, and historically low interest rates combine to create a healthy and balanced market for buyers and sellers alike.
Think Locally: What’s In Store for Your Dream Neighborhood?
As we often say, it’s important to remember that the Chicago metro area is not a monolith.
More than many other metro regions, Chicagoland is truly defined by its unique communities, both in the suburbs and within the city itself.
Just as the Chicago market does not ever line up precisely with national trends and averages, there will also always be differences from neighborhood to neighborhood (or even block to block) — and those disparities between local markets can be steep.
For instance? Chicago’s downtown markets have been in a slump for some time now, with inventory piling up, prices falling, and demand at a standstill. However, the surrounding neighborhoods of the city — from Bronzeville to Lincoln Park to Logan Square — have seen tightening inventory, higher sales prices, and low market time.
This is all critical to factor in, whether you are planning on buying or selling a home in 2021! Buyers who are interested in living in a River North condo can capitalize on current market conditions and get more “bang for their buck;” on the flip side, buyers more interested in finding a detached single-family home in Lincoln Square or North Center can expect higher competition and higher prices.
To us, this reaffirms the importance of working with an experienced and knowledgeable local real estate professional — one who can help you parse the data, understand where the local market is going, and determine how those hyperlocal market trends may impact your unique real estate goals.
Looking to Enter the Market in 2021?
What real estate market conditions are you most interested in keeping an eye on in the year ahead? Ready to buy or sell a home, but not sure where to start?
For all these matters and more, you’ve come to the right place! Whether you’re looking to buy or sell in 2020, Real Group RE is here and ready to help make things easier.
Our real estate experts can help field your questions and give you the guidance you need to succeed, backed by our unparalleled breadth of experience, market-leading tools, and commitment to always being available to you.
Have any more questions? Ready to set your real estate goals in motion? Drop us a line today to get the conversation started.
